How to Calculate the Cost of Your Downtime

One of the hurdles that any decent IT department has to hurdle is getting the higher ups to understand the importance of maintaining a stable technical environment, as the higher ups rarely have any idea as to what a system downtime means with regard to the company’s bottom line.

The bosses know downtime costs money, but they rarely understand exactly how much money. This means they rarely understand how devastating a downtime can be. It’s not just executives, sometimes the IT heads themselves choose to bring down a server for maintenance during business hours, not realizing exactly how much they are costing the company. So how do you calculate the exact cost of your downtime?

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First, we need to define system downtime; basically, it is when the system is unavailable to the user. So even if an application and the hardware it runs on are both up and running, if the application can’t be used for any reason, then the system is technically “down.”

Calculating the Cost of Downtime

When calculating the actual cost of downtime, you need to first start by outlining the tangible technology components that have a great impact on the company’s operations, such as business applications (applications used by a large number of employees, critical to the daily operations of the company,) technology services (Internet, e-mail, intranet, automated report distributions, etc – things that enhance employee productivity), and technology infrastructure (servers, LANs and WANs.) Then you calculate the cost of downtime on those components on an hourly basis. Additionally, the impact will be much more pronounced if you break it down for a single user. You can check out the table below to see an example:

1. Direct employee cost takes into account the total hourly estimate for an employee who is impacted by the downtime, or basically ones who cannot work because the system is inaccessible. For example:

Employee’s who can’t work: 10 users equals $200 (10 x $20/hr salary = $200)
Employees who can work on a reduced capacity: 100 users who are down to 20 percent productivity equals $400 (100 x $20/hr x 20 = $400)

Both figures can then be summed as a $600 entry in line item 1. The same calculations can be used for the other line items.

2. Indirect Employee Costs concern the nonproductive management time that results from downtimes.

3. Employee recovery cost is about the time needed to catch up when the system goes back up.

4. Nonemployee expenses cover the cost of forms, phone, fax, and other office supplies that would not be used if the system was functioning normally. This may require using your best estimates.

5. Client Service Value covers the estimated cost incurred when your company suffers from a client service challenge.

6. IT Recovery costs cover the time and out of pocket costs from the IT staff when trying to restore the system.

7. Miscellaneous is for those costs that might not be covered by this article, because different companies will have different needs and expenses and might have several more factors to consider when calculating the cost of downtime.

When the total cost of a system downtime has been calculated, both employees and higher ups might find it surprising just how expensive a single hour of downtime can be, which is further worsened by the fact that there are many downtimes that last more than a couple of hours. With this information readily available, people will have reason to pause for thought before authorizing an easily avoidable takedown of hardware or rejecting the purchase of new hardware that will help minimize downtime in the future.

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