Calculating the True Cost of a Power Outage

The minute the power goes out, your business is losing money – but how much?

Remember the folk tale character Chicken Little? He was absolutely sure the sky was falling, but his approach today wouldn’t get him very far in the corporate world. Executive committees in charge of budgets would want to see a business case.

It’s easy and somewhat effective to try the Chicken Little approach to justify the cost to protect your business when – not if – operations are brought to a halt because of a power interruption. But besides general gloom and doom, wouldn’t it better to calculate how much is actually at stake?

Why you should know

Understanding what downtime costs your organization is key to decision making. Expansion or investments in new ideas must be budgeted – and they’ve got to have foundational support. Decision-makers want to see cause and effect, usually in the form of a business case. If you’re responsible for operational uptime, you may have to move away from your technology-centric approach and start your focus on the losses attributed to downtime versus the cost of investing in solutions that prevent power-related operational issues.

CIO suggests that you help others in your organization understand the technical approach you’re recommending by quantifying the financial risk. What’s also important, CIO says, is that your ability to share the consequences as a dollar figure shows that you understand the business impact and not just the IT-related impact.

How to calculate the cost

Every organization is unique, making it likely that anyone could create a formula to precisely calculate the cost of downtime or the risk value associated with it.

However, there is a way to determine the impact on productivity – and this number is often powerful enough to make the case. It’s also relatively simple to get at the number.

Determine the number of employees that would be impacted if there’s a loss of power within your organization.
Calculate the average hourly salary of these impacted employees. Your best resource for this calculation – and it may even already be ready for you – is the human resources department.
Determine a productivity impact. This is a percentage of the overall productivity that is negatively influenced when there’s a power outage. This factor will depend on your level of interactivity with customers. An external sales staff, for example, might not be hampered much by a power loss – at least immediately. On the other hand, an eCommerce business could be brought to a complete halt if a power outage shuts down its on-premise servers. CIO suggests that most organizations would see a minimum of 30 percent to 50 percent impact.

It’s easy to calculate the risk value of operational downtime once you’ve determined this information. The number of employees multiplied by their average salary, then multiplied by the productivity impact percentage results in the hourly productivity cost impact to your organization.

Calculating this figure might be as startling to you as deciding the sky was falling for Chicken Little. Let’s say your company of 500 employees is highly dependent on uninterrupted power for operation. Maybe it’s because you have a call center and host eCommerce – which means that 100 percent of your ability to conduct business would be impacted. And, let’s say your average employee hourly rate is $40.

500 employees X $40 per hour X 100 percent = $20,000

A loss of power could be costing your company up to $20,000 an hour in productivity. The ability to present the potential cost of employee downtime allows you to show the return on investment that an appropriate uninterruptable power supply solution provides.

This isn’t the only calculation you can use to help build your business case. If your organization’s revenue is driven by a large sales force that is dependent on constant connectivity and support from your data center, you could also make a business case by determining the cost of lost sales as a result of a power outage.

You’ll need to team up with the sales department for their input. The goal is to determine the average sales revenue per hour. This number multiplied by the time length in hours of a projected power outage could be added to the calculated cost of employee downtime.

Guessing isn’t good enough

Do you know the financial impact of operational downtime caused by something like a power outage? A recent study by disaster recovery provider Databarricks determined that 46 percent of the organizations surveyed were impacted by periods of downtime that lasted more than four hours. Get ready for a Chicken Little revelation: 35 percent of these businesses were totally unaware of the financial impact of these outages.