1. Incorporating non-financial data
into organisational decision
making
Module 3

2. This material has been developed as part of the UTS
Business School and Ernst & Young ‘Leadership & Change
for Energy Efficiency in Accounting & Management’ project.
The project is supported by the NSW Office of Environment &
Heritage as part of the Energy Efficiency Training Program. For
more information on the project, please go to:
http://www.business.uts.edu.au/energyefficiency/.
This presentation is for educational purposes only, and does not
contain specific or general advice. Please seek appropriate
advice before making any financial decisions.
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3. Agenda
► Introduction
► What is non-financial performance?
► Case Study
► Measuring non-financial performance
► Types of non-financial performance
► Evaluating non-financial performance
► Setting KPIs
► Brand/reputation impacts
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4. Outline
5.0 Control 1.0 Define
and monitor energy
energy baseline
Energy Efficiency
2.0 Measure
4.0 Implement 2 energy data
Opportunities
3
3.0 Analyse
efficiency
opportunities
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5. Learning Objectives
At the end of this module, you will be able to:
► Understand the importance of considering non-financial
information in decision making
► Determine key non-financial information required for
decision-making
► Measure and evaluate non-financial metrics effectively
► Set effective targets and/or goals
► Understand the key risks and opportunities associated
with setting and disclosing targets and commitments
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6. Introduction
The importance of considering non-financial information in
decision making:
► Changing business world; more complex business
environment; greater stakeholder expectations; making
longer-term (investment) decisions
► Externalities and the free rider principle
► Efficient markets and full costing of products and services
> including the full costs (including environmental costs)
associated with the production, distribution, use, and
disposal of products and services
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7. The life cycle costing theorem
Raffish, N.1991, ‘How Much Does That Product Really Cost: Finding Out May Be As Easy As ABC’, Management Accounting, March, pp.51-
54.
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8. What is non-financial performance?
► Companies implementing energy efficiency opportunities
are likely to achieve a range of non-energy financial
benefits and, where quantifiable, these need to be
factored into the energy efficiency opportunity analysis.
► Where such benefits cannot be quantified, they should be
noted in the opportunity assessment so that these are
visible to decision makers.
► Key indicators of non-financial performance – people,
community, environment, customer, supplier
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9. Case Study – Company ABC
► Company ABC’s property division is considering replacing
a cooling tower at one of its properties. The engineer
commissioned to assess the cooling tower found that
increased heat recovery will enable the decommissioning
of a cooling tower.
What are the potential savings (financial and non-
financial) that you may identify in this project?
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10. Case Study – Company ABC (cont.)
The savings are:
► electricity (a 15 kW fan and a 37 kW pump, both
operating at 90% of installed rating with electricity price of
5c/kWh)
► water (200m3/d at a price of $0.50/m3)
► chemicals ($7000 pa)
► maintenance ($7000 pa)
► Operating hours 6000 pa, 250 days pa
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11. Case Study – Company ABC (cont.)
► Total savings = Energy Savings + Water Savings +
Chemical Savings + Maintenance Savings
► = ((Fan [kW] + Pump [kW]) x electricity price [$] x operating hours
[h]) + (Water flow rate [m3/d] x Water Price [$/m3] x operating
days [days / pa]) + Chemicals [$] + Maintenance [$]
► = ((15 + 37) x 0.9 x 0.05 x 6000) + (200 x 0.5 x 250) + 7000 +
7000
► = $53,040 p.a.
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12. Measuring non-financial performance
► Numbers without dollars
► Information inputs required in the calculation of key non-
financial metrics
► Energy consumption
► Fuel consumption
► Seek external experts where needed – e.g. Engineers
► Examples of measuring common non-financial metrics
► Emissions and energy consumption
► Employee engagement – impacts on productivity, etc.
► Using frameworks/standards
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13. Full Costs
Easy to Measure
► Salvage Value of Surplus Assets
► Avoided or Deferred Capital Expenditure
► Productivity Improvements
► Product quality Improvements
► Greenhouse Gas Emissions Reduction
Not-so-easy to Measure
► Security of Supply
► Occupational Health and Safety
► Productivity
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14. Salvage Value of Surplus Assets
► An energy efficiency opportunity can lead to assets
becoming surplus to requirements. Such assets may have
a salvage value that can be realised. This value should be
recognised during the financial evaluation of the
opportunity.
► Continuing the cooling tower example.
► The decommissioned cooling tower has a salvage value
of $10,000.
► There is a $10,000 credit to the energy efficiency project
in the year in which the salvage value is realised in year
one.
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15. Avoided or Deferred Capital Expenditure
► Reduced energy consumption may create sufficient spare
capacity in a utility or process such that there is no need to install
extra capacity for other expanding or new loads. This value
needs to be recognised in the evaluation of the opportunity.
Example:
► Minimisation of inappropriate air use (by installing a dedicated
blower) means a new air compressor is not required to run a new
packing line.
► The avoided capital cost for the air compressor of $125,000 is
recognised as a benefit in the air blower project in the year in
which the capital expenditure is avoided.
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16. Productivity Improvements
► Implemented energy efficiency opportunities may lead to
productivity improvements. On sites where energy supply
is the capacity constraining factor, reducing energy
consumption in one part of the operations can enable a
capacity increment elsewhere. Such productivity
improvement is likely to be a valuable side effect of the
energy efficiency opportunity.
► Conversely, a production rate improvement will often lead
to reduced energy intensity. The fixed component of
energy use (building services, start up, shutdown) will be
spread over a greater volume of product.
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17. Product Quality Improvements
► Energy efficiency opportunities may lead to product
quality improvements. This could occur where better
control of an energy input also reduces variability in a
production operation resulting in a more consistent
product. Such quality improvement is likely to be a
valuable side effect of an energy efficiency opportunity.
► An energy efficiency opportunity may result in a
production quality decrease. This should also be
foreseeable and detected as a cost in the evaluation
process.
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18. Greenhouse Gas Emissions Reduction
► Where fossil fuel generated energy is used by a company,
reducing the fossil fuel derived energy use will lead to
reductions in greenhouse gas emissions.
► The Clean Energy Future Package will place a price on
carbon. This will increase the avoided cost attributable to
energy efficiency measures.
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19. Security of Supply
► Many businesses are heavily reliant on energy to ensure their
business can continue to operate
► With greater demand for energy services, especially during
peak periods, there is a risk that supply may be limited during
these times
► Energy efficiency initiatives reduces this the risk of reliance on
external sources of energy, e.g. Electricity
Example
► Company ABC installed a tri-generation plant at its data centre.
By not having to rely on electricity from the grid, it will continue
to operate even during a black-out period
How do you factor this reduced risk into your analysis?
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20. Occupational Health and Safety
► Energy efficiency opportunities can also lead to improved
working conditions and safety for employees.
Example
► A new hot water system incorporates a water temperature
controller(s) which enable the precise temperature to be
set. This eliminates the need to mix hot and cold which
provides energy savings and improved safety.
How do you factor this reduced risk into your analysis?
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21. Evaluating non-financial performance
► Assessing the numbers – what to look for?
► How to compare? – performing analytical procedures
► Benchmarking against peers, industry and leading
practice
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22. Setting KPIs
Goals set that Targets set to
describes Senior achieve the
Management’s Goals
overall aim
Requirements:
KPIs set to track • Specific
performance • Measurable
• Achievable
against goal • Realistic
and milestones • Time-related
on the way
• Utilise ‘metrics’ (such as
intensity) for consistency
between operations
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23. Brand and reputation impact
► Getting it wrong – ‘spin’ over substance
► Companies historically looked at ‘sustainability’ as a
trend, and capitalised on market opportunities
► Some seen as ‘green-washing’ – hiding facts in ‘spin’
► V8 Supercars – claims of offsetting emissions from planting
10,000 native trees
► LG – claimed that four washing machine models had 4A
efficiency ratings but these had not been tested
► ‘Goody’ plastic bags – claimed to be biodegradable and
compostable but this was not the case
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24. Thank you
Module 3