How Much Does a Critical Systems Failure Really Cost Companies?

Engineer using tablet check and control automation robot arms machine in intelligent factory industrial on monitoring system software. Welding robotics and digital manufacturing operation.

When critical systems fail, businesses lose money. While the exact cost of downtime will vary drastically from business to business, one thing is almost always the same: The cumulative business cost of a system failure is often much more than executives anticipate. 

As we’ll see, it’s not just the fiscal cost that results from a loss of production that businesses have to contend with. Other costs quickly rack up, too. 

No Production, No Revenue

Downtime is a problem across all sectors, but let’s start with manufacturing as an example.

For manufacturers, the business is losing money every second it isn’t manufacturing, notes the team at Gentackle. “Depending on the speed at which you manufacture your products and the value assigned to them that loss can add up quickly.”

Say, for instance, you produce 300 units per hour, and each unit comes with a profit of $250. That would mean a single hour of downtime would cost the business $75,000 in profit. The same math applies to any sector and to any revenue-generating activity: Software development hours, billable consulting time, point-of-sales activity, whatever.

Your problems may not be over when systems are restored, either. A single system failure can have far-reaching effects on your supply chain.

Hostt cofounder Peter Daisyme points out that many businesses require there to be a certain number of products in the supply chain to keep everything running smoothly. If downtime depletes this inventory, the knock-on effects could be substantial. To make matters worse, it could take your business weeks or even months to return supply chain inventory to par levels. 

In other words, you aren’t just losing money on the lost opportunity that downtime brings. You could be losing money as a result of low product levels for months afterward. 

Overhead Costs Don’t Experience Downtime

Remember, you still have to pay your employees, says the team at HelpSystems, even in the moments when they aren’t doing anything that earns the company money. That’s one reason downtime is such a multifaceted problem.

Then, there is the cost of interruptions to IT staff to consider, points out CBSi distinguished lecturer David Gewirtz. When critical systems go down, IT staff have to put productive work to one side to fight the fire. You lose their productivity during the time it takes to fix the issue, and then there’s the time cost of getting a team refocused, Gewirtz adds.

There’s also the physical and mental health of your IT team to consider, too, writes David Mytton, cofounder and CEO of Server Density. When downtime strikes, your on-call employees have to stop whatever else they are doing in their lives — sleeping, for example — to fix a work problem. “Recent studies by Tel Aviv University suggest interrupted sleep can be worse than no sleep,” he says. “When monitoring servers, workers are expected to work at odd hours and never know if they will need to react quickly to a stressful emergency.” That instability takes a toll on IT teams.

It’s the same for most staff, says Willem Sundblad, CEO and cofounder of Oden Technologies. “When the machines are down, everyone’s attention is diverted from growing the business, whether it’s responding to new opportunities or innovating new products and services.”

systems failure

Don’t Forget the Costs of Systems Failure Recovery

Up to this point, we’ve only discussed opportunity costs. Now, it’s time to consider actual out-of-pocket costs that businesses have during downtimes. For example, your company might need to pay out overtime or hire extra hands to make up for the loss of production, writes the community team at PagerDuty

These costs are not unsubstantial, and they often go hand-in-hand with the direct loss of income that occurs as a result of downtime. The team at Total Uptime point to a British mobile phone provider as a prime example of these kinds of costs. When the company suffered significant data loss because an engineer failed to back up properly, customer income dried up. Fixing the problem wasn’t straightforward, however, and required additional staffing and overtime. 

These aren’t just one-off costs, either. There’s a lot of work that goes into this kind of firefighting, notes Kolton Andrus, CEO and cofounder of Gremlin. It can take days or even weeks to identify, understand and fix an issue. All the while, you are incurring the additional cost of labor.

Calculating the Cost of Reputational Damage

If downtime impacts your customers, you’re going to have to consider the cost to your reputation. “If a customer is unable to make a purchase, pay a bill, obtain information about their account, or perform other expected functions, how likely are they to continue to be a customer if the organization cannot perform the services they advertise?” asks the team at SC&H Group

It’s not just current customers you have to consider, either. When critical systems are down, you could also be missing out on acquiring new customers. 

As with many of the issues mentioned above, reputational damage can persist long after the initial problem has been fixed, the team at Nordic Backup notes: “Once you lose customer belief and trust in your ability to offer your product or service, it can be very difficult, if not impossible, to recover it. And without recovering it, you may continue to lose valuable business, and develop a bad reputation, even after you’ve managed to recover from the incident itself.”

If the problem has extensive ripple effects, the business might have to hire a PR firm to help manage people’s frustrations. This can be a significant cost and one that you need to take into account when totaling the cumulative business cost of downtime. 

systems failure

How Can Systems Failure Downtime Be Reduced or Eliminated?

With so many potential costs, it’s understandable that businesses want to reduce the impact of critical systems failure or eliminate their occurrence completely. 

If you want to get your business back online quickly, it’s essential to have a disaster recovery plan in place. These plans only tend to bring benefits when they can be enacted quickly, however. That’s why having an emergency notification system is a sensible option. If disaster recovery systems help you to get systems back online, emergency notification systems let you know that they need implementing. 

It’s good to be prepared for critical systems failure, but it’s better to take steps to prevent such failure from happening. To limit downtime, optimize your systems’ architecture for scalability, the team at KnownHost says. 

“At the level of the hardware, you want to have load-balancing solutions in place so that you do not have a lot of problems related to downtime,” they write. “… If you have to remove a machine from service to make an upgrade or replacement (as with routine maintenance), another server can take its place with no loss of key information or slowdown of your workflow.”

You could also consider migrating part or all of your systems to a cloud-based solution that allows for rapid scaling as and when you need additional processing power. Upgrading your legacy systems so they can handle new, higher demand is also important.  

When you think of it this way, digital transformation isn’t just another business cost. It is an investment that can seriously reduce the cumulative business cost of critical systems failure in the future. 

Images by: Pop Nukoonrat/©123RF.com, Taylor Vick, Christina @ wocintechchat.com

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