resources in their own facilities (generators, private boreholes) and services. In
contrast, small firms are more seriously affected by infrastructure deficiencies.
Because of the heavy capital investments that may be needed, notwithstanding
high operating costs, smaller organisations can rarely afford to do so. As often
many new jobs in urban areas are created by new small firms, infrastructure
deficiencies may contribute to a substantial negative effect. Higher costs of production also influence the firms in these days of international competition.
In some cases, investing in equipment (generators, boreholes, etc.) may total up to
an important (10–25%) fraction of the total capital costs of a company. Although this
can show that the firms are willing or able to pay for reliable services, nevertheless
equipment (such as generators) which is used only during power cuts (and therefore,
idle the remainder of the time) certainly increases the average fixed cost. With a
reliable infrastructure, the extra money spent on such equipment could have been
invested to expand the business.
9.3.3 Costs of Unreliability
Unreliable infrastructure service can result in direct and indirect costs. For example,
during a power outage, there are direct costs: there is no production for the user,
while the supplier does not sell electricity. The indirect costs crop up when users start
adapting their activities to become less vulnerable to outages – such as investing in
or paying for other energy sources. If these turn out to be cheaper, the service
supplier may lose the users, permanently. Outage costs, for industries, comprise
damaged process materials (input or output) and lost production, minus any recovery
during regular working hours or on overtime. Voltage or frequency fluctuations can
impair electric motors. Commercial users sustain losses in sales and services from
outages if office equipment (in this age of computers) cannot be operated, when there
are no lights or lifts available, when cash registers or gasoline pumps stop working,
or when refrigeration stops in stores, restaurants, and hotels. The resulting costs of
these power outages are affected by their length and frequency, as well as other
parameters such as the time of day or the day of the week and whether the outage was
announced beforehand.
A similar case may arise when seaside/beach hotels find that desalinated water is
as expensive (but more reliable) than the supply from the regular network.
When a trade union decides to go on strike (train, plane, etc.), the costs of the
service not being available, can be similarly worked out.
Thus, the costs of unreliability can accumulate not only to users but also to
suppliers, who stand to suffer losses on their original investment if they do not act
to improve reliability. Operators may encounter difficulties in managing future
demand, such as dealing with congested services. Non users may also suffer from
negative effects such as pollution, noise, environmental degradation, and lower land
values.
9.3 Importance of Quality and Reliability
261
contrast, small firms are more seriously affected by infrastructure deficiencies.
Because of the heavy capital investments that may be needed, notwithstanding
high operating costs, smaller organisations can rarely afford to do so. As often
many new jobs in urban areas are created by new small firms, infrastructure
deficiencies may contribute to a substantial negative effect. Higher costs of production also influence the firms in these days of international competition.
In some cases, investing in equipment (generators, boreholes, etc.) may total up to
an important (10–25%) fraction of the total capital costs of a company. Although this
can show that the firms are willing or able to pay for reliable services, nevertheless
equipment (such as generators) which is used only during power cuts (and therefore,
idle the remainder of the time) certainly increases the average fixed cost. With a
reliable infrastructure, the extra money spent on such equipment could have been
invested to expand the business.
9.3.3 Costs of Unreliability
Unreliable infrastructure service can result in direct and indirect costs. For example,
during a power outage, there are direct costs: there is no production for the user,
while the supplier does not sell electricity. The indirect costs crop up when users start
adapting their activities to become less vulnerable to outages – such as investing in
or paying for other energy sources. If these turn out to be cheaper, the service
supplier may lose the users, permanently. Outage costs, for industries, comprise
damaged process materials (input or output) and lost production, minus any recovery
during regular working hours or on overtime. Voltage or frequency fluctuations can
impair electric motors. Commercial users sustain losses in sales and services from
outages if office equipment (in this age of computers) cannot be operated, when there
are no lights or lifts available, when cash registers or gasoline pumps stop working,
or when refrigeration stops in stores, restaurants, and hotels. The resulting costs of
these power outages are affected by their length and frequency, as well as other
parameters such as the time of day or the day of the week and whether the outage was
announced beforehand.
A similar case may arise when seaside/beach hotels find that desalinated water is
as expensive (but more reliable) than the supply from the regular network.
When a trade union decides to go on strike (train, plane, etc.), the costs of the
service not being available, can be similarly worked out.
Thus, the costs of unreliability can accumulate not only to users but also to
suppliers, who stand to suffer losses on their original investment if they do not act
to improve reliability. Operators may encounter difficulties in managing future
demand, such as dealing with congested services. Non users may also suffer from
negative effects such as pollution, noise, environmental degradation, and lower land
values.
9.3 Importance of Quality and Reliability
261