Managed Services Directory

Archive for the ‘information supply chain’ Category

We all know that downtime is a bad thing and that as the technology becomes more important to daily life, downtime hurts companies that much more. Downtime can have subtle, difficult to measure effects on sales and productivity.

• Are sales simply re-ordered after downtime, or do customers switch to more dependable company?
• Do employees just do other work during downtime, or does downtime result in lost work, psychological impact, so that it takes longer than the downtime to recover?

But how can you MEASURE the cost to your company so you can plan and budget accordingly? While there are several methods for calculating the cost of downtime, there is a relatively simple formula that most small business owners can use for estimating and planning.

Estimated Average Cost of hour of downtime = Employee Costs per Hour * Fraction Employees Affected by Outage+ Average Revenue per Hour * Fraction Revenue Affected by Outage

Employee Costs per Hour: total salaries and benefits of employees per week divided by the average number of working hours

Average Revenue per Hour: total revenue per week divided by average number of open hours

“Fraction Employees Affected by Outage” and “Fraction Revenue Affected by Outage” are just educated guesses or plausible ranges for estimating

Let’s take an average small business with 20 employees and $5 million per year in revenue. The revenue per hour, assuming 8 hours per day and 5 days per week, would be $2,400. The cost of employees per hour, assuming employee average with benefits at $70,000, would be $675. If an outage impacted 50% of your employees for one hour, then the downtime could be estimated at $1,500 per hour in lost revenue and production.

… but what about the soft cost? These costs are tougher to estimate, but have great impact to your business!

Cost of repair, such as cost of employee overtime or bringing in consultants to resolve the issue

Frequent outages can lead to a loss of confidence in your company, from employees, vendors and customers

The bottom line is that downtime cost real money, either in lost productivity, lost sales, or increased IT expenses. When small businesses include these costs into planning, they are better poised to mitigate the risk.