Business Drivers or Cause of Investment

Organizations must accommodate different business drivers in their capital investment analysis. The drivers include:

• Renewal/Reliability Investment
• Growth Investments
• Improvements in Levels of Service
• Efficiency Improvements
• Regulatory Compliance
• Other Expenditure Categories.

Renewal/Reliability Investment

Renewal investment is the renewal of existing assets, so they can continue to deliver the required levels of service, by:

• Over life extension
• Rehabilitation
• Maintenance options
• Replacement.

In many cases, the renewal will be required to ensure that the assets can meet their performance targets, such as system operating regulations/ conditions.

This validation must be thorough, as renewal decisions do not generate additional income, but only sustain the existing income stream.

Indirect costs such as risk exposure and the impact on customers need to be understood and clearly quantified.

Growth Investments

The organization evaluates its investments against predicted growth. It may need to extend its asset base to service:

• Additional customers
• Increased unit demand eg. higher consumption of power per head.

Improvements in Levels of Service

An improved level of service may result in additional income, through negotiation with customers or through a regulated pricing structure for monopoly utilities.

Level of service improvements can include:

• Additional redundancy to provide higher reliability
• An improved image or quality of assets.

Efficiency Improvements

These investments make efficiency gains or savings on normal operations and maintenance activities, and include:

• Improved information systems
• Greater automation and automatic control as available through SCADA systems
• Improved communications through mobile phones and other systems to link up maintenance trucks including GPS
• Mobile computing capabilities
• New equipment and new maintenance vehicles to support more effective and efficient activities.

Where this expenditure is significant, it can have a separate category in the capital expenditure framework.

Regulatory Compliance

Here we identify the costs required to comply with new regulations.

The renewal program should be based on meeting current compliance requirements, but a separate category for new regulations allows the organization to:

• Understand the implications of the regulations
• Feed back these implications to the regulatory authorities
• Influence the timing and period over which these regulations should be invoked.

Other Expenditure Categories

Organizations should look at their overall activity, and decide on any additional categories that may be needed.

As with the information systems category, organizations can have significant expenditure that should be related to the actual driver of that expenditure.

For example, some organizations will have significant investments in land and buildings, many of which have a true market value, and should be categorized separately. This is a best practice activity.

In other cases, the organization may be undertaking a subsidiary activity that is not core to their main service stream and this activity may need to be costed and evaluated separately.