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The Cost of Downtime

February 14 2020 | By Ed Collins

Datacenters: The Good and Bad

Modern enterprises live and die by their applications, many of which are housed in datacenters. If a datacenter goes down, the applications go down with it, crippling IT, and by extension, the business. Consequently, business viability today is a function of information technology (IT). The implications are sweeping and clear: to protect IT is to protect the business.

Given that it is impossible to make a physical datacenter fully failproof, IT must be able to survive a datacenter outage--if not, the business's ability to survive is in real peril. Statistics show that, eventually, all businesses are affected by IT downtime. As a result, they are increasingly looking towards cloud-based subscription services, such as disaster recovery as a service (DRaaS), to expand their existing datacenter capabilities and satisfy their business continuity and disaster recovery (BCDR) plans.

Survivability, By the Numbers

Emerging technologies, such as the Internet of Things (IoT), are driving more data through datacenters, forcing companies to modernize their applications and data services to fully leverage new efficiencies. However, technology adoption is a double-edged sword, leaving a wake of considerations (in some cases, headaches) for IT staff. The more a company depends on IT for normal business operations, the greater the impact IT downtime represents.

According to the Technology Services Group’s The Real Cost of Business Downtime1, in Europe, the average company suffers at least 14 hours of IT downtime annually, which translates into 552 person hours lost per year. Companies estimate that these periods of downtime reduce the ability to generate revenue by 37 percent.

According to Ponemon Institute’s Cost of Data Center Outages 2016 Report2, the average cost of a datacenter outage has steadily increased from $505,502 in 2010 to $740,357 in 2016, which represents a 38 percent net change. This study also showed that an unplanned outage may result in losses over $17,000 per minute; however, on average, that figure is roughly $9,000.

In The Growth Opportunity for SMB Cloud and Hybrid Business Continuity3, IDC found that about 80 percent of small and medium-sized businesses (SMB) have suffered downtime with a cost of $82,200 - $256,000 per incident.

Studies have also consistently shown that the cost of downtime is linearly related to its duration. Consequently, a key metric in business continuity planning is time to recovery (TTR). Magna5 reports4 that 90 percent of businesses that experience a disaster and do not resume operations in five days fail within the first year. The unprepared enterprises that do survive face millions of dollars of damages.

The Economics of Downtime:  Direct, Indirect, and Opportunity Costs

The direct cause for a datacenter outage represents only one of many costs to business--just as a blown tire on a car is only one of many costs to the person driving to work. All associated costs must be trued up to fully assess the business impact of IT downtime. Other quantifiable--and often more expensive--costs to outages include indirect costs, such as staff productivity, and opportunity costs, such as, lost sales. Average direct and indirect losses are about equal and comprise around 88 percent of total losses, whereas opportunity losses make up about 12 percent2.

The best known costs of IT downtime include:

  • Lost sales revenue
  • Lost employee productivity (internal business processes cease)
  • Corruption of and gaps in mission-critical data
  • Damages to equipment and associated assets

There are other potentially significant considerations as well:

  • Cost of remediating systems and core business processes
  • Damaged reputation with customers and key stakeholders
  • Degradation of employee morale
  • Regulatory, compliance, and legal penalties (including potential litigation fees)
  • Loss of insurance discounts; Contract penalties
  • Disruption of supply-chain

Responding To Threats With Business BCDR Planning

Individuals outside of professional IT services tend to perceive weather-related disasters as the primary impetus for BCDR planning. It turns out that weather phenomena are the least costly, followed by accidental human error. As most IT professionals will attest, it is equipment failures that result in the highest outage costs, followed by rapidly increasing cybercrime attacks. It’s this latter issue that renders all datacenters potential targets, given that cybercrime constitutes a lethal threat regardless of geography or even equipment.

Cybercrime represents the fastest growing cause of datacenter outages, rising 20 percent between 2010 and 20162. Many companies underestimate the size of the cybercrime threat. Given that ransomware is so profitable, cybercrime may be the most costly threat of all. Not only are there direct, indirect, and opportunity losses incurred while IT is held hostage, there’s the additional cost of potentially paying off the hijackers.

Whatever the threat may be, the bottom line is to restore operations back to normal as soon as possible and with minimal data loss. At this juncture, many IT professionals consider data loss a life or death situation for their business.

The DRaaS Option Is Gaining Momentum

According to MarketsandMarkets research5, the DRaaS market size is projected to be USD 12.54 billion by 2022, from USD 1.72 billion in 2016, at a Compound Annual Growth Rate (CAGR) of 41.8 percent during the forecast period (2017–2022).

The issue for many companies, especially of the SMB variety, is the prohibitive cost of rolling out a traditional BCDR solution. Capital expenses tied directly to instantiating a redundant datacenter often outstrip a company’s budget. As a result, many businesses are forced to press their luck by relying on a severely debilitated (or nonexistent) BCDR solution. Fortunately, the advent of DRaaS means that smaller budgeted companies are able to enjoy the same service level assurances large enterprises do without the upfront cost of deploying another datacenter and employing more talent to maintain it.

While early adopters of DRaaS have tended to come from the SMB market, experts believe that as platform integration, instrumentation, and orchestration tools mature, an increasing number of larger enterprises will opt for DRaaS, recognizing the distinct advantages over company owned datacenters. These advantages include, but are not limited to, the benefit of financing DRaaS via a subscription service through operating expenses instead of capital expenses. DRaaS also facilitates a pay-as-you-go model, which is particularly attractive to businesses that rely on highly elastic applications for success.

Introducing Nutanix Xi Leap DRaaS

Not having a viable BCDR solution amounts to gambling with the very lifeblood of an enterprise. Fortunately, Nutanix Xi Leap provides a simple, flexible, and affordable subscription-based solution that features one-click testing with minimal disruption--no more waiting until disaster strikes to see if your DR solution actually works. See for yourself how easy it is to provide your company the assurance of business continuity by taking a Xi Leap Test Drive6 today!

REFERENCES:

  1. Technology Services Group’s INFOGRAPHIC: The Real Cost of Business Downtime, https://www.tsg.com/resource-centre/infographic-real-cost-business-downtime
  2. Poneman Institute’s Cost of Data Center Outages 2016 Report, https://www.vertiv.com/globalassets/documents/reports/2016-cost-of-data-center-outages-11-11_51190_1.pdf
  3. IDC’s The Growth Opportunity for SMB Cloud and Hybrid Business Continuity, https://blog.tierpoint.com/draas-adoption-driven-rising-downtime-costs
  4. Magna5’s Top 6 Disaster Recovery Planning Mistakes Businesses Make, https://www.magna5global.com/top-6-disaster-recovery-planning-mistakes-businesses-make/
  5. MarketsandMarkets’ Disaster Recovery as a Service Market by Service Type (Backup & Recovery, Real-Time Replication, Data Protection, and Professional Services), Service Provider, Deployment Model, Organization Size, Vertical, and Region - Global Forecast to 2022, https://www.marketsandmarkets.com/Market-Reports/recovery-as-a-service-market-962.html
  6. https://www.nutanix.com/products/leap

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