Understanding the Cost of Network Downtime

You may have noticed that the IT team of your company is the busiest team in the office. Your manager requests an IT technician or supervisor the moment a terminal or a phone does not seem to function properly. But do you know why it is so important to have all systems and networks on site running seamlessly? The reason is the cost associated with network outage and blackouts. Read on to know why internet redundancy and downtime is a huge threat to any business.

For a perspective on how downtime affects business, consider the following examples of major downtime incidents:

• In March 2015, a 12-hour outage on the Apple Store cost the company $25 million in sales revenue.
• The next year in August 2016, an outage at a Delta Airlines operations center lasted for five hours, resulting in nearly 2,000 cancelled flights and losses over $150 million.
• A few years later in March 2019, a 14-hour blackout at Facebook led to an estimated loss of $90 million in revenue in addition to a 2% dip in share prices.

As you can see in the above instances, network downtime leads to huge losses. Now, these are only a few instances related to industry leaders. With their million-dollar operating margins, these businesses are perfectly equipped to weather out such occasional financial storms. However, such situations can spell disaster when it comes to small companies and startups. It is important to understand how such instances of outage can affect a business and the backup connectivity procedures required to handle blackout situations.

How does network redundancy affect a business financially?

According to a survey conducted in 2014 by renowned research firm Gartner, the cost of network downtime can be anywhere between $200 and a whopping $5,600 per minute! The amount can vary depending on factors like company size and the industry vertical under which a business is registered. This figure has been on the rise since 2014. A subsequent report released in 2016 raised the average cost to range from $400 per minute to nearly $9,000 per minute. As per these studies, the highest downtime cost can go up to $17,000 per minute!

A company’s probable downtime costs can be calculated using the following formula:

Downtime cost = average cost-per-minute * total minutes of network downtime

This is based on the size of a business and the number of minutes for which an incident lasted. For small businesses, the average cost-per-minute can be as low as $400. For medium and large businesses, the minimum average cost can go up to $9,000.

The most important areas where internet redundancy can attract losses, are:

• Revenue and profits.
• Decline in employee productivity which increases utilization costs.
• Damage to a company’s reputation.
• Financial crunch due to increased operational expenditure investments.
• Other associated intangible costs.

Factors affecting network downtime costs

There are multiple factors that can result in increased internet redundancy, and consequently – increased downtime costs. The primary factors can be listed as below:

• Industry vertical: Banking and finance companies, government undertakings, ITES companies, healthcare companies, industrial manufacturing, and retail outlets suffer the highest financial losses from network downtime.
• Organization size: The size of a particular business organization is also a significant factor. For companies listed under Fortune 1000 or Fortune 500, downtime costs can go up to $1 million per hour. Where mid-sized businesses spend around $1 million every year on downtime incidents, large businesses can spend up to $60 million or even higher.
• Business model: The business model also affects downtime cost calculations heavily. The more a business depends on network uptime, the greater losses it suffers from outage and blackouts.

Causes of network downtime

Some major causes of internet downtime are listed below. These would also explain why backup internet is necessary to tackle downtime situations.

• Human Error: A common reason for technical outage is lapses on the part of users or back-office teams. Failure to execute regular software updates and database maintenance, use of unauthorized software or applications and accidental disconnection of key network devices – result in downtime.
• Lack of Cybersecurity: Use of outdated or non-existent security software or the lack of a robust, cybersecurity system results in huge losses for businesses. Threats such as viruses, phishing emails, malware, or ransomware – can disrupt the entire network. A hacker or cybercriminal could also steal or damage sensitive information on the network.
• Equipment Failure: Another common cause of internet redundancy is failure of network equipment. This can result from use of low-quality technology or improper care and maintenance. Overheated servers or routers can switch off and disconnect. Power outage and interruptions can also result in network disruption.

The importance of a backup connectivity system

The financial damage due to internet redundancy can be prevented by taking preventive measures proactively. It is important to invest in good-quality networking equipment and a robust maintenance system. Regular IT security training sessions for the workforce, network evaluation and device assessments are crucial counter-measures.