By Brian Hughes
Executive Vice President
Building owners and managers in our area tend to be pretty savvy when it comes to cutting costs out of their businesses. We shop around vigilantly for the best prices on everything from insurance policies to cleaning supplies. And if anything looks out of line on the invoice, we are on the immediately on the phone with the vendor for an explanation.
So why is it that when the monthly utility bill comes in, our tendency is to concede defeat and just pass it on the AP department? Even at home, we all know that monthly ritual of suspense when the utility company envelope is opened. Will it be relief or sticker-shock?
If you share this sense of helplessness at the office, you're not alone. Most executives here in New Jersey privately tell us that they sense some energy waste in their facility, but do not make it a priority to address it. Some feel confident that their operations are humming along quite efficiently, but admit that they never really looked at any ways to cut energy costs further. Saddest of all is the occupant of a newer building, who assumes perfect efficiency and is thus lulled to sleep while his modern building steals energy dollars from his P&L.
So if you're wondering where you can look at your own business, the first view is in the mirror. Ask yourself, "What steps has my company taken to proactively reduce energy usage in this building?" If the answer is that you've done basically nothing, then you can be assured that you're leaving money on the table.
Another gut-check is to look at how you really budget for energy expenses each year. Most companies have utility costs as a line item. A surprising number of financially sophisticated companies simply look at last year's number and then add three or four percent for the coming year's budget. What they are really saying is, "I actually have no clue on what the cost will be, so let's just use last year's number and pray for the best." The problem with this cop out is that if last year’s utility expense was higher than it should have been due to waste, then you have basically agreed to pay for waste again this year.
So the first step is to change the way you think about your utility expenses. Only then you can do something proactive about it. Typically building owners and managers will find the most savings by tackling the two areas that eat up lots of energy: Lighting and HVAC. These two chronic offenders offer the most opportunity to put wasted dollars back into your budget. If nothing else, start here.
With lighting, you have to first decide if a retrofit is even worth considering. A good rule of thumb to use is this: If your building is more than 10 years old and/or you have not done a lighting retrofit in the last five years, you are a good candidate. With a combination of lower electrical usage and state rebates, a lighting retrofit often results in a quick ROI.
With HVAC, your first order of business is to understand what type of systems you have and how they use energy. Rooftop units, boilers, chillers, and other common mechanical equipment consume enormous amounts of gas and electric. In order to make sure these systems are working efficiently, it is important to have a structured maintenance plan in place. To borrow an old saying about non-voters, "if you don't maintain it, don't complain about the utility bill". Unfortunately, too many facility operators excuse energy waste as long as the systems don't break down. Facility and maintenance managers in particular get far more grief from co-workers and the boss when the air conditioning fails than they do from the CFO when the utility bill spikes.
With most buildings reaching maturity in our mostly developed area, there is a trend towards replacing aging HVAC equipment with newer equipment that is reliable and more efficient. Unlike lighting, where incentives are often good enough to justify ripping out perfectly operating fixtures, the available incentives for HVAC replacement usually aren't so generous. But they exist nonetheless, and here are some guidelines to use to see if it's worth considering new HVAC equipment:
1) Your current equipment is over 15 years old.
2) You plan on staying in your facility for at least 3 more years.
3) You have climbing repair costs and breakdowns are more frequent.
Too many building managers wait to replace their equipment until a catastrophic failure happens, and then they make an emergency capital expenditure rather than pouring more repair money on the fire. This reactive approach usually causes disruption to the business, not to mention heartburn for those CEO's and CFO's who hate surprises.
One popular solution entering the HVAC marketplace is equipment leasing, especially since interest rates are at historical lows. For example, Company X in Morristown with a building built in 1989 can get new HVAC equipment installed without the pressure of some emergency or the thought of their building being down in July. Combined with state incentives and the savings to be gained with higher efficiency equipment, the monthly payments may turn out the same or lower than the running repair costs. A three, five, or even ten year lease ends with you the lessee owning the equipment at the end.
So if you're going to change the way your building uses your money, you have to address the number one barrier to change – indifference! Like electricity itself, we tend to take the path of least resistance.
Executive Vice President
Building owners and managers in our area tend to be pretty savvy when it comes to cutting costs out of their businesses. We shop around vigilantly for the best prices on everything from insurance policies to cleaning supplies. And if anything looks out of line on the invoice, we are on the immediately on the phone with the vendor for an explanation.
So why is it that when the monthly utility bill comes in, our tendency is to concede defeat and just pass it on the AP department? Even at home, we all know that monthly ritual of suspense when the utility company envelope is opened. Will it be relief or sticker-shock?
If you share this sense of helplessness at the office, you're not alone. Most executives here in New Jersey privately tell us that they sense some energy waste in their facility, but do not make it a priority to address it. Some feel confident that their operations are humming along quite efficiently, but admit that they never really looked at any ways to cut energy costs further. Saddest of all is the occupant of a newer building, who assumes perfect efficiency and is thus lulled to sleep while his modern building steals energy dollars from his P&L.
So if you're wondering where you can look at your own business, the first view is in the mirror. Ask yourself, "What steps has my company taken to proactively reduce energy usage in this building?" If the answer is that you've done basically nothing, then you can be assured that you're leaving money on the table.
Another gut-check is to look at how you really budget for energy expenses each year. Most companies have utility costs as a line item. A surprising number of financially sophisticated companies simply look at last year's number and then add three or four percent for the coming year's budget. What they are really saying is, "I actually have no clue on what the cost will be, so let's just use last year's number and pray for the best." The problem with this cop out is that if last year’s utility expense was higher than it should have been due to waste, then you have basically agreed to pay for waste again this year.
So the first step is to change the way you think about your utility expenses. Only then you can do something proactive about it. Typically building owners and managers will find the most savings by tackling the two areas that eat up lots of energy: Lighting and HVAC. These two chronic offenders offer the most opportunity to put wasted dollars back into your budget. If nothing else, start here.
With lighting, you have to first decide if a retrofit is even worth considering. A good rule of thumb to use is this: If your building is more than 10 years old and/or you have not done a lighting retrofit in the last five years, you are a good candidate. With a combination of lower electrical usage and state rebates, a lighting retrofit often results in a quick ROI.
With HVAC, your first order of business is to understand what type of systems you have and how they use energy. Rooftop units, boilers, chillers, and other common mechanical equipment consume enormous amounts of gas and electric. In order to make sure these systems are working efficiently, it is important to have a structured maintenance plan in place. To borrow an old saying about non-voters, "if you don't maintain it, don't complain about the utility bill". Unfortunately, too many facility operators excuse energy waste as long as the systems don't break down. Facility and maintenance managers in particular get far more grief from co-workers and the boss when the air conditioning fails than they do from the CFO when the utility bill spikes.
With most buildings reaching maturity in our mostly developed area, there is a trend towards replacing aging HVAC equipment with newer equipment that is reliable and more efficient. Unlike lighting, where incentives are often good enough to justify ripping out perfectly operating fixtures, the available incentives for HVAC replacement usually aren't so generous. But they exist nonetheless, and here are some guidelines to use to see if it's worth considering new HVAC equipment:
1) Your current equipment is over 15 years old.
2) You plan on staying in your facility for at least 3 more years.
3) You have climbing repair costs and breakdowns are more frequent.
Too many building managers wait to replace their equipment until a catastrophic failure happens, and then they make an emergency capital expenditure rather than pouring more repair money on the fire. This reactive approach usually causes disruption to the business, not to mention heartburn for those CEO's and CFO's who hate surprises.
One popular solution entering the HVAC marketplace is equipment leasing, especially since interest rates are at historical lows. For example, Company X in Morristown with a building built in 1989 can get new HVAC equipment installed without the pressure of some emergency or the thought of their building being down in July. Combined with state incentives and the savings to be gained with higher efficiency equipment, the monthly payments may turn out the same or lower than the running repair costs. A three, five, or even ten year lease ends with you the lessee owning the equipment at the end.
So if you're going to change the way your building uses your money, you have to address the number one barrier to change – indifference! Like electricity itself, we tend to take the path of least resistance.
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