Energy Management and the Realities of the Bottom Line

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Created on Sunday, 02 October 2005 17:19

Written by Jeffrey Hart, CEO Cadence Network

Paying energy bills. It’s a necessary evil that keeps our homes warm in winter, cool in summer, lights a path to our door and brews our morning cup of coffee. Energy and utilities are critical to our everyday lives, yet the confusion and chaos of trying to understand these bills can certainly be daunting – and that’s just at home. Businesses have the same issues, just on significantly larger scales. Any multiple site organization is faced with hundreds, if not thousands of utility bills each month. And, if the business is in a variety of geographically dispersed locations, these energy bills are most likely coming from an array of suppliers. In taking a discerning look at the bills, typically accounts payable professionals are faced with information overload that provides little in the way of business intelligence or performance management.

And, you can’t manage what you can’t measure.

Information does exist on energy savings and utilizing insulation and lighting retrofits to save money and conserve energy.  However, unless a company has an established comprehensive expense management program, there is a lack of in house understanding of how to create savings or manage energy.

EXPENSE MANAGEMENT GOES DEEPER
Expense management and energy management goes significantly deeper than insulating pipes and walls, turning off these lights, and lowering thermostats. Water conservation, heat reclamation, better extraction after washing, more efficient dryers, and many other methods of reducing energy use are all available in every laundry. By embracing and instituting a comprehensive expense management and energy management program, good chief financial officers and facility managers can expect to make a significant positive impact to the bottom line.

Businesses should be confident that their operations are running at peak efficiency and are towing the bottom line with regards to energy. Managers, owners and comptrollers should ask themselves: Do you know how much you’re spending? Do you know how much you should be spending? Are you procuring at the best rates? Are you learning from your utility bills or just paying them? Are any of your bills wrong?

CRITICAL QUESTIONS TO ASK

• Are our sites being operated in the most effective and efficient manner?
• Which sites incur the most expenses and why?
• Are we sure that our utility, telecom, waste and lease invoices are correct?
• Are we on the correct electric rate?
• Should we be taking advantage of energy deregulation?
• Are we maximizing our purchasing power and minimizing our expenses?
• Are we making the right purchasing decisions?

Truth is, between 10 to 15 percent of bills that come into a business are in error.

The combination of energy, telecommunications and leasing are the third largest expense of doing business, behind labor and cost of goods sold – typically about 25 percent of an overall budget. Yet, most companies continue to cut labor costs through layoffs and offshore outsourcing, or attempt to produce inferior products by lowering their cost of goods. Well, energy prices are going up. Does that mean more people will lose their jobs to keep the bottom line? Expense management is a better way, and it has a positive byproduct – energy and water conservation.

Larger multiple site companies are the most vulnerable to escalating expenses and errors, simply due to their size and the company’s inability to monitor all sites with the same careful eye that a small company could. Comparatively across the board, retail operations incur some of the largest expenses due to labor costs and the purchase of goods.

THE REALITY
Successful CFOs have looked toward advanced ideas and methodologies to help them keep the company belt tight, but until very recently, there was no way to develop a performance management and business intelligence methodology for energy.

Having buildings up to code and insulating where appropriate is a great step, but it’s time to take a giant leap beyond that.  Taking notice of the slightest errors, such as in telecom invoices can bring in huge savings. The fact is, unless you have access to your invoice and expense related information in a manner that highlights errors and anomalies or lends itself to detailed analysis, it is virtually impossible to effectively manage your site expenses. The best insulation in the world or shutting off the lights, while good practice, will certainly not solve these types of issues. A good expense management program will transcend the obvious and help CFOs start strategically managing sites. Business executives need to focus on the enabling technologies, methodologies and information channels that:

• Increase organizational effectiveness
• Enhance contract leverage
• Improve service supplier performance
• Eliminate non-value-added activities
• Enable a fact-based approach to continuous improvement.

  Jeffrey Hart is the CEO of Cadence Network Inc. Cadence Network, Inc., is an expense management firm that delivers comprehensive expense management solutions for businesses.   Cadence offers accounts payable outsourcing, web based software applications and professional services. Cadence can be accessed at www.cadencenetwork.com.