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Facility Maintenance Decisions

Column: The Hidden Savings of Cost Avoidance





By Dan Hounsell, Editor   Facilities Management

OTHER PARTS OF THIS ARTICLEPt. 1: This PagePt. 2: Column: Taking Time for Testing Products

You've built the case for investing in a retrofit. You've consulted with peers and contractors and worked with manufacturers on product demonstrations.

You've also conducted tests on products that will be key components of the project. Most importantly, you've quantified the savings in energy, water, labor, etc., that the retrofit will deliver.

What could you possibly have overlooked? There's a chance that in making your case to top executives and the organization's financial types, you've neglected to mention the ongoing savings the retrofit will deliver — savings that go beyond the immediate bottom-line impact of the project. These are the hidden savings of avoided costs.

Look at it this way. An HVAC retrofit saves money by reducing the organization's energy costs, with the savings projections based on the current utility rates. But rates will rise, as they always do. And when they do, they organization will realize additional savings from costs it did not have to pay in the form of the higher utility rates.

These savings from avoided costs can be difficult to quantify accurately because it's not possible to predict the amount of future rate increases. But by including the concept of cost avoidance when making their case, managers are likely to get a warmer reception.

And someday, when the rates do rise and the organization does avoid the resulting costs because it prudently invested in the retrofit, managers can remind CEOs and CFOs of their wisdom in approving the project in the first place.

Dan Hounsell offers observations about trends in maintenance and engineering management and the evolving role of managers in facilities.

Agree? Disagree? Have something to say? We want to hear from you. Visit myfacilitiesnet.com/danhounsell, and start a conversation.


Continue Reading: Talking Points

Column: The Hidden Savings of Cost Avoidance

Column: Taking Time for Testing Products

posted on 3/18/2014

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