Step 4 - Feasibility analysis of options

Task 4c: Prepare implementation and monitoring proposal for top management approval

ITC Ltd PSPD (Pulp & paper, India)

• Obtaining approval from top management was not a problem because the company has a clear procedure for the approval and implementation of options. The most important evaluation criteria are:

  • Investment costs : Options that require an investment of less than US $ 10,000 are approved by the Vice President of the Mill. Projects above US $ 10,000 are reviewed and approved by the Divisional Management Committee at head quarters. In practice, energy efficiency projects of up to US $ 40,000 have been approved without many problems in recent years.
  • Payback period : Options with a pay back period of more than three years have to undergo a more detailed financial evaluation before a decision on its implementation can be made.
  • Impact on production process : If the implementation of options involves a production shut down or interruption, then their implementation is planned at the same time of regular maintenance activities, a planned shutdown or a plant overhaul.

  Lesson learnt: The process for getting top management approval will be mores straightforward if the company has clear procedures for the approval and implementation of options.

Indocement (Cement, Indonesia)

• Options that require more than US $ 10,000 investment costs must be authorized by the Singapore office, which adds to the time needed before the implementation of options can start.
  Lesson learnt: Find out early in the process what the approval process is for options and investments in options to avoid delays in obtaining approval for the implementation and monitoring proposal.

PT Semen Cibinong (Cement, Indonesia)

• Although top management approved all recommended options, several options were not implemented in that same year because there were several other projects planned that would improve the overall company performance and production output, which were given priority.
  Lesson learnt: If and when options are implemented, also depends on other projects the company has planned, therefore the Team should find out about these when writing the proposal to the top management.

Erel Cement Ltd (Cement, Mongolia)

• Three main options were identified for implementation. But there were several smaller good housekeeping options that required little or no investment and that could be easily implemented in combination with the three recommended options. As a result, a cluster of several options was recommended for the cement mill and for the kiln section.
  Lesson learnt: It is often more practical and efficient to select a cluster of options that can be implemented at the same time for a particular focus area

Lanka Tiles Ltd (Ceramics, Sri Lanka)

• Changes were made to the production line by adding a tile chamfering line. As a result the implementation plan for options had to be slightly adjusted.
  Lesson learnt: When preparing the implementation and monitoring proposal the Team should consider any recent or upcoming changes in the production process.

Medigloves Ltd (Chemicals, Thailand)

• This company is relatively small and manufacturing peaks are dependent on the orders of clients. While energy efficiency is a priority of the plant, the timing of implementation of new options needs to coincide with downtime in manufacturing. During the project a new type of glove was launched and a client placed a major order. This had to be taken into consideration for the planning of the implementation of options.
  Lesson learnt: Keep in mind that the customer is king! Sometimes the implementation of options will need to be planned around the launch of new products or major orders by clients.

Thai Kraft Paper Industry Co. Ltd. (Pulp and paper, Thailand)

• Although top management was interested in many identified options at first, but when approval for implementation was requested, a lot of options were rejected or suspended for consideration. The reasons given were (1) lack of financial incentive to invest in these options, (2) lack of staff resources to implement options because they were needed in production, and (3) lack of data to show the potential energy and financial savings.
  Lesson learnt: The Team can recommend options for implementation but in the end it is the top management who decide whether options will be implemented or not.

Viet Tri Pulp and Paper (Pulp and paper, Vietnam)

• Subsidies for investments in (technical) options seemed to have a strong psychological effect on the company in addition to improving the financial feasibility of the options. Often the measures would have been profitable anyway, but the subsidy is perceived by management as a signal that the options are worth investing in, because an outsider is willing to invest in them.
  Lesson learnt: Subsidies can give a psychological push to management to approve the implementation of options because an outsider signals that the options are worth investing in.

Sai Son Cement (Cement, Vietnam)

• Although the company had experience with Cleaner Production it had less experience with energy assessments and was therefore skeptical about the potential of energy efficiency options, especially relating to electricity consumption. The external facilitators put a lot of effort in providing descriptions and illustrations of energy consumption by different production processes and equipments, and assisted with preparing detailed calculations of investments and savings for the proposed options. The plant’s Team now understood the technical background of energy use and options, which resulted in them feeling confident about recommending the options to top management. Top management was very satisfied with the report and approved the implementation of options without hesitation.
  Lesson learnt: It is important for external facilitators to make sure that the plant’s Team thoroughly understands the technical background of energy use and options, because only then they will take ownership of the options and feel confident to recommend them to top management and implement them

Ha Bac Fertilizer (Chemicals, Vietnam)

• The implementation plan assumed that options would be mostly implemented using internal capacity. Several options could not be implemented immediately, because of the continuous production 24 hours a day, 7 days a week. The Team Leader set a time frame for implementation of options, which coincided with an annual maintenance plan. To prepare for a successful implementation, meetings were held between staff from the heat shop and company technicians to discuss the technical aspects of implementing the options.
  Lesson learnt: It is useful to set the implementation plan to coincide with any scheduled maintenance plans at the plant to prepare the shop floor staff and technicians accordingly.
  

Several companies

• Top management of several companies were interested in technical and complicated options (such as the installation of a new boiler), instead of simple good housekeeping options (such as improving the efficiency of the existing boiler through simple measures). As a result, the identification of possible options (task 3b), screening of options (task 3c) and feasibility analysis (task 4a) often favored the technical and more complicated options. However, when management had to approve the implementation of options, many of these options were rejected because the investment costs and payback periods were considered to be too high.
  Lesson learnt: It is very important to agree on the financial criteria (investment costs, payback period) during the first meeting with the top management (task 1a). This way the Team avoids wasting a lot of time on options that look good but will not get implemented in the end.

Other lessons learnt:

• Present your implementation and monitoring plan to top management to save time getting their approval
• Think in advance about what questions top management might ask about the proposed options
• If financing is a barrier to implementing options, try to think of possible solutions and include these in your proposal. For example, find out if an ESCO (Energy/Environmental Service Company) is interested in assisting with financing the option
• Many companies do not properly investigate the possibility of obtaining external financing. This is especially the case for SMEs
• To obtain external financing for options in the implementation plan, companies must work out the feasibility analysis of options in sufficient detail
• The plan should also describe how to implement the option and how to monitor results. This is often left out of the plan, which increases the risk that options will not be implemented even if their implementation was approved
• The implementation plan should take into account the company’s existing programs, such as maintenance and production schedules
• Take the company’s financial year and budgeting cycle into account when planning implementation of options
• The implementation of options that are not affecting the production processes can be given priority in the time planning
• For options that impact the production process, the Team should reach a consensus with the production department about who will implement options and when, before finalizing the proposal
• Make time schedules for implementing options practical and realistic. A disadvantage of demonstration projects that are managed by external organizations is that the timetable for implementing options can be different than what suits a company best
• Top management often preferred to implement options during plant shut downs and maintenance so that staff time is used most efficiently
• Include how much money and staff numbers and time are needed for the implementation and monitoring of options. If this is approved as part of the monitoring and implementation plan then this will avoid delays in implementing and monitoring of options