Virtualization Technology News and Information
Justifying and Calculating the ROI of Network Visibility Investments

By Brendan O'Flaherty, CEO at cPacket Networks

One of the key challenges we hear from customers is that while they understand the importance of network visibility across the hybrid-cloud environment, it is not trivial to justify it to management. It can be difficult to quantify the impact of network visibility and measure clear return on investment (ROI) since its value comes from preventing potential costs and losses that would otherwise be very likely, such as those that result from security breaches, network downtime or customer churn. Because these calculations aren't straightforward, the value can often be overlooked and underappreciated.  That is, until something goes wrong. Network visibility is crucial to the smooth operation and security of the network - whether that network is in the cloud, data center or branch offices. Without it, keeping business-critical services up and running and providing a good user experience to end users is difficult at best, and impossible at worst.

To justify the investment, network, applications and security teams need a clear way to show the value network visibility adds to their domains. My executive staff have developed a formula for this, based on industry research and conversations with customers. Here it is:

Return on Investment for Network Visibility = (Cost of Downtime + Cost of Attacks + Cost of Productivity Losses + Cost of Customer Churn + Soft Costs) / Cost of Network Visibility Solution

A couple of caveats:  first, this equation will be more precise the more it can be customized to your specific situation and business. In many cases, the data may be available from other business units that are already tracking some of those metrics. Also, some cost areas may not apply to certain businesses or verticals. Users should modify this formula if these costs are more or less important to their organization.

Let's understand what each of these cost areas include, and how to best calculate the specific cost for your organization.

Cost of Downtime

Businesses like banks, airline companies or insurance providers make money via digital services offered to users over their network. If the network or a particular application goes down, they lose revenue. An estimate from Veeam Software found that downtime of an application is between $61,000 and $67,000 per hour depending on how important the application is. If the entire network goes down Gartner estimates that this costs on average $300,000 per hour!

To calculate this cost, add the application and network downtime costs together and multiply by the deployment frequency, failure rate (i.e. the likelihood of a downtime event occurring) and Mean Time to Resolution (MTTR - how quickly you can get back to normal operation). Reducing MTTR (which heavily depends on the network monitoring the organization has in place) can reduce this cost significantly.

Cost of Attacks

Security incidents and data breaches are another major cost that can be reduced or prevented by proactive network visibility. Accenture Security and Ponemon have estimated that a malware attack costs $2.6 million on average, and a data breach in the US costs $8.2 million (although this varies based on industry). To further refine this cost estimate, calculate the revenue that your specific organization would lose because of an attack (perhaps by taking your company's average daily revenue multiplied by the average length of the downtime caused by a security attack), add the cost of lost productivity that prevented employees from being able to work, as well as containments costs, upgrade/remediation costs, legal costs and any intangible costs from things like reputation damage and bad press.

Cost of Productivity Losses

Lost productivity can occur either due to downtime or a security attack, but the result is the same; employees can't perform their jobs because the network and the applications they rely on are down. IT downtime wastes 545 hours per company per year on average per ERS IT Solutions report. Again, you can use this general estimate in your calculations, or determine this cost more accurately by multiplying employee salary per hour times their work hours dependent on network utilization times number of employees.

Cost of Customer and Revenue Churn

Too much network downtime might cause customers to take their business elsewhere. Issues with jitter, latency, or long wait times to access applications and services will quickly frustrate customers. 451 Research found that 70% of customers are likely to switch providers if an application or service performs poorly.

Calculate revenue churn over a period of time (such as a month, a quarter, or major downtime event) by subtracting the monthly recurring revenue (MRR) at the end of the time period from the MRR at the beginning of the time period, minus the costs of any upgrades, divided by the MRR at the beginning. In other words: (MRR start of period - MRR end of period - MRR in upgrades)/MRR start of period.

Soft Costs

These vary widely from organization to organization and can include negative reputation, lost opportunity cost, loss of talent, etc. These are difficult to quantify, but the ROI calculation will be more accurate if you can estimate and include them.

So What's the Real Cost of Network Visibility?

When compared to all of these potential costs, the price of a network visibility solution often seems quite low and definitely very low when considering the business outcomes it produces for years to come.

And keep in mind that visibility provides value nearly every day, not just during catastrophic events, in terms of performance improvements or faster issue resolution. For full effect, run this calculation after each downtime event and see how the cost changes after implementing a network visibility solution fully or partially. It is typical to see network visibility generate an ROI of over 2000%.  Add it all up, and it's critical information to help the c-suite understand how investing timely in a good network visibility practice can save not only costs, but a lot of hassle. Business impact may not be a straight line, but is nonetheless measurable and impressive.


About the Author 

brendan o'flaherty 

Brendan serves as Chief Executive Officer of cPacket Networks and has over 20 years of executive and leadership experience. Prior to joining cPacket, Brendan was President and Chief Operating Officer at Massana Semiconductor, where he led a successful acquisition by Agere Systems. Brendan was also Chief Operating Officer and General Counsel for Aureal Systems, a public audio technology company. Before his journey into corporate executive management, Brendan led a successful career in Silicon Valley as an attorney with the predecessor law firm to DLA Piper Rudnick, specializing in corporate law, intellectual property, and mergers and acquisitions. Mr. O'Flaherty earned his Bachelor's degree from Santa Clara University and a Doctorate in Jurisprudence, Magna cum laude, from Santa Clara University Law School.

Published Friday, December 04, 2020 7:40 AM by David Marshall
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