Getting to grips with the costs behind IT downtime

Peter Groucutt, managing director of Databarracks explains how organisations can strengthen business resilience by better understanding the cost of IT downtime

IT is vital to how we supply and support business services. If delivered effectively, it can streamline processes, bring about significant cost savings and improve productivity across an organisation. But there is another side to this dependency; one that is often less considered – the financial cost to the business when we lose those IT services.

IT downtime is something that effects organisations in different ways, but will always carry a cost with it. For some firms this impact will come instantaneously through a loss of sales – a retailer, for example having its website down, or unable to take electronic payments in store could see customers shop elsewhere.

Other types of businesses may not notice a loss of revenue immediately, but can endure a much steeper curve the longer staff are unable to do their jobs.

Data from our annual Data Health Check survey, which provides insight into the changing priorities and attitudes towards IT from over 400 IT professionals, revealed that 35 per cent of organisations are unable to calculate what an IT outage would cost their business.

For those able to quantify the cost of an IT outage, almost a quarter (23 per cent) said that they incurred costs ranging from £10,000 up to more than £1million per hour.

Given that this figure is so high, it is even more of a concern that over a third of organisations don’t know how much an outage would cost their business. It’s clear that education is needed but knowing where to start isn’t always obvious.

Understanding what the cost of downtime means for your business allows you to make better informed decisions on IT resilience. Again, looking at the data from the Data Health Check survey, the results showed that financial constraints represented the biggest challenge (34 per cent) to improving recovery speed.

Critically, it will always be difficult determining or securing budget for IT resilience if you’re not able to assign real monetary values to specific areas impacted by an outage.

Introducing a downtime cost into your decision making process immediately puts any investment into context. When breaking down and contextualising these figures, it’s critical to be aware of and account for all costs.

The first to consider are tangible costs including things such as lost revenue, staff costs and the associated costs which are needed to fix an outage.

These will often be well known to a business and will be budgeted for. But a business must look beyond these to get a more holistic view of what impact an outage will have on it financially. ‘Hidden’ or intangible costs must therefore also be accounted for, including things like damage to reputation and customer defection.

These can often outweigh the more immediate costs, but because they are less easy to estimate they are often excluded from calculations.

Take quantifying the damage to a brand as an example. Last year, British Airways made headlines after suffering a major IT outage which meant that staff were unable to check-in passengers, resulting in thousands of flights being cancelled. An estimated 75,000 customers were directly impacted.

As a publicly listed company, BA was able to gauge an idea of the cost in reputational damage after €400 million was wiped off the share value of its parent company, International Airlines Group (IAG).

The loss in value is the market reacting to the incident. For organisations that are not publicly listed, this feedback isn’t always as immediate because there is no share price to focus on, so you must consider the consequences of reputational damage.

Putting this into context of a small, independent business, damage to reputation might be felt through a loss of future revenue. For example, what would happen if an independent hotel suffered an IT outage, meaning it was unable to check in and out guests for a small period of time?

Customers may feel less inclined to stay at the hotel again and consider using a competitor in future visits. And what if this incident lasted for a full day or over a weekend during peak trade?

Customers may even face complexities in their travels and could vent their frustrations through online reviews and to friends and family. The business would begin to develop a reputation for being unreliable which will result in less custom in the future.

In the case of a minor outage, perhaps the loss might just be a few customers not using the hotel again later in the year.

For a larger outage, that could perhaps equate to the loss of a major business customer then choosing to use a competitor. Agreeing an organisational cost for downtime for both short and longer outage gives you better insight into the true impact of any IT outage suffered.

IT investment is critical to business operations not only in terms of delivery of services but also safeguarding against threats. It is imperative that businesses become aware of where these threats lie and what the cost to the firm from any downtime experienced will be. From this, the necessary resources needed to improve resilience can then be made provisioned for.

Peter Groucutt is managing director of Databarracks

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