98% of companies say one hour of downtime could cost between $100,000 to $540,000

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Cloud outages are inevitable and potentially very expensive. No matter how much redundancy engineers build into cloud-based systems, downtime will continue to occur for reasons including connectivity errors, equipment failure, cyberattacks, and - most commonly - human error. Outages that last only minutes cause inconvenience, but those that last for hours can have disastrous consequences for businesses.

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According to Information Technology Intelligence Consulting (ITIC), 40% of enterprises said a single hour of downtime could cost between $1 million and $5 million, exclusive of any legal fees, fines, or penalties. In a Gartner survey, 98% of companies stated the cost of IT downtime ranged from $100,000 to $540,000 per hour.

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Outages present a major threat to operational resilience. They affect companies directly, but also their customers and their customers’ customers. Five primary risk areas may be impacted severely by outages: financial, reputational, legal, operational, and fulfillment.

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Financial risks include lost revenues and work-around expenses. A cloud outage can shut down critical sales channels at any time, preventing customers from initiating a purchase. Some may come back another time, but others will seek an alternative and never try you again. Boston-based e-retailer Wayfair achieved $14.1 billion in online sales in 2020, roughly $1.61 million every hour. Four hours of downtime could cost the firm $6.44 million (less if it happens in the middle of the night, and a lot more if it’s on Cyber Monday).

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Reputational risks include brand tarnishing due to non-performance arising from cloud downtime which created disappointed customers. Social media is fertile ground for sharing negative sentiment, and drives customers to look elsewhere for available services. Nearly 37% of small businesses have reported that they lost customers due to downtime.

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Legal risks can arise from downtime when contractual obligations are missed, when shareholders note underperformance due to losses arising from outage, when regulators assess customer service as falling short of expectations due to a failure to address downtime, and in a host of other areas. 

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Operational risks include lost productivity. Since many companies rely on the public cloud for almost all file use and management, internal and external communications, development, and other key operational functions, lost productivity can be a major cloud-downtime impact. According to the Society for Human Resource Management, salaries account for 18% to 52% of any business’ operating budget. For a company with a $500 million operational budget and a 30% salary spend, a workday lost to downtime costs $575,000 in salaries paid to employees who can’t work.

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Fulfillment risks could include missed Service Level Agreement thresholds. Many businesses are contractually obliged under such deals to provide specified services within a specific period, but may find fulfillment impossible due to cloud outage. Companies in the Software as a Service and FinTech sectors are particularly at risk, since every second of downtime may have enormous fourth-party customer consequences. 

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Understanding the risk of cloud downtime is the first step in making sure it doesn’t bring your business to a costly halt. This post is the first in a series about managing cloud outage risks in the Digital Supply Chain. You can read more about it in the Parametrix report revealing the details of cloud downtime among the three major providers – Amazon Web Services, Google Cloud, and Microsoft Azure.