Historically, the electric utility industry has not had detailed cost management information to use in making tactical and strategic decisions. Their systems were designed for a regulated environment, and did not support activity costs and profitability by product, service and customer.
As mergers, strategic partnerships and product diversification become the norm, this type of organizational structure will no longer work. Now more than ever, utilities must increase customer satisfaction, optimize return on investments, effectively manage risk, maximize profitability and reduce organizational costs. Activity-based costing, multi-dimensional profitability analysis, and performance scorecards are popular analytic applications that will allow utilities to understand their costs, profits, and overall organizational performance.
PeopleSoft, an enterprise resource planning (ERP) solution provider, recently released its enterprise performance management suite of applications focused on the business basics required in a competitive environment. Enterprise performance manag- ement (EPM) is specifically developed to extract data from existing ERP systems and provide high-level, industry-specific and role-based performance and profitability measure- ment, analysis and reporting.
Like other utilities, Detroit Edison, the seventh largest electric company in the United States, is faced with deregulation and severe competitive pressures. Detroit Edison realized it needed to acquire an in-depth understanding of the true nature of its costs and joined with PeopleSoft to beta-test the new performance management product.
As part of the beta-test, Detroit Edison wanted to implement a repeatable and sustainable activity based management (ABM) system that accurately identified costs for processes, products, corporate support services and customers. It also wanted to develop cost-model structures for each business unit that provided comparable cost-management information utilizing consistent data sources. The utility piloted the PeopleSoft EPM application across the organization, creating models for service centers, power plants and corporate support organizations. Implementing ABM allowed Detroit Edison to identify process improvement and cost-reduction opportunities based on model output and operational information.
Detroit Edison is developing cost models for all of its power generation and customer service facilities, as well as all corporate support organizations. During the implementation projects, several million dollars in improvements were identified.
The EPM software was implemented in late 1998, but Detroit Edison has already seen significant results in its overall business processes. The software allows Detroit Edison to:
– calculate monthly process costs by generating unit to quantify which processes had the greatest impact on profitability, and to identify differences in operating efficiency and costs between similarly designed units;
– examine process costs between similar units within a plant and across plants to identify cost improvement opportunities as l well as to facilitate best practices through knowledge transfer;
– identify the products and services provided by the human resources organization to the operating business units;
– quantify usage and costs to support assignment of costs to consuming organizations;
– identify major products and services within the transmission and distribution service centers; and
– quantify customer connection and system maintenance costs for comparison across service centers, including: differences between underground and overhead new service installations; differences between design and planning costs in various processes; and cost of line clearance per mile.
As Detroit Edison has seen, a properly executed performance management strategy enables utilities to model the business to improve bottom-line performance.
Inquire R.S. 101