Knowing the costs associated with IT downtime can help you not only budget for the coming year but also cause you to create a business continuity or disaster recovery plan if your business does not currently have one.  The direct and indirect costs associated with downtime will have an impact on your bottom line. We have outlined what the direct and indirect costs are, followed by calculations for you to use to determine the actual expense of an interruption to your network.

Direct costs are expenses that are quantifiable and for the most part, easy to find. These include:

Direct Employee Cost is the money that was lost when staff could not perform a task because of downtime. We rely heavily on our network to complete our work, when there is a delay or disruption of that ability, staff are idle.

Direct Employee Cost = (average hourly wage of affected employee) x (number of employees idle) x (Hours of downtime)

Recovery time is another important component that needs to be considered as well. This is the amount of time an employee will spend catching up on the work they were unable to do.

Recovery time = (average hourly wage of affected employee) x (number of employees idle) x (Hours spent catching up)

The cost of the IT recovery needs to be factored into the equation as well. Do not include any replacement parts or software upgrades. The only part to include is the time spent by an IT professional to fix the problem.

IT Recovery Cost = (Hourly IT Wage) x (number of IT staff working to rectify the problem) x (time spent on fixing the issue)

Indirect Costs of downtime are not as simple to calculate. To estimated lost revenue experienced because of downtime, you can use this figure:

Potential Lost Revenue Calculation (annual revenue/8760 hours per year) x (amount of downtime)

But the indirect costs do not stop there. You must also calculate how much money was likely lost from a customer no longer using your company because of this downtime event. This may not be evident if it is a short amount of downtime but if there is a history of interruptions or an extended period of downtime, this will need to be calculated. Not only lost revenue from lost customers but also from a damaged reputation.

Lost Customers Calculation (Revenue lost) x (average rate of repeat sales)

Damaged Reputation Calculation (Revenue lost) x (average percentage of sales from referrals)

For this exercise, we have assumed the network was down for 2 hours and affects the entire company.

Item

Cost per hour Number affected Total Cost

Comments

Direct Employee Cost

$30.28

10

$605.60

Assuming an employee is earning $50,000 per year with an office, phone, etc. That calculates to $24.22 per hour, plus benefits and related costs which are an additional 25% ($6.06). Every employee impacted by this scenario is costing $30.28 per hour.
Management Cost

$60.00

2

$240.00

Indirect Costs to management because employees can’t work.
Recover cost

$30.28

$15.14

10

 

10

$605.60

$302.80

This cost is the time required to catch up once the system is restored. If a system or application is down for an hour, employees that were affected might need 30 minutes to recover. Also consider overtime, temporary help, and similar employee costs necessary for recovery.
IT recovery cost

$150.00

1

$150.00

Time needed by the IT staff to restore the system.
Non-Employee Recovery Cost $3.03 10 $60.60 Nonemployee expenses include costs of forms, phone, fax, and other expenses that would not be used if the system were operating as normal.
Revenue Lost 114.15 This calculation used the assumption of a million in sales.
 Lost Customers 114.15 2 228.3 Number of potential clients you could lose if this was an ongoing issue.
Damaged Reputation 114.15 10% 11.45 This calculation assumed a 10% average of referral sales
Total Cost of Downtime $2204.35

 

 


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