Eskom Holdings Ltd.'s Recovery Plan Project

Recovery Plan Project
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Recovery Plan Project
Overview
Eskom Holdings Ltd. is a vertically integrated South African company that is fully owned by the South African government. The main activity of the company is the generation, transmission, and distribution of electricity to commercial, industrial, agricultural, mining, and residential users in the country and other South African Development Community (SADC) countries. In addition, the company purchases electricity from other SADC countries for domestic use.
In the article, “Project Risk Management Practice: The Case of a South African Utility Company,” van Wyk, Bowen, and Akintoye (2008) review the risk management practices that have been established for Eskom’s Recovery plan project that takes effect following power interruptions caused by supply shortfall or increased customers’ demand. To this end, the authors review the content and context of Eskom’s risk management practice at division and project levels. Notably, Eskom has detailed the roles that various stakeholders within the company should embody in the risk management process and invested significant resources to facilitate the process. Despite the investment, Wyk, Bowen, and Akintoye (2008) observe that the risk management tools employed at the company are simple.
The present paper will review Eskom’s Recovery Plan project as analyzed by Wyk, Bowen, and Akintoye (2008) with a specific focus on risk identification, the assessment and prioritization of risk, the response to risk prevention, the mitigation of contingent actions, and the conceptual steps used to respond to project risk. To this end, the paper will review the Western Cape Recovery Project Plan as detailed by Wyk, Bowen, and Akintoye (2008). In the analyses, the inherent risk shall be identified and categorized and the potential response strategies discussed. Further, the strength and weaknesses of the project risk management practices shall be identified.
The Fundamental Conceptual Steps Used to Respond to Project Risks
Notably, four conceptual steps are used to respond to project risks at Eskom. In the first step, the stakeholders involved in the risk management process (RMP) ensure that the risk inherent to the project are identified so that they can be effectively managed. The risk identification team at Eskom is made up of representatives from all the functional departments within the organization to ensure that all the inherent risks that are likely to occur in the various functional areas are identified. Second, Eskom focuses on the analysis of the identified risks. To this end, the Recovery Project teams assess the identified risks to establish the magnitude of the risk. Notably, the company relies largely on the experience of the risk management team to assess the severity of the identified risks.
Third, the potential response to the identified risks is formulated to minimize the severity of the risk or eliminate it. For a utility company such as Eskom, the nature of the response to the risk depends on its significance and influence on the company. The company has a guiding risk response nomenclature used by the Project Recovery team.
Risk Identification
Through its risk management process, Eskom has identified the major risk to the Recovery Project plan was external force i.e. the government. To this end, the central government decided that Eskom’s electricity generation should be unbundled to offer economic opportunities to the private sector. Thus, the company could not build new generation and transmission lines, as its actions were curtailed by the Central government. Notably, the external risk due to government intervention resulted in twenty-three subsequent risks.
As shown in Appendix 1, the risks that the company identified in the case under review can be categorized into five main classes. People risk describes the various project risk that emerges due to the inadequacies of the human resources within an organization and their subsequent management. Consequently, the risks were mainly inherent to the human resources department within Eskom. The four people risks identified in the case were poor operational communication, insufficient staffing, and staff burnout. Process risk is another risk category that was evident in the case and refers to the potential negative outcomes that stem from the failure of the existing internal process within the organization (Borghesi & Gaudenzi, 2012). The five process risks identified in the case study were poor communication with the public, inability to stick to load-shedding schedules, the inability to soften the impact, inability to supply the demand of electricity, and project delays due to time taken to acquire equipment
System risk describes the various risks that are due to internal systems adopted by the company. To this end, the risk encompasses the various risk that the company faces due to the technical systems in place (Borghesi & Gaudenzi, 2012). Notably, most of the risks that Eskom faced in the case study could be categorized as systems risks. The potential systems risk include the Collapse of aging infrastructure due to frequent switching, heavy dependency on standby plant and equipment, abnormal state of network impacting maintenance and expansion work, unexpected tripping on the turbine-generator set, operational constraints resulting in controlled shutdown, delayed return of unit following a trip, logistical failures, transmission equipment failure, and total blackout.
In addition, other risks in the case study could be categorized as external events risks. The external event risk describes the various risks that can be considered to be due to the occurrence of external events that the company cannot control. The five external events risk Eskom faced in the case were commissioning delays of Unit 1 and unit 2, unavailability of Palmiet hydro-electric supply, an external events such as fires and fog and mist, customers’ inability to adopt energy efficiency measures, and verbal and physical abuse of implementers
Risk Assessment and Prioritization
Once the risks have been identified, it is essential to evaluate and decompose the identified risks to understand the severity of the identified risks. Eskom assesses and prioritizes its risk based on the probability of a risk occurring and its impact once it occurs. The risk analysis was accomplished with the help of a semi-quantitative approach. To this end, the risk assessment was mainly accomplished based on the experience of the Project Recovery team. Each risk was given a high, medium, or low rating on the two factors assessed. Eskom prioritized the risk that could influence the restoration of electricity or had an influence on electricity demand given that the two considerations were the primary objectives of the plan.
While the approach to risk prioritization can be considered logical, the reliance on the experience of the risk management team increased the likelihood of bias in the evaluation and prioritization of the risks. To this end, the company opted to rely on the experience of the team members as opposed to the use of metrics that could be traced. Wyk, Bowen, and Akintoye (2008) note that the effectiveness of the process was limited by the availability of data. Notably, the team may not be adequately equipped to come up with an effective approach to address the inherent risks due to the company. A better approach would have been the use of strategic risk assessment and evaluation to determine the risks that should be addressed. Strategic risk assessment requires the development of key performance indicators (KPIs) and their application as quantitative measures for risk evaluation. In addition, Eskom should have used key risk indicators (KRIs) to track the likelihood of risk so that it can be effectively prioritized. The use of KPIs and KRIs provides a logical...