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The Real Cost Of Downtime For Business

Published Jul 13, 2017 by Jack Oakley

As a business, can you afford downtime? It’s not just inaccessibility that you’re looking at – downtime could also lead to data loss and client communication problems that could cost your business significantly. And while downtime isn’t as severe a problem as before, it’s still a major worry for all organizations. Enterprises consisting of 250 or more employees lost $1.7 trillion in terms of data loss and downtime in 2014 according to a report by EMC. How much could you be paying for downtime?

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Downtime and Data Loss Trends

A vast number of businesses depend on network availability for their operations- from flight booking portals, to finance and ecommerce. Network disruptions and downtime incidents have decreased over the years, yet the amount of data loss has gone up by 400%.

Downtime has somehow become an expectation, although most enterprises aim for the four nines, or 99.99%, uptime standard. In research done by EMC, 64% enterprises encountered downtime and data loss scenarios in the past year. The average length of downtime extends to three working days in the last year. 

Among those surveyed, 36% experienced loss of revenue from such data loss scenarios, while 34% stated it affected their product development. Indeed downtime trickles down from loss of revenue to impact other aspects of your business like customer loyalty, employee productivity, goodwill and reputation.

 

The Cost of Downtime

The cost of downtime depends upon each case and considerations like the nature of industry, revenue, duration of the disruption, number of people affected and on/off peak hours must be made. It is natural that the cost would be higher for enterprises dependent on high volume data transactions like ecommerce businesses or financial institutions. You only have to look at the chaos downtime caused British Airways last month to see the impact.

  •        In a survey conducted by ITIC, 98% of the businesses cited the cost of a single hour of downtime to exceed $100,000.
  •        81% of those surveyed put the figure at $300,000 for 60 minutes of outage cost.
  •        The cost from network unavailability amounted to $1 million to over $ 5 million for 33% of the enterprises.

These costs are expected to rise annually. In 6 years, the average cost of one hour of unplanned downtime has gone up by 25 - 30%. The increase has not been uniform over the industries, indicates a research by Ponemon Institute. The following increases in cost were noticed:

  •        The hospitality industry saw a rise of 129%
  •        Public Sector closely followed with an increase of 116%
  •        Transportation industry recorded a spike of 108%
  •        For media organizations, it was 104%

 

The Cost of Downtime per Hour

As we have already stated, the cost of downtime varies from business to business. In 2014, Facebook was down for many hours, making it the longest outage they’ve experienced since 2010. The downtime cost Facebook somewhere around $500K. That may not be much for a big organization like Facebook, but it can be devastating for small to medium businesses.

  • The exact same figure of $500,000 has been quoted by 25% of data center managers as the cost of one hour of outage in a survey by USA Today.
  • For 80% of managers participating in the survey, one hour of downtime cost them in excess of $50,000.
  • The cost of downtime ranges from approximately $90,000 for one hour in media industry to around $6.48 million in the online brokerage business, according to IM. The cost varies significantly depending on the industry.
  • Another study found that 1 out of every 5 companies to lose £10,000 per hour due to system downtime.
  • In another Avaya study, the cost of disruptions ranged from $140K to $540K per hour.
  • The leading research agency Gartner conducted its own industry surveys and concluded the cost of each hour of downtime to be in excess of $300K.

 

Per Minute Cost of Downtime

The results of a study conducted by Ponemon Institute puts the average per minute cost of downtime at $7,900 per minute. The researchers analyzed 67 data centers across USA from different industries for deriving the average cost of downtime per minute.

Interestingly, there was a 41% increase in the cost when it was compared to the findings of their 2010 study. The cost of downtime per minute in 2010 was $5600.

The report found the highest cost for a single event of downtime to exceed $1.7 million. The cost were more for industries dealing with large volume of secure data like banks and defense contractors and for those depending on IT and network for customer service like online stores and telecommunication companies.

 

How to Calculate the Cost of Downtime?

It is important for businesses to be aware of the loss that they encounter from server downtimes and unavailability of business applications and network. There is actually a simple formula that you can use. You have to be aware of the following aspects and have them calculated for getting your cost of downtime-

  •        Gross yearly revenue (GR)
  •        Total annual working hours
  •        Percentage impact (I)
  •        Number of hours of downtime (H)

Now put the values in the following formula:

Loss of revenue due to downtime = (GR/TH) x I x H

It is a simple equation which can help you predict potential revenue losses for your downtime.

 

Average Labor Cost

There is another cost you may be interested in working out, the average labor cost incurred during an outage. You need to know the following:

  •        The number of people impacted by the downtime (P)
  •        Average percentage of the impact (E)
  •        Average cost of employees per hour (R)
  •        Number of hours of downtime (H)

Now input the values in the following equation:

Labor Expense during downtime = P x E x R x H

 

Cost of Downtime on Goodwill of the Organization

While loss of revenue and labor cost are easy to work out, there are other areas of your business affected by downtime which are not so easy to be determined financially.

The damage to your reputation, goodwill or customer loyalty is not easy to be calculated.

There are certain tangible aspects that you can use to help. To assess the damage to your goodwill, you can check factors which reflect the result of a damaged reputation like stock downturns, marketing man hours and the money spent for making up the damage.

Apart from financial loses a damaged goodwill will also lead to a shaken customer loyalty and retention. Last year Delta Airlines encountered a global system failure that stopped all their flights, which in turn left all their passengers stranded, numbering in thousands.

Passengers had to wait for long hours and some even took resort to sleeping on the airport floor and chairs. Delta on their part waived off the charges to change flights and apologized on air. But the customers were not so happy and the social media soon became filled with posts expressing displeasure over the event.

Now to calculate the loss from such events, you have to be aware of the business per customer, the number of consumers affected and also how many of them moved to your competitor. You will also have to consider the expenses spent in campaigns that you employ to win back your customers.

It can be a huge task and take a lot of money, as today’s customers are ever demanding and will move to another competitor if a website takes too long to load!

 

Downtime and Social Media Fallout

Today opinions spread like wildfire thanks to social media. You can rejoice when your customers are saying positive things about you, but it can also be a tool for negative publicity. In January of 2015, Facebook and Instagram faced an outage, users took to Twitter and other social media channels to show their displeasure and react over the event.

While some were funny, others portrayed the frustration of the users who were irked and unable to access the service.

 

Downtime- A Costly Affair!

Downtime can be really costly for businesses, and not just in revenues. It can affect your reputation, customer loyalty and employee productivity too. According to the IDC team, the annual cost of unplanned application downtime for the Fortune 1000 ranges from $1.25 billion to $2.5 billion.

If only data centers never went down and were available all around the clock to save businesses from such huge losses!

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