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How to quantify downtime

Calculating downtime's drag on productivity and profit can help make the case for network improvements.

By Tom Pisello and Bill Quirk, Network World
January 05, 2004 12:00 AM ET

Network World - A conservative estimate from Gartner pegs the hourly cost of downtime for computer networks at $42,000, so a company that suffers from worse than average downtime of 175 hours a year can lose more than $7 million per year. But the cost of each outage affects each company differently, so it's important to know how to calculate the precise financial impact.

By achieving just the average amount of downtime of 87 hours per year, companies could save about $3.6 million annually. And for companies that rely entirely on technology, such as online brokerages, trading platforms and e-commerce sites, hourly downtime risks can be $1 million or more, making availability an even greater concern.

Quantifying the cost of downtime can help you gain funding for technologies that enhance performance and mitigate downtime risks. Yet most organizations have a difficult time calculating the losses associated with downtime because of its complexity.

Sometimes, downtime can cause a loss of productivity for a single user or a workgroup. Other times, the scope is more serious and affects a core application , business process or department, such as a call center or brokerage desk.

Duration is also a critical factor. A loss of a few minutes to an individual or group easily can be made up if employees stay late, but when downtime stretches to hours or days, the loss is more permanent. Whenever downtime impairs business transactions, the length of the outage carries serious consequences. Transactions might be queued automatically during short periods of unavailability, or perhaps clients will call back. But when the event lasts hours, transactions can be invalidated or clients permanently lost.

Profit-draining potential
A mere minute of downtime can bring big losses.
Business application Estimated outage cost-per-minute
Supply chain management
$11,000
E-commerce $10,000
Customer service $3,700
ATM/POS/EFT $3,500
Financial management $1,500
Human capital management $1,000
Messaging $1,000
Infrastructure $700
SOURCE: ALINEAN
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To quantify downtime there are two primary factors: productivity losses and business losses. Productivity losses affect individual or workgroup productivity, while business losses affect transactions or cause customer losses. Calculating both reveals wasted expenses and lost revenue.

For productivity losses, calculate the downtime based on the effect to users - usually using burdened salary figures. Burdened salary includes user compensation, estimated at $24 per user per hour in the U.S., plus the burden of taxes and benefits, typically 26% or higher than the base salary, according to U.S. Department of Labor. The downtime productivity loss calculation is typically represented as:

•  Number of users affected multiplied by the percent effect on productivity multiplied by the average burdened salary per hour multiplied by the duration of downtime equals downtime impact.

For business applications or groups, the calculations become more difficult. There are two basic methods for the business impact calculation:

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