To gain a better understanding of how costly downtime can be, Nfina recommends placing a value to your data and what it means to your business. Do you have 50 employees, 200, 1,000 or more? What’s the cost of their downtime? If you are unable to access your data, are you able to generate quotes, access and ship inventory, or view and keep appointments? How many clients have been forced to find another supplier, or can their online orders be submitted? All these issues can be a reality if a disruption or outage occurs. Each have a cost that must be considered when applying a value to your data. Once you have calculated the business value for your data, then you will have a better understanding of what you should budget for Disaster Recovery.
As the importance and value of data grow, being ready to protect and recover it is vital. Nfina’s Hybrid Cloud solutions are designed to prevent downtime and provide the essentials to protect your business data and recover from a disaster.
Disaster Recovery (DR) is an absolute must in this era of 24/7 constant operation and uptime. Threats to business continuity continue to evolve. From ransomware to a hardware failure, to employee error, to natural disaster, a variety of events can cause outages, and the costs of downtime is very high, even for brief incidents. It’s up to organizations to be prepared. But how do businesses choose the best disaster recovery strategy while also making the most of limited resources and budgets?
When there is a disruption to your environment, you need to be able to get your organization back up quickly. Disasters can come from anywhere. Readiness is not something that you address occasionally or when it’s time to recover for real. It must be a daily focus and is something that many midsize and small organizations cannot do by themselves. Preparing for a disaster or outage takes time, resources, and staff that can better be used elsewhere. This is why Disaster Recovery as a Service (DRaaS) exists and is likely a viable solution for your organization.
Calculating Downtime Costs
Downtime can have a significant impact on businesses, both financially and in terms of reputation. It is crucial for companies to understand the true cost of downtime to plan and allocate resources effectively. In this section, we will discuss the various factors that contribute to downtime costs and how businesses can calculate them.
Direct Costs:
The most obvious cost associated with downtime is the loss of revenue. When systems or operations are down, businesses are unable to generate income from sales or services. This can result in missed sales opportunities, delayed deliveries, and dissatisfied customers who may take their business elsewhere.
Apart from lost revenue, there are other direct costs that should be considered when calculating downtime expenses. These include overtime pay for employees who need to work extra hours to make up for lost time, additional equipment rental or purchases if the existing equipment is not able to meet production demands during downtime, and any penalties imposed by clients due to delays in delivery.
Indirect Costs:
In addition to direct costs, there are also indirect costs associated with downtime that can significantly impact a company’s bottom line. For example, employee morale may suffer as they become frustrated with system failures or delays caused by downtime. This could lead to decreased productivity and potentially even higher turnover rates.
Another indirect cost is the damage to a company’s reputation. If customers experience frequent disruptions or lengthy downtimes when trying to access products or services, they may lose trust in the company’s ability to deliver reliable services and look for alternatives. This could result in a decrease in customer loyalty and potential loss of future business.
Calculating Downtime Costs:
There are several methods that businesses can use to calculate their downtime costs accurately. The first step is identifying all direct and indirect costs associated with each incident of downtime. This includes labor costs, lost sales revenue, equipment replacement/rental fees, penalties/fees incurred from clients/customers/partners, and any other expenses specific to a particular business.
Once all costs have been identified, businesses can then determine the total cost of downtime by multiplying the cost per hour by the duration of the downtime. This will give an accurate estimate of how much each incident of downtime is costing the company.
Businesses should also track and analyze their historical data on downtime incidents to identify patterns and trends. This can help companies proactively plan for potential downtimes and allocate resources more efficiently.
Factors Contributing to Downtime Costs
The cost of downtime can vary greatly depending on the scale and nature of the business. For some companies, even a few minutes of downtime can result in huge losses, while others may be able to manage longer periods without significant impact. However, regardless of the size or type of business, there are several common factors that contribute to downtime costs.
1. Lost Productivity: One of the most obvious factors contributing to downtime costs is lost productivity. When systems are down, employees are unable to carry out their usual tasks and operations come to a halt. This leads to delays in project timelines and missed deadlines which ultimately affect the bottom line.
2. Reduced Revenue: In addition to lost productivity, downtime also results in reduced revenue for businesses. This is especially true for companies that rely heavily on online sales or transactions. With systems down, customers are unable to make purchases or complete transactions leading to loss of potential income.
3. Damage to Reputation: Downtime can also have detrimental effects on a company’s reputation in terms of reliability and trustworthiness among customers and stakeholders. If systems are frequently experiencing disruptions causing delays in services or products delivery, customers may start losing confidence in the company’s ability to deliver quality goods or services.
4. Recovery Costs: Once systems go down, businesses often incur additional costs associated with recovering from the disruption. Depending on the cause of downtime (such as equipment failure), repairs may need to be made which can involve costly replacement parts and labor expenses.
5. Modern Business Dependencies: As technology continues advancing at an unprecedented pace, many companies have become increasingly reliant on digital tools and processes for day-to-day operations. This means that any disruptions in these systems can have far-reaching consequences and result in significant downtime costs.
6. Cybersecurity Threats: With the increasing number of cyberattacks targeting businesses, there is a growing risk of prolonged downtimes due to data breaches or system hacks. In addition to financial losses, such incidents can also damage a company’s reputation and lead to legal consequences.
Understanding the factors that contribute to downtime costs is crucial for businesses to plan and implement effective strategies for minimizing its impact. By addressing these key areas, companies can reduce their risk of costly downtimes and ensure smooth operations even during unforeseen disruptions.
Downtime Affects Organizations of all Sizes Across Industries
The average downtime that organizations are experiencing is on the rise. Recent reports show a 16x increase. Recent surveys show that 91% of the polled IT executives from large enterprises estimate average downtime of the IT ecosystem to be $300,000/hr, and 44% of those surveyed say its over $1M/hr for their respective companies. Small to medium sizes businesses cost of downtime are between $8,000/hr and $25,000/hr. [1]
In the IT industry, downtime is typically calculated at about $5,600 per minute. Depending on the company’s size, the full range of its lost revenue spans from $150,000 to $450,000 per hour.
In the auto industry, downtime costs are about $50,000 per minute, or about $3 million per hour. Approximately 70% of the downtime issues are associated with employees being unaware of equipment maintenance or update requirements.
In the manufacturing industry, the cost of downtime is approximately $260,000 per hour.
In the enterprise industry, the cost of downtime is valued at over $1 million per hour and can reach $5 million, excluding fines or penalties.
The cost of other industries downtime include:
- Media at $90,000 per hour
- Health Care at $636,000 per hour
- Retail at $1.1 million per hour
- Telecommunications at $2 million per hour
- Energy at $2.48 million per hour