• Eric A. Woodroof, Ph.D., CEM, CRM, PCF

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

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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

processes.

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.

#SavingsvsWaste #SavingsvsAvoidingPenalties

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energy keynote speaker, Dr. Eric Woodroof