Patty Bruffy, IBM and John Juliano, FTI Consulting Inc.

The costs of an aging workforce that impact utilities today can be placed into three categories: operational costs, productivity costs and opportunity costs. Together, these costs can run into millions of dollars per year, and, unless effectively managed, can grow quickly. Understanding these impacts is an important step in targeting the areas to address with mitigation strategies.

Operational costs directly affect the bottom line through a wide variety of forces, including:

• Lost revenue due to extended outages
• Penalties from regulatory agencies, higher maintenance costs; and
• Increased frequencies of forced outages and accidents caused by human error as highly experienced operators retire (since human error rates would be expected to significantly decrease with experience).

In addition, productivity costs are being incurred over a wide variety of areas, including:

• Increases in the duration of planned outages as new hires gradually build the expertise and efficiency that the current workforce has; and
• Work time lost in recovery from injuries is expected to be much greater for older workers.

Lost or delayed opportunities to take costs out of the business are the opportunity costs of the aging workforce, including:

• Executing performance programs that end up costing more than budgeted and which extend planned ROI time frames
• Internal resources may be limited and act to prevent the performance program from ever beginning.

These impacts on work processes and organizational structures should make it clear this is not the type of traditional hiring problem with which human resources departments have traditionally dealt. Effective solutions to address the impact of workforce retirements will not come easily. However, the problem can be addressed in a structured manner by considering what can be done in the short term (now), the midterm (six to 18 months) and the long term (18 months-plus).

Short Term

Quantifying the impact of retirements on institutional knowledge and understanding the actions that will be required in the future to mitigate the impact of the losses are critical first steps to helping ensure a smooth generational transition. There are structured processes for initiating aging workforce planning, which provide utility organizations with a structured set of templates, questionnaires and interviews. Using these tools, a utility’s executives identify and document “core/critical” positions based on initial orientation sessions and follow-on sponsor discussions. Surveys for key workforce populations are prepared and executive interviews are conducted to gauge executives’ views of the future state of the organization and how an aging workforce strategy might be tied to those views.

Next, workforce profiling is done with the surveys and future-state vision of the executive team as a foundation.

From here, a utility can choose to take an “early intervention” step to start mitigating current aging workforce problems while longer-term strategies are developed. A typical first step is some type of formal knowledge retention initiative.

Midterm

Employee retention and leadership development programs will perhaps be the most critical pieces of the aging workforce mitigation strategy. After all, skill sets that aren’t lost do not have to be replaced. These strategies must be built on three pillars:

• Retention of current early- and mid-career workers, whose knowledge is valuable to their employer but who are also valuable potential suitors from inside and outside the industry;
• Leadership programs that identify the high-potential individuals suited for key roles; and
• Creation of incentives and programs for retiring workers to stay on a few years longer to help manage this generational transition.

The other midterm component, organizational and work planning, facilitates more efficient staffing for the work that needs to be done to help ensure safe, reliable and profitable operation in the future.

Long Term

Longer-term solutions will be the toughest, particularly to investor-owned utilities whose shareholders want to see ever-decreasing quarter-over-quarter costs. These will take investment. While not the only long-term investments needed to survive the generational transition, those made in technology and educational partnerships are likely to be the most significant.

In addition to providing new tools to keep skilled, older workers and retain critical knowledge, technology is likely to play an increasingly vital role in attempts to reduce the costs of running a safe, reliable and profitable utility.

To address educational gaps, the industry is stepping up its influence on the nation’s classrooms. One effort to achieve this goal is the Utility Business Education Coalition (UBEC). And a number of utilities, such as Progress Energy, Cinergy, PSE&G and AEP, have launched successful partnerships on their own at levels ranging from K-12 through graduate programs to help foster these skills and build awareness of career opportunities.

Authors: Patty Bruffy is a managing consultant in the Strategy and Change practice area of IBM Business Consulting Services. John Juliano is a manager with FTI Consulting Inc. in Washington, D.C.