New global research reveals stock price can plunge up to 9% after a single incident and take 79 days to recover.
Splunk, in collaboration with Oxford Economics, has released a new global report The Hidden Costs of Downtime, which highlights the direct and hidden costs of unplanned downtime.
The survey calculated the total cost of downtime for Global 2000 companies to be US$400 billion annually, or 9% of profits, when digital environments fail unexpectedly. 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. The report surveyed 2,000 executives from the largest companies worldwide (Global 2000) and showed downtime causes both direct and hidden costs as defined below:
- 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 and tarnished brand reputation.
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 more than at four times the rate of other organisations.
The combined direct and hidden costs
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 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 US$49 million annually, and it can take 75 days for that revenue to recover. The second largest cost is regulatory fines, averaging at US$22 million per year. Missed SLA penalties come in third at US$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 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 US$19 million annually.
- Curbs innovation velocity. 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. 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 (CMOs) reveal that downtime both impacts customer lifetime value (CLV), 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 (US$256 million) than their global counterparts due to various factors including regulatory policies and digital infrastructure. The cost of downtime in Europe reaches US$198 million, and US$187 million in the Asia-Pacific region (APAC). Organisations in Europe – where workforce oversight and cyber-regulation are stricter – pay more in overtime wages (US$12 million) and to recover from backups (US$9 million). 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.
“Disruption in business is unavoidable. When digital systems fail unexpectedly, companies not only lose substantial revenue and risk facing regulatory fines, they also lose customer trust and reputation,” said Gary Steele, President of Go-to-Market, Cisco and GM, Splunk. “How an organisation reacts, adapts and evolves to disruption is what sets it apart as a leader. A foundational building block for a resilient enterprise is a unified approach to security and observability to quickly detect and fix problems across their entire digital footprint.”