How to Calculate the Cost of IT Downtime

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.

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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/ ]