Disasters have a way of not only coming at the wrong time, but at a price. And as research shows, they become more expensive year after year. 2017 is on record as the costliest year for climate-related disasters in the United States, tipping the scales at a whopping $306 billion in damages. Hurricane Harvey alone accounted for $125 billion of that amount.
While natural disasters are certainly a legitimate concern, the fury of Mother Nature isn’t the only cloud hovering over businesses. Whether it’s human error, equipment failure, or malware, today’s dynamic disaster landscape poses a cost prohibitive threat to the modern-day enterprise. But how do you quantify that cost? Money put towards employee overtime, consulting, and third-party services makes the cost of IT recovery fairly straightforward. Other aspects are not so obvious yet factor just as heavily into the overall cost of disaster.
Measuring the Loss of Production
Depending on the severity of the incident, a disaster could force productivity to a grinding crawl, or halt it entirely. In any event, the loss of production can be damaging to an organization’s bottom line. This is especially the case for employers who are contractually obligated to pay out fixed salaries whether staff can perform their job functions or not.
The cost of loss production can be determined by taking the following actions:
- Calculate hourly staff earnings. If a company has 100 employees, who make an average of $50 per hour, your total staff earnings would add up to $5000 an hour.
- Factor availability into productivity. Next, determine how much of your staff’s production is dependent on the availability of your IT systems. This amount may vary across your organization. Losing access to a server may not prevent a cable TV technician from performing new installations out in the field. However, customer service agents back in the office may be limited to 50 percent capacity if they only have access to phone service.
- Calculate hourly cost of downtime. Multiply your staff’s hourly wages by the percentage of their productivity. Per our examples, if the customer support agent earning $50 an hour can only perform at 50 percent following a disaster, the cable company could be would be losing $25 an hour in production for that employee.
- Determine total loss of production. This figured is calculated by adding up the hourly cost of downtime across your staff. So, if all 100 employees are reduced to 50 percent capacity, your total loss of production is $2500 an hour.
We’ve kept the math simple, but the above examples illustrate the monumental impact the loss of production alone can have on the overall cost of disaster.
Weighing the Intangibles
How you respond to disaster can make all the difference in your ability to make a full recovery. It can also shape customer perceptions. A potential client may decide to take their business elsewhere if your website is constantly unavailable when they stop by to make a purchase or gather more information. In addition, knowing that their personal data was potentially exposed in a security breach could lead to existing customers losing trust and ultimately deciding to part ways.
The Bottom Line
Just a few hours of downtime can have a major impact on your business operations. Often, reputational damage and the ensuing loss of customer confidence results in the loss of revenue.
Some costs are virtually impossible to calculate but can be as detrimental as any quantifiable losses. Despite being incredibly difficult to measure, understanding the devastating implications on reputation and customer relations can help organizations understand the importance of being prepared for disaster.
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