How Much is System Downtime Costing Your Enterprise?
August 6, 2019
Quantifying the financial impact of business continuity and availability of data
Advances in technology continue to propel commerce into the future. These advancements increase customer demand for convenient commerce. As a business, being available to meet customer needs and expectations in real time cannot be denied.
A shift in how consumers purchase goods is occurring through:
- The maturation of companies’ eCommerce systems
- The evolution of mobile connectivity permitting more customers to be active at all times than ever before
- Customers’ evolving shopping preferences (including millennials gaining more buying power and baby boomers adapting to new technologies).
According to a study performed by UPS, 54% of all of millennials’ shopping occurs online and 63% of that is done via mobile phone devices. Per the U.S. commerce department, sales within eCommerce made up 10.2% of the total sales in the first quarter of 2019 for the United States. Although around the clock purchasing is great for business, companies may experience additional pressure to keep up with needs and providing services on demand. As customers continue to migrate from brick-and-mortar stores to online shopping, companies are putting an emphasis on maintaining critical IT systems to ensure 24/7 availability.
Determining Sufficient Uptime
Best practices dictate that organizations develop a strategy for the acceptable or desired uptime percentage throughout the year. This period is usually presented in a percentage for the year, i.e. 98% uptime, 99.9% uptime or 99.99% uptime. This uptime threshold should be developed in concert with an Incident Response Plan/Disaster Recovery Plan, which documents the plan of actions due to an unforeseen event that may impact mission critical functions, such as a cyber-attack, natural disaster, or any other outage event. Depending on the organization and its customers’ shopping habits, a specialized plan and strategy should be developed in accordance with the acceptable risk of loss.
As eCommerce continues to grow, attempting to quantify the effects of an amount of time that a system is offline can be an extremely worthwhile exercise for any enterprise, as even a short amount of time can be financially impactful. Depending on the size and the transactional nature of the enterprise (especially where the affected system has queued automatic transactions), a few minutes of downtime can cost thousands of dollars.
How to Consider Loss of Productivity
In addition to transactional revenue lost, organizations also experience lost employee productivity when systems are unavailable. The cost per hour of lost productivity associated with unplanned downtime can be estimated by multiplying the number of estimated hours of system downtime by the per hour rate of productivity per employee. Per Alinean, a general estimated per hour cost of unplanned downtime is roughly $42,000 depending on the organization’s size, and the habits of its users.
The estimated per hour cost includes downtime risk calculated per hour and system uptime percentage. Productivity cost is created based on the rate of pay for ‘burdened’ employees to deal with the outage, number of users affected by average profit gained to the enterprise, and number of transaction per hour per business unit affected. This calculation may vary from business to business depending on the scope of the outage and nature of the enterprise. Although downtime cost may vary, dealing with outage will monetarily affect the organization due to ‘burdened’ employees.
Considering Reputational Risk
In addition to the transactional risk and estimated productivity cost, system outages also cause reputational harm to the organization. If a customer is unable to make a purchase, pay a bill, obtain information about their account, or perform other expected functions, how likely are they to continue to be a customer if the organization cannot perform the services they advertise? Even in non-monetary transactions, such as looking up details on a provided service, customers may take their business elsewhere if the system downtime prevents the customer from accessing information. For example, even though Facebook is not a traditional transaction organization, after a series of outages in March 2019, their stock fell by almost 2%, one of the largest price drops of the year. This demonstrates the impact of system downtime even if the enterprise does not depend primarily on financial transactions.
Armed with the knowledge of how system outages can adversely impact organizations, all enterprises should determine the level of risk that is acceptable to them. Most companies who have acknowledged the real and financial implications of these events will create a Business Continuity Plan, an Incident Response Plan, and/or Disaster Recovery Plans. These plans help organizations to identify potential vulnerabilities, evaluate and allocate acceptable uptime periods, reduce the duration and impact of unexpected downtime, and institute procedures and testing plans in order to be prepared for a future unexpected outage.
In summary, system downtime affects all organizations whether these effects are financially relevant or not. Each organization should develop plans such as Business Continuity Plans, Disaster Recovery Plans, and Incident Response Plans, each of which are designed to reduce, resolve, and appropriately accept risks associated with system and data availability. Through these efforts, organizations can minimize disruptions and improve recovery for unplanned downtime.
For additional resources on developing and/or testing Incident Response or Disaster Recovery Plans, feel free to contact our team.