September 25, 2020

Calculating The Cost Of IT Downtime For Industries

Bones Ijeoma

CEO and co-founder

How much does IT downtime cost your industry? Discover the factors that influence the cost and the benefits of IT support in Los Angeles.

The Cost of IT Downtime

Take a minute to mull over what would happen if your business’ IT systems went down. If an essential link in your IT infrastructure – your servers, your Internet service, your line of business (LOB) application, or even your building’s electrical power – suddenly and unexpectedly became unavailable. Think about about the missed deadlines, the unhappy clients, the idle employees that you still have to pay. Then imagine the eventual loss of business if this became a frequent occurrence, or if the downtime occurred for an extended period of time. Think about how this could impact your future prospects if the downtime resulted in damage to your company’s reputation or branding. This is the cost of unplanned downtime.

Effect of global outage on Fastly's stock

An extreme example of IT downtime would be the Fastly outage that happened in June 2021. Fastly is a content delivery network that is designed to provide high availability and performance of internet content. Fastly fell victim to a cyberattack that took them, and some major websites on their network like Amazon and Reddit, offline. Service was restored a few hours later, but the damage was done. Fastly’s Q2 2021 Shareholder Letter reported lower revenue than expected and predicted deeper losses for the subsequent quarters. This report resulted in Fastly’s stock taking a 19% nosedive.

The cost of downtime by industry can vary, but for businesses that are not as equipped to bounce back, these ripple effects can do greater damage. For small businesses, the cost of unplanned downtime can even be fatal.

What is IT Downtime?

Downtime refers to a time period during which a service is unavailable. IT downtime means the duration for which a computer or a network is not accessible. But generally, the term IT Downtime is used when speaking of servers. Companies and industries aim to reduce the IT downtime as much as possible as it can not only be a cause of a lot of issues but can also drain the company’s finances.

There are several factors that can add up and cause an IT downtime. Here are some reasons why a company may have to experience an IT downtime.

1. Server Reboot:

Server Reboot is one of the most common reasons behind IT downtime. When the server is switched ON, it does not get started immediately and requires some time before it can respond to requests received. During this rebooting time, the server services are unavailable.

2. Immense Traffic:

Servers have a certain capacity of requests that they can tend to at a time. If the traffic exceeds this capacity, the server gives up and leads to an IT downtime. The average cost of network downtime as a result of immense traffic can add up to a huge sum.

3. Hardware/Software Failure:

Hardware and software failure is another reason why IT services may be unavailable for a certain time period. Depending upon the type and the extent of the failure, the IT downtime may vary from a couple of hours to even a few days if the damage is severe. Hence the system downtime impact in this case is unpredictable.

4. Power Failure:

Power failure is one of the most frequent causes behind IT downtime that can add to the cost of downtime 2020. Some small businesses have no backup power source therefore even the smallest power failure can cost a lot. But if the power failure lasts longer, even the businesses who have arranged for a backup power source end up suffering.

5. Unauthorized Attacks:

Hackers often attack servers and IT infrastructure and take over their services. When such unsolicited attacks lead to providing full control of the IT services to the attackers, the attackers can restrict access to the IT services and lead to IT downtime and failure.

Impact Of IT Downtime:

Now that we have discussed what is meant by the cost of network downtime, it is important to shed light over the impact of IT downtime on businesses. There are a number of different ways in which a business can be impacted by downtime and the unavailability of IT services. Here are some noticeable ways in which a business can be impacted by IT downtime:

1. Decrease In Productivity:

The modern era is the age of technology as a result of which businesses are heavily dependent on the internet to resume continuous services. From communication to other procedures, there are a lot of reasons why businesses require uninterrupted IT services.

IT downtime can disrupt the flow of such business activities and impact the productivity of a business. This cost of downtime by industry is especially fatal for companies and businesses who have transitioned towards cloud based IT services.

2. Loss Of Opportunities:

Almost all businesses have an online presence and make use of online channels to communicate and connect with their customers. When such businesses have to face IT downtime, a lot of business opportunities are lost. These lost opportunities surely add up to the cost of downtime small business has to endure.

The companies who face a lot of IT downtime also have to bear brand damage. Customers hate having to wait while the websites load properly. The longer users and visitors have to wait to avail IT services, the more frustrated they tend to get and it is likely for companies to lose clients and businesses when they face a lot of IT downtime.

3. Loss Of Data:

At times the server goes down or the IT services are interrupted in the middle of saving data. In this case, the IT downtime can lead to loss of data. Depending on the situation, sometimes, you might need to re-enter the data but in case of a severe IT downtime, the data may be lost entirely and it is likely that the data may or may not be recoverable.

Average Cost Of IT Downtime:

The average cost of IT downtime according to a study hosted by Gartner can be around $5600 per minute. However, this does not mean that the cost of the downtime is the same for every company or business.

One has to be aware of the fact that the cost of network downtime by industry can vary greatly. Some of the factors that can impact the average cost of IT downtime include the scope of the business and the time duration of the downtime.

The companies that are larger and can be labeled as enterprise scale businesses can face a larger cost of IT downtime. But in case of smaller industries and businesses, the average cost of the IT Downtime can be scaled down. However, it is important to mention that it is easier for large scale businesses to recover from an IT downtime even if the cost is more. Such businesses are established and can bounce back and recover from the damage easily.

But recovering from the IT downtime impacts and bearing the cost of IT downtime is difficult for small scale businesses. They do not have a lot of resources which leads to the IT downtime taking a huge toll on the smaller businesses.

The time period for which IT resources and services are unavailable also weighs in and adds to the cost of IT downtime. If the downtime is smaller, the recovery and the cost is obviously smaller but if the downtime lasts longer, the cost can also add up. Generally, the IT downtime cost is calculated by the hour. So depending on the number of hours for which the company faces the downtime, the cost can also vary and fluctuate.

Calculating IT Downtime Cost:

The general formula that serves as the cost of downtime calculator is:

Cost Of Downtime = Lost Revenue + Lost Productivity + Recovery Costs + Intangible Costs

To fully understand how to calculate IT downtime cost, it is important to dive in deeper and understand the factors that weigh in and add to the cost. Once you understand the related factors, calculating the IT downtime cost becomes a lot easier as all one needs to do is to sum up these factors and the cost will be

Lost Revenue:

Every business has to be aware of the revenue that is generated per hour. Since the IT downtime cost is calculated by the hour, therefore the revenue generated is also calculated per hour.

During uptime i.e. the time period during which the IT services are available and the business is working well, the company is making a certain amount of money per hour. This amount is known as the revenue per hour.

Since during the IT downtime, the company’s revenue is being lost, it is calculated in the negative and thus is known as lost revenue. A simple formula that can help you estimate the lost revenue is:

Lost Revenue = Revenue made per hour / Duration of downtime in hours x Uptime

Lost Productivity:

As discussed earlier, one aspect of the downtime cost definition is concerned with productivity. The fact that many businesses are highly dependent on the internet. Their operations take place online and therefore even a second of disconnection can affect the business operations.

During downtime, such operations require the internet and IT cannot be completed by the employers. This phenomenon is known as lost productivity. Employee productivity is not clearly tangible therefore it can be estimated only.

The metric used to calculate lost productivity is the employee salary. The employees are paid irrespective of the downtime therefore that sum of money accounts for the lost productivity. We will reinforce the fact that lost productivity is also calculated per hour just like all the other factors that add up to the cost of IT downtime. The lost productivity also adds up to the cost of unplanned downtime and it can be calculated as:

Lost Productivity = Salary of employees per hour x Percentage of Utilization x Total number of company employees.

Recovery Costs:

We dived into the details of the factors that lead to IT downtime. Other than the rebooting of the server, all other reasons that can lead to an IT downtime require some action to recover the server.

The recovery also comes with its own cost. Depending upon the reason for the IT downtime and the extent of the damage, the recovery cost can also vary greatly. If deeper damage has led to the IT downtime, it will require more efforts to recover and surely would come with a bigger recovery cost.

But in case of a shallow damage to the server hardware or even the software, the recovery cost will be minimal and the services can be resumed within a very affordable price range. This aspect of IT Downtime cost calculation cannot be predicted beforehand. It may vary greatly.

The only thing companies can do when it comes to recovery cost is to take measures that prevent such damage so the IT downtime can be avoided entirely. But when it comes to IT downtime recovery, don’t try to opt for a temporary solution. It may seem affordable at the moment, but it will not get to the root of the issue that led to the IT downtime and the problem may reoccur again.

In a nutshell, when it comes to recovery costs, they may seem like a burden at the time but this money spent can surely prevent you from facing another IT Downtime. Therefore, don’t be a miser and make the right choice so that IT downtime can be dealt with properly and its recurrence can be minimized.

Intangible Costs:

IT Downtime has a number of different impacts. Some damages can be calculated and added to the downtime cost, but there are other factors that are not clear. Some of these factors may not come with the cost straight up but the damage may add up with the passage of time.

For instance, the damage the IT downtime causes to the brand’s reputation or the lost opportunities that were caused by the IT downtime do not come with a straightforward cost but they do add to the gartner cost of downtime 2020. All these factors are known as the intangible costs.

Now that you have calculated all the factors individually, you can simply add up all the numbers and the final sum will be the cost of the IT downtime.

Minimizing Downtime Cost:

The goal for any company or business is to avoid the IT downtime entirely but this is not really possible. Technology is unreliable and there are a thousand things that can go wrong with it. Therefore, what companies can focus on is minimizing the downtime costs. Here are something that may be helpful in this regard:

  • Prepare A Disaster Recovery Plan - A disaster recovery plan is a step by step guide that can help a business recover from the IT downtime. It is the best way to respond to an IT downtime emergency. Therefore, make sure that your company has a disaster recovery plan in place.
  • Communication Is Key - Communication is extremely important. Around 35% of IT Downtime is caused by lack of proper communication. In a nutshell, make sure that you focus on effective communication at all costs.
  • Try Prevention - Going over the reasons behind the IT downtime, you can come up with several mechanisms that can help you prevent having to face an IT Downtime. It is forever true that “Prevention is better than cure”.
  • Analysis is Key - Many companies make the mistake of simply moving ahead after an IT Downtime. If you ever have to deal with an IT Downtime, make sure that you get to the root of the trouble and analyze the reason behind the IT downtime so that its recurrence can be prevented.