How to put a price on downtime: the cost of one lost minute
"Downtime is expensive" is something everyone agrees with and nobody acts on. "That jam costs us $86 a minute" is something people act on. Here is how to get to that number, and how to make it hold up.
The formula
When a line stops, you lose two things: the margin on the units it should have built, and the paid time of the crew who can't build them.
Value of one minute = margin per unit ÷ ideal cycle (minutes per unit) + crew × labor rate per hour ÷ 60
Annual loss = value of one minute × minutes lost per day × operating days per year
Use the ideal cycle time, the fastest the line is designed to run, not the average. The average already has losses baked into it, so using it understates what a lost minute costs.
A worked example
| Input | Example value |
|---|---|
| Margin per unit | $40 |
| Ideal cycle | 0.5 min per unit (2 units a minute) |
| Crew on the line | 12 people |
| Labor rate | $30 per hour |
| Minutes lost per day | 45 |
| Operating days per year | 250 |
- Margin lost per minute: $40 ÷ 0.5 = $80
- Labor per minute: 12 × $30 ÷ 60 = $6
- One minute of this line: $80 + $6 = $86
- Per year: $86 × 45 minutes × 250 days = $967,500
Forty-five minutes a day is three small stops and one slow changeover. On this line it is close to a million dollars a year.
Make it hold up in front of finance
A downtime number only matters if the people who own the budget believe it. A few rules keep it honest:
- Price the constraint. The margin part of the formula applies when the line is the bottleneck and sales would take the extra units. If a line has spare capacity and can make up the lost minutes later, the real cost is mostly labor, overtime and expediting, not lost margin. Say which case you are in.
- Use finance's numbers. Get margin per unit and the labor rate from the people who will check your math. Don't invent them.
- Count real minutes. Use logged minutes, not estimates from memory. A week of honest data beats a year of guesses.
- Separate estimated from proven. The calculator gives you a size of prize. Savings count only after the fix is in and the before-and-after numbers show it held.
- Don't double-count. If a breakdown also causes scrap, count the minutes once and the scrapped material separately.
What to do with the number
Price every loss category the same way and rank them. The top two or three usually carry most of the cost. That ranked list, not a gut feeling, decides where maintenance, engineering and supervision spend their next week.
What is one minute of your line worth?
Put your own numbers into the free line-cost calculator, then get the full method in the book.