News for the Hospitality Executive |
by Kevin A. Goldstein April 2012 Hoteliers can consider a phased approach to investing in environmental initiatives to ensure that these investments conform to ownership goals, minimize financial exposure, and optimize returns. Introduction There
are numerous
investments that hoteliers can make relating to improved environmental
performance. When considering these investments amongst a broader range
of
operational and capital costs required to maintain a competitive
hospitality
property, a phased approach can be utilized to minimize financial
exposure and
owner risk. This article outlines a recommended process for the
identification
and scoping of environmental issues at hospitality assets and the
establishment
of a phased investment approach that balances ownership goals and
environmental
objectives. There
are multiple reasons
to consider investment into equipment upgrades, employee training, and
other
areas relative to environmental performance. Suboptimal performance of
HVAC and
MEP equipment can not only be costly but also adversely impact guest
experience. Rising utility rates and scarcity of electricity and water
supply
in some locations will impact operating budgets and profitability over
the
foreseeable future. Regulatory
activities will
likely mandate certain types of environmental retrofits and
sustainability
reporting requirements in the future. In some cases, specific equipment
upgrades or enhanced operational practices are required (or will be
required in
the future) for compliance with brand standards. Additionally,
properties
with sound environmental management principles also have a gradually increasing competitive advantage in terms of
attracting convention and meeting visitation, as well as corporate and
government travel.
A Phased Approach HVS
recommends that hoteliers
consider a phased approach to environmental investment – whereby
upfront soft
costs are minimized until specific equipment or operational issues are
clearly
identified and potential returns are defined and quantified. The
phased approach
includes: 1) Establishment of Owner Goals; 2) Benchmarking; 3)
Environmental
Auditing; 4) Low-Cost Implementation; 5) Analysis of Capital Projects;
and 5)
Implementation of Capital Projects. The level of investment required
generally
increases from phase to phase. Subsequent to implementation of any of
these
activities, monitoring is essential to ensure that the facility
performs
according to expectations over the life of the investment. Figure 1
below provides an
outline of the investment process, and the individual phases are
described in
further detail on the following pages.
Establish Owner Goals. This important initial activity
has
virtually no cost, yet is often overlooked in the environmental
process. Hotel
owners should clearly identify and prioritize their general investment
goals
for the property and any specific objectives relating to environmental
management. These goals can then be used to establish an environmental
plan
that directly address owner priorities and budgetary requirements. The
goals
and objectives should be specific and targeted, such as “reduce
operating
expenditures relating to utility consumption,” or “comply with brand
standards,” or “respond to guest complaints relating to thermal
comfort,” and
so on. Benchmarking. Subsequent to identification of ownership
goals,
benchmarking can provide a relatively low-cost mechanism to indicate
the
potential for improved environmental performance. Benchmarking is the
comparison of certain metrics of a property’s operations across other
hotels
with similar physical and operational attributes. Relative to
environmental
management, benchmarking can be used to provide an initial indication
of the
potential to optimize utility efficiency and reduce operational costs
(based on
the performance of comparable properties). The
benchmarking process
requires access to reliable data that is relevant to the subject
property. For example, energy consumption
data from a property
located in a tropical climate will not be directly transferrable to a
hotel
located in a temperate climate zone. Benchmarking data must therefore
be
normalized to account for climatic differences, seasonal weather
variations,
and differences in types of hotel properties (for example, the presence
of an
onsite laundry facility or large areas of public space will likely
increase
energy intensity beyond that of a property without these features). Several
major hotel brands
and management companies have launched in-house benchmarking
initiatives to
gauge performance across their portfolio of properties. Benchmarking
data is
also available from governments (e.g. the Energy Star program in the
United
States), international organizations, and private consultancies.
Environmental Auditing. Detailed environmental audits
completed by
a qualified evaluator have significant potential to reveal operational
inefficiencies and potential areas for improved performance. Facility
audits
generally consist of the collection of background information (e.g.
utility
statements, systems manuals, as-built drawings, etc.), completion of an
onsite
inspection, and presentation of findings in a written report. These
audits are
most appropriately conducted by firms or individuals with significant
technical
experience in commercial MEP/HVAC operations, ideally in the
hospitality
sector. The auditing team can also include professionals familiar with
solid
waste, grounds & maintenance, cleaning, housekeeping, and other
operational
environmental issues. Facility
audits can be
completed at various levels of expenditure to enable owners to control
their
cash flow. A typical Level 1 audit
consists of a brief site visit to reveal no-cost / low-cost measures
and
immediately recognizable operational deficiencies. This level of audit
is also
appropriate to gauge the potential for improvement across a portfolio
of
properties, in order to identify individual assets with the greatest
potential
for operational improvement and cost savings. At any
level, a facility
audit should result in recommendations for enhanced plant and equipment
operations, description of any maintenance issues that require
immediate
attention, and a prioritized list of more significant capital projects.
If a
more basic audit is undertaken (i.e. Level 1), the audit report should
also
provide a summary of the incremental soft costs required to conclude an
investment-grade analysis of capital projects. Ideally, all
recommendations
contained in the audit should also be linked back to basic financials
(including a simple break-even scenario and more complex IRR/NPV
analysis if
beneficial) so the audit itself can serve as a decision making tool by
ownership to balance environmental needs with other areas of
expenditure.
Low-Cost Implementation. The benchmarking and/or auditing
processes
will typically reveal a range of low-cost and no-cost measures that can
be
undertaken (i.e. measures that can be funded within annual operating
budgets).
These types of measures can include resolution of existing maintenance
issues,
enhanced operational practices, basic equipment retrofits, and staff
training.
These measures can typically be accomplished in-house, with periodic
need for
technical consulting support. Capital Project Prioritization. The facility auditing
process may
reveal various environmental upgrade projects – potentially for plant
equipment, MEP/HVAC systems, improvements to the building envelope
(e.g.
windows, doors, insulation, etc.), and other similar projects. These
larger
capital projects should be categorized and prioritized based on a
life-cycle cost
analysis (which can be performed as a component of a detailed facility
audit,
or rolled into the cost of an actual capital project as it is
implemented). The
life-cycle analysis should document the initial implementation costs
and
longer-term cost savings provided, factoring in any subsidies or other
incentives offered by governments or vendors. Upon completion of this
analysis,
ownership will have a valuable tool to compare recommended
environmental
retrofits with the other specific needs of the property to optimize the
use of
existing operating budgets, maintenance reserves, and working capital. Capital Project Implementation. Subsequent to evaluation
and
identification of specific projects to undertake, the typical project
procurement process can commence, including finalization of design
specifications (if not completed under the auditing process),
pre-construction
activities (scheduling, preparation of bid specifications), bidding,
and
implementation. These activities can be consolidated into a
design/build
approach as well, which is oftentimes provided by vendors of HVAC
equipment. If
ownership elects to undertake these large projects, consideration
should be
given to phasing these retrofits during planned facility renovations –
to
minimize guest impact and to realize efficiencies in the mobilization
of
equipment and construction personnel. Monitoring. As with any investment, careful monitoring is
advisable
to ensure that the technology (or operational process) is providing a
return
according to initial expectations. Monitoring can be accomplished via
detailed
review of monthly utility statements, or more preferably, in real time
via
analysis of utility consumption rates (using meters and submeters).
Real-time
monitoring is advantageous because it provides for the immediate
identification
and resolution of excess consumption (e.g. leaks in plumbing, spikes in
electrical consumption due to equipment scheduling issues, etc). The
phased implementation
approach described in this article will most likely result in two
categories of
potential enhancements for a particular asset, including: 1) simple
operational
measures that can be accomplished using little to no working capital;
and 2) technical
upgrades to plant, HVAC, MEP, lighting, and other equipment that may
require
additional, more significant investment. It
should be noted that the savings realized
through implementation of the low-cost and no-cost measures can not
only
immediately improve bottom-line performance, but could also be
reinvested into
the property to help defray the level of capital required for mid- to
longer-term improvements. Based on
the types of
projects identified, a variety of resources exist to help hoteliers
implement
environmental upgrades. The simple
measures referenced above are described in numerous publications,
websites, and
best practice guides for hospitality that are widely available. More
complex,
engineering-grade support for larger projects can be obtained from
specialized
consultancies, MEP engineering firms, and commissioning authorities. There
are most likely gaps
in various markets relating to following this approach on a
step-by-step basis
(e.g. lack of suitable benchmarking data, operational constraints,
difficulty
in finding qualified consultants, etc); however, this methodology can
still be
applied to identify investment opportunity and minimize financial
exposure
thoughout the process. Kevin A. Goldstein, Vice President of HVS Sustainability Services, has provided guidance on environmental and regulatory affairs and corporate social responsibility initiatives to hospitality owners, operators, and developers. Prior to joining HVS, Kevin was the development director for a design/build company where he led multidisciplinary teams responsible for project feasibility, investment structuring, design, entitlements, and construction. Kevin previously consulted for the U.S. federal government on high-level environmental policy, and has been an active participant in international policy via the United Nations consultative process. He holds a Masters in Public Policy from the Univ. of Delaware.Contact: [email protected] / +1 305 343-9004 About HVS HVS is the world’s leading consulting and services organization focused on the hotel, restaurant, shared ownership, gaming, and leisure industries. Established in 1980, the company performs more than 2,000 assignments per year for virtually every major industry participant. HVS principals are regarded as the leading professionals in their respective regions of the globe. Through a worldwide network of 30 offices staffed by 400 seasoned industry professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. For further information regarding our expertise and specifics about our services, please visit www.hvs.com. HVS Sustainability Services provides a range of business-driven consulting services that enable hospitality firms to identify cost savings opportunities, enhance operational efficiency, and demonstrate a positive commitment to the environment to guests, investors, and other relevant stakeholders. HVS works directly with owners and operators to evaluate the business case for capital investment into environmental technologies. Our core business services include benchmarking, auditing, project implementation support, training, certification, and strategic advisory. |
Contact:
Kevin A. Goldstein Vice President of HVS Sustainability Services [email protected] |
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