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What value engineering skill?

During a recent RAC building energy event the topic of valuing good engineering which results in systems that work well was raised and during a brief discussion with CIBSE ex-Presedent Andy Ford we took this point a bit further.

We are used to proving the payback of various widgets, be it LED lighting or a biomass boiler, the maths are simple; it costs X and saves £Y per year so X/Y = payback years. Easy. It can get a little more complex with RHI, net present value or other complications but essentially we know X and Y and so can give a quantitative answer.

However if I proposed that the client spend 5% more on an installation of say a biomass boiler which would allow for better quality of installation, proper engineering oversight, real commissioning, how would I ever prove the payback on the additional 5%? I know what the X+5% is but can I determine Y and thus the payback?

Perhaps the client would shout about how installations should be done properly in the first place, but we all know the price pressure has driven down the net margin in building services work to such a point that the pipe fitters are working at a furious rate and no one ever really checks the nuts and bolts. So we are where we are; absolutely the lowest cost installation and plant in order to push the X/Y payback towards the acceptable figures of 2 or 3 years.

Unfortunately the X/Y sum is a sales tool, sold and bought before a pipe bend is made. Once the install is done and handed over, as quickly as possible obviously, who checks the X/Y? Sometimes it goes right and that’s that, sometimes it goes slightly off and sometimes it goes horribly wrong. In the latter cases it is either swept under the carpet, with a few careers, or the contractor is hung drawn and quartered on the spot.

Increasingly we are looking at different technologies, complex system integrations, cross over between disciplines and individual buildings. This means less of the old school method of 1000 systems all the same irrespective of local conditions which does allow for maximum purchasing leverage and minimal skills. What we are now doing emphasises skills in designing unique systems to suit individual buildings.

In individually designed systems I believe that i could increase the performance of a system by spending more time on ensuring the work is completed to a high standard and by taking time to tune up the performance during and after the commissioning phase. For example; if the pipe insulation is complete i can cut down losses, if the pipe rises and there are air valves in the proper place i can ensure no air is trapped, if the number of bends is minimised I can cut down pump head, if the boilers all fire correctly in the right order at the right time I can ensure maximum efficiency is achieved. What is the value of twenty of these minor issues on an installation over 20 years? There is a potential saving in capital cost, operational and maintenance costs, but can i quantify them?

In doing so i am determining the value of good engineering, I know what it costs and probably what the market value of it is but what benefit does good engineering bring? In other words I know X in the payback calculation, but what is Y?

Could i give two prices to a client; one for standard and one for enhanced engineering? Could i offer extended warranties on the enhanced engineering product? it’s like a whole X/Y payback sum in itself, but a bit more fuzzy!

How does a client ensure they are not just paying for hot air and puff but actually getting good engineering? The same way we judge the value of a product in a store; prior knowledge, reputation, image and cost.

In simple words that we are all familiar with ” you get what you pay for “. To go back to the discussion I was having we all agreed that it is really difficult to prove the value of good engineering and that gut feel would be the best way. Try selling gut feel to a Financial Director!

There’s another truth ” if you let accountants run the show it will be very very poor show”. So, i hear you cry ” let the engineers run the show” that leads down a path of technical excellence but compromised financial performance. It has to be both engineering and commercial, a joint decision and process with equal weighting and cooperation between both parties.

To summarise my thoughts on how a client best purchases an engineering product; they must be aware of the technical issues, have a good assessment of the whole life performance and be able to tie these back to purchase price, not be wedded to an absolute lowest price and acknowledge that some part of the decision will be made on instinct alone.


Corporate Responsibility frustrations

I read the article by Brendan May on Business Green and found myself agreeing despite his rather negative outlook. If nothing else we “CR people” have to maintain a positive attitude to counter the tsunami of negativity!

Having set up and run a CR initiative, along the way I’ve spoken with many others in similar positions. We all have our challenges that are particular to our organisations but there are always a couple of questions that keep cropping up. How do you make a business case that is fully supported by numbers and how do you raise money for these activities?

It is commonly known that the two hardest questions in CR and sustainability are; how do you prove a return on investment and how do you raise the finance? But I’m not sure that these are actually the hardest questions. After all, a good business man can make a good case for investment for almost anything; let’s face it we’ve been doing this for thousands of years and it really is bread and butter. So if I really, really wanted finance for a CR investment I would find someone somewhere who would back it. So what is the problem, why don’t so many CR initiatives ever get off the table?

For an answer I think we need to take a step back and look at where we are. Business leaders are experts in what they do. In SMEs they will be technical experts and in larger organisations they are management and political experts who have ridden high on the existing culture.

Then along comes CR, often hard to define and hard to initially see any value. Looks like an expensive way to achieve not very much. Unlike, for example, a proposal for a new core product where it is easy to see the value and return on investment, and the market, processes and risks are all known and well understood.

This is why I believe CR gets such a hard time getting off the ground; it is not defined clearly and is not seen as a core activity.

On top of these there are a couple of important exacerbating factors; a long term outlook is required and, because of the cultural change required to implement an effective CR initiative, excellent leadership is essential. The long term bit is easy to understand, currently most businesses look at 2-4 year paybacks on investment and even renewables at 6 or 8 years are seen as long term but many CR activities have a 10 or 20 year term, no wonder they don’t get backing.

The leadership issue is more complex. We don’t really train leaders; they develop over time. It can be hard for a leader to see how good or bad they are and this leads to uncertainty. So when something like CR comes along and demands a high level of leadership outside of the normal course of business, many are cautious of failure.

For some business leaders the whole CR agenda is seen as a criticism of how they run their business. This is something that to which CR professionals need to be aware.

In my view the solutions starts with making CR more palatable to the business. Focus on things that are close to core business and take baby steps. However it is vitally important that the senior team are educated on the importance and value of CR.

Summary of important issues;

Leadership outside of comfort zone – keep initial tasks close to existing business activities
CR not perceived as core activity, especially at the outset – focus on improving existing activities
Lack of clarity and specific goals – set SMART targets
Lack of long term outlook – manage expectations

What would I do now if I were setting up a CR initiative? Plunge the board in to an education program to get buy-in to the CR principle. Have ready a very specific goal orientated plan that will improve the existing business activities directly.

Gut feel decisions

In reply to your article on the difficulty of aligning and improving business goals with traditional corporate goals, I think that you have reflected an over riding opinion and but not the correct one.

It is easy to say that everything must be proven with numbers in order to demonstrate a difference on the bottom line. However there are somethings that we “just know” will have a positive effect and don’t need to prove it to know it. This is human intuition and it has served us well for millions of years, why would we abandon this now?

Numbers, like statistics are a useful tool that give us all sorts of power over our businesses, lives and globe but they are not the primary tool of decision making. If they were, no one would play the lottery, no one would ….

You can look out of your window (physical or via the web!) and see the effects of climate change, deforestration, top soil errosion, etc. are having on our environment and our communities.

Once you’ve seen the effects (and don’t let the press and politicians cloud your judgment), we have to take control and be the leaders. It is happening in communities and it is happening in businesses, it is the future.

You know, as do 90% of the population, that something is wrong, you also know that you should do something about it.

No such thing

Despite being heavily involved in the “renewables” sector I have to say that it should be obvious to anyone that the term renewable is complete rubbish. Firstly, energy can neither be created or destroyed and therefore it can’t be renewed! Secondly, energy always flow from hot to cold (in plain speak!) and never the other way, so once we’ve used energy (that is moved it from hot to cold, for example taking a nice hot shower and dissipating the heat to the room, your body and eventually to the environment ) we cannot get it back.

What we actually mean is short carbon cycle energy. Catchy title! All of our energy (keep quiet the deep geothermal crowd you are in a minority) comes from the sun. Some of it started out millions of years ago, made trees grow, which died and eventually made coal. Some of it landed on a PV solar panel 30 seconds ago, some more hit a tree last year which was just burnt in biomass power station. All three could be powering my ipad right now. The difference? The sunlight that got turned to coal and locked away, emitted CO2 when burnt that had been locked away for millions of years. The recent tree emitted CO2 that had been locked away for 40 years and the PV emitted no CO2 directly.