Quick question for the group - when presenting ROI for audit findings, do you keep it simple (annual savings / implementation cost) or do you factor in NPV, discount rates, etc.? Working on an Xcel Energy audit with $23K in annual savings but $8K in upfront costs for new metering equipment.
ROI Calculations - Simple vs Complex?
Depends on the client. Large corporations often want NPV analysis, especially if they have standard hurdle rates for capital investments. Smaller businesses usually just want to know how long until they break even.
Harold's approach makes sense. What discount rate do you typically use for utility savings projects? I've been using 6% but not sure if that's appropriate for all clients.
Bob, I ask clients what their internal hurdle rate is for capital projects. Usually ranges from 8-12% for most companies. If they don't have one, I default to 8% and explain the assumption.
Jeff, I usually stick with simple payback period for most clients - much easier to understand. $8K upfront for $23K annual savings = 4.2 months payback. That's compelling without getting into discount rate assumptions.
I show both when there's a significant upfront investment. Simple payback for the initial "wow factor" then NPV analysis for the financial justification. 4-month payback is great, but showing 5-year NPV of $107K really drives home the long-term value.