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How to Calculate the Cost of Downtime for Your Organization

How to Calculate the Cost of Downtime for Your Organization

The causes for downtime are numerous. Network outages, server and storage failures, human error, natural disasters, and power outages all contribute to the unwanted costs imposed by downtime.

The Average Cost of Downtime

In 2014, Gartner reported that the cost of network downtime is $5,600 per minute. Extrapolating that to an hour, they pointed out a study by Avaya that estimated hourly costs ranging from $140K to $540K depending upon characteristics of the business.

A Forrester Research paper reported that only 2 percent of firms were able to recover from an outage in less than an hour. Aberdeen chimes in with their survey data that shows the hourly cost of downtime for all companies rose from $164K to $260K between July 2014 and April 2016, an increase of 60%!

But wait. Do you find all these wildly different estimates confusing? Stick with us because we're going to show you how you can get the real costs for your company. But first here's one more important idea to keep in mind:

You need to factor in the cost of time spent as a result of the outage, not only the duration of the outage itself. For instance, Inc. magazine points out that, once interrupted (as by an outage), workers need an additional 25 minutes to return to productivity. That 25 minutes plus the outage duration adds up to significant dollar expense when the staff headcount is large.

Find out how much network downtime really costs your organization. Download the worksheet.

Calculating Your Hourly Cost of Downtime

Why rely on averages when you can calculate outage cost as it specifically relates to your organization? Whether you're a for-profit or non-profit, large or small, when you understand how to estimate the cost of an outage you can better plan and budget for disaster recovery. Use this formula to help estimate your cost:

Hourly Cost of Downtime = Hourly Lost Revenue + Hourly Labor Cost + Hourly Recovery Costs + Hourly Indirect Costs

Let's break it down.

Hourly Lost Revenue

Customers cannot buy from you during an outage. The first step is to determine how much you normally sell each hour. Begin with the company's annual gross revenue divided by the number of hours per year available you sell your products and services. For instance, an e-commerce company would have 24 hours each day times 365 days per year = 8,760 hours per year. If the company's annual revenue is $10 million annually, the average hourly revenue is $1,141.55.

Hourly Labor Cost

Your goal here is to arrive at an average hourly cost of labor. Begin by multiplying the number of employees who would be affected by an outage by their average hourly wage. Then, multiply that by your best estimate of how much productivity would be lost during an outage. For example, if no one in the company can work during an outage, you would multiply by 100 percent, meaning that productivity stops entirely (which is highly unlikely). However, use your best estimate and keep in mind that some employees—those whose jobs don't necessarily rely on your network being available at all times—may not be affected by an outage at all.

Hourly Recovery Costs

These are the costs you incur in restoring service, such as repair services, replacement parts, or lost data recovery. There may also be operational costs involved due to missed SLAs, expenses to notify customers, validate restored functionality and provide RFOs. Be sure to factor in the costs of any third-parties you may utilize.

Hourly Indirect Costs

These are associated with lost revenue. You have already accounted for Lost Hourly Revenue due to lack of sales, which is a direct cost of downtime. The following cost components are difficult to estimate, but evaluating each one gives you a more complete picture of your true cost of downtime.

  • You need to look at the loss of reputation and damage to your brand. Your outage certainly frustrated customers. Some of them, for example, might post negative remarks about your company on social media. You might need to spend marketing dollars to repair your reputation or brand. What dollar value do you attribute to addressing negative reviews and reputation repair efforts?
  • You also need to estimate the opportunity cost of downtime. That is, while you are down you're spending your resources on restoring service. What could you be doing rather than restoration and what opportunities might you have missed during the outage?

Using the simple formula outlined above, and coupled with some estimates of Indirect Costs, you'll arrive at the cost of downtime for your organization.

You can minimize the risks of downtime when you partner with iGLASS. Our uptime monitoring solutions minimize risk, fit seamlessly into your business, and reduce the likelihood of downtime. But, if an outage does occur, we're standing by with remediation services that include procedures for anticipated scenarios and step-by-step decision trees to determine the most effective courses of action to fix them.

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