Having a machine shut down for any reason, whether it’s for inspection, maintenance or malfunction, costs businesses money for every moment it’s out of commission. Knowing the precise cost can help managers make decisions as to when to downtime a machine, or in the case of repairs, how much to spend on getting the machine running again. The calculation isn’t easy; there’s more than simple production loss involved. In order to accurately project the costs, you’ll have to know what’s being affected by the downtime, which requires extensive knowledge of the business’s operations from the support staff to the production process.
Determine the labor cost, both direct and indirect, of the downtime. To find the direct labor costs, take the length of the downtime and multiply it by the hourly rate of the machine operators. Calculate indirect labor costs by determining how much of a share of the supervisory and support workload the machine takes, then multiplying that by the costs of the support staff and managers.
Account for the product cost of the downed machine by determining the direct value loss due to the downtime. The loss is equal to the worth of the product that would have been produced during the downtime minus the costs of the material used in the production.
Determine the start-up costs related to restarting the machine, including any additional workers needed, energy surges and inspection costs.
Calculate the bottleneck costs, if any, due to the machine being unable to produce parts used in the manufacture of other items, delaying downstream work.
Add up the costs related to wasted warehouse space, sales force employment and any other costs incurred in expectation of product possession that goes unused.
Determine the costs related to repair of the machine, either temporarily or permanently.
Calculate the total downtime cost of the machine by adding all of the cost categories together.
Larry Simmons is a freelance writer and expert in the fusion of computer technology and business. He has a B.S. in economics, an M.S. in information systems, an M.S. in communications technology, as well as significant work towards an M.B.A. in finance. He's published several hundred articles with Demand Studios.