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Agile Computing: Article

Where Do You Start with Business Continuity?

Step 1: Vulnerability Analysis

Below is the Vulnerability Analysis calculation in terms of Downtime Costs:

‘Downtime Costs' = ‘Revenue loss' per hour (RL/hr) + ‘Expenses incurred' per hour (EI/hr)

[The Downtime Costs calculation is a combination of two simple calculations below]

__

‘Revenue Loss' per hour (RL/hr) = (a company's annual revenue / 8,760 hours per year)

[8,760 =365 days per year x 24 hours per day]

‘Expenses Incurred' per hour (EI/hr)= ((a company's annual revenue *(1-profit margin %)/8,760))

[profit margin percent as it applies to the company's annual revenue e.g. 30% ]

Example #1 - Small ABC Company has $5M in revenue & is operating at 30% margins.

Revenue Loss per hour = ($5M / 8,760) or $570 per hour

Expenses Incurred per hour =( ($5M * (1-0.3) / 8,760)) or $399 per hour

 

Downtime Costs = $570 + $399 or $969 per hour

Example #2 - Big XYZ Company is a $100M in revenue & is operating at 20% margins.

Revenue Loss per hour = ($100M / 8,760) or $11,415 per hour

Expenses Incurred per hour =(($100M * (1-0.3) / 8,760)) or $9,132 per hour

 

Downtime Costs = $11,415 + $9,132 or $20,547 per hr

The ‘Revenue Loss' projection is very simple. The calculation is the company's annual revenue divided by the number of hours in a year - 8,760. This calculation generates the average amount of revenue generated per hour. The assumption is that a disaster/disruption will impede your ability to generate revenue. Every hour of downtime will generate an hour of revenue loss. During the initial engagement with the executive, the ‘Revenue Loss' is simple, factual, and most importantly, can be done while you engage the executive team.

The ‘Expenses Incurred' calculation is the reverse of the revenue calculation. It reflects expenses that accumulate while an interruption occurs. Much like the ‘Revenue Loss' number, this calculation again is a function of overall revenue less profit margins. This number is your total expenses used to generate the company revenue. This expense number is then divided by the same 8,760 hours per year to generate the Expenses Incurred per hour.

In Summary
These calculations are a quick exercise to highlight vulnerability without the benefit of a complete Business Impact Analysis (which is Step 2 and is a more detailed calculation that takes into account the nuances and uniqueness of your business). When an executive team of a $5M company understands that 6 hours of downtime will cost about $5,800, they are more apt to understand the gravity of downtime. The goal is to quantify the vulnerability and provide a frame for potential protection strategies. The simple ‘Downtime Cost' is critical early step to jumpstart the entire Disaster Recovery and Business Continuity procedure with executives. They need to believe that there is a potential issue and want to continue down the path to conclusion. Hopefully, you proceed with direct executive support. Ultimately, the executive team will (1) be aware of the financial vulnerability of interruption and (2) ultimately decide which solutions and capital to commit toward risk mitigation.

More Stories By Rich Bruklis

A 20 year veteran of the storage industry, Rich has been a business leader in product marketing. He has seen the industry change from backup on 5.25" floppies to 10,000 cartridge tape libraries with every tape "standard" in between. Rich has supported 5.25" 30MB hard drives and launched disk arrays with hundreds of drives. Most recently, Rich has focused on business continuity and disaster recovery.

While the hardware industry continues to experience BBFC (Bigger, Better, Faster, Cheaper), there is a cloud on the horizon that is about to disrupt that trend. Cloud Computing will fundamentally change the IT world much like the network changed client-server computing.

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