SUSTAINABLE RETURN ON INVESTMENT SROI

Transcription

1 SUSTAINABLE RETURN ON INVESTMENT

2 U.S. Army Corps of Engineers New Orleans, LA; Hurricane Storm Damage Risk Reduction System Sustainable Return on Investment () Can Help Get Projects Funded This is a time like no other. Decision-makers at all levels are challenged to respond to stimulus funding opportunities and sort through a thicket of project requests, community dreams and national needs. There is no lack of worthy projects and real needs. HDR is helping clients sort and prioritize projects based on long-term sustainability and funding eligibility. To help make these tough decisions and determine the best case for project success, we have developed proven tools that are part of HDR s Sustainable Return on Investment () process. Using this approach, organizations are positioning themselves to develop projects and programs that provide economic, social and environmental value, backed by business cases that are green, transparent and accountable. By combining economic assessment with probability analysis, HDR can quickly capture all of the costs and benefits associated with a specific initiative. At the same time, we can demonstrate the likelihood of achieving the benefits related to given alternatives. What is? is a methodology that identifies projects that will best accomplish your goals of 1) optimizing the total value of your project, and 2) positioning your project with the best possible case for funding. determines the full value of a project by assigning monetary values to all costs and benefits economic, social and environmental. The process provides decision support to increase the likelihood of project funding by prioritizing sustainable initiative benefits that also meet the requirements of stimulus funding in the American Recovery and Reinvestment Act (ARRA). will help communicate the full value of your sustainable initiative including direct, indirect/non-cash costs and benefits as well as the values of externalities that are generally overlooked in economic assessment and not revealed to stakeholders. Requirements of the American Recovery & Reinvestment Act (ARRA) Rapid Implementation Green Industry Creation Community & Infrastructure Transformation Energy Efficiency & Security Greenhouse Gas Reduction Job Creation Return on Investment Johns Hopkins University Baltimore, MD; Campus Programming, LEED for Existing Buildings Methodology Guides Your Decision Making Process Community Values Buildings Energy Environmental Ecology Site Development $ Mobility Water Waste Economic Data Corporate Responsibility Data Inputs Process Cost & Benefit Output $ Economic Social Optimize Total Project Value and Funding Potential Potential Projects Increasing Value Optimize triple-bottom-line benefits Demonstrate the impact of jobs created, greenhouse gases reduced, energy saved, water conserved, etc. Increasing Funding Potential Position sponsoring organization to make the best case for highest funding potential

3 Community Hospital at Fort Belvoir Fort Belvoir, VA; Analysis of New Hospital Complex McKinney Green Building McKinney, TX; for Sustainable Design Evaluation, LEED Platinum Core and Shell BNSF Railway Bakersfield to Mojave, CA; Cost-Benefit Analysis of Tehachapi Trade Corridor Capacity Expansion Grand Ridge Wind Farm La Salle County, IL; Creating Renewable Power for 60,000 Homes How does work? Sustainable project decisions require more inclusive forecasting of future costs and benefits. These elements are subject to uncertainty and are not typically captured in conventional return on investment methods. These additional factors (direct, non-cash and externalities) are relevant to responsible decision making as well as ARRA funding requirements. uses evidence-based business case/cost-benefit analysis to demonstrate functional, economic, social and environmental value. It assigns monetary values to stimulus priority requirements to highlight best and highest value projects. HDR s process involves four distinct steps: Develop the Quantify Risk Structure and Input Data Analysis Logic Assumptions Session Quantify Benefits reveals the hidden value in projects. David Lewis, PhD HDR National Director, Economics & Finance HDR Example Projects HDR provides leadership for sustainable initiatives and context sensitive expertise to many clients. The following chart provides recent examples where we have applied our methodology. Client BNSF Railway - Bakersfield to Mojave, CA Enbridge Gas Distribution - Toronto, Ontario Johns Hopkins University - Baltimore, MD King County, Seattle, WA Michigan Department of Transportation Public Health Agency of Canada - Ottawa, Ontario Project Cost-Benefit Analysis of Tehachapi Trade Corridor Capacity Expansion Analysis of Carbon Emissions Trading Analysis to Optimize Operations and Maintenance on Four Campus Buildings Assessment of Costs, Benefits and Cost-Sharing Opportunities through Water Source Exchange Projects in Puget Sound Economic and Community Benefits of Local Bus Transit Service Analysis of Proposed National Lung Health Framework Water Source-Exchange Assessment King County, WA; Triple Bottom Line analysis of Drinking Water Supply Alternatives Metropolitan Transportation Authority Blue Ribbon Commission on Sustainability - New York City, NY California Prison Receivership - Sacramento, CA US Army - Fort Belvoir, VA Dept. of Rail & Public Transportation - Richmond, VA Recommendations for Capital Project Decisions Related to Transit Analysis of Seven New California Prison Hospitals Analysis of new Community Hospital at Fort Belvoir Cost-Benefit Analysis of Dulles Corridor Metro Extension Lee County Resource Recovery Facility Fort Myers, FL; 2008 Sustainable Resource Project of the Year by Power Engineering Metropolitan Council of Governments - Washington, D.C. Framework for a Cost-Benefit Analysis for a Regional Transportation Plan

4 What You Get: Outputs Agencies are looking for specific evidence of benefits presented in a transparent green business case. HDR s process provides decision makers with two sets of data: Financial Return on Investment (i.e., traditional life-cycle costing) and Sustainable Return on Investment (i.e., monetized non-cash costs and benefits). Output Examples Include: 1. Probability Distribution illustrates the risk associated with the key inputs and outputs of the model. 2. Financial/Sustainable ROI Summary quantifies financial metrics and provides a comparison between traditional Return on Investment and Sustainable Return on Investment. 3. Split of Benefits provides a clear distribution of benefits associated with a project solution. This is useful for demonstrating alignment with ARRA requirements. 4. Non-cash Metrics Data, such as tons of CO2 emissions avoided, gallons of fresh water saved and green jobs created, is useful for setting goals and reporting results. 5. Sustainability S Curve Demonstrates the spread between FROI and. Identifies the value of benefits gained and projects the probability of success. Probability of Occurance 1. Probability Distribution - Value of a Ton of CO 2 3. Split of Benefits % 90.0% 5.0% Cost/Ton 2. Financial/Sustainable ROI Summary Alternative Notes Annual Value of Benefits $930,485 Total value of benefits in one year Energy Bill Reduction 369,591 Cash Benefit Water Bill Reduction 80,039 Cash Benefit Greenhouse Gases Savings 97,924 Non-cash Benefit Air Pollutants Savings 374,844 Non-cash Benefit Savings from Reduced Water Use 8,088 Non-cash Benefit Net Present Value $10,194 PV Benefits / PV All Costs Pert (8.08, 14.54, 73.9) Minimum Maximum Mean Std Dev Return on Investment 27% Average Rate of Return on Capital Investment Discounted Payback Period 6 Time in years to + discounted cash flow Internal Rate of Return (%) 23% Discount rate making NPV = 0 Benefit to Cost Ratio 3.3 PV Benefits / PV Costs FROI Alternative Notes Annual Value of Benefits $449,537 Total value of benefits in first year Net Present Value $2,660 PV Benefits / PV All Costs Return on Investment 12% Average Rate of Return on Capital Investment Discounted Payback Period 12 Time in years to + discounted cash flow Internal Rate of Return (%) 11% Discount rate making NPV = 0 Benefit to Cost Ratio 1.6 PV Benefits / PV Costs 70 Air Pollutants Savings $374,844 40% Economic Value of Water Saved $8,088 1% Greenhouse Gases Savings $97,924 11% Water Bill Savings $80,039 9% Probability of Not Exceeding 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Energy Bill Savings $369,591 39% 0% -10% 4. Non-cash Metrics 5. The Sustainability S Curve to Optimize the Total Value of Your Projects Resource Related Average Total Explanation Barrels of Oil Saved 198,474 2,977,116 Equivalent number of barrels of oil saved based on the Tons of CO 2 Emissions Avoided 68,295 1,024,426 Number of tons of carbon dioxide avoided based on the Tons of NOx Emissions Avoided 208 3,120 Number of tons of nitrogen oxide avoided based on the Tons of SOx Emissions Avoided 102 1,540 Number of tons of sulfur dioxide avoided based on the Gallons of Fresh Water Saved Number of gallons of fresh water saved Tons of Waste Avoided 524 7,860 Number of tons of solid waste avoided Non-resource Metrics Average Total Explanation Green Jobs Created 78 1,170 Number of incremental new green jobs created (Total figure is cumulative FTEs) Value of Operational Resilience $15M $225M Calculated by multiplying the potential events mitigated by probability of occurrence Number of Injuries Avoided Number of potential injuries avoided due to the project Number of Lives Saved 2 30 Number of potential fatalities avoided due to the project Notes: Average represents the average annual value of the metric Using the process allows decision-makers the ability to prioritize worthy but competing projects for funding based on the maximum financial and societal returns. In the following example, a project s outcome metrics are synthesized into an intuitive risk analysis model based on return on investment. A. Compare the financial return on investment and sustainable return on investment. In this example, the mean sustainable return on investment is more than six times greater than traditional return on investment. B. Evaluate non-cash benefits, such as improvements in employee health and productivity, and the benefits to larger community. C. Assess the statistical likelihood that return will fall within an 80% confidence interval. In this example, sustainable return on investment ranges from 30% to 48%. 6% 34% 42% A. Mean B. Additional non-cash benefits to an organization Benefits to larger society 0% 10% 20% 30% 40% 50% Return on Investment (Percentage) C. 60% Basic Financial Return on Investment Cash Plus Non-Cash Benefits Realized by an Organization Sustainable Return on Investment

5 California Bay Delta Northern CA; Charting a Transparent Path to Conserve, Restore and Protect the Diverse Ecosystems and Critical Water Supply East Valley Light Rail Transit Project Phoenix, AZ; Light Rail System to Reduce Traffic and Improve Access HDR is a trusted partner with a track record of success in sustainable architecture, engineering and consulting. We are committed to offering our clients the best possible economic, social and environmental value by delivering integrated sustainable solutions. Our Sustainable Solutions Program includes an internal Corporate Sustainability Initiative, a Climate Change Initiative and services in the following areas of expertise: buildings, mobility, water, energy, waste, community, site development and sustainable return on investment (). HDR is committed to reducing our environmental impact through increased use of environmentally responsible materials and practices. This brochure is printed on FSC certified paper that is 30% post-consumer waste. An electronic version of this brochure is available on our Web site.