How to Calculate the True Cost of Downtime

Blog downtime cost3

There are a lot of scary numbers out there for the average cost of downtime. The Ponemon Institute stated the average cost of unplanned downtime for 2016 was $8,850 per minute. But what if your organization is smaller or larger than average? In this blog post we review several average downtime costs that include small businesses and large enterprises. We also discuss how to calculate the average cost of downtime for your business. These costs include labor cost, productivity cost, revenue loss and reputation damage control.

Downtime costs

*The Ponemon Institute & Emerson Network Power

Cost of Downtime Ranges $137 to $17,244 per Minute

As seen in the chart above, there is a significant variance in the cost of downtime between organizations. The minimum cost of downtime was $593 per minute, while the maximum was $17,244 per minute. The chart above is from the Ponemon Institute’s Cost of Data Center Outages 2016 Report, and their mean costs of unplanned downtime are some of the most commonly cited in the industry.

While these numbers do provide data for businesses of a variety of sizes, they only take into account businesses with data center footprints. A study conducted by IDC on behalf of Carbonite takes into account all small businesses. The study indicates that downtime costs for small businesses ranged between $82,200 and $256,000 for a single incident. According to Carbonite, average downtime costs per minute for small businesses range from $137 to $427 per minute.

How to Calculate your IT Downtime Cost

So, what really determines the cost of downtime? The most difficult part of accurately calculating your cost of downtime is deciding on the percentage impact and estimating what is referred to as intangible costs, such as the cost of a damaged reputation. Businesses that provide online services or data center services will have higher downtime costs.

The following formulas can be used to obtain a ballpark estimate for labor costs and revenue loss per hour of downtime:

Productivity cost = E x % x C x H

E = number of employees affected

% = percentage they are affected

C = average cost of employees per hour

H = number of downtime hours

Revenue loss = (GR/TH) x I x H

GR = gross annual revenue

TH = total annual business hours

% = percentage impact

H = hours of downtime

Additional Costs

These aren’t the only costs to consider when calculating the total cost of downtime. There may be recovery costs, such as the cost of employees working overtime, the cost of repairing devices or systems, and data recovery costs. For some businesses, downtime may negatively affect their supply chain, causing delays and fees.

Other costs are more difficult to determine, such as costs to the company’s reputation. Is it possible your organization would lose customers as a result of downtime? Would your company miss important deadlines or be unavailable to customers and prospects at a critical moment? Would customers and prospects lose trust in your company, and to what extent? Would you require the services of a PR firm to get your organization back on track? Consider these possible costs along with the calculations above

How can you minimize downtime costs?

The cost of downtime is enough to cause some companies to go out of business. To mitigate the negative consequences of downtime, have a thoroughly reviewed plan for disaster recovery and business continuity. Make sure you are using a backup system for all files, databases, email systems, virtual machines and applications. Know your RTO (Recovery Time Objective) and RPO (Recovery Point Objective). Learn more about these in our blog post: What’s the Best Backup Strategy? Lastly, keep your critical infrastructure in a facility with redundant power and cooling and manned 24×7 by qualified staff.

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