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Downtime Cost

Financial impact of equipment downtime, including lost production value and direct costs — translates reliability problems into business language.

Formula

(Lost Units × Contribution Margin) + Direct Costs

Benchmarks

World-class: Minimal, with clear downward trend Good: Tracked and actively reducing Typical: Known but not systematically reduced Poor: Unknown or untracked

What Is Downtime Cost?

Downtime Cost quantifies the financial impact of equipment downtime. It translates operational problems (breakdowns, long changeovers, reliability issues) into the language that executives and finance teams understand: money.

The Formula

Downtime Cost = (Lost Production Units × Contribution Margin per Unit) + Direct Costs

Where:

  • Lost Production Units = Downtime Hours × Ideal Production Rate
  • Direct Costs = labour during downtime, emergency repair parts, overtime to catch up

Data Requirements

SourceRequiredWhat You Need
Machine DataYesDowntime duration, timestamps
ConfigurationYesIdeal production rate
ERPYesContribution margin per unit, labour rates

Downtime Cost is a Phase 3 metric — it requires ERP integration for financial data.

Why It Matters

  • Justifies maintenance investments — shows ROI for reliability improvement projects
  • Prioritises equipment — focus on the highest-cost assets first
  • Executive-level metric — translates operations into financial impact
  • Capital decisions — repair versus replace justification

Common Pitfalls

  • Using revenue instead of contribution margin — this overstates the true cost
  • Not including opportunity cost when capacity-constrained — if you can sell everything you make, lost production is lost revenue
  • Ignoring cascade effects on downstream processes — one machine down can idle an entire line

Best Practices

  • Use contribution margin (not revenue or full cost) for a realistic calculation
  • Track by equipment to identify the most costly assets
  • Include opportunity costs for capacity-constrained operations
  • Use to justify preventive maintenance investments — the cost of planned downtime is almost always less than the cost of unplanned downtime
  • Unplanned Downtime — the time input for this calculation
  • MTBF — how often failures drive downtime cost
  • MTTR — how long each failure costs
  • Cost per Unit — downtime cost feeds into overall unit cost