2020 Energy Insights: Budgeting and forecasting recommendations

Jan 14

2020 Energy Insights

Today in our new 2020 energy insights series we explore MWh recommendations for effective budgeting and forecasting. Over the past 25 years, we have worked with customers as you try to navigate and manage your energy costs and usage. During that time, we’ve seen as many different approaches to budgeting and forecasting as we have utility accounts. (Perhaps a slight exaggeration, but it’s 2020. We need to get your attention.)

Best practices for effective budgeting and forecasting

After decades of helping customers prepare and manage budgets, we’ve reached the conclusion that it is essential to plan, budget and forecast at a  particular level of detail. Energy costs and budgets should be:

  • Forward looking, based on the best available usage and cost data. Don’t look in the rear view mirror and expect the future to look like the past twelve months. (We have written extensively on the issue of effective forward-looking budget planning, as you can see here. We also ran a Webinar on the topic. You can review the Webinar here.) Because we’ve already written extensively about this, we aren’t going to dwell on the value of forward looking data here.
  • In addition, customers should budget at the account level, at the highest level of detail available.
  • Forecast your budgets monthly, not annually.
  • Separate total costs into supply and delivery costs, in as much detail as possible.
  • Make sure you track usage (kWh or Therms).

What does this level of budgeting do for customers?

In our experience, tracking cost and usage at this level of detail can bring customers significant benefits and can improve business outcomes. Now, with this granular level of information. customers can identify and understand energy costs in enough detail to separate the following cost drivers:

  • Usage patterns: For example, tracking usage separately from costs helps customers understand changes in how facilities are used, which equipment they employ, how weather impacts usage.
  • Supply costs: driven by energy markets, weather, power pool market dynamics and the customer’s procurement and energy product portfolio decisions.
  • Delivery costs:  driven by peak usage patterns, generally in key summer months.

So, you may ask, then what? Take a look at the following graph. If you are able to track cost and usage separately, then you can answer the question: “What has changed since we submitted our budget, cost or usage?” Not only does this approach to tracking save time, it also helps improve your operation by identifying critical investment opportunities or process/strategy improvements.

Bottom line for energy managers and finance professionals: While you may believe it saves time initially, a slapdash approach to budgeting does not serve customers well. Take time to build up detailed budgets that you can track. After you do a detailed budget once, it just gets easier. This level of detail can add significant value to an organization. 

Comments are closed.