IT Disasters – Part 2 – Costs and Impacts (Video)

Roger Walton talks about IT disasters, and in this part, addresses the costs and impacts of an extended IT outage.

In this segment, I’d like to address my second question on IT disasters; how would an extended IT outage impact your business and how would it affect your bottom line? There are really four different impacts, all of which have financial repercussions.

First, there’s the cost to your business of the outage itself. If your system is down for three business days, then no processes that typically rely on your IT systems can get done. This may include building your products, delivering your services, processing shipments, generating invoices, tracking projects, running sales processes, running payroll, and many others. Of course, you may be able to substitute a manual process for some of these, but a replacement process will take time to get in place and usually be far less efficient. The ultimate cost, your business will depend very much on how you use IT and how much extra capacity your team has to deal with unplanned events. A good rule of thumb is the cost of each day’s outage will be around your average revenue per day, or to put it another way, $4,000 per day for every million dollars in annual revenue.

Second is the cost of repairing your systems and facilities from the outage. This can vary widely, of course, depending on the extent and type of damage, and have in mind that you may need to pay emergency rates for services because of the lack of notice. Once silver lining is the recovery cost is the one area that is most likely to be covered by your business insurance.

The third cost is the time and effort it takes to update all of your databases. This work needs to document both the transactions that took place during the outage itself and also to reproduce transactions that took place between the time of the outage and the last good copy of your data that your systems were restored to.

So, for example, if your outage was caused by irreparable database corruption and the last clean copy of the database was from five days before the outage, you would need to recover or reproduce an additional five days of transactions to fully recover. Most of this recovery work needs to be done by your team and can create a substantial additional burden in the period following the outage, which you will see in the form of overtime costs, reduced production, or a combination of the two.

The fourth cost that may result from a prolonged outage is reputational. Typically, your clients may forgive a single outage, but repeated outages or a single outage accompanied by poor unplanned communications may have more negative consequences and potential clients in the midst of their evaluation decision processes are likely at greater risk. The bottom line is that just a single IT disaster can have a big negative impact on your bottom line.