Calculating the Cost of Downtime

We met with some business owners this week where the current IT provider has neglected their technology for some time.  There were a few contributing reasons for this.  The client is in manufacturing and is hesitant to invest money in technology that they didn’t see improving their production process or output.  The current solution was on its last legs, but it still hadn’t broken yet and therefore wasn’t seen as a problem. Lastly, they have several aging staff members that struggle with significant changes in their technology.  Once we started calculating the cost of downtime those arguments were quickly overcome.

Do the Math

What it came down to for these business owners was looking at their IT a little differently.  They had to think through what would happen if their systems did fail.  What does that do to your production?  Are you still able to work, and if so at what capacity?  How much would it cost you in lost wages, lost productivity, and unfinished work?  Does it cost you money when you can’t meet customer deadlines?

For a manufacturing operation that math is straightforward.  They have numerous large machines making parts.  Every machine is fed plans on how to cut those parts from an on-premises server.  If that server goes down production stops completely.

In this case they would have X number of machines that would be inoperable until the situation could be corrected.  They had solid numbers of how many parts they could produce in an hour and profit on each.  In addition, the machine operators were paid hourly at a rate of X.

Downtime is expensive.  Once they stopped to do the math the price of the solution we were offering to mitigate the risk of that downtime seemed paltry.

Data Foundry has a pretty good formula to calculate the cost of downtime.

“The following formulas can be used to obtain a ballpark estimate for labor costs and revenue loss per hour of downtime:

Productivity cost = E x % x C x H

E = number of employees affected

% = percentage they are affected

C = average cost of employees per hour

H = number of downtime hours

Revenue loss = (GR/TH) x I x H

GR = gross annual revenue

TH = total annual business hours

% = percentage impact

H = hours of downtime”

Other Costs

There are other costs that can be connected to downtime as well that you might want to include in your calculations.  There could be data recovery costs, employee overtime, or even supply chain problems that could cause delays and fees. 

Some things are less concrete and more difficult to calculate.  Your brand can be hurt when you can’t deliver on your promises.  Upset customers could be lost, and employee satisfaction could be hurt because they aren’t able to do their jobs.

It’s important to think through these items when making decisions about your network.  A small investment in your technology could save you tons of cost and hassle.

How to minimize downtime

There are several different ways to tackle this.  Getting your essential network equipment on a regular cycle of 5 years or so will keep your hardware from getting to an age where failure is most likely.  Having a professional maintain that equipment and make proactive recommendations for security and productivity on the network helps as well.  Proper solutions for backup and disaster recovery that include a discussion of how to mitigate downtime will help you select appropriate measures.

You need to make a long-term strategic plan for IT that allows you to get a sense of the current state of the network, know where you’re headed, and how you will respond when an outage of error does happen.

Conclusion

Downtime is expensive and often not considered enough by business leaders.  Take the time to consider the cost of downtime for your business and put a plan in place to mitigate it where possible.  Speak with a reputable provider and get the help you need to create a strategic plan for IT.

If you need help with any of those items, i.t.NOW is here to help.  We have expert engineers and team members that can consult with you on your business needs and devise a custom-built solution.  Call us today.