methods of project prioritization

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Methods of Project Prioritization. Alan Sowell Regional Manager, T&D Services Burns & McDonnell. April 10, 2006 APPA E&O Technical Conference Sacramento. EEI, Member Companies Invited to Testify at Senate Conference on Climate Change - PowerPoint PPT Presentation


  • Methods of Project PrioritizationAlan SowellRegional Manager, T&D Services Burns & McDonnellApril 10, 2006APPA E&O Technical ConferenceSacramento

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  • PurposeUnderstanding that todays utility environment generates a broader range of projects competing for limited resources, we shall discuss a prioritization framework that enables us to:Evaluate diverse projects equitablyIncorporate multiple evaluation techniquesDeliver a consistent forced project ranking

  • AssumptionsEach project is an investment in your utility. Investments that are not in line with your strategy should be culled from your project list before proceeding.Think Before You InvestTransmission & Distribution World March 2006

  • The Elements of PrioritizationCost BenefitAnalysisRisk AnalysisExternal Impact AssessmentWeighted Evaluation Matrix

  • Cost-Benefit AnalysisFinancial MeasureNormally favors revenue projects over capital replacement and O&MSunk costs are not includedAvoided future costs are a benefitTime horizon is life of the investmentCost-Benefit Ratio = NPV / Initial Cost

  • Cost-Benefit AnalysisNPV = Net Present ValueCalculating NPV is an exercise unto itselfFinancial expertise required:Sarbanes-OxleyGAPFERC AccountingSample Cost-Benefit Calculation:Lineman training programCost: $250,000Benefit: Improved efficiency, reduced overtime; NPV = $1M

    Cost-Benefit ratio = $1M/$250K = 4.0

  • Risk AnalysisEvaluates the risk of not performing the project against the cost of the projectHazard Identification is the probability of a certain type of risk/event occurringThere can be many HazardsExposure assessment is the impact of the risk/event (in $)Risk Ratio = (Hazard Identification x Exposure Assessment) / Project Cost

  • Risk AnalysisHazard Identification Risk of not completing the projectLoss of RevenueLoss of LifeLoss of AssetsLegal LiabilityRegulatory PenaltiesEach valid risk is evaluated with a % chance of occurrence

  • Risk AnalysisExposure AssessmentMaximum financial exposure of each riskLoss of revenue = revenue at risk if project is not completedLoss of life = financial cost if failure contributes towards a fatality Financial values of large value risks should remain constant across projects or reflect current accepted values.

  • Risk AnalysisSample Risk CalculationProject: Rebuild an aging transmission lineCost: $250,000Risks:50% loss of revenue x $50,000 = $25,00010% loss of life x $1,000,000 = $100,00010% tort x $5,000,000 = $500,000Risk Ratio = $625,000/$250,000 = 2.5

  • External Impact AssessmentEvaluates the potential for external impacts using a multi-cell matrixReduces dependence on Mythical NumbersImpacts are either positive, neutral, or negative (1,0,-1)Identifies externals, impact categories, and potential impact

  • External Impact AssessmentThese questions will serve as a guide for creating Externals and Impact Categories:Who will be impacted?What will be the nature of the impact?When will the impact occur?Where will the impact be felt?How will the impact affect all stakeholders?Resist the temptation to use subjective scoring techniques

  • External Impact AssessmentExample: new transmission line Max value for this example is 9Scoring1= positive0 = neutral-1 = negativeDocumentation requiredOne matrix for all projects evaluatedProject score = 0

  • Putting it all TogetherStep 1: Raw Evaluation Matrix

  • Putting it all TogetherStep 2: Weighting the categories

    Cost-Benefit = 30%Risk = 40%External = 30% Weighting considerationsShould support strategyShould reflect critical factors in the business climateShould not favor one class of project

  • Putting it all TogetherStep 3: Establish maximumsCost-Benefit max = 4Risk max = 3External max = 9

  • Putting it all togetherStep 4: Assemble Weighted Evaluation Matrix

  • Putting it all TogetherFinal Observations:Weighted scores will be on a 0 to 100 point scaleWeightings can change final project rankingsTies are possible, but less likely

  • SummaryCost BenefitAnalysisRisk AnalysisExternal Impact AssessmentAdopt a versatile framework to prioritize diverse projectsPlace data in an evaluation matrix, apply weightings, and establish project priorities on a 0 to 100 point scale

  • Questions


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