With so many potential problems that could cause IT downtime within small to medium-sized businesses, it makes financial sense for SMEs to understand how much outages could cost them. Many SMEs don’t realize it, but the average small enterprise loses more than £41,000 in revenue due to IT failures each year.1

But these costs are unique to every business. Knowing specifically how much downtime will cost an organization is critical for understanding what kind of investment in backup and disaster recovery makes sense for its business. Having a solid ballpark number allows these organizations to use cold, hard facts to weigh their economic tolerance for how much data and downtime they can afford to suffer, and to compare it against the investment they’ll choose to make in backup and disaster recovery systems. Causes of Downtime Before delving into costs, it helps to understand what can cause downtime within a typical SME’s IT holdings. Most downtime events fall into two categories: everyday disasters and catastrophic sitewide disasters. Everyday disasters usually account for 95% to 98% of downtime events at SMEs.2 

As common as these incidents may be, these disasters are far from mundane, so don’t let the everyday designation offer you a false sense of security. Sometimes, something as simple as a server crash could cause six hours of downtime for an email system—so while something may be an everyday disaster, that doesn’t mean it isn’t costly. These kinds of issues can manifest themselves in a lot of different ways. For example, hardware issues such as fried motherboards, hard drive failures and bad fans and power supplies can all knock out systems for some time. These are typically the most common sources of downtime, accounting for about 55% of resiliency issues within SMEs. Further exacerbating these issues is the fact that even when these systems are covered by warranties, that may not be a guarantee that the manufacturer can actually get a replacement shipped and installed in a timely manner. 1 “IT Downtime Costs $26.5 Billion In Lost Revenue,” InformationWeek, May 24, 2011 2 “Most SME Downtime Caused by Hardware Failures,” Midsize Insider, Feb. 21, 2013 3 Calculating the Cost of Downtime in Your Business Issues such as software or database corruptions or deleted items can also pose hazards. 

Similarly, connectivity problems from misconfigured networking gear, interruption of Internet access and fiber cuts can also cause meaningful outages. And, finally, lack of redundancy in systems such as firewalls, switches, Wi-Fi components, routers and servers can all contribute to downtime. In many cases, these problems are triggered by a user error of some sort. User errors are the top causes of downtime for SMEs, causing about a quarter of incidents. Meanwhile, site-wide disasters happen less frequently—but when they do occur, they have the potential to be ruinous for an SME that’s dependent on its IT resources. 

These are the types of events that most people immediately associate with the word disaster— catastrophic incidents like fires or floods, or natural disasters such as tornados, hurricanes and earthquakes. When these disasters occur, their effects are rarely isolated to certain systems or servers. The ultimate lesson is that it is almost inevitable that an SME will at some point or another face some form of downtime. The question is, how much will these events hit their bottom line? And what kind of investment in business continuity makes sense to offset these potential losses? In order to answer these questions, organizations need to understand how much downtime will cost them when it affects certain systems and hits the organization site-wide. This can then be used to weigh against the likelihood of the downtime and the cost of the preventative disaster recovery measures needed to offset the potential costs. 

Understanding the Cost of Downtime Downtime tends to cost organizations most when it hits missioncritical systems or other systems that employees need to do their daily work. So the basic utilities like Internet access, phones and email will all obviously take a toll on the business when they’re down. But even when these systems are up, when line-of-business applications, cloud applications or any other system that’s needed to book revenue or perform services goes down, a business feels a financial impact. 4 Calculating the Cost of Downtime in Your Business Those dollars-and-cents consequences tend to be felt both as tangible hard costs and less-quantifiable soft costs. Hard costs include things like lost revenue and customer churn. Soft costs include damage to brand reputation and customer satisfaction due to service-quality degradation. Calculating Downtime Costs Obviously, soft costs can be extremely tricky to calculate. So in order to come to a reliable estimate of your cost of downtime, it makes sense to focus primarily on hard costs. 

One simple but effective calculation to be made is the following: (Revenue/workdays per year) / open work hours As you make the calculation, be sure to factor in whether downtime would be complete or isolated based on concentration of offices or workplace. So, say you had a healthy midsized company that was pulling in $20 million per year. The company is open an average of 23 days per month, with about 12 operating hours per day. And about 50% of the firm’s mission-critical employees work at company headquarters. To understand the cost of downtime for critical systems at company HQ, you’d start with that simple calculation: ($20 million/276 workdays)/12 hours per day = $6,000 lost in revenue per hour of downtime company-wide Then you’d account for site specificity: ($6,000 per hour lost company-wide)*.50 = $3,000 per hour of downtime at corporate headquarters While soft costs are more difficult to calculate, SMEs should still keep these in mind when weighing the risks—when communicating these numbers to decision makers, it helps to verbally explain that these are minimum baseline costs. Once a downtime hard cost has been estimated, organizations can start to think about their tolerance for downtime or outages. 

The basic gist of these tolerances is to understand just how much financial impact the organization can absorb without too much business disruption. Calculating the Cost of Downtime in Your Business This includes recovery point objectives—how much data loss can you tolerate? And recovery time objective—how much downtime can you afford? Some businesses in innovative industries may have a very low tolerance for recovery point objectives, lest the loss of something like engineering blueprints set back projects months or years. And other businesses in service industries might have low tolerance for recovery time objectives due to demanding customers requiring 24/7 care. It all depends on the business. Solution Once those tolerances have been set, that should drive your disaster recovery program. Each component of a disaster recovery program should be designed to ensure that any one disaster event will never yield downtime or data loss that is above those tolerance levels. These components include: 

• Redundant infrastructure and connectivity.

• Backup and disaster recovery systems.

• Services and processes to rapidly recover key systems to mitigate the cost of downtime.

Perceptive IT supplies a robust portfolio of backup and disaster recovery services that empower managed services providers to deliver end-to-end business continuity services to business clients. Interested partners may learn more at perceptiveit.net