The Cost of Downtime

Figuring out the cost of downtime is the first step in creating a business continuity plan.

Here’s how to do it:

Calculating the cost of downtime can help you set your RTO and RPO objectives so there are no additional nasty surprises during and after a system outage. Knowing your cost of downtime can also help senior management understand IT system disaster recovery hardware and software budgets. While there is a simple formula below for calculating your cost of downtime, you can also consider these questions:
• How much money would your company lose if you lost all your transaction data for the last twelve hours, or even the last ten minutes?
• What is the value of the knowledge contained in your company’s last twelve hours worth of e-mails and e-mail attachments? What would it cost to have your engineers recreate the last twelve hours of work?
• What’s your exposure if you can’t produce this data in compliance with Sarbanes-Oxley, HIPPA, SEC and other regulations?

Here’s a simple way to estimate the average cost per hour of downtime.
Cost Per Occurrence = (To + Td) x (Hr + Lr)
To = Length of Outage
Td = Time Delta to Data Backup (How long since the last backup?)
Hr = Hourly Rate of Personnel (Calculate by monthly expense per department divided by the number of work hours.)
Lr = Lost Revenue per Hour (Applies if the department generates profit. A good rule is to look at profitability over three months and divide by the number of work hours.)

Finally, define the recovery objectives for your applications. The best way to quantify your objectives is with a Recovery Time Objective (RTO) and Recovery Point Objective (RPO) for each application. Knowing your RTO and RPO objectives will help you determine what software and hardware features and functionality are required for your backup and recovery architecture.