The Real Cost of Business Downtime
By Ghassan El Khazen Engagement Partner, Edarat Group
The Real Cost of Business Downtime
Problem is, most businesses don’t follow a methodical way to calculate true cost of business downtime. It indicates the period when the business is not available. Manual errors, outages, failures or overloads are some of the causes behind unscheduled downtime. Natural disasters such as flood and earthquake could also result in downtime. Disaster recovery and business continuity planning are required to prevent downtime. Results of downtime are loss of data and loss of application service. There are some generic formulas to estimate the business downtime cost. Total cost of an outage is calculated in terms of losses in revenue, service and labor. Formula for labor cost calculation is; L=PxRxHxE Here, L represents labor cost, P represents total number of people, who were affected due to the outage, R represents cost per hour for an average employee, E represents average percentage of people affected and H stands for total number of hours the outage lasted. There’s a formula as well to calculate loss in revenue. The formula is; Yearly revenue (Gross)/Yearly business hours x Percentage impact to sales x Total outage hours However, there are some intangible factors, which are difficult to include within the estimation framework. Such factors are mitigating lost productivity, penalties for losing critical financial filing and on top of everything, loss of goodwill, which could grind down a company’s revenue source. Even if companies could estimate the business downtime cost by the use of aforementioned formulas, the assortment of related costs are very difficult to calculate. To fight it out, a business needs to have a robust financial team, which would identify additional service costs, resulted
during a particular outage and then total it to divide by total number of hours, the outage extended for. This could not only help businesses to get an idea of the additional business downtime costs, but they could also save this as an insight and in case another outage takes place in future, use as a benchmark. Maximum tolerable outage (MTO) is a parameter, which signifies the maximum time a business can tolerate an outage. High availability is must for some businesses and they need to lower MTO. They also need to run business impact analysis for setting a benchmark recovery time objective (RTO). Just like RTO, recovery point objective (RPO) is also defined by business continuity planning and disaster recovery planning depends highly on it. RPO helps setting minimum frequency between two backups. RPO and RTO help a business to decide which disaster recovery plan or technology would be best for it. So, adopting robust business continuity plan is very important. Expectation from today’s data centers is huge. The common perspective is that they’ll never go down. But data centers are not always capable of meeting this expectation and as a result, business downtime occurs. Therefore, a workable disaster recovery strategy, based on a business continuity plan is required. That helps a business to calculate real cost of business downtime. We, at Edarat Group, understand how much critical a company’s downtime can be, which is considered part of the company’s profit maximization strategy. We work on reducing the potential situations by acting proactively. Our Business Continuity methodologies are based upon years of experience in both medium and large IT environments which guarantee that if a situation arises, business downtime and data loss are minimized.
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