“If you don’t know where you’re going, any road’ll take you there.” This well-known maxim can be traced back to George Harrison’s classic “Any Road” or maybe even to Lewis Carroll much earlier. Whether by Cat or by Beatle, it’s a good reminder that it’s easy to arrive at any destination by accident.
In the business world, there’s just too much at stake to blindly go without knowing where first. Leaders have to articulate a vision for the company. Defining success and measuring results will be necessary to achieve that vision, which means meeting budget targets will be critical. And yet, as many companies begin the budgeting process, the energy cost line item will be one often overlooked.
With that in mind, I’d like to make the case for more precise energy budgeting this year. We know budgeting with greater accuracy enables better planning, which in turn makes organizations more flexible and more competitive. So, let’s make Expert Planning our destination and take the road through Budget Accuracy with these five recommendations.
Fuel Up First: Know the components of your energy cost
To get started toward Budget Accuracy, we need to understand what drives our cost. We know under- or over-budgeting for large operating expenses has the greatest ripple effect. And yet, even energy budgets in the (many) millions can still go unnoticed.
If they are stashed away in your “Overhead” budget, first isolate the actual energy expense for the previous budget year. To begin the forecast, we’ll need to unbundle each component of our energy expense to see what fuels the cost. Our handy checklist provides 8 primary budget components to consider while you’re at the pump.
A well-developed energy budget can keep us on the right road just like a vehicle’s global positioning system (GPS). An energy budget should not only provide directions to the destination, but also adapt to changing conditions along the way.
We may encounter some less-than-ideal conditions along the way, but some are easy to avoid with these best practices:
- Reconcile monthly invoices against your energy contracts to identify overcharges
- Use software to identify and alert you to inefficient energy use
- Consider utility rate increases to avoid unexpected budget surprises
Other conditions beyond your control are simply unpredictable, such as extreme weather, equipment failure and staff turnover. Check out our infographic on the types of trends that affect your budget. In either case, we’ll need to adapt to the conditions, adjust the budget and update the route accordingly.
Check Your Alignment: Get your stakeholders, priorities in line
A smooth road trip requires proper alignment. In this case, that means stakeholders and priorities. The energy budgeting process can help align both depending on your leadership’s perception of its energy cost. Unfortunately, some see their energy cost only in the rear-view mirror.
Certain companies mandate energy procurement managers prove savings with each new contract compared to the previous one. I’ve seen this approach lead to some epically awful energy decisions. I’ve also heard of companies eliminating shifts, slowing production and shelving expansion plans – all to reduce their consumption. Sometimes these actions are necessary, but it’s best to make these decisions with the right context.
Setting clear priorities and outlining the benefits of each is a much more forward-looking way to achieve bottom line savings. This approach keeps the focus on operational and purchasing efficiencies, and allows you to align stakeholders around these priorities.
Build Your Itinerary: Explore opportunities along the way
As with any trip, you need to determine what you want to see and do along the way. As you think about your timing and priorities, consider a few of these attractions:
- Behavioral modifications : reduce consumption by 5 to 15% at low or no cost
- Efficiency projects: prioritize equipment and facility upgrades based on expected savings
- Demand response programs: generate ongoing revenue by thoughtfully shifting your energy usage at peak times if your utility provides incentives
- Energy rebates: take advantage of federal/state incentives to minimize capex for energy projects
- Supply contracts: maximize savings with thoroughly vetted terms and conditions
Enjoy the Ride: Budget for the future with confidence
Designing the route to an energy efficient budget takes advance planning. But, simply adding 2% to last year’s expense is not a budget. In fact, it’s likely to send you “off road” surprisingly quickly.
This year, use your energy budgeting process as your test track. Follow the turn-by-turn directions above and drive for accuracy. You might be surprised by the results. Improved accuracy will justify the extra time and effort, and before you know it, you’ll arrive at your intended destination: Expert Planning.
Time for a Tune Up
- For strategic guidance on energy budgeting, leave a comment below or click here.
- Check out a few of our case studies on energy invoice errors.
- Read any of my previous posts here.