by Christen Bergerud, EcoSys
Utilities manage many projects, from high-volume and low-cost maintenance to capital-intensive, long-term development of generation, transmission and distribution infrastructure. Project life cycles can span 10 years or more.
Hurting the bottom line could be lower commodity prices and higher costs, a need to refocus capital spend on maximizing operations in light of tighter margins, or a refocusing of construction plans to meet a sudden shift in demand. There is also the risk of financial penalties related to regulatory change. Utilities need a way of managing change on project portfolios, especially where long-term capital investments are concerned.
Project controls deliver a framework to plan and account for risk relating to change. Coupled with advances in enterprise planning and project controls software systems, utilities can realize greater visibility into project performance. Planning and controls software systems allow utilities to make more informed planning decisions that incorporate risk management processes tightly with project planning and execution procedures.
Most utilities aim to maximize the value of their portfolios through a project selection process that forecasts and prioritizes projects in the long term. They build long-range multiyear plans for all their capital investments across generation, transmission and distribution organizations so they can align their selections with corporate strategy. Each project has attributes that identify how well-aligned it is to organization initiatives and identify the levels and types of risk associated with the project. This helps utilities identify where to focus their financial and human resources for efficient execution and maximum return. Utilities, however, tend to devote time and resources to managing larger capital projects and do not track smaller ones as closely. Small, high-volume projects probably equate to a sizeable investment when aggregated, though, so the risk for cost overruns and mismanagement exists. In addition, often utilities manage project schedules with special software that employs work breakdown structures (WBS) to identify activities that constitute the projects. The WBS, however, do not align naturally with the format and coding structure of accounting systems. The latter most likely will track at total project level and use general ledger account codes, whereas schedules imported from a project management system are broken down by WBS activities and coded differently. What’s more, utilities commonly manage smaller projects with basic spreadsheets.
The result is data silos; utilities lack appropriate project visibility across portfolios. As the number and complexity of projects and regulatory requirements increase, data volumes rise on a massive scale, making it even more challenging for utilities to manage their project portfolios effectively.
Bridging the Gap
Many utilities are overwhelmed by data to track. From the finance and project management office across plant managers and engineering groups through to the C-Suite, silos of data and a lack of transparency expose them to greater risk.
Project controls software provides a centralized repository for all project costs and standardized cost control structures with project-specific flexibility. The software facilitates standard approaches, processes and reporting–from initial estimating and budgeting through forecasting, measuring progress, controlling change, reconciling expenditures and project close out–that are part of the project controls discipline but often are executed manually and inconsistently across projects. Project controls bridge the gaps among silos of spreadsheets, enterprise resource planning-accounting software and scheduling tools to provide visibility into metrics and performance for easier proactive decisions that improve performance during delivery. They also make it easier to evaluate performance across projects, assign resources and assess a rolled-up portfolio view of performance. Project controls also allow users to respond rapidly to change. With real-time access to integrated data, project controls analysts can update forecasts based on current and historical trends, re-forecast as a project progresses and create what-if scenarios within the cost management system to account for worst-case scenarios. Further, they can have contingencies defined based on realistic scenarios with a system that enables them to act rapidly and then track the outcomes of specific actions.
Aligning Project Selection With Corporate Strategy
Strategic planning involves identifying large capital investments that will bring the greatest value, whether through building infrastructure to optimize production or increasing transmission and distribution capacity and efficiency. U.S. utilities that implement enterprise planning and controls to support their long-range planning for capital investments are creating what-if scenarios against their long-range plans. This is a collaborative management process in which key management representatives ensure project selection is aligned with corporate priorities. As each project starts to execute, a utility can re-forecast and re-plan better because executives have data in dashboards and can use this business intelligence to make informed decisions.
A utility’s long-range strategy becomes a living plan in which users can update monthly and quarterly forecasts directly online with reasoning and justifications attached as commentary. They also can make changes based on each project’s risk mitigation plan and have instant access to timely information around actuals and estimated actuals on a monthly basis. With this level of data in a single system, users can see quickly whether a project is performing according to plan and what the trend looks like. If their cost performance trend is slightly above or below forecast, they can re-forecast the rest of the project based on the updated trend. Users also can apply forecasting methods based on performance or their expertise. Either way, the system helps more accurately predict how a project will proceed.
Using one system to manage different projects at different levels of rigor based on their complexity, cost and project management resources is a powerful proposition. Cost and schedule overruns can be anticipated when there is still time to take actions. The impact of change can be analyzed, contingencies can fund changes as they become necessary, and a rapid, timely response can be driven throughout the organization should these risks be realized.
It is also common to build a risk register for each project that assesses the cost and schedule impacts and likelihoods for each risk. Having conducted this analysis at the project selection or planning stage, utilities can take action if a risk appears. A contingency also can be integrated seamlessly with a change control process. When a risk moves from a potential occurrence to one that will have an actualized budget impact, the system will enforce the necessary approvals, draw down from contingency, and apply the appropriate changes to budgets and forecasts.
Flexibility and Agility
An enterprise planning and project controls platform can help utilities consolidate hundreds of millions of financial transactions from disparate sources and roll data into summaries by a standard reporting structure and present the information in simple management dashboards.
By planning and selecting each project in alignment with corporate goals, utilities can base investment decisions on what will be achieved: a forward-planning approach aligned with long-term strategy. On top of this, an enterprise planning and project controls platform can respond to change should a risk be realized. They could import data directly from a schedule and get an immediate cash flow projection, enabling highly dynamic decision-making. They also will have much greater agility because they have identified potential outcomes using what-if scenarios to identify the most appropriate route.
Christen Bergerud is co-founder and chief operating officer at EcoSys, where he shares responsibility for defining the product direction for EcoSys Enterprise Planning & Controls (EPC) software. Reach Bergerud at [email protected].