Risk is inherent to any business operation. CFOs are particularly sensitive to risk, as it can undermine their ability to forecast revenue, cash flow and spend. It’s no wonder that public companies are required to identify risk and account for it in their annual  and quarterly reports.

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Veering off course and losing focus on your targets

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Imagine you’re setting out to run a marathon after training for months. You’re dreaming of finish lines at night. And then the race starts. You’ve taken a wrong turn and you’re off course. You need to get back on track… When you’re back, you’ve added several hundred yards to your 26.22 miles, and with every added yard, your chances of finishing the race on target decrease.

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For any business, risk management is a means to staying on course and focused on your goals. Any misidentification or miscalculation of a risk factor can throw you off track. It will take longer to achieve your goals, your chances of succeeding get slimmer as you’re forced to waste time and resources to overcome unexpected detours.

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So how should you approach digital risk?

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Risk will always be there. Now manage it.

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Digital risk factors emerge and fluctuate with the changing nature of business, with markets becoming global, and with technological advancements.

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More than 60% of organizations reported losing more than $100,000 to downtime, according to Uptime Institute’s 2021 Global Data Center Survey. Of them, 15% lost over $1 million.

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Over the course of a century, a majority of businesses had to contend with physical risks like fires, work accidents or interruptions to supply and distribution lines. But in the past decade, digital transformation introduced new risks the previous generation of business owners could have never imagined. Suddenly they need to contend with data breaches, cyber attacks and cloud outages. For anyone overseeing risk today, these events are hard to predict, and their damages are difficult to quantify.

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Cloud downtime is one of the fastest growing risk factors for businesses

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Quantifying the damages of business interruption is a problem CFOs/Risk Managers face when building contingency plans and prioritizing defenses. The questions are not always easy to answer: if the cloud your company relies on crashes, what is the impact on your business?

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We tend to speak of “the cloud” as a single entity, when in reality it is made up of many data centers spread across regions and availability zones. Each data center also houses and provides dozens of “services” that enable data storage, data arrangement, data computation, and more.

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When the cloud crashes, it can mean that a certain service stopped working. Businesses that rely on the specific services may experience downtime, while for others who don’t, the event may go unnoticed. For this reason, it’s hard to predict the impact of cloud outages, and companies need to prepare for every scenario: from zero impact to full standstill.

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How much will 7 hours of downtime cost your business?

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According to Forbes, Facebook’s six-hour-long outage in October 2021 cost the company nearly $100 million in lost revenue. To make matters worse, it drove millions who couldn’t view Facebook feeds, WhatsApp messages or Instagram reels straight to competing apps.

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What does full standstill look like and how much will it cost your company?

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• Lost revenue & customer lifetime value
  If your website is your main sales channel, you’re talking about a revenue halt. But you’re also talking about loyalty, with your customers heading to the competition for similar goods and services.
• Lost productivity
  Some cloud services power your team’s communication and work. So, often when the cloud crashes, your employees can't access or accomplish anything. How much would each hour of an incapacitated team cost in wasted salaries?
• SLA payouts
  Some businesses commit to deliver products or services within specific timeframes. Failing to do so may force them to compensate customers - either contractually, or to minimize damages. How much could payouts cost your company?
• Lost marketing spend
  Companies spend big on customer acquisition, trying to attract prospects to their web site, or landing pages. They often pay a lot per click. So, imagine a prospect clicks but arrives at a broken website. Not only is the marketing spend lost, but you’re actually paying to show prospects your faults.
• Tarnished brand
  Cloud downtime is a failure of a 3rd party, but it’s your business that takes the hit. For this exact reason, many companies need to outspend their budgets in order to fix the damages. This can fall under emergency PR efforts, issued credits, coupons and whatever else it takes to ensure business continuity and rebuild customer loyalty.

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There’s no arguing that cloud downtime is costly. The actual price tag varies between companies and industries, but every company should account for new digital risks as they emerge, and come up with a plan.

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Research, plan ahead and mitigate

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The most expensive mishaps are the ones your business didn’t prepare for. Identifying and planning for problems will spare your company chaos and will save a lot of money. Mapping the risks is a critical process that needs to be ongoing - whether it’s outsourced or done in house. It involves properly researching every new technology, and accounting for anything that can go wrong.

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A contingency plan to protect data and processes is critical. Insurance coverage is another way to ensure sufficient cash flow to continue operating when crisis strikes. There are dozens of solutions out there, and companies need to strike the right balance: what level of risk can they tolerate without compromising their business. Risk is inherent to any business operation. CFOs are particularly sensitive to risk, as it can undermine their ability to forecast revenue, cash flow and spend. It’s no wonder that public companies are required to identify risk and account for it in their annual and quarterly reports.

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If you’d like to explore your business’ exposure to the risks of cloud downtime, and learn more on mitigating the risks, explore our website, email us at info@parametrixinsurance.com.