Last week I gave a talk on energy benchmarking, and this caused me to collect some data that demonstrates why industry standard practices can fall short for organizations attempting to quantify facility energy performance. Let’s explore this a little bit.
The data I uncovered identified the Energy Utilization Index (EUI) for a cohort of inpatient hospitals in Boston. With the aid of EUI, the organization hoped to identify best practices, best and worst performers, etc.
The EUI reports the annual energy use per square foot for a given building or facility. Below is the EUI summary that I was able to retrieve (performance is color coded from best [light yellow] to worst [orange].) Lower numbers are obviously better from an energy use standpoint.
From this data, senior managers might draw some or all of the following conclusions:
- Hospital G is the most efficient Hospital
- Hospital G is a good place to look for “Best Practices” for others to emulate
- Hospital B is the least efficient Hospital
- Hospital B merits management attention, and probably should undergo an energy assessment as soon as possible
- A portfolio EUI benchmark target of <250 kBtu/SF/Yr might be a reasonable target to expect all hospitals in this portfolio to meet or beat.
And surely these seem like logical conclusions. In fact, I have seen billion dollar companies make important decisions based upon data like these.
However, it is important to keep in mind that square footage and patient care delivery are not synonymous. In fact, the amount of health care delivered by a hospital is going to be much more closely associated with patient care proxies such as staffed beds, total discharges, and other measures. It is these activities that consume staff and resources, including energy. If we explore these other proxies and employ them as benchmarks, do the performance findings persist?
Fortunately, the American Hospital Directory provides quite a few metrics pertaining to the amount of health care delivered by a hospital. For the six hospitals in our survey, these include number of staffed beds, total patient discharges, annual patient days, and total patient care revenue.
The expanded table below shows these values for each hospital on the left hand side, shaded in light tan. On the right side of the table, I have created a new energy benchmark for each proxy. Specifically, in addition to kBtu/SF/Yr, we also look at kBtu/Staffed_Bed/Yr, kBtu/Discharge/Yr and so on. I believe you can click on this graphic if you want to blow it up to examine. Back arrow on your browser to return.
It immediately catches the eye that the colors associated with relative performance are not consistent across rows. In fact, if you look at the kBtu/SF/Yr metrics and the kBty/Gross_Revenue/Yr metrics, the two best & worst hospitals literally reverse rankings! Now, what does this mean?
First of all, it is painfully obvious that square footage and gross revenues are not “compatible” benchmarking indices in this instance. The sort of inconsistency we see here proves that the two benchmarks are not measuring the same thing.
Our next question then needs to be, from an energy performance perspective, which benchmark (if any) more accurately identifies desirable behaviors?
An energy engineer will almost automatically turn to the EUI benchmark as the standard for a handful of reasons:
- EUI (and Energy Star rating, a kissing cousin) really is an accepted standard in the industry. “This is how it’s done”. Right?
- EUI is readily calculated and intuitively simple.
- EUI is as good as any other metric as a place to start.
However, if we think like a CFO, we see that the EUI is missing something essential as a benchmark. Let’s see why this might be.
Fundamentally, the viability of a hospital is tied directly to it’s cost of operations and it’s income, not it’s square feet. Therefore, it is desirable to the CFO from an operational level to minimize the expenses required to generate a unit of revenue.
From this vantage point, the CFO is going to view a hospital that requires 140 kBtu of energy per annual dollar of revenue as more desirable than a hospital that requires 200 kBtu of energy per annual dollar of revenue, even if the kBtu per square foot is lower.
It becomes glaring obvious that this is because the EUI fails to take into account the variable density of activity that takes place in each facility. What also becomes obvious is that a CFO should have a very particular and well defined idea of what a benchmark is:
A Benchmark quantifies the ratio of some relevant input to some commercial output in order to allow normalized comparisons between peers. Where “relevant input” is specifically a cost driver such as energy use, FTEs, supplies, rents, tax rates, and where “commercial output” is the goods, services or other output that the organization delivers and depends upon for profitability.
Beyond this, take a look back at the extended table. Hospital B has the worst EUI ranking at 321 kBtu/SF/Year but the best “Energy User per Unit Revenue” (EUUR) ranking at 140 kBtu/$GR/Yr. Conversely, Hospital G had the best EUI ranking at 228 kBtu/SF/Yr and the worst EUUR ranking at 246 kBtu/$GR/Yr. Now consider:
Hospital B is already using 43% less energy per unit of revenue than hospital G, so it is clearly more profitable and efficient from an energy use standpoint. Yet if the EUI prevails as the metric of choice, Hospital B will be put under pressure to reduce it’s EUUR even more in order to match the EUI benchmark of a peer such as Hospital G. This is not only inequitable, it misdirects managerial attention to a well performing facility, and it gives a pass to institutions that may be using far more energy per unit of delivered services.
This is a very rough first draft, but I thought I’d spend a few minutes at least planting the flag for benchmarks that go beyond the often used (misused?) EUI.