Can we ever understand the true cost of downtime in an organisation? The only way to do this is to get a grip on what downtime really costs. The first step is to define what “downtime” means, which is “system unavailability”. Even if an application is “up and running”, it is still considered downtime if the application can’t be used.
To clarify this further, many elements are involved in calculating the cost of downtime:
- Lost Revenue
To calculate lost revenue:
- Identify all revenue-generating business areas and then calculate how much revenue per hour each of these areas generate e.g. revenue per week/40 hours per week
- Calculate how much revenue is lost per hour based on downtime per business area
- Add these different revenue-generating areas together to get the total cost of downtime per hour
- Once that baseline is established, it’s easy to figure out how much revenue is being lost during downtime
- Lost Productivity
Downtime doesn’t only keep new money from coming in, it also means that money is being spent on performing non-revenue generating activities (i.e. fixing things). Salaries are fixed costs and will be paid regardless, so to calculate the cost of lost productivity, similar steps are used:
- Calculate the amount each employee earns per hour
- Determine what percentage of your employees’ productivity is reliant on uptime
- Multiply the salary the employee earns per hour by their utilisation percentage
- Add up all the costs across all employees
- Cost to Recover
To return to normal business operations, money will need to be spent, which is referred to as “cost to recover”. This is difficult to estimate as it depends on the extent of the downtime.
- Intangible Costs
This is a little more difficult to pinpoint but it’s important to realise that there are costs associated with the negative impacts of downtime on a business’ reputation. To avoid this, make sure that downtime is handled properly, and that all employees understand what the potential long-term impact is on future sales and customer retention. This helps everyone (including the business owner) to see the real value of being genuinely prepared for such an event.
Overall, it’s clear that downtime can have a serious effect on business operations and efficiency, as it leads to wasted time on non-productive activities. So to save time, productivity and money, make sure that your team is well equipped to handle downtime.
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