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Do you really want to know your true cost of equipment outages and downtime?

Levi Zeigler July 11, 2017 0 comments

Every company's footprint is unique in their business for labor cost and revenue stream. Naturally, actual downtime cost and downtime history will be different for every company. However, for all companies there are three (3) steps needed to calculate downtime cost.

  • Step one (1) is calculate labor cost (Minute, Hour and Day)
  • Step two (2) is to calculate your company’s revenue stream (Minute, Hour and Day.)
  • Step three (3) is estimate cost of equipment replacement, equipment replacement and all external support labor cost including all miscellaneous cost such as shipping, travel expenses, phone call, creating purchase orders, intangible cost, etc.

After considering all factors, the true cost of downtime will be known and it may be a shock the first time you calculate it.

Unless a company has actually tracked and calculated the real losses from downtime in the past, they have no monetary value to consider return on investment (ROI) if they invested in reducing the frequency of downtime and outages each year.

Here is a simple equation to calculate the average labor cost of an outage:

Labor Cost = (N x A x C x T) Where:

  • N = number of people affected
  • A = average percentage they are affected
  • C = average employee cost per hour
  • T = number of minutes, hours or days of outage 

Total Labor, Equipment, and Miscellaneous Cost of Outage

Number of Personnel Affected by Outage

24

Percentage of Time Personnel Were Affected by Outage

80%

Loaded Labor Rate Per Hour

$35.44

Total Hours of the Outage

2.15

Miscellaneous Cost

$273

Total Labor Cost

$1,736

 Use the following equation to calculate the average loss revenue loss from an outage:

Lost Revenue = (G / H x P x T) +M Where:

  • G = gross yearly revenue
  • H = total yearly business hours
  • T = number of hours of outage 
  • M = miscellaneous costs

Total Loss of Revenue for Outage

Gross Yearly Revenue

$50,000,000

Total Yearly Business Hours

40,000

Average Revenue Per Hour

$1,250

Total Manhours for the Outage

41.28

Miscellaneous Cost

$750

Total loss Revenue

$52,350

 The miscellaneous category covers all intangible costs from outage.

  • Did you incur late delivery surcharges?
  • Did you pay overtime to make up for lost productivity?
  • Did missing a critical financial filing deadline result in penalties and an adverse effect on your stock price?
  • Did a loss of customer goodwill erode your ongoing revenue stream?
  • Did you need to plan and execute campaigns to explain and apologize for the outage?

Some types of electrical outages:

  • Total power outage from the electrical utility
  • Partial power outage from the electrical utility
  • Total power outage cause by the facility
  • Partial power failure cause by the facility
  • Facility total electrical equipment failure
  • Facility partial electrical equipment failure
  • Facility total electrical system failure
  • Facility partial electrical system failure
  • Facility individual electrical component failure

How do electrical companies report outages to state PUCOs’?

Each state has a different set of rules on just what an electrical outage from the utility company means and when it is required to report an outage. Many different references for the electrical utility on line averages are available. It seems that if you average state across the board a ten (10) year uptime average is around 99.5%. However, that number is only for the reported outages that the electrical utility is required to report. Below are the electrical utility outage requirements for the state of Ohio.

Please note short durations and individual outages are not required to be reported to the Ohio PUCO for electrical service continuity rating.

Ohio PUCO administration Code

Chapter 4901:1-10 Electric Companies

  • 4901:1-10-07 Outage reports.
  • (A) As used in this rule, "outage" means an interruption of service to:

(1) Two thousand five hundred or more customers in an area for a projected or actual period of four hours or more.

(2) One hundred or more customers in an area for a projected or actual period of twenty-four hours or more.

(3) A facility of any telephone company, electric light company, natural gas company, water-works company, or a sewage disposal system company, as defined in section 4905.03 of the Revised Code and including a company that is operated not-for-profit, or owned or operated by a municipal corporation, when an interruption to that facility for a projected period of four hours or more, affects or will affect public safety.

(4) Any police department, fire department, hospital, or countywide 9-1-1 system, for a projected period of four hours or more.

As used in this paragraph, "area" means the electric utility's certified territory within a county or all adjoining municipalities and townships in an electric utility's certified territory.

  • (B) Each electric utility shall immediately report each outage to the commission's outage coordinator in a format prescribed by the outage coordinator.

 Effective: 12/20/2014
Five Year Review (FYR) Dates: 09/30/2014 and 09/30/2019

Promulgated Under: 111.15

Statutory Authority: 4905.22, 4905.04, 4928.06, 4928.11

Rule Amplifies: 4905.06, 4905.22, 4905.28, 4928.11

Prior Effective Dates: 7/1/99, 9/18/00, 1/1/04, 6/29/09

Using data that the electrical utilities report to each state Public Utility Commission Office we get a ten (10) year average uptime of around 99.5%. However, because of the reporting requirements this could very well be a bogus number for individual facilities and might not represent a true outage percentage for your facility.

Even if we take, the outage percentage at 100% face value depending the timing of the outage a company could start every year in the red 0.05% just from electrical utility failures. Remember that the electrical utility company is the cause of only 20% of electrical power disturbances that cause electrical problems and the facility itself is responsible for 80% of electrical power disturbances that cause electrical problems. This could mean that your company has the potential over ten (10) years to start each year a MINIMUM of 2.5% in the red.


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