The Very Expensive Truth About IT Downtime

IT Downtime Costs
Close-up view on conceptual keyboard – Downtime (blue key)

Do you know how much downtime is costing your business every year? In today’s high-stakes business world, organizations are frequently looking to minimize overhead by cutting costs wherever they can—unfortunately, too often, that leads to underspending in areas like IT as businesses fail to consider the associated risks. In fact, a 2017 report found that a full third of businesses didn’t understand how IT downtime would impact them financially.

When you consider today’s reliance on network connectivity for core business functions, that number seems truly staggering. Particularly when the average cost to a business for an hour of downtime has ballooned from $164,000 in 2014 to $260,000 per hour in 2016 to $300,000 today—and a recent survey found that 79% of respondents reported it took longer than an hour to find and resolve the cause of a network outage. A couple of hours of downtime could completely eradicate your quarterly profits in one fell swoop—and do further lasting damage to your company in terms of customer trust and perception and employee morale.

So why, in an era where businesses live and die by their network reliability, do so many businesses fail to consider the risk of downtime? Let’s start at the very beginning—by looking at what downtime is.

Downtime is, essentially, the inability for your business to function due to loss of network connectivity—officially, it refers to a period of time that a system fails to perform its primary function. This can be due to any number of reasons—power outages, telecom outages, software outages, human error, server failure, and natural disasters can all contribute to network downtime, and even the most well-prepared and risk-averse business can be subject to a costly downtime incident. The same survey mentioned previously found that human error was identified as the top contributor to downtime, with 97% of respondents identifying human factors as contributing to network downtime. Meaning if you employ humans, you’re at risk.

Calculating The Cost

So how to calculate the cost of downtime for your organization? To get an accurate idea of the true cost of downtime, it’s important to look beyond the immediate costs (such as hardware replacement, etc.). Downtime can impact everything across the scope of your business—from sales to employee productivity, to data loss and recovery.

To calculate the true cost of downtime for your business, the formula looks like this: Employee productivity cost + lost revenue + recovery costs + long-term impact = the cost of downtime.

Employee Productivity

The first casualty of a network outage is employee productivity. By being unable to complete work, employee productivity plummets—but salaries are a fixed cost, and there’s no legal clause that gives you the right to not pay staff due to downtime.

To estimate the total productivity lost due to downtime, estimate the % of productivity that’s dependent on network uptime—this is referred to as utilization percentage. Utilization percentage may differ depending on role, but all employees in an organization will be impacted.

Then calculate each employee’s wage per hour. Total the salaries of affected employees, multiply by the utilization percentage, and you’ll see how downtime costs can become prohibitive extremely quickly.

Total employee wages (per hour) x utilization percentage = Employee productivity cost

Let’s look at an example with real numbers for a basic administrator:

Total Wages = $21.50 USD
% of Productivity Dependent on Network: 85
The employee productivity cost of this one basic administrator is: $1827.50 per hour

Now extrapolate that across your entire staff.

Lost Revenue

How much revenue does your business generate per hour? And how much does that revenue depend on network uptime? Point-of-sale systems, your website, manufacturing, supply chain logistics, and more, all depend on network connectivity for fulfillment, so downtime can have a dramatic impact on revenue generation.

First, estimate the amount of your revenue that is uptime-dependent. Uptime is time/percentage your network is operational. If you’re an e-commerce business and exclusively sell online, you’re 100% uptime-dependent—if you’re a brick and mortar location, you may be able to mitigate some of that risk, but unless you’ve got an analog cash register collecting dust in a storeroom, it’s unlikely.
Revenue per hour x uptime percentage x downtime (in hours) = lost revenue
Example: If your revenue is $5,000 per hour, your uptime dependency is 30%, and your network is down for two hours, your lost revenue per hour is $3,000 per hour.

Recovery Costs

Recovery costs are the most immediate and will be the most obvious to your business’ bottom line. Recovery costs are the costs directly related to recovering from the downtime, including:

  • Lost data recovery
  • Repair costs
  • Equipment replacement costs
  • Other costs due to data loss

Estimate these costs to get an idea of what your recovery costs would be, and add them up. These will hit your pocketbook within hours or days of the downtime occuring, and can rack up rather quickly.

Long-term Impact

In an era where customer expectations are at an all-time high, and word of mouth can make or break a business, downtime, even on a smaller scale, can have long-term implications for your business’ reputation. If downtime contributes to unpleasant customer experience, you may lose customers for life—and the significance and cost of that cannot be understated.

Including long-term impact in the total cost of downtime can give your business a better understanding of the true cost of network downtime.

Adding these numbers together will give you an eye-opening look into the true cost of network downtime for your business.

From natural disasters to hardware failure, there are a lot of ways to damage your business. A single hour of downtime can cost a business thousands of dollars and, worse, their long-term reputation. We can help you prepare for any unforeseen event with secure and reliable backup and recovery solutions. With both on-site and off-site backup solutions and disaster recovery failover, Tigunia offers complete protection for your systems, applications, and data. We can start protection your business today because the cost of prevention is better than the scrambling money bleed of downtime – let’s get started!

Did you know Office 365 doesn’t automatically back up your work? Learn more about the common misconceptions people have about Office 365’s backup and recovery functions in our quick white paper Backup Limitations of Office 365

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