Monday, March 9, 2015

Why a CEO should take his house off the formal electricity Grid!

I am currently working with a consultant to move my household electricity provisioning off-grid. In this process of planning the system and developing a capital investment plan I am struck by the similarity of doing this and optimizing an organization's assets.

In essence the optimal capital expenditure of the off-grid system lies in determining the average workload required to keep the house running. If usage peaks are taking into account, that means all cooling, pumping and heating requirements are switched-on at the same time; then capital requirements increase exponentially. Thinking about a policy to stagger use throughout the day and the week impacts little on the daily lives of our family, but enables an operating environment close to the average workload.

This determines the optimal use of equipment and infrastructure.

To support this case we did a study at a large multinational company to understand how we can improve their product development processes, with an explicit view on time-to-market and the impact on Brand when last-to-market. Analysis of a 1000 projects showed that on average a project took 24 months to complete, with some running into 4 years to complete. 

By analyzing the process our calculations showed that if the company focused on smoothing product development in an active manner it would bring the project lead time down to 11 months. Cost of this implementation - a 30 minute meeting to discuss and formulate the policy ! Cost saving - in excess of 200 Million ZAR in staff costs annually. The top picture shows the average product development load over 10 years, and the bottom picture the revised load.

The secret to this ?
Complexity in systems are created due to uncertainty  - by doing a little bit of planning around uncertainty and using strategies such as policies, buffer stock or outsourcing one can better the system with little CAPEX expenditure; resulting in 30% to 40% performance improvements.

In conclusion - the most important thing I had to do to formulate this strategy in my "off-grid project" was to place a few measurement sensors across the electrical network so that i can form an idea of peaks and usage; having a monthly electrical bill did not provide any clues to optimal capital spend !

Going through this process will give the CEO a good feel for how an organisation should be optimized from a resource capacity perspective - by only looking at the financials one might miss a few solid optimization strategies !

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