How to Build the Best Business Case for Commercial/Industrial LED Lighting
Think it’s time to switch you plant to LED lighting? You are in good company! Thousands of organizations, including the retail giant Walmart, have rolled out LED lighting to save energy and reduce their carbon footprint.
For management, the initial capital outlay of switching to LED lighting can be a point of contention. These tips will help you build a compelling business case for commercial or industrial LED lighting at your company.
Like any smart business decision, a strong case for LED lighting should be grounded in robust data. It will not be enough to extoll the benefits of switching to LED; you will have to back those benefits with numbers specific to your organization. The more information you bring to the table, the better.
Begin by analyzing your current lighting expenditures. What type of lighting is the plant using now, and what does it cost on a monthly and annual basis? What is it costing every month or year to maintain the traditional metal halide or fluorescent system?
Next, calculate the approximate cost of adopting LED lighting in your plant, accounting for acquisition and installation, as well as time spent planning and implementing the transition. You should also explore optional features such as Wi-Fi connectivity and smart tech integration. Premium commercial LED products have 3rd party verified and validated 150,000 hour+ operating lifetimes and some companies offer 10 year full service warranties.
With over 3,000 led manufacturers globally, selecting the right product is critical. Just because it’s a brand name you recognize does not mean that the performance is Best-in-Class. For decades traditional lighting companies have built their entire supply chain on frequent reordering of lamps ballasts and fixtures. The LED companies that dominate the market engineer their solutions to last the longest with the best quality of light output and lowest operating costs.
To present a compelling business case, you must establish a baseline by which your organization can measure its progress. Setting benchmarks for comparison will put the capital outlay of switching to LED lighting into perspective.
Using internal benchmarks, like the plant’s past performance, is a good starting point. However, you can also appeal to the management team’s competitive drive by looking at other businesses in the same industry or area (we have many examples in manufacturing, food-and-beverage processing, long-term care, municipal, hi-tech, office, retail and more). These external benchmarks show how switching to LED lighting can help gain or catch up on the competition.
Risk assessment is a factor in every major business decision, and it must be included in a business case for LED lighting. Demonstrate to management how investing in measures to improve energy performance, including lighting, present less risk than competing investment alternatives on the table.
A 5% risk is reasonable discount rate to be applied to the calculation of future savings. Because this project is a much lower risk than building a new facility, for example, or launching a new product line the savings associated with the capital outlay are virtually guaranteed.
Switching to LED lighting can also help to minimize risk by shielding the organization against fluctuating energy markets.
Know Your KPIs
Which financial metrics are most important to your organization? To build an effective case, you must have a solid understanding of the management team’s objectives and the metrics they use to measure success.
Rather than speaking the language of lumen output and efficacies, frame your case in terms of operating cost, profitability, Net Present Value, and other key performance indicators. While you should have the technical information at hand to back-up the numbers, specific dollar savings are typically a higher priority to management.
Most people have heard of the IESO’s SaveONEnergy program for rebate incentives. It is important to know which rebate track is most beneficial to your project based on your existing fixture types, operating hours, and the fixtures you plan on installing.
The common use of a simple payback is only one metric and should not be considered the primary metric when evaluating LED. In building systems like LED, HVAC, and refrigeration the capital outlay is usually about 33% of the lifetime operating costs. Energy input, maintenance, repair, and replacement is the other 67% of the equation. Lowest total cost of ownership is the most effective way to make the right business decision. Presenting a net present value on the investment will be a powerful number that your general manager CFO or capital projects leader will likely be familiar with as this method is used to make other Capital decisions in the corporation.
Consider a Pilot Program
Consider proposing a pilot program, rolling out LED lighting in one facility or department, to demonstrate the benefits of LED lighting. A pilot program will allow you to track and measure the impact of LEDs, generating data you can use to build a business case for widespread adoption of LED lighting in the future. It also allows you to gather stakeholder feedback on colour temperature of the light, light levels, and look. It is much better to get this feedback upfront before the entire facility is retrofitted!
We have supported hundreds of organizations successfully evaluate, plan, and implement LED projects and we are happy to have a discussion and provide a complimentary initial assessment and business case proposal.