GM591 Unit 10 Project Selection Recommendation Memo Example

Two Obligations, Then Five in Order: A Unit 10 Project Selection Recommendation to a Cooperative Board

[Student Name]

Purdue University Global

GM591: Strategic Project Selection and Initiation

Unit 10 Selection Recommendation

[Instructor Name]

[Date]

The electric cooperative, its board, its projects and every figure are composite and illustrative; the frameworks cited are real.

Memo

To: Chair, Board of Directors, Coteau Plains Electric Cooperative From: Planning Committee, prepared by the Business Systems Analyst Date: March 3 Subject: Recommended capital portfolio for the coming cycle

Summary

The committee recommends funding two obligations outside the ranking and five discretionary projects in the order below. Each recommendation reflects value discounted at 6.5 percent, the cooperative's borrowing cost, the weighted score the committee fixed before scoring, the quarter the project can start given staff capacity, and the condition under which it would stop.

Obligations, Funded Outside the Ranking

Pole-loading remediation, including the drone inspection method merged into it, is required by the state safety code within three years. Control network segmentation must be finished for the cooperative's cyber policy to renew. Both are funded first, and their staff needs were counted before any ranked project in the capacity review.

Ranked Discretionary Projects

First: meter replacement. NPV $3.58 million; weighted score 75.0; start in the second quarter, with a pilot district, after the network model correction begins; stop if billing integration fails at Gate 1 or if the meter reading and truck roll savings miss their targets by over a fifth after two years of tracking.

Second: the outage system and member app. NPV $0.60 million; weighted score 79.0; start in the third quarter, once the corrected network model is available; stop if the vendor's system fails acceptance testing against the corrected model.

Third: vegetation analytics. NPV $0.59 million; weighted score 77.0; start in the fourth quarter, after the GIS peak; stop if the first year does not repeat at least half of the trial district's reduction in tree-related outage minutes.

Held: the fiber pilot's phase two. NPV of the full program negative $3.37 million at current assumptions; weighted score 46.0; held under the Gate 3 conditions the committee adopted in February.

Declined: community solar. NPV negative $0.41 million; weighted score 45.0; declined for this cycle.

Meter replacement ranks first even though the scoring model placed it third, because it creates three times the value of the other two positive projects combined and the outage system depends on its data.

Why the Order Departs From the Scores

The weighted scoring model placed the outage system first, vegetation analytics second and meter replacement third, within four points. The committee's recommendation reverses the first and third for two reasons. First, meter replacement's net present value of $3.58 million is about six times that of either of the other two, a gap the scoring model narrows because money is one criterion of six, weighted at a fifth of the total. Second, the outage system will predict outages far more accurately once meters report power loss automatically, so funding it first would deliver less than its score assumes. Norman Archer and Fereidoun Ghasemzadeh recommend that interdependencies between projects be considered explicitly at the portfolio stage, because projects scored one at a time can miss them (Archer & Ghasemzadeh, 1999).

A Response to the Case for Fiber

Director Lund has argued that broadband is the most important service the cooperative could add for its members, and that holding phase two signals the board has lost interest. The committee does not agree with the second point. Fiber is held, not rejected. The pilot continues to sell service, and phase two capital will be released in October if sign-ups reach 32 percent of homes passed, the state grant is approved and phase two bids come in below $5,800 per home. These conditions are what the program needs to add value rather than lose it. The $7.0 million already spent on the pilot is not part of the case either way; Hal Arkes and Catherine Blumer showed how past investment pulls decisions toward continuing (Arkes & Blumer, 1985), and the committee has tried to judge only the money still to be spent. If they are met, fiber will enter the next cycle with a stronger case than any other project in this one.

The committee also recognizes that broadband serves members in ways the cooperative's financial measures do not capture. If the board wishes to fund fiber as a member service regardless of value, that is a choice the board can make, but it should do so knowingly, with the expected loss stated, and not by relaxing the gate conditions.

Solar's Path Back

Solar's value turns positive, by roughly a quarter of a million dollars, if the cooperative can borrow for it at 5 percent. If a federal or state program offers financing at or below that rate, the committee will bring solar back for review without waiting a full cycle.

Capacity

The capacity review found the cooperative's two GIS analysts needed at 190 percent of their hours under the original plans. With a dedicated network model correction, vegetation analytics deferred, contract support for segmentation and solar declined, every role stays at or under 105 percent through all four quarters. The Project Management Institute's portfolio standard treats capacity as a selection constraint, not a scheduling detail (Project Management Institute, 2017). This portfolio fits the people available to deliver it.

References

Archer, N. P., & Ghasemzadeh, F. (1999). An integrated framework for project portfolio selection. International Journal of Project Management, 17(4), 207-216. https://doi.org/10.1016/S0263-7863(98)00032-5

Arkes, H. R., & Blumer, C. (1985). The psychology of sunk cost. Organizational Behavior and Human Decision Processes, 35(1), 124-140. https://doi.org/10.1016/0749-5978(85)90049-4

Project Management Institute. (2017). The standard for portfolio management (4th ed.).