Budgeting for utility costs is a key exercise to building your overall energy plan. When building your utility budget, you need to make sure that it is comprehensive, defendable, and accountable. Keeping these three utility budgeting characteristics in mind will ensure that your management team and other stakeholders will approve and support your utility budget.
The first component when building your utility budget is to make it comprehensive, which includes:
Save yourself some time by involving the appropriate stakeholders early in the utility budget process; these partners in the process will help you forecast budget areas that directly impact them. When getting utility budget buy-in, include your finance team, as they are responsible for helping you execute your budget and maintain and update the budget for changes, or re-forecasts. Because they are your partner in this exercise, it is important to communicate how you’ve developed your assumptions.
Make sure that your utility budget gets the acceptance of the budget implementers (e.g., divisional and/or regional management). They are unlikely to have a major influence in how you design your budget, but they can help you control usage volatility.
Facility and operations managers will also be impacted. They will be helping you forecast operational changes, such as capital improvements and planned site openings and closings. These expenses can be rather large numbers and will bust your utility budget if they are not included appropriately.
Any budget is going to get scrutinized by management, so make sure that your utility budget is built in a way that will alleviate any stakeholder concerns. The best way to defend your budget is by making sure that your baseline is well-defined. Clearly documenting your base assumptions and showing the ability to identify and separate key cost drivers will provide you with instant credibility.
The baseline needs to be justifiable to divisional and regional site managers. The best way to build your baseline is by starting with the 12 most recent months of expense and consumption data for each of your buildings. Make sure to analyze the data for outliers and identify missing invoices and overlapping service periods. These are key accuracy measures that constantly get overlooked. Finally, ensure that expenses and energy consumption represent standard recurring conditions.
One of the big challenges with utility budgeting is diving into the variances between actual vs. forecast. Building a budget that displays variances from the corporate level down to the regional or site level will help you identify where the added costs originated. If you know where the costs are originating from, then you can hold stakeholders accountable. Since you involved your stakeholders early in the budgeting process, you can hold them accountable for budget variances. They can also inform you if you need to adjust your budget going forward or if there was an isolated cost increase. Presenting site, regional, and corporate level views that are tied to expected organizational and financial performance demonstrates that you truly understand the business.
Utility budgeting is a complex and challenging endeavor. Understanding the budgeting process is critical to knowing how your company works and how your department acts as a corporate contributor. You can’t forecast for every scenario, but if you build a budget based on these three pillars, you can proactively manage your utility expenses.
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