The total cost of downtime for Global 2000 companies is estimated at US$400 billion annually, or 9% of profits, when digital environments fail unexpectedly, according to a report from Splunk and Oxford Economics.
For this report, Oxford Economics researchers surveyed 2,000 executives from Forbes’ Global 2000 companies in technology, finance and marketing functions. The report surveyed 53 countries, in regions including Africa, Asia-Pacific, Europe, the Middle East, North America and South America.
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 — any service degradation or outage of a business system — can range from a frustrating inconvenience to a life-threatening scenario for customers.
Direct costs are clear and measurable to a company. Examples of direct costs are lost revenue, regulatory fines, missed SLA penalties and overtime wages.
Hidden costs are harder to measure and take longer to have an impact, but can be just as detrimental. Examples of hidden costs include diminished shareholder value, stagnant developer productivity, delayed time-to-market, tarnished brand reputation and more.
The report also highlighted the origins of downtime — 56% of downtime incidents are due to security incidents such as phishing attacks, while 44% stem from application or infrastructure issues like software failures. Human error is the number one cause of downtime and the biggest offender for both scenarios.
However, there are practices that can help reduce downtime occurrences and lessen the impacts of direct and hidden costs. The research revealed an elite group of companies — the top 10% — are more resilient than the majority of respondents, suffering less downtime, having lower total direct costs and experiencing minimal impacts from hidden costs.
These organisations are defined as resilience leaders and their shared strategies and traits provide a blueprint for bouncing back faster. 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 of other organisations.
Key findings on the impacts of downtime include:
- Revenue loss is the number one cost. Due to downtime, lost revenue was calculated as US$49 million annually, and it can take 75 days for that revenue to recover. The second largest cost is regulatory fines, averaging at $22 million per year. Missed SLA penalties come in third at $16 million.
- Diminishes shareholder value. Organisations can expect their stock price to drop by as much as 9% after a single incident, and on average, it takes an average of 79 days to recover.
- Drains budgets due to cyberattacks. When experiencing a ransomware attack, 67% 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. The combination of ransomware and extortion payouts cost $19 million annually.
- Curbs innovation velocity. Three-fourths (74%) of technology executives surveyed experienced delayed time-to-market, and 64% 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.
- Sinks lifetime value and customer confidence. Downtime can dilute customer loyalty and damage public perception as 41% of tech executives in the report admit customers are often or always the first to detect downtime. In addition, 40% of chief marketing officers reveal that downtime impacts customer lifetime value, and another 40% say it damages reseller and/or partner relationships.
Globally, 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 $198 million, and $187 million in APAC.
Geography also shapes how quickly an organisation recovers financially post-incident. Europe and APAC hold the longest recovery times, while companies in Africa and the Middle East recover the fastest.
