A primary function of the majority of businesses is to maximise revenue, while keeping associated running under control. Today – for the majority of major businesses – IT services are no longer a “required” support function, but a critical business driver, instrumental to growth and business success.
In our digitally enhanced world, understanding the impact of IT disruption and downtime not only helps prioritise steps to build resilience, but also help justify future investment.
The basic economic principle for a business is: Revenue – Costs = Profit
Today, when IT stops, business stops
Networks and systems are the lifeblood of an organisation and our dependence on IT operations is paramount to business continuity.
Today, when IT stops, business stops. Disruption to the regular order of business can have a huge impact, even for seemingly small events.
- Point of Sale (POS) terminals are down, on a Saturday before Christmas.
- An update corrupts an Accounts process, so you can’t invoice customers.
- Website is up, but your back-end database is at capacity, so cannot transact.
- Can’t print? Well it’s a problem if you can’t print customer receipts – all weekend.
IT failure and unexpected downtime, even if only for a few minutes, can incur enormous cost – sometimes obvious, but often hidden. And sometimes a failure can effectively shut down your business.
According to Gartner, the average cost of network downtime is around $5,600 per minute. That is around $300,000 per hour. However, this is just an average and there is a large degree of variance, based on the characteristics of your business and environment.
How to calculate the cost of network downtime
Beyond the direct loss in revenue and sales which can be crippling, downtime creates inefficiencies, which has a ripple effect across multiple areas of your business.
Although overall costs will vary from business to business, one thing is sure, the consequences of downtime are never positive.
True cost of downtime (per hour) =
Lost revenue + Lost productivity + Recovery costs + Intangible costs
1. Lost revenue:
There the clear and obvious loss of revenue from, for example, your e-commerce website being down. A clear and measurable example.
But more frequently, there are also IT issues which undoubtedly will impact revenue.
- Your Customer Services team cannot access key systems, so your customer retention rate declines.
- A problem with a manufacturing process impacts production, reducing volume of product produced and hence revenue.
- A few non-functioning Point of Sales (POS) terminals causes customers to ‘come back later’, when the open terminals are less busy.
We can all think of numerous example within our own business, because it has almost always happened before!
2. Lost productivity:
The bigger the company the more employees are sitting around not working, not contributing, not generating output during an outage. Salaries are a fixed cost and additional overtime costs may also be incurred by response teams to help recoup lost time.
There is also the knock-on effect of lost productivity. If one step in the process stops, this directly impacts any step further down the line. A typical example of an intangible cost.
And of course, there is the direct impact on an IT department, diverting an already stretched resource towards problem-solving, rather than priority activities.
3. Recovery costs:
Then, there are a number of other recovery costs accrued while fixing the issue:
> Overtime, repair and replacement:
The (unbudgeted) costs to restore and repair the IT system, or replace IT equipment failure. You may also need to bring in external expertise to get your systems back up and running.
> Contract penalties:
If the failure means a breach of an SLA (Service Level Agreement), there could be penalties or businesses working in regulated industries could lose certification and contravene compliance requirements for continued business.
> Legal repercussions:
If a customer feels that the service failure has caused them damage, or is associated with a security breach it could result in a lawsuit and costly litigation fees.
> Lost or damaged data:
Even if an outage lasts only a few minutes, it can easily damage or destroy a day’s worth of data and catching up can be an extensive and time-consuming process.
> Inventory and material damage:
In a manufacturing process, materials can be damaged as a result of an outage, or finished goods may not meet the necessary quality requirements, making these goods unusable, causing a large loss in write-off costs.
4. Intangible costs:
Then, there are the costs that are more difficult to quantify. These are indirect, intangible costs which can be more challenging to quantify, but are equally negative in their impact, causing large inefficiencies which shouldn’t be ignored.
Today, with IT as a critical business function, downtime means reduced business competitiveness, creating potential for competitors to gain your business.
> Increased inefficiencies:
Importantly, any sort of downtime sets off a ripple-effect of inefficiencies.
IT teams are directed towards problem-solving. Answers to questions take a few hours more to reach their recipients. Managers are engaged to check that impacted users/systems are now functioning. Senior management assess the impact on business, implementing initiatives which divert staff away from core activities… Reducing overall business output.
> Customer attraction & retention:
Customer attraction and retention can be a lengthy process, but purchase decisions can be fleeting. If systems are down when a potential customer is trying to engage or purchase from you, they may simply move on. You lose that immediate transaction, but also future transactions with the customer.
Similarly, long-standing contracts up for renewal might suffer with existing clients jumping ship if service delivery expectations haven’t been met.
> Culture and employee confidence:
Notwithstanding that downtime impacts an employee’s ability to get work done, it raises doubts about the company’s viability and competence of the IT team.
Disruptions to systems divert IT teams away from other critical projects and interrupts progress, increasing the pressure on already stretched IT teams leading to damages in employee morale and talent retention.
How to avoid the costly consequences of network downtime
If you’re an IT Manager negotiating budget allocation to keep the “lights on” 24/7, calculating the true cost of downtime will help you build a strong business case – not just to put preventative measures and a support structure in place, but also to improve efficiency to realise significant cost savings.
Here are a few simple measures to help eliminate unnecessary downtime
> Staff training:
In many instances, downtime is related to how the systems, software and technology is being configured and administered – and training can help reduce these instances.
> Network monitoring:
Proactive (and effective) network monitoring ensures you can quickly detect, diagnose and resolve any network performance-related problems before they become an issue, end users become aware of them and they impact business operations.
> Build redundancy:
Build redundancy into your network and critical business services. Identifying your critical and dependant services helps plan for potential outages. Whether spare equipment, automated scripts to bring backups on-line, or an “Out Of Hours” IT Network Operation Centre (NOC) function, there will be multiple paths to maintain service in the event of a failure, even if the failure occurs at night.
> Disaster recovery plan:
Something you should hopefully never need, a formal disaster recovery plan outlines the recovery process, so that everyone knows what is required rather than figuring it out under the pressure of an outage.
> Cyber security threats:
Prepare for critical security threats – not all outages are accidental. DDoS attacks are responsible for more than 1-in-5 unplanned outages. Whether you outsource cyber security or manage threats in-house it’s vital to stay on to of the latest cyber-threats with appropriate security technologies and processes.
> Know who to call for help:
Even with internal precautions in place, you should know who to call in the event of an outage and how to escalate an incident, both internally and to 3rd-party suppliers. You should also be aware of your SLAs with any 3rd parties to avoid unnecessary delay in response.
Naturally, it’s not possible to predict the time of day when of an IT outage. So at the least, you should have a designated ‘on-call’ IT engineer available outside of regular business hours, including weekends.
24/7 network monitoring & IT service desk
And in fact, with today’s users (and customers) expecting Amazon-type levels of uptime, as well knowing the impact of downtime on productivity and revenues, if you do not have the luxury of your own 24/7 Network Monitoring or IT Service Desk, there are specialist 24/7 NOC service providers who will provide a highly cost-effective safety net – whether ‘Out of Hours’, or fully 24/7 (it’s something we know quite a bit about).
A highly effective & cost-effective safety net
Bespoke to your needs, providing as much (or as little) support as you need, an outsourced specialist Network Operations service provider can be a smart move to help you maintain uptime, build resilience and improve the efficiency and effectiveness of your organisation.
No business is completely immune to unexpected downtime but, there’s a lot that can be done to reduce the number of incidents, time and associated costs. And ultimately ensure the revenue health of your business, including crucial factors such as brand reputation and customer loyalty.
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About Comtact Ltd.
Comtact Ltd. is a government-approved Cyber Security and Network Operations IT Managed Service Provider, supporting clients 24/7 from our ISO27001-accredited UK Network Operations (NOC) and Security Operations Centre (SOC).
Located at the heart of a high security, controlled-access Tier 3 data centre, Comtact’s state-of-the-art UK Operations Centre helps support and secure some of the UK’s leading organisations, large and small.