Estimating the cost of WAN downtime and the extent of the investment needed for WAN Redundancy to offset this is not always straightforward. The larger the business, the more complex it becomes as assigning costs is too difficult. Several studies have been done to gauge the effect of WAN downtime. An Infonetics study in 2004 estimated that large companies on the average have their WAN down 500 hours per year at an estimated cost of approximately $4 million annually. Another estimate put out by Gardner research indicates the hour cost of downtime to be $42,000 with companies averaging approximately 87 hours of downtime per year. This puts the estimated revenue loss at $3.6 million.
Other research studies point to different numbers, but the bottom line indicates that in today`s global economy, WAN downtime results in significant loss of revenue, productivity and opportunities, making WAN Redundancy an imperative.
There are a couple of ways to look at the cost of WAN downtime:
- Productivity losses
- Business Losses
Cost Calculator for WAN Downtime
Lost Productivity
To calculate the losses that accrue due to WAN downtime, the following must be calculated:
- The average hourly cost of wages including overhead.
This can be determined by dividing the total annual payroll divided by the number of working hours per year (typically about 2000 hours). This number is the average hourly cost of labor at a site.
Example:
- 1000 employees
- $50 million annual wage bill
- 2000 working hours per year
- Annual company profit $100,000,000
Average hourly labor cost = 50,000,000/2000 = $25000
- Assume 100 hours of WAN downtime and 50% of labor are negatively affected
Average productivity loss = 100 x 25000 x 0.5 = 1,250,000 per year
Business Losses Due to WAN Downtime
To determine the business losses due to WAN downtime, the following must be calculated (using the same case as above):
- Average profit per employee - this is determined by taking the total company profit and dividing this by the total number of employees. Divide this by 2000 to get average hourly profit per employee
- Determine the number of employees affected by the downtime and the percentage of their work affected during the downtime.
To calculate the business losses:
- Average hourly profit per employee = $100,000,000/1000/2000 = $50
- Loss for 100 hours of WAN downtime = 100 x 1000 x 0.5 x 50 = $2,500,000
Total loss due to WAN downtime = $1,250,000 + $2,500,000 = $3,750.000 per year
This does not take into account opportunities lost, loss of customer goodwill, etc., which adds an invisible tab to this amount. The point is that the numbers associated with WAN downtime is significant and investment in WAN Redundancy pays back in a relatively short time. Thus a WAN Redundancy system that costs even a million dollars is still a bargain.
Some other numbers estimated for various industries by several research organizations indicate the following losses by industry per hour of WAN downtime:
- E commerce $600,000
- Customer service = $222,000
- ATM/POS = $210,000
These are very large numbers that easily justify investments in WAN Redundancy.
