Friday, March 9, 2012
Building a Business Case – The Case for Change
I received a sales call last week. It was really interesting and quite intriguing. I even thought to myself that this man must be calling me from the future (even if it was a crisp and clear connection). He told me all about how I should replace my roof shingles with new shingles that were actually solar cells. The solar cells would make my home completely energy independent!!
Read on to hear this unique and fascinating story!
You can imagine my surprise at receiving this call. My first thought was "Hey, there's nothing at all wrong with the roof I have! Why would I re-roof my home when there's nothing wrong with it?" But then I got to thinking….Hmmmmmm…I mean could it be true? Could it be real? I'd love to do what I can to contribute to the reduction of greenhouse gases (I'll admit, I do believe climate change is real). So I bit and I listened to the pitch.
It seems that for $35,000 I can put this roof on my house and have it hooked to my electrical panel. When there is enough power from the roof, it reduces the draw of electricity from the grid. When there is more than enough electricity being generated by my roof, I have the ability to sell electricity back to my power company if they want it. During the summer months when demand is high and my AC is going full tilt under the hot Georgia sun, I can actually stay cool and make money at the same time! Now THAT'S a deal Clark Howard and Dave Ramsey would be proud of!
Based on my electric bill, this rather sharp sales guy figures that I can reduce overall costs by as much as $5,000 per year net between selling electricity and reducing bills. I don't think he used the TCO model with his calculation, but it was intriguing. And then he sweetened the deal and said there was a $5,000 federal tax CREDIT for installing the roof, and another $1,500 credit from the State of Georgia. It all sounded too good to be true! For $28,500 I could have this bleeding edge technologically miraculous new roof. With a $5,000 net gain per year, this thing could pay for itself in less than 6 years!
But wait, the upkeep and maintenance on my current roof is basically $0, this technological wizardry must cost something to maintain, right? Yup, it does: about $1,000 per year. He neglected to share that in his "net savings." He didn't know that he can't pull one over on me like that. I know TCO!! Ok, so maybe it's a seven year payback period. So that's still pretty good, right? What do I know; I'm just the head of household, the family CEO. I needed to ask my wife, the CFO of this organization. She brought me back to reality pretty quickly. She told me about our family policies and standards that had been approved by the board that all CARs (capital appropriation requests) must net an average 5% annual return over the first five years. But I am the head of household, I am the decider! We can do this anyway.
But then my wife reminded me that the $35,000 investment was not available. There were other more pressing CARs that had been submitted from other departments that had much more merit, and there was a finite pool of reinvestment dollars available to the family. The first on the list was college for my daughter. She's only a freshman and has 3 years to go! And besides, why would we tear up a perfectly good roof anyway? There was just no compelling reason to do this any way. I was crushed! I wouldn't be single-handedly saving the planet and getting a personal visit and thank you from Al Gore after all. What good is being CEO anyway?
The next day a terrible hailstorm came through the neighborhood and destroyed my roof.
It definitely needs to be replaced. Of course, I got another call from the salesman. He now told me that the net cost differential between a standard roof and a solar roof was only $15,000! Now's the time to do it! Run the numbers now, and I can get more than that 5% average annual return! The board will definitely approve this, right? We can't do nothing, we have to do something! But low and behold, I still couldn't get approval. Those pesky college costs hadn't gone anywhere, and there still wasn't enough to go around. It wouldn't be right to ask my daughter to drop out of college to save the planet, would it?
Last week I introduced a series on building a business case. I laid out the basic components I would expect to see in any business case regardless of the organization's standards for format and depth of analysis. If you've read this far, you probably realized that this begins looking at the first component: "The Case for Change." Next week, we will explore this more deeply.
And yes, this was fiction. My wife is the CEO in this family, not I! ;)
About the author - Donald Glade is president and founder of Sourcing Analytics, Inc., an independent consulting firm specializing in helping companies optimize their HR / benefits / payroll service delivery through financial analysis, relationship management, and process improvement.