By Stan Orr, CAE
Return on investment (ROI) is a business management term heard almost every day. It’s top priority for managers, and drives almost every decision made — from purchasing to preventative maintenance programs to employee hiring. In recent years, going “green” has become synonymous with being environmentally friendly, but the topic of ROI has also been linked to the green movement. Specifically, does investing in green pay off?
Being able to prove a return is often the challenge that comes with justifying the investment. Unfortunately, it’s not always immediate or even measurable in terms of sheer dollars. But upgrading to a greener fleet has been shown to offer benefits that improve the bottom line, both in the short- and long-term.
Further helping the validation of green fleet practices is the equipment industry, which, as a whole, is recognizing the value. The Association of Equipment Management Professionals (AEMP) is one organization that has seen a spike in the interest of green practices, so much that it recently implemented a program dedicated to green fleet policies, and the benefits of implementation.
For fleet managers looking to justify the investment of a greener fleet, there are five primary areas where return can be realized.
1. Fuel savings
Fleets are always going to need fuel, period. With fuel prices skyrocketing in recent years and not looking to level out anytime soon, fuel is one of the top areas most managers constantly look at to reduce costs. It’s also one business practice that provides a two-fold green benefit. Reducing fuel consumption is certainly environmentally friendly from an emissions standpoint, but is also smart in terms of dollars.
Another factor that makes fuel consumption an ideal candidate for green practice implementation is its low cost to entry. Simple low-cost steps can be taken, helping a fleet to realize ROI quickly.
Implementing a written idle policy is one simple step that requires minimal time and cost investment. Likewise, regularly checking tire pressure could — and should — be lumped in as part of a proactive preventative maintenance program, thus requiring no additional implementation cost. Managers willing to spend a bit more energy and cost can look to more strategic ways to reduce usage, such as assessing a fleet’s size to see if better utilization can be achieved. Each of these practices contributes to reduced emissions and reduced fuel consumption — a greener and smarter fleet.
To illustrate the savings achieved by implementing one practice, consider a written idle policy example. Imagine a fleet comprised of 10 vehicles, with a goal of reducing idle hours by just one hour a day. Assume gas is $3 per gallon and two gallons are consumed every idle hour. By successfully enforcing the idle policy, that reduction in idle time will equal a fuel cost savings of $168 per vehicle, per week, for a fleet total of $1,680 per week. Looking at this over an entire year, this feel could anticipate fuel savings of more than $20,000.
2. Bidding power
Supply and demand is a straightforward, universally understood economic concept. How does it apply to green fleet practices? Businesses are increasingly demanding that the companies they work with be tiered or have some type of green fleet policies. Fleet managers that can deliver on this, or “supply” it, have a greater advantage for securing projects and resulting revenue. Those who can’t meet the requirements risk losing out on potentially lucrative projects before the bidding process even begins.
With the growing number of companies looking to partner with associates who are environmentally responsible, companies with green fleets have a huge advantage when it comes to bidding projects. It’s at this time, during bidding, the initial investment into greening a fleet pays off, simply by allowing a company to secure a project it otherwise may not have met the qualifications to even pursue. The potential to miss out on even one job due to inadequate green policies is enough to warrant the investment.
Many times, it’s not enough to simply say the fleet is green, it has to be backed with proof. Fleet managers looking for a way to prove their commitment to a greener fleet have options. AEMP’s Green Fleet program recognizes efforts and awards certification to those who meet requirements. It’s a powerful accolade participating companies can use to their advantage during bidding.
3. The future is now
One of the most substantial green fleet practices is upgrading equipment to a higher-tier engine. There’s no question this requires significant investment. But it’s a wise one to make sooner rather than later. Those who choose to begin upgrades now have the opportunity to better manage their total cost of ownership (TCO) on these pieces of equipment.
Echoing back to that all-important model of supply and demand; as time goes on, more non-compliant equipment will be entering the used equipment market with little to no U.S. buyer demand for it. This leaves the profit potential for sellers virtually non-existent. The return of investing in new equipment now won’t be as immediate, but it’s certainly a step that will pay off in the future when assessing equipment TCO.
4. Employee wellness
By and large, the biggest investment that a company makes is the investment in its employees. Employee health and wellness greatly factor into the ROI analysis of green initiatives. According to AEMP, a decrease in emissions has been shown to reduce employee absenteeism and increase productivity. Valuable, certainly, but how does it translate to the bottom line?
While the return will differ from company to company, consider this example. Capital E, a sustainability consulting firm, calculates a one-percent increase in employee productivity — about five minutes per day — can equal up to $700 per employee per year. How substantial this becomes is dependent on a company’s size and total number of employees. But even looking at a small company with just 10 employees, the savings over one year can add up to $7,000.
Certainly, there are benefits for implementing a green fleet policy, and the return on investment comes from factors other than a simple, immediate monetary return. Reduced fuel, expanded business potential, and improved employee wellness are all advantages afforded by going green. Although some practices — such as upgrading to Tier IV engines — require a substantial investment that results in more of a long-term payoff, others — such as implementing a written idle policy — are relatively low-cost, and the ROI is realized quickly.
Throughout the country, consumers are demanding green products and services. Now is not the time for fleet managers to be left behind. Now is the time to get ahead of the curve and start seeing a return, while also contributing to a cleaner and greener America.
Stan Orr, CAE is president & CSO of The Association of Equipment Management Professionals (AEMP).
[ital>Additional contribution to this article was provided by Mike Buckantz, CEO at Associates Environmental, an environmental consulting firm based in Huntington Beach, Calif.<ITAL]