Barriers to entry: The Need for a Shortened Payback Period

This post is the third in a series of blogs addressing the barriers to entry for sustainability projects experienced by SMEs, the support that exists to implement and monitor projects and the benefits and returns typically seen when projects are completed.

Barrier to entry: Longer payback Period

When selecting sustainability projects for your organization, it is important to note that like any investment, projects are expected to reap positive returns in the long run. Sustainability projects often see returns that improve efficiency and reduce resource use, resulting in increases in overall profitability.

Organizations with limited capital will likely want to select projects that can generate these benefits as quickly as possible, so selecting projects with a short payback period is a key strategic priority.

Selecting sustainability projects means evaluating the benefits against the cost of investment and determining the change in overall resource use. Evaluation of the second is more complex, but can be accomplished through measuring the per-unit cost of resources used: how much freshwater does your facility use, how much does a gallon of freshwater cost your organization, how much freshwater will be saved and what is that net financial benefit? The per-unit costs and total consumption figures can be calculated from your utility and energy bills.

Another factor that can make calculating project payback more difficult is uncertainty in inputs and the level of employee engagement. A rise in energy prices or lack of employee persistence in maintaining the organization's commitment to be sustainable can increase the need for management of these projects and initiatives, thereby increasing costs.

This obstacle can be overcome by talking to like-minded businesses, or by working with partners who have established strategies for engaging employees and mitigating the risk of increased energy costs. Partners and businesses often have best practices in place that go beyond how to use the tools, but instill an organizational culture that understands why these actions are important.

An example of an SME who has overcome these barriers is VeriForm, a steel manufacturer based in Cambridge, Ontario. From 2006 to 2008, VeriForm cut electricity costs by 58% and saw profitability increased by 76%, all while achieving an average payback period of just 6.3 months for their 42 sustainability projects. This was possible due to the development of an internal sustainability culture, reinvestment of savings from efficiency projects into new sustainability projects and by tapping into a regional network that allowed for best practice sharing amongst community partners.

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