Accurate Utility Budgets Equal Fiscally Responsible Spending
HOW ENERGY DATA AND MARKET EXPERTISE SUPPORT IMPROVED UTILITY BUDGET ACCURACY
The annual energy and utility budgeting process can be extremely challenging to a company’s internal resources. Across companies, employees set aside time away from regular tasks to analyze previous years of data, and dive into complex, custom spreadsheets or provide a “best guess” budget for the next fiscal year.
Either way, they often lack critical information about highly probable upcoming price changes, and have few tools and clear methods to handle baseline data outliers, extraordinary weather changes, and supply contract volatility. As a result, many of these “surprises” surface later in the year as variance to annual budgets. In periods when higher price volatility drive substantially larger and more frequent variances, these issues often compound as teams must spend significant time defending budget processes and assumptions and baseline adjustments that may not have been well documented.
One of the nation’s largest grocery supply chains is not immune to these budget planning hurdles. This company has a network of more than 3,000 stores – a portion of which are served by the company’s food distribution business and some of which are traditional retail locations – and annual sales which total approximately $17 billion. Such a geographically and physically diverse chain can make budgeting – and predicting variances – a time-consuming and nearly impossible task.
The company’s Environmental and Facility department oversees the total facility management, including electric expense, conservation, waste and recycling. Like every multi-facility company, this business unit keeps close tabs on its numbers that are delivered to the overall budget. “Our budget needs to be what we say it is going to be. Our financial team uses this information for management and planning to develop their annual goals and projections, and it affects our bottom line,” stated the department’s director.
THE COST OF GOING IT ALONE
In the past, this annual budget process involved input from several of the company’s business units, all of which took a different approach. While some units tasked internal resources to meticulously review past year budget numbers and trends and make their best assumptions, others took a less proactive approach and simply adjusted the previous years’ budget.
Even though the company was “crushing” their numbers, internally people were beginning to ask, “at what cost?” Overall, the company’s long-range, strategic goal was to make better use of the exhausted internal resources and achieve greater accuracy across all business units, and that required a different solution for the budget process. It was becoming clear that the excess time and money that was allocated to the budgeting process could be invested more strategically.
ECOVA BRINGS VALUABLE INSIGHT
Because the company had been a long-time Ecova client for expense and data management, there was a wealth of detailed cost and consumption data available to review and analyze. During the budget process, Ecova can leverage this data to remove variables like extra-ordinary hot or cold seasons that may have impacted a budget cycle in previous periods. Further comparison of each location’s baseline to its four year history, helped ensure that anomalies were removed and newly emerging trends were projected into the budget year.
Beyond the bill data, Ecova’s experience in the energy market brings extra intelligence to the financial management process; specifically regulated energy markets. “Ecova can look at any planned rate changes for the coming year in all the areas our facilities operate and use this insight to adjust the budget where prices are going to change,” said the director. “We can’t possibly know about every rate increase and decrease in every state, but Ecova does, and they back up their budget assumptions and variances to help us manage budget risk.”
Once the budget year is under way, customized accruals help to minimize erratic swings in monthly expenses due to vendor bill timing and seasonality. By incorporating predictive patterns specific to each location’s energy profile and intensive analyst review, the company has been able to gain internal efficiencies, with both facilities and finance stakeholders knowing that the figures and methodology are sound and proven. These figures help the company narrow the causes of variances to budget, knowing that faulty accruals are not contributing to the issue at hand.
INCREASED ACCURACY AND CREDIBILITY
With Ecova’s help, the company’s facility management budget now utilizes Ecova’s “good data” for resource usage and spending that can be broken down by region and/or division.
Ecova’s data analysis, energy expertise and dedicated team members all combine to make the company’s budget more accurate. Energy expenses are one of the company’s top line items, so it’s important to get it right. Now the company’s internal resources, that were previously tasked to build the budget, are only utilized in this process to review and approve Ecova’s budget, giving them more time to focus on the company’s greater goals. Accurate numbers are then shared out with external stakeholders to show that the company has a data-driven budget, increasing its credibility and demonstrating why efficiency projects are worthwhile.