What is the True Cost of Downtime?

How much revenue per hour depends on that piece of equipment? If you can calculate this, you might be able to quantify the ‘uptime’ rate of the device and thus determine the revenue your business is losing when your device is down.
Lost Revenue Formula:  

Lost Revenue = Revenue (per hour) of a device X Downtime (hours)

For example, a metal scrap yard depends on its scales to generate revenue. If the scrap yard generates $20,000.00 in an 8-hour day, that’s $2500.00 per hour. If 60% of that revenue is generated by their vehicle scale, that vehicle scale has an ‘uptime’ rate of $1500.00 per hour. If the scale is down for just 3 hours, the business will lose around $4500.00 of revenue.

When equipment is down, and employees are not able to perform their jobs, productivity suffers. Sticking with our vehicle scale example, there could be an operator, traffic director, and material loader with zero productivity while the scale is down. Whether or not they are producing goods, these employees must be paid for their time.

Lost Productivity Formula

Lost Productivity = (Salary Cost X Utilization) % Number of Employees

The act of getting equipment back in operation itself can incur additional costs including repair services and replacement parts. Although these may not be immediately tangible like revenue and productivity costs, they are equally important.

When looking specifically at measuring devices, your recovery cost will also include the potential impact that in-accurate devices have on your operation. If a device used in the process loses calibration, you may be faced with a costly impact analysis process.

Depending on the process or operation, some equipment may continue to operate despite being broken. After your impact analysis, you may discover many of the parts that passed through that piece of equipment are faulty.

Other, more serious, costs can show up later. If you depend on uptime to service customers, downtime may cause delays in meeting customer’s needs. There is also the potential that you accidentally sent out faulty products or underdelivered goods. These intangible costs will have long-term effects on your reputation, and you could even lose valuable customers.