How To Extend Christmas Through Energy Management

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How To Extend Christmas Through Energy Management

Does your CFO say that energy savings are too small to bother?

Here is a simple way to show how savings on energy translate into profit and production volume.

Energy cost reduction increases profit. How much product should be shipped to generate the same profit?

To find this out, divide energy cost reduction by net profit margin (NPM) of your plant.

Typical NPM in manufacturing is 4-8%.

Example: at 5% NPM a mere $10,000 energy cost reduction creates as much profit as manufacturing, selling, and shipping $200,000 worth of product. A day of work for a plant that ships $40mln per year.

It is like adding another day off to Christmas and still making the same profit.

(For simplicity I assumed here that investment into energy project has zero net tax implications, because profit tax increase resulting from lower operation cost is likely to be offset by a higher depreciation deduction.)

I have elaborated on savings-to-holidays idea in another post.

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