Assessing the Financial Impact of Downtime
'Fiduciary responsibility'. 'Due diligence'. Such are the key watchwords for businesses everywhere. Indeed, these simple phrases are in fact the core concepts underlying regulations that cover stockholder rights, contracts for merger and acquisition, and many other areas of business conduct
The potential costs of failing to do so can be enormous. Organisations of all sizes need to address the assessment of threats to their IT operations, inclusive of systems, applications, and data, and develop solid numbers around the potential costs they represent.
Hidden Financial Risk
According to Dunn & Bradstreet, 59% of Fortune 500 companies experience a minimum
of 1.6 hours of downtime per week. To put this in perspective, assume that an average
Fortune 500 company has 10,000 employees who are paid an average of $56 per hour,
including benefits ($40 per hour salary + $16 per hour in benefits). Just the labour component
of downtime costs for such a company would be $896,000 weekly, which translates into
more than $46 million per year.
Of course, this assumes that everyone in the company would be forced to stop all work in a
downtime scenario, and that may not be so. But, since the operations of many companies
are increasingly knit together by their information technology, system downtime now
hampers the productivity of almost everyone in the organisation, and completely sidelines a significant and growing percentage of them.
While some insurance providers offer coverage to reimburse companies for sales revenue
lost during unplanned server outages, typically, these policies do not cover any other
expense besides lost sales. Facilities Management operations often hold these types of
policies to lessen their exposure.
Insurers train underwriters to be experts at assessing risk and extrapolating potential losses.
IT managers, on the other hand, typically do not have the tools and experience needed
to assess the real risks involved. If your organisation stands to lose money and goodwill
if a core component of its information management system fails, or if it is difficult to find
a window of time to bring the system down for upgrades or modifications, then the right software tools will help you understand and even quantify your costs attributable to the time that a critical IT system is offline.
Downtime Threat Analysis
Before you can calculate downtime costs, you need to know its sources. And not all of
them are strict IT issues. To begin with, it is important that you identify and understand both
your internal and external downtime threats. What has the potential to take your business
down? The threats to your business could include natural events as well as man-made
events, "weather and wires."
Spend time thinking about what could actually happen and plan accordingly. There could
be accidental as well as planned events that could cause or contribute to systems and
business downtime. Some events may be within your control while others are not. Some
events, like hurricanes, will give you ample warning; some events, like a server power
supply burnout or RAID controller crash, may happen quickly and give you very little time
to react.
Sadly, you'll also need to consider extreme external events, including terrorism, or
regional disasters, such as wide-spread power failures or the collapse of a key bridge in a
metro area. Such events can impact employee availability and safety, power and data line
availability, and so on.
Once you catalogue events and conditions that could affect you, be sure to set up processes
for real-time monitoring and information gathering for external threats. This can be as
simple as signing up for e-mails or alerts from local weather stations so that you are made
aware of impending weather events. With some types of events, you will need to be able
to determine with certainty the likelihood of the event as well as to consider the potential
severity, in order to properly plan for response.
The Opportunity Cost of Downtime
On average, businesses lose between $84,000 and $108,000 (US) for every hour of IT
system downtime, according to estimates from studies and surveys performed by IT
industry analyst firms. In addition, financial services, telecommunications, manufacturing and energy lead the list of industries with a high rate of revenue loss during IT downtime.
Downtime costs vary not only by industry, but by the scale of business operations. For a medium-sized business, the exact hourly cost may be lower, but the impact on the business may be proportionally much larger. While idled labour and lower productivity costs may seem to be the most substantial cost of downtime, any true cost of downtime estimate should include the value of the opportunities that were lost when the applications were not available.
While it is impossible to predict the precise loss from an outage, it is important to derive
reasonable estimates. Only then is it possible to evaluate the economically appropriate
level of investment in data recovery or information availability software solutions. Losses
in the areas of labour, revenue and service all contribute to the total cost of downtime.
A good starting point for evaluating these factors is to collect statistics on both the duration
and associated costs of past downtime as recorded by the accounting department. These
include all of the tangible and intangible factors outlined at the beginning of this section and
more.
Conclusion
Establishing the true impact of downtime requires going beyond the IT team and into every operational area of the business. The people "on the ground" are experts in the business pain that results in their area of responsibility if systems are unavailable. Consider your audience. Every Manager, VP and CEO has a boss to answer to. But ultimately, it is your customers who are demanding guaranteed availability. Keeping your end-customer's viewpoint in mind will help you frame the case for HA in your business.
Alan Arnold, Executive Vice President and Chief Technology Officer, Vision Solutions
