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Calculating Downtime’s Hard and Soft Costs

Calculating Downtime’s Hard and Soft Costs

Nowadays, businesses rely on computers to function more than ever before. While technology delivers many benefits, it has a dark side: downtime. Outages occur regularly and have devastating effects on organizations. Lost revenue, decreased productivity, and damage to a business’ reputation result from such problems, so enterprises need to manage it proactively.

The advent of cloud and mobile solutions enables corporations to connect with customers, partners, and employees quickly and efficiently. Currently, every firm is trying to leverage new technology for competitive advantage. Consequently, the connections between company computer systems and business success have never been stronger.

Yet, most firms experience system outages. In fact, 69% of owners and operators surveyed had some sort of outage in the past three years, and 44% of outages were considered significant, according to Uptime Institute. Whenever connections go down, a business suffers in obvious and subtle ways.

A Starting Point

Downtime’s costs vary by company and factors, like revenue, industry, the duration of the outage, the number of people impacted, the time of day, backup capabilities, and the time needed to fully restore the systems. Typically, losses are very high for transactions, like taking orders, and in financially centered businesses, such as banks and retailers. As a result, six in 10 outages cost over $1000,000 and 15% of enterprises said that they experienced an outage costing more than $1 million, according to ITIC.

When trying to determine downtime’s impact, corporations develop formulas that focus on lost revenue and employee productivity. For the former in a simple case, an enterprise takes its annual revenue and divides it by the number of hours during the year to get an average for corporate hourly sales. Then, they multiply that number by the duration of the event.

In addition, companies focus on the impact on their employees. When the systems are down, productivity falls, especially nowadays when so much work is done via computers. For calculations here, they count up the number of people impacted, their hourly salaries, and multiple that digit by the length of the problem.

Hidden Impacts

But ripple effects arise and drain productivity. Staff’s attention is diverted from their primary tasks to fixing the system. Therefore, backlogs build, overtime is needed, and shipments are delayed. Companies need to factor those shortfalls into their equation.

Even when an employee finds a quick workaround, downtime continues to negatively impact their performance. A person needs an average of 23 minutes to refocus and get themselves back on task after a disruption, according to a University of California Irvine study. So while workers think they are back at full strength, the research says otherwise, and that limitation too needs to be taken into account.

Other areas of the business are affected. News about the problems spreads, sometimes to partners and customers and in other cases to the world via social media and the traditional press. Companies need to have tools in place to track what is happening there, especially with social media, which often becomes the place where consumers express their displeasure over the event most clearly.

Make no mistake today’s consumers have exceedingly high standards; they simply will not tolerate delays or disruptions. In fact, more than half (53%) of them will abandon a web page that takes three seconds or longer to load. If your systems are down for minutes, hours, or day, they may leave and never come back.

Downtime damages a business’ reputation, goodwill, and customer loyalty. This impact is difficult to measure precisely but may be seen in churn, stock downturns, increases in customer service hours, and additions to marketing and other department investments made to minimize the damage and improve the brand images after an event.

The Problem Becomes Bigger

Downtime is becoming more common and more costly as corporate dependence on computers has swelled. In the last six years, the average cost of one hour of unplanned downtime has gone up by 25% to 30%, according to Uptime Institute. And there is no slowdown in sight.

Yet, many companies could prevent such problems. Sixty percent (60%) of enterprises said their data center’s outage could have been prevented with better management, business processes, or configurations, according to the Uptime Institute survey.

The first step to preventing downtime from rocking a business is understanding its potential. Mitigating downtime proactively must become a primary top management concern.  With their approval, corporations then can take a close look at their potential exposure, develop contingency plans, and craft a blueprint that minimizes the damage. Such expenditures are much less than what will be extracted when (not if) downtime occurs.

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