Application of systems thinking in reviewing power-infrastructure capital investment in South Africa.
Abstract
The aim of this study was to investigate how the application of systems thinking can minimize revenue
losses in capital power-infrastructure investment in South Africa. The study reviewed the application
of existing financial models such as Return on Investments (ROI), Internal Rate of Return (IRR), and
Schedule Performance Index (SPI) to multi-years of capital power-infrastructure investments with an
intention of introducing new investment evaluation model. In order to achieve the study objective, the
researcher had to investigate using the systems approach the challenges regarding development of
capital power-infrastructure investments, and apply systems thinking in evaluating the positive impact
of timeous payments by debtors. This study was conducted mainly within Eskom comprising 150
engineers that are in the capital power-infrastructure process. Seven of the engineers who are in
executive position participated in the qualitative part of the study and 90 engineers participated in the
quantitative part of the study. In other words, the sample of the study comprised of 97 engineers
involved in capital power-infrastructure investment.
The research employed both quantitative and qualitative mixed method approach. The study found that
knowledge management and corporate governance in power utilities of South Africa, including Eskom,
is very weak. Furthermore, financial models used such as Internal Rate of Return, Return on
Investments, Net Present Value, Level Cost of Energy and Cost of Unserved Energy did not realize the
envisaged benefits. Other problems identified by the study included but not limited to multi-packages
of contracting instead of single contracting for turnkey solution, lack of understanding the
environmental history of where infrastructure was to be constructed, complication caused by procuring
services from foreign companies, and lack of proper front- end planning. The participants that were
subject matter experts in capital power-infrastructure investments linear regression analysis have
proven the consistent relationship between scope liquidity and cost variances and further concurred that
current financial models used to assess returns are mostly not realized.
The study recommends the formation of a special governance committee that will ensure that there are
front-end planning processes, including the application Complexity Factor, as the way of ensuring
financial returns and enable successful delivery of capital power-infrastructure investment. The
proposed committee should also advise on the suitability of the service provider in provision of the
turnkey solution. The recommended special governance committee should also ensure competency of
foreign companies in alignment with Supply Chain Management requirements of South Africa during
bid evaluation and adjudicating. The study further recommends a systems model that can be used by
power utilities to ensure that initial envisaged benefits are realized.