IT is a vital component of any business. It helps streamline general practices, deliver online services and improve overall productivity. But since so many businesses rely on IT in their day-to-day operations, any prolonged period of downtime is a huge issue.
IT can impact an organization in numerous ways, including losses in sales and damaged brand reputations. As such, it’s often difficult to calculate the actual costs incurred. The following article breaks down the true cost of downtime in the event of a disaster.
Financial Implications
One of the primary concerns for any business is related to the financial losses caused by IT downtime. It typically arises due to an immediate loss in sales, for example, an online retailer that is unable to take card payments. In other cases, a loss of revenue may be felt later down the line.
According to 2019 statistics from a Statista survey, 25% of businesses reported an hourly cost of between $301,000 and $400,000. This is firstly dependent on the size of the organization. Fortune 500 companies will understandably suffer significantly more losses to revenue compared to smaller companies. Business models are also a key factor. The more your organization relies on uptime, the more you have to lose during downtime.
A quick way of calculating downtime costs is to simply multiply total minutes of downtime by cost-per-minute. However, this often produces inaccurate estimates given some organizations are unsure of their exact costs-per-minute. There are also other factors to consider, such as staff costs and repair costs.
While many businesses solely focus on the financial implications of downtime, some fail to consider more intangible costs such as the brand image.
Reputational Damage
The implication of downtime on brand image is often unaccounted for because it’s difficult to quantify the true cost of reputational damage. For instance, an organization may experience a loss in sales for a sustained period following downtime. But other macro factors could contribute to these losses as well, for example, an economic recession.
To help determine the effects of downtime on brand image, an organization should observe its share price following a disaster. In 2017, British Airways had a server outage, which cost them approximately £80million ($100 million) in financial losses – stranding 75,000 passengers on a busy holiday weekend. It wasn’t until later that British Airways could measure the reputational damage.
A few days after the incident, British Airways owner, International Airlines Group (IAG), lost £170 million in value. Their share price fell by over 4% in just one day. This is a perfect example of why organizations must account for these indirect losses in addition to direct financial costs. Brand reputation and share price are just as important.
Dealing with Newer Threats
As technology continues to evolve, so too do the potential threats to IT systems. While a lot of organizations might be prepared for power outages, server failures or natural disasters, many are ill-equipped to deal with increasingly sophisticated cyber threats such as ransomware attacks.
Climate change has become a growing issue as well. Organizations around the world are facing increasing threats from unusual weather patterns. This is placing incredible strain on IT departments as the risk of downtime continues to rise.
Minimizing the Cost of Downtime Through Disaster Recovery Planning
Many businesses that are struck by disaster without a strategic recovery plan in place can never recover from the damage. As such, IT managers must implement a robust policy to minimize the cost of downtime. It allows organizations to quickly identify, contain and solve any issues through various measures.
What Should a Disaster Recovery Plan Include?
Before creating a disaster recovery plan (DRP), an organization must analyze their business processes and continuity needs. The organization will need to perform a full risk analysis thereafter.
First, a DRP should include a step-by-step guide on how to deal with the most common disasters. This includes anything from application failures to citywide power outages. It must contain a full inventory of all business assets and services, which helps prioritize the most important assets in the event of a disaster.
A DRP also outlines a recovery time objective (RTO) for the most valuable assets. The RTO refers to a target amount of time an organization must aim to get their business applications back online. In addition to this, the DRP must state a recovery point objective (RPO), outlining the age of files, which must be recovered from backup storage to resume routine operations.
If an organization’s primary location is destroyed, they will need a backup option. A DRP will include the details of a temporary offsite location in addition to an inventory of essential equipment. Lastly, a DRP should be regularly tested and updated to ensure it is reliable in the event of a real disaster.
In Summary
To completely understand the true cost of downtime, businesses must look beyond a direct financial loss as the sole contributor. Brand image is extremely influential as well, though often difficult to measure. Organizations should analyze their share price to help quantify the reputational damage and get a clearer picture of the total loss incurred.
With a growing number of threats to IT systems, businesses must create and implement an informed disaster recovery plan to minimize their losses. Not doing so could have devastating consequences that in the worst cases have led to companies either being forced to close immediately or soon thereafter.
