How To

How to Calculate the Cost of IT Downtime

Published

6 years ago

9 May 2017

Downtime is always going to cost a business money. How much depends on the extent and cause of downtime across an organization, and how well the process to recovery is planned and executed. Understanding the factors that affect the costs of downtime can help prioritize efforts of recovery, as well as illustrate the importance of properly maintaining systems.

Large data centers and fortune 500 companies know the importance of their data and network infrastructure when it comes to the dollars and cents revenue that is generated from these technologies. They also understand the risks and loss associated when these systems go down, which is why they calculate down to the hour how much money they stand to lose if and when their systems go down unexpectedly; and you should too.

Small and Medium Sized Businesses Can the Hardest Hit By Downtime

There are lessons and insights for small and medium-sized businesses to learn from calculating the costs associated with downtime of IT infrastructure, and consequently, the ROI of environmental monitoring systems cost savings in avoiding disasters. Small businesses can be the hardest hit by downtime because for many, they do not have the processes in place to prevent, or resolve downtime which can extend the length and severity resulting in increased impacts on profits for a business.

Many times due to the initial costs, it is common for small and medium sized business to overlook some IT best practices which can minimize the risks and costs of unexpected downtime including building redundancies for power and internet, automating daily back-ups, off-site replication and monitoring the environmental conditions of their server rooms.

Does your company’s productivity and revenue rely on IT assets?

Even if you are only hosting your business email accounts, accounting software, CRM, website or customer database then the answer is, yes.

Have you considered what it would cost your business if your servers or network went down?

There is a simple formula for figuring this out, and it can help businesses realize their dependence on IT and the importance of properly maintaining and protecting these assets.

Cost of Downtime = Lost Revenue + Lost Productivity + Cost to recover + Cost of intangibles

Example Downtime Cost Calculation

To explain this equation let’s start off with a simple example. Consider a business with 100% of its revenue generation from its online e-commerce store with $5 million in annual revenues. The chart below represents the potential lost sales for a 24-hour outage. In this example, the company with $5 million annual revenue would stand to lose around $13,699 per day of revenue.

Let’s assume the company hosts its own e-commerce system and the outage was due to a temperature issue when an AC system failed and went unnoticed. The servers quickly began overheating until automatically shutting down which caused the company’s e-commerce site to go down and so no business could be transacted during that day.

In this scenario, most of the equipment was able to recover, but a server and disc drive had to be replaced costing approximately $2,000 to recover. The IT consultants who maintain the servers put in 8 hours to configure and install the devices, adding another $800 to the cost, for a total of $2,800 in equipment recovery related cost.

This company generates an average of $13,699 per day in revenue and for this example let’s assume 50% of the customers the others choose competitive suppliers and the others wait for the e-commerce system to return. The result is a daily loss of $13,699 in revenue with an overhanging additional $7,000 in lost revenue since they have lost the potential business to competitors. This means the total revenue loss related to this incident is $20,699. Add to that equipment related costs of $3,600 and you have a simple calculation for the total cost of downtime at $24,199 per day for this example company.

Example Calculation:

Lost Revenue ($20,699) + Cost to recover ($2,000+ 8 hours labour $800) + Cost of intangibles ($7,000 in lost customers) = Cost of Downtime Per Day ($30,499)

This is just a simple calculation to get you thinking of the costs your business may suffer as a result of unplanned downtime. This calculation also does not take into account the costs of lost productivity if workers are affected and unable to work which will be explained below.

Go to Enviromon.net to learn the steps to identify the variables of your business that could be affected and the costs should downtime occur.

[ Read the Full Post and Learn how to calculate the cost of IT downtime and download a free “Downtime Calculator Worksheet” at http://www.enviromon.net/calculating-downtime-cost-data-centers-businesses/ ]