Calculate the Cost of Downtime

IT projects, especially infrastructure projects, can be challenging to get approved.

Discuss the “cost of downtime” so senior management can understand the financial or risk implications, and you will get many more of your projects approved.

Senior business managers don’t tend to understand IT, nor do they want to. When you need their approval to fund many of the projects you need to do it is difficult for them to “let go of the money” when they don’t understand what you are talking about.

We need to discuss our IT initiatives in a way that helps business executives visualize and understand what it is we are needing to do. Better yet, we need to help them understand the cost or risk implications of not doing a project.

One of the best ways to do this is to discuss the “cost of downtime.”

When business managers can visualize the issue and they understand the cost implications in the risk, they usually find a way to get us the money if it’s a project that truly provides business value for the company.

To do this, you want to do two things:

  • Draw a picture to help them visualize the issue.
  • Give them the downtime cost numbers.

OK, so let’s dive into these two points a bit.

1. Draw a picture

When senior managers can visualize the issue they understand it. And when they understand a problem and the inherent risk they usually “buy in” to your project recommendations.

Let’s use an example.

cost-of-downtime_image-1-100723392-large[1].jpg

Assume you have an environment with 5 remote offices with connectivity through a wide area network (WAN) as shown above.

In these offices, there is a total of 1,000 employees who need access to the company’s technology to do their work. To create the connectivity there will be a router at each remote office location plus a router at your home office where a data center and your operational business application servers are located.

If your data center router fails and you have no backup router to switch over to, there will be 1,000 operational people without access to their business applications. The company won’t stop running but there will be significant productivity loss with these employees. The longer the downtime continues the higher this productivity impact factor increases.

Even without having the financial numbers, a CEO can visualize this issue and will begin comprehending the potential impact to the company, things like:

  • Productivity loss
  • Client satisfaction issues
  • Employee stress and morale issues
  • Potential revenue loss
  • Possible loss of clients

If you are asking senior management to approve putting in a backup router in your data center so the network automatically switches to the backup in case of a failure, this visual picture clearly shows the impact and makes it much easier to understand than simply discussing it in a “routers and switches” conversation.

2. Share the numbers

Your message takes on real impact when you can share the “risk value” or “cost of downtime” with a downtime issue. Your ability to quantify the financial implications of this singe router failing is powerful. It says you understand the business impact, not just the technical impact; and this is a big difference.

Calculating the productivity impact financial number is a simple process:

  • Determine the average hourly salary of the impacted employees. You can get this easily from human resources or a senior manager in the operations side of the business. All you need is a rough estimate.
  • Decide on the productivity impact factor. This can be as low as 10 percent to as high as 100 percent depending upon what the outage is and the nature of the work of the impacted employees. For the example we are using, most senior operations managers will give you a 30 to 50 percent impact at a minimum.
  • Calculate the “Productivity Cost Impact” or you can call it the “Cost of Downtime.” To do this: Cost of Downtime = (Impacted Employees) X (Productivity Factor %) X (Average hourly salary)

In our example shown in the image above, our productivity financial impact might be this:

(1,000 impacted employees) X ($20 average hourly rate) X (50% productivity impact factor) = $10,000 per hour of productivity cost impact.

If the project cost is approximately $8,000 to put in a backup router, you need less than an hour of downtime to justify the project.

This makes it a “no-brainer.” However, if the senior manager who must approve such a project doesn’t understand it, it’s a major challenge getting approval.

You can use this approach for almost anything, such as:

  • Hardware failures of any type (from a company-wide server like email to a single desktop computer)
  • Software or business application failures (email, ERP system, etc.)
  • Even vacant employee positions

The image below gives you a few examples and their calculations to arrive at productivity financial impact using the example environment we’ve been discussing.

cost-of-downtime_image-2-100723393-large[1].jpg

Want more insight? Watch the training class I published titled, “Calculate Cost of Downtime to Help Justify IT Projects.”

This 43-minute class provides download tools you see above plus insight into the dynamics of getting IT projects approved that can help you achieve more success.

Summary

Use some simple tools to help non-IT people visualize what you are saying and better understand your recommendations. When you can do this plus show them the numbers that quantifies the financial risk of downtime it can be smooth sailing in getting the approval and commitment you need.

 

This article was written by Mike Sisco from CIO and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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