Accounting for Accruals and Variance when Budgeting for Energy
By Jim Poad Director of Client Solutions, Advantage IQ | December 18, 2011
It's the time of the year when hoteliers need to look into budgeting for their new year energy expenses. A well thought-out strategy on the front end will take a few weeks to develop and can save a lot of explaining of operating expenses throughout the year. The cost of electricity, gas, and water can be among the most volatile costs affecting your financial situation. Hoteliers need to ask themselves what percentage of their annual budget is exposed to price fluctuation in energy markets and begin to prepare their budget. The goal is to have a comprehensive, defendable and accountable budget.
The first step in creating a budget is to be prepared. A good place to start is with your utility bills from the prior year, if not further back. These bills will paint a picture of what your organization looked like last year, what you could expect this year, and how you can affect change. If you don't have utility bills on file, historical invoices may be available from your utilities. You will be most successful if you have a clearly-defined baseline to build from.
From a portfolio perspective, it is critical to understand what changes may be made to sites that could impact reporting. Ensure that you are familiar with current operating procedures and recent capital or infrastructure investments that could affect energy consumption. Can you account for demand and supply side changes? Additionally, are you aware of any discussions around future changes or investments? If approved, when might they be implemented? Knowing the strategic plans for the business can help determine the final data set that you can begin working from.
Be realistic and document all of your assumptions. Your ability to identify and separate key usage and cost drivers will serve you well. Having the assumptions to reference later in the year will be vital in explaining unexpected variances that take place.