Trend Trackers

By Gale, Sarah Fister | PM Network, February 2007 | Go to article overview

Trend Trackers

Gale, Sarah Fister, PM Network

To stay ahead of the game, companies need to follow socioeconomic shifts. And that may mean monitoring events halfway around the world.

Social, economic, cultural and political events happening all around the world can have a profound effect on a company's project portfolio. Globalization means a government's decision in Asia can translate to more project work in South America, or a downturn in the euro may result in a U.S. project being cut. The effect of these events-whether positive or negative-largely depends on how quickly an organization adjusts its portfolio in response.

"Most companies don't consider external issues as much or as intensively as they should, and that's a mistake," says Lee Merkhofer, president of Lee Merkhofer Consulting, Cupertino, Calif., USA. "They tend to focus on what they know best-their business-not on the external environment"

That myopic viewpoint can cause organizations to lose sight of how the outside world affects their projects. For example, companies may miss opportunities to capitalize on changing customer tastes. "If your goal is to increase revenue by selling products that are attractive to consumers, you have to pay attention to shifts in the marketplace that may change what they find attractive," Mr. Merkhofer says.

Staying Current

To keep up, organizations should establish a formal system for monitoring current and impending marketplace issues. Energy Northwest (EN), Richland, Wash., USA, takes a long-term approach to tracking trends as it pitches, launches and monitors projects providing electricity to public power utilities and municipalities in the Northwest United States.

With large complex projects, it can take EN seven or more years to build a new power source. That means the company has to forecast consumer needs nearly a decade in advance and balance raw energy needs with economic, social, cultural, political, environmental, geographic and climatic influences.

"When we decide to put together a new project, we start with a business plan that takes into account financial aspects, market conditions, infrastructure needs, public policy, environmental concerns and community impact," says Thomas Krueger, manager of generation resource development for EN. "This upfront evaluation helps take the uncertainty and some of the risk out of the project."

EN's process begins with economics. History has shown that demand for power grows in direct proportion to economic growth. "Even an anemic two percent increase in economic growth translates to a two percent increase in demand for power," says Brad Peck, a retired U.S. Air Force colonel who serves as an adviser to EN's senior leadership. That translates to roughly 400 megawatts of power per year in the Pacific Northwest, or close to half the output of a nuclear power plant.

The company works to predict economic cycles by monitoring housing and business development. Growth is only part of the picture, though. Knowing that a community needs more energy and choosing a facility that's environmentally friendly, cost-effective, socially acceptable and politically workable is a project in itself. And the balance can tip dramatically if the forecasts are off. Three years ago, for example, natural gas was a reasonable $3 to $4 per therm, but recently shot up to a cost-prohibitive $14 per therm. "Many natural gas plants went unfinished because of that," Mr. Peck says.

EN tries to avoid such risks by diversifying its portfolio, developing everything from hydroelectric to nuclear power.

The company's generation project department is responsible for forecasting growth and planning and developing projects. Much of the early project development is about education, Mr. Krueger says. For example, the company tries to help community members understand the benefits and limits of sustainable energy projects, which have little environmental impact but don't produce enough power to meet their needs. …

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