As the end of the year approaches, many businesses are frantically working on their 2016 budgets. While the budgeting and forecasting process puts spending in all facets of operations under the microscope, it’s commonplace for organizations to maintain a business-as-usual approach when it comes to forecasting energy expenditures. Regardless of whether your total energy expenditure amounts to 3% or 30% of your operational costs, energy is a complex line item that should not be skipped over.
There seems to be a common misconception with businesses that there has to be a trade-off between cost savings and energy savings. Most businesses assume savings from improved energy efficiency are immaterial with very poor return on investment (ROI) however this is not the case. In reality, ROIs for energy saving projects continue to strengthen as energy efficiency technology advances.
Do your research
Engaging key decision makers early in your budgeting process will help you to learn more about operations and develop a more accurate budget. For example, your facilities or operations staff might have insight into operational changes and planned improvements that will affect energy demand.
A great way of getting your operations staff to take responsibility for energy consumption is to create accountability through budget allocation. Before breaking your energy budget down by department think about how reporting will work on a more practical level. Is it easy to monitor by department or is your energy metering centralized? Who should be accountable for flex spaces? How much complexity will this add to your internal accounting systems? For example, who will share and sign off on bills.
Choose your base numbers wisely
Billing periods for different utilities can vary and weather patterns change from year-to-year so you need to carefully consider your basis for your budget. There can be a big difference between billing from the most recent 12 months and billing from the last complete fiscal year. A lot of companies work from an average of prior years or they take it a step further by multiplying the average usage from pervious years by the most recent unit price available.
Account for rate and consumption increases and other variables
It’s vital businesses factor rate increases into their annual energy budgets rather than presuming numbers will remain stagnant from year-to-year. Global energy costs are rising and BC is no exception, in 2013 BC Hydro announced a 28 per cent electricity rate hike over five years.
Energy consumption is directly tied to fluctuations in occupancy and production. If a business is planning a significant change in operations, they should adjust their energy budget accordingly. An example of this would be if a business decides to extend their operations from Monday to Friday to Monday to Saturday then they should budget a 20% increase in energy consumption.
Other variables could include new construction, equipment changes, new energy management initiatives and associated reduced maintenance costs and weather trends.
It’s important to gain a sound understanding of the complexities of your energy consumption so you can make accurate performance comparisons. Your historical utilities data is a great starting point for developing an energy benchmark for your business. Energy benchmarking helps you to stick to your energy budget by catalyzing owner action and validating savings from implementing energy efficiency projects, policies and programs.
Turn your energy data into a KPI metric
Typically, organizations measure their inputs per unit of output yet ignore energy which is a significant contributor. Understanding how your energy consumption affects your productivity and profit margin is critical. Expressing energy in a metric everyone can understand aligns the interests of the entire organization and can act as a benchmark for different sites or departments. For example, a hotel could track energy cost per customer or a restaurant could track energy cost per meal served. Energy cost per employee and energy cost per square foot are two valuable metrics that work for a wide cross section of businesses.
Energy efficiency investments
Now is the perfect time to factor energy productivity improvements into your budget for 2016. At Kambo we only recommend energy efficiency projects if they make financial sense. If a project has a good ROI and a short payback period, we can also help you with financing options to help you move forward with the project quickly. Our clients are able to monitor the performance of their upgrades relative to their baseline to validate the savings associated with the project.
When assessing potential energy performance upgrades it’s important to consider what the true cost of not making the upgrade would be. How much money are you wasting each month if you don’t implement the project and what would that amount to over the course of 12 or 24 months? You don’t allow other areas of your business to run inefficiently, your energy performance shouldn’t be an exception.