How to Calculate ROI for Surge Protection
The topic of electricity reliability and resiliency has emerged as a top-of-mind concern for many systems integrators and their end-user clients. While utilities, regulators, and policymakers struggle to protect the national grid, the average facility is more concerned about how to achieve optimal levels of electrical reliability and reduce future disruptions in power.
The reality is that the cost of power disruptions for most organizations continues to rise. In 2006, Lawrence Berkeley National Laboratory developed an end-user based framework that estimates the cost of power interruptions in the U.S. The last study released in 2018 shows that the total U.S. cost of sustained power interruptions is $44 billion per year (2015), which was 25% more than the $26 billion per year in 2002. The majority of the costs (70%) were suffered by commercial sector customers. The industrial sector accounted for 27% of the total cost.
Matter of Awareness
The issue of surge protective device cost versus return on investment (ROI) can be a simple matter of education. The integration of a surge protection plan into major facility systems usually depends on how aware management is of the costs they may incur when (not if) they lose power or suffer major equipment damage due to power surges and spikes.
If a systems integrator has not recommended surge protection for their next project, they should provide the security, facility and HR management executives enough information to understand possible risks and liabilities. All parties must understand that every electronic system is at risk of damage or destruction from power surges and spikes. Knowing that lightning is not the only cause of power disruption in a facility is critical.
The fact is that smaller, every day external power disruptions, such as those caused by power grid switching, or nearby heavy equipment use are much more commonplace and go mostly undetected. Even inductive load switching in a facility’s HVAC system, for example, can produce damaging power surges within a facility. Without adequate protection, these unnoticed surges invisibly shorten the life of sensitive electronic systems and decrease their reliability.
System designers, specifiers, and integrators are in a prime position to take advantage of their status as trusted partners to end-user clients by recommending surge protection on all of their specs. Unfortunately, many shy away from adding this crucial element out of fear of pricing themselves out of the project – even though they know a solid SPD strategy can provide ROI across all critical facility systems. When customers learn that surge protection usually costs less than the sales tax on their systems and it can help alleviate systems downtime, the cost to not protect themselves from potential liabilities and insurance risk can be the deciding factor. And those that do purchase surge protection devices but do it solely on a low-bid or bid-spec procurement process, can severely impact the ability to realize significant long-term savings.
How to Calculate Potential SPD ROI
Given the current security and risk climate across the nation, most organizations have an increased appetite for CAPEX expenditures and investments. When preparing your cost justification for any capital investment, it is critical to consider both a payback/breakeven analysis and a lifecycle savings analysis. A deep-dive analysis on both of these factors can provide a realistic understanding of the ROI for investing in surge protection systems.
The first step is to provide a risk impact study to management that demonstrates how the organization can maximize savings by eliminating transient surges throughout all electrical distribution systems and equipment operations. This can be accomplished through both a payback/breakeven and lifecycle savings analysis that can prove the long-term cost savings of investing in quality and performance over the first cost/low bid alternative.
The payback or breakeven analysis will evaluate how many years it will take to realize the cost of the initial SPD equipment and installation investment. The rule of thumb is a company likes to recoup their initial surge protection investment within five years. While the lifecycle savings analysis often takes a backseat when cost assessments are being done, it is a key aspect of the investment discussion. The lifecycle analysis allows the systems integrator to provide the end-user a realistic picture of the potential savings on long-life projects that might extend 20 to 30 years.
By calculating a combined snapshot of the return on investment and the total cost of ownership for a surge protection strategy, the client will better understand the cost-savings and increased productivity potential for their organization. For more details about developing a surge protection stratefgy for your facility, contact us at www.diteksurgeprotection.com.