A not-for-profit public utility has limited funding for new projects. They are c

Question

A not-for-profit public utility has limited funding for new projects. They are considering two new projects. One involves an investment of $1 million towards building power generating stations. With this project, the utility would not have to purchase as much power from external sources. Their wholesale cost of electricity would be reduced by $500,000 a year. Another project would also instead use that $1 million investment to reduce outages, making the power more reliable for its customers. This has been a major problem in the past few years, resulting in tangible losses for their customers of $2.5 million per year.

Use the facts above, address the following questions:

How might the concept of Throughput be used to determine which project is a better investment. Why?
Consider what their mission is likely to be, their primary goal(s), and what their strategy to achieve that might be. Then how and why does one of these investments best support their achieving the strategy.
How does the holistic system thinking help in making the right decision?

Explanation / Answer

Public utility organization operates not for profit, so their goal is to provide better service to the people. If they take 1 million dollar funding and use it for construction of new power plant. This would reduce their reliance on purchased power and reduce their cost of power production will reduce by $50,000 a year. this saving they can pass on to their customers.

Second option with the $1 Million fund is to utilize it to improve existing infrastructure and reduce no: of power outages which would result in $2.5 million savings per year.

Second option is better option to invest as

1. It results in more saving compared to option 1. with 2.5 million saved in tangible lossed, customers wil get direct benefits by improving the infrastructure,

2. throughput means the output somebody gets. Power outage will be an issue as it would mean wastage of power, low throughput and unhappy customers. So even if the power cost comes down but power outage continues due to bad infrastructure, it would not be of any help to customers as their first priority should be to deliver uninterrupted power supply.

3. With option one though public utility company would make money but it would not be made sure that there would not be any outages due to bad infrastructure. so the total benefits may not trickle down to the customers.

With these points in mind it is better to go for project 2, improving infrastructure as it would have long lasting and more direct benefits to the customers and the company as well.

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