Splunk Inc., in collaboration with Oxford Economics, has released a new report ‘The Hidden Costs of Downtime’, which highlights the direct and hidden costs of unplanned downtime. The survey calculated the total cost of IT / digital downtime for Global 20001 companies to be $400 billion annually, or 9 percent of profits. The analysis revealed the consequences of downtime go beyond immediate financial costs and take a lasting toll on a company’s shareholder value, brand reputation, innovation velocity, and customer trust.
Unplanned downtime – defined as any service degradation or outage of a business system – can range from a frustrating inconvenience to a life-threatening scenario for customers. The report surveyed 2,000 executives from the largest companies worldwide (Global 2000) and highlighted the origins of downtime: 56 percent of downtime incidents are due to security incidents, while 44 percent stem from application or infrastructure issues like software failures. Human error is the number one cause of downtime and the biggest root cause for both situations.
The combined direct and hidden costs of downtime
The repercussions of downtime are not limited to a single department or cost category. To provide a multifaceted view, the report surveyed chief financial officers (CFOs) and chief marketing officers(CMOs), as well as security, ITOps and engineering professionals to quantify the cost of downtime across several dimensions. Key findings on the impacts of downtime include:
Revenue loss is the number one cost. Due to downtime, lost revenue was calculated as $49M annually, and it can take 75 days for that revenue to recover. The second largest cost is regulatory fines, averaging at $22M per year. Missed SLA penalties come in third at $16M.
Downtime diminishes shareholder value. Organizations can expect their stock price to drop by as much as 9 percent after a single incident, and on average, it takes an average of 79 days to recover.
Downtime drains budgets due to cyber attacks. When experiencing a ransomware attack, 67 percent of surveyed CFOs advised their CEO and board of directors to pay up, either directly to the perpetrator, through insurance, a third party or all three.
Downtime curbs innovation velocity. 74 percent of technology executives surveyed experienced delayed time-to-market and 64 percent experienced stagnant developer productivity as a result of downtime. Any service degradation often results in teams shifting from high-value work to applying software patches and participating in postmortems.
Downtime sinks lifetime value and customer confidence. Downtime can dilute customer loyalty and damage public perception. 41 percent of tech executives in the report admit customers are often or always the first to detect downtime. In addition, 40 percent of CMOs reveal that downtime impacts customer lifetime value (CLV), and another 40 percent say it damages reseller and/or partner relationships.
The average cost of downtime per year is more costly for US companies ($256M) than their global counterparts due to various factors including regulatory policies and digital infrastructure. The cost of downtime in Europe reaches $198M, and $187M in the Asia-Pacific region (APAC). Organizations in Europe – where workforce oversight and cyber regulation are stricter – pay more in overtime wages ($12M) and to recover from backups ($9M). Geography also shapes how quickly an organization recovers financially post-incident. Europe and APAC hold the longest recovery times, while companies in Africa and the Middle East recover the fastest.
Strategies and traits of organizations that are resilient to downtime
Companies that recover more quickly from downtime than their peers share common traits and strategies that can provide a blueprint for digital resilience. They also invest more strategically, rather than simply investing more in cash terms. The resilience leaders’ common strategies and traits include:
- Investing in both security and observability. Compared to other respondents, resilience leaders spend $12M more on cyber security tools and $2.4M more on observability tools.
- Embracing the benefits of GenAI. Resilience leaders are also more mature in their adoption of generative AI, expanding their use of embedded generative AI features in existing tools at four times the rate, compared to the remaining respondents.
- Recovering more quickly. Faster recovery often equates to a better customer experience and less unwanted media attention. Resilience leaders’ mean time to recover (MTTR) from application or infrastructure-related downtime is 28 percent faster than the majority of respondents, and 23 percent faster from cyber security-related incidents.
- Experiencing less toll from hidden costs. Most resilience leaders experience no damage from hidden costs, or describe it as ‘moderate.’ That is in stark contrast with the remaining 90 percent of organizations that call hidden cost impacts ‘moderately’ or ‘very’ damaging.
- Dodging financial damage. Resilience leaders reduce revenue loss by $17M, lower the financial impact of regulatory fines by $10M and cut down ransomware payouts by $7M.
