Splunk Inc., the cybersecurity and observability leader, in collaboration with Oxford Economics, has released a new global report called, “The Hidden Costs of Downtime.”
This report highlights the direct and hidden costs of unplanned downtime, revealing that the total cost for Global 2000 companies amounts to $400 billion annually, or 9 per cent of profits, when digital environments fail unexpectedly.
Beyond immediate financial costs, downtime can 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, which surveyed 2,000 executives from the largest companies worldwide, shows that downtime causes both direct and hidden costs.
Direct costs are clear and measurable, such as lost revenue, regulatory fines, missed SLA penalties, and overtime wages. Hidden costs, however, are harder to measure and take longer to impact but can be just as detrimental. Examples include diminished shareholder value, stagnant developer productivity, delayed time-to-market, and tarnished brand reputation.
The report also highlighted the origins of downtime. A significant 56 percent of downtime incidents are due to security incidents like phishing attacks, while 44 percent stem from application or infrastructure issues such as software failures. Human error remains the leading cause of downtime for both scenarios.
“Unplanned downtime for any organization can pose significant financial challenges and negatively impact corporate reputations,” said Shefali Mookencherry, CISO and privacy officer at the University of Illinois Chicago. “For higher education institutions, downtime can disrupt critical academic and administrative functions, impacting everything from student services to research activities. The repercussions extend beyond immediate financial losses to long-term effects on institutional reputation and stakeholder trust. As CISOs, no matter what industry, we must adopt a proactive and integrated approach to cybersecurity and observability to minimize these risks and ensure the continuity of our mission.”
Despite these challenges, 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 per cent—who are more resilient than the majority of respondents. These resilience leaders suffer less downtime, have lower total direct costs, and experience minimal impacts from hidden costs. They are more mature in their adoption of generative AI, expanding their use of embedded generative AI features in existing tools at more than four times the rate of other organizations.
The Combined Direct and Hidden Costs
To provide a multifaceted view, the report surveyed 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: Due to downtime, lost revenue was calculated at $49M annually, taking 75 days to recover. Regulatory fines average $22 million per year, and missed SLA penalties come in third at $16M.
- Diminished shareholder value: Organizations can expect their stock price to drop by as much as 9 per cent after a single incident, with an average recovery time of 79 days.
- Drains budgets due to cyberattacks: When experiencing a ransomware attack, 67 per cent of surveyed CFOs advised paying the ransom, which costs $19 million annually.
- Curbs innovation velocity: 74 per cent of technology executives surveyed experienced delayed time-to-market, and 64 per cent experienced stagnant developer productivity due to downtime.
- Sinks lifetime value and customer confidence: Downtime can dilute customer loyalty and damage public perception. 41 per cent of tech executives admit customers are often the first to detect downtime, and 40 per cent of CMOs reveal that downtime impacts customer lifetime value and reseller or partner relationships.
Globally, the cost of downtime per year is more substantial for U.S. companies ($256M) than their global counterparts. The cost in Europe reaches $198M and $187M in the Asia-Pacific region. Geography also shapes recovery times, with Europe and APAC experiencing the longest recovery times, while companies in Africa and the Middle East recover the fastest.
“For organizations with digital ambition, downtime is unacceptable. Downtime is not only costly, it erodes trust with key stakeholders like customers, shareholders, partners, and employees, and more importantly, rebuilding that trust and confidence takes time and resources,” said Archana Venkatraman, Senior Research Director, Cloud Data Management of IDC Europe.
“It’s clear that the recipe for digital resiliency and bouncing back quicker from downtime is embracing a unified approach to security and observability. Splunk’s unified platform empowers customers to identify and resolve problems rapidly and embed resiliency.”
“Business disruption is unavoidable. When digital systems fail unexpectedly, companies not only lose substantial revenue and risk facing regulatory fines but also lose customer trust and reputation,” said Gary Steele, President of Go-to-Market, Cisco & GM, Splunk.
“How an organisation reacts, adapts, and evolves to disruption sets it apart as a leader. A foundational building block for a resilient enterprise is a unified approach to security and observability to detect and fix problems across their entire digital footprint quickly.”
Resilience Leaders Bounce Back Faster
Resilience leaders share common traits and strategies that provide a blueprint for digital resilience. These include:
- Investing in security and observability: Resilience leaders spend $12 million more on cybersecurity tools and $2.4 million more on observability tools than other respondents.
- Embracing the benefits of GenAI: Resilience leaders are more mature in adopting generative AI, expanding their use of embedded generative AI features in existing tools at four times the rate of other organisations.
- Recovering more quickly: Faster recovery equals a better customer experience and less unwanted media attention. Resilience leaders’ mean time to recover from application or infrastructure-related downtime is 28 percent faster and 23 percent faster from cybersecurity-related incidents.
- Experiencing less toll from hidden costs: Most resilience leaders experience no damage from hidden costs or describe it as “moderate,” in contrast with the remaining 90 per cent of organizations that call hidden cost impacts “moderately” or “very” damaging.
- Dodging financial damage: Resilience leaders reduce revenue loss by $17 million, lower the financial impact of regulatory fines by $10 million, and cut ransomware payouts by $7 million.
