Deciding to be or not to be – agricultural production

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In a rural neck of the woods trouble is brewing, land values are going too high! A farmer was willing to participate in CFI, albeit for a modest return. In light of stock holdings being low in the district the idea of leasing the neighbours land was attractive. Until someone decided the Internet was a good place to advertise an enthusiastically priced land sale.

Why is this important? Because everyone then develops higher wealth expectations and the issue is the inputs become higher and the price consumers are willing to pay for the agricultural and livestock remains low.

If we accept this will happen regardless, we need to re-evaluate the purpose and future in terms of commitment to incentives. But first we need to determine the price that could be and what the market will withstand. Beef and Central (www.beefcentral.com) ran an excellent story on: What value is a fair market price to pay for rural land? Written by Michael J. Vail, Tre Ponte Corporate, Brisbane 26 Oct 2012. Verbatum “Capital Budgeting for Investment, using the Discounted Cash-Flow (DCF) Method, and Net Present Value (NPV)”

Quoting: “It is important to understand the methods used by sophisticated and experienced business-people in the world of finance and economics, both here in Australia and overseas, when making large-scale capital expenditure budgeting decisions; whether it be for investments below one million dollars or up to several hundred million dollars.

One excellent method which is technically sound, and is supported by courts when deciding cases, is the Expected Net Present Value of a Future Expected Cash-Flow Income-Stream, also called Discounted Cash-Flow (DCF) Analysis.

When finance and economic analysis is in

progress, the concept of ‘flows’ is used, to show where the money goes. Money flows ‘in’ or ‘out’, with Net Cash-Flow available to pay dividends to owners of capital.

The basic premise is as follows, you:

1. Understand a business’ past cash-flows (both in and out),

2. Understand the nature of the income cycle,

3. Understand the cost structure of the business,

4. Understand what influences (both internal and external) the business model is sensitive towards,

5. Understand the accounting and economic break-even points, for sales dollars and sales quantity,

6. Understand supply and demand issues, at the micro and macro level, for this type of business, and

7. Have a view of the future, and for the business.

8. Make assumptions (which are documented), for each line of the cash-flow.

9. Project the cash-flow forward in time for three years, using zero-based budgeting; with the balance of the current year, plus one full year, shown month-by-month, and then two further years shown on an annual basis.

10. Identify and understand the risks of the project, and, whilst mitigating where you may, come to a conclusion whether the business is more or less risky than the market (using a proxy company where you can).

11. Derive a Before-Tax, Discount Rate, which fully describes the expected risk in the project going forward over the life of the project (eg Opportunity Cost of Capital).

12. Do not use the Weighted Average Cost of Capital (WACC) method to derive the Discount Rate, unless there is an appropriate amount of equity ‘hurt-money’ on the table, and the owner’s residential property is not being used as collateral for any loans; as evidenced in the balance sheet. Otherwise use an Opportunity Cost of Capital proxy, such as the Borrowing Rate plus a Margin-of-Safety.

13. Insert the Discount Rate into the Present Value (PV) formula applicable to the circumstance, and derive a Multiple.

14. Apply this Multiple to the Earnings Before Interest and Taxes (EBIT) figure from the cash-flows above, bringing these future cash-flows back to a single number, as it would be in the present-day, discounting for time and risk.

15. A way to think about it is; if I was offered a dollar today, or a dollar in one year’s time, and the opportunity cost of not taking the dollar today is 10pc, which will I prefer? If I take the dollar today, and put it in the bank, where I can earn 10pc, I will have $1.10 in one year’s time. So, if I wait, I will be $0.10 out of pocket. Conversely, how much would I have to invest today to receive a dollar in one year’s time? The answer is $0.91 ($1.00 / 1.1). A rational person will choose to take the dollar today.

16. This is similar to what is termed a ‘perpetuity’; where an amount is “grossed-up” to what it might look like ‘at the end-of-time’.

17. Take one dollar and invest it ‘perpetually’ at 10pc per annum, and it becomes $10.00 ($1.00/ 0.1); however, when you calculate the number of years (n) to ‘perpetuity’ ($10 = $1 x (1.1)n), it is only 24-years and 58-days. Granted, this is a long period of time, though it is hardly what we imagine as perpetuity; whatever that means. However in our modelling, some assumptions are made.

18. Another example: If $1.00 @ 25pc in perpetuity equals $4.00, then the time to perpetuity equals 6.212567-years (n = log 4 / log 1.25), or 6-years and 78-days.

19. So we may observe that as perceived risk rises, the pay-off horizon shortens; or the PV shrinks. The converse is also true. This is an example of the risk/return trade-off; as there is an inverse relationship (and therefore a negative slope) between them.

20. This adjustment for interest income (or expense), is referred-to as the ‘time-value-of-money’.

21. Another concept to understand in relation to NPV analysis (where positive NPV projects are acceptable investments) is the question, what is the hurdle rate of return (IRR), or the maximum borrowing-rate (less a Margin-of-Safety), where NPV equals zero?

22. A rational investor will surely pay no more than the number this discount hurdle rate equates to under the assumptions given; yet if the long-term view of interest rates over the term of the project is less than this hurdle rate, one will see a higher NPV and is more likely to invest.

23. And if expected EBIT increases, due to better management or market conditions, then the NPV will also rise.

24. A positive side effect of a higher EBIT as a percentage of Revenue, is that perceived lending risk will also fall, leading to lower risk premiums being applied.

shall illustrate with an example.

If rural, pastoral and grazing land in the Blackall/Tambo Shire of Central Western Queensland, in large part, has an average carrying capacity for a cow-and-calf unit of 1:21-Acres, then the carrying capacity of the cow alone is 1:14.69-Acres (if weaning percentages are 80pc and bulls are joined at 3pc).

If a Margin-of-Safety of 10pc is added-on to this carrying capacity, then the number becomes 1:16.15-Acres per cow (Dry Unit Equivalent).

To arrive at a fair estimate of market value, for what this parcel of land is worth on a per-Acre basis (Walk-In, Walk-Out, including stock, plant and all things necessary for the continuing operation of a Going Concern enterprise), you should request trading and profit and loss statements from the vendor (under signed Confidentiality and Non-Disclosure Agreements) going back at least five years, and the lodged income tax returns which accompanied them. This is an important step as a part of the data verification process.

There may well be resistance to this request from the vendor, as this data is of a private and sensitive nature. However this level of disclosure, is what everyone else in the real world complies with, to ensure there is full-information on the table for a prospective purchaser to review.

The production of same gives the purchaser some higher level of comfort around the numbers, and therefore a lower level of risk premium will be applied in the NPV analysis. Also, where there is un-certainty beyond rationality, lenders will also put a higher risk premium on any funding requirements.

To continue with my example, I will assume the following inputs and equations:

1. A purchaser will not borrow more than one-half of the expected market value of the total adult cattle herd.

2. A purchaser will not borrow more than 20pc of the total Asset Value of the enterprise including all things necessary; including the land component.

3. The parcel of land is around 36,000-Acres in size.

4. The average market value of the herd is $850.00 each. (It should be around $1300.00 per Head.)

5. The average adjusted EBIT, over the period covering the past five years, and expected over the next three years, is $450,000.

6. The carrying capacity, as calculated above, is 1:16.15-Acres (Dry Unit Equivalent).

7. That an appropriate regression equation to calculate a ‘Bare of Stock and Plant’ Price for comparison, may be:-

• Y = $770.00 x (X) -0.717,where ‘X’ equals Carrying Capacity expressed as ‘Acres per Beast’.

8. That an appropriate regression equation to calculate a ‘WIWO (Operating)’ Price for comparison, may be:-

• Y = $1,417.30 x (X) -0.86,where ‘X’ equals Carrying Capacity expressed as ‘Acres per Beast’.

9. That the average Opportunity Cost of Investment is 9.5 percent per annum (Compound).

10. That a purchase should be looked-at like a perpetual Bond, paying annuity income as a coupon, and with NPV at Zero (0), to find the ‘price you should pay no more than’; using a multiple of income, and a cost to buy (reflecting perceived risk).

11. The formula for this calculation may be:-

• NPV = (EBIT x (1 + (1/Opportunity Cost))) – Original Cost.

• Setting NPV to Zero (0), the equation changes to,

• (EBIT x (1 + (1/Opportunity Cost))) = Original Cost

12. A rational risk-averse investor, only invests in positive NPV projects; so where NPV equals zero(0), you are indifferent as to whether you will invest or not.

13. There is no ‘one-true-value’.

14. Equations which model what might happen, only model our expectations of future expected cash-flow and value, and are not accurate; as only actual outcomes are measurable and real.

15. The concept of ‘common-sense’ should be fastidiously applied, and in large doses.

Expected Value per Acre: To Buy

• Bare of Stock and Plant:

– Y = $770.00 x (21.0) -0.717  = $3.124M. (or $86.79 per Acre.)

– We use the higher carrying capacity of 1:21.0 -Acres because the place is a blank piece of paper, and may have many uses; however that is the long-term carrying capacity of the place, on the average.

• WIWO (as a Going Concern):-

– Y = $1,417.30 x (16.15) -0.86  = $4.664M. (or $129.55 per Acre.)

• Value to Pay No More Than (WIWO):

– NPV = (EBIT x (1 + (1/Opportunity Cost))) – Original Cost.

– Set NPV equal to Zero (0).

– Equation becomes:-

o (EBIT x (1 + (1/Opportunity Cost))) = Original Cost.

o ($450K. x (1 + (1/0.095))) = Original Cost.

– Original Cost = $5.1868M. (or $144.08 per Acre)

– Therefore, the break-even value per Acre above, is the maximum you should pay; if the EBIT is $450K. and the borrowing cost is 9.5pcpa.

– Of course, if either variable changes, then so will the answer.

• ‘True’ value for WIWO lies between $129.55 and $144.08 per Acre.

• As you can see, it is important to have a view of the future, to ensure you do not pay too much.

• As each case is different, please consult with your advisor; however, the above should give you food for thought.

• Of course, ‘value’ is in the eye of the beholder; price is what you pay, and value is what you get.

• Be aware that under this model, if all else remains constant under the WIWO example above, except if Item-2 changes to 30pc, then the value per Acre you are willing to pay may fall to $87.72. This is a big difference, and it indicates the higher level of perceived operating and financial risk, as Debt/Equity ratio moves from 20pc or 2/8 (25pc), to 30pc or 3/7 (43pc).

• Alternately, if the Expected Future Revenue looks set to jump (due to the signing of a long-term trade agreement with another country), then the Demand Curve for beef will shift quickly relative to the Supply Curve (which is fixed in the short-term), and of course you should expect to receive a higher capital payment if you are a seller; and conversely pay more if you are a buyer.

Expected Value per Acre: To Lease or for Agistment

If you did not want to buy through lack of access to capital, and merely required Agistment, or a Lease, on a per-Head-per-Week basis (as applied to adult cattle), and the expected yield was similar to the Opportunity Cost of Capital, then the following may apply:-

– ((Value / Acre) x (Opportunity Cost) x (Carrying Capacity / Acre)) / 52-Weeks.

– Or, our old friend, (Beast Area Valuation x Opportunity Cost) / 52-Weeks.

– Dry Cattle  = ($144.08 x 9.5pc x 16.15) / 52 = $4.25 per Head per Week, or

– Dry Cattle  = ($2,326.89 x 9.5pc) / 52-Weeks = $4.25 per Head per Week.

– Wet Cattle = ($144.08 x 9.5pc x 23.10) / 52 = $6.08 per Head per Week, or

– Wet Cattle = ($3,328.25 x 9.5pc) / 52-Weeks = $6.08 per Head per Week.

– Same income overall will eventuate, but able to carry less adult cattle; per the assumptions above.

– You will note BAV is different for Wet or Dry cattle. How can this be? It is exactly the same block of land! Therefore, BAV may be confusing, and should only be used as a rough guide when valuing agricultural land.

Conclusions

What I have tried to show here, in the above assumptions and calculations, is that a rational approach needs to be made to the valuation of any investment, no matter where, or what it is; else you run the risk of paying too much.

It may also mean having your banker/financier see the investment as more high-risk than it otherwise should be, and therefore self-justifying charging you a higher interest rate premium, as applied on borrowed funds, than necessary; which may have the unintended consequence of leading to a higher risk of bankruptcy in marginal investments; remember this type of business is usually asset-rich, but cash-poor (though it should not be); so always build into your calculations a Margin-of-Safety.

The Discounted Cash-Flow (DCF) Method and the calculation of the Net Present Value (NPV) of an income stream, is a very appropriate way to value an asset of this type, and is used by investors from all walks of life; whilst also being strongly supported by the Courts, as a valid and robust approach to valuing assets.

The ‘accounting equation’ (where Assets = Liabilities + Equity), like all good algebra, must stay in balance. When valuing a business using this Method, you are valuing the Assets which you need to operate the business; however, if you are buying the business’ legal structure (ie a Pty Ltd company, for example), then take out any Surplus Assets and remove any Liabilities you are not absorbing, to arrive at the Equity Value (where Assets minus Liabilities = Equity).

Look to the long-term patterns in the data for randomness, trend, cycle, and seasonality, etcetera, by using a 13-week Weighted Moving Average of Revenue (for example), only looking back to learn; however, have a view of the future, and remember, you value an asset with a view to the future expected income from it.

The past has a memory, which carries forward, though dissipating with the passage of time; usually exponentially, depending upon the accepted usage and effect. Remember the past is just a guide to the future, so only look back to learn.

Do not pay too much; as you make your profit when you buy, not when you sell.

I encourage debate, and am happy to be proved wrong.

Good Luck, and thank you for your time.” End quote. The analysis is part of a series to Beef and Central by Michael Vail, and is addressed to investors making capital budgeting decisions towards a long-term investment in the agricultural production industry. Co2Land org posts this not as advice but for information only.

CO2Land org only adds that these numbers will change as values change and if you recall sentiments over commitment periods for CFI, you may now consider insurance packages may be the new industry to protect the family – assuming families are still allowed to compete in agriculture.

Co/trigeneration sequel – Balancing Energy in your Business

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In its draft report on Electricity Networks and the Regulatory Frameworks the Productivity Commission encourages a standard approach to Embedded generation (12.2) and puts a focus on minor distributed generation such as PVs, VAWTs etc (13), and the disparities in tariffs. The general theme is to push toward time based pricing to assist technologies where it can be incorporated within a strategy of load lopping.

On 4 November CO2Land (www.co2land.org) posted “Balancing Energy in Your Business” and a quote from the story said “It might be time, if you have not already, consider curtailment opportunities, renewable generation, cogeneration or trigeneration (albeit some high profile projects may well prove to be an embarrassment for overblown claims), or combinations of technologies with emphasis on energy savings.” This sequel further explains the pros and cons of cogeneration and trigeneration. The message is fully understand it first!

Increasingly common, where gas connections are possible, is the embedding of co-generation and there is an increase trigeneration. A little 101 here:

  • Cogeneration: Also known as combined heat and power, cogeneration uses wasted heat from gas-fired engines to project into other processes such as generating more electricity or producing heating.
  • Trigeneration: Combined cooling, heat and power – goes a step further, simultaneously producing power, thermal energy and cooling. The cooling can be used for production processes or climate control.

Gas Today (www.gastoday.com.au/news/benefits_of_cogeneration_and_trigeneration/078333 ) ran a story on Benefits of cogeneration and trigeneration where the authors said: “Cogeneration and trigeneration are already well established in Australia, with a growing clientele of property owners and developers incorporating them into their new or existing buildings or plants. Flexibility in design makes these applications easy to adapt to different customer demands, and thus cogeneration and trigeneration plants can be found in various different locations, including:

  • Urban areas with office buildings or retail complexes;
  • Residential areas;
  • Industrial or manufacturing facilities, such as breweries, abattoirs and dairies;
  • Hospitals;
  • Education facilities including universities and schools;
  • Airports;
  • Government sites such as state and federal agencies; and
  • Data centres.”

However, with all good marketing efforts should come the balancing with ‘real’ stories. After reading a post of Dru Spork (Manager at Grocon in Sydney), he made the comment  “those with experience should be able to chuckle along with this”, and what did he mean? Pitfalls we suspect and what to avoid when sizing. Some common mistakes and problems are:

  1. Design size for load lopping rather than operation. This can mean the unit is insufficient to handle the building load if isolated from grid connection.
  2. Total reliance on standards measures (AS3000) design ratings and not correctly sizing to match operation. That is not measuring correctly the actual equipment selections coupled with absorbed power/run power modelling.
  3. Not considering the ‘what if’ on the power requirements when other energy efficiency initiatives or technologies are introduced. Will there be a need to run the generator?
    The economics are very important for the business case and overblown estimates could mean a stranded asset. Consider:
  • The Capex investment for different load operations.
  • Modelling the generator operation modeled at say 100%, 75% and 50% load (to predict available electrical load) and match this to absorber performance at 100%, 75% and 50% – rather than checking the quality of the heat output and how this works with the absorbers.
  • Determine building heat load in the operational model.
  • Be prepared for battles with the electrical authorities over fault levels and approval procedures (project approvals can take around 18 months).
  • Empty buildings do not need power. The operations modelling of the generators assume occupation and operations of the building.

CO2Land org considers it is not uncommon that such projects fail and it tend to be because the introduction was not planned as well as it should have been. When talking to Ahmed Abdoh, he said “that is why we in Carbon Training International offer the only nationally recognised course in Cogeneration and Trigeneration that can help how to take the right decision on size and type. check out our course on www.co2ti.com . The primary material of the Course is the work of Winton Evers (Ecoprofit Management) and Ahmed Abdoh (CO2Planet) moderated by Bill McGhie (CO2Ti).

We also ask you to consider, you will get noise complaints from the adjacent buildings when operating, you will not get $120 per KWH value every day for generating, for these projects a ‘too analytical’ engineering report is a good report!

Balancing energy in your business

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In previous arguments the Zero Waste community has been either instructed or advised that revenues from electricity generation using waste materials have no economic benefit, or are too little in the amount of return to be feasible. Other reported arguments are that the material products from the waste stream process have a significantly higher value than generation revenue. Those assumptions can be assumed to be no longer relevant if we approach the problems in a different light. Nor should we discount that technology will advance many techniques and the risk of each decision should be taken on a case by case and/or site by site basis.

If you consider the traditional energy procurement approach: You enter into a standard contract agreement, you concede the terms of your connection conditions and may actually be penalized if you fail to take the load assignment. The problem from this perspective is the supply side is assumed the only legitimate interest in providing energy security. The concept of energy is more legitimate if you refer to the supply and demand balance.

All community is affected by the rising cost of energy, and a number of specialist companies are offering products that approach the three essential considerations in the cost of energy: The energy price, the delivery cost and the carbon price. Something is being done and the “Power of Choice” is doing what it can to address the issues.

The reasons to accept that change is possible is the AEMC and the Senate are the essential bodies that will influence and inform how the implementation of an effective balancing of the National Electricity Market (NEM) and that Demand Participation is the result that is saving $billions for the community, and continuous saving thereafter. If you think this is a relatively new idea, the reality is under the term Demand Response (DR): Alan Fels, Chair of ACCC, on 19 November 2001 made a considerable issue the balancing equation; The Parer Review 2002 presented “Towards A Truly National And Efficient Energy Market”; The EUAA April 2004 presented “Trial of a Demand Side Response Facility for the National Electricity Market”; The ERIG Review November 2006 advocated “Review of Energy Related Financial Markets”; AEMC (formerly by NEMCO) carried Stages 1 & 2 of the Demand Side Participation Review and Stage 3 is in progress.

What does this means if you want to design or reengineer your process products under carbon constraints? On the 1st July 2012 some 250 Australian businesses became lawfully liable to pay $23 for every tonne of CO2e emitted from ‘operational controlled’ facilities emitting 25,000 tonnes or more of scope 1 Greenhouse Gas emissions. A recent survey by the Australian Institute of Management (AIM) revealed that only one third of the organisations surveyed agreed or strongly agreed with the question “My organisation is prepared for the implications of the carbon tax”. It follows that an organisations’ total carbon capabilities are critical to creating the transformational business response necessary to not only remain competitive in the short term, but to prosper in the long term. The process for creating this outcome is heavily dependent on having essential carbon management knowledge and skills in place, and an awareness of the commercial & competitive impacts under the carbon pricing mechanism. Small to medium enterprise (SME) are not a liable entity, at the time of writing and where you may not have as yet assessed the impact of the carbon price, you should be aware the large liable businesses pass the cost down through the supply chain.
The supply chain and operating costs will be having an impact on all consumers and suppliers. We know government assistance programs are available to help mitigate the cost pressures & fund critical investment in areas such as energy efficiency. What we do additionally can be our benefit in reducing all manner of waste including energy and energy products.

On 17 October 2012 the Clean Energy Regulator issued a report, and as a selective reference, said that the year ahead is focused on amongst other things ecological sustainable development and that will favour the innovators prepared to rethink business as usual. The Australian Tax Office (ATO) also provides R&D incentives offsets for those groups, and the Productivity Commission encourages rethinking.

It might be time, if you have not already, consider curtailment opportunities, renewable generation, cogeneration or trigeneration (albeit some high profile projects may well prove to be an embarrassment for overblown claims), or combinations of technologies with emphasis on energy savings.

CO2Land org is aware of licensed energy retailers that are operating where you will be rewarded for sharing risk in the energy price, similar companies also can offer demand incentives that you might also have though less than likely. In this scenario at least one retailer will individually profile the site and make an offer for the output or develop a hybrid contract to suit.

Some of the products developed or can be adaptive to your needs to be developed is:

  1. For generators:

Short term grid balancing, renewable and base load, hedging strategies, Greenpower.

  1. Auto load management with shed load or transfer to generator capability
  2. Price substitution, Load shed offers.
  3. Structured options according to risk tolerance and managed adjustments.

The message is you are no longer obliged with the status quo as a price taker, and you can start the discussion and work for what works for you.

If you are confused with the terminology, hopefully the following will help you better understand: The energy market has three components that affect the price we pay: Price response (PR), Demand Response (DR) and the Emergency response (ER).  Electricity price is proven to be largely inelastic, and as we are more reliant on alternative energy sources we notice the costs tend to be absorbed. Therefore our only real option to mitigate the price is a Demand Response (DR). DR is proving its ability to offset the most volatile price driver in the market. For the supply side the capex and opex growth on the distributed network is a large cost driver, generation is the marginal cost of capital to develop the projects. Demand Participation (DP) can help slow down the cost drivers and the supply side will welcome the cost reductions or the ability to reduce accelerated infrastructure build times. In this instance think build and increase capital required for infrastructure projects (pole and wires builds and maintenance needs to cater for the demand growth). Emergency Response (ER) is an energy security problem and is reactionary to large events with little warning.

CO2Land org also notes success with DP and that DR has been implemented in a number of electricity markets. This includes DR for Reserve Capacity in Western Australia’s Wholesale Electricity Market (WEM) which works very well.  In New Zealand, with a focus on frequency control being particularly important.

In hindsight, the lack of an effective DR mechanism in the NEM has cost electricity users an estimated Present Value (PV) of $15.8 Billion[1] (this is in the order of a 9% impost on their annual electricity bills).  The power to change is with you.

Previously CO2Land org posted, 7 Sept 2012, The Power of Choice – review by AEMC of DR and to recap the “Power of Choice” Review is an unfinished work, and CO2Land org has experience in the material of Demand Response (DR). DR is most effective as a formal aggregation of small amounts of demand reduction from a larger electricity users who are contracted to reduce this pre-agreed amount of their demand at times when their are extreme wholesale prices, extreme peaks in demand or in emergencies.  It is much cheaper way to address these short term events than our current outdated approach of spending billions of dollars on more generators and networks which are only needed for a total of about 40 hours per year.

References to support this view are:

[1]

  • Alan Fels, Chair of ACCC, speaking at the Inaugural EUAA Conference on 19 November 2001
  • The Parer Review 2002 “Towards A Truly National And Efficient Energy Market”
  • The EUAA April 2004 “Trial of a Demand Side Response Facility for the National Electricity Market”
  • The ERIG Review November 2006 “Review of Energy Related Financial Markets”
  • Stages 1 & 2 of the Demand Side Participation Review (Stage 3 still in progress)

I use to procrastinate – managed to change

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I use to procrastinate, but now I am not so sure.  Whenever a new urgent task comes up are you like so many others we talk to find it difficult to say no?  Keeping your focus can be difficult and it gets even harder if you are reaching levels of achievement and you want that to continue your story as your priority.  However, as all project managers will know the problem is change, it is the only constant. If you are an achiever the problem is you risk being called ‘one who procrastinates’ if you seek advice and it seem predicable patterns of behaviour are preferred from us. It is suggested the human brain is hardwired to be predicable, and where groups of people gather there will be change and that can be difficult to manage.

Being a carbon manager requires many skills to be effective and one such skill is change management and to be accredited you must complete units of competency that deal with change.  According to the Australian Institute of Project Management (AIPM) www.aipm.com.au ‘the only constant is change’ and pages 13 to 15 of the Project Manager periodical for October/November 2012, runs the story as such.

The AIPM quotes Prosci (2009) and refers to the Best Practices in Change management where it is said you are six times more likely to achieve your original objectives successfully where you implement change efficiently and effectively, and change management is the structural underpinning of every strategy in every business.

Carbon Management is also about changing cultures and dealing with resistance. To be successful, it needs you to have the team working together. Any other way as an individual will not bring about the necessary change. You also need to be an innovator. Why? Because change must be accepted as an inevitable and as an essential for health and survival and that point needs to be better communicated.

The AIPM also quotes Kotter and Schlesinger (1979) and Trice and Beyer (1993) on ways to change cultures and deal with resistance. The former names – talk of education and communication, participation and involvement, facilitation and support, negotiation and agreement, manipulation and co-optation, explicit and implicit coercion. They even discuss forced change as a last resort and at times essential where speed of action is required. The later authors – name 8 essential considerations for implementing change to an organisational culture.  They refer to the need to find and cultivate innovative leadership.

Contained in the Carbon Management Certificate IV course material run by Carbon Training International (CTI), www.co2ti.com  is an entire unit devoted to organisational based change. They refer to organisational change as defined by Meyer and Bother (2000) as “the movement of people from a current state to a defined state”, and they talk of why change as a concept is relevant. As did the AIPM article refer to Kotter’s resistance to change so do they, only in more detail including the approaches to deal with the resistance to change.  Basic change management strategies quoted by CTI are referenced from Bennis, Benne and Chin (1969) and Nickols (2006) where there are four strategies, namely: Empirical-Rational; Normative-Reductive; Power-Coercive; and, Environmental-Adaptive.

CO2Land org also notes that the key success factors of change management can be determined through 12 critical factors from within. These include: Leadership, Management support, the need for change, participation, defining roles, planning, goal setting, monitoring and control, training, communication, motivation, embedding change. In conclusion the art of project management is as important to the carbon manager as any other strategic discipline, and it takes a strong will and a professional attitude to bring home the importance of the concept of change management.

On reflection, I did procrastinate, but it was more to do with the fear of potential negative consequences, the lack of clear deadlines, and a feeling making a difference was a task that was overwhelming. What changed? There are consequences for delay, the climate and economic situation is escalating and the frequency of change is more evident. Writing this post is an example of the need to change and in part delegating appropriately to someone else, as it is more worrying to do nothing then to act on ensuring the future.

Simplicity, Obviousness and Human Factors with Windows

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Why take the chance of alienating the faithful? It is possible that Microsoft must take a chance, to reach the new wave of technophiles. After being the masters of obviousness since 1987 “Microsoft Corp.’s net income fell 22 percent in the latest quarter as it deferred revenue from the sale of its upcoming Windows 8 operating system to PC makers”. It also comes at a time PC sales in general took a dive. You could argue taking the chance is about the need to improve the bottom line and the magic metric is the ability to scale beyond its own organisation as we know it. Windows 8 is aimed to be the magic system that will perform better for the company in the long term.

However as well redesigned this system is and planned as truly elegant, indicators are they could be affected by black swan events (improbable happenings – left field whams – disasters). Critics are saying in the quest for simplicity, they sacrificed obviousness for the joy of technophiles. But, alas thus rejoice may be the ultimate human factors conundrum: The relationships among windows users and the machines and processes they operate – lost.

To put this in perspective on June 19, 2012 co2land posted “Culture of sustainability in a cloud” and the story focused on Apple’s ability to use a robust metric to reduce risk and having a communication platform that can be maintained throughout any event. More recently, it is suggested Microsoft is trying too hard to show they can trump the software market with their own niche and make it with Windows 8, make it with simplicity. Interface and form simplicity with the operating system platform that is portable from PC to Tablet to Smart Phone.

So why is it even before the release date, reported to be 26 October 2012, that so many are critical of how they put at risk the most important following of the brand: The obvious relationship loyal users have between the machines and processes they make? They may have underestimated human factors!

A group called REALInnovation network (a voice of the network is www.triz-journal.com), says human factors is an entire arena that has become a major area of focus. As time goes on, we change and our expectation is the changes around us will make it easier to interact with machinery and how we see and interpret information. It is taken for granted that it is the ergonomic and practical need we have to aspire. There is a classical contradiction with this as we have all experienced that providing a new one size fits all is simple and appealing, and yet at the same time we must forgo access to our obvious need to be comfortable with what we currently know and use.

In the context of this discussion, you will know many professionals, stay at home people, students, and tradespeople that are comfortable with the PC and are happy with the tradition of the software – once you know the fundamentals you go from generation to generation as steps to a better place.

In Microsoft’s defence they need the innovation, and shifting to simplicity is improving practices. However, improved practices include a balance of simplicity and obviousness. In this new release they may be pushing the paradigm to simplicity in a way that will leave the traditional Windows PC user alienated and lost!

So when we use our ‘tools to communicate’ is it simplicity we crave or obviousness? “Take this example blogger Chris Pirillo posted a YouTube video of his father using a preview version of Windows 8 for the first time. As the elder Pirillo tours the operating system with no help from his son, he blunders into the old “Desktop” environment and can’t figure out how to get back to the Start tiles. (Hint: Move the mouse cursor into the top right corner of the screen, then swipe down to the “Start” button that appears, and click it. On a touch screen, swipe a finger in from the right edge of the screen to reveal the Start button.) The four-minute video has been viewed more than 1.1 million times since it was posted in March”. “There are many things that are hidden,” said Raluca Budiu, a user experience specialist with Nielsen Norman Group. “Once users discover them, they have to remember where they are. People will have to work hard and use this system on a regular basis.” In defence of obviousness “Michael Mace, the CEO of Silicon Valley software start-up Cera Technology and a former Apple employee, has used every version of Windows since version 2.0. Each one, he said, built upon the previous one. Users didn’t need to toss out their old ways of doing things when new software came along. Windows 8 ditches that tradition of continuity, he said. “Most Windows users don’t view their PCs as being broken to begin with. If you tell them ‘Oh, here’s a new version of Windows, and you have to relearn everything to use it,’ how many normal users are going to want to do that?” he asked. “I am very worried that Microsoft may be about to shoot itself in the foot spectacularly. Windows 8 is so different, he said, that many Windows users who aren’t technophiles will feel lost”. “It was very difficult to get used to,” he said. “I have an 8-year-old and a 10-year-old, and they never got used to it. They decided, and: ‘We’re just going to use Mom’s computer.” – the old one.

CO2Land org extends to Microsoft the wishes that they have made the right decision to change. However, the cold turkey approach appears odd in that they do not plan to cushion the impact of such a radical introduction, and it is further posted that computer companies have no choice but to make Windows 8 standard on practically all PCs that are sold to consumers. If we take this literally, after 26 Oct you have no choice you will go for simplicity (Windows 8).

Co2Land org source for quotes comes from “Early look at Windows 8 baffles consumers”

By PETER SVENSSON

— Oct. 19

security and authentication skills for the new order of social communications

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Knowing the shortcomings of the ‘old’ SharePoint the ‘new’ is showing Microsoft is accepting commercial developers can enhance their product range. Yes, it is reported the SharePoint 2013 will allow custom development despite previous rigid discouragement. This move means some applications will be outside SharePoint and be part of a cloud-based hosting system. Check out (NASDAQ: AMZN) AWS. It also means your application can live independently of your data centre, and you “can move SharePoint among new systems–even to the cloud–without having to change the core application server”.

How did this conversation come about?  We said our customer needs are moving us to a cloud environment and a greater social communication requirement and we note SharePoint 2010 lacks the maturity of Twitter and Facebook. If we just want enterprise collaborate such as customer records management – fine, but the lack of governance-aware tools is critical in making the decision to move forward.

The discussion (with a SharePoint developer) reached agreement that sophisticated social techniques will not be well adopted in the cloud. The increase in the number of venues like Twitter, Facebook, on-premises collaboration and multiple cloud-based document stores, will challenge and be taxing times for interface integration and/or individual patience. Although SharePoint 2010 had improved social networking, it lacks the maturity of Twitter and Facebook and this is a concern for some organizations that want to adopt SharePoint social tools as an ingredient of enterprise collaboration, in part this is due to the lack of governance-aware tools. It was further stressed by Co2Land org that SharePoint as we knew it requires skilled developers as the code is complex and poorly written code has caused some negative opinions to be prevalent and when something needs correcting and be tested it can even prove when preparing for upgrades. Added to these problems SharePoint server API requirements have meant fewer applications can be matched.

We also argued our current SharePoint developer in the conversation will need to be upgrading security and authentication skills for the new order of social communications and this in part will be caused by the rise in client extranets and hybrid cloud developments such as based on python code deployments or apples support for parallel or federated authentication beyond the traditional “Active Directory with LDAP for outside users” that is tradition in on-premises datacentre deployments.

Co2Land org was then told SharePoint 2013 will solve this, goto: 3 to get ready–SharePoint 2013 apps, servers and systems – FierceContentManagement http://www.fiercecontentmanagement.com/story/3-get-ready-sharepoint-2013-apps-servers-and-systems/2012-10-07#ixzz29b8zDyJZ

What does CO2Land org see as important? We use WordPress for our coloration tool; so it makes sense to benchmark against our future needs for social communications, cloud involvement, our governance needs and any new wave coming through. We are yet to benchmark what is coming – however as we see it:

Social communications will be more evident on more premises, it will not be universally accepted. Self-sustaining social collaboration is immature and it will be incremental increase for enterprise acceptance for it to be the normal communications interface.  Third party independent software vendors will be crucial in extending social functions and governance techniques in the cloud, the demand for users to adopt Personal Content (“PCM”) to aggregate and classify their own information will only increase, and large (e.g. SharePoint) sites need to guard against users feeling a personal voice is lost.

Direct quote “Cloud adoption will accelerate due to the escalated discussion about cloud-based solutions generated by Microsoft’s (NASDAQ: MSFT) reintroduction of SharePoint Online as core element of Office 365. We’ll see more cloud adoption in both Office 365 and such third party hosting providers as Rackspace and FPWeb. However, wholesale migrations of mature SharePoint 2010 environments will not be the principal use case, partly due to restrictions on custom coded solutions and functions”. This means wholesale new thinking will be required by ‘old’ Microsoft thinkers to the ‘new’ implementations with little on-premises SharePoint history, “most likely for content migration from non-SharePoint sources (legacy ECM or file system); proofs-of-concept and pilots”. It also means a new platform for document collaboration with external partners, clients and third parties will be necessary.

Governance is what all new users onto the platform will require to exercise care, guidance and oversight. Guidance is the essential for widespread adoption, for fostering sustained growth and usage and is the how and why you need management of you communications for business intelligence, social networking and nomenclatures.

The new wave will require the ability to handle extremely large content pools, and aggregate legacy platforms and divisional rafts (SharePoint calls “islands”) into a unified application and provides a competitive cost of ownership, and be a clear framework towards enhanced scalable capacity.

Ad-hoc quotes were sourced from: Chris McNulty is a strategic product manager for SharePoint Solutions at Quest Software, and blogs at http://www.chrismcnulty.net/blog and http://www.sharepointforall.com. Our SharePoint developed was Australian based and prefers to be anonymous

Wellness for Cities – Greenings naturally

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Adapting with climate change, rather than ‘to’ is proving to have multiple benefits. At the city levels the buildings can be our food sources, and can be improved to be more energy efficient, even the street can be better designed to help shield the needs for more energy.

Posted on 9 Sept 2012 Co2land.org was a story of innovation on using cities as part of our food production “Another way to design for food production” this story is also a must read for it also tackles the city problems and the innovation needed to prepare for the future. Featured: Stockolm’s purpose build highrise gardens and a Melbourne Hatch System enterprise.

The following is a post on Chicago and how the city is doing more to prepare for coping with climate change: The scene is set with the iconic CITY HALL building installing an impressive green roof in the city. The building has a 7010m2 (23,000 square foot) green roof and serves as a test bed for researching and measuring the impact of green roofs. This one innovation saves the city about $3600 a year in heating and cooling for the building and can reduce the external surface temperature of the building by as much as 80 degrees Fahrenheit! The roof features a spectacular rooftop garden and grows more than 100 plant species. A rainwater collection system irrigates the roof and several bee hives pollinate the many flower varieties. The plants on the rooftop soak up the sun’s heat to evaporate water, keeping both the buildings underneath and the air above it cooler. It is further claimed an expanded similar project for all roofs in Chicago could save $100 million in energy every year, and help absorb stormwater runoff.

Chicago is known for its climate extremes and residents can endure days of summer when the heat index reaches 120 degrees Fahrenheit. “The city’s annual average temperature has increased by 2.5 degrees since 1945, according to this climate assessment created by a consortium of scientists and commissioned by the city”. Of even more worry is that it is no longer about peak heat, the problem extends as an increase in ambient temperature rises.

To do more the city is working to engineer that it can stay cooler using less energy even as temperatures rise by putting into place innovative ideas and concepts. The green roof is one, and another combating the ‘urban heat island effect’. Simply, concrete and pavement, which absorb and trap heat, make cities like Chicago hotter than surrounding rural areas. Buildings soak up the sun’s rays during the day and release that heat into the night. Additional research (Joseph Fernando of University of Notre Dame) shows that Chicago is about four to five degrees warmer than the neighbouring rural town because of this effect. It is also a worrying trend discovered in research that it is shown that urban sites and rural sites are warming at about the same rate (Thomas Peterson, chief climatologist for the National Oceanic and Atmospheric Administration). It does appear by the evidence all life styles are suffering because of climate change: You should also read: Global climate data shows the Earth has been warming increasingly over time.

Hat tip to that city’s officials for the $7 billion plan to build a “new Chicago” (source: Karen Weigert, the city’s chief sustainability officer).  That means renovating citywide infrastructure from sidewalk to rooftop. The additional innovation and steps taken by the city include:

  • Chicago already has 359 green roofs covering almost 5.5 million square feet — that’s more than any other city in North America. City planners are pushing for even more.
  • Chicago has mandated that all new buildings that require any public funds must be “LEED” Certified — designed with energy efficiency in mind — and that usually includes a green roof. Any project with a green roof in its plan gets a faster permitting process. That combined with energy savings is the kind of green that incentivizes developers.

But the city is looking beyond buildings — they’re hitting the streets too:

  • That’s why they’re designing new streetscapes that integrate technology and design elements from widened sidewalks for increased pedestrian traffic to tree and plant landscaping that provide shade. The pavements are made of a light reflecting material mix that includes recycled tire pieces and lanes coated with a microthin concrete layer that keep the street from absorbing so much heat.
  • Chicago’s 3058 klms (1,900 miles) of alleyways traditionally absorb heat and cast away potentially cooling rainwater. But new ‘green alleys’ use permeable pavement that absorb rainwater. As that underground water evaporates that also keeps the alley and air around it cool.

CO2Land org enjoys hearing these stories and in particular where cities consider they need to be looking beyond buildings and streets as just a place where we move vehicles and goods. They need to be places that integrate technology and design elements for a better place.

Major shake-up for DPI

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It is goodbye to Catchment Management and the Livestock Health and Pest Authorities. They are to be eliminated in a major shake-up in the provision of agricultural and catchment management services in NSW. This means a Major shake-up for the Department of Primary Industries.

It is understood the new structure would be responsible for:

  • Agricultural advice
  • Plant and animal pest control and biosecurity
  • Natural resource management; and
  • Emergency and disaster assessment and response.

The Primary Industries Minister Katrina Hodgkinson was quoted as saying “agricultural advisory services provided by Agriculture NSW (part of the Department of Primary Industries) would also be incorporated in a single new body, Local Land Services,……Farmers and landowners will be able to easily access natural resource management, agricultural advice and biosecurity functions from one organization,….The structure will free up staff to work more closely with their communities, encourage innovation and integration across the landscape and be more accountable to ratepayers”.

The Minister is also credited with saying Local Land Services would be regionally-based, semi-autonomous, statutory organisations governed by locally-elected and skills-based board members. For more information on the new structure, follow the link, as outlined by Ms Hodgkinson: media/pdf/20121004_FINAL_Local_Land_Services_fact_sheet.pdf

CO2Land org has always encouraged better practices and notes the new Local Land Services will be set up to promote innovation, improve productivity and let farmers and landholders to get on with being able to manage their land.

This news should comfort organisations looking for a better relationship with levels of government without the prescriptive styles of the former authorities. While it is welcome that the work of community-based natural resource management organisations like Landcare NSW and Greening Australia will be more closely attuned to the administration it remains to be seen if harmony will prevail over funding distributions and cooperation with other co-funded organisations including the Rural Research and Development Corporations.

CO2Land org notes there is concerned over job cutting and the effects on the bush funding models. The main criticism being the election promises and moves to decentralisation is in fact becoming centralisation of DPI.  We spoke to a recent DPI employee that accepted a package from the body, and it was said – now more good than bad will follow, everyone was too comfortable before and whether the remaining staffing is permanent Government employees or contractors or just made up of volunteers it will be better than the way it was delivering. Only one real issue remains: What will be the sources of the funding for vital work?

California’s ‘carbon market mandate’

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Announced is California’s Bill for funding green industries, also known as the ‘carbon market mandate’. The headline “State’s Biggest Polluters to Become Funders of Sustainable Farms posted by Takepart.com  – Sun, Oct 7, 2012” and is an intriguing insight into what they are doing and what we are tackling here in Australia in terms of the Carbon Farming Initiative.  Have we got it wrong? Too many initiatives and not enough carrots, and CO2land org has previously published that the Nuffield Australian Farming Scholars say that the long-term capacity of Australian agriculture to compete and succeed internationally will be determined by the ability of Australian farmers to recognise changing consumer preferences, adopt new technologies and production practices and maintain the sustainability of their operations by protecting their production environment  (posted on July 6, 2012 by co2land  “The most innovative Australians are Farmers”).

Looking at what the Californian’s have done: They have taken the approach that big business can be encouraged from polluting the environment, and they can be simultaneously funding green industries through an auction permit system. The move is under the California state passed Assembly Bill 1532 (AB 1532), also known as the “carbon market mandate.” It is labeled as a boon for the state, environmentally and financially. Significant fees are levied to major corporate polluters, and those fees are invested into eco-friendly businesses that reduce greenhouse gas emissions. The state aims to reduce its greenhouse gas emissions by 80 percent by the year 2050.

The official start for the purchase of permits at auction (called “carbon pollution allowances”) starts November 2012. It obliges the state’s biggest greenhouse gas emitters― like power plants and large manufacturers to participate and “the revenue from those auctions is expected to reach into the billions of dollars in the next year, pumping some desperately needed funds back into California’s economy”, Forbes reports.

CO2Land org has noted it is intended that auction revenues channel into green businesses, this includes sustainable farming, and to be encouraging corporate polluters to find more eco-friendly methods of conducting business. In their states ‘approved list’ a green business includes sustainable agriculture and this includes farms that “sequester carbon” with methods like reducing soil tillage, practicing water and energy conservation, and reducing synthetic fertilizer use through compost, cover crops, and crop rotation.

If you are thinking California is the first state in the US to try a carbon market mandate of some sort, you might be interested to know that Grist reports “that a group of northeastern states, called the Regional Greenhouse Gas Initiative (RGGI) has been practicing a similar system since 2008. But in RGGI’s case, it charges carbon allowances exclusively to power plants, whereas California’s plan spans across all sectors of business, dependent on a company’s overall pollutants, not its category”.

As you would expect arguments are springing that the plan for the carbon market cap could be bad for business; it will put too high of a burden on companies, which in turn will either wither and close, or will force those costs onto their customers. It is an interesting experiment to follow and right or wrong CO2land org understands the motivation of the state of California: To not destroy its environment for the sake of boosting commerce. There is no time left to experiment with the future.

 

What would happen if the Carbon Farming Initiative (CFI) did not go ahead

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What would happen if the Carbon Farming Initiative (CFI) did not go ahead – the faithful can take the view it is an unlikely scenario – however, the terms of what is a commitment seems to loom as a political issue.  The pros and conns of whether it should be 10, 25 or 100 years is very much part of the politics and views have been put forward in previous writings suggesting it is something that needs to be carefully evaluated and a mistake in the terms and timings could amount to a revival of feudalism for farmers (Posted on August 8, 2012 by co2land – You can’t sit on a fence, a barbed wire fence at that, and have one ear to the ground).

Recently, the Department of Climate Change and Energy Efficiency (DCCEE) in Australia made some important announcements:

  1. The case for continuing with CFI: The case can best be viewed through www.cleanenergyfuture.gov.au and recent presentations include the process of eligible activities, the intention of the positive list, baseline identification (which clearly put the illustration of what will happen if the CFI did not continue as a project), examples of the methodology proposal, preparation and the approval process (which is in complete acceptance when it appears on the Federal Register of Legislative Instruments).
  2. The appointment of Agrifood Skills Australia to develop the competency sets for CFI participants:  Associates of CO2Land org had previously lobbied both parties to argue the need for the competency sets and urged they should not believe they alone fully know the competency sets required. Examples were given where previous outreach attempts lacked some hard capability to influence other than a  ‘wait and see’ attitude and business as usual will continue until the audience can fully understand the partitioners voice is being heard. It is urged the associates should still be canvased to help resolve such dilemma in developing competency set faced by outreach entities.

CO2Land org also researches in an independent way and notes that according to US advances in ‘green businesses’ (previously we have also indicated CFI should not be described as a ‘carbon’ business initiative) the “Bay Area news channel KQED, by funneling auction revenues into green businesses, like sustainable farming, and encouraging corporate polluters to find more eco-friendly methods of conducting business, the state has a chance to reduce its greenhouse gas emissions by 80 percent by the year 2050″.

What exactly constitutes a green business? The news channel reports that sustainable agriculture is on the state’s approved list. This includes farms that “sequester carbon” with methods like reducing soil tillage, practicing water and energy conservation, and reducing synthetic fertilizer use through compost, cover crops, and crop rotation. Could we see a policy change here, suitable for Australia – soon!