We know the overall sum of downtime losses is quite high, but how does it really affect your enterprise? A recent study by Gartner Research estimates the average cost of downtime to be about $42,000 per hour per company. Since this is an average, some companies lose far less, while others report seven-figure losses. Those who rely entirely on technology—such as online brokerages, trading platforms, and e-commerce companies—face hourly downtime risks of $1 million or more.
Adding Up Downtime
In general, costs associated with downtime are attributable to a variety of sources:
Idle Labor
For many businesses, the cost of labor (clerical, plant/warehouse, professional, and supervisory) is the single largest cost of doing business. For example, if labor productivity does not exceed a given percentage of 85%, the cost of producing widgets might be greater than the price of the widget itself. The longer productivity is at 0%, the worse your average is going to be.
Loss of Business
If a customer cannot place orders through an online order-entry system or customer service center, what is the short- and long-term damage? What is the average value of each order? Multiply this number by the average number of orders placed per hour. Will your customer go to a competitor and never come back? How many marketing dollars do you spend to secure one new customer? Cell phone service providers, for example, spend $200 to $250 to acquire each new customer because they subsidize the cost of the handset.
Penalties on Unmet Service-Level Agreements (SLAs)
SLAs set forth clear guidelines on what level of service is minimally acceptable. If your company falls beneath this threshold, it could be subject to severe, unnecessary penalties.
Penalties on Unmet Just-In-Time (JIT) Agreements or Service Guarantees
The same is true for JIT agreements with upstream and downstream trading partners, and these penalties can be even more costly.
Loss of Discounts for Early Payments
Discounts for early payments are attractive incentives to CFOs. If they are late because of a system failure—even by one day—your company will needlessly pay more money for the same goods.
Penalties for Late Payments
Every supplier—from your telecommunications provider down to your toner vendor—uses late payment penalties to control compliance with contracted payment intervals. Again, when payments are late, your company will needlessly pay additional fees.
Cost of Idle Equipment and Telecommunications Services
Many companies lease capital equipment or make monthly payments because of the positive effect these payments have on cash flow. If equipment time is not scheduled or equipment sits idle when a system is down, that costs money and cuts into the profitability of the company.
Cost of Facilities
The cost of manufacturing facilities, warehouse space, hubs, and other facilities represents an unusually large percentage of the cost of doing business, and the cost of these facilities must be controlled. If, for example, a robotic inventory system is unavailable and products cannot be picked, packed, and shipped at a regional distribution center, losses can quickly mount.
Cost of Recovery
The fees for assistance in emergencies can be astronomical because of the finite supply of such resources.
What's Your Exposure?
When you consider all of the IT-related inputs that factor into profitability, it becomes easier to visualize how a "lights out" event can be disastrous to your organization's profitability. To calculate the cost of downtime for your own company, you should determine what your exposure is in terms of dollars for a standard unit of time, say one hour.
High availability software developer iTera, Inc. offers a free online calculator that lets you easily determine what the cost of downtime is for your company.
Debbie Lewis is the director of marketing and public relations for iTera, a developer and integrator of iSeries high availability and continuous availability solutions, including its award-winning Echo2 High Availability, Echo2 Vault, and Migrate While Active. For more information, visit www.iterainc.com or send an email to
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