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What does downtime really cost?

April 8, 2016

This is the ninth in a ten part series on information technology security from SBAM Approved Partner NuWave Technology Partners.

Read Part 1
Read Part 2
Read Part 3
Read Part 4
Read Part 5
Read Part 6
Read Part 7
Read Part 8

For the discussion here, downtime is when your computer system is unavailable for use. There can be many causes for downtime such as a power outage, equipment failure, malware or viruses, or a misconfiguration. Regardless of the cause, computers always seem go down at the most inconvenient time like when that big proposal is due or payroll needs to be run or during month-end processing. The fact is that most businesses are very reliant on their computer systems and any downtime is not only inconvenient but, it is very costly.

How costly is down time? Very few business owners really know how much money they lose every hour their computer system is down and their employees are unable to work. That is because the real cost is much higher than just the lost productivity. There can be lost sales, damaged reputation and frustrated employees. There are many different ways to calculate the cost of downtime. Here are some items to consider.

Lost Employee Productivity Cost: This calculation is the total annual revenue of the company divided by the number of full time equivalent employees (FTE) which equals revenue per employee. Then divide that number by two thousand hours to get the average revenue per employee per hour (REH). Next, multiply the number of FTEs by REH by the total hours the system is down by the percent of employee affected which will equal the cost of lost employee productivity.

Lost Sales Opportunity Cost: This one is easier. Take the annual revenue divided by the number of sales per year times the estimated number of sales lost due to the outage.

Lost Customer and Damaged Reputation Cost: Sum the total annual sales for customers lost due to the outage.

System Restoration Cost: This is the cost of labor, hardware, and software needed to restore the system operation but, it also includes labor cost to restore or recreate any data that was lost. This can be hard to estimate as it can vary widely depending on how much data has to be recreated.

Add the result of all of these calculations together and you have the real cost of downtime.  There are many other factors that can play into the cost of downtime however, even with this limited view for a small to medium sized business, it can be in the thousands of dollars per hour. NuWave Technology Partners has a Downtime calculator on their website to help with the calculations. You can find it at www.nuwavepartners.com/downtime.html.

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