The next time you want to drive home the importance of maintaining a stable technical environment, give your staff solid evidence of the true cost of system downtime.
How do you define system downtime?
IT pros have different definitions of the term “downtime.” My own definition is “system unavailability.” Even though an application may be “up and running,” it is essentially “down” to a user if the application can’t be used, no matter what the reason.
Often the conversations around disaster recovery (DR) are met with skepticism since it’s usually something a company owner or contact doesn’t understand fully until after they’ve experienced a data loss or outage. To deflect a conversation about DR and business continuity planning, many business owners will say that they can afford to be down for extended period and their business won’t be negatively impacted. However, typically this is just an assumption and they haven’t done any sort of analysis to understand the business impact of an IT crisis. The best way to convince them is through numbers and calculation.
Calculating the Cost of Downtime
So how do I put a number to this kind of scenario that will help you understand the value of establishing and paying for a good Disaster Recovery Plan? There are many elements that go into the calculation of downtime costs but at the risk of oversimplifying let’s go with the following definition:
Cost of Downtime (per hour) = Lost Revenue + Lost Productivity + Cost to recover + Cost of intangibles (i.e. reputation cost)
This is pretty straightforward. If your business is down you cannot generate revenue. Here are some steps to calculate lost revenue:
1. Identify which areas of your business generate revenue for you
2. Calculate how much revenue per hour each of these areas generate (avg. revenue per week/40 hours, or avg. revenue per month/30 days)
3. Estimate a percentage as to how much a particular revenue-generating area relies on uptime. For example, if you’re an ecommerce website, 100% of your business will be impacted by uptime. If you’re a floral shop, perhaps only 10% of your business is impacted by uptime, as people can still walk into your store even if your website is down.
4. Calculate how much revenue is lost per hour based on downtime per business area
For example, say your ecommerce website generates $100/hour. If your website is down 2 hours, you lose $200. However, if you’re a flower shop, let’s say you also generate $100/hour in business. If your website is down for 2 hours, this only affects 10% of your business, so you only lose $20.
5. Add together these different revenue-generating areas to get the total cost of downtime per hour for the business.
Once that baseline is established it’s easy to figure out how much revenue is being lost during an outage or downtime event.
Not only does downtime keep new money from coming in, but it also has costs associated with employees who are performing non-revenue-related activities (like getting systems back on line) or, even worse, having them sit idle. The salaries you pay are fixed costs and will be paid regardless. To calculate the cost of lost productivity, you can take very similar steps for calculating lost revenue:
1. Calculate the amount each employee earns per hour.
2. Determine what percentage of your employees’ productivity is reliant on uptime. This may be different for your employees. If you’re a dentist’s office, the actual dentists may not be impacted at all by a server going down, but perhaps the receptionist can only work at 50% capacity (he/she can only answer phones, but can’t book appointments because they don’t have access to the shared calendar).
3. Multiply the salary the employee earns per hour by their utilization percentage. If the receptionist from the dentist’s office makes $10/hour and they can only work 50% when systems are down, your client is losing $5/hour of downtime for that employee
4. Add up all the costs across all employees.
Cost to recover
Cost to recover is the money it costs to return to normal business operations. This may be hard to estimate as it may depend on the extent of the outage and/or data loss, however try to find a way to calculate what it might cost to get back up and running. Some costs to consider:
· Services needed to recover lost data
· Physical tools/devices that may need repairs or replacements
· Cost of lost data
· Ongoing costs as a result of the data loss
Part of the understanding that comes from putting together a Disaster Recovery plan is to have these kinds of costs already scoped out, thus minimizing the potential for enormous costs to you.
This is a little more difficult to pinpoint but it is important to help you realize that there is cost associated with the things like the negative impact on the reputation of the business. Downtime creates a very negative buzz when handled poorly so having a thorough understanding of the potential long term impact on future sales and customer retention can help a business owner see the real value of being genuinely prepared for such an event.
Try to accurately estimate the intangible costs to your client. Going back to our floral shop, if their server goes down, their clients may not even notice it is offline and there most likely will be no effect on their legitimacy as a business. However, if an ecommerce site is down, that reflects very poorly on the brand.
Calculating the final cost
Once you have determined dollar amounts for the above elements simply plug them into the equation. If the number that is associated with downtime is far larger than you expected then you may want to consider calling ComTech so we can work up a Disaster Recovery Plan designed specifically for your company
For some additional help, we designed this neat little calculator for you to look at and plug some numbers into as well.