How do you calculate the cost of unplanned downtime?
Calculate unplanned downtime cost by multiplying downtime hours by the lost contribution margin per hour, then adding the emergency response cost: overtime labour, expedited parts, and any scrap or restart cost. The lost margin is usually far larger than the repair cost, which is why downtime is so expensive.
Most plants record the repair cost of a failure but not its true cost. The true cost pairs lost production margin with emergency response, and it is usually several multiples of the repair. Sizing it properly is what turns reliability from a cost centre into an investment case.
Step by step
- Establish the lost contribution margin per hourWork out the contribution margin, not just revenue, that the line generates per hour when running. This is what you forgo for each hour it is down.
- Count the downtime hours by causePull unplanned downtime hours from records, ideally split by cause so you can see where the cost concentrates.
- Add the emergency response costAdd overtime labour, expedited freight on parts, contractor callouts, and any scrap, rework, or restart cost triggered by the failure.
- Annualise and rankAnnualise the figure and rank by cause and asset so the few high-cost drivers are obvious.
Common pitfalls
- Using revenue instead of contribution margin, which overstates the figure.
- Counting only the repair cost and missing the lost production.
- Ignoring collateral costs like scrap, restart, and downstream disruption.
Frequently asked questions
Should I use revenue or margin for downtime cost?
See where your plant is leaking profit.
Score your operation across five leak zones in 3 minutes, or book a free 30-minute Fit Call to confirm whether a Diagnostic is the right next step.
15 questions. 3 minutes. Instant grade. No email required.