The utility industry is undergoing dramatic change as new technologies, such as solar and batteries, threaten to disrupt the traditional utility generation model and may have a dramatic impact on revenues. At the same time, costs are increasing as interest rates rise, distribution systems are reworked to adopt two-way flow of power, and customer expectations drive the need to support new channels for information and transactions. Combined, these trends are placing significant pressure on earnings.
To address these pressures, utilities frequently look to traditional cost cutting methods to meet financial performance objectives: flat percentage or across-the-board cuts in base budgets, staff reduction or deferred project spending. While these traditional methods may achieve some results, a more analytical approach to optimize spending will help ensure the right funding is applied to the right efforts at the right time.
Risk Informed Budgeting is an analytical approach to budgeting where the timing, amount and consequence of every budget line item is challenged. In our experience, an effectively implemented Risk Informed Budgeting program can produce 10% to 15% savings in routine budgets, even after implementing other cost reduction initiatives.