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The Business Costs of IT Downtime

6 minute read - Posted by Daniel Wagstaff on Aug 15, 2019 9:01:00 AM

Business continuity strategies and how to deal with the aftermath of work interruptions have always been of main concern to businesses everywhere, regardless of industry. In our technologically-driven times, work interruptions are oftentimes related to IT downtime and the—sometimes hidden—effects of such incidents. Yet regardless of the fact that this sector no longer represents a novelty, the business costs of IT downtime can still be enigmatic for a lot of companies. Understanding how work interruptions can affect your business is the first step for drafting a business continuity plan that minimizes and even erases most of the risks associated with IT downtime. And even though there can be downtime situations that are not foreseeable, your company can still improve its response based on having the knowledge and solutions for dealing with any downtime, regardless of it nature or difficulty.

In 2013, all Google services went down for a few minutes, resulting in Internet traffic dropping by 40% and making the world turn its attention to what an IT downtime can mean in modern times governed by software and intelligent machinery. The incident caused the company a $545,000 loss in business revenue and is mentioned to this day when speaking of IT downtime, specifically due to the rapidity with which Google managed to get everything back on track. This example is not a one-off as, according to Forbes, in 2017, businesses were losing an average of $100,000 for every hour of downtime on their website. Whether such incidents, and similar ones, were caused by aging technology or other factors, the reality of having to improve strategies and response time is common ground, regardless of industry. But what exactly is an IT downtime and how can it affect your business?

Understanding the Essential Aspects of an IT Downtime

In 2018, Federal regulators issued a fine for The New York Stock Exchange for the amount of $14 million, because of their 2015 outage incident which caused the longest shutdown since Superstorm Sandy. Understanding the repercussions of an IT downtime is mandatory for all companies that want to draft business continuity plans, yet this should not be the first step toward minimizing damages. Unless you make sure that all employees involved in business continuity and crisis management are highly aware of what an IT downtime is, your chances for success are limited. Also, understanding what constitutes an interruption and the aspects of your business that it can affect is highly useful when it comes to drafting your crisis communication templates.

Any periods of time, regardless of duration, in which your systems and network are not operational, constitutes an IT downtime. Depending on various aspects—such as the number of users affected, the parts of the system that were down, or how the affected technologies related to productivity—the effect of the downtime and the costs suffered by your business can vary.

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Factors that Influence the Business Costs of IT Downtime

Before discussing what the business costs of IT downtime are, and how you can protect your company from loss caused by IT interruptions, let’s have a look at what factors can influence these costs and how to recognize them at your organization.

  • The need to pay employees overtime
  • Recovery strategies for the IT downtime
  • The involvement of the response team
  • The need to hire temporary employees because of the downtime
  • Penalties that must be paid due to the IT downtime
  • Blocked projects and the impact on new developments
  • The ways in which it affected the productivity and morale of employees

Make sure to track any other factors that might influence the business costs of IT downtime and the manner in which your business continuity team reacts in order to successfully get over the incident.

Business Costs of IT Downtime and How to Decrease Them

Either hidden or expected, the business costs of IT downtime can severely impact a company, especially when there are no strategies in place in order to avoid or manage them with the best outcome in mind. Regardless of the industry you are operating in, a network or system failure, followed by work interruptions, will impact your business immediately—with some costs manifesting themselves over time. Furthermore, we are going to discuss the main business costs of IT downtime that can affect your company, and what measures you can take for decreasing or eliminating them.

Loss of Productivity

When your network is down, employees are unable to perform their activities, therefore, the main cost of IT downtime is that originating from the loss of productivity. In order to better estimate this number, you need to have comprehensive data on all your employees in terms of salary in relation to the percentage of productivity. As for minimizing the costs of productivity loss, crisis communication plays an important role in the process. The sooner you are able to communicate the issue to your employees, the sooner they can either engage in activities that do not require the use of technology, or take time off.

Loss of Revenue

The second most common cost associated with IT downtime is loss of revenue, which you can estimate by knowing the amount of revenue that your business generates from every hour of uptime. According to statistics, the average hourly cost of IT downtime is between $301,000 and $400,000 globally. Although understanding this cost may seem like a straightforward operation, unless you have thorough data on your revenue and what contributes to it, you won’t be able to perfectly pinpoint the appropriate number. Make sure to factor in the dependency between generating revenue and all operations that involve IT, in order to better understand the costs of downtime when it comes to revenue.

For minimizing revenue loss, your business continuity plans and strategies in the event of an IT downtime need to be methodically drafted, and include a wide array of situations and incidents. Making provisions and drafting communication templates for all possible scenarios will help you reduce the downtime, and thus, reduce the loss of revenue.

Costs Involved in Recovery and Implementation of Business Continuity Strategies

Depending on the measures you will need to take, the recovery costs of an IT downtime can vary from minimal to highly impactful on your overall business activity. These costs are dependent of aspects such as; loss of data, recovery of lost data, replacing damaged parts, and the overall cost of any repair services needed.

Recovery costs and implementation of business continuity costs will not only vary from one IT downtime to another, but are also not as precise as the costs originated from the loss of revenue and productivity. Therefore, you need to make sure you are utilizing all the necessary tools for calculating them. You can minimize these costs—as well as the response time—by implementing a modern, fully-featured crisis communication solution such as a mass notification system, that will help you better manage work interruptions.

Other Costs of IT Downtime

Intangible and hidden costs of IT downtime can originate for a long period of time after the event, which is why monitoring the situation even after it is resolved is mandatory for all businesses. Whether we are speaking of an impact based on the morale of your employees, the loss of a business opportunity, brand damage, or costs associated with service-level agreement payouts, they are all of vital importance. There are numerous examples of companies that struggle to calculate the hidden costs of IT downtime long after the situation was remedied. The most important thing to keep in mind is that these costs are proportionate with the lack of attention and knowledge in regards to an IT downtime, and all attempts at minimizing them can only be successful through a proper preparation for all IT-related incidents.

Conclusion

Based on the information above, you can calculate the overall business cost of IT downtime per hour, with a simple formula:

Business cost of IT downtime / hour =

lost productivity + lost revenue + recovery costs + other costs
(hidden or not quantifiable at the moment of the interruption)

Therefore, regardless of the industry you are operating in, the size of your company, or the technologies you are implementing in your activities and production processes, having a proper understanding of IT downtime, crisis communication, and business continuity strategies is mandatory. Make sure that your employees are regularly trained in all aspects of IT downtime management, and that you are gathering feedback not only from employees, but also from the overall handling of any work interruption. Amending your strategies accordingly is key when it comes to the success of your business continuity plans.

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