Energy Managers: Reach Out to the Finance Department
Energy managers have a lot of projects that deserve attention. They need to keep things running smoothly, enhance efficiency and institute programs that in other ways save money or improve processes.
They can’t do this alone, however. The first thing that the need is money. And, for money, they have to get people from the upper reaches of the organization to sign on.
The challenge is two-fold: Energy managers must do this in an environment in which people from other departments, with projects with the same level of merit, are competing for funding. This funding often is scarce. The bookend challenge is that energy managers speak in the language of kilowatt hours and wattage. The people who sign off on projects speak about return on investment and internal rate of return.
Erin Hiatt, the Senior Manager of Sustainability and Compliance for the Retail Industry Leaders Association (RILA), says that there are tangible steps that an energy manager can take to increase the odds that his or her priorities are funded.
The first is to be friendly. Hiatt said that perhaps the most effective way to win hearts, minds and dollars is TO create relationships with counterparts on the financial side of the business. “I honestly think [a good idea] is starting a dialog with someone in the finance department outside of any project you are looking to fund,” she said. “It is important to understand their role, how they like to see projects presented, what information should be present.”
These relationships are invaluable. Hiatt said that some of the tangible information that an energy manager can garner includes how the company rates investments, the organization’s capacity and appetite for risk, whether it is cash rich or has its money tied into expansion or other projects and whether it is interested in immediate payback or is satisfied with longer term strategies. In other words, developing a keen sense of how the company thinks can influence the timing and or precise approach that is taken.
The energy team should invite somebody from the financial side to be on their team. Hiatt said that Kohls does this. It is an example of a relationship building taken to a somewhat higher level.
The second idea is to become more conversant in the language that finance speaks. Hiatt says that there are five concepts with which energy managers should be familiar:
- Payback: The amount of time it takes to recoup an investment;
- Return on investment (ROI): The benefit the expenditure generates;
- Internal rate of return: The profitability of an investment;
- Net present value: A calculation of the incoming and outgoing flows from an investment and
- Total cost of ownership: The direct and indirect costs of an investment.
It is not only important to understand these terms, but to customize presentations to answer those questions.
This makes a lot of sense conceptually. The problem, however, is that the level of understanding that is necessary to really sway a decision is deep. More than a vague familiarity with the terms is necessary. In short, the meaningful the input on the financial ramifications of a project the better the chances the team has of getting a green light.
There are two ways that Hiatt suggests this deeper input can be amassed. One, not surprisingly, is to take advantage of RILA resources. The other is to turn the vendors you are using – or considering using – into tutors. “They should definitely leverage existing vendors,” she said. “A lot of the time they are going to pitch you using finance metrics on why a projects makes sense. Have them teach you the break down on how they got numbers so you can respond if somebody challenges you internally.”
For adidas, RILA in 2012 worked with the Department of Energy’s Better Buildings Initiative through its greenENERGY fund. The fund has allocated $5.5 million to 49 energy projects across adidas’stores, data and distribution centers and corporate offices. The project portfolio is forecasts an internal rate of return of 33 percent and a 10-yer net present value of $2.5 million, RILA says.
The bottom line is clear: Involving the finance department in energy projects can be a winner for both departments — and the organization.
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