Build vs Buy:
Making the Right Choice for Emission Measurement Tools
We are observing a divide in today’s sustainability teams. Some are developing custom-built, internal tools whilst others opt for external tools. In this guide, we unpack the age-old ‘build vs buy’ conundrum in the context of emissions measurement.
This guide covers:
The 3 internal build archetypes
The advantages and disadvantages of both ‘building’ and ‘buying’
Key considerations to assess your requirements and choose the approach that best meets your business needs
Archetypes of Internal Build
Internal tools can be bucketed into one of three archetypes:
1. Simplified Emission Tracker
Individual Excel spreadsheet or tab, 1-3 tabs running.
Small enterprises with $1 - $10 million revenue
2. Advanced Emission Management Suite
A complex G Suite/Excel model with intricate assumptions, calculations, and context.
Mid-size businesses with $100m - 2 billion revenue
3. Integrated Tech
Stack Puzzle
Multiple software tools (> 3-4), and consultants with external parties such as data providers.
Large enterprises with $5b - 50b revenue
Industry observation: Forward-leaning organisations, who have been addressing this topic for some time have developed internal capabilities, typically covering Scope 1 & 2 and increasingly Scope 3. Scaling Scope 3 measurement presents several unique challenges:
Data Integration Challenges: data feeding in from different data sources in varying formats and structures requires robust data integration processes.
Assumptions and Accuracy Variances: accuracy can be impacted by the choice of emission factor, assumptions made to fill gaps and uncertainty over the completeness of input data. The impact of this is that the business is likely not to trust the data for decision-making.
Complex Formulas and Enrichment: reliance on increasingly complex formulas to enrich calculations with relevant context and metadata. These are resource intensive to update and manage.
Accuracy can be impacted by the choice of emission factor, assumptions made to fill gaps and uncertainty over the completeness of input data.
Building an Internal Tool
Advantages
Customisation: It is easy to tailor to your organisation’s unique requirements and processes. You have control over the data structures, visualisation and functionality, allowing for a personalised solution that aligns with your business needs.
Full Visibility: Access to underlying assumptions and calculation formulas that generate your emissions inventory. This level of visibility enables you to deep dive into the data with a comprehensive understanding of the emission calculation process. This transparency can be appealing to organisations seeking independence and strategic alignment as it allows for greater control and oversight compared to many “off-the-shelf” software tools.
Scenario Trial: Experiment and model different scenarios with relative flexibility and ease. This capability allows users to trial various scenarios, such as adjusting the product mix or altering the composition of packaging materials. By conducting scenario trials you can identify potential reduction opportunities with data-driven decisions.
Disadvantages
Maintenance: Ongoing maintenance efforts are resource intensive. Depending on the internal build archetype, this includes:
Keeping assumptions up to date
Ensuring comparability of emission factors year on year
Centralising millions of lines of supplier data
Managing the various components of the tech stack
Maintenance can become complex and time-consuming, posing challenges for accurate data analysis and regulatory compliance.
YoY Comparison: Replacing assumptions and making changes to the model can make year-over-year comparisons challenging. It becomes difficult to demonstrate historical data consistency, particularly in regulatory contexts, where managing and tracking changes can be cumbersome. It also erodes trust in your data if you can’t consistently map data sources and improvements.
Siloed Expertise and Talent Turnover: Dependency on individual sustainability practitioners and the risk of knowledge siloing means that talent turnover can pose a significant threat. If key individuals responsible for the model or tool leave the organisation or move to different roles, valuable knowledge and historical assumptions can be lost, hindering continuity and data accuracy.
Engagement and Usability: In-house tools can face challenges when it comes to engaging multiple users and ensuring usability. Sharing the tool and collaborating effectively across different teams becomes complex. You need to have one master owner to avoid users breaking the model. Limited tech stack seats and customised functionality may restrict access and visibility, making it difficult to democratise data usage across the organisation.
Compliance: Keeping up with evolving guidance and regulations, such as changes in methodologies and emission factors, requires timely updates to ensure compliance. These updates evolve at different paces e.g., agricultural value chain guidance is evolving slowly comparatively to corporate baselines. Managing these updates and maintaining data integrity can be challenging for an internal team with competing priorities.
Hidden costs when building a tool:
Internal resource - to build, maintain and manage the tool. Our research suggests that 40% of a corporate sustainability professional’s time is spent collecting, collating, and cleaning data.
Data licenses - e.g., businesses can typically spend up to £10,000 on emission factor data licenses.
3rd-party measurement validations - with increasing scrutiny on emission measurement, the expectation is to validate and integrate with a 3rd party anyway.
Buying 3rd Party Software
A rapidly growing alternative to building a measurement tool in-house is to buy a full-stack solution that aims to tackle all aspects of emissions. This differs from the ‘Integrated Tech Stack Puzzle’ as this approach involves implementing one solution rather than creating a custom solution with many pieces of 3rd party technology.
Advantages
Eliminate surprise costs: With an external tool, you avoid the hidden costs that come with building a tool in-house. When these hidden costs are taken into account, the overall expenditure of building a tool is likely to surpass that of adopting an external tool.
Usability: When dealing with multi-year data maintaining version control becomes increasingly important. An external emission measurement tool can manage changes, version control and data analysis to reduce the management burden and enable greater value capture.
Disadvantages
Reduced Customisation: Using a single tool may limit customisation options. It's important to choose a tool that offers customisable aspects to ensure you can tailor measurements and obtain actionable insights relevant to your business.
Budget Allocation: Justifying the upfront cost for an external tool requires reporting a direct ROI. Advice on how to argue for more budget here.
Dependency on Manual Assistance: Ensure it is software you are purchasing, not consultants behind a strong visual dashboard. If the chosen software heavily depends on manual consultant assistance rather than automation, the advantages of investing in software might not be fully realised.
Industry Insight: We anticipate there to be an industry shift to measuring and sharing product baselines over corporate baselines. Standard-setting organisations, most notably PACT, are moving fast on this. With backing from a suite of global companies including P&G, Unilever & Nestle, PACT is setting up frameworks for businesses to calculate and exchange Product Footprints, driving greater accuracy and actionability in emission measurements. Achieving this level of granularity is challenging, if not impossible, to reach with internal tools.
Key Business Considerations to Make the Best Decision:
There are key considerations to take into account to ensure you are investing in the right approach for your business at the right time:
Identify data management pain points. Sometimes the problems you face require internal alignment (e.g., company buy in) and process improvement rather than new tools.
Evaluate your internal bandwidth. Evaluate if internal resources can keep at pace with evolving standards and regulations. This may involve adapting to increased reporting frequency, data accuracy, standardised collection and calculation methods e.g., Incoming Land Based Emission FLAG reporting requirements.
Determine the business value and lock down the budget. Quantify the business value of using external software. For example, take a B2B company, operating within one vertical. Having certified, regularly updated data to provide to strategic accounts can help market positioning. The upside value of meeting this demand is significant for retaining and generating new business.
Facing the build vs buy dilemma? Get in touch to understand how Altruistiq can help.