Measuring green opportunities

Measuring the net present impact of an environmental decision makes good theoretical sense, but the results are hard to defend against ill-intentioned attack, and harder still to explain to senior managers who still secretly believe that the right measure for anything is payout period.

As everyone knows the best way to compare two financial decisions is to estimate the future cash flows for each choice, discount each according to a standard rate of return, and then pick the one with highest net present value. A similar measure, lets call it the NPI for Net Present Impact, can be used for decisions affecting the environment.

To estimate the NPI for two alternatives what you do is look at the complete life cycle environmental effects involved; translate those to a standardized unit such as dollars needed to return whatever is affected to its initial state; discount each cost stream; and, compare - choosing the decision with the highest net value.

Do that for something like electric cars and you'll discover that battery manufacturing and disposal make current generation electric cars much more polluting than gasoline and the second dirtiest (after wind power) of widely hyped environmental solutions - and, unfortunately for us in IT, laptop and other battery powered gear suffers from some of that same problem.

Thus swapping all your (cheap) 180 watt desktops for (expensive) 65 watt laptops would save you money on power costs, but be net negative on NPI because of the issues surrounding battery manufacture and disposal.

The big problem with the NPI measure is that any estimate you come up with can be ripped to shreds by someone intent on doing so simply because so many of the bits and pieces you need cannot be accurately valued. It's possible to argue, for example, that a used battery simply goes into the dump and has no further cost - and it's equally possible to argue that the long term costs of doing this are either unknown or some desired fraction (or multiple) of whatever you say they are.

Something like this happened with tires back in the late seventies and early eighties when tire disposal became a media cause, future value estimates became wildly inflated, and governments everywhere started passing the tire recycling legislation that led to today's disposal levies on new tire sales and correspondingly huge stockpiles of unrecycled tires.

We should not, however, abandon a measure just because its value is hard to estimate, prone to abuse, and likely to produce unpalatable answers when applied correctly. As I've said elsewhere, for example, the long term right answer to today's environmentally driven demands that we cut energy use is probably to do the opposite: increase power use to the point of triggering infrastructure overload as a way of forcing the industry to swap in cleaner and cheaper nuclear power. Unfortunately, you won't find a ready audience for that kind of thinking in the boardroom - and you need to be correspondingly careful about using the NPI measure in your discussions with senior management.

One way of starting the education process with them is to get them to look at actions that shift environmental costs but don't actually reduce them. Out-sourcing your email to google, for example, shifts the server-side carbon burden to google's data centers - making those power costs invisible to junior auditors scanning your monthly payables for power use without actually saving a watt.

Once they see the fallacy of this approach you can move the discussion toward more appropriate metrics and work toward developing some appreciation for the risks and values that go with using NPI to help guide data center decisions. You could, for example, reverse the google illustration to discuss what happens when you unroll the the desktop/server power use duplication inherent in Microsoft's server architecture by adding a citrix licensing layer and deploying wintel thin clients on user desktops. In reality what happens is that this produces significant organization wide power savings, but in terms of what they see and understand it produces only a small but visible increase in data center power use - because PC power use in user spaces is generally invisible both before and after the change.

But what's the bottom line? Simple, using an abstract decision metric like NPI makes sense but most senior managers, many of whom still believe in payout period as a valid financial measure, aren't ready for this - so do your homework right, but don't talk about it because you can't sell a decision based on an abstract measure against opponents touting simple minded tangiables.