Whether you are a developer or operator in an IT organization, service failures are a reality you do not want to face. Enterprise organizations, in particular, put tremendous effort into reducing service downtime from the service design phase to operations. But for a variety of reasons, they still happen.

Businesses want 99.99% uptime

Many IT organizations are striving to reduce service downtime and are aiming for 99.99% uptime. While 99.99% means tolerating no more than about 52 minutes of downtime per year, a 2014 EMC study found that 64% of organizations experienced a service outage within a year, with an average outage of about three days.

• 64% of enterprises surveyed experienced data loss or downtime in the last 12 months
• The average business experienced more than three working days (25 hours) of unexpected downtime in the last 12 months
• Other commercial consequences of disruptions were loss of revenue (36%) and delays to product development (34%)

Data loss and service interruptions cost KRW 1.7 quadrillion annually (follow link)

Hardware failures end up being the number one reason for service failures, according to a PDF published by EMC.

"Are you protected" (Download EMC PDF)

Cost of Downtime

The cost of downtime depends on a variety of circumstances, such as the nature of the industry, revenue, time, number of customers affected, and time of day. The cost will be higher for e-commerce businesses such as GS Shop or Lotte Duty Free, or for organizations that rely on large data transactions, such as financial institutions. The results of ITIC's survey of organizations with more than 1,000 employees are even more alarming.

• 98% of organizations lose more than $100 million per hour due to service interruptions.
• 81% of organizations lose more than $300 million per hour due to service interruptions.
• 33% of organizations lose more than $1 billion per hour due to service interruptions.

Go to ITIC Downtime Report

How to calculate the cost of lost revenue, based on revenue, for service failures

IT executives need to be able to calculate the cost of lost revenue for their services. Service failures can be caused by server failures or network failures, most commonly provided by IDC or cloud vendors, or by application failures that you manage. You need to be able to calculate the cost of loss for these outages so you can budget for them.

Here's how the calculation works based on hard data

• The company's annual revenue
• Annual labor hours for a company
• How much does a service failure impact a company's revenue
• Downtime

Lost revenue due to service downtime = (1. / 2.) x 3. x 4.

This is a way of multiplying a company's hourly revenue by the number of hours of downtime to get the cost of lost revenue.

For example, if a company with KRW 100 billion in revenue has a 52-hour workweek and its system is down for 8 hours, resulting in a 50% loss to the company, the cost of lost revenue is KRW 100 billion/(52 weeks X52 hours) X0.5X8H= KRW 147 million, which is approximately KRW 150 million.

Calculating the cost of lost service based on labor costs

Sometimes you need to calculate the cost of lost revenue based on internal labor costs along with revenue. When the aftermath of a failure is not only external, but also internal. For example, a development-oriented startup might lose access to the storage it uses.

• Number of people affected by downtime
• Percentage of downtime affecting employees
• Average employee cost per hour
• Downtime

Cost due to service downtime  = 1. X 2. X 3. X 4.

Calculations of Cost Due to Service Downtime on a Business Basis

The damage caused by a service failure will affect your company's reputation, goodwill, and customer loyalty over the long term. This is a different situation than calculating based on revenue or labor costs, where you would have to use things like stock drops, marketing expenses, or actual compensation to customers. If you normally use customer loyalty techniques like Net Promoter Score (NPS) surveys, you will be able to compare the damaged reputation. Service failures are increasingly affecting customer loyalty and trust. Do not overlook the following.

• Number of people affected by downtime
• Percentage of downtime affecting employees
• Average employee cost per hour
• Downtime

Cost due to service downtime = 1. X 2. X 3. X 4.

Wrapping up

Recently, many startups in Korea have been affected by the DNS failure of Amazon AWS. The most important thing is to check the SLA, as any compensation for the damage will be based on the SLA.

Check Amazon's SLA (click the link)

Being able to calculate the cost of a disruption is essential for organizations to determine how much they need to defend against it, even if it is just to compensate for damages. We hope you will take this opportunity to calculate the cost of a disruption to your organization.