Downtime can strike at any time. You know that downtime has a negative impact on your business, but can you quantify how much downtime actually costs your business? Do you know what the financial impact would be if your business was offline for an hour?
Calculating the cost of downtime
Calculating the cost of downtime is not complex, as you can attribute direct costs to each hour of downtime by calculating the loss in revenue, the loss in productivity and the cost to recover. However, it is not straightforward either, as there are intangible costs like the impact on brand reputation which you need to consider.
Calculating how downtime detrimentally affects your revenue starts with identifying which areas of the business generate revenue. To ensure you capture every possibility, it is important to cast the net wide when identifying your revenue generating systems. For example, calculating the cost of downtime is easy for a business selling products via their e-commerce website. You simply work out the average sales per hour.
However, how would you calculate the cost of downtime for a legal firm? If the billing system goes down, they can simply issue invoices when it comes back online. However, if we go back to the original task, identifying the areas of the business which generate revenue, the billing system is not a revenue generating area of the business. The actual services rendered, and the systems which enable this need to form part of the calculation.
To calculate the true cost of lost revenue due to downtime you can use this basic formula:
Calculate the amount of revenue per hour each revenue generating system produces and estimate the percentage of uptime each system needs to generate revenue. For example, our e-commerce website would rely on 100% uptime whereas our legal firm may only be 60% uptime dependent since lawyers can still bill hours if systems are down.
Using this formula, you can then calculate how much an hour of downtime will cost for each revenue generating system. The sum of all the revenue generating areas is then the loss of revenue for a single hour of downtime.
Calculating the loss of productivity due to downtime is a calculation based on the fixed costs of the business as opposed to the loss in revenue. If employees are unable to work or are repurposed to address issues because of a downtime incident, this results in a loss of productivity.
To calculate the loss in productivity you can use this formula:
Calculate the amount each employee earns per hour and determine the percentage of their productivity which is uptime reliant.
Going back to our e-commerce and legal firm examples, the employees in e-commerce will have a much greater productivity loss percentage as they will not be able to fulfil and ship orders. Lawyers, on the other hand, may be able to bill hours but they may be handicapped due to the downtime in a communication service or a legal research database.
Multiplying each employee’s hourly cost rate by their uptime utilisation percentage and then calculating the sum of all will be the total hourly cost for lost productivity.
Cost to Recover
The cost to recover is another downtime expense which needs to be considered when calculating the total cost of downtime for your business. However, unlike lost revenue and lost productivity this cost is incident specific and can only be accurately calculated after an incident has occurred.
The cost to recover typically includes expenses such as specialist services needed, parts and materials expended during the recovery process, the direct cost of lost data and any ongoing costs needed to recover from the incident.
Calculating these costs does not necessarily need to take place after the fact. A well-constituted business continuity planning exercise with detailed scenario planning can help ascertain these costs for simulated high probability incidents.
Opportunity costs are intangible and as such difficult to calculate. What is the impact on your business’s brand should you suffer a serious downtime incident?
The nature of your business does play a part in this. For example, a few hours of downtime for our e-commerce website would have a far greater impact than a few hours of downtime on our legal firm’s email systems.
However, what cannot be disputed is the longer the duration of a downtime incident, the greater the impact on the organisation, no matter what its primary business may be.
Putting it all together
The total cost of downtime would, therefore, be the sum of all costs. Keeping the duration of downtime to a minimum would, therefore, result in ensuring the cost and impact of downtime is kept to a minimum.
Any business which relies on systems being online, no matter its size and primary trade, will be negatively affected by downtime. Organisations should, therefore, invest in the necessary resources and technologies to ensure this cost is avoided or kept as low as possible. No matter what you may do, an hour of downtime has real costs which affect your bottom line.
Nexon’s Backup and Recovery services, powered by Veeam, is a platform built to ensure maximum uptime and the ability to rapidly recover should a downtime incident occur. Nexon can help you achieve the agility and high availability you need in a world where every hour of downtime costs you money.
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