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Context

Ausgrid, who operate and maintain Australia's largest electricity network (and distributes more than 30,000GWh annually to approximately 1.6million customers over 49,000km of overhead lines and underground cables), has a forecast capital investment program in excess of $8 Billion in the 5 years to 2014. This large capital investment program has projects ranging from a few thousand dollars to hundreds of millions of dollars.

Ausgrid's capital expenditure decision is complicated by having to simultaneously manage competing organisational drivers (e.g. growing vs. maintaining the network), allocating scarce resources, and complying with a wide range of regulations under both Federal and State legislation. These regulations relate to customer pricing, licence compliance conditions relating to system security and reliability standards, as well as the occupational health and safety and environmental regulations applicable to all businesses.

 

Modelling Approach

Evans & Peck developed a holistic framework and modelling tool to assist Ausgrid with their project selection. The framework brings consistency to Ausgrid's project evaluation processes across asset types and business units.

With an overarching corporate strategy focussed on risk minimisation, the portfolio approach considered a wide range of risks at both corporate and customer levels over a long-term planning horizon. A “corporate health index” was developed using key business drivers to quantify the impact of individual projects on risk mitigation.

The modelling tool simulates the impact of projects on the existing network, and employs sophisticated optimisation algorithms to select the portfolio. Project dependencies and portfolio constraints (resources/budget) are considered in the optimisation process.

Evans & Peck's solution enables Ausgrid to effectively monitor implementation of the capital program, and allows management to plan the future trajectory of their corporate risk profile.

Some of the key outcomes for Ausgrid were:

  • Understanding the true impacts of projects on the organisation;
  • Incorporation of environmental, social and community-oriented strategic goals into portfolio strategy;
  • Monitoring of risk mitigation during program delivery;
  • Rebalancing of the portfolio to reflect changes in strategy and project performance;
  • Efficiently and defensibly allocate funds between equally important business units;
  • Bringing transparency to the project selection process throughout the organisation;
  • Forecasting skilled-resource and critical equipment requirements;
  • Strategy is communicated through the organisation and the most effective projects are chosen in a consistent way.
 

Brochure

A brochure on this modelling approach can be downloaded from here.

 

Other Applications

The same decision modelling method has been applied to:

  • Selection and sequencing of a portfolio of carbon abatement projects to enable a water utility determine the most efficient pathway to reach its carbon reduction targets
  • Selection of tenderers bidding on multiple work packages to minimise total cost, whilst considering capability constraints of each tenderer
  • Analyse the annual project portfolio performance for a global architectural firm

 
 

Key Modelling Technique: Project Portfolio Optimisation
Modelling Software Used: Evans & Peck's Optimised Project Portfolio Allocation (OPPA)