Decision Friction
A phrase we hear often in our energy efficiency business is: “this is such a no brainer!”
Typically, our efficiency proposals offer a 2-4 year simple payback. That’s a 25%-50% return-on-investment! Our projects usually offer positive cash flow even after financing costs are factored in. When you can borrow money at 3% and invest in a project that returns 50% the spread is, well, profit.
Conventional financial (“safe”) investments return anywhere from 7%-15%. Many companies stereotypically put their cash into the stock market, T bills or bonds achieving returns that are an order of magnitude less than an investment in efficiency. I have come to recognize this as a default decision – easy. 'A matter of a phone call, and wired money. Done. I’ve had clients with many hundreds of millions of dollars in conventional market investments waive off efficiency investment opportunities for their own facilities. As a New York Times article put it: “a junior and senior economist are walking down the street. The junior one spots a $20 bill on the ground and says, “Hey, look, 20 dollars! Should I pick it up?” The senior economist replies: “Don’t bother. It can’t be real. If it were, someone would have taken it already.”
We often wonder why some companies are hesitant to invest in efficiency. I have heard practically every reason: lack of budget, suspicion of actual savings, not a priority, shopping for a ‘better price’, lack of decision-making authority, etc., etc.
Our company has attempted to offer solutions to address most concerns: guaranteed savings, no capital-cost project pricing (shared savings), price matching. We also gently remind companies of the cost of delay.
Efficiency just is not top of mind for many business owners with facility operations.
I have used this metaphor before: if you were walking in a dark garage, lit by conventional lighting, and saw a pipe leaking water and reported the problem to management, it would – in all likelihood – be fixed right away. Yet few see the thousands of dollar signs spilling out of metal halide or high-pressure sodium lighting. Quite literally wasting hundreds of dollars a day.
Decision friction is a term I’ve coined for dilemmas that many companies face day to day. 'I don’t HAVE to make a decision on that, so, I’ll punt'. There’s sanctuary in doing things as before. Change takes work. Change takes vision.
Don’t let decision friction prevent you from picking that $20 bill off the ground.