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Case Study: OPNAV N81 Task Force Energy Shore Community Analytic Support April 2010 to Present.

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Presentation on theme: "Case Study: OPNAV N81 Task Force Energy Shore Community Analytic Support April 2010 to Present."— Presentation transcript:

1 Case Study: OPNAV N81 Task Force Energy Shore Community Analytic Support April 2010 to Present

2 2 CNO Guidance – April 2010  Recommended COA for POM-12 shore energy investments – Shore Portfolio A 50% consumption reduction by 2020/25% renewables by 2025 Focus on reliable power for critical assets Achieves compliance mandates and places Navy on vector to achieve SECNAV goals Heavy emphasis on energy investment portfolio optimization and tangible ROIs Study aligned with CNO expectations

3 3 Framing the N81 Analytic Effort  Numerous and Diverse Stakeholders The challenge: Integrating perspectives and objectives while balancing needs, perceptions and concerns of multiple stakeholders and interests of external entities Internal Stakeholders o N8X (N80, N81, N82/FMB) o N4 (N46/N43) o NAVFAC (Public Works and Asset Management) o CNIC/Regional/Installations o ASN EI&E External Interests o Alternative financing organizations o Developers/implementers of new and emerging technologies o Congress: adhering to legislative requirements and mandates o Executive Branch: adhering to applicable Executive Orders, OSD guidance, etc. o General Public: Public opinion and perceptions

4 4 Projected End State and Navy-wide Benefits  Ability to make strategic and capital investment decisions based on rigorous, repeatable, and defendable processes Development of a standardized decision process and assessment tool based on input from diverse set of stakeholders Utility at all levels from the field to Echelon I Provides quantification of both financial and non-financial benefits Applicable to achieving multiple strategic objectives Grounded in well-accepted decision analysis and financial, economic theory Communicates financial and non-financial risks  A multi-user, desk-top tool that meets Navy’s current requirements Easy-to-use project input templates and portfolio reports Scalable and agile to accommodate future enhancements and/or modified planning criteria Adaptable assessment tool used to standardize energy investment decisions

5 5 Best-in-class method for valuing and integrating multiple strategic objectives – Multi-Attribute Decision Analysis, or MADA. 1.Translate strategic objectives into a common framework of decision criteria and fundamental objectives. 2.Determine how to measure the impact each project is expected to have on each objective 3.Criteria weighted by strategic decision makers Casting the Vision for Portfolio Optimization 3. Weights = Project Submitted Projects Prioritized Investment Portfolios Winning: Achieving capital efficiency through portfolio optimization Placing Bets: Which portfolio of funding requests to approve? Cost Future State 1. Deloitte Financial Advisory Services LLP conducted an online poll of 595 executives during the web cast “Capital Allocation: Increasing Your Odds for Placing the Right Bets” on March 26, 2007. Goal: Implement portfolio funding choices on the efficient frontier (“biggest bang for the buck”). Benefits: Improved return on invested capital Integrate financial and strategic (non- financial) criteria Clarify which projects to invest in, at what level, and what outcome is being achieved Improved transparency, confidence, strategic alignment and decision making Current State Change Process Benefit 1. Framework Illustrative 2. Measures MADA Approach Business cases are collected, but… In a Deloitte survey 1, 55% of executives reported lack of confidence in their ability to optimize return on invested capital Difficult to compare projects Measuring benefits and linking projects with strategic objectives Inefficient processes

6 6 Provide Secure Energy to Navy Shore Community Maximize Financial Benefits Maximize cost savings and cost avoidance Complimentary SRM and BOS impacts/effects Minimize Shore Energy Consumption Minimize energy consumption / maximize energy efficiency Maximize carbon neutrality, emissions reduction Provide Reliable Energy to Critical Infrastructure Criticality of Infrastructure Reliance on energy Frequency and duration of outages Incremental back up power Achieve Regulatory Compliance and Stakeholder Expectations Meet legal and regulatory mandates Enhance Quality of Life / Quality of Service for Navy Enhance public perception of Navy Develop Enabling Infrastructure Improve data and information about energy production and consumption Develop Flexible Energy infrastructure Demonstrate and enable new energy technology adoption that enables energy independence Step 1 - Defining Energy ROI (eROI) Traditional ROI Definition Ex. – Demolition ROI Project: Demolish Bldg 200 Capital Investment = $300K Annual O&M Savings = $50K ROI  $300K/$50K/yr = 6 yr payback period eROI is much more complex and consists of both quantitative & qualitative factors eROI Objectives Hierarchy

7 7 Step 3: Build Preliminary Model Framework  Establish means to measure project impacts for each objective Measure must be defined in a manner that allows for aggregation for portfolio optimization Examples: Maximize Financial Benefits Maximize Financial Benefits Provide reliable Energy to Critical Infrastructure

8 8 Step 4: Develop Project Template Project template example

9 9 Step 5: Finalize Model  Determine model relative weights for eROI factors  Weighting workshop conducted with representation from TFE, N46, CNIC, NAVFAC, and N81  Weights –Maximize financial benefits39% –Minimize shore consumption 9% –Provide reliable power for critical infrastructure26% –Achieve regulatory compliance & stakeholder expectations13% –Develop enabling infrastructure13%  Results promulgated via CNIC PR-13 WARNING ORDER  POM-12 FRAGORD pending CNIC PR-13 WARNORD Excerpt a.Energy ROI is calculated by using the tool developed N81, factoring in not only simple ROI/payback, but also other non-financial benefits such as: legal mandate compliance; Navy energy goals compliance; enabling infrastructure; political/public affairs contribution; quality of life; and providing reliable energy to critical infrastructure. b. The final score form the ranking generator is calculated by weighting the financial benefits, shore consumption reduction, reliable energy for critical infrastructure, regulatory compliance/stakeholder expectations, and development of enabling infrastructure. The current proposed weights (subject to change) are 39%, 9%, 26%, 13%, and 13%, respectively. The overall result is a project ranking measure with the larger scores being associated with projects that are more attractive from an overall energy ROI consideration.

10 10 Step 6: Test Model NrProject TitleStrategic Solutions EmployedCost 1San Diego Admin Bldg with Smart Meter Variable Frequency Drive (VFD) EER/SEER Lighting upgrades Roof coating Efficiency fans Smart meter $500K 2San Diego Admin Bldg without Smart Meter Variable Frequency Drive (VFD) EER/SEER Lighting upgrades Roof coating Efficiency fans $470K 3Norfolk Utility ProjectSteam line replacement Replace old line with new high insulation line $1,100K 4Norfolk Operations CenterVFD EER/SEER Lighting upgrades Efficiency fans Diesel generator set $2,200K 5Jacksonville BEQ HVAC Upgrade and Ground Source Heat Pump VFD Lighting upgrades Roof coating Ground Source Heat Pump $1,010K 6SPAWAR PV Array with Battery Back-Up PV Array with battery back-up Array feeds 2 critical facilities $4,700K 7SPAWAR PV Array without Battery Back-Up PV Array without battery back-up$4,600K 8Jacksonville PV ArrayRoof mounted PV array (no energy efficiency upgrades)$2,600K 9Fallon GeothermalRDT&E project Drill 3 well sites $1,600K Project Sample:

11 11 Step 7: Assess Outputs ProjectsFunded UnfundedProjects

12 12 Step 7: Assess Outputs

13 About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Copyright © 2010 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsuwww.deloitte.com/aboutwww.deloitte.com/us/about


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