Which Creates Action? "Savings" or "Avoiding a Penalty"
A re-write of an concept I published in 2010
By Eric A. Woodroof, Ph.D., CEM, CRM, PCF
Energy managers will often say, "if we implement this project, we
will save $X per year." This way of saying the benefits may
capture the enthusiasm of a few people. However, an alternative
message would be to say, "if we don't do this project, we will
continue to waste $X dollars/year.” The alternate format is not
only accurate, but creates a sense of urgency as the audience
realizes that they are wasting the money RIGHT NOW while they
contemplate the decision. The alternate format could also be
enhanced further to incorporate additional fear-based motivators
that are completely valid. For example, the alternative method could
become, "if we don't do this project, will continue to waste $X
dollars/year and lose a competitive advantage". Thus, by
incorporating “what competitors are doing" can motivate
management to not be “left behind”.
There are many additional ways to communicate the value of a
project. Either way, the fact remains: any wasted dollars are as
valuable as any other potential profits that exist in a business.
When projects require some sort of investment upfront, the
alternative presentation approach can also be used for Net Present
Value statements, which are a more complete evaluation of a
project. In this case, the energy manager can say, "The NPV of a
project also represents the NPV of the wasted dollars
associated with doing nothing, or continuing to do business
the way we are doing it now".
Additional Considerations: The fact that most people would rather
avoid paying penalties can also become a factor when dealing with
financing costs for a project. In this case, this factor can work
against the project, at least initially. For example, assume you work
for a company that has no capital budget to implement an energy
management project and you have to borrow money from a bank to
get a project started. To finance a million-dollar project, you may
have to pay the bank 10%, which (in simple terms) would be
$100,000. Many folks in top management will have a natural
tendency to avoid financing costs and in essence, avoid this
"penalty" by not doing the financing (and therefore not do the
project). Unfortunately for this logic, many energy projects can save
15%-25%, which means that even after accounting for finance
expenses, the project still generates savings... or alternatively said-
"the finance cost is the lesser of two evils". Personally, I like the
saying, "the cost of delay is greater than the cost of financing".
In addition to capturing the energy savings (or current wasted
dollars), there are often other benefits associated with energy
management. For example, by saving energy, you also reduce your
carbon footprint and your company could appear more
''green". Being more "green" could help you in many ways, like
attracting better employees, improving community morale,
improving sales versus your competitors or reducing risks of future
energy price spikes. There are many other benefits to energy
conservation and these are real dollars that are equally as relevant
to any other profit centers in an organization.
Putting this all together might create a value proposition that
sounds like this: "if we don't do this project, will continue
to waste $X dollars/year, lose a competitive advantage and
miss out on some green marketing opportunities to capture
additional market share".
Of course, the message that energy managers use depends on the
audience and what is most important to that audience. For upperlevel
management, the message should revolve around money and
gaining a strategic advantage over competition. For lower level
managers/staff, the message could involve reducing hassle, making
life easier, etc..
In summary, there are many ways to communicate a project's value
and I hope that more projects get implemented when a company
realizes that savings really does represent existing wasteful
Perhaps most importantly, when presenting your energy project, don’t
forget to list the “non-utility” benefits, because these might solve a
critical problem for your facility owner/decision-maker. In several
previous articles, I have discussed how to calculate values for these
“secret” benefits of energy projects.