Do You Understand the Cost of Network Downtime?

When your network goes down, your business stops. 

You can't email your customers. Your customers can't email you. If you run your website on your own servers and sell online, you are no longer selling anything.

Everyone in the office can't connect to the data and documents they need to work.

There are costs to any business when their network goes down. Costs will vary on size of the business and industry, length and timing of the outage, employees affected, etc.

The following is a quick overview of the most likely reasons for downtime and how much it can cost.

The Cold, Hard Facts of Network Downtime

Networks go down, disrupting work – that’s just a fact of life, right? Would you be so accepting if you knew how much network downtime costs you? 

CA Technologies conducted a survey in 2011, they estimated a yearly cost of IT downtime of $26.6 billion (yes, that’s a “B” as in billion). Regardless of how you slice those numbers among companies of different sizes, that’s a LOT of lost revenue.

If you think the costs of network downtime only apply to the Fortune 2000, you’re wrong. Regardless of the size of your company, when you’re network stops working, your business takes a hit.

And it’s not just cash flow when calculating the cost of downtime. What happens when your network has an outage? Here are 8 usual impacts:

• Damage to reputation among your customers
• Employee morale and confidence in the IT department drops
• Cash flow
• Revenue losses
• Productivity losses – and did you have to pay overtime to make up lost time?
• Potential compliance and reporting penalties
• You could lose discounts
• Annoyed or angry customers

Going Out of Business – The Extreme Cost of Downtime

With substantial data loss from downtime (also the reason you need data backup), business can and do close their doors. Gartner reports that 43% of SMBs are out of business after a major data loss and another 51% go belly up within two years.

Successful backup and recovery planning will mitigate data loss and allow continued operation. Still, in extreme cases of data loss business failure is a possible outcome.

The Cost of Downtime

Even with a solid data backup strategy to get you up and running again, network downtime will cost you. The same CA survey also reported that IT failures caused $55,000 in lost revenue for small enterprises; $91,000 for midsized companies; and more than $1,000,000 for large enterprises. And that’s with an average of 14 hours of IT downtime for year. If you experience more downtime than that, increase these average numbers accordingly. 

A Ponemon Institute report says downtime can cost an SMB $8,000 to $74,000 per hour.

Of course, the costs are higher in larger organizations. Information Technology Intelligence Consulting research estimated that an hour of downtime for a company with over 1,000 employees costs a company over $100,000. And if you’re in a heavily data-dependent industry like banking or rely on online retail sales; that figure is higher.

Research specific to small and medium-sized businesses conducted by IDC reports that network downtime costs $20,000 per hour for 80% of SMBs. 

The point is the research all agrees – your network goes down, you lose money.

What are the labor costs for network downtime? An article by Kasia Subieta on LinkedIn shows one way to calculate it – Labor cost = P x E x R x H.

P = number of people affected

E = average percentage they are affected

R = average employee cost per hour

H = number of hours of outage

Rand Group posits another way to measure the cost of downtime per hour.

The cost per hour of downtime is calculated by adding labor costs per hour to the revenue lost per hour.

To calculate your labor cost per hour of downtime, you need to factor in your revenue, number of employees, average annual employee benefits, the number of hours worked per week, and the percentage of the workforce an outage would affect.

To calculate your revenue lost per hour of downtime, you need to know how much revenue you make every day and the percentage of your revenue an outage would affect.

Top Reasons for Network Downtime

Human error is the leading cause of network downtime. Dimension Data’s 2014 Network Barometer report estimates the percentage of downtime caused by human error at 32%. Avaya research shows that 82% of companies experienced network downtime because of human error.

That's crazy.

Another reason for downtime is because of equipment failure, sometimes due to cooling failure. One of the biggest costs of running a data center is air conditioning and cooling technology (even liquid coolant) to keep the temperature cool. If your server is in a closet and your AC goes out or the fan stops working, there's a good chance your server will overheat, causing your network to go down.

One way to minimize your risk of downtime is to partner with a managed network services provider. Rather than attempting to develop and relying on the expertise of one or two people in your own IT department, outsource your network to a someone who REALLY knows what they’re doing because that’s all they do. 

I’ll leave you with an infographic. This one from TSG on the Real Cost of Business Downtime – it's for a British publication, but a good representation regardless.