Hospital client wants full ROI analysis on power factor correction recommendations. They want to know payback period, NPV, internal rate of return - the whole nine yards. How sophisticated do your financial analyses get?
Client Asked for ROI Analysis - How Deep Do You Go?
Karl, I usually stick to simple payback unless they specifically ask for more. Most facility managers just want to know "how long until this pays for itself?" NPV analysis might be overkill.
Disagree Jorge. Hospitals are sophisticated buyers - they're used to ROI analysis for equipment purchases. I'd give them what they asked for. Shows you understand their decision-making process.
What's the power factor penalty they're facing? If it's substantial, even a detailed ROI will look attractive. Had a PSE&G client paying $2400/month in penalties - any analysis looked good.
Bob, they're averaging $1850/month in power factor penalties. Capacitor bank would cost about $28k installed. Math is pretty straightforward but they want formal analysis.
For that kind of penalty, payback is what, 15 months? I'd do the full analysis Karl. Include maintenance costs, potential utility rate changes, tax implications if applicable.
Don't forget to factor in potential equipment failure costs. Capacitor banks aren't maintenance-free. I typically assume 2-3% annual maintenance in my ROI calcs.
Good point Fred. What discount rate do you typically use for NPV calculations? Hospital CFOs probably have specific hurdle rates they use internally.
I always ask what discount rate they prefer. Usually 6-8% for hospitals, but some have specific corporate requirements. Better to use their number than guess wrong.
Solid advice from everyone. Karl, sounds like you have a slam-dunk case with those penalty numbers. Even a conservative analysis should show great returns. Let us know how the presentation goes.