Utility Budgets: To Accrue or Not Accrue?

Sheila Johnston

Energy managers today try to balance utility budgets for a handful, hundreds, or even thousands of locations. Accurately predicting their energy spend across each location becomes a challenge, especially when attempting to compensate for variability introduced by bill cycle timing and seasonality. Incurring two bills or no bills in a single period reduces the accuracy of their budget forecasting and analysis.

 

Accounting

Accounting

Our recommendation is to use full period accruals. You accrue for outstanding expenses on all of your accounts and you accrue out to the end of the period. When the current bill is received, the previous accrual is reversed. Thus, the booked expense in the current period becomes the reversed accrual from the prior period plus the current amount of bill paid and the current accrual. Full period accruals eliminate variance driven by bill timing and help avoid misleading conclusions in budget analysis. The result is a more complete financial picture.

Generating accruals based on cost per day of the most recent bill in the system and projected out provides one level of accuracy. To refine the accrual, seasonally adjusted data, usage indexes, and weather statistical analysis should be applied before booking it to your system. Analyzing the impact of these events on each site and incorporating them into the accrual can dramatically reduce variance.

This methodology requires considerable data and automation support. Ecova offers utility budgeting and accrual solutions to create more accurate accrual forecasts with tools and expertise to account for anticipated fluctuations. Our goal is to remove some of the heavy lifting of data and analysis and deliver month to month variance reports which reflect actual performance. In this way we take care of the legwork and make accruals predictable and manageable for your business.

Monthly variance analysis becomes more meaningful when volatility is reduced; and precise accruals which reflect your actual cost performance allow you to take appropriate action and make that action valuable.

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