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Minimising risks by modelling business processes
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There are many complex situations in business and in Government where it can be difficult to recognise pitfalls or opportunities. Using a recent assignment for a major utility, we look at how modelling techniques can be used to help capture and rationalise complexity, identify cost consequences, and map the best path forward.
Background
The economic regulation of utilities is a complex and sometimes adversarial process of which a major element is the Periodic Price Review. The parties involved, the Regulator on the one hand and the utility on the other, are striving for an outcome that achieves the best deal for their stakeholders. Utilities are complex businesses with many influences on, and demands for, different uses of capital and operating expenditure. If this is then coupled with a changing legislative background, new social pressures and changing technologies, then the levels of complexity are substantially increased. Taking an inappropriate stance, not recognising the full range of impacts of an initiative or making a misjudgement in regulatory negotiations, can cost an organisation a great deal of revenue.
The Issues
It was with these thoughts in mind that a major electricity utility approached Oakleigh Consulting to find a way to minimise their regulatory risks within the Distribution Price Review. They needed a means to:
- Flush out and identify the many and varied interconnecting issues.
- To capture these in a way that enabled the interconnections and their impacts to be visualised.
- Have these in a structure that enabled their regulation team to systematically consider the implications of each and to devise appropriate strategies for the issues.
- Revise the model to reflect the measures they had taken.
The Solution
With their industry experience and understanding of the regulatory process, Oakleigh Consultants Mike and Bill worked with the regulatory team to draw out the various issues that would impact upon their submission to the Regulator. Using workshops they explored issues including capital expenditure, operating expenditure and regulatory influences. The potential for these issues to drive costs was also identified.
The issues identified were simultaneously entered into modelling software as the workshop progressed. A degree of interactive refinement was possible during the course of the workshop. The consultancy team then further refined the model, creating the underlying database records and identifying cost relationships that enabled the regulatory team to address these critical issues at their own pace.
Benefits
The electricity utility has found a way to identify the risks inherent in their periodic review; to relate these to each other; and to identify the cost impact of each. They have widened the perceptions of their regulatory team and as a result the strategies they have been able to adopt within the periodic review are better informed and the financial risks minimised. The utility also has the basis of a tool which can be further developed for the business to provide an integrated cost and strategic planning mechanism.
There are many complex situations in business and in Government where it is sometimes difficult to recognise the pitfalls or the opportunities. We believe these techniques could be used in a wider context to help capture and rationalise complexity, to identify cost consequences and to identify the best path ahead.
If you have any questions about the subjects covered in this white paper or you would like to find out more about how Oakleigh Consulting could help your organisation, please contact us on 0161 835 4100 or email us.
Copyright
You may publish, quote or reproduce any white papers on this website on the condition that Oakleigh Consulting Ltd is notified, properly credited (and linked to) as the source, including our URL: www.oakleigh.co.uk.