When preparing your technology budget, it is useful to know the costs associated with downtime. This information can help you prioritize IT expenditures so that critical systems and operations receive the funding needed to keep them running efficiently.
The largest cost in technology is the impact it makes to employee productivity and the resulting payroll dollars needed to achieve business goals.
Knowing the downtime costs can also motivate you to create business continuity and disaster recovery plans if you have not created them yet.
There are many different ways to calculate the direct and indirect costs incurred from downtime. The calculations presented here are basic ones that you can easily customize for your business.
The direct costs of downtime are the expenses you can easily quantify and attribute to a specific downtime event. They include the:
The indirect costs associated with downtime are not easily quantifiable. They are usually calculated by using a figure that represents the amount of revenue lost from a downtime event. The equation to determine this figure is: Revenue lost = (Annual revenue/8,760 hours per year) x (Number of hours of downtime)
After you calculate the amount of lost revenue, you can determine the indirect costs. Two common calculations are:
Using the direct and indirect cost calculations, you can determine the total cost of downtime. This is helpful if you want to know the cost of an actual downtime event or when you want to see the impact a hypothetical downtime event might have on your business. The total cost of downtime is derived by adding together all the direct and indirect downtime costs you feel are applicable to your business. For example, if you want to include all the direct and indirect costs mentioned previously, the equation is: Total cost of downtime = (Cost of lost employee productivity) + (Cost of employee recovery) + (Cost of IT recovery) + (Projected loss of revenue due to lost customers) + (Projected loss of revenue due to damaged reputation)
For budgeting purposes, it helps to look at the downtime costs incurred when individual applications, services, or IT components are unavailable. For example, you might calculate the direct and indirect costs (or just the direct costs for simplicity) of downtime separately for:
That way, you can determine which applications, services, and IT components are most critical to your business. With this information, you can budget the funds needed to keep them running at peak efficiency.