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


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  • This module will focus on the main financial and non-financial reporting considerations for organisations as they strive to become more energy efficient and sustainable.The module provides participants with information on current trends within Australia and Asia Pacific around sustainability reporting and the value of assurance reporting to shareholders and addresses current hot topics of the carbon scheme and integrated reporting and highlights the impacts these will have on organisations financial accounting and reporting functions.It is intended to provide participants with an introduction into the various reporting frameworks applicable to them as they move towards becoming more sustainable.
  • Specific – target a specific area for improvementMeasurable – quantify or at least suggest an indicator of progressAchievable – specify who will do itRealistic – state what results can realistically be achieved, given available resourcesTime-related – specify when the result(s) can be achieved.
  • Greenwashing examples:V8 - In 2008, the ACCC investigated V8 Supercars Australia Pty Ltd after it announced it would plant 10,000 native trees to offset the carbon emissions produced by its V8 supercars. This was found to be misleading and deceptive on the basis that the announcement implied that the trees would automatically offset carbon emissions, whereas in reality, planting trees does not substantially reduce carbon emissions until the trees are fully grown.LG - In March 2005, LG was forced to correct misleading representations about its washing machines. In this instance, LG was selling four models it claimed had 4A Ratings by the Water Services Association of Australia, but the machines had not been certified at the time of sale. (Source: - From at least May 2009 Goody claimed that its 'Goody' branded plastic bags were biodegradable and compostable in accordance with the Australian Standard* and could be legally supplied in South Australia, when this was not the case because the bags:- contained the heavy metal Molybdenum in amounts that exceeded the maximum concentration prescribed by the Australian Standard, and- did not biodegrade, disintegrate, or compost in accordance with the criteria prescribed by the Australian Standard.
  • Module 3 - Incorporating non-financial data into organisational decision making

    1. 1. Incorporating non-financial datainto organisational decisionmakingModule 3
    2. 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: This presentation is for educational purposes only, and does not contain specific or general advice. Please seek appropriate advice before making any financial decisions.2
    3. 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 impacts3
    4. 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 4
    5. 5. Learning ObjectivesAt 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 5
    6. 6. IntroductionThe importance of considering non-financial information indecision 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 6
    7. 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. 7
    8. 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 8
    9. 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?9
    10. 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 ($7000 pa)► Operating hours 6000 pa, 250 days pa10
    11. 11. Case Study – Company ABC (cont.)► Total savings = Energy Savings + Water Savings + Chemical Savings + Maintenance Savings ► = ((Fan [kW] + Pump [kW]) x electricity price [$] 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.11
    12. 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/standards12
    13. 13. Full CostsEasy to Measure► Salvage Value of Surplus Assets► Avoided or Deferred Capital Expenditure► Productivity Improvements► Product quality Improvements► Greenhouse Gas Emissions ReductionNot-so-easy to Measure► Security of Supply► Occupational Health and Safety► Productivity13
    14. 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.14
    15. 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.15
    16. 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.16
    17. 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.17
    18. 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.18
    19. 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. ElectricityExample► 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?19
    20. 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?20
    21. 21. Evaluating non-financial performance► Assessing the numbers – what to look for?► How to compare? – performing analytical procedures► Benchmarking against peers, industry and leading practice21
    22. 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 operations2
    23. 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 case2
    24. 24. Thank youModule 3