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Problem Setting

Project Portfolio Management Is Important because of three factors: (1) Asset Intensive Business, (2) Pressure to Reduce Costs, (3) Hundreds of Competing Project Options.
Asset Intensive Business: Electric Utilities are extremely asset intensive requiring about four dollars of capital in-place for every dollar of annual revenue. This high ratio translates into extra-long periods for capital recovery

  • The market will not allow quick capital recovery.
  • Long-period capital recovery requires necessarily long economic lives and significant maintenance requirements

Pressure to Reduce Costs: Industry restructuring has and will continue to create pressure to reduce costs. At the same time the delivery infrastructure is aging and as a result demanding increasing levels of maintenance and replacement. For many companies, the funds allocated to capital and especially maintenance projects has been and is being reduced. Engineers are starting to be ask to build sound business cases for all significant projects.

Hundreds of Project Decisions: For most power companies building and maintaining electric utility infrastructure requires funding and executing literally hundreds of capital and maintenance projects every year. Excellence in managing these assets requires that utility planners and engineers treat fairly and consistently projects with different attributes (including large and small projects, projects with different time horizons, and projects that respond to different needs — financial, environment, safety, reliability, and customer requirements).

A key implication of the two challenges mentioned above, pressure to reduce costs and hundreds of project decisions, is that utilities must prioritize project proposals. There are currently more than 80 project portfolio management tools on the market that advertise support for project prioritization. However, nearly all prioritize projects based on simplistic point scoring models rather than based on the consequences of doing versus not doing the work. As explained elsewhere on this website and on mine (www.prioritysystem.com), point scoring methods fail to consider the harm that may occur if a project is not done (e.g., if maintenance is not performed), and they significantly undervalue certain types of project investments. In my experience, many utilities are making the mistake of purchasing project portfolio management tools based on point scoring systems that are not and can not produce accurate project-selection recommendations.