Downtime costs tend to be nebulous, and seemingly impossible to pinpoint. Let us show you…
Many companies make the mistake of assuming that downtime costs are immediate and short-term. What many don’t realize is that the lasting consequences and costs of downtime can do the most damage.
The Time-Dependent Costs
The hourly cost of downtime depends not only on the nature of the downtime itself (think a hurricane versus planned maintenance), but also on what time of day it occurs.
Consider this example: an online US-based retail company with a North American clientele has its website go offline at 2 a.m. EST. Common sense and purchasing trends tell us that this is considerably less damaging to business than if it were to go offline at 3 p.m., not only because fewer clients will be purchasing at 2 a.m., but less employee productivity will be affected. In contrast, if that same company has an international clientele (think European or Australian time zones), going offline at 2 a.m. EST would seriously affect business.
Think about how differences in the time of day influence the impact of downtime on your company. These differences can be tricky; for instance, for that company with an overseas clientele, having downtime when most domestic employees aren’t working (like 2 a.m.) means that their productivity won’t be affected, but it also means that they won’t be able to help with customer assistance or getting systems back online. Similar complications exist for downtime occurring on weekdays versus weekends, or holidays.
Factoring Time-Dependent Costs Into Loss Estimates
Based on these apparent variations in downtime costs, and the fact that unplanned downtime can happen at any time, a simple technique to estimating its hourly cost is to use the average of all hourly costs across an entire week – weekends included. Since downtime from system overloading is at risk specifically during peak periods (making this downtime some of the most costly), be sure to weight the average accordingly.
While planned downtime is typically less costly (since it can be scheduled for non-peak periods, or after hours), if it necessitates overtime payments or shift periods, factor these costs into the calculation as well.
Impact on Reputation and Customer Loyalty
While these consequences might seem obvious, they’re worth hearing again: the lasting costs from an injured reputation and customer loyalty can be the most damaging, and this damage is not included in a sales per hour estimate. While some customers’ business can be reclaimed when systems are back online, other customers take their business elsewhere and become loyal to your competitor instead. This loss must be accounted for when assessing total lost sales by increasing the impact percentage. If a lot of your business is generated from loyal customers and customer recommendations (or word of mouth), then the impact factor will be that much greater.
Unfortunately the incurred cost from a damaged reputation and customer impact is an elusive number to quantify, and determining lifetime value requires a long history of data. Because of this, an educated guess must suffice. Some companies choose to believe that the future will reflect the past.
Long-Term Costs of Downtime in a Nutshell
Factors to consider for time-dependent downtime costs include:
- Overtime fees
- Labor productivity
- Employee work hours
- Client base (location)
- Customer service capabilities
- Ability to get systems online depending on time of day
- Low and peak periods (weekdays, weekends and holidays)
Factors related to reputation and customer loyalty include:
- Financial Markets
- Business Partners
- Business that can be regained
- Business that counts on your availability which may be lost
A simple aid is to add high availability data replication (HA) to your repertoire of business solutions.
For more information on downtime costs and how to prevent them, contact us today at