Data Center Outages; The Costs
The average outage costs almost $700,000 per incident, according to a recent study.
You have lost your data center. All your applications including Unified Communications are down. The cost to respond to and resolve the outage is high. There is also the loss of revenue, reputation and profit. The overall average cost is $690,204 per incident, with a likely range from a minimum of $74,223 to a maximum of $1.7 million per organization, according to the Ponemon Institute, an independent research and education institute that advances responsible information and privacy management practices within business and government.
The report "2013 Cost of Data Center Outages" provides a wealth of information about data center outages collected in a study from 4Q13. The Ponemon Institute conducts empirical studies on critical issues affecting the management and security of sensitive information about people and organizations.
Calculating the Costs
According to the report, the costs incurred due to an outage fall into three categories. First, there are the direct costs that can be determined by the outlay of cash to organizations such as vendors, providers, and consultants. You have the bills to prove it.
The second source of costs is more difficult to calculate. These are internal costs, mostly for the IT staff and others who would normally be working in their jobs and not focusing on the outage and its resolution. Be careful to not underestimate these costs. The greater the costs incurred, the more likely IT can justify investments that will mitigate or prevent the outage in the future. Keep in mind that there is a cost for delaying other work that IT could be performing.
The third cost area to consider is opportunity costs. This is lost business, lost reputation, and lost market share. The marketing department would be the best source for these costs. You may have some trouble collecting this information though, since this may not be easily calculated and may take some time to determine. It may be months before the opportunity costs become apparent.
What are the Outage Costs?
The total cost of an outage is thus the sum of many costs to the enterprise. The following list can help ensure that the IT department doesn't underestimate the final costs:
• Detection--This is the cost of monitoring and discovering if, when, and how much of an outage has occurred. This also includes the cost to fully describe the outage and its effect on the enterprise.
• Containment--Outages can have a domino effect. One outage may start another outage or cause the existing outage to worsen. There is a cost to limiting the outage influence.
• Recovery--This is the effort to restore the systems and networks back into acceptable operation.
• Post recovery--There may be other incidental costs such as informing users and customers about the outage and what will be done to prevent the outage in the future.
• New or replacement hardware/software--Hardware can fail or software may have to be replaced.
• IT staff--Considerable IT labor may be expended during and after the outage. This labor expenditure also interferes with ongoing projects. Delayed projects may have a cost impact as well.
• User productivity loss--End user downtime and the time to make up for the downtime needs to be calculated.
• Third party expenses--These expenses are probably due to engaging outside services to review the outage and recommend resolutions. There may be reports for regulated industries that need to be produced by independent third parties.
Hits to the Enterprise
Enterprises are in business to generate revenue and profit. An outage will probably impact revenue. This includes revenue lost during the outage as well as revenue that never comes to the enterprise because customers tend to avoid doing business with an enterprise whose processes suffer these sorts of failures.
Enterprise customers may not return, driving churn. The reputation of the enterprise will have to be rebuilt. During this period, there will probably be less revenue with higher costs, so profit decreases. In some cases, the enterprise will have to expend considerable marketing efforts and cost to regain lost customers.
Where the Costs Are
Ponemon studied the outage costs and compared its 2010 and 2013 findings. In all categories, the costs have increased. The two biggest costs are business disruption and lost revenue. Third-party costs were the smallest in both the 2010 and 2013 surveys.
Comparison of FY 2010 and FY 2013 activity cost categories from the Ponemon report
According to the report, there is a "significant variation across nine cost categories for FY 2010 and FY 2013. The cost associated with business disruption, which includes reputation damages and customer churn, represents the most expensive cost category."
If you suffer an outage, your staff will eventually have to prepare a report on the incident, covering what happened, why, and how this can be prevented in the future. There will be immediate costs that can be easily determined.
Provide a preliminary report of the costs, and state that the report covers an underestimate of the costs. Schedule a second, more detailed report that includes the opportunity costs. Use the cost data to justify the budget for IT so that a reasonable investment can be made to prevent the next outage. C level executives want a reliable environment, but they don't always want to pay for it. The final report should also estimate what can happen if the investment is not made.