Sustainable-ROI and Trumps Infrastructure | S-ROI Risk Management
S-ROI Vision, published by EarthShift Global and our partners at Impact Infrastructure, reports on the development and application of the Sustainable Return on Investment (S-ROI) cost-benefit analysis methodology. Our editorial mission is to provide useful information to sustainability practitioners, executives, and others with an interest in this powerful decision-making tool. We encourage you to share it with colleagues so, please click here to forward.
February 2017 Sustainable-ROI Newsletter
Featured in This Issue:
- How Trump's Trillion-Dollar Infrastructure Could Help All Americans
- How S-ROI Gives Managers and Planners Better Information on Risk and Reward
- Three Sustainable-ROI Webinar Videos Available
- Upcoming Sustainable-ROI Training
- Sign-up for S-ROI Vision Newsletter
How Trump's Trillion-Dollar Infrastructure Could Help All Americans
The incoming Trump administration touts a trillion-dollar investment in the nation’s infrastructure. While the case for infrastructure is often made in economic terms, like GDP growth and international competitiveness, infrastructure can also be a powerful force for improving the well-being of individual citizens and ensuring that the benefits of national spending are widely distributed.
A helpful tool for exploring and evaluating what we call the ethical case for infrastructure investment is the emerging discipline of Sustainable Return on Investment (S-ROI), which offers valuable insights for identifying effective, high-payback projects.
The upside of well-selected infrastructure investments is huge: they can make us all safer, give us more time and new opportunities, protect the environment, and help reconnect the fragmented citizenry of the United States.
S-ROI analysis improves our chances of achieving these outcomes by considering and evaluating the broader (net) benefits of projects, not just headline-grabbing jobs. This additional visibility, in a rigorous and financially oriented process, can help ensure that Trump’s infrastructure plan benefits Americans and communities across the country, by augmenting traditional metrics with evaluation of how investments will improve people’s quality of life.
The planning of any project or program involves cost-benefit analysis. S-ROI is an enhanced form of this, which includes probabilistic assessment and stakeholder engagement, and produces at least two sets of output metrics: one from the perspective of the planning organization on a cash flow basis, and the other from the perspective of society, including the value of externalities such as health and safety improvements expressed in dollars.
This broader perspective allows the S-ROI framework to take into account the entire scope of risk-adjusted costs and benefits related to sustainable design. These include traditional internal cash impacts (such as savings on energy or water costs) and non-cash impacts such as the dollar value of reduced potable water use or lowered rates of asthma. The analysis promotes transparency by incorporating a process for stakeholders (residents, community groups, municipal agencies, businesses, etc.) to express their perspectives, and reduces the risk of unanticipated problems down the road.
Here are some examples of ethical infrastructure benefits that can be maximized using S-ROI – aspects we think would reflect the new administration’s desire to be responsive to “forgotten” Americans.
Better Roads Mean Better Safety, Stronger Families, Lower Costs
Though motor vehicles are safer than ever, 35,000 people died in accidents on US roadways last year, and 2.44 million were injured. Deficient roads contribute to more than half of all roadway deaths, and most of us experience hazardous sections of roads in our own daily commutes — places where accidents are too frequent. It is high time we fix our poor roads and crumbling bridges, and the process of inviting input from stakeholders like commuters, local law enforcement and businesses can help set good priorities.
Commuting times are the longest on record, growing 20% since 1980 according to a recent Washington Post article. Over 3.6 million workers now commute more than 90 minutes each way – that’s more than a month per year spent commuting. While it doesn’t show up on traditional balance sheets, people will tell you that this is time spent away from loved ones, and not caring for children or elderly relatives or helping one’s community. And medical researchers have found clear links between long commutes and increased health issues, divorce, depression and death. Wouldn’t it make sense to include these perspectives in project planning?
The related issue of traffic congestion wastes more than 3 billion gallons of fuel annually. This not only generates unnecessary pollution but also costs the average American about $700, a week’s wages each year. Crumbling roads cost the average U.S. motorist another $516 annually in additional vehicle operating costs. Again, the S-ROI stakeholder input process is an ideal way to identify opportunities for improvement and avoid unintended consequences.
Transportation Connectivity for Individual Opportunity, Civic Unity
A typical metropolitan resident can reach only 30 percent of jobs in his/her metropolitan area in 90 minutes via public transit. And jobs in low-and middle-skill industries are less accessible than jobs in high-skill industries. When we reduce transportation times and costs by improving the widely varying levels of transit coverage and service frequency, we give people access to additional job opportunities, more health care options, more food choices, and other benefits.
More broadly, the recent election exposed deep divides and disconnection between the coastal urban and interior exurban populations. The term “flyover country” is emblematic of this problem. How can we feel connected and have empathy with each other’s challenges if we rarely visit and interact?
An increasingly deep geographical class divide, with knowledge workers concentrating in a handful of metropolitan areas, is not desirable for the nation as a whole. Improved transportation and communication links between cities, towns and rural areas, and provision of infrastructure currently found only in major cities to smaller towns can not only spur job creation outside urban centers, but also do much to bring us closer together again as a people. These critical factors do not show up in traditional infrastructure planning, but they do when S-ROI is used.
Let’s embrace this once-in-a-lifetime infrastructure opportunity not just as something we do for ourselves, but also for future generations. Let’s dream big again and build a true 21st century infrastructure for the benefit of citizens from coast to coast. And let’s use all available tools, including S-ROI, to do the job.
About the Authors:
— Peet van Biljon is a strategy and innovation consultant, and co-author of the book
Business Ethics for Executives – A Christian Decision Guide.
— John C. Parker is an expert in triple bottom line cost-benefit analysis of infrastructure projects, S-ROI and is Chief Economist at Impact infrastructure.
A Broader View: How Sustainable Return on Investment (S-ROI) Gives Managers and Planners Better Information on Risk and Reward
Virtually every business project, large or small, involves an assessment of pros and cons. Whether we refer to it as cost-benefit analysis, risk-reward comparison, or by some company-specific process name, the basic idea is the same – identify the good things that we think will happen, and the bad things, and weigh them against each other to see if the project is a good idea.
Sustainability practitioners can contribute to this process in many ways, but one of the most powerful is through Sustainable Return on Investment or S-ROI, an enhanced form of cost-benefit analysis that involves gathering and assessing information from a broad range of stakeholders. Using risk analysis, it generates previously unavailable insights into potential outcomes (including environmental and social impacts).
Best of all, it fits easily into existing decision-making processes, and provides a great match between sustainability-oriented thinking and the executive suite.
Proven Track Record
S-ROI has been successfully used by top-tier companies (Dow Chemical, Pratt & Whitney, Rio Tinto Alcan, Dewberry) and major governmental agencies (US Department of State, US Environmental Protection Agency, Japan National Agriculture Research Organization) for more than a decade. More recently, it’s been adopted by the US Green Building Council as part of a triple bottom line cost-benefit analysis (TBL-CBA) pilot credit in the LEED green building certification (http://www.usgbc.org/help/what-leed). Their experience shows that the calculation can not only uncover potential pitfalls, but also help make better business deals by offering a clearer understanding of how various parties are affected by risk and reward.
While S-ROI also offers many additional benefits, like better collaboration and closer ties with communities of interest, and improved brand image, this article will focus on its ability to enhance the planning process from a management perspective.
To be sure, S-ROI is not a silver bullet that replaces other planning and assessment methodologies, and it does require an investment of time and resources. But by broadening an organization’s field of view, and translating social and environmental concerns and pitfalls into the language and metrics of business, it can make project planning and projects themselves more successful.
Preparing for Risk
S-ROI is designed from the start to incorporate risks that would be overlooked in traditional planning processes. This is emphatically not an attempt to predict the future, but instead a way of preparing for it, by considering things like:
- Contingent liabilities: liabilities that depend on the outcome of future uncertain events (e.g. clean-up costs and penalties after a chemical spill or unanticipated runoff)
- Intangibles: impacts and liabilities that don’t typically show up on the balance sheet but can materially impact long-term financial returns (e.g. brand reputation, community relations)
- Fluctuating prices
- Possible new regulations
- Shifting consumer preferences
The process works with risky outcomes through a collaborative approach – using the knowledge of stakeholders inside and outside an organization to model risk and inform decision-making.
This involves identifying and assessing the likelihood and consequences of possible future events that might affect an investment’s payback. Often, even a first-order cut at this can make a difference. For example, in the case of a manufacturing plant, could employee misprocessing cause an industrial accident?
S-ROI quickly shows whether preventive costs, such as making training an integral part of the overall project or adding redundant safety systems, create an unnecessary burden or provide an unexpected payback.
More broadly, what about projects that could impact water availability, local residential or commercial real estate values, or a regional tourism sector? Failure to foresee and address these types of potential impacts can lead to delays, bad press, court battles, or even worst-case scenarios where corporations can be found liable for far-reaching damages.
A Broader View of Scenarios
To avert this, the process that generates S-ROI is oriented towards identifying scenarios and assigning probabilities for their occurrence, and evaluating the costs and benefits for each stakeholder. This allows a sampling of all possible scenarios and respective costs to yield best-case, worst-case and most-probable returns on investment. With this range of results, planners and executives can identify their real risks to profitability (or sustainability), and make decisions that best balance each consideration.
Moreover, because much of this information is gathered through dialogs with project participants, S-ROI helps kick-start the process of finding optimized approaches that simultaneously overcome objections and reduce impacts, and so increase chances for overall success.
While incorporating S-ROI into the up-front planning process does require time (typically on the order of 4-6 weeks, done in parallel with other planning work) and some investment (in specialized software and occasionally services), its own return on investment can be extremely good. Identifying and averting a single minor dispute can pay for the entire exercise, while uncovering major issues can provide orders-of-magnitude payback.
A Typical Sustainable Return on Investment (S-ROI) Process
In one case, the S-ROI process found that installation of a pollution-prevention device had a high probability of averting millions of dollars of societal claims, while also providing positive internal ROI by stopping unwanted releases that led to evacuations and work stoppages. The payback is obvious, but those work stoppages and societal impacts were not considered in the traditional financial ROI approach -- S-ROI was needed to uncover the opportunity for a good investment.
Sustainability practitioners seeking to have an impact at the highest levels of their organizations have a tremendous asset in S-ROI – learn more about it from partners EarthShift Global or Impact Infrastructure.
About the Author: Lise Laurin, CEO and Founder of EarthShift Global — Lise is a pioneer in Sustainability Return on Investment (S-ROI) and Life Cycle Assessment (LCA). She continues to develop and leverage sustainability consulting services, LCA as well as S-ROI software and training programs to build organizational capacity in driving large-scale change. Her unique skill set and knowledge base has put her in demand globally by companies, organizations and governments alike.
- Email Lise if you’re interested in a sustainability speaker for your next event.
Three Sustainable-ROI Webinar Videos Available
As part of our ongoing collaboration in Sustainable Return on Investment (S-ROI), EarthShift Global and Impact Infrastructure created a series of three Brown Bag Webinars in late 2016 and early 2017, with each providing an hour-long dive into a different aspect of the S-ROI process, and how decision-makers can make more informed choices on projects large and small.
Here’s an overview of what was covered, and links to videos where you can get all the information:
The Business Case for S-ROI with Pratt & Whitney
The November roundtable webinar provided an overview of the components and methodology that the world’s most advanced S-ROI practitioners have been using, including a firsthand report on how S-ROI has helped aircraft engine manufacturer Pratt & Whitney improve its projects’ chances for success.
First, Stéphane Larocque, Chief Operating Officer of Impact Infrastructure, explained how S-ROI uses a triple bottom line approach by weighing non-cash impacts in addition to financial returns, when evaluating potential infrastructure investments. Next, EarthShift Global CEO Lise Laurin, explained “how we do it” (see image) by including a Life Cycle Assessment (LCA) and incorporating input from stakeholders into the feedback loop.
Finally, W. Terry Robinson, Sustainable Factory Program Manager for Pratt & Whitney’s Global EH&S Department, shared the scope of how his division (a subsidiary of United Technology Corporation) has used S-ROI - from addressing the necessary bridge between sustainability goals and financial expectations to examining the technical challenges of time horizons, complexity, and uncertainty. Check it out here.
Impact Infrastructure’s Autocase: S-ROI Software for Green Building Projects
Returning in December, Larocque demonstrated Impact Infrastructure’s new cloud-based software for S-ROI, Autocase, which calculates the value of green building projects by identifying their net financial, social, and environmental impacts measured in dollars.
He shared an example of how Prologis, one of the world’s largest logistics companies that supports the likes of Amazon.com, has used Autocase to compare and analyze costs and benefits for warehouse retrofits; Larocque broke down how the total monetary value of these projects can be viewed as the sum of the tenant’s value, Prologis’ value, and social and environmental values.
Impact Infrastructure has assisted dozens of organizations across North America in understanding their project-based S-ROI; just a few examples include Autodesk, Gensler, Burns McDonnell, Arup, Kaiser Permanente, and CH2M. To watch how Autocase works on a technical level and to learn more about the components assessed when using S-ROI in decision-making, watch this video.
Also on hand was Lidia Berger, principal and national sustainability director of Dewberry, a 2,000-person civil engineering firm, who spoke on her experience working with S-ROI. She used as a case study the renovation of Dewberry’s headquarters in Virginia, in which the firm applied S-ROI techniques in pursuit of improved energy and water efficiency, reduced construction waste, and better indoor environmental quality. The project was the first to register for the LEED framework’s new Pilot Credit, SSpc113, which offers LEED credit for incorporating triple-bottom-line cost-benefit analysis into the design process.
EarthShift Global’s 3Pillars: The Only General-Purpose S-ROI Software
Most recently, Laurin demonstrated EarthShift Global’s groundbreaking 3Pillars S-ROI package - the only general-purpose S-ROI tool on the market. This unique software platform stands out from similar tools for several reasons. It provides the user with a continually-updated database of costs and factors for uncertainties (such as the cost of energy in future years), enables the use of different currencies, creates models for an infinite number of stakeholders, analyzes more complex scenarios, and features a social networking platform for direct input into the tool.
As a result, 3Pillars gives the user the clearest possible vision of a project’s big-picture risks and opportunities, using a framework to analyze potential returns from environmental, social, and financial perspectives for each stakeholder involved. Click here for a 30-day Free Trial and enjoy the demo below.
We hope you and your colleagues will be able to join us for one of our upcoming Brown Bag Webinars, a free resource for the sustainability community – and if you have an idea for a topic you’d like to see covered, please let us know!
About the Author — Guest Post: Marissa Rosen
Marissa is the owner of Climate Social LLC and an experienced provider of strategic marketing and communications services (including social media and new media) to the sustainability sector. Her past speaking engagements include the 6th World Water Forum and Penn Institute for Environmental Studies, and she has written for the Huffington Post, Sustainable Brands, TriplePundit, the Wharton Initiative for Global Environmental Leadership, Corporate Responsibility Magazine, and many other publications and organizations. (https://climatesocialmarketing.com/)
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