Recovery Time Objectives: Calculating the Cost

You arrive at the office tomorrow, and an employee hits you with the bad news: all your systems are down. Nobody can do anything. Your business is dead in the water.

The average IT service outage costs businesses $5,600 a minute. The moment that downtime hits, you begin to lose money. This is where recovery time objectives become a vital lifeline for your business.

But how do you calculate the cost of downtime and set meaningful recovery time objectives for your business?

We’re taking a close look at the subject below.

What Are Recovery Time Objectives?

There’s no real mystery to recovery time objectives (RTOs). In short, an RTO is the maximum window allowable between a disaster and the resumption of service.

You can think of your RTOs as your red line. If downtime crosses this red line, it will start to have serious and lasting ramifications for your business. Setting sensible RTOs allows you to turn a reactive situation into an active one, by deploying your response time to outages in a way that makes sense for your business. The most disruptive elements of downtime demand the more stringent RTOs.

Bringing a network back online quickly demands labor, time and money, often at premium rates.

You may survive a half day without email, but downtime in your CRM costs you immediately.

Your RTOs for email services can be more generous than the tight timelines required by your other applications.

There’s no hard and fast rule for figuring out your recovery time objectives. But the most obvious metric lies in the cost implications for your business. To establish your RTOs, you need to know what downtime means for your business.

Calculating the Cost

There’s a lot to think about when calculating your downtime costs. While downtime comes with a wide array of variables, raw figures remain the best way to understand it.

Here are some of the considerations you’ll need to factor into your downtime, starting from the moment downtime hits:

The Impact Event

When a major business disruption strikes, your losses will likely begin immediately.

Those initial losses are some of the most obvious. Disruption of your service means you can’t make money from that service. Whether it’s sales, helpdesk services, or manufacturing, you’ll immediately cease providing value to your customers, which translates to lost revenue.

Then there’s the matter of your employees. Like all business investments, your employees provide ROI. As soon as your business activity ceases, that ROI disappears, and your employee wages become just another cost.

Combined, these generate a minute-to-minute cost that begins to increase in severity as the downtime rolls on.

The Big Picture

As your downtime stretches, things start to take a turn for the worse. Your downtime costs will compound to affect your business at every level.

Payroll, utility bills, and outstanding invoices all rely on your company systems. Depending on the scale of your outage, these basic operational functions could all take a hit from downtime disruption. Without these systems in place, your business faces an existential threat on any real timeline.

Lost hours or days of labor will continue to affect you as your employees struggle to catch up on the backlog and simultaneously conduct business as usual.

Further, downtime affects your customer satisfaction, both existing and new.  If you can’t meet your obligations your business will suffer.  Customers will look elsewhere, and you may suffer a complete loss.

The End Result

Of course, the biggest potential cost to your business is also your final one — closing your doors for good. Yours wouldn’t be the first company to fail to recover from a major incident.

The game of catch-up could prove to be insurmountable for your business. It’s easy to see how a business could fail to recover in such dramatic circumstances, which only highlights the need for a business continuity strategy with calculated RTOs.

The Final Sum

You can probably tell by now that calculating your downtime costs isn’t exactly simple. But the basic elements of your sum will look something like this:

  • Hourly wage multiplied by the number of employees affected
  • Your revenue lost, measured by expected transactions
  • Any additional costs you’ll spend “making good,” such as late delivery fees, mollifying discounts, etc.
  • Further knock-on effects, such as labor lost to playing catch-up.

You may struggle to calculate more nebulous losses, such as consumer goodwill. However, these four elements give you a solid starting point.  This final sum addresses at what point does “downtime cost” exceed your ability to recover from it?

Setting Recovery Time Objectives

With an estimated cost of downtime, you can start to form a picture of what your RTOs need to look like.

Naturally, your RTOs, influenced by downtime costs, will vary from function to function. Front-line functions such as sales and marketing create losses in real-time, representing lost revenue and, in many cases, the bulk of your paid labor hours.

Meanwhile, supporting departments like HR or payroll may be able to go an entire day or so before losses become significant. As a result, your RTOs can be more relaxed in these areas.

This kind of situational thinking also applies to the focus of the downtime itself. Your email server, CRM, and telephony all carry different RTO implications.

To combine those two points, a telephony outage in your HR may result in more generous RTOs, while the same outage in your sales team could demand an RTO measured in minutes.

By breaking down your business functions along these two axes, you can create a realistic RTO landscape for your business. With that in place, you can minimize your losses without overdoing it.

Minimizing Losses with Recovery Time Objectives

It’s no secret why RTOs provide such a valuable response to downtime. By setting that red line, you can structure your business to respond to an outage in the most efficient way — and keep that downtime cost you just calculated on the low end without breaking the bank.

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