Shortcuts to Financial Analysis

Abstract

Energy conservation projects are not "by definition" attractive business ventures. They usually require capital investment for implementation. Therefore, they must compete for scarce capital funds with all other proposals requiring capital. Successful competitors for capital funds are those who show acceptable potential profitability. The reporting of potential economic attractiveness, when requesting approval to spend capital funds, is usually accomplished using thorough DCF analyses.

However, many energy savings ideas are generated by design engineers, utility engineers, manufacturing supervisors, and others in the course of their normal activities. "Quick and easy" to assess potential profitability are useful tools for these individuals. Shortcut methods allow identification of potentially attractive and unattractive ideas. They also allow quick selection between alternative solutions to the same problem. Therefore, thorough analysis is applied to those proposals which are most likely to be attractive, and time spent on non-competititive proposals is minimized.

Several shortcut methods are discussed. The tools are derived from both ROI and DCF bases. Descriptions of the evaluation methods, ways of conveying the information to potential users and training in their use, and limitations in the usefulness of the procedures and pitfalls to be avoided are examined.