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P2.1 Introduction

Chapter 2 discusses literature review on project failure and success. The chapter aims to highlight success and failure factors at SA’s power utility and other organisations. To provide the reader with understanding, a brief review of PMBOK processes, literature on projects and project management is given. Project success and failure factors in other countries are explored.

2.2 Electricity utilities

Globally, electricity companies use project management framework and techniques to execute projects. Most countries have separate companies that run their electricity industry.  One company runs the generation of electricity. Another runs the transmission of electricity and another distribution (Blyth, 2010). South Africa is one of the few countries that have one company as the main electricity distributor. The high electricity generation capacity of South Africa’s key utility has placed it amongst the top 20 largest power utilities in the world. To standardise and govern all the projects properly, a standard Project Life Cycle Model (PLCM) is utilised in all the utility’s divisions. The PLCM may be altered in the division to suite the environment.

The Generation division in SA’s utility consists of mainly coal power power stations. The power stations generate electricity and transmit it through transmission lines. The power substations all have a project management office to execute the planned projects. The Generation division has started a capacity programme to build new power stations to generate electricity and meet the demand. The programme has increased the capacity by 7031MW so far. According to the organisation reports, challenges found with the projects are ongoing schedule delays and insufficient time for front end planning has impacted the total cost. The most highlighted projects are specifically the Medupi and Kusile power stations. The initial cost of Medupi was R105 billion but to date the cost is reported to be approved at R145 billion. The initial cost of Kusile was R118.5 billion but to date the cost is reported and approved at R161.4 billion. These projects are not complete. Generation division reported positive performance on the capacity milestones, a number of milestones were achieved either on time or ahead of schedule.

SA’s utility transmission division transmits the generated electricity from the power station to the distribution substation via transmission lines. According to the utility’s Transmission group business plan report, “the division has a mandate to optimally plan, operate and maintain Transmission’s assets throughout their economic life, and to provide an integrative function for the reliable development, operation and risk management of the interconnected power system” (Eskom, 2015). The project execution department oversees the execution and implementation of projects in the group in accordance with the PLCM (Dalgleish, 2010). Transmission projects can be classified as new expansion, refurbishment and electrification projects. The challenges faced in transmission regarding projects are managing project scheduling, maintaining the cost and providing sufficient time for project implementation. Challenges and delays have been reported to be caused by time required for the securing of land. The need for water-use licences impacted many transmission projects and resulted in further delays in the construction of transmission lines. Operational challenges were also reported. To a lesser extent, poor contractor performance, outage non-availability, strike action and community unrest have resulted in project delays.

The utility’s distribution division is the focus of the paper. The Distribution division distributes electricity to the consumer at a lower voltage level. Distribution processes and practices for executing projects are discussed.

2.3 SA power utility distribution: Project Management Framework

The section discusses the structure of project management and processes at the utility. The projects executed at distribution division include a wide variety of stakeholders to ensure successful completion of projects. Most projects involve the following stakeholders:

• Planning engineer

• Project manager

• Programme manager

• Portfolio manager

• Project engineer

• Scheduler

• Cost engineer

• Contracts manager

• Land and development manager

• Health and safety manager

• Quality assurance and monitoring manager

• Procurement

• User,

• Site construction

• Commissioning

The planning engineer will identify the network improvement opportunities that can benefit the utility. The identified opportunities are properly analysed and different alternatives as solutions are proposed. From the solutions a project is developed and follows the project life cycle model.  Rabie (2013) highlights that the project life cycle model consists of pre-project-planning phase, a concept phase, and a definition phase (detailed design). The detail design must be finalised for the project to move to construction, commissioning will follow and thereafter the project is placed in commercial operation (Rabie, 2013).

The utility Project Life Cycle Model (PLCM) standard, governs the initiation, definition, execution and finalisation of a project (Spammer, 2012). PLCM consists of four standard project phases and five phase gates as shown on Figure 3 (Spammer, 2012).

Rabie (2013) lists the project phases of the utility’s project life Cycle as follows:

• Concept phase

• Definition phase

• Execution phase

• Finalisation phase

Young (2009) encourages the use of project phases as it ensures that a standard process is followed for all projects and comparison can be made between the projects. He further highlights that each phase follows another sequentially and different deliverables are required for decision processing to the next phase (Young, 2009). The phases and gates are shown in Figure 3 below:

Figure 3: The standard Eskom project stages (Spammer, 2012).

Each phase of the project life cycle has a gate review before the next phase is executed. Gate reviews involve the approval and sign-off of all project elements in that phase before investment approvals (Rabie, 2013). The gate review process is for the benefit of the investment committee in ensuring transparent governance (Rabie, 2013). Young (2006), further states that the principle ensures that any decision during the project life cycle is dealt with at the appropriate time and that all work in phase is completed to the satisfaction of the committee and the customer.

The utility’s five gate reviews are as follows (Rabie, 2013):

• Concept Release Approval (CRA)

 The CRA signifies the end of the pre-planning project phase. At this stage, the CRA investment approval requests the cost to cover the concept design for the specific project. This could include budget for environmental, land valuation and long lead time material. The estimated total initiative value needed for project execution will also be indicated for the release of the CRA form.

• Definition Release Approval (DRA)

 The DRA signifies the end of the concept phase. DRA investment approval should request the budget required for the detailed design, final survey costs and could include long lead time material. Long lead time material approval on DRA forms needs to be approved at the relevant Investment Committee. The estimated total initiative value needed for project execution will also be indicated.

• Execution Release Approval (ERA)

o The ERA signifies the end of the definition phase. ERA investment approval should request the budget for the total project execution costs. The estimated total initiative value needed for project execution will be requested if not all the projects are in the definition stage. For the overall projects in the definition stage, the total initiative value needed for project execution will be requested.

• Hand Over Approval (HOA)

o At this stage there are no investment approvals. The deliverables are a constructed and commissioned asset.

• Finalisation Release Approval (FRA)

o Approval of actual project cost and completion date.

The processes and stages as explained above reveal the utility’s commitment in following project management processes and successful completion of projects.

2.4 Summaries of Projects at Eskom distribution

The distribution division has a large customer base and therefore has numerous projects to be completed each year. The projects are executed following the PLCM processes as discussed above. Most of the distribution projects have incurred cost overruns and are delayed.  Capex has been affected by the delayed projects.  The project costs at the start of the project include the following components:

• Project management

• Engineering design

• Materials

• Construction

• Commissioning

• Overheads

The following projects as shown in Table 1 provide more insight into distribution projects.

Start Date Planned Completion Date Actual Completion Date Planned Budget Cost(Rmil) Actual Budget Cost(Rmil) Actual Cost on Project Start (PV)(Rmil) Variance(Rmil)

Bynes 2012/02/23 2014/07/30 2016/09/30 7.2 10.6 6.9 -0.3

Rayton 2012/03/01 2014/06/30 2015/11/30 20.6 31.2 22.1 1.5

Everite 2010/09/01 2011/10/31 2013/08/30 12.6 12.8 9.7 -2.9

Table 2: Summary of Distribution projects.

Time value of money is considered in evaluating the projects by assessing the present value on the project start date. Present value is commonly accepted as the best measure of investment performance. The actual budget cost was presented in the year of project start. The assumption made is that the interest rate is kept at an average of 9.4%. Secondly, it is assumed that the project is paid in full only on completion.

The projects above offer benefits to utility and customers. The table show fundamental weaknesses of Distribution project execution. The projects, as indicated in the table above, reveal the delays and cost overruns of distribution projects. As can be seen, projects that have planned dates are delayed by a year to two years.

Bynes project was delayed by 26 months before completion. Even though the project was delayed, the cost was R0.3mil below budget. The project barriers were found to be contract management processes, theft of conductors, shortage of materials, scope changes and contractor overbooked.

Rayton project was delayed by 17 months before completion. There cost was R1.5mil over budget. The project barriers are late delivery of materials and contractors not available when required.

The Everite project was delayed by 21 months before completion. The cost was R2.9mil below budget. Similar to the Bynes project, there was conductor theft. Delivery of equipment was often delayed.

The delays in the completion time of the projects above result in opportunity loss for the organisation. Savings would have been obtained if the projects were completed earlier. Profits from the electricity sales would have been obtained earlier. When a projects runs over time, the time could have been used for the project team to start another project and increase supply capacity or strengthen the network. Whatever the project was intended to do, it would have generated profits and provide a reliable network.

Just as observed with distribution projects, a survey by PriceWaterHouse Coopers found that the most common reason for delays are as stated below (Carwood, 2014):

• Poor engineering design

• Poor project management

• Procurement challenges

• Human resource and processes Issues

• Poor planning

• Deficient resource planning

• Unrealistic expectations on timing and

• Scope change

Where a project experience delays, there seems to be extra cost incurred. According to Carwood (2014), these could be a result of unclear costs, schedules and scope. ,

These reveal serious problems and a need to critically review the cost overruns and delays in the utility projects.

2.5 Project Fundamentals

2.5.1 What is a project?

Project Management Body of Knowledge (PMBOK) states that a project is “A temporary endeavour undertaken to create a unique product, service, or result” (Project Management Institute, 2008). PMBOK further describes that a project is a specific task to be accomplished at a set time.

Projects are vital for an organisation to be ahead of its competitors. Huge returns are gained through successful completion of projects. Major organisations have gained global recognition through the projects they conduct and the performance of the projects. What is of importance is even though projects are unique; the project goal must be identified achieved for the project to be a successful.

2.5.2 Project goal

A project has goal to be accomplished in order to show it is completeness.  Nicholas & Steyn (2012), illustrates a project goal in terms of hitting a target that floats in three dimensions of cost, time, and requirements as seen on Figure 4. In the illustration, the target represents the project goal achieved at a cost, set time and with certain requirements( Nicholas & Steyn, 2012) The cost Nicholas and Steyn (2012) mentions is the project budgeted cost. The time is the scheduled time the project is expected to be completed. Requirements are the project deliverables to the satisfactory of the customer and owner.

Figure 4: Project Management for business (Nicholas & Steyn, 2012).

Meredith & Mantel (2012) states that the illustration above implies that there is some “function” that relate them, one to another. Meredith & Mantel (2012) further elaborated by stating that the functions differ from project to project and there are trade-offs to be considered.  The project manager should manage the trade-offs effectively (Meredith & Mantel, 2012).

A project requires proper planning; this will balance the project goals to meet the cost, time and requirements (Passenheim, 2009). The project stakeholders need to ensure proper planning is in place to make the project a success (Meredith & Mantel, 2012).

2.5.3 Project Management Overview

Projects as described above require management. Many organisations have a project management team which run the project. Project failure and success can therefore be linked to the project management of the project.

According to PMBOK Guide, “project management is the application of knowledge, skills, tools, and techniques to project activities to meet the project requirements” (Project Management Institute, 2008).

According to PMBOK 4th Edition, managing a project typically includes the following (Project Management Institute, 2008):

• Identifying requirements

• Addressing the various needs, concerns, and expectations of the stakeholders as the project is planned and carried out.

• Balancing the competing project constraints including, but not limited to:

o Scope,

o Quality,

o Schedule,

o Budget,

o Resources, and

o Risk.

Furthermore project management is accomplished through the appropriate application and integration of project management processes groups which are (Project Management Institute, 2008):

• Initiation

o The Initiating Process Group consists of those processes performed to define a new project or a new phase of an existing project by obtaining authorization to start the project or phase. Within the initiating processes, the initial scope is defined and initial financial resources are committed. Internal and external stakeholders who will interact and influence the overall outcome of the project are identified.

• Planning

o Those processes required to establish the scope of the project, refine the objectives, and define the course of action required to attain the objectives that the project was undertaken to achieve.

• Execution

o Those processes performed to complete the work defined in the project management plan to satisfy the project specifications.

• Monitoring and controlling

o Those processes required to track, review, and regulate the progress and performance of the project; identify any areas in which changes to the plan are required; and initiate the corresponding changes.

• Closing

o Those processes performed to finalize all activities across all Process Groups to formally close the project or phase.

Project management processes are wide and begins with the initiation process and ends with the Closing process. The project needs to go through the planning process to establish the direction and actions to achieve the objectives. The execution processes involves the work done according to the project plan. The monitoring and controlling is done throughout the project phases (Bureau of Reclamation, 2007). The two processes are vital for project progress assessment and for information use when evaluating a project. Furthermore, the article states that, “Planning, Monitoring and Controlling have a collective depth similar to that of Executing, illustrating that these activities require a level of effort and have an implication similar to that of constructing the product, providing the service, or producing the result” (Bureau of Reclamation, 2007). The closing process is more than ending the project. There are formal handovers procedures to be conducted to the owner. The handovers indicate all work completed and objectives achieved.

Meredith and Mantel (2012) states and maintains that project management of any project should ensure that cost, schedules and specifications are met. Russell and Preston (2010) highlights that fulfilling these requirements are expected of the responsible project manager. Russell & Preston (2010) furthermore states that “project management is the application of everything a project manager does to meet these parameters”.

2.6 Project Success

Project success is what any organisation would like to achieve in any project. Project success in power utilities bring about multitudes of benefits such power reliability, security, sustainability and decrease in power cost for consumers (Soshinskaya et al. 2014).

Researchers have not reached a conclusion of what defines project success. Duncan (2004) mentioned that people appreciate success but have a challenge in defining and measuring it.  The challenge leads to people defining success in different ways (Duncan, 2004).

Wingate (2014) states that when referring to project success; it is more than the successful completion of the project within budget, scope and on time. According to Wingate (2014), it extends to the view of the customers and owners in terms of the project deliverables. Tabish and Jha supports the statement by Wingate, the project team and end user input adds value to determining success (Tabish and Jha, 2012).

Power utility projects can also be classified as construction projects and therefore improving quality and customer satisfaction is essential. Project success can now be extended to more than the cost, time and quality in an organization. Literature reviewed reflects on other authors’ surveys and findings. Project success is a matter of perspective (Lavagnon et al., 2011) and therefore different views were found. A few common project success factors amongst many are listed in the dissertation as found from the literature study.

a) Top management support

Berssaneti & Carvalho (2014) highlights that top management in organisations have the primary responsibility of the project. Top management provides the necessary support and resources the project requires (Berssaneti and Carvalho, 2014). Top management has the authority to approve project documents that could assist in fast tracking and influencing the project progress. Berssaneti & Carvalho (2014) further states that poor project performance is linked to lack of engagement and attention from the organisation.  Senior management need to be involved from the start to the end of the project to achieve the organisation mission and objectives (Davis, 2013). Elkington & Smallman (2000), accounts project success to top management support.

b) Contractors

The distribution of electricity involves construction of substations and power lines and therefore most of the work is usually executed by a contractor. Appointing the right contractor is imperative to achieve quality of the project (Jaman et al. (2012)).  Jaman et al. (2012) highlights success of construction projects is dependent on the contractor appointed. A contractor that involves themselves in the organisation’s project life cycle ensures deadlines are met and project success is achieved.

c) Project management structure/governance

A project involves a team who are the stakeholders of the project. The project and the stakeholders require management. The activity of managing the two can become complex and therefore management practices and tools are essential (Santosa & Varajão (2015)). Davis (2013), highlights that practiced project management processes will ensure project success. Mir and Pinnington (2013) added that not much benefit can be attained from traditional functional management as compared to implementing a mature project management (PM) system.

Project governance, which is defined as “the use of systems, structures of authority, and processes to allocate resources and coordinate or control activity in a project”, may influence the effectiveness of using project management methodology (PMM) to achieve project success(Joslin & Muller, 2015). Project governance provides some transparency to the projects structures and reporting (Joslin & Muller, 2015).  Joslin & Muller (2015) further states that project governance may also influence the relationship between PMM and project success.

d) Dedicated project manager

A dedicated project manager is required for a project. A project manager leads the project team, provides support and manages organizational issues encountered by the team (Berssaneti & Carvalho, 2014). The project performance is depended on the project management leadership (Berssaneti & Carvalho, 2014). A dedicated project manager deals with different people and has to apply effective conflict resolution to ensure success. Prieto-Remóna et.al., (2014) highlights that, the project manager requires the skills for conflict management since there exist a diverse team of stakeholders. Conflict arises in different forms and a dedicated project manager must find solution to that while making sure project progress is maintained. Prieto-Remóna et.al., (2014) further states that a dedicated project manager efficiently works with the project team to achieve project success. The success requires team motivation to meet time, budget, quality and the client’s satisfaction (Prieto-Remóna et.al., 2014). .

e) Stakeholder and customer satisfaction

The project stakeholder involvement in the project from the start, gives an advantage in assessing the project. Project stakeholders have an interest in the project and their view of project success will be based on their interest being met. Serradora & Turnerb (2014), states that the best evaluation of project success would be from the stakeholders.

Williams et al. (2015) makes readers aware that evaluation of project success has evolved over the years, it is more than the time, costs and quality (“iron triangle”). He further mentioned that, customer satisfactions and relationship with the client are attributes that are to be considered Williams et al. (2015). After project completion even when declared successful, what is relevant is the view of the customers, (Serradora & Turnerb, 2014).

f) Scope and objectives

The project is usually successful when the scope is followed and objectives are met. All stakeholders need a clear understanding of what is to be done.  It is vital for all involved in the project to understand what is required and have proper planning for execution (Nader, 2011).  .

g) Cost, time and quality

Traditionally, the definition of good project performance was defined by the project team’s meeting cost, time and product quality related criteria, in which researchers described as Iron Triangle of project management (Nader, 2011). Nader (2011) states that, until now this Iron Triangle is still regarded as the measurement for team performance on all types of projects.

Project success factors require continuous attention from the start to the end of the project to increase the probability of project success and prevent the failure of the project (Cserháti & Szabó, 2013).  .

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