What Does Downtime Cost Your Business?

by Community Team February 8, 2017 | 5 min read

The Ponemon Institute estimates an average per-minute cost for just partial outages to be $5,600.00 (which comes to over $300,000.00 per hour), with costs running much higher in some industries. Depending on the industry, a single incident can cost well over $1 million.

These numbers, needless to say, represent significant financial loss. In addition to these measurable costs, there are also costs which may not be so easy to quantify, but may have a major impact on your business. In this blog post, we’ll take a look at both the measurable and the hard-to-measure costs of downtime, and how to protect your business from them.

The first part of the equation is understanding a simple but important question: what exactly is downtime?

Ultimately, of course, it is any time during which all or part of a system is not available for use. However, the nature and impact of downtime is reliant on several different factors such as:

  • The number of users that were affected.
  • The parts of the system or number of applications that were down.
  • The importance of the affected systems, especially as they relate to loss of productivity or prevention of access to crucial services.
  • Any SLA’s or industry standards that need to be upheld.

Factors Involved In The Costs of Downtime

Measurable Costs of Downtime

Once you’ve understood the scope of the impact, you can quantify the actual dollar value of losses associated with downtime. In general, measurable downtime costs fall into the following areas:

  • Direct and indirect employee costs with respect to loss of productivity. This is very simple to calculate (multiply the number of employees who can’t work as a result of downtime by their hourly labor cost, and then multiply that by the number of hours of downtime).
  • Added work-related costs such as needing to hire temporary workers or pay workers overtime to compensate for downtime.
  • Recovery costs from IT or response team overtime, outside support services, and other opportunity costs or expenditures required to bring the system back up.
  • Business or opportunity costs that can be quantified from lost sales or lost productivity, especially when contrasted to expected output under normal circumstances.
  • Contract and penalty costs in which customers covered by a Service-Level Agreement (SLA) must be paid out in the event of an outage. In fact, if the impact of the downtime on your customers was sufficiently severe, you may even face lawsuits or other harsh repercussions — especially in regulated industries.

Unmeasurable Costs of Downtime

However, while there are many measurable costs of downtime, perhaps some of the most important costs are those that aren’t inherently measurable, as they significantly impact your organization’s culture, operational framework, reputation, and competitiveness, among other things. Some of the costs of downtime that are difficult to measure but impossible to ignore, include:

  • Damage to employee morale, as bouts of downtime both raise doubts about the company’s viability and the competence of the team, as well as precludes employees’ ability to get important work done.
  • Blocked development and IT projects, as disruptions to systems that are crucial for ongoing development or IT work both interrupt work progress, as well as increase cognitive load on the technical team.
  • Irreversible loss of key technology-based market opportunities, as your company’s reputation as a preferred choice among ever-growing competition is largely dependent on how effectively you can keep your systems reliable, up and running at all times.

How to Decrease the Costs of Downtime

The truth is that no business is immune to the corrosive effects of downtime when it comes to customer as well as employee retention, productivity, and standing in the marketplace. Downtime is extremely expensive, and in ways that can make or break the success of your organization. At the same time, it’s essentially unavoidable, because technology architectures are becoming increasingly complex and unpredictable.

So, what can you do? Are there any positives in all of this?

The best news — and what really matters — is that simply taking a few steps to prepare for an outage can make a very big difference. According to the Aberdeen Group; for best-in-class industries, the average total yearly cost of downtime was only about $3,000, as compared to more than $400,000 for average organizations (and nearly $4 million for the least well prepared ones). That is the kind of difference that is possible with a good system for incident triage and response in place. And there are a few things your organization can easily do to mitigate the costs of downtime, such as defining which services require the most prioritized response, having contingency plans in place, leveraging post-mortems to improve processes, and conducting regular testing.

By taking the time to implement a plan for addressing inevitable downtime, your organization stands to realize thousands — or even millions — of dollars in quantifiable cost savings, as well ensure the health of arguably even more crucial qualitative factors such as employee morale, brand reputation, and customer loyalty.

Stay tuned for a more in-depth look at the cost of downtime!