When the monthly utility bill comes, the CFO simply sees is another bill to be paid. Energy is just another operating expense...or is it?
An increasing number of international companies are measuring performance on a triple bottom line of organizational success, environmental success and economic success, and finding that adding social and environmental actions to daily practices can deliver a significant return on investment.
When it comes to understanding the true impact of energy and the environment, only limited data is available to CFOs. They still need that data translated into information to make informed decisions about their business.
CFOs who are determined to truly understand and reduce environmental costs of their business can take a huge step in that direction by understanding the entire environmental impact of their facility. In addition to energy usage and costs, environmental accounting looks at the total cost of production, distribution, use and waste of a product. This process, known as Lifecycle Assessment, charts the entire lifecycle of a company's operations: from raw materials to suppliers to manufacturing, distribution, use, and disposal. To fully complete the assessments, the processes and environmental impact involved in the company's day-to-day operations are charted within five environmental categories:
Within each of these categories, the CFO can ask a few simple questions that will give an accurate picture of the environmental impact of their business. Table 1 lists common questions for each environmental category.
Developing the metrics to track processes and bring that information to the CFO level is crucial. In fact, many enterprise level resource planning software packages include a new environmental resource planning software add-on that financial executives can use to track pertinent environmental health and safety information.
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Energy
By far, the environmental impact or "eco metric" most easily measured, monitored and reduced is energy. The U.S. Green Buildings Council estimates that commercial office buildings use 20 percent more energy on average than necessary.
As energy bills continue to rise and become a larger part of the business operating budget, financial executives are driven to act and reduce cost. One CFO found that energy costs had increased from 12% of annual facility expenses to 17% in one year! This resulted in a 40% year to year increase. The question then arises, how does a CFO obtain the information needed to understand the cost of energy and how to reduce it.
While total cost of energy use can be extremely valuable to C-level executives, the capability to evaluate and utilize the information may not exist. The data may be available, but is not presented in a way that enables CFOs to make improvements that can deliver an acceptable return on investment. Partnering with a professional energy firm can prove to be a major benefit to CFOs.
By partnering with an energy specialist, the CFO can get actionable information to reduce operating expenses. Energy projects will have the added benefits of improving the facilities and reducing operating expenses while positively affecting the social bottom line and the impact on the environment. Armed with more information about the company's costs and risk, C-level executives can make decisions with tangible and intangible benefits. Table 2 outlines many of the benefits of energy related facility improvements.
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The Cost of Energy
The United States is facing a dilemma. Energy prices are escalating, dependency is increasing and energy sources are becoming scarcer. Although current energy prices are reasonable, Americans have seen this trend at the gas pump in the past three years. The same phenomenon is occurring with electricity, natural gas, propane, steam and all other facility energy sources.
When considering the energy balance of a building, one must consider the energy put into the building: what is lost and what is used. Typically, equipment efficiency can be improved to limit the use or consumption of energy. The facility itself can be improved and controls utilized to limit the loss of energy and conserve electricity. Reducing use of energy as well as its loss can significantly impact the cost of energy required to run a facility.
To a CFO, any reduction in operating expenses can be added to the budget to fund strategic initiatives and create growth for the company. To any other C-level executive, these budget dollars can be used to improve business performance - and that is the bottom line.
To wrap up, one story serves as a good example of the potential benefits of managing a building's energy balace. In the extremely competitive environment of luxury resorts, the Westin Macau in China must create a superior guest experience while aggressively monitoring gross operating profit (GOP). The key metric for this upscale hotel is occupancy and the facility's chief engineer closely monitors the energy use of unoccupied areas.
Even with the impact of dramatic weather fluctuations and the resort's focus on a very high level of guest comfort, the TAC Solution has delivered between the equivalent of US$200,000 and US$250,000 in energy savings annually since its installation in 1995. Monitoring, control and management of the Westin Macau's energy use and loss have added to the resort's GOP in dollar amounts the Westin's CFO can see. The measures have also increased the ease of operating the resort for the staff, which in turn has led to a decrease in the number of guest complaints and an increase in guest comfort.
Brandi McManus is the energy services manager at TAC, a supplier of integrated building management systems. Prior to TAC, McManus worked for Conoco as an environmental engineer where she gained experience in energy procurement, refining and distribution focusing heavily on the environmental impact of natural gas production.