Calculating Downtime Losses. The Results Will Scare You!

August 21, 2015

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Every Internet Service Provider (ISP) will claim to have 99.9% uptime. For the most part, their claim is correct, too. The problem in perception is that many customers will translate that statement into total access to the Internet. When they are faced with a period where the Internet can’t be accessed, it becomes a significant problem for the ISP. Over any given month, that one-tenth of a percentage equates to about 45 minutes of downtime, or nine hours per year. It doesn’t stop customers from immediately complaining to customer service. Now, that kind of downtime is probably not going to hinder your business’ progress all that much, but what happens when crucial IT systems are consistently going down, leaving your staff left twiddling their thumbs?

Enough downtime can destroy the profitability of your endeavor, period. Traditionally, business owners quantify the amount of downtime into a dollar amount to properly determine how much money their organization is losing as a result. Here are some formulas that you can use to calculate your percentage of downtime, and what that downtime is costing your company.

Revenue Lost

To figure out your company’s total losses in downtime, you will have to pick the duration of time you want to calculate for. For our examples we will use one year, as it is often the way an organization will determine their budget. To calculate lost revenue, you simply divide your annual revenue by the amount of hours your company is in business (Revenue/Total Hours of Operation=Avg Revenue per hour). You then multiply that by the total amount of downtime hours you experienced (Avg Revenue per hour X Hours of Downtime = Revenue Losses). This will give you a number that represents the per-hour cost of downtime for your company. Save this number for later, because we aren’t done.

Cost of Lost Employee Productivity

Employee productivity is traditionally the biggest victim of downtime. Workers need breaks, that much has been proven, but when downtime hits, and they were in the middle of an important task, it can be a real struggle to get them back to work properly. To figure out how much overhead is lost in employee productivity, you have to determine the loss for every employee (Affected employee wage X Hours affected = Affected employee overhead loss), then of course add them all together. It will give you a number figure that determines how much your organization lost in lack of production during these downtime events.

Cost of IT Recovery

No matter what causes downtime, it can be a disaster for your business. If there is downtime resulting from technology failure, there is a fair chance you will be in a position where your essential data isn’t available. If your business doesn’t have a solution in place to mitigate hardware failure, you may find yourself hampered by substantial downtime. Whether you do or don’t have a solution in place for this purpose, you will need to recover your IT to an acceptable level to get your business back on the right track. To calculate the cost of IT recovery, be sure to include the cost of whatever equipment you needed to purchase, and if you outsource to an IT provider, whatever they invoice you (wink, wink, if you used a managed IT provider, this wouldn’t cost you a dime. In fact, the problem would have been resolved before you even experienced downtime). If you have internal technicians, you really can’t count that as a loss, because that’s what you’re paying them for in the first place. Now keep the number for the cost of recovery, for later.

Consensus: Downtime is Expensive!

Depending on your type of business, there could be more things to factor in such as reputation damage and customer loyalty, but we’ll keep it generic because it’s enough to make you realize, you can’t afford it! So, our trip through the substantial costs of downtime ends with some simple math. Add the results of these variables together and you’ll calculate the total cost of downtime. Are you surprised about how much that 45 minutes a month that your Internet is out is costing your business? Project that total to a server failure with no viable backup solution: it isn’t pretty.

It’s no secret that your organization will deal with some downtime, but when all other elements of your endeavor are lining up the way you envisioned, losing time because your IT is struggling to stay up is a major problem. Once you understand that you are risking it all by relying on faulty IT practices, and learning how to quantify this downtime, you will be able to come up with a comprehensive budget for your IT can maximizes your organization’s profitability.


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