Downtime is Expensive. Here’s How to Calculate Just How Costly It Is
Business owners try to avoid downtime like the plague, but it’s often a major challenge. The impact of downtime can be devastating for even the most well-to-do business because it effectively stops productivity, but the costs keep. This month, we thought we’d take a look at how you can calculate the cost of a downtime event to help you understand the impact downtime can have on your business.
It’s critical to keep in mind that downtime can have various influences on your business, all of which are exclusively bad for your organization. In terms of customer relationships, these are some of the effects you might feel:
- Customer dissatisfaction and displeasure
- Decreased loyalty to your business and brand
Your business will also experience the following directly rather than through your customer base:
- Lost revenue
- Cost of recovering, repairing, and/or replacing IT solutions
- Lost or wasted materials
- Compliance and regulatory issues
- Repercussions to your supply chain
- Overtime costs to make up for lost time so deadlines can be met
- Decreased employee morale and increased stress
- Lost internal productivity and the costs of still paying your employees even when work can’t be done
Calculating downtime can be a bit tricky, as it requires you to estimate the utilization percentage of each employee and their technology, which is a convoluted way of saying how much work they do that requires technology to accomplish. You then need to multiply this number by each of your employees’ salaries per hour. Multiple employees with the same salary grade and utilization percentage can then be used by multiplying this by the number of employees affected by downtime. This gives you your total lost productivity per hour.
This gives us the following equation:
(Salary per Hour x Utilization Percentage) Number of Affected Employees = Lost Productivity
Calculating recovery costs and intangible costs (or the costs associated with damage to your reputation) is a little simpler. You need to combine all of the costs detailed above to calculate the total hourly cost of the incident.
The numbers you get might startle you, but it will put in perspective just how important uptime really is.
At First Column IT, we help small businesses reduce their downtime every day. If you would like to learn more about what we can do to keep your business up and running as it should, give us a call at 703-880-6683.