The Costs of Network Downtime

In a survey of 200 companies, more than $26.5 billion in revenue is lost each year from system downtime. The most concerning part of this trend is the fact that most of these system errors were entirely preventable.

System downtime plans and methods to avoid downtime are still rare to find in many businesses across the United States, though companies offering such prevention and recovery plans are quite easy to find. Estimates suggest that around 56 percent of North American businesses don’t have sufficient recovery plans in the event of a system failure. Many simply underestimate the costs of system downtime, while others don’t want to pay for prevention and recovery services. In any case, failing to prepare is preparing to fail.

To truly understand the importance of implementing a network downtime prevention and recovery plan, it’s crucial to understand the full costs of network downtime, both direct and indirect.

The Total Costs of Network Downtime

As data centers continue to expand the number of valuable business operations they support, the cost of them going down has skyrocketed. At the most recent estimates, an unplanned data center outage costs companies more than $7,900 per minute, and the cost continues to rise. The cost of downtime per minute has risen an incredible 41% since 2010, when the cost was $5,600 per minute. With average incidents lasting around 86 minutes, the average cost per incident is now at a staggering $690,200.

This cost estimate includes all expenses associated with downtime, both direct and indirect. Direct costs are immediate fines, fees and expenses accrued due to the system failure. Indirect costs are more long-term costs associated with loss of business and loss of trust in the company.

The Direct Costs of Network Downtime

The direct, immediate costs of network downtime include:

• Legal repercussions:

  Downtime can result in serious legal ramifications for a company. Health-related businesses and businesses handling clients’ personal and financial information can be sued for network downtime, especially if that downtime is associated with a security breach. Companies can also lose certification with national regulatory entities if they encounter frequent downtime, severely hindering business.

• Damaged data:

  Downtime in the middle of a workday can interrupt ongoing processes and can seriously damage data or cause system errors when the system comes back online. Additionally, unsaved data can be lost following a system outage, meaning employees have to work to recover the data or reach out to clients affected by the outage. All of this results in labor costs.

• Lost productivity:

  Catching up after a system outage can be an extensive and time-consuming process. Even an outage lasting a few minutes can destroy a day’s worth of data, requiring employees to make up the difference. Additionally, during the outage, employees are limited in what they can do, resulting in lost productivity.

• Opportunity cost:

  Customer attention can be a difficult thing to capture, and purchasing decisions can be fleeting. If your system is down when a potential customer thinks about purchasing from you, they may simply move on, costing you both the immediate transaction and future transactions with that potential customer. This can mean thousands in lost revenue.

The Indirect Costs of Network Downtime

In addition to the direct costs of a network outage, there are numerous indirect factors, or factors that have a long-term, but not immediate impact. These indirect costs include:

• Lost reputation:

  The confidence a client has in a company is extremely important. It takes years to build a rapport with a customer — and a single incident to destroy it. After experiencing a technical failure, over half of surveyed businesses reported that the outage damaged their reputation, while 18 percent reported that the outage was very damaging to their reputation. Loss of reputation can mean poor reviews, loss of business and a reduction in the number of repeat clients.

The Variations in Downtime Costs

While the above factors all contribute to the overall cost of a network slowdown or outage, the costs can vary widely, depending on the circumstances of the company. Some of the most important variables include:

• The extent of the outage:

  The components affected by the outage play a large part in the final costs of the outage. Business technology generally falls into one of three categories: business applications, technology services or technology infrastructure.

Business applications are the applications employees use on a daily basis to do daily functions. These include point of sale systems, customer relationship management software and other applications used on a daily basis to run a business. If these systems go out, the very core of a business’ functions are crippled. Though some businesses can get by with manual methods, these methods tend to be slower, less safe and less efficient.

Technology services are applications designed to improve productivity, such as internet access, email and telephone service. If any of these systems go out, a business may run more slowly than usual, but most businesses are not entirely crippled. The exception in this case is a business run entirely via email or telephone. For these businesses, if technology services go out, the business cannot function.

Technology infrastructure consists of the support system of the company, such as servers, networks and communication services. Any of these systems going out would result in a complete shutdown of services.

Though the loss of any services will reduce functionality, loss of infrastructure will create more problems than loss of business applications or technology services in general, resulting in more costs.

• The industry served:

  Different industries incur different costs when their services go down. For example, health and legal businesses will incur many more legal fees than a media website. Additionally, the amount of personal information stored within company databases, the size of the company and the size of the industry will play into the final cost of the outage.

As an example, in 2010 alone, the hospitality sector saw outage costs increase by 129 percent, while the public sector saw costs rise 116 percent. Additionally, the transportation sector saw costs increase 108 percent, and media organizations saw increases of 104 percent.

• The equipment used:

  If an outage is caused by equipment failure, paying to get the equipment fixed can vary in cost depending on the equipment. Newer equipment, or equipment from a specialized manufacturer, may require a specialized technical team to come to your company’s location to fix the problem.

On the other hand, more generalized equipment or older parts may only need a general technical team. Specialized teams tend to charge much more for their time than general teams, resulting in a cost difference. Additionally, if a larger portion of equipment is affected by the outage, it may take more time to bring the system back online. Not only does this increase the time of your outage, but it increases the labor costs associated with bringing the equipment back up and running.

Calculating Your Downtime Costs

Though these costs may seem sensible on the surface, to truly understand the cost to your business, you need to calculate it out for yourself. This does involve a little bit of time and research, but it is worth it to understand the cost of downtime to your company by the minute.

You can calculate the approximate cost by adding up the following:

• Repair costs per minute:

  Research the costs of your repair team or IT team working on an outage by calculating cost per hour and dividing that by 60 to discover the cost per minute.

• Employee costs per minute:

  Each minute of downtime means lost employee productivity. Calculate the total cost per minute by dividing your employee’s hourly wages by 60 and multiplying this number by the average number of employees on staff at any time.

• Opportunity costs per minute:

  Calculate your average daily sales and divide it by your hours of operation. For example, a business making an average of $6,000 a day that is open from 7 am to 7 pm would divide $6,000 by 12 hours. This comes out to $500 per hour, or $8.33 per minute in lost sales.

• Fixed fees per outage:

  If you work a business that incurs regulatory or legal fees with each outage, these are considered fixed fees, as you incur the same amount in fees regardless of the length of the outage.

Add up all of these fees, along with any other specialized fees or costs associated with your business, to calculate the approximate cost to your business for a single minute of downtime. This will help put costs into perspective when you start to consider preventative and recovery measures and services.

The Causes of System Downtime

There are numerous causes of system slowdowns and outages, which should all be monitored to help prevent outages. Some of these causes include:

• Equipment failures:

  Equipment problems contribute to about 40% of all reported downtime. From server failures to computer malfunctions and electrical disruptions, equipment failures are extremely common. Most of these failures can be avoided with the use of redundant programs and equipment, so if one piece of equipment fails, the system automatically switches to the backup. Though expensive to set up at the onset, these systems prevent outages down the line.

• Human error:

  Provider problems and internal human errors make up 25% of all reported downtime. Whether an administrator simply clicked the wrong button or a provider accidentally turned off your company’s service, this error is unintentional and unavoidable, but it’s usually fixable. By programming critical systems with safeguards against such errors and ensuring accurate training for system administrators, most of these errors can be avoided.

• System attacks:

  Cybersecurity threats and hacks account for about 10% of all reported downtime. Though the least common cause of system problems, cybersecurity breaches can be the most malicious and harmful of these issues, as they are often perpetrated with the intent to steal information or damage data. Most of these attacks can be avoided with appropriate security systems and software.

• File link errors:

  Migrating files or restructuring file systems can result in broken file links, which can cause serious data loss issues down the road. These errors are estimated to consume an average of 13,967 man-hours in labor, and $279,340 in costs per major project. This can be avoided by using a link protection tool. LinkFixer Advanced is currently the only automatic link protection tool on the market.

Protecting Against Downtime

Despite all of the costs and sources of risk, many companies still do not employ preventative measures to protect against outages. In fact, 56% of North American businesses don’t use a formal recovery policy, yet all polled businesses admit that a data loss would be disastrous to their business.

Putting protection against downtime in place is relatively simple, and it saves your business a great deal of time and money in the future. Some of these preventative measures include:

• Redundancy:

  About 57% of companies use more redundancy in their networks to help prevent issues due to equipment failure or service provider problems. While redundant equipment or services can be costly in the short-term, they provide a great deal of long-term protection, especially considering that the primary cause of downtime is equipment failure.

• Network monitoring systems:

  About 64% of companies say they use network-monitoring systems to help reduce their downtime, making it the most popular prevention method. These monitoring systems will both look for security threats and potential causes of outages, serving as an early warning system if a system is about to go down. The last thing you want is for your first notice of a system failure to come from a customer.

• Employee quality:

  Better hiring and training processes can make a world of difference in preventing system outages and ensuring important data isn’t lost due to a lack of training or knowledge. Part of this involves training new employees on how to use your systems properly, without allowing them access to critical processes that may cause errors.

The same goes for employees moving up the corporate ladder. As employees rise in rank and become administrators, they need to be properly trained on how to use the software at each level to avoid critical errors.

A Monitoring System You Can Trust

If your company is looking for new preventative measures against system outages and errors, LinkTek has a solution to help put your mind at ease.

LinkFixer Advanced is currently the only patented link protection tool on the market. You can use LinkFixer Advanced as a tool to help you migrate your data or as a tool to fix broken links after you’ve completed a migration. No matter how many broken links you have, LinkFixer Advanced can handle it with a few simple inputs from you.

If you want to learn more about the causes of network outages or about how LinkFixer Advanced can help save you time and money, sign up for your free trial today!