Is My Network Costing Me Money I'm Not Accounting For?

May 2, 2007
Gauging what's at stake when critical business functions fail to deliver.

Do you know how much it would cost your company if your computer network went down? If you add up all the costs, you might be shocked. Infonetics Research found that overall downtime costs for U.S. businesses averaged an astounding 3.6% of annual revenue.

How many of the organizations surveyed budget for the cost of these outages and the expense to resolve them? How many of them plan to take action to prevent the problem before it happens again? There's no hard data, but experience suggest it's a small percentage.

Despite the Infonetics research, most companies have little or no idea how much IT downtime could cost their business specifically. According to a recent survey, two-thirds of 400 enterprises quizzed by Forrester Research could not provide a number related to the financial cost to their business for such a critical circumstance. Many organizations monitor the effects of application-related failures from a technical or fault-diagnostic perspective but fail to relate any problems to an organization's bottom line.

One-third of those able to come up with a figure said the cost of application failure was $10,000 to $100,000 per hour. Forty-two percent set the amount at least $100,000 an hour. Twenty-five percent estimated application-related outages would set them back between $100,000 and $500,000 per hour, and 13% estimated costs at between $500,000 and $1 million per hour. Four percent predicted losses of greater than $1 million per hour if their key applications ceased to operate!

Key Findings From Infonetics Research On Downtime

  • Average loss of revenue is 55% compared to the average loss of productivity at 45% related to annual downtime.
  • Downtime hours are evenly split between outages and service degradations, but outages cost more. An average of 58% of downtime costs come from outages, 42% from degradations.
  • Application problems are the single largest source of downtime, causing 30% of annual downtime hours and 32% of downtime cost, on average.
  • The leading cause of application downtime is software failure (36% of cost on average), followed by human error (22%).
  • Other sources of downtime include network products, security products, servers, service providers, cables and connectors and e-commerce.
Manufacturers today need to move to a strong offense as their best defense when it comes to architecting a resilient network. Instead of simply reacting, they need to uncover and fix the weakness in their network before it impacts their business.

Downtime for manufacturers can be particularly devastating and significantly detract from the process of lean manufacturing. The ability for manufacturing companies to deliver on time and on demand is a given. Angelo Giacchi, IT manager of the Jay Packaging Group, a manufacturer with their corporate headquarters in Rhode Island, says the cost of downtime to his organization is multi-dimensional. The obvious impact of downtime is directly related to the inability of the organization to deliver its product on time and process orders electronically.

Today, the manufacturing process from order inception through production is driven by technology and the need for staffing has been reduced. So when technology lets us down, going back to a manual process is extremely labor intensive, which accounts for an increase cost not accounted for in the normal price of goods.

In addition today companies select their manufacturing suppliers based on numerous metrics that are used for evaluating their ability to perform consistently and meet delivery requirements. These types of metrics are widely used in the manufacturing industry and cover an extensive list of criteria, including overall equipment efficiency, run-time, down-time, standby-time, count rate downtime and time to goal. The wrong numbers in these areas can make or break a deal.

Unfortunately, most manufacturers continue to allocate most of their IT budget for "lights on" operational and maintenance functions without enhancing the infrastructure. They need to move from a reactive mode to a proactive mode.

The problem isn't one for the IT department alone to solve. IT leaders have to create alliances with the key business leaders within the organization to create a strategy that will assure strength in its investment and strength in the network. These leaders are stakeholders within the organization and the ones whose applications can severely impact the business when they are not operating effectively. C-level executives in finance, sales, manufacturing and human resources can provide the perspective needed to align spending with the true requirements of the entire organization. By bringing together all these perspectives, you can truly understand the cost of downtime.

There isn't any one problem area that manufacturers need to focus on. A plan to assure a super-reliable network must be comprehensive and look broadly at many factors and consider the details of the way technology is fused with the business. Every decision is critical, from hardware selection to product setup, from employee training to service-level agreements with service providers. All budget initiatives need to include details on the impact of failure, the risk associated with the potential for failure and the percentage of staff impacted due to failure.

This approach, combined with historical data based on past outages and buy-in from organizational stakeholders, will provide for a forward-leading approach to business continuity. It takes commitment to learn from your experiences and understand your environment and the risks you face today.

Paul Cronin is vice president of Atrion Networking, in Warwick, R.I., a Cisco Gold Partner focused on delivering client solutions through the fusion of business and technology. Contact info: [email protected] or (401) 736-6400.

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