Why Math Is Important:
Separating the Wheat from The Chaff
2013 AASHE Conference
Jim Stephens & Elizabeth Swiman
Presenters
Jim Stephens
Acting Director of Utilities & Engineering Services
Elizabeth Swiman
Director of Sustainability
Decisions, Decisions, Decisions?
Life is full of decisions, but before the decision should come questions.
Decisions, Decisions, Decisions?
Life is full of decisions, but before the decision should come a question.
Decisions, Decisions, Decisions?
Life is full of decisions, but before the decision should come a question.
Decisions, Decisions, Decisions?
Life is full of decisions, but before the decision should come a question.
Do our decisions reflect
sustainable values?
Decisions, Decisions, Decisions?
Life is full of decisions, but before the decision should come a question.
Do our decisions reflect
sustainable values?
In life there are many ideas, concepts, and
promises. How do we separate the wheat from
the chaff?
Analyze, Then Decide
While you cannot put a number on every activity in life,
there are many things that can be analyzed.
Understanding the variables
required for a project, coupled
with appropriate mathematical
review, can assist in selecting
projects with the greatest impact.
Other
Benefits
Cost
Savings
Sustainability & Energy Management
A comprehensive sustainability and energy
management program achieves the maximum result
in greenhouse gas reduction and energy
consumption reduction when combined with
aggressive financial criteria for project approval and
a reinvestment strategy.
That
Sounds
Hard!
But First – Would You Like to Play A Game?
.
Exercise – Part 1
We need five volunteer project
managers.
Choose from the list of potential energy related sustainability projects.
Exercise – Part 1
At your request, the university has
invested $1 million dollars in your
project of choice.
Why Math Is Important?
Limited Financial Resources
Why Math Is Important?
Competing Needs
Why Math Is Important?
Financial Accountability
Why Math Is Important?
We need to be able to compare projects and select the best – Separate the
wheat from the chaff.
Best
Good
Not Good
Enough
Project Ranking – Why It Matters
Good financial performing projects MAXIMIZE your efforts towards energy
conservation and greenhouse gas reduction.
-Projects may not be glamorous or exciting, but the return on investment is
generally short.
-Capital is available for reinvestment.
Poor financial performing projects often MINIMIZE results.
- Drain needed capital from projects that have a greater impact on energy
conservation and greenhouse gas reduction.
IMPORTANT POINT: Each organization sets their own goals and defines what is
deemed a “successful project”.
Math, when accurately used, can better measure a precise metric. Generally, it is
measured in dollars, GHG reduction, etc.
Other important factors
- Competing priorities
- Administrative support
- Research
- Regional variations in cost and/or available resources
Our Process – Rules of Thumb
1. We want to prioritize high return projects ahead of low
return projects
2. High capital, low return projects are highly scrutinized.
3. Low capital, high return projects are pushed forward.
4. In all cases, our energy related sustainability projects are
required to have a 7 year or less payback based on energy
savings alone.
What About Alternative Energy?
We wholeheartedly support
alternative energy, but the same
rules apply.
Case In Point
Solar Thermal at our Leach Student Recreation Center for pool heating
Cost: $168,000 Annual Savings: ~ $30k per year with NO REBATES
Alternative Energy?
1. Alternative energy projects CAN meet the criteria, but
you must be careful to select the right projects.
2. Don’t get too excited about a specific project until you
do the math.
3. Everybody loves alternative energy projects that have a
good payback!
Exercise – Part 2
•Project Manager Reports
•Project Discussion
•Reinvest in new projects
Calculating a Project Return
Simple is usually better – We recommend using the simple payback
method
Return =
Total $ Cost
__________
Total $ Savings
Calculating a Project Return
Life Cycle Analysis
…can include a variety of assumptions.
Even a simple payback calculation uses some assumptions.
The trick is understanding how to select good assumptions (or estimates)
in your model.
Calculating a Project Return
Cost Considerations That Must Be Included
•How much will it cost to maintain the system?
•Does the vendor estimate include installation?
•Will I have to add staff to support the project long term?
•How reliable is the system? How much savings will I lose related to
downtime?
•How much of the actual work to implement the project is provided by
the customer? Research time? Data Entry? Data Collection? System
integration? Very, very important for software related projects.
Calculating a Project Return
Understand Savings Assumptions
•Vendors often overstate savings. Be sure you understand the real
savings of the project.
•Vendors often include inflator figures to make the savings appear
larger. These include cost multipliers over time for energy rates.
Are these realistic? You must understand
Well do I have a
where rates are going to understand your
deal for you!!!
long term project savings?
Calculating a Project Return
Understand Savings Assumptions
•Projects savings often include cost of money assumptions that are
high, particularly for life cycle analysis.
•Vendors often count soft savings, such as behavioral changes as hard
savings. Your results may or may not relate to these activities. Soft
savings should generally be counted on as a fringe benefit, not the
hard savings.
Calculating a Project Return
Understand Savings Assumptions
•Does the real project savings pay for the true cost of the project
within the rated equipment life?
Calculating a Project Return
Goal
The real goal of your project return calculation is for you to be sure
that your organization can achieve the returns promised by the project.
ACCURACY is the key
Exercise – Part 3
•Project Manager Reports
•Project Discussion
•Reinvest in new projects
Reinvesting Savings
At Florida State University, we use a 7 year payback for energy
projects. The benefits include:
•Long enough to support some in depth projects, but short enough
to return funding for future projects.
•For ever 1 million dollars spent, we return no less than $142,000
per year back to the University.
•Our savings are in both dollars and greenhouse gas production.
Accumulation Examples – Year 1
Project Portfolio A
•Avg return = 5 years
•Investment value =
$1,000,000
•Annual return back
to fund = $200,000
Project Portfolio B
•Avg return = 20 years
•Investment value =
$1,000,000
•Annual return back
to fund = $50,000
Accumulation Examples
Project Portfolio A
•Avg return = 5 years
•Investment value =
$1,000,000
•Annual return back
to fund = $200,000
Year 5 Savings: $1,488,320
Year 10 Savings: $5,191,736
Year 20 Savings: $37,337,600
Project Portfolio B
•Avg return = 20 years
•Investment value =
$1,000,000
•Annual return back
to fund = $50,000
Year 5 Savings: $276,282
Year 10 Savings: $628,895
Year 20 Savings: $1,653,298
In a 20 year span, the high return project portfolio
returned more than 22 times the low return
portfolio.
Exercise – Part 4 (Final)
•Project Manager Reports
•Project Discussion
•Reinvest in new projects
Conclusion
Each organization may have different goals. Regardless of the types
of project preferred, high return projects save more energy and
reduce more greenhouse gases than low return projects. An
understanding of how to leverage energy and sustainability funding
can have a compounding impact over a long period of time.
Conclusion
Don’t just follow the herd. Do the math. Separate the wheat from
the chaff and you will push forward the best projects to meet your
goals.
Questions?