How to Calculate and Minimise the Downtime Cost of your Business
Most people (especially men) don’t like thinking about bad events and will often avoid going to the doctor, taking out insurance and discussing difficult topics in a relationship.
However, most people experience tremendous relief once they have tackled and resolved the tough problems in their life.
For small and mid-sized businesses, thinking about downtime is similar. Most try and avoid it, but once they finally do address the issue they experience a large weight off their shoulders.
Whether you have measures in place to address the issue of downtime, it’s important to remember it isn’t a set it and forget it scenario. Just like your health, it’s important to be on top of the matter before the symptoms present.
That old adage, “Prevention is better than cure,” has never been more applicable.
Regular reviews and testing need to be a part of your business model.
Our most important recommendation is:
FOCUS ON RECOVERY!
Of course backups are important, but just having a backup can still mean you have extended downtime. So let’s think about the cost of downtime and why you need to get your Recovery Strategy right.
Why SMBs are Especially at Risk
Small to medium-sized businesses (SMBs) are the biggest losers when IT downtime hits. Without the savings of bigger companies to cushion the impact of business loss and customer’s turned away, even a couple of hours could mean the difference between balancing the budget or forever chasing next week’s funds to catch up.
Statistics show that the average small enterprise can lose between $50,000-$60,000 every year due to IT failures. The biggest loss isn’t the money it takes to fix the problem: it is more likely to be the cost of losing that important sale, losing customers and adversely affecting staff morale.
This is often the difference between being profitable and going out of business!
Causes of Downtime
Downtimes in most SMBs are usually caused by either everyday disasters or sitewide disasters. Those of the everyday account for the lion’s share of downtime – 95% to 98%. Despite their everyday nature, don’t assume they are inconsequential. Something as commonplace as a server reboot, software update or power outage can cause downtime for all of a day’s business hours.
Think about how much your business generates in a day. That’s a fifth of your weekly earnings. Would you flush that away if you didn’t have to?
The issues causing these everyday failures can be myriad. Hard drive crashes, overworked motherboards and fans, and power surges account for around 55% of resiliency issues for SMBs. And we all know equipment under warranty isn’t as important as equipment that works. There’s the hassle of replacing the malfunctioned parts, not to mention the wait for them to arrive and be installed.
Software or database corruptions and deleted items also pose a threat. As can connectivity problems due to interrupted internet access, access and line cuts, and misconfigured networking gear. And, finally, lack of redundancy in systems such as firewalls, switches, Wi-Fi components, routers and servers can all contribute to downtime.
But the blame for the majority of these issues and causes of downtime can be pointed at the one culprit: user error. User errors account for around a quarter of all downtime incidents.
Sitewide disasters hit less often, but when they do you know it. They can mean the end of business for SMBs whose services revolve around IT resources. These disasters are the ones that make the news – touted as “acts of God” and natural disasters. Floods, fires, earthquakes, typhoons, hurricanes, etc. These are rare, but you can imagine that every business owner who has lost his or her livelihood to them has at some point thought, “It won’t happen to me.”
The truth is it is extremely likely that an SMB will face downtime at some point. Anyone who owns a computer has experienced the loss of work or a systems crash at some time. It’s not a matter of if, but when. What responsible business owners ask themselves, though, is when it does happen, how much are they going to let it affect them. How much damage is that downtime going to do to their bottom line, or their clients for that matter.
Having the contingencies of preventative disaster recovery measures in place to minimise the damage downtime can do is a smart business tactic. But where do you start?
Calculating the Cost of Downtime
Begin with the systems most valuable to your business and staff in performing the functions of their roles. The most obvious will be ensuring the processes through which your customers conduct their business with you. Line-of-business and cloud applications, and other systems through which your usual channels of revenue and service flow. With these also come your usual communication channels, such as internet access, emails and phone.
Consider the tangible “hard costs” and those intangible “soft costs” that are harder to measure. The tangible hard cost is the obvious loss of revenue and customer churn. But the intangible is just as important and likely to have a ripple you feel long after your usual systems are restored: the damage to your business’s reputation and drop in customer satisfaction.
Calculating Downtime Costs
Obviously, the soft costs can be hard to calculate, so by focusing your attention on the hard and tangible losses you can arrive at a specific dollar amount that may make implementing a disaster plan the clearest option.
A simple but effective calculation to determine your downtime costs is as follows:
(Revenue/workdays per year) / open work hours
Determine whether downtime would be total or isolated based on concentration of offices or workplace.
Assume your company earns $20 million per year. The company is open an average of 23 days per month, with about 12 operating hours per day. And about 50% of the firm’s mission-critical employees work at company headquarters.
To understand the cost of downtime for critical systems at company HQ, you’d start with that simple calculation:
($20 million/276 workdays) / 12 hours per day = $6,000 lost for every hour of downtime company-wide
Then you’d account for site specificity:
($6,000 per hour lost company-wide) *.50 = $3,000 per hour of downtime at corporate headquarters
While making these calculations, remember it’s hard to put a price on your reputation. These numbers are used to weigh the costs and savings of disaster versus disaster recovery. When communicating these figures to decision makers, it helps to explain that these are minimum baseline costs, and don’t estimate the losses incurred when your customers look to the competition.
Once you have your downtime hard cost estimate, you can start to consider the impact of downtime or outages and how much financial impact your business can absorb without too much disruption.
This will lead you to your clear recovery point objectives — how much data loss can you tolerate? And recovery time objective — how much downtime can you afford?
Some businesses and industries necessitate a minimal tolerance for recovery point objectives. An organisation that runs and relies on deadlines cannot afford to lose a day in its tight schedule.
Another business in a service industry might have low tolerance due to demanding customers requiring 24/7 care. It all depends on the business.
Once you know the cost and have set your business’s tolerances, you can use them to plan your disaster recovery program. Each component of a disaster recovery program should ensure that any disaster event never results in downtime or data loss beyond the tolerance you’ve established.
These components include:
- Redundant infrastructure and connectivity.
- Backup and disaster recovery systems.
- Services and processes to rapidly recover key systems to mitigate the cost of downtime.
- Regularly review and test the plan.
The key is not to focus on how long it takes to do a backup, but how you can confirm the data is protected AND how long it will take to restore data from your backups.
The cost to all of this yourself is significant and difficult. This is why Network Overdrive offers to not only install and configure a system that will work on day 1 but will also manage the ongoing maintenance, testing and review of the backups and restores.
We call this ongoing work Disaster Recovery as a Service, or DRaaS.
Visit Network Overdrive or call us today for our Disaster Recovery as a Service options and assistance in calculating your business’s IT downtime costs.
Because we know from experience, prevention really is better than cure.
Find out how we can help your business.
CONTACT ONE OF OUR CONSULTANTS FOR A DISASTER RECOVERY SOLUTION TAILORED TO YOUR ENTERPRISE.