How to calculate what IT downtime really costs your business

Why put a number on it

Most owners know that an outage is bad, but few could say whether a day without systems would cost a few hundred dollars or tens of thousands. Without that figure, it is hard to judge whether a backup internet connection, a better backup or a faster support arrangement is worth paying for. A rough calculation brings the decision into the same terms as every other business investment.

The number also shapes your recovery priorities. If an hour of downtime in the accounts team costs little, but an hour without the booking system costs a great deal, you know which system to protect and restore first. That ordering belongs in your continuity plan, along with the target time to restore each system and who makes the call on priorities during an incident.

Part one: staff who cannot work

Start with people. List how many staff would be unable to work productively during an outage and their average hourly cost, including wages plus a loading for things such as KiwiSaver contributions, leave and overheads. Multiply staff by hourly cost by the expected duration. Be realistic: some people can keep working on paper, by phone or on personal devices, so estimate the share of productive time lost rather than assuming it is all or nothing.

As a simple illustration, imagine twenty staff with an average loaded cost of fifty dollars an hour, losing eighty percent of their productivity for four hours. That is twenty times fifty times four times 0.8, or three thousand two hundred dollars of paid time producing little. Your own figures will differ, which is exactly why it is worth working them out.

Part two: lost or delayed revenue

Next, estimate what you would not earn. A retailer or online store loses sales directly. A professional services firm may lose billable hours, though some can be recovered later. A business that takes bookings or orders by phone and online may lose customers who simply go elsewhere. Look at your typical revenue per hour during trading hours and estimate what share would be lost rather than delayed.

Consider timing too. An outage at month end, during tax season, on a busy trading day or before a major deadline costs far more than one on a quiet afternoon. If your business has peaks, calculate the cost for a peak hour as well as an average one. The peak figure is the one that should guide decisions about resilience, because outages rarely choose a convenient time.

Part three: recovery and catch-up

Add the direct cost of fixing the problem: emergency IT support, replacement hardware, urgent couriers and any specialist help. Then add the catch-up cost after systems return, such as overtime to clear the backlog, re-entering data that was lost and time spent contacting affected customers. These costs are often larger than the outage itself, especially when data needs reconstruction.

If the outage was caused by a security incident, costs can include forensic investigation, legal advice, notifying affected people under the Privacy Act where a breach is notifiable, and time spent with insurers. Those can dwarf the original downtime figure. Some of these costs may be covered by a cyber insurance policy, but only if the policy's conditions were met, so the details of your cover are worth knowing before an incident rather than after.

Part four: the harder-to-measure costs

Some costs are real but hard to price: customers who lose confidence, missed tenders, staff frustration and penalties under contracts with service obligations. You do not need a precise number, but note them alongside the calculation. For some businesses, such as those serving health providers or large corporates, a contractual breach can matter more than the lost revenue.

When you present the figure, give a range rather than a single number, and say what assumptions you used. A clear explanation is more convincing to owners and more useful when you revisit the calculation next year. A low and high estimate, with the main assumptions listed underneath, is usually all a small business needs to support a decision.

Using the figure to make decisions

Compare the cost of an hour or a day of downtime with the cost of measures that would reduce it. A backup internet connection, a tested backup with faster restore, spare laptops, monitoring that catches failing hardware early and support that responds promptly all have a price. If one avoided outage would pay for a year of prevention, the decision becomes straightforward.

Record the result in your risk register and continuity plan, and update it when your business changes size or shape. A business that grows from fifteen to forty staff will find its downtime cost has grown too, often faster than its IT spending. Share the figure with your IT provider too, so their recommendations and response priorities are based on what an outage actually costs you.