Financial SkillsFinancial Skills

Financial Skills Review

Two types of budgets used in O&M

• Operating budget and the Project budget

– Operating budget is the cost to fund personnel, supplies, equipment, and utilities

– The project budget, is used for a special project or program, such as major construction projects, building additions, CMMS, or major capital equipment purchases.

Two methods for budget preparation:

• Historical

• Zero-based.

Financial

• Simple Payback (SP) requires little data and can be accomplished quickly

• SP=Investment/Annual Net Income or

• SP=Investment/Annual Net Savings

FinancialPayback Period

• One simple method of analyzing an asset replacement is the calculation of the payback period

FinancialPayback Period

• P=O/I

• P = the payback period in years

• O = the original investment to acquire the asset

• I = the average annual income after tax.

Business Case Analysis

Must Include:– Initial Cost

– Staffing

– Lease Cost

– Infrastructure Cost

– Permits/Licenses

– Maintenance

– Utilities

– Payback (In $ and Years)

FinancialCalculation for Energy Savings

• Energy Savings• If your hospital saved $500 in utility

costs in 4 weeks. At the same rate, much will you save in 8 weeks

• Simply Cross Multiply –

$500.00 x N =

4 8

FinancialCalculation for Energy Savings

• Q: If your hospital saved $500 in utility costs in 4 weeks. At the same rate, much will you save in 8 weeks?

• A: Cross Multiply –

Set up:

$500.00 x N =

4 8

Financial

• Life Cycle Cost Analysis – to find the total LCC of a project, sum the present values of each kind of cost and subtract the present values of any positive cash flows such as a resale value

• LLC = first cost + M/R + energy + water + replacement-salvage value

“I've got all the money I'll ever need, if I die by four o'clock.”

Henny Youngman

Questions

thank you