The Real Cost of System Downtime

by Jon Simms, President of TeamLogic IT of Mountain View, CA

If your computer systems stopped working at this very moment, how long would it take before your business operations came to a screeching halt? If your organization doesn’t have a quality technical resource, it wouldn’t take long. From the loss of email and Internet applications to a potential interruption in communications (i.e. phone, instant messaging and teleconferencing), a breakdown in computer systems can be extremely counterproductive and costly to your business.

 Outages are an Operations Cost

The day-to-day responsibility of these systems may lie with your IT team or service provider, but the ultimate accountability rests with a business’ management team. The company’s leadership needs to be committed to a proactive technology plan, with contingencies built in to ensure the organization remains productive at all times. By minimizing downtime, the organization can employ its people and resources more efficiently; which is especially crucial in competitive markets and industries. A proactive technology plan allows the management team to focus on parts of the business that will help grow revenue and profits!

How much does an hour of downtime cost your company? The exercise below starts with a calculation of the combined hourly wage (Don’t forget to include the benefit packages) of all the organization’s employees. This price may vary by hour of the day (shift staffing), so adding that step can be helpful. Then you can determine the hourly rate for other business expenses, by dividing those fixed and variable costs by the hours in your operating day. This information should be easy to obtain from your human resources department and accounting software (or accountant).



What is the Productivity Cost in $$?

When you consolidate these hourly rates into a single operations cost, it illustrates the business expense incurred by shutting down for the day but still paying all your employees. While a complete company shutdown is typically associated with a catastrophe or freak storm, a computer system failure could bring about a similar productivity loss. The calculated hourly operations rate is essential to understanding the value of proactive business system management. If a new service can reduce your downtime significantly, how much is that worth to your organization? That investment may be hard to justify unless you’ve experienced a severe outage in the recent past, but each business still should understand the potential liability of such a disruption. Here is an example of this calculation:

Business Expenses (all numbers monthly)

Employee wages/salary per month $30,000

Rent $7,000

Utilities $2,000

Other business expenses $7,500

Total $46,500
Divide by monthly hours of operation $46,500/200= $232.00 per hour

This example demonstrates the cost to your business if it is unable to operate for an hour. If the outage were an entire ten-hour business day, the expense associated with that downtime would be $1,650.00! This is an important figure to reference when you are evaluating the price of solutions that can reduce downtime of your business. But the opportunity cost (lost revenue) is actually much larger than this number, and needs to be included to give you the REAL cost of downtime. When your business is unable to operate, the ability to generate revenue is greatly diminished, whether you rely on foot traffic or phones and Web sales.



Develop a Plan for Your Business Crittical Systems

 Calculating that cost can be difficult to determine, but one simple method is to estimate the average income you lose for each hour of a shutdown. If the business’ average monthly revenue is $50,000 and the hours of operation are approximately 200 hours each month; the revenue the company generates is $250.00 each hour (the opportunity cost). If our example company is technology-dependent, it loses approximately $415.00 every hour its systems are down! Even if a computer failure doesn’t close the business for a significant amount of time, consider the lost productivity costs if it experiences a 50% reduction in network speed. In the example company— if this issue persisted for an entire workday—it would lose $2,075.00.

Whether a company experiences significant problems with its current systems or is just looking to avoid future issues, understanding downtime costs is essential. When implementing the latest technology or a new service, this figure helps a business understand the savings (or losses) associated with the project. Knowing those costs allows the organization to prioritize emergency response needs and evaluate future plans. It becomes truly critical when discussing response needs and service level agreements with providers who will support your critical systems.

If you would like to get a handle on computer downtime to protect your business and make it more productive, give us a call at 650-204-3150.  Our Business Continuity and Managed Services will give you the piece of mind that your data is safe, your systems are running well and your company is operating at peak performance.  Isn't your business worth that?

For more information, contact Jon Simms at  MountainViewCA@TeamLogicIT.com or visit  www.teamlogicit.com/MountainViewCA.