The Cost of Downtime and How To Calculate Your Own
Every business wants to reduce its costs.
But what if avoiding technology upgrades to reduce expenditures was actually increasing them?
According to Gartner, the average cost of network downtime is around $5,600 per minute. That is around $300,000 per hour. For any business, $300,000/hr is a lot on the line. However, since that number is just an average, there’s also more to it than that.
Downtime Cost Factors
There are a lot of factors that can impact downtimes costs. For example, a small business with only a few dozen staff won’t be hit nearly as hard as a major organization with tens of thousands of employees. That’s because cost scales to the number of people impacted, and less staff means less lost productivity.
Industry also plays a key role. Sectors like finance, healthcare, government, communication, retail, utilities, and more can all be heavily impacted by downtime. Depending on the region and the amount of people served, the cost of downtime can reach millions of dollars per hour.
Beyond the monetary costs, IT downtime can wear on your business’s productivity levels. Every time you get interrupted, it takes on average 23 minutes to get refocused on your prior task. Small disruptions can add up. Network failures and power outages aren’t the only culprits when it comes to downtime either. Other top factors include:
- Outdated Software
- Device Failure
- Hurricanes and Floods
- Human Error
So how do you know where you stand when it comes to downtime costs? Here is a simple way to calculate how your business could be affected:
IT Downtime Formula
Cost of Downtime (per hour) = Lost Revenue + Lost Productivity + Recovery Costs + Intangible Costs
Lost Revenue
You need to calculate the amount of revenue generated per hour by your business. This would be the revenue per week/40 hrs. An important component to figure out your lost revenue is your business’s revenue dependence on uptime.
Uptime is time/percentage your site is up and operational online. For example, if you are an e-commerce store and solely sell online, you are 100% dependent on the internet for your business’s revenue. You will need to estimate the percentage amount of your revenue that is dependent on uptime.
Lost Revenue = Revenue/hr x downtime(hrs) x uptime(%)
Example: If my revenue is $3,000/hr and my network was down for 2 hours, and my uptime percentage is 30% my lost revenue would equal: $1,800/hr
Lost Productivity
Due to down servers, employees are unable to perform their jobs. But their salaries are a fixed cost and do not change even during the downtime.
To calculate the productivity lost, you must first calculate each employee’s salary/hr. Then, estimate the percentage of productivity that is dependent on uptime and this could be different across employees.
(Uptime, remember, is simply the time or percentage your site is up and operational.)
This percentage is known as the Utilization Percentage.
Lost Productivity = Employee Salary/hr x Utilization % x Number of employees (with same Utilization %)
Recovery Costs
These are the costs accrued while fixing the issue. They can include but are not limited to:
- Repair services
- Replacement parts
- Lost data recovery
- Other costs due to loss of data
These may not be as tangible at revenue and productivity costs, but they are equally as important when deducing your real downtime costs.
Intangible Costs
These are the costs that can sting the most for the long-term. These occur when downtime damages your reputation or your brand.
These costs ultimately affect businesses that rely heavily on uptime. Including intangible costs into the Total Downtime Cost Formula gives a better understanding of the long-term consequences that can occur due to downtime.
Final Cost
Once you have calculated each separate cost, you can now finally plug them into the main formula and tally up your total downtime cost.
Does the number surprise you?
If you are ready to end the risk of downtime, contact us now to find out how our IT solutions can minimize that risk and fit seamlessly into your business.
A Real World Example of Downtime
In March of 2019, the Nordic metals firm, Norsk Hydro, suffered a ransomware attack called LockerGoga that shut down its global operations. This left their 35,000 employees around the world unable to progress with their work. At this point, they are still working to calculate the financial impact of the attack, loss of wages, productivity, and stock price drop.
How To Minimize Downtime Costs
Cutting downtime costs focuses on three key areas: building stronger systems, setting up a clear response plan, and making ongoing improvements.
- Use Load Balancing and Find Points of Failure: To prevent downtime, start by making systems resilient. Identify and address single points of failure, replace outdated technology, and set up reliable backup systems. Load balancing spreads tasks across multiple resources, reducing the chance that one failure will disrupt operations. Together, these steps help keep your business running smoothly.
- Create an Incident Response Plan: A good disaster recovery and incident response plan allows your team to respond quickly when issues arise. Outline steps for restoring key systems, and train team members to carry out these steps smoothly. Practicing these steps regularly means your team can act fast, limiting downtime costs.
- Review and Improve Regularly: After any downtime event, review what happened to find areas for improvement. Use these insights to update your recovery plan and improve backup processes. By refining your approach over time, you’ll build stronger systems that are prepared for future disruptions.
Avoiding Downtime Altogether
While reducing downtime costs is important, it’s even better to avoid downtime completely. Preventing downtime means you won’t have to deal with the costs of disruptions at all. To do this, businesses can use contingency plans and focus on preventing issues before they occur. By addressing any weak spots in their systems early, companies can keep operations running smoothly and save money by avoiding unplanned disruptions.
One way to prevent downtime is with regular maintenance and monitoring. Updating or replacing old systems and using monitoring tools helps catch issues early, so they don’t turn into bigger problems. Regular testing of systems and backups also ensures everything works as it should, lowering the chance of unexpected failures that could cause downtime.
Another helpful step is partnering with an outsourced IT provider. These providers specialize in managing IT systems and can monitor them around the clock. With experts handling updates and fixing issues before they disrupt operations, businesses can reduce the risk of downtime and rely on a more stable system overall.
