Information Systems for Environmental Sustainability

IT, Resource Productivity, Environmental Preservation, and the Fourth Industrial Revolution

Simple ROI Approach to CMS Investment

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Scope 2 emissions are emissions created directly on behalf of the company in the generation of electricity or the delivery of energy via hot water or steam. Focusing on just purchased electricity, let’s look at BAU Scope 2 assessment versus CMS Scope 2 assessment:

  • BAU: a firm may have tens, hundreds, or thousands of such accounts. Invoices may be sent to a corporate system electronically each month (electronic bill presentment and payment) which will scan bills for errors. EBPP may link to ERP system for payment (or ERP may take care of the entire process). For Scope 2, data are moved from ERP to excel, where emissions factors are used as well as office space area to compute CO2e. This is done annually, given the labor intensity. See below for the cleanair-coolplanet example [download].  (note that most of the cost here is in entering the data and managing the spreadsheet). 

  • CMS: For Scope 2, ERP is linked directly to CMS, which automatically performs above computations using real-time updated emissions factors and other parameters (in a software-as-a-service setup at least). Frequency is higher, given that electricity is billed monthly typically. Dashboards are created in CMS based on collected data which give monthly updates on targeted versus actual, etc. (see below for Hara example).

So what’s the big difference here? Well, labor costs are much lower due to automation. Second, data are more reliable due to elimination of manual processes (less chance of errors). Third, data are more frequently captured, leading to higher granularity and better forecasting. Finally, data are much more easily audited. (leaving off risk, which can be a major driver of CMS adoption).

What about ROI? A simple illustration. A company may target a 10% reduction in electricity due to CMS-enabled GHG reduction programs. That number may be in the $500K range…. Straightforward to take the startup and recurring direct CMS costs, and compare this with some amount of the energy cost savings allocated to the CMS (some percentage). Note that this does not include cost savings in other scopes.

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Author: nigelpm

Associate Professor of Information Systems, Stephen M. Ross School of Business, University of Michigan - Helping organizations to navigate digital transformation.

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