Downtime costs tend to be nebulous, and seemingly impossible to pinpoint. Let us show you how you can narrow down the causes of productivity costs and revenue losses, and even calculate the per-hour and per-year losses that downtime causes you.
Calculating Downtime Productivity Costs
Establishing the true cost of downtime means looking beyond your IT team. Your “on the ground” employees know better than anyone how downtime affects business productivity.
First, perform a historical analysis. Examine which employees are affected by downtime, and to what extent. Even if your systems are down, you’re probably paying most of your employees during that time. Some employees may be able to continue working during an outage, but one of the few downsides to today’s paperless workplaces is that productivity takes a serious beating when systems go offline. Most employees will find their productivity crippled, or at a total halt.
Next, approximate employees’ decreased productivity during downtime as a percentage of their normal productivity. To make things easier, you can tackle this by department.
A conservative gauge to estimating the value of an hour of lost productivity is to ask your human resources department for the group’s total average salary, including benefits and overhead costs. Since companies are earning a profit from their employees’ work, the value of an hour of productivity should be much higher than just what your employees are costing you, making this just a ballpark estimate.
Input those quantities into the following equation to calculate the average labor (or productivity) cost of downtime:
Downtime Productivity Costs = C x H x A x N
- C = average hourly employee costs
- H = the duration of the outage in hours
- A = employees’ productivity during downtime (the percentage of normal productivity, expressed as a decimal)
- N = the number of people affected
Repeat this process for each department or unique group of employees for the most accurate results.
Calculating Revenue Losses
To predict future revenue losses, first estimate how much revenue is generated in one hour of normal productivity. Then, scale this number based on the impact of downtime on business functions based on your company’s ability to recover lost business from an outage, and the loss of customers to your competition.
Calculating hourly lost revenue can be accomplished using the following equation:
Downtime Revenue Losses = (YR / BH) x I x H
- YR = gross yearly revenue
- BH = total yearly business hours
- I = percentage impact (as a decimal)
- H = number of hours of downtime
Notice that the first part of this equation, (YR / BH), gives you an estimate of how much revenue you generate in an hour. The percentage impact, I, scales this number based on the factors mentioned above.
Multiply the hourly cost by the number of predicted offline hours per year (often estimated through a historical analysis) for the total annual cost.
To mitigate these costs, it’s always a good idea to invest in high availability (HA) solutions to keep your systems resilient to downtime. We provide these services for IBM i and AIX, Windows, and Unisys systems. Meanwhile, if your downtime is caused by a disaster, disaster recovery (DR) solutions are a must to keep your business-critical data secure from loss or corruption.
To make a long story short, the aspects to consider for labor productivity during downtime include:
- Duration of outages
- Number of affected employees
- Percent of productivity lost during downtime
- Average fully burdened labor rate (employee’s salary plus all associated costs such as payroll taxes, insurance, benefits, etc.)
For revenue, these aspects include:
- Direct losses
- Billing losses
- Long-term losses
- Investment losses
- Compensatory payments
- Ability to recover lost business
If this topic interests you, check out our guides to calculating downtime costs from time-dependent consequences, effects on reputation and customer loyalty, intangible costs and those from compliance.
For help minimizing the costs of downtime with effective high availability (HA) solutions, contact us today at 317-707-3941.