The Cost of Downtime: How Outages Harm Your Organization

It’s 7:58 AM on Cyber Monday. After weeks of prep, your e-commerce site is ready for a huge day—until you refresh the page and see: “service unavailable.”

Whether you run an online store, a manufacturing plant, or a healthcare network, your business depends on systems working seamlessly with your tools and your people. When one breaks down, you’re in downtime, and the costs add up fast.

In this article, we’ll examine the true cost of downtime and how a strong business continuity plan can keep your operations—and your bottom line—on track.

How Does Downtime Impact Your Organization?

Some planned downtime events are necessary, but every outage still comes with a cost. Downtime, on average, costs small businesses thousands of dollars per hour. For large enterprises, like hospitals or car manufacturers, it can reach up to $2.3 million per hour.

Financial hits are painful, but they’re just one of the ways downtime harms your organization. Other ways include:

• Immediate revenue loss
• Lost productivity while employees wait to restart work
• Cancelled contracts and missed opportunities
• Recovery and remediation costs
• Legal and regulatory expenses
• Reputational harm
• Loss of trust from clients, vendors, and employees

In the globally connected and automation-driven economy, supply chains can be a major catalyst for downtime. In 2018, Ford had to pause pickup truck production for nearly two weeks after an explosion shut down a key parts supplier. At the time, Ford’s F-series truck was generating $40 billion in annual revenue. Every day of downtime cost them over $100 million in revenue, not to mention lost employee productivity and intangible costs. With so much money on the line, Ford took significant steps to fix the problem, like airlifting an 87,000-pound machine to England and reworking their supply chain.

“We were working around the clock, across the ocean, with the teams there to really get the facilities back up and running,” commented Hau Thai-Tang, Ford’s head of purchasing and product development at the time. “We were able to do that in just under 12 days.”

Ford’s herculean effort to get back on track shows how costly downtime can be and how quickly a strong company can find smart ways to keep things running.

Common Causes of Downtime

Downtime comes in many forms, depending on the industry. Problems on an oil rig differ significantly from those faced by a big internet service provider. An operational risk assessment will identify specifics for any business, but the root causes of downtime fall into a few categories:

• Equipment failures: Even the best-maintained machines break eventually. Any dependent tasks will be offline when the equipment breaks until you can repair or replace it.
• Cybersecurity threats: Cybercrime costs an estimated $8+ trillion per year globally. Companies face threats like ransomware, data breaches, and phishing on a daily basis, which can cause everything from data loss to network outages.
• Human error: Following proper procedures is mission-critical in any job. Employee mistakes can cause downtime and bigger problems beyond the first error.
• Software issues: Big software bugs are rare but can cause significant IT downtime. Failed updates are risky because new and established tech systems don’t always work well together.
• Utility and telecom outages: Equipment and processes aside, if you can’t power your facility or communicate with the outside world, your operations will halt, and your IT teams will be left waiting like everyone else.
• Supply chain failures: Many businesses depend on shipments arriving just in time. If parts don’t come or a client can’t accept an order on time, it throws off your carefully orchestrated plans.
• Natural disasters: Earthquakes, hurricanes, extreme weather, and other disasters can halt your operations. And depending on how much damage they inflict, you can be out of commission for days or weeks of recovery.

How to Calculate the True Cost of Downtime

Calculating downtime costs isn’t just about looking back—it helps you see how much you could lose if problems happen. This is a critical aspect of a business impact analysis, and sets a threshold for how much to spend on preparing for hazards.

Types of downtime costs

Outage costs fall into four main categories:

• Lost revenue: This includes any expected revenue that failed to materialize due to the outage, whether due to broken product not meeting demand on time, or failing to uphold service level agreements (SLAs).
• Lost productivity: When workers are idle due to downtime, you incur the cost of their wages and lose the value of any output.
• Recovery and remediation: These are the costs involved in fixing the immediate problem—like repairing broken equipment—as well as any remediation to mitigate lasting effects of the disruption.
• Intangibles: Goodwill and trust have significant value for any company, and downtime harms them both. If people don’t trust your ability to conduct normal operations, they’ll look elsewhere. That includes employees, clients, and vendors.

The easiest way to find downtime costs is to add up missed revenue, lost productivity, and recovery costs. You can usually leave out hard-to-measure metrics when calculating downtime costs. However, these intangibles have hidden costs, like losing customers, which may appear in other reports.

For most organizations, calculating the average cost of downtime will include variables, such as:

• Seasonal revenue variations: Companies rarely make a constant amount of money per hour of operation. For example, an accounting services firm experiencing a software outage during tax season would incur bigger losses than if it happened in mid-August.
• Future earnings: Reputational damage is hard to measure, but canceled contracts are clear losses. Tracking these canceled deals later helps show their full impact on revenue.
• Wasted wages: Employees aren’t always idle during downtime, as they might be able to work on other systems. Understanding the full scope of impact on your staff varies heavily by company.
• Ongoing remediation: Some disasters have immediate and clear repair costs, while others may incur months—or years—of recovery expenses. For example, cyberattacks can often lead to litigation, end-user compensation, and excess regulatory burden.

Strategies to Minimize Downtime

Companies face threats in all shapes and sizes. While not all of them cause downtime, many do, so avoiding downtime dovetails nicely with your existing risk mitigation strategies. Here are four of the most critical areas to consider.

Disaster recovery planning

Taking an all-hazards approach to disaster planning will help your company weather any storm. It won’t prescribe an exact course of action for any situation, but it will give you a solid framework for responding to emergencies. From there, you can build more detailed plans for common or predictable risks your organization faces.

Infrastructure maintenance and redundancy

Adding backups to key parts of your infrastructure is a top way to reduce downtime. Some equipment (or processes) may be too costly to duplicate, but often, backups can keep things running for a small extra cost. This is common in IT, for example, where cloud services let companies add resources quickly.

Proactive threat monitoring

When your company faces a hazard, every second counts to minimize the impact. Across the enterprise, you can use a variety of tools for proactive monitoring, including:

• Standard equipment like smoke detectors, carbon dioxide monitors, and other internal environmental hazard surveillance systems
• Physical security measures like card readers and cameras
• Server uptime monitors to track when IT equipment goes offline at your data center
• IT services monitoring tools to detect intrusions, vulnerabilities, and traffic disruptions in real-time
• A threat intelligence platform for external hazards and rapid, company-wide warnings

Training and process optimization

Eliminating human error is impossible, but reducing it is achievable for any organization. The Uptime Institute found 85% of outages involving human error were due to faulty or incorrectly followed procedures. By optimizing, practicing, and reinforcing standard operating procedures (SOPs), you can reduce human-caused downtime.

Managing Downtime Through Business Resilience

While downtime is costly and painful for any company, it’s an unfortunate fact of life. Especially when you consider the necessity of planned downtime for maintenance and repairs. But with careful planning and a robust business continuity and disaster recovery strategy, you can maximize your uptime and reduce the negative impact of downtime.