Interview: Taking a Triple-Bottom-Line Approach to Infrastructure Projects
John Williams, president and CEO of Impact Infrastructure, is on a mission to introduce triple-bottom-line thinking to how we evaluate infrastructure projects, addressing the financial, social, and environmental costs and benefits associated with each project. To accomplish this goal, he developed a framework and analytical engine that greatly speeds and simplifies the reporting process.
Informed Infrastructure Editor Matt Ball spoke with Williams about this quest for improved accountability. The conversation covered the building blocks that led to the tool’s creation, the company’s commitment to getting it right with rigorous analysis that’s revisited regularly, and Autodesk’s investment and integration of the tool into its design software.
I2: The change that you’re providing, as I see it, is quantifying the performance of a city. Is that correct?
Williams: What we’re doing is quantifying the performance of infrastructure, buildings and facilities. Infrastructure can be defined as an energy or water system, a bridge or highway, or a stormwater system. Facilities could be a distribution facility for shipping or a manufacturing facility. Buildings could be individual buildings or a campus (university, healthcare or corporate).
Each of these types of investment leads to long-term impact (positive or negative). If you spend $4 billion dollars on Hudson River Crossing next to the Tappan Zee bridge here in New York, that new bridge will be in use for 50 to 100 years. If decisions made constructing that bridge were good ones, then you can expect 50 to 100 years of benefits to accrue as a result. The public benefit has a value that can be stated in dollars. Not just the financial benefit of toll revenues, but the benefit by way of regional economic growth or environmental benefit such as a minimized disturbance to the bottom of the Hudson River. They all have value that can be measured and stated in monetary units.
That’s what we’re doing, and of course communities are made up of systems of infrastructure, buildings and facilities. Those are what make communities work.
I2: I really like the word holistic as a term to describe this full-system thinking. Is that a word you like to use as well?
Williams: I think that’s a good term to use. Another term I’d like to throw out there is the value of public benefit. It’s the public that will experience the costs or benefit over time.
I2: Is there a new accounting and monitoring that you’ve introduced to track this value?
Williams: It’s not new accounting. There’s something called Cost Benefit Analysis that has been around for more than 100 years. It’s the global default standard for anyone being challenged to provide a value for any infrastructure, building or facility project. They will go to a Cost Benefit Analysis, but it is complicated, time consuming and costly to do that analysis.
One of the things that adds cost and time is the vast amount of information that you need to complete the analysis. What is new is the presence of technology and cloud-based analytical tools as well as the ability to harvest massive amount of data via Building Information Modeling technology. What we’ve done with our company is to take our years of experience in infrastructure, buildings and facility project delivery, along with our years of experience doing cost-benefit analysis for these projects, to create something called the sustainable return-on-investment framework, which is a means of calculating triple-bottom-line values.
Triple-bottom-line performance addresses economic, social and environmental performance. They all come down to the same thing. We combine that with the ability to harvest data from Autodesk products such as InfraWorks, which is an incredibly powerful analytical tool that can be used to analyze publicly available data. As you run InfraWorks in 3D, you can take elements of your design to understand the triple-bottom-line benefits of each element. That information is transmitted to the cloud, where Impact Infrastructure’s tools reside in our platform called AutoCASE. The designer sends that information to us, and, in a matter of seconds, we analyze that data and provide feedback with a comprehensive triple-bottom-line analysis to the designer. The designer can then understand if that particular combination of elements was a good decision or a bad decision from a financial, environmental and social perspective. They also understand how those decisions might be measured in risk-adjusted monetary units.
Just as a designer of a bridge will analyze steel vs. concrete solutions, shouldn’t they also analyze the triple-bottom-line performance of those solutions? If you choose to go to longer spans, what is the performance of longer spans, and how might that performance benefit be allocated across a group of different stakeholders? The bridge owner wants to know what’s in it for them, the financiers or funders want to know what’s in it for them, the host community wants to know what’s in it for them, the taxpayer community and finally the environmental community.
The AutoCASE tools provide the triple-bottom-line reporting and then subdivide that for each of these communities. They can all see the value of public benefit associated with each of their interests.
Access to high-speed computing capacity, virtually limitless data hosting capacity and the ability to connect decisions to triple-bottom-line analytics tools make the whole thing work. We’ve automated the whole reporting process.
I2: This analysis is often a budget item already for projects, so are you aligned with analysis that is already planned, and have driven down the cost?
Williams: Let me give you an example. Back when we were in the custom business-case-analysis business, we would only do the custom cases for very large projects ($500 million and above). The reason is that each triple-bottom-line run would cost $50,000 to $100,000 dollars per analysis run. How many projects could afford this kind of analysis?
We feel we’re change agents, because we’re dedicated to bringing comprehensive high-level economic analysis to the run-of-the-mill project, too (projects from $5 million). Instead of costing $50,000 per run, we can do a limitless number of analysis runs on each project for less than one percent of the cost of a single economic analysis run done the old-fashioned way.
Now you get to a point where you’re not just running one run, but running dozens, if not hundreds, of runs through the life of the development process. You can run a triple-bottom-line analysis at the early conceptual design phase, you can run it again at more detailed design such as feasibility analysis, or if you want to compare a concrete vs. a steel version, etc. You can run it at conceptual, preliminary and final design as well as at project construction, commissioning or long-term operations. You can run it every time you make a decision about the project at no additional cost.
What you end up with is planning and design projects tuned to achieve optimal triple-bottom-line outcomes. It also gives you a performance baseline that you can use to do long-term performance measurement, monitoring and reporting. You may continue to do these analyses over the life of the project at virtually no cost as compared to custom economic analyses.
I2: Are these automated studies as good as the custom reporting that you used to do?
Williams: Yes, and in some cases I think that they could be better, because the research and product maintenance we do to keep a credible product in the marketplace is vast. Our product has to be up-to-date at all times. Every six months, we do a review with updates of the latest data and research.
If you’re in the custom-analysis business, one of the reasons it costs so much to do the study is because you have to go out and do new research. The moment the research is done, it starts to age and become outdated. Our platform is designed to be updated automatically to be current and always getting better.
I2: How does the platform scale from different size projects?
Williams: AutoCASE is an analytical engine that runs with metrics designed to match infrastructure or building subsectors. We have AutoCASE for Stormwater Management that is designed for those projects, we have AutoCASE for Transit, where the metrics are specifically designed for transit projects, and, at the end of the year, we’ll have AutoCASE for Buildings. Regardless of scale, we use the same AutoCASE analytical engine.
We want to be able to make comparisons between different project types, project sizes and locations. Sources of funding (say the federal government) need to make choices between projects in different states. Right off the bat, it’s difficult to choose. They also might say they only have so much money for specific types of projects, so they need to compare between many different projects. You can’t make comparisons between water and mobility projects based on a custom economic study. You need to make those choices based on a credible, common, transparent, objective, up-to-date analytical engine.
I2: I see cities and governments embracing this approach, because it’s a kind of quantification and comparison that they’ve never been able to do before.
Williams: There are reasons that it couldn’t be done before. You could always do a cost-benefit analysis, but as long as it cost $50K to $250K, you’d only do it for the largest projects, and you’d only do it once. Another reason is that without technology, it is very difficult to make the comparisons. Running the analysis in seconds vs. three to six months to do a custom study, or to do hundreds of runs in an hour, creates a whole new world.
I2: What was the impetus behind this? You came from a large engineering firm and then went to custom reporting.
Williams: I’m glad you asked that, and I’ll apologize that it’s going to be a lengthy answer, but I’m going to give you the lengthy answer. I spent my entire career from 1979 to 2012 in the infrastructure and building delivery business for very large and successful engineering companies. I learned a lot about infrastructure and building projects, and what it takes to get them planned, permitted, financed, constructed and operating. It was really a wonderful career.
In 2007, I went to a meeting with an economic development manager of a large town out on Long Island (250,000 population). It was the day after election day, and I asked him what he was going to do to make sure his boss would get elected again in the next two years. He said that we’re going to be the greenest community in the nation. At that time, more than 1,000 mayors had signed onto an agreement through the U.S. Conference of Mayors that was the equivalent of the Kyoto climate agreement. They were all going to be the greenest, and many of them were our clients. Back then, there seemed to be plenty of money around, so it was a great time.
I asked what specifically he was going to do. He said we may retrofit the lights in the building and would get a wind turbine working, and that they would lease some hybrid cars.
My intent was not to back him into a corner or embarrass him, but the firm I was with at the time was doing 4,000-5,000 contracts at a time, and many of them were with communities of his size, and each of them were all claiming to be the greenest. It occurred to me on my drive back into New York City that when these communities understood that it might cost something to actually be green, they might have a problem.
I told this guy that there are so many things you can do, that the first thing that I would do would be to ask the taxpayers what they want us to do with their tax dollars. Whatever it is, deliver it, and then go back to the trough again. It’s something to be accomplished over time, with a ratcheting effect, where incremental changes add up.
I also began thinking about what these communities would do when they realized that their taxpayers need to know the value of green. What’s it worth in monetary terms? I called our chief economist, we were fortunate to have a team of economists that understood risk, value and infrastructure. I asked him if there was a way to determine the value of green for infrastructure projects.
He replied that we weren’t doing that now, but that we could. I pressed him, because we had lots of clients that need to be able to determine the value of green to make progress. That was November 2007, and by 2008, I had been invited to become a member of the Clinton Global Initiative (CGI), which is an incredible organization that helps millions of people around the world. To become a member, you have to be thought of as a global thought leader, and you have to make a commitment to action—doing something new, big, memorable and aligned with CGI’s priorities of global health, education, energy, the environment.
My commitment to action was to create a means to measure green in dollars, and to test that and prove that the methodology was good. By September 2009, we created the Sustainable Return on Investment (SROI) framework, and we applied it on behalf of nearly $4 billion in real-world projects.
It was vastly successful, because there was such a need for it. We found that it was great if you’re spending a billion dollars, but if you’re a $5 million project, then it was too expensive. We pushed SROI into the public domain, making the framework available for anyone that wanted to use it.
I started to notice that a lot of the studies we were doing, although each report was custom, was recreating what we had done before. Each time we were spending money to do the research from scratch, until I realized that we were wasting time and money. I moved to automate the research side with better use of technology—automating and reducing the cost of applying the tool. The business case that I made was that the smarter we made our clients, the better decisions that they made, the better off we both are. They will want to go to the consultants that provide the best outcome.
I started to get a lot of pushback, because the company’s business model was built around custom studies that we charge a lot for, and not around reducing the cost of it. So I started to get pushback.
In February 2010, I learned that I had something called Large V-Cell Non-Hodgkins Lymphoma, which is a very aggressive form of cancer. It struck me in one tonsil and the lymph nodes in my neck. Needless to say, it was terrifying. Fortunately, we caught it early, and thanks to Memorial Sloan Kettering in New York, I was spared an early death. I’m told that I’m cured, being beyond the five-year-point now.
If you’ve ever been through that, you know it changes the way you think. In my case, I felt that I’d been spared from an early death for a reason. I felt that my creator has plans for me, a destiny to fulfill. It requires someone with access to talented people, with powerful tools and far-reaching networks. I had all of those, and on top of that I was the largest shareholder in one of the world’s most-profitable engineering companies.
I started asking myself if I was spending the days, months and years that I’ve been gifted doing what I’m supposed to be doing with my life and resources. I came to the conclusion that I was spared to create a wave of social change that comes from making really good infrastructure investment decisions.
On my 25th anniversary with that company, I retired, cashed out and created a new company called Impact Infrastructure. Several of my colleagues that were co-creators of the SROI framework have joined me. 3 1/2 years later, we have automated the cost-benefit analysis, we’ve created a powerful platform, and we have a tool that gives us the capacity to do triple-bottom-line analysis.
In September 2014, Autodesk made a significant investment in exchange for a small percentage of the ownership, and have helped to underwrite the development plans for the next couple of years. They’ve also accelerated that BIM interface process.
In the meantime, our relationship gives us access to millions of CAD and BIM users around the world, access to a sales and marketing network, and gives us access to other software developers and strategic partners. It gives us credibility, scale, the ability to deploy, and the ability to reduce costs to a fraction of other methods, and gives us the ability to lead in a marketplace where we don’t really have competition.
It was all because of this thinking when I was recovering from cancer and assessing what I should do. It’s been wonderful. We’re accelerating, with plans to release a transit tool this fall, a buildings tool the first quarter of next year, and then will come water/wastewater, energy for buildings, highways. It’s fantastic, and I can tell you that I’ve discovered that I’m a social entrepreneur.
I believe our investors will be well rewarded. For so long, engineers and architects have designed buildings, highways and water-treatment systems, etc., without regard to their financial, environmental and social performance. Now we’re allowing them to tune their decisions based on financial, environmental and social performance, so that they can give their customers the best possible results available. We all benefit, and we create a business that can continue to invest to create better and better tools.
I2: I’ve had sustainability on my mind for a long time. There are things like ecosystem services and true-cost accounting, but it’s difficult and doesn’t translate well to an ROI that business can understand.
Williams: Let’s talk about ecosystem services. I grew up in coal country in Appalachia. While energy produced from coal is viewed as inexpensive, it’s only inexpensive if you look at the financial side of the story. Mining companies can extract, ship and deliver coal to coal-powered power plants for not very much money. That is until you look at the costs of delivering that coal that have not been capitalized, but instead have been socialized. Who pays the environmental price for surface mining or the social costs of deep mining and acid mine drainage, or the warming of the global atmosphere? All of those are socialized costs that are not factored into the cost for the energy.
We all bear that cost, so shouldn’t we know them? Until we can account for that, the coal industry has the ability to say that coal is cheaper. Calculating the social cost of coal should count.
It does count when you look at the damage from a major storm or the deaths associated with the environmental impacts. Until someone starts putting the numbers together, it’s difficult to hold anyone accountable.
We’re going to be doing that. When it comes to ecosystems, goods and services, I’d say by the beginning of 2017, we will be accounting those costs as well for the mineral, timber and water industries. We’ll have a much more intelligent conversation about these things as a result.
I2: I would imagine that a lot of your success revolves around believability and transparency of your models, that they’re not just a black box.
Williams: It’s all about transparency. We don’t guess about anything. We don’t do subjective work, we only do objective measures based on transparent analytical processes. We can show you how we calculate any given metric. We can show you how we break a project into layers (like layers of an onion) and drill down through costs and benefits with tangibles and intangibles to a point where you exhaust the research. And we can show you how we roll those numbers back up into a common bottom line, either a financial return on investment or a sustainable return on investment.
We can show you exactly how we make those calculations and what they’re based on. Many of these calculations are based on federal guidelines. We don’t do anything that we wing, I can tell you that for sure.
If you’re satisfied that our analytical process is credible, then your next question will be about the input data or the value of a ton of cargo, etc. We will show you that we have 200 (mostly peer-reviewed) studies in our library, and that we’ve picked from among those. We even have adopted a certain probability curve to deal with uncertainty.
If you believe our analytical process, if you see that we get our data from the latest and greatest research, and that we don’t use just one source and that we adjust for uncertainty, what’s there to argue about? It’s about transparency, currency and credibility.
I2: I understand that these tools will be integrated into Autodesk products (Civil 3D, InfraWorks). That has to be a big advantage to getting it into the hands of designers.
Williams: It puts architects and engineers back into the driver’s seat. Our industry, to some degree, when you talk about cost, funding or financing, we’ve said that those are the owners’ problem. Our problems have been to give the greatest design. That’s okay as long as there is plenty of money and your clients don’t expect more from you, but now there isn’t nearly enough money to do all that needs to be done. Those project owners want a case for your design, they will either get that from you or a consultancy.
It is their problem, and now we’re going to give them the ability to do real-time analysis as they make their decisions. They are the best-informed players in the infrastructure delivery process, and now they’re going to show it by also addressing the financial, social and environmental costs and benefits associated with their projects.