How to Calculate Downtime Costs

    October 20, 2015

    By Dino Balafas

    Underestimating the consequences of downtime can be hugely detrimental to your productivity. Accurately calculating those costs won’t just prevent disasters, but also help you effectively manage your capacity planning efforts.  

    When its servers are humming and systems are fully operational, it can feel like your company has no reason to worry about IT performance. But unfortunately, the nature of IT means there’s always a cause for concern  if you aren’t prepared, an unexpected overload always has the potential to crash your servers.

    Even in the best-case scenario, you spring into action, devising a quick backup plan that gets you back in business within about two hours. That might feel like a victory  but those hours likely still cost you enormously. If you haven’t done so already, it’s time to calculate the cost of downtime.

    Lost Revenue

    The first thing you’ll want to determine is the revenue lost to downtime. You can calculate this using a simple equation:

    (Weekly Revenue / Weekly Work Hours) x Downtime in Hours = LOST REVENUE

    For example, if you usually make $20,000 per week over the course of 40 work hours, two hours of downtime will result in a loss of $1,000. Those two hours just cost you five percent of your weekly total revenue.

    And the bigger the business, the more revenue generated, making the risk even greater. Small enterprises whose success doesn’t rely entirely on uptime can sometimes absorb those risks  a restaurant’s website going down for an hour won’t substantially affect business.

    However, if you rely 100% on uptime, you can rack up some serious losses in a hurry. For example, in 2013, Amazon lost almost $5 million over the course of just a 49-minute outage, according to Network World.

    And all those minutes of downtime add up  InformationWeek discusses a CA Technologies report that surveyed 200 companies across North America and Europe, revealing a shocking $26.5 billion annual loss in revenue due to downtime. Small companies lost an average of $55,000; midsize companies $91,000; and large companies $1 million annually.

    Fixed Costs

    Of course, an outage offers no excuse to skimp on paying your employees their salaries – and now there’s ways to make back that money in earned revenue. Team members could be doing something productive (like bringing the systems back up, for instance), but in a worst-case scenario, they could also simply be sitting idly around the office, unable to do their jobs.

    Here’s a simple method to calculate those fixed costs:

    Number of Employees x Hourly Wage x Downtime in Hours = FIXED COSTS

    To provide another example, if you have 25 employees that are paid $20 an hour, two hours of downtime will result in an additional loss of $1,000.

    And don’t forget the costs racked up during the recovery period. TechRepublic points out that a healthcare provider that uses an app for registration, recording, and billing will feel the effects of a crash long after normal service is stored. When the system eventually does go back online, all of the information that was manually tracked in the meantime must be inputted into the system, costing extra time and money.

    Add up the lost revenue and fixed costs that piled up over the downtime and recovery periods, and you get a good idea of how much you stand to lose  in some cases, it can be downright devastating for your business.

    Keep Your Reputation Intact

    Downtime also creates significant, intangible costs. A company can easily suffer from a damaged reputation  sometimes irreparably  due to slow response times or downed servers. For example, a retailer that’s unable to respond immediately to its online customers will irritate shoppers and make no sales. It may even be the first time it’s happened, but that won’t stop customers from checking out your competitors.

    TeamQuest provides enterprises with the necessary capacity planning tools to anticipate overloads before they occur, eliminating workload-related outages. A study by the International Data Corporation found that one of its clients virtually eliminated the eight hours of downtime they experienced every week (along with the associated costs) through the use of TeamQuest software.

    TeamQuest’s IT Service Optimization (ITSO) solutions prevent slowdowns and outages, and help you maximize the full value of your business. Contact TeamQuest today to find out how you can avoid unnecessary financial hits and damage to your reputation by eliminating your downtime once and for all.

    (Main image credit: vmax137/flickr)

    Category: capacity-planning