A 4-Step Formula to Calculate the Cost of Downtime for Your Business Ever thought how downtime can hurt your business, especially because of an IT issue? For years, one universal standard to measure downtime is calculating the “cost to business”. However, the overall loss to the business is much bigger than we can actually see. The impact of a single IT failure on the top or bottom line of a business cannot be measured by just calculating the loss to revenue. Many business owners claim that they can afford to go down for an extended period, neglecting to consider consequences like reduced profitability and total business failure. But the truth is that no business owner wants to see the downtime. In order to understand this, let’s calculate how costly a single downtime event can cost your business. Calculating the Cost of Downtime In order to calculate the loss to a business because of an IT breakdown, we’ve tried to include all verticals that are impacted due to any IT crisis. You can use this formula to figure out the total cost of downtime that affects your business: Cost of Downtime (per hour) = Lost Revenue + Lost Productivity + Cost to recover + Cost of intangibles (i.e. reputation cost) Let’s examine these 4 steps more closely: Lost Revenue: Identify revenue generation resources of your business to examine the actual loss of money. After that calculate hourly revenue/profit you earn through those resources. This will give you a straightforward figure of your actual revenue loss even if one component of your operations/production breaks down. Lost Productivity: The cost of downtime will result in productivity loss because your employees won’t be able to work and they are your fixed liability. Salaries are a fixed cost and you need to pay it anyhow. So calculate the average amount you pay to each employee per hour and then figure out the cost of loss of productivity during downtime.
Cost to Recover: Total cost associated to recover your data and resuming to normal operations falls under this step. It includes lost data recovery cost and other expenses related to setting up the systems back. Figure out how much cost you needed for recovery. Bankstown Head Office 393-395 Hume Highway Bankstown, NSW, 2200