Strategic Cost & Process Initiative Board of Director’s …€¦ · · 2016-01-12Strategic Cost...

1Pre-Decisional Information

The OPPD Way

January 12, 2016

Pre-Decisional Information

Strategic Cost & Process Initiative

Board of Director’s Update


• Challenges, Objectives and Approach

• Phase 1 – Diagnostic

• Implementation Roadmap

• Phase 2 – Implementation

• Tracking Methodology

Agenda


Challenges currently facing OPPD

Rapidly changing utility industry

Increased customer expectations

Slow load growth

Rising O&M costs

Weakened off system sale revenues


Objectives

Achieve O&M reductions to help achieve the

• Target of 20% below the West North Central Regional average published

rates on a system average basis (per Competitive Rates Board Policy SD-2)

• Becoming a leading public utility

• Setting the foundation for our future customers and employees

• Approach

• Deployed The OPPD Way: Strategic Cost and Process Initiative

• Retained outside expertise with proven abilities

• A collaborative effort

• Phased approach

Addressing the Challenges

• Phase 1 –Diagnostic (completed)

– Sizing the opportunity

• Phase 2 – Implementation (in-progress)

– Detailing the specifics and achieving results

• Phase 3 – Sustainability (future)

– Ensuring ongoing results

Phased Approach

5


Phase 1 – Diagnostic



Major areas of the company have been reviewed, with a focus on areas

with high likelihood to impact rates

Energy Production▪ Detailed benchmarking of performance at highest spend units and site visit (Nebraska City)

and targeted deep dive on maintenance

Nuclear▪ Plant-level benchmarking of FCS performance to single-site operators

Procurement / MMD▪ Category spend baseline and “opportunity marker” identification for top categories

▪ Bottom-up “should cost” evaluation of transformers and support for renegotiations

▪ Evaluation of P2P practices

IT▪ Functional cost and performance benchmarking

▪ Idea generation workshop with IT leadership team and roadmap development

HR / Finance /

Benefits

▪ Spans and layers analysis and functional cost and performance benchmarking

▪ Idea generation workshop

Facilities▪ Functional cost and performance benchmarking

▪ Review of corporate security contract

Public Affairs

▪ Functional cost and performance benchmarking

Fleet▪ Internal benchmarking on vehicle repair costs

▪ Low-utilization vehicle analysis and field observation

Energy Delivery▪ FERC level benchmark vs peers

▪ Ride-alongs and field observations reviewed

Customer Service▪ FERC level benchmark vs peers & select bottom-up idea development

What has been covered to date

An implementation roadmap has been developed in all areas

Capital▪ Overview of current capital allocation practices

▪ Comparison with best practice

8Pre-Decisional InformationSource: Source

• Reduced Corporate Sponsorships - $100K

• Reduced Corporate Memberships - $100K

• Nuclear participation reduction (EPRI & EQ User Group) - $500K

• Lime budget reduction @ NCS - $1M

• Eliminated vacant unfilled positions - $1.2M (11 positions)

• Resized exempt travel and training budgets - $1765/emp

Phase 1 – Quick Wins Implemented


IMPLEMENTATION

Very clear roadmap with concrete set of initiativesA

▪ Roadmap consists of 10-30 discrete initiatives clustered

into 3-5 themes

▪ The roadmap covers all functions and all departments

within OPPD.

▪ Initial roadmap should be 2-3 years… Not <1 years (too

short to get the work done) not 3+ years (too long to keep

organization focused and energized)

▪ Initiatives are sequenced with the following goals in mind:

– Need for significant near-term (2016) cost reduction

– Results must be sustainable

– Avoid running more than 3-4 initiatives at the same time,

– Allows for capability building both within and across

specific departments

– Balance of initiatives across the various departments /

VPs


Health

Cost

Strategy

Overview of the implementation roadmap

2015 2016 2017

S O N D J F M A M J J A S O N D J F M A M J J A

Follow-on improvement activities and lean transformation“No regret”

ideas

Lean Trans

& Sub

Customer

strategy and

lean cust ops

Lean Distribution

Lean Fossil: N.

Omaha

Lean Fossil:

NC 1&2

Strategic sourcing to capture value, org design,

capability building, and P2P optimization

Assess industry trends and set strategic direction for OPPD

PMO tracking

PMO design

and setup (e.g.,

Wave)

Capital

planning

Lean HR &

Finance

PMO execution

Lean ITBenefits review OBE1 and

quick wins

Board update Board update Board updateBoard update Stakeholder communications

Production

Energy delivery

Customer

Corp support

Nuclear

Procurement

Capital

1 Organizational and Budget Effectiveness; includes activity review of other corporate functions (e.g., facilities, corp comm)

ROADMAP AND SEQUENCING

PRELIMINARY

Phase 2 - Implementation



Sustainability

Cost

Strategy

Phase 2 – Initial Implementation Focus 2015 2016 2017

S O N D J F M A M J J A S O N D J F M A M J J A

Strategic sourcing

Wave 1

“No regret” O&M

initiatives

PMO design and

setup (e.g., Wave)

OBE1 and accelerated

value capture

Stakeholder communications

Strategy workshops

Change Leader Forums (CLF)

Board update

Procurement

Production

Energy delivery

Customer

Corp support

Nuclear /

Portfolio

Full-time McK team (2-4 FT resources)

OPPD led w/ light McK support

OPPD led

Capital

1 Organizational and Budget Effectiveness; includes activity review of other corporate functions (e.g., facilities, corp comm)

2 Potential support from other outside partner

Support of “rapid cash” levers


IMPLEMENTATION

Each initiative is held accountable for impact

▪ Every initiative has a well-defined charter, including scope,

success criteria incl. target, team, team leader, and executive

sponsors

▪ Each team is sponsored by two VPs, who are jointly

accountable for the achieved results

▪ A senior leader leads each initiative team (typically a div. mgr

or high potential manager); must be able and willing to

challenge current beliefs and inspire change in the organization

▪ Each initiative team is staffed with full-time cross-functional

“change agents” and part-time SMEs

▪ Each initiative team reports out to the full exec team every 3-4

weeks

▪ No team has a pocket veto; teams present all feasible ideas

to the executive team for approval

B


OBE (Organization Budget Effectiveness)

• ~ 70 initiatives approved across 17 non-Nuclear Divisions with $16M in savings– Some examples:

– Reduce SURGE & IHEPP marketing spend

– Change frequency of transmission line clearance survey

– Reduce armored car service for payment collections

– Reduce janitorial services

– Reduced outside services spend

– Reduce unfilled budgeted positions

– Consolidation of positions

– Eliminate headcount vacancies

– Not backfilling some positions upon retirements

Procurement

• Implemented Procurement Control Tower - $<1M spend deferred, cancelled or decreased

• Distribution Transformer Contract - $1.1M savings

• Software maintenance optimization & leased equipment - $300K savings

• Standardize office supplies (move to generics) - $125k

• $2.1M of inventory freed up for consumption and cash flow

• Cancelled $2M in requests for materials – older than 2015.

• Capability assessment and skills building

Phase 2 – Initiatives Approved / Status


Nuclear

• Launched deep dives into Engineering, Maintenance, Security, Operations (including

RP and Chemistry),Training and Materials

• Control Tower being set up to develop “financial” mindset at FCS

PMO

• Launched customized software solution (Wave) to track initiatives and impacts

• All approved initiatives loaded with link to OPPD budgets

• Training provided on tracking tool (Wave) program

Phase 2 – Initiatives Approved / Status


A standard tracking methodology that monitors the progress from target

setting through to impact realization can be used

▪ Serves as a way to input initial ideas and improve savings & cost estimates over

time

▪ Level of initiative is primary progress indicator

▪ Tracking starts at the initiative level at L1

▪ Standard progress steps for all initiatives help structure ideas and drive to impact

L2L3

L4L5

L0

Benefits

accruing

Initiatives being

planned and

prepared for

approval

Initiatives in

implementation

Ideas being

turned into

initiatives

Benefits

realized

L1

Description

Milestones Assessed ImplementedTargeted Generated

▪ Any idea

generated

with high level

estimate of

savings

benefit

(entered into

tracking

system)

Approved Benefit realized

▪ All key

implementation

steps

completed (e.g.

contract/PO

signed, policy

changed)

▪ Savings

valuation

approved by TO

▪ Initiative

approved

and signed

off by the

relevant

Senior

Manager and

being

implemented

▪ Priority cost

categories are

identified and

agreed upon

▪ Savings

potential by

category is

established

based on

bench-marks

▪ Idea analyzed for

feasibility, TVO

savings benefit

and risks

▪ Initiatives,

owner identified

▪ Detailed

implementation

plan developed

▪ Savings

impacting

bottom-line

(e.g., new

price in effect,

equipment

productivity

delivered)

Top down

bench-

marking

Bottom-up

idea

generation


Questions

Any questions?

Strategic Cost & Process Initiative Board of Director’s …€¦ · · 2016-01-12Strategic Cost...

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