Understanding the Real Cost of Data Loss: Key Metrics for Businesses
How to Calculate the Real Cost of Potential Data Loss: Key Metrics to Consider
Data loss can happen for a number of reasons, from hardware failures and natural disasters to human errors and cyberattacks. To have data continuity strategies prioritized, IT directors, risk managers and business continuity specialists are often asked to estimate the cost of potential data loss. In this article we'll explore key metrics and parameters related to this matter.
Revenue Loss
When business data gets lost, the primary and immediate impact is downtime. With little or no access to critical data, many business processes either slow down or completely stop. This leads to delays in service delivery, lost sales opportunities and, ultimately, loss of revenue.
How to Calculate
- Revenue Loss: Calculate the average revenue your business generates per hour by diving Total Revenue to Total Operating Hours. Multiply this number by the estimated duration of downtime.
- Future Revenue Loss: Consider the potential revenue loss because of a setback in innovation or delayed product development caused by critical data loss.
- New Customer Loss: Account for the risk of permanently losing clients during downtime, as they may turn to competitors and never come back.
- Marketing Expenses: Consider expenses on marketing campaigns that cannot be paused right away and lead/client acquisition costs that would become sunk costs if leads and prospects are lost.
Workforce Productivity
Another important factor to consider is declined workforce productivity. Employees, who normally work on their primary tasks, will need to either spend time resolving issues caused by data loss or simply do nothing waiting for the operations to be restored.
How to Calculate
- Cost of Lost Productivity: Calculate the average hourly wage of all employees, take a fraction of it and multiply it by the approximate time spent addressing the issue.
- IT Team Labor Cost: Calculate the average hourly wage of employees involved in data recovery efforts and multiply it by the time spent addressing the issue. Depending on the severity of data loss accident, this might include hours working overtime.
- Cost of Post-Downtime Overtime: If applicable, multiply the average hourly wage of employees by time spent working extra hours post-downtime to catch up.
Reputational Risks
Data loss can severely impact your company's reputation. Bad customer experience caused by slowdowns in service delivery can lead to dissatisfied customers. A decline in customer satisfaction can in turn result in reduced customer loyalty and lower customer lifetime value (LTV). Consult with your marketing department to gain insights on calculations.
How to Calculate
- Customer Churn Rate: Estimate the potential increase in customer churn due to dissatisfaction.
- Impact on CLTV: Factor in how reduced loyalty could lower the overall LTV of affected customers.
- PR and Marketing Costs: Include expenses for restoring your company's reputation through unplanned PR and marketing campaigns.
Legal Costs
Data loss can also expose businesses to potential legal risks leading to additional financial burden. If you cannot fulfill your obligations or your customers' data gets lost, you may face lawsuits, fines, or penalties. Consult with your legal department for insights on calculations.
How to Calculate
- Legal Fees: Estimate the cost of legal counsel and litigation fees.
- Fines and Penalties: Factor in any regulatory fines or compliance costs related to the data loss.
- Settlements: If applicable, include the potential cost of settlements with affected customers.
- Consider the potential legal consequences from clients due to unmet obligations.
Data Recovery Services Costs
In circumstances when critical data gets lost and cannot be restored from a backup by an in-house IT team, help of a professional data recovery services company will be required. Make sure you have a reliable data recovery vendor you can go to when a data loss emergency happens.
How to Calculate
- Calculate expenses related to emergency data recovery services by requesting quotes from data recovery companies. As the industry leader in RAID recovery, ACE Data Recovery offers a corporate partnership program that includes reduced rates and customized service packages and provides free post-recovery support.
- Calculate expenses related to the purchase, installation and configuration of new hardware.
Protecting data is not just an IT issue - it's a critical business imperative that affects every aspect of operations and future growth. Improving data backup solutions and implementing new technologies to prevent future losses should be among top business priorities and expenses.