The Cost of Not Doing Business

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The Cost of Not Doing Business

The Cost of Not Doing Business

data-recovery-hdd-27Over the past week with the coming of Hurricane Matthew, I have been asked a few times about the costs of downtime. I answered many questions but I left with the feeling that I had not done a very good job in translating the things that I know into things that my clients could easily digest.

So I have been giving it some thought and putting it together.

The standard response to heightening a company’s Business Data Recovery (BDR) plan is skepticism until that company has experienced serious downtime. Let’s face it, nobody wants to lay out money for something that they perceive as generating no revenue, is not an immediate benefit to their company, and may never actually be needed. Many business owners believe that they can afford to be down for an extended period. In most cases, I tend to disagree. Let’s do the math:


The formula

What is the best way to figure out the cost of lost revenue to your company? What kind of formula can we use to estimate the value of establishing and paying for a BDR plan?

Several factors contribute to the total cost of downtime:

Cost of Downtime (per hour) = Lost Revenue + Lost Productivity + Cost to Recover + Cost of Public Perception 

Let’s break this down a bit.

Lost revenue

If your business is down, you cannot generate revenue. Here is a quick map to calculating lost revenue:

  1. Identify which areas of the business generate revenue.
  2. Calculate the revenue per hour generated by each of these areas (avg. revenue per week /40 hours, or avg. revenue per month/30 days).
  3. Estimate how much each revenue-generating area relies on their network functioning. For instance, if you are a retail establishment, maybe only 10 percent of your business is dependent on uptime, since people can still purchase goods from your store even if their POS system is down…unless of course, it’s a cloud-based system.
  4. Add up these values to get a total cost of downtime per hour.

Lost productivity

The cost of staff productivity is also something that needs to be considered. If your company’s staff is unable to perform revenue generating functions because they are unable to access data or they are spending time trying to get the systems back online, that’s going cost money as well.

  1. Figure the rate per hour of an average employee.
  2. Estimate how much of each employee’s productivity is based upon their ability to use the network
  3. Multiply the employee’s hourly salary by their percentage in step 2. If the Office Manager earns $15/hour and they can only work at 33% when the network is down because he\she cannot access the file servers, the cost for that position is about $10/hour of downtime.
  4. To get your cost, you can either calculate for each employee or just average the cost… the choice is yours.

Cost to recover

How much does it cost to recover from an outage? This can be difficult to estimate as it will depend on intangibles like the extent of the outage or data loss. Here are a few factors to consider when estimating this cost:

  • What services are going to be needed to recover the data? A failed hard drive that was not being backed up may have to be sent out to a company that specializes in that sort of thing. Cabling?
  • Hardware replacements?
  • Will the loss of data cost you?
  • If that lost data will cost you, will it be just an immediate cost or are you looking at something that could have repercussions for quite some time?

Intangible costs

These costs are the most difficult to figure as will certainly vary from business to business. What factors are specific to your business?

Calculating the final cost

Once you have these numbers, you can plug them into the formula above and get a ballpark on what downtime actually costs. This can help you justify the cost for a robust backup plan that includes local offsite backups, virtualization, and fail-over systems like domain controllers and file servers.

Any questions? Please give us a call at Gnosys Networks and we will help you through the murky waters of Business Disaster Recovery.