Example Planning projects at different levels in an electric utility

An electric utility, providing electricity to a set of private and corporate consumers, might start with a corporate level assessment of annual profit Pt, equal to annual revenue Rt, less annual costs Ct, for t = 1,2, ... , n, up to the chosen long-term planning horizon.

Revenue might be a key source of uncertainty, worthy of major risk management effort. Forecast demand might be important here, but existing competing utilities, possible new competitors, market regulators, and other political players may be important parties to consider.

Cost might also be important. At the corporate level, cost may be driven by long-term strategic planning decisions: what mix of sources of power should be aimed for 25 years hence, what proportion of nuclear, gas-fired, coal-fired units should be planned for, and so on. Through-life costs will be important, including fuel costs, the effects of environmental legislation or technology development, and liability for pollution or accidents.

At an operational level, management is concerned with the day-to-day utilization of existing units. At an intermediate level, an important management concern is the timing of decisions to start building new power-generating units. Such decisions may be coupled to both short-term, operational issues and longer-term strategic issues. Sudden failure of an existing unit may trigger a need to bring plans forward. Political events may alter the need for a planned unit significantly, perhaps even eliminate the need for a unit, possibly doing so when construction of the unit is already under way.

The project manager for the construction of such a unit clearly needs to manage the project in a way that deals effectively with the sources of uncertainty he or she is responsible for and ensure that the sources of uncertainty other members of the organization are responsible for are managed in a supportive manner.

Motivation to undertake risk analysis in a top-down strategic manner needs to come from the organization's board level managers. This involves issues beyond the scope of this book, but discussed elsewhere (Chapman and Ward, 2002, chap. 11, develops Example 2.1). However, even if a project manager's organization chooses to ignore such issues completely, a competent project risk manager should not do so. At the very least, it is important to identify the complete set of corporate risks that impact on the project manager's project and may require responses from the project manager or other parties.

For some purposes and from some perspectives, it can be important to distinguish project management and programme management, to see whether uncertainty is an issue or not. For example, see CCTA (1995a, b, and 1999). We will not develop this distinction for risk management purposes in either/or terms, but treat programmes as the strategic end of a strategy-tactic or programme-project dimension that characterizes projects in an important way for RMP purposes—a driver that should shape the nature of the RMP used, directly comparable in this sense with the stage in the PLC.

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