Return on Investment

Every decision is an investment decision – buying a house, car, computer, investing time to do a rate analysis and adjust rates, engaging a specialist to do a rate analysis and help you adjust rates. Essentially non-monetary decisions such as deciding to become a soldier, a minister or Peace Corp volunteer are investment decisions of the highest order.

There are three elements to each investment decision; resources invested, returns and risks (and how you feel about them). You invest something hoping to get a return greater than your investment and there is risk that you will get something less than what you hope for.

Hiring a rate analyst probably would require a higher dollar investment than doing it yourself. The risk-adjusted return on investment of an analysis done by a specialist is high – hundreds or thousands of percent the first year. But, your do-it-yourself analysis would likely give you a negative return, mainly because you almost certainly will not raise your rates enough if you do it yourself. This example calculation will show you the calculations. I do such a calculation as a part of my service proposal so you will have a good idea going in what engaging me would do for you.

The notion of return on investment while considering risk is embodied in advanced asset management. Thus, this decision-making process is useful to equipment related decisions such as the decision to change out an old, soon to quit electric motor with a new, energy efficient and reliable model. Consider this electric motor example. Or, this simple cost savings calculator.

As it turns out, the phrase that many of us like so well, "If it ain't broke, don't fix it" needs fixing. The definition of "broke" needs to include broke down, too likely to break down soon, too costly to maintain or too energy inefficient. With energy costs so high now, the costs of replacing many motors can be paid out of the energy savings they would yield in a very short time. Some other improvements yield similar results, so don't. You have to run the calculations to get a good idea which is which.