Capital Project/Portfolio Management

Developing an approved annual capital budget is a critical challenge for most complex utility organizations. From an individual project management point of view, beginning with a fully vetted, viable project is the critical step for successful project delivery, Usually there are many, many projects in Planning, and while they might need project management, the main challenge is to identify, evaluate, prioritize and select the projects to include in the annual capital portfolio.

The Planning step is really just the first phase of Project Portfolio Management, which is to develop a fully resourced and achievable annual work plan, and then deliver against that work plan. The overall project process in a complex utility organization can be described in two major phases as shown in the figure below:

Phase 1: Develop Annual Capital Work Plan

Identification: through various fact finding, problem identification, and analysis, identify projects that can potentially improve operations
Evaluation: Rank the projects based upon financial, risk, service, and other factors
Selection: Pick the portfolio of projects that optimizes benefits through use of available resources

Phase 2: Execute Annual Capital Work Plan

Portfolio Management: Review, re-evaluate, and adjust the initial portfolio throughout the year as objectives change, additional projects are identified, or the scope or cost of ongoing projects force changes
Individual Project Management: Perform work on the individual projects in the work plan, from initiation to close-out.
We will use this overall process model to understand key issues in Capital Project Portfolio Management for Electric T&D.

Literature Review Goals
The goals of the secondary research will be to identify:

Best practices in portfolio management in capital intensive industries
Specific differences in the application of portfolio management to electric T&D projects
Case studies that have been written about Electric T&D portfolio management

Specifically, Electric Utilities have additional challenges, because very few of the projects are susceptible to the typical rate-of-return analysis typical of capital budgeting. Typical utility categories include:

Public and Employee Safety
Environmental Compliance
Reliability Improvement
Mandatory relocations
Obligation to serve new customers
Load Growth
Infrastructure Replacement
Emergency Repairs

Thus the “objective function” that must be optimized defies simple return on equity calculations. Consulting firms and others offer specialized prioritization software that takes into account these multiple objectives.

Questionnaire/case study Goals

The goal of the research is to identify ways Electric T&D organizations follow the project portfolio management process:

1. Identification: what techniques are currently used?

a.    Asset replacement rate/failure rate models
b.    Annual/Seasonal reviews of system capability vs actual and forecasted loads in accordance with established planning criteria
c.    Forecasting of new business activity.
d.    Identification of known new and continuing projects that span more than one planning period
e.    Gap analysis of current performance vs targets; establishment of “gap closure” projects
f.    Evaluation of changes in government regulations and plans to comply.
g.    Project categories and ties to strategic goals
h.    Relationship to O&M budget

2. Evaluation: How are projects evaluated against multiple criteria?

a.    Software Tools available and used. (e.g. Davies, KEMA, UMS, etc.)
b.    Assuring that the priorities used result in selection of the optimum collection of projects to fund.
c.    Measures used in success tracking (e.g. Value index, Merit)
d.    Regulatory mandates – maintenance and capital drivers

3. Selection: How are projects selected?

a.    Inclusion of resource availability in the analysis/delivery process
b.    Cross-Functional Optimization approaches used
c.    Role of Finance in budgets

4. Control: What processes are in place to reevaluate portfolios?

a. Approval steps for the budget
b. Performance evaluation, including specific measures used.

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