The True Cost of Workload-Related Outages

Underestimating the consequences of downtime can kill productivity. Motivate your team to calculate the cost of downtime and create more accurate capacity plans.

What's the cost of downtime? And how do you calculate downtime costs?

When all servers and systems are running smoothly, it can feel like your company has no reason to worry about IT outages. But in IT there’s always a cause for concern — if you aren’t prepared, an unexpected overload always has the potential to crash your servers.

The best backup plan could get you back in business within about two hours, though two hours is pretty fast to get everything back on track, but those hours likely still cost you enormously. If you haven’t done so already, it’s time to calculate the cost of downtime. There are three areas to consider when you think about what an IT outage costs your business: missed revenue, operational costs, and the intangible but still costly loss of reputation.

Missed Revenue

The first thing to determine is revenue lost to downtime. You can calculate this using a simple equation:

(Weekly Revenue / Weekly Work Hours) x Downtime in Hours = LOST REVENUE

For example, if you usually make $100,000 per week over the course of 40 work hours, two hours of downtime will result in a loss of $5,000 in revenue. Those two hours just cost you five percent of your weekly total revenue.

And the bigger the business, the more revenue generated, making the risk even greater. Small enterprises whose success doesn’t rely entirely on uptime can sometimes absorb those risks. If a non-chain restaurant’s website goes down for an hour, it won’t substantially affect business. However, if a fast food chain has their computer systems go down for an hour as a result of a server overload, that'll result in a hit for the day.

If you, like most businesses in 2019, rely on being fully fuctional 100% of the time, downtime can cost your dearly. For example, in 2013, Amazon lost almost $5 million over the course of just a 49-minute outage, according to Network World. An IT outage of 49 minutes could cost any large e-tailer millions.

Operation Costs

Of course, when you have an outage, you still have to pay your employees, and you'll need to make up for lost time with earned revenue. Team members might be able to be doing something productive (like bringing the systems back up), but in a worst-case scenario, they could also just be sitting idly around the office, unable to do their jobs.

Here’s a simple method to calculate those fixed costs:

Number of Employees x Hourly Wage x Downtime in Hours = FIXED COSTS

If you have 50 employees who are paid $25 an hour, two hours of downtime results in an additional loss of $2,500. The total cost of these 2 hours of downtime is $7,500 so far, and remember that a 2-hour recovery period is a best-case scenario for a company with a good recovery plan in place.

And don’t forget the costs racked up during the recovery period. You'll feel the affects of the crash long after all systems are back online. When the system eventually does go back online, all of the information that was manually tracked in the meantime must be inputted into the system, costing extra time and money. 
Lost revenue and operational costs add up, and it could be devastating for your business.

Intangible Costs

Downtime also creates significant intangible costs. A company can easily suffer from a damaged reputation — sometimes irreparably — due to slow response times or downed servers, particularly when it comes to new customers. For example, a retailer that’s unable to respond immediately to its online customers will irritate shoppers and make no sales. If a new customer happens to come to your website or your store when systems are down, they aren't likely to come back. Online consumers are increasingly impatient and have plenty of options in the online marketplace. At the first sign of a hiccup or loss of service, they'll bounce over to your competitors.

Can your business afford to have an IT outage?

Most businesses can't. And even if you could, why would you want to waste time, resources, and effort, risking your reputation when you can avoid outages by allocating the right IT resources at the right time? A capacity planning practice gives your business the assurance that IT resources will be available when they're needed. You can minimize risk and downtime and keep your business running smoothly. 

Vityl Capacity Management provides enterprises with the necessary capacity planning tools to anticipate overloads before they occur, eliminating workload-related outages. A study by the International Data Corporation found that one of its clients virtually eliminated the eight hours of downtime they experienced every week (along with the associated costs) through the use of Vityl software.