Just as the half-life of technology keeps accelerating, the risks that threaten the very existence of your company keep cropping up quicker and quicker.
But how do you protect yourself from all of these threats if you don’t even know what they are?
Secondary ignorance is not knowing what you don’t know.
This can be devastating to your business.
Larger companies have dedicated Risk that spend 365 days a year studying and managing the risks that threaten their business. How much time do you spend?
This guide is designed to shed light on some serious issues that you may not be aware of. We will identify and help analyze a few high consequence threats. We are not going to address obvious risks that have a low level of frequency or severity such as protecting your own furniture and fixtures.
Note that this is not meant to be a comprehensive Risk Identification Process, but will provide some ideas as to how to effectively handle these exposures. Feel free to call us with questions and a more in-depth assessment of your business.
Contractual Risk
Risk Description
In the last several years U.S. companies and government agencies canceled or have contested IT projects worth billions of dollars.
Even with sound contracts in place, there are still risks of suits being filed. In some cases you don’t even have to do anything wrong! And even if you win these suits, it can still cost a huge amount of money to legally defend yourself. The average defense cost alone for a contract dispute that results in a Laptop and Printer Repairs E&O claim is over $250,000!
Loss Triggers
Have any of these things happened to you?
Had a misunderstanding with a customer you are doing a project for?
Accepted unrealistic customer expectations?
Failed to clearly state performance obligations?
Not clearly documented scope of work changes?
Have a delay in a project’s completion?
Have a contract with a customer? (In some cases you don’t have to do anything wrong to get involved in a lawsuit).
These are just a few of the potential issues that can lead to expensive litigation. There are obviously things you can do on the front end to make sure your contracts are tested and sound and that you are meticulous in your documentation.
Loss Scenario*
XYZ Web Developer is hired to design an interactive site for a communications company. After 8 months, XYZ fails to deliver the website as promised in the contract. The company hires another developer to finish the site and ends up suing XYZ for $3,000,000 which includes the cost to complete the site and lost profits.
The communications company was awarded over $1,000,000 in damages.
Mitigation Strategies
PREVENTION – Strong contracts in place. Changes meticulously documented.
RISK TRANSFER – The right Technology E&O coverage pays for legal defense and damages.
Intellectual Property Risk
Risk Description
IP protection is obviously a huge issue for technology companies. For our purposes we won’t delve into securing patents, copyrights for your intellectual property. See a qualified Intellectual Property attorney for that.
There is a growing trend, however, of aggressive competitors alleging that tech companies are infringing on their intellectual property. Even if you haven’t actually infringed on someone’s intellectual property you can still get dragged into an expensive lawsuit. Just the fact that you are accused or sued for this can cost hundreds of thousands of dollars or more in legal fees.
Loss Triggers
It’s estimated that in 2011 “patent trolls” have bilked businesses out of $29 Billion
Unclear or ambiguous developer agreements
Predatory companies looking to swamp smaller ones with legal fees
Loss Scenario*
Misappropriation of Trade Secrets
A software developer was hired to develop a voice over IP system which was used with several social networking sites. After two years the developer was sued by the customer alleging that the developer failed to develop the software as promised and that the developer misappropriated their trade secrets and tried to develop the same software for its own benefit. The developer lost the suit resulting in a $2 Million judgment.
