Large data centers and fortune 500 companies know the importance of their data and network infrastructure when it comes to the dollars and cents Revenue that is generated from these technologies. They also understand the risks and loss associated when these systems go down, which is why they calculate down to the hour how much money they stand to lose if and when their systems go down unexpectedly; and you should too.
There are lessons and insights for small and medium-sized businesses to learn from calculating the costs associated with Downtime of IT infrastructure, and consequently, the ROI of environmental monitoring systems cost savings in avoiding disasters.
Small businesses can be the hardest hit by downtime because for many, the do not have the processes in place to prevent, or resolve downtime and can have huge impacts on profits for a business.
Many times due to the initial costs, it is common for small and medium sized business to overlook some IT best practices which can all minimize the risks and costs of unexpected downtime including building redundancies for power and internet, automating daily back-ups, off-site replication and monitoring the environment of their server rooms.
Does your company’s productivity and revenue rely on IT assets? Even if you are only hosting your business email accounts, accounting software, CRM, website or customer database then the answer is, yes.
Now consider, what would it cost your business if your servers or network went down?
There is a simple formula for figuring this out, and it can help you realize the true value of IT for your business and the importance of properly maintaining and protecting these assets.
Cost of Downtime (per hour) = Lost Revenue + Lost Productivity + Cost to recover + Cost of intangibles
Let's explain this equation.
Example; a business with 100% online revenue generation and annual revenues from $1 to $5 million. The chart below represents the potential lost sales for a 24-hour outage, in this example the company with $5 million annual revenue would lose about $13,699 per day of revenue.
Let’s assume the company hosts its own e-commerce system and the outage was due to a temperature issue because the AC system failed which brought down the company’s servers and no business could be transacted during the outage.
In this scenario, most of the equipment was able to recover, but a server and disc drive had to be replaced costing approximately
From the graph, this company generates an average of $13,699 per day in revenue. For this example let’s assume 50% of the customers the others choose competitive suppliers and the others wait for the e-commerce system to return. The result is a daily loss of
Example Calculation:
Lost Revenue ($24,199) + Lost Productivity (unproductive labour) + Cost to recover($2,000+ 16 hours labour $1,600 ) + Cost of intangibles ($7,000 lost customers) / Total Downtime (24 hrs) = Cost of Downtime (per hour)
Calculating the Variables of Downtime
After each section fill in the corresponding calculator. At the end of the article, you will have a comprehensive “cost of downtime” calculation and summary based on your inputs.
1.) Lost Revenue
In today’s world, it is most likely that if IT assets are down, your business is down and you cannot generate revenue. Even if your primary revenue channels are not focused on the web due recent nature of business operations it is likely your peripheral channels such as accounting, sales and communication channels will be rendered inoperable as well.
Here are the steps to calculate lost revenue:
√ - Identify which areas of their business generate revenue.
Calculate the amount of revenue per hour each of these areas generates (Avg. revenue per week/40 hours, or Avg. revenue per month/30 days).
√ - Estimate how much each revenue-generating area relies on uptime and represent this number as a percentage.
In this example, if your business is only an eCommerce website, 100% of your business depends on uptime. If you are a brick and mortar shop or have offline revenue streams perhaps only 10 percent of your business revenue is dependent on your uptime, since people can still purchase goods from your store or sale calls even if your website is down.
√ - Calculate the amount of revenue per hour that is lost during downtime for each business area.
For example, say your business is an eCommerce website that generates $100/hour. If that website is offline for two hours, you lose $200. However, let's say your brick-and-mortar shop which also generates $100/hour in revenue. If your website is down for two hours and only 10% of your business is affected, you only stand to lose $20.
Add the figures for these different revenue-generating areas to get the total cost of downtime per hour for your client's business.
Once that baseline is established it’s easy to figure out the amount of revenue lost during an outage or downtime event.
2.) Lost Productivity
The cost of downtime also increases when your clients or employees are unable to work or are forced to perform non-revenue-related activities such as getting systems back online. This is because salaries are a fixed cost and will be paid regardless of how much work staff completes. Here are the steps to calculate the cost of lost productivity:
√ - Calculate the amount each employee earns per hour.
Determine what percentage of your business’s departments productivity are reliant on uptime. This may vary across their team. If your client is a dental office, the actual dentists may not be affected if a server goes down, but the receptionist may only be able to work at 50 percent capacity – answering the phones, but being unable to use the computer to access shared calendars and book appointments.
Multiply each employee's hourly salary by their utilization percentage. If the receptionist from the dentist’s office earns $10/hour and they can only work at 50 percent when systems are down, your client loses $5/hour of downtime for that employee.
Add the costs in #3 for all employees to calculate the total hourly cost of lost productivity.
3.) Cost to Recover
Often, clients don't think of the costs associated with disaster recovery and resuming normal business operations. This may be hard to estimate as it usually depends on the extent of the outage and/or data loss, but typically costs will include:
√ - Services needed to recover lost data
√ - Physical tools/devices that may need repairs or replacements
√ - Cost of lost data
√ - Ongoing costs as a result of the data loss
Identifying these costs during your business continuity planning period helps minimize the recovery costs clients may face in a disaster scenario down the line.
4.) Intangible Costs
Any damage to reputation or brand results in dollars lost. The slightest downtime can potentially cast an insurmountable shadow over your business—and how that downtime is handled can be the difference between recovering and going under. Intangible costs can be difficult to forecast, but having a thorough understanding of the potential long-term impact on future sales and customer retention can help business owners see the real value of being genuinely prepared for such an event.
Referring back to our previous example, if your brick-and-mortar business server goes down, clients who purchase from your establishment likely won't notice website downtime as terminal POS is separate from your on-premise servers and online payment processing. However, if your eCommerce site goes offline, it reflects very poorly on the brand and customers will be left bewildered and search for competitors.
5.) Calculating the Final Cost of Downtime
Once you have determined each cost, plug them into the main formula above to calculate the total cost of downtime. If the resulting number far exceeds the cost of investing in environmental monitoring systems, then you can use it to convince stakeholders the ROI of environmental monitoring in order to protect themselves from data loss and downtime.
BTW here is an additional calculator to understand the cost of Environmental Monitoring.
Mitigating The Risks of Downtime
Assume the temperature crisis could have been prevented by a simple temperature monitoring system, .....for example, at a cost of $. Assuming a six-month financial impact period, the RoI is 3.2 days. Adding Enviromon Temperature Monitoring System and CloudHawk Service for $ per month, which allows customers to receive alerts when the temperature, power, communications or network goes beyond pre-defined thresholds, increases the RoI to days for the first year of operation.
The difficulty with this model is we cannot predict that the AC system will fail and a failure will take down an e-commerce system. Although considering it an insurance against environmental disasters caused unintentionally or by human error, insurance is significantly more costly than a one-time cost of $ for temperature monitoring services.
98% of Enviromon customers come to us after they have experienced these kinds of issues and want to prevent from happening again either due to power supply and AC challenges due to being in older buildings with HVAC systems that are not designed for the additional cooling load of a server room, or potentially if their server room is located in an unventilated storage closet. Although being able to monitor temperature excursions it will send out alerts to provide enough time for someone to respond and resolve the incident.
Additionally regarding the RoI of Environmental Monitoring and being able to resolve temperature and environmental issues before they become more serious is that the majority of IT equipment OEMs and customers such as large telecoms have noted although not all excessive temperature issues cause immediate failure of hardware there is increasing evidence that there is a higher occurrence than average for hardware to incur intermittent performance issues or failures are seen over the preceding months.
These later issues are additional RoI inputs for the case of environmental monitoring, particularly for small and medium-sized business that, unlike large Data Centers and fortune 500 companies are not able to change out their servers or other devices on two or three years cycles. Often the IT infrastructure at many SMBs can be 5-10 years old meaning there is potential that these systems have been stressed several times during their service life making them even more prone to intermittent issues or failure.
DCIM systems may be difficult to specify, justify the cost or calculate the RoI. They often require extensive installation, maintenance, and training resources and continuous analysis of the data to make them useful, meaning staff resources will need to have time dedicated to these tasks.
Simple, low-cost environmental monitoring devices can are easy to install and setup, and perform the simple task of letting their users know when there is a problem coming or one that has occurred. Small and MidSized Businesses will be well served by these devices.
Free Server BTU Calculator
If you are in the process of planning or scaling your server room. Check out our Free Server BTU Calculator to help you plan your A/C Cooling and Server Electricity costs.
Contact us at Enviromon to discuss your server room situation and we will be able to provide you with the best recommendations to monitor your server room and prevent avoidable disasters like these.
Related Information to Server Room Temperature Monitor
Environmental Monitoring Sensors
Temperature Monitoring System / Alarm
Server Room Environmental Monitoring
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