How to Calculate the True Cost of Downtime

Mar 17, 2021 | Insights, IT

When deciding on a network management strategy, a top priority for your department to think about is the cost of IT downtime. 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. That number is calculated based on several different things but applies to an average-sized organization. But what if your organization is smaller or larger than average? It might not be readily apparent how to calculate IT downtime just based on average numbers.

*The Ponemon Institute & Emerson Network Power

Here we will review several average downtime costs that include small businesses and large enterprises. We also discuss how to calculate the average cost of IT downtime for your business and why good network management is crucial for your IT plan. Understanding what IT downtime truly costs means understanding where that money goes to, namely labor cost, production cost, revenue loss, and reputation damage control.

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 IT 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. It’s common practice to look at these numbers when trying to understand why network management is so important to your IT strategy.

While these numbers do provide data for businesses of a variety of sizes, they only take into account businesses with data center footprints.

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 IT downtime? The most difficult part of accurately calculating your cost of IT 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 IT downtime costs when it comes to this number.

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 for IT Downtime

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. In hindsight, network management seems like a good investment, right? That’s a lot of costs that might add up otherwise.

Other costs are more difficult to determine. We’ve talked about how this sort of IT Downtime can lead to a hit in your company’s reputation. Is it possible your organization would lose customers as a result of downtime? Absolutely. Would your company miss important deadlines or be unavailable to customers and prospects at a critical moment? If their network management was sub-par, the answer is undoubtedly yes. Would customers and prospects lose trust in your company, and to what extent? Hard to say, but we’re willing to bet that several people wouldn’t come back. Would you require the services of a PR firm to get your organization back on track? Considering these possible costs along with the calculations above and it’s easy to see why network management should be a robust part of your IT strategy.

How can you minimize downtime costs?

The cost of IT downtime is, frankly, 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. A network assessment is what we recommend for understanding where your network is doing a good job, and where it’s not. Our network assessment is a detailed map that will identify holes and any areas of improvement that your network may need. Want to learn more? Check out our blog on Why We Offer Network Assessment.

A good assessment should show that your IT plan is robust and your network management is airtight and up-to-date. 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). Lastly, keep your critical infrastructure in a facility with redundant power and cooling and manned 24×7×365 by qualified staff. All these strategies lead to effective network management and better outcomes for your company. Interested in learning more? You can learn more about these in our blog post: What’s the Best Backup Strategy? Are you interested in what we’re doing to minimize IT downtime at our Texas 2 data center?

Schedule a tour or Get a quick quote.