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.