TABLE OF CONTENTS The most powerful argument in favor of pursuing a project is that it will save real money (unless of course it will also save lives).
In taking on such a challenge, make sure you have a good understanding of the requirements of how your company calculates savings, and at what rate they will green light a project. Learn the ROI and payback requirements, and how they will be calculated.
Return on Investment (ROI) is the most commonly-used measure for investments. ROI is expressed as the percentage of return earned per year. If the yearly income varies, each year can be evaluated separately, or the years can be averaged together (see ARR below).
| ROI of common investments: | Savings account | 3% |
| Money Market | 5% | |
| Mutual Fund | 12% | |
| Small corporate investment | 50% | |
| Capital improvements | 30% |
Example: Replacing 2000 old-style fluorescent fixtures in a school with new technology and electronic ballasts requires an investment of $150 per fixture, or $300,000. The reduction in energy, and costs of ballast replacement and lamp replacement, will yield a savings of $75,000 per year. The ROI calculation is:
Based on these numbers, the school could not justify the investment until it contacted the utility company, which offered a rebate of $45 per fixture or
Recalculation taking the rebate into account results in a new ROI calculation of:
33% = $75,000 / $210,000 The school was able to make this investment because, with the rebate, the ROI met the guideline.
Average Rate of...
