With so many perennially-shifting factors to account for, it’s no surprise most corporate energy budgets fall wide of the mark. So what makes for better budget management?
Following a period of relatively benign and declining power prices – one which marked a fairly stable phase of play for most I&C businesses in terms of their energy budgets – the energy market has since become increasingly volatile as of early 2016 onwards.
Political uncertainty and rising oil prices have pushed the cost of energy steadily upwards, while third-party charges are also on a surge. Though bills are generally mounting, budgeting for them is becoming more and more complex, calling for better energy budget management to return to the top of energy strategy agendas.
With so many perennially-shifting factors to account for, it’s no surprise that a large percentage of corporate energy budgets fall wide of the mark. That’s not something to be taken lightly.
Energy today contributes towards a huge part of a business’ overall outlay, so budgeting for it correctly can be hugely significant in terms of future profits. While the risk associated with planning a budget covering the next six months can alone be a daunting task, stretch that to more than a year in advance and output will ultimately become less precise as a result of unknown elements too far off in the distance to be certain of.
As an expert energy consultant with over 20 years of experience, we can be of assistance to businesses in mitigating as much risk as possible whilst helping prepare for both short- and long-term energy budgetary confidence.
By understanding the key drivers that cause businesses to run over on costs – both on a portfolio wide and site-by-site basis – we can help you forecast, formulate, track, and manage an accurate and thorough financial plan.
Below we’ve outlined four steps which businesses should consider when planning and creating their energy budgets.
Understand your current portfolio before looking to the future
Energy spend can be difficult to keep tabs on, and that can especially be the case for organisations whose operations are spread out over different locations. Even if utility bills are well stored, often there can be poor discernibility of company-wide usage and costs, as well as a general lack of understanding concerning historic performance.
Developing an energy budget strategy is all about gathering data, but knowing what data is relevant and where to find it can be an extremely complicated and time-consuming process. By getting to know your business and future plans, we can assist in creating a valid and accurate energy-related organisational boundary.
Working closely with clients during a mobilisation period (typically between one and three months), we extract as much historical and current information as possible, comprising sources such as tenancies, owned properties, previous utility invoicing, historical disposal information, future acquisition information and all ongoing and future energy contract parameters.
Once all the pieces of the jigsaw are gathered, we put everything together to estimate your annual budget then monitor it throughout the budget period.
Communicate with your energy supplier
While suppliers will always strive to provide accurate billing and customer support, they are also interested in the financial stability of their customers and are usually happy to offer their perspective as to where the future of energy is going.
Every time you produce a revision to your budget, ask your supplier for their view. They may not be able to provide an accurate long-term projection, but they will be able to offer their expert opinion on how current charging elements could change, as well as providing you with a timely heads-up regarding new charges planned for introduction.
Project for reduced risk as much as for accuracy
Accuracy is certainly one of the most essential elements to budget creation and maintenance. However, the inclusion of margin of risk is equally as important. Margin of risk should be based around a list of future assumptions formed via collaboration between you – the client –, your energy consultant, as well as your energy supplier. For instance, if your supplier is indicating a reduction on gas pass-through costs for the next year, build this in to your projection. If you ignore it, and then experience a reduction without planning, your budget will begin moving away from actual spend within this period.
Monitor, Report, Discuss, Revise
Once your budget has been created, you will need to monitor your spend against this budget on a monthly basis.
It’s all very well and good knowing about your overall performance against budget, but wouldn’t it be more useful to also distinguish how specific areas of your portfolio are performing, such as your office water budget, or retail gas budget?
Such a distinction allows for your portfolio to be cut into more manageable chunks, ensuring awareness is established more thoroughly whilst also allowing for more reactive base activities, like putting together a Top 10 in budget variances per site type.
Meanwhile, you may be tempted to produce revisions to your budget on a quarterly, monthly or even fortnightly basis, seeing as increased activity means increased confidence, right? This is not always the case. Ingraining yourself so much in frequent detail means your business could lose sight of its ultimate goal.
After the budget has been submitted, every revision becomes a risk. Why revise when it could’ve been generated correctly in the first instance? Our advice is to apply the correct amount of revisions throughout the budget period, as it’s significantly more productive to aim for a fixed objective than a continually moving the goalposts.
Looking for more advice on energy budget management?
If you have a question about this blog or would like more information about our budget management services, get in touch with our Energy Bureau team. Contact us now on 02920 739 540 or email us and we'll call you back.