Monthly Archives: September 2011

Calculating The Cost of Computer Downtime and the Value of Uptime

If you think back 10 years, we didn’t expect computers to be available 24×7. They went off line for maintenance activities, usually to back up the data in case of hardware failure.

Computer System Must Be Always On

Today, with a global economy and an always-on culture, your computer systems can’t go down. For many companies, when the computer is off-line, the business stops and there is no revenue. We’ve moved from the position where a computer is a business support function, to the place where the computer is the business.

So do you know how much it costs when your computer or network or data isn’t available? (It doesn’t matter what causes the failure, you still can’t access the systems you need to make money.) If you’re like many executives, you may not have the answer at your finger tips unless you’ve recently experienced a system failure.

A Quick Downtime Calculation

An easy way to get a ballpark cost is to calculate revenue per hour. If you’re a 24×7 operation, divide your annual revenue by 8760 (the number of hours in a year, add 24 more for a leap year). There is a quicker way to make the calculation. If you divide $1 million by 8760, it’s $114/hour/million. (If you make $114 per hour 24×7, you generate $1 million a year.)

Multiply your annual revenue in millions by 114 and you’ll calculate your revenue loss per hour. The currency type doesn’t matter because it divides out of the calculation.

For example if you’re company makes $100 million per year, an hour of computer downtime cost $11,400 an hour in lost revenue. If your business system is unavailable for 10 hours, you lose $114,000 in revenue. What would that do to your business?

If your company is an 8×5 operation, serving customers during normal business hours (such as a bank or a professional services organization), the cost of downtime is more expensive because the revenue is generated over fewer hours. In this case, calculate revenue per hours by dividing your annual revenue by 2080 (8x5x52, roughly the number of business hours in a year, not accounting for holidays.) This works out to be $480/hour/million. So if your operation is an 8×5 $100 million company, an hour of down time costs you $48,000 in lost revenue. A 10 hour outage costs $480,000. Frightening, isn’t it!

These calculations don’t take into account the cost of restoring service, overtime, lost good will, penalties for non-performance, bad publicity, regulatory scrutiny, or customers who switch to your competitor, never to return. When you’re on-line, your competitor is just a Google search away.

But Wait There’s More Costs

We also haven’t included the costs of idle employees or the cost of catching up if your team switches to a manual system that has to be entered later. Nor have we included the costs that could be associated with non-compliant or “illegal” transactions. There are many other factors that are business-model specific.

And it doesn’t take into account seasonality. If you’re a retailer and your system fails during Black Friday, you may not survive.

What’s the Value of Uptime?

You may decide that you need a “high availability” computer system that provides you with stable and reliable service to keep as much revenue flowing as possible. In the world of computers, system availability is rated by up time expressed as a percentage. So a 99.999% up time system (referred to as five nines) has less than 6 minutes of down time per year. A 99.9% up time system (called three nines) is down for less than 8.76 hours a year.

Using the calculations for the cost of down time, a 99.999% system costs $10/year/million in lost revenue and a 99.9% system costs $1,000/year/million in lost revenue. So  for a $100 million revenue company, a three nines system costs $100,000 a year in lost revenue.

A prudent business would look at these calculations and be willing to invest up to the difference between the cost of a three nines system and a five nines system to improve their system availability. (Specifically: 1000 minus 10 or $990/year/million. If you are a $100 million company, you should be willing to spend up to $99,000 per year to improve your system availability because you’re forgoing that amount in lost revenue anyway.)

Yes, this calculation is incomplete, I’m not taking into account variable costs of sales and the other factors listed above. Yet you get the picture: you want more up time.

Five 9’s Isn’t Always Five 9’s

A word of caution: many IT vendors claim to offer five nines (or more) systems. What they are often referring to is “unplanned down time” or system failure. What they don’t include in their claims is “planned down time” or system maintenance requirements (including hardware upgrades, software fixes and upgrades, and system expansion). From a business operations standpoint, you don’t differentiate between planned and unplanned down time. If the system isn’t available, you don’t make money. When planned down time is included, most operations are barely three nines and probably two nines.

But there are issues with increased availability. Traditional data center wisdom dictates that for ever “nine” of added availability, you increase the cost of the data center by a factor of 10.

This is especially true when eliminating planned down time because you must have redundant systems that you can switch to while doing maintenance. The real trick is software fixes and upgrades. Very few software vendors have figured out how to do upgrades without halting the system. And the more complex the system, the more outage tends to be required.

While the 10x more expense per nine is a good rule of thumb, the cloud changes the equation.  Virtually every cloud vendor has a high availability data center (everything is redundant including power grid connections). You get to take advantage of your cloud provider’s high availability data center without investing in it for yourself.

With cloud computing, even the smallest company enjoys high availability computing at commodity prices. And large companies get the reliability they demand at ever decreasing prices.

Ask Yourself or Your Board…

It costs us (your down time calculation) when we don’t have our computer services available. What are you willing to invest to keep our computing systems on-line all the time?

What if we could outsource our computer services to a highly-reliable cloud computing provider and it would cost less then we’re paying now for more services that would grow and shrink instantly according to our needs? Would you be willing to consider this?

Ask Your CIO…

What was our unplanned system down time last year?

What was our planned system downtime last year?

Do you know what it cost for us to have those computer system outages?

What are your plans to decrease both planned and unplanned down time?

What is your system uptime improvement target in nines?

What have you budgeted to make this improvement?

How could we accomplish this using cloud computing?