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Business Continuity and the true Cost of Downtime

IQ in IT > Business Continuity and the true Cost of Downtime

Business Continuity and the true Cost of Downtime

Is your business taking a gamble?

The stakes are high when your business is at risk of an outage.

The British Chambers of Commerce found that 93 per cent of organisations who lose data for more than 10 days file for bankruptcy within a year, with 50 per cent filing right away.

SMEs experience an average of 14 hours of downtime per year, during which staff can only function at 63% of their normal productivity. Organisations lose an average of nine hours per year after their systems are up and operating due to the time it takes to recover data. Employee productivity only rises to 70% during these times.

Then there’s the issue of human behaviour to consider. Here is something we’ve all done at some point: we went to our trusted supplier, found out they couldn’t fill our order and went somewhere else to make the purchase. If the experience was positive, we transfer our loyalties and money to this new provider. Although there will be a certain number of customers who will purchase from a competitor but return to you, there will be others who will not.

What does this tell us (among other things)?
  1. Data loss and data unavailability are not the same things. While your backups are functional and your data is fine, there might be a scenario in which you have to wait to get it.
  2. Recovering data takes time, a lot of time.
  3. Downtime has a significant impact on staff productivity.
  4. Unavailability of your services can cost you loyal customers or negatively impact your relationship with them.

In essence, evaluating the cost of downtime is not a simple task as it implies many factors. This article will provide a rough estimate for the calculation of downtime and outline preventive measures to mitigate the risk of system outages towards the end. Continue reading if your not sure about your network’s resilience.

Cost of Downtime – A Rough Estimate

Businesses are now more technologically reliant than ever before in today’s digitally connected society. We’ve established that any amount of downtime can have an influence on how a company functions, whether it’s sales processing, online traffic, customer calls, or the impact on employees, as the growing usage of cloud-based apps necessitates a larger reliance on reliable internet connections.

Here is the math behind it:

“Total Cost of Downtime = Lost Revenue + Lost Productivity + Cost to Recover + Cost of Intangibles”

A detailed overview of each factor is listed below.

Lost Revenue

Start with the areas of your business that generate revenue and break it down to hours, minutes, days, whatever you want this stat to be based on. Next, think about the revenue-generating areas that rely on uptime. Represent that number with a percentage. You’re ready to calculate the cost of downtime due to lost revenue now.

Quick example:

An SME generates £8000 in daily revenue while 40% of the revenue-generating areas rely on uptime. The cost of downtime due to lost revenue is £8000/8*40% = £400/hour.

Lost Productivity

Some of your employees will be forced to stop working when your systems go down. We covered the cost of lost revenue, but the organisational overhead increases the overall cost of downtime further. Take the cost per employee including the overhead (benefits, holidays, etc.), break it down per hour and estimate how much of their job this person can do without access to the systems. Represent that number with a percentage. You’re ready to calculate the cost of downtime due to lost productivity now.

Quick example:

An SME has 10 employees with an average cost of £200 per day and per employee. Without access to the systems, their productivity drops to 60%. The cost of downtime due to lost productivity is 10*£200*0.4 = £800 per day or £100 per hour.

Cost to recover

This one is tricky because it comes with a certain level of unpredictability including potential ransomware payments or services needed to recover encrypted data, hardware repairs or replacements, cost of any lost data.

Imagine you lost the documentation of a business-critical procedure and have to go through the governing certification process again. How much time, effort and money would it cost your business?

Intangible costs

Hard to quantify but devastating at times, intangible costs include lost clients and penalties for not meeting governmental regulations like GDPR.

Summary

The impact of downtime can be devastating for all kinds of businesses. It can be calculated as the sum of lost revenue, lost productivity, cost to recover and cost of intangibles. While continuity solutions are typically more complex to set up and maintain than simple backups, their capabilities have saved many businesses in the past and continue to do so in today’s cloud era.

IQ in IT is a Technology Success Provider and operates as your outsourced IT department. If you have any question or would like a deep dive on any of the topics discussed, don’t hesitate to get in touch.

Date

June 11, 2021

Category

Blog

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