Evaluating capital project prioritisation in a national electricity provider

Abstract

Capital project prioritisation and selection of right sets of project portfolios and programmes are important in organisations archiving their corporate strategies and to remain competitive and relevant in these challenging economic times. The purpose of the study was to evaluate capital project prioritisation in a national electricity provider. Eskom Group Capital Division (GCD) is identified as an important division within the national electricity provider and as such selected for the purpose of conducting this study. In 2013, Eskom applied for an annual increase of 16% over the MYPD3 period which translated into higher revenue as compared to the approved National Energy Regulator of South Africa 8%. The impact on capital projects is evident in that the organisation has to re-evaluate, re-prioritise and implement new measures to manage the execution of capital projects which was the bulk of capital budget expenditure under the MYPD3. This study was aimed at assessing the effectiveness and efficiency of the existing prioritisation process to deal with funding shortfall on capital projects in the GCD in order to support the organisation for effectively allocating resources to projects accordingly and maximize its benefit. A literature study was conducted to gain a better understanding of the concept of capital project prioritisation and the selection process as well as relevant aspects. The literature study revealed that prioritising and selecting projects that are best aligned with organisation strategic priorities are essential for organisations to allocate resources and execute projects that yield the highest value to the organisation. Furthermore, prioritising of projects from project portfolios or programmes has in recent years become a focus area at many organisations seeking to optimise resources and stay competitive. This was apparent as a result of the availability of literature studies on the subject. In order to evaluate the capital project prioritisation process at Eskom, a questionnaire was used as a main instrument to collect data from targeted employees and the semi structured interview was used as secondary instrument to collect data from identified specialist personnel who participated in the prioritisation process. The questionnaire consisted of three sections, namely: section I consisted of the respondents’ biographical information, section II assessed the effectiveness of the capital project prioritisation process under-funding constraints environment and section III consisted of the challenges associated with the prioritisation process. The results of the analysis indicated that the current prioritisation process at Eskom is effective as it is aligned to corporate strategy. The process tend to focus more on new built projects that are related to security of electricity supply and less focus on maintenance related projects. In general, the study did not find serious non conformances in the current application of the project prioritisation process at GCD as the division has mature structures, procedures, processes and resources to manage the prioritisation process. However, due to the fact that the announcement by the National Energy Regulator of South Africa (Nersa) regarding the MYPD 3 application has resulted in the need to apply tighter measures on selecting projects, certain changes and improvements to the current system are recommended to ensure that resources on capital projects are optimised and investment funding can be channeled to the right project portfolios and programmes.