Why Calculate the Cost of Downtime?
If someone told you your company could easily save tens of thousands of dollars every year, would you be interested in finding out how? It seems like a no brainer, but you might be surprised at the answer. According to an array of industry surveys, including one conducted by Stratus Technologies and ITIC, the majority of companies do not calculate the potential impact of IT downtime. Those that say they do may not be calculating it properly. The most recent Stratus-ITIC survey (December 2011) found that 52 percent of businesses do not know the potential financial impact of IT downtime to their organization. Personally, I’d estimate that this figure is actually very low as it’s been my experience that fewer than 10 percent of companies can assign a value – monetary or otherwise – to their cost of downtime.
Does calculating the cost of downtime really matter? Consider this: In February 2012, Aberdeen conducted an in-depth analysis of factors surrounding datacenter downtime. They found that compared to figures reported in June 2010, the average cost of an hour of downtime increased by 38 percent. The hourly cost of downtime for the average company is now estimated to be $181,770. Even for those classified as “best-in-class” companies – i.e. those performing in the top 20 percent, downtime still costs $101,600 an hour.
Ultimately, CTOs and CIOs who understand the impact of downtime on their organization and its deliverables are in a strong position to justify investment decisions and changes that can have a significant impact on their bottom line and help them achieve their service-level agreement commitments to clients.
How to Calculate the Cost of Downtime?
Our studies have shown that when trying to arrive at the impact of downtime, most companies typically consider only the most obvious direct costs and drastically underestimate the total costs associated with an outage. Arriving at a true accounting of the cost of downtime requires a more comprehensive analysis that should consider some of the factors listed below:
- Lost productivity/reduced production
- Goods and materials lost/disposal and cleanup costs
- Financial impact of customer dissatisfaction
- Contract penalties
- Compliance violations
- Negative effects on your reputation
- Upstream and downstream value-chain ripple effects
- IT recovery costs, meaning out-of-pocket expenses needed by the IT staff to restore the system
- Employee recovery cost, meaning the time it takes to get back up to speed once applications are back up and running
- Missed deadlines that result in employee overtime and priority shipping charges
- Potential litigation/loss of stock value
Here are a few real world scenarios that can help you see just how costly downtime can be:
1. A manufacturing company produces components for other third parties that are incorporated into their products. The server that controls the assembly line goes down and the line is disrupted, let’s say for an hour. In addition to the costs associated with reworking the goods that were not produced during the outage your promised delivery time has been completely thrown off schedule. The end result? Upset employees who have to remain at work until the job is completed. Overtime costs. Expedited shipping costs. And maybe most important: customers who may begin to question your credibility as a reliable supplier.
2. Your anniversary is coming up and you want to surprise your significant other with some flowers. You place the order 3 weeks in advance to be delivered at their workplace. On that day you are waiting for the ‘thank you’ call that never comes. As it turns out, the server at the flower shop went down and orders – including yours – weren’t fulfilled. While the florist has to refund the money associated with the unfulfilled orders, they have lost a customer they will never recover. In our socially networked world, you’re going to go out of your way to insure that everyone you can think of knows what happened and urge them not to order from this vendor.
3. While calculating the cost of downtime is usually measured in financial terms, there is one case where the stakes are much higher – public safety. Here, server uptime can mean the difference between life and death for the person awaiting assistance. Similarly, responders can be placed in harm’s way when they arrive at the scene without information that can be crucial to the performance of their duties. Emergencies happen at all times of the day, so 24-hour uptime is especially important here.
Where does Stratus come in?
If businesses are unclear what IT downtime really costs, it’s unlikely they’re properly prepared to deal with it and its consequences.
Stratus has been protecting critical business applications against downtime and data loss for more than three decades. This is the only thing we do. We have the products, services and people focused on delivering uptime and reliability that are a cut above all the rest.
Learn more about the all of our uptime solutions.