1. Downtime Cost Calculation

So, downtime cost per hour equal to 3% of your equipment cost. Equipment cost is nothing but 900 rupees per hour.

Downtime cost per hour = (3/100) × (900) = 27 rupees per hour.

To calculate the downtime cost per hour, you start by determining what percentage of the equipment cost this downtime represents. In this case, the downtime cost is 3% of the total equipment cost, which is stated to be 900 rupees per hour. By calculating 3% of 900, you get the downtime cost per hour, which comes out to be 27 rupees. This means for every hour that the equipment is down, it costs 27 rupees.

Imagine you have a vending machine that costs you 900 rupees to operate each hour. If the machine breaks down for an hour, the downtime costs you 27 rupees. This is like having a car that costs 900 rupees in fuel and upkeep every hour; if it isn’t running, you still lose money even though it’s not on the road.

Your machine is going to operate in a year for 2000 hours. So, what is your yearly downtime cost? Yearly downtime costs for the first year is,

Downtime cost per year = 27 × 2000 = 54,000 rupees.

Next, you calculate how much this downtime will cost over an entire year. If the machine is expected to operate for 2000 hours in that year, simply multiply the hourly downtime cost (27 rupees) by the total number of operating hours (2000). This results in a yearly downtime cost of 54,000 rupees, which tells you the total expected loss for that year due to downtime.

Think of a restaurant that serves food for 2000 hours in a year. If their kitchen equipment suffers downtime for an hour, the loss accumulates over these hours. If they lose 27 rupees each hour the kitchen is closed, the total loss over those hours adds up to 54,000 rupees in a year, impacting their finances significantly.

Similarly, calculate the downtime costs for the second year, in the second year the downtime percentage is 6%. So, downtime cost is 6% of your equipment cost, which is 900 rupees per hour.

Downtime cost per hour = (6/100) × (900) = 54 rupees per hour.

Downtime cost per year = 54 × 2000 = 1,08,000 rupees.

In the second year, the percentage of downtime increases to 6%. Similar to the first year, the downtime cost per hour is recalculated using the new percentage. You find this value to be 54 rupees. Then, by multiplying the hourly cost (54 rupees) by the total operating hours (2000), you find that the total downtime cost for the second year amounts to 1,08,000 rupees, indicating an increase in costs due to increasing percentage of downtime.

Returning to the restaurant analogy, if in the second year, there’s a higher chance of kitchen equipment failure, leading to a 6% downtime, this results in greater losses. The increased downtime results in higher costs—now losing more money, equating to 1,08,000 rupees in the year due to the greater likelihood of equipment failure.

Now, you find the cumulative downtime cost. Everything is done on a cumulative basis.

Cumulative downtime costs = 54,000 + 1,08,000 = 1,62,000.

To assess the overall financial impact of your downtime over multiple years, you need to calculate cumulative downtime costs. To do this, simply add the costs from each year together. For example, the cost from the first year (54,000 rupees) added to that of the second year (1,08,000 rupees) gives you a cumulative downtime cost of 1,62,000 rupees over two years. This helps in understanding the total loss due to downtime over a specified period.

Think of a budget for a monthly subscription service. If you were initially charged 54,000 rupees in your first year and then 1,08,000 rupees in the second year, over time your overall expenditure adds up to 1,62,000 rupees. This cumulative tally reflects the long-term costs of incomplete services due to ongoing downtime.

Now the cumulative cost per hour you can calculate by dividing the cumulative costs by the cumulative operating hours.

Cumulative cost, end of the first year = 54,000 / 2000 = 27 rupees per hour.

Cumulative cost, end of the second year = 1,62,000 / 4000 = 40.5 rupees per hour.

To determine the 'per-hour' impact of cumulative downtime costs, you divide the total cumulative downtime cost by the total operating hours. For instance, after the first year, with a cumulative cost of 54,000 rupees over 2000 hours, the cost per hour is 27 rupees. By the end of the second year, the cumulative cost rises to 1,62,000 rupees over 4000 total hours of operation, resulting in a cost per hour of 40.5 rupees. This division illustrates how downtime costs affect operational efficiency over time.

Imagine renting machinery. After the first year, if you have spent 54,000 rupees for 2000 hours of usage, the average cost per hour is 27 rupees. As you continue to rent it and your costs accumulate, if in two years you’re paying 1,62,000 rupees for 4000 hours, the average becomes 40.5 rupees per hour, showing how prolonged usage increases the cost per hour.

--