Modern IT systems often perform mission-critical functions for businesses of all sizes. As a result, when such systems experience downtime the costs to a business caused by an outage can mount rapidly. A study of the impact of IT downtime by CA Technologies found that UK companies lost over 2 billion pounds per year due to such outages. In this blog, we examine the ways IT system downtime can cost your business money and some methods for estimating the total cost of an outage.
IT system downtime can damage a company in a variety of ways:
- Lost revenue
- Reputation damage
- Lost productivity
- Customer loss
- Compensatory costs and repair and overtime
- Potential for lawsuits
These are discussed in greater detail below:
Lost revenue: System outages can result in lost revenue in a variety of ways. If your company sells goods or takes orders over the Internet, loss of access to your site can result in an immediate hit to bookings. Firms that bill hourly can also encounter immediate losses as their employees are unable to log their hours on the system. Revenue loss can also occur in the form of missed opportunity costs if your sales staff is unable to respond to requests for information or follow up on leads in a timely manner.
Reputation damage: Social media makes it easy for customers to comment upon their experiences online. If outages prevent your firm from meeting customer requests or commitments, it can quickly damage your firm’s reputation.
Lost productivity: Many business functions are now dependent to one degree or another on IT assets. When your IT system is down it can prevent your employees from performing any number of productive functions. This loss of productivity can manifest itself in both immediate and longer-term hits to revenue.
Customer loss: In today’s business world customers are used to being able to purchase whatever they want or receive assistance from a company with the click of a mouse. If a customer is unable to make a purchase online or reach your representatives because of an outage, they are likely to find another company to do business with.
Compensatory costs and repair and overtime: Outages can result in more than just lost business, they can also necessitate overtime and other expenses to repair any damage done and to compensate those making the repairs.
Potential for lawsuits: If IT system downtime results in an inability to make good on contractual obligations it could lead to lawsuits. This is most likely in cases where an outage prevents your company from making a scheduled delivery or performing previously agreed upon services.
With modern business practices increasingly relying on digital processes, downtime has become more and more costly. Lost revenue associated with such outages can arise from a variety of sources, as outlined above. Some rules of thumb can be used to help estimate the hit to revenue from downtime.
One such method is to calculate your firm’s annual revenues and divide it by the total hours in a year (8760), and then multiply the resulting amount by a percentage which reflects how significantly your firm’s business is likely to be affected by downtime (for example, an ecommerce firm taking orders online may suffer a 90-100 percent hit to revenue from a website outage, while a retail store that also sells online might only suffer a 40 or 50 percent hit).
Downtime during off hours, however, is unlikely to be as costly as that which occurs during business hours (although this is not necessarily as relevant when it comes to ecommerce stores and other businesses that offer 24/7 availability), so a more accurate calculation may arise from using a figure tracking downtime per hour as your company’s revenue divided by the number of working hours in a year (2,080). You can also assess the effect of downtime by dividing the cost of your staff by the number of working hours to determine the employee-related cost of outages.