Network Outages: Do They Cost More Than You Think?

IT systems are a lifeline for modern businesses. When they go down, consequences can be massive, often causing a harmful domino effect that touches nearly every facet of your business operations. When it happens to your company, you quickly discover the damage an IT outage can render.

Common Causes of Network Outages

On average, a company experiences five network outages each year, with the sources ranging from an operator error, surge or usage spike, hardware infrastructure failure, or loss of electrical power. Dun & Bradstreet reports that nearly 60 percent of Fortune 500 companies experience at least 1.6 hours of downtime weekly.

Below, you will see the most common causes of network outages (LogicMonitor 2019), where 'n' represents the number of surveyed respondents:  

According to Gartner, the average cost of network downtime is around $5,600 per minute. That calculates to roughly $300,000 per hour! No matter the size of your business, a loss of $300,000 per hour is detrimental. 

In addition to the monetary injury, IT downtime heavily affects your productivity and ongoing business operations. A few minutes of downtime, spreading across multiple employees, can add up quickly — and this number only increases as minutes turn into hours, days…or even weeks.

The true cost to your bottom line varies depending on the size of your organization, the nature of your business operations, and how much the operations rely on IT systems.

Calculating the cost of downtime from a network outage is imperative. Where much of the cost is lost internally, the outage reflects your maintenance provider to get you back up and running quickly. Whether you have a third-party maintenance or OEM maintenance provider, you want to be certain they'll cover you when an outage occurs.

Returning to the overall cost, over 80% of business owners cannot correctly calculate their true downtime costs. Pull up a chair as we show you the formula to calculate your downtime losses.

IT Downtime Formula

The formula is straightforward, but finding the numbers can be a little daunting.

Cost of Downtime (per hour) =  Lost Revenue + Lost Productivity + Recovery Costs + Intangible Costs

So let’s break it down.

Lost Revenue

To determine your lost revenue, you'll need to calculate the amount of revenue generated per hour by your business. This would be the revenue week/40 hours. An important component to determine your lost revenue count is how much your business depends on uptime.

Uptime is the time or percentage your site is up and operational online. For example, suppose you are an e-commerce store and sell exclusively online. In that case, you are 100% dependent on the internet for your business's revenue. You will need to estimate the percentage of your revenue dependent on uptime.

Lost Revenue

Revenue per hour x downtime(hrs) x uptime(%) = lost revenue

Example Lost Revenue: If revenue is $4,000/hr, the network was down for 3 hours, and the uptime percentage is 40%, then lost revenue would equal $4,800/hr.

Lost Productivity

To state the obvious, your employees cannot perform their jobs when your servers are down. But their salaries are a fixed cost and do not change.

To determine lost productivity, start by calculating each employee's hourly salary. Then, estimate the percentage of productivity that is dependent on uptime. (Reminder: Uptime is the time or percentage your site is up and operational.) This percentage is known as the Utilization Percentage.

Lost Productivity = Employee Salary/hr X Utilization % X Number of employees (with same Utilization %)

Recovery Costs

These costs will accrue to fix/repair the issue(s). They include, but are not limited to:

• Repair services
• Replacement parts
• Lost data recovery
• Miscellaneous costs due to loss of data

These may not be as tangible as revenue and productivity costs, but they are equally important when calculating your real downtime costs.

Intangible Costs

These costs may often not be known immediately and could have long-term damage. These occur when downtime hurts your reputation or your brand.

For example, the Virgin Blue outage prevented passengers from boarding flights for 11 days, resulting in negative press, a loss of millions of dollars, and a scorned reputation. Downtime can cost a company of any size customer loyalty and its reputation as a solid product and service provider.

Intangible costs strongly affect businesses that rely heavily on uptime. Incorporating intangible costs into your Total Down Cost Formula will help you understand the long-term damages that result from downtime.

Final Cost of a Network Outage and Prevention

You're almost there. Now that you have calculated each separate cost, you can input them into the main formula to reach your total downtime amount.

You'll see that downtime carries a hefty price tag, which needs to be considered when drawing up your IT budget (in case of an emergency). Now that you have that information at your fingertips, your company can begin to focus on prevention.

It's estimated that approximately 75% of downtime is caused not so much by a failure of technology but rather by how that technology is configured, administered, and utilized.

The good news is that, generally, downtime failures are traced back to ineffective training or planning. Why is this good news? Because it tells us that the negative effects of an IT outage are preventable — and that an IT outage can be minimized or averted.

By investing in prevention-based services and establishing a well-rehearsed recovery plan, you're on the path to saving your business a lot of pain later. Adopting best-practice operational activities and processes can significantly reduce your chances of experiencing a costly and disastrous system failure.

PivIT Prevention Tactics

Protecting against the inevitable IT outage can feel like an uphill battle. But it doesn't have to. OneCall, our third party maintenance strategy, protects your most critical IT hardware.

Enterprise network professionals trust OneCall to protect their networks all over the world. Depend on OneCall for your global IT infrastructure maintenance and preventative needs.

EXTEND is our professional services arm, providing site services, ITAD, asset management, asset recovery, and more. Our team of engineers and site specialists can tackle just about anything. Reach out for custom solutions.

As we wrap up downtime cost calculation for today, we wanted to share something you can take with you. Learn more about PivIT's OneHub Network Management and Automation Tools. Also, check out our Tech Corner to gather more information about product comparisons, data sheets, and configuration guides!