CAPSTONE PROJECT REPORT GUIDELINES

The Capstone is a culminating project that provides the opportunity to apply knowledge and demonstrate skills acquired during the program.

Participants work with their leadership to identify -based projects that address current challenges and strategic goals. Projects are developed during and outside of class with guidance from CFPC staff.

Successful completion of the Capstone Project Report, along with participation in the two week training program, is required to earn the Financial Professional (CFPC) Certificate.

STEP ONE: IDENTIFY CAPSTONE PROJECT TOPICS – BEFORE COMING TO MADISON

 Consult with your CEO, supervisor, and/or senior to identify one or more needs/critical issues/challenges that can be addressed through a finance-based project.

 Be prepared to briefly describe your project idea(s) when you introduce yourself in Madison. Don’t worry if the focus or scope of your project changes as you progress through the program.

Keep in mind the role of finance: 1. Overseeing internal controls and procedures (accuracy and integrity of data); 2. Completing financial reports, analysis, and results; 3. Forecasting financial outcomes utilizing knowns and unknowns; and 4. Using the above to help the board and CEO to fulfill their oversight role, provide: • Leadership with the info needed to effectively make and communicate results and recommendations. • The Board with a clear, comprehensive, relevant financial snapshot of the coop.

STEP TWO: COMPLETE THE WORKING TEMPLATE – WHILE IN MADISON

 Work on completing the Project Template (Appendix C) while in Madison. While we don’t require you to submit this, we strongly encourage you to use this as a tool to focus and think through the rationale, objective and scope of the project. This template is also useful when having discussions with SME onsite or with key stakeholders back at your cooperative.

 Communicate with your CEO or supervisor while in Madison to clarify the key elements in the Template and ensure continued support for the project.

STEP THREE: CAPSTONE DEVELOPMENT & IMPLEMENTATION – THROUGHOUT THE PROGRAM

 Between sessions, begin to utilize the concepts and tools taught in the program.

 Continue to get guidance and answers from the CFPC facilitators and your fellow participants.

 Be prepared to give an update on your progress at the start of Session 2 in Dulles.

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STEP FOUR: SUBMIT CAPSTONE PROJECT REPORT – 90 DAYS AFTER PROGRAM ENDS

Before you turn it in your Capstone Project:

Document is Well-Constructed

 Grammatical and spelling errors  Headers and labels  Use of graphs, chart, tables

Document Includes Key Elements (Appendix B)

 Cover  Executive Summary  Introduction and Overview  Overview of Methodology  Conclusions and Recommendations

Other

 Is information, tone, etc. appropriate for your target audience? The intended audience for the project is typically the CEO and senior management and sometimes the Board.  Does your executive summary include all the key elements and follow the same order as the complete document?  Does the goal or problem statement clearly indicate that action should be taken?  Is the list of potential solutions adequate?  Is the project description detailed enough?  Are the data and calculations correct?  Did you source reports and analysis completed by someone else?  Do you have enough supporting data in analysis?  Did you create an Appendix for spreadsheets, source material, lengthy analysis results and other products (PPT presentations, communication messages, etc.)?  Did someone else review document with a critical eye?

2 | 7.17.18 Appendix A – Example Business Needs and Analysis/Activities,

COMMON BUSINESS NEEDS: • An acquisition or replacement • A construction project • An in new capabilities or capacity • A change in , operations, or product offerings • A move into a new market

EXAMPLE ACTIVITIES (CAN SELECT MORE THAN ONE)

Environmental Scan Conduct an Environmental Scan a to determine internal and external factors Financial Trend Analysis Use KRTA ToolPak to assess the current financial state of cooperative Identify your cooperative’s top 10 KRTAs; Conduct and interpret KRTA and trend analysis Conduct a sensitivity/variance analysis Financial Forecasting Develop appropriate assumptions to build a base case scenario Interpret results of a base case financial forecast; Use results to determine need for/size of financial requirements Apply results to influence your cooperative’s strategic direction Equity/ Management Conduct a debt portfolio analysis; Calculate the sustainable growth rate using the three-legged stool formula; determine the "right" equity range Determine the impact of the CIAC on the equity Develop equity vision to be shared and developed with BOD assistance Apply strategies for managing risk that reflect the Board’s willingness and ability to accept risk Recommend the "right" mix of variable and fixed rate Calculate the impact of interest expense exposure and TIER; Calculate the impact of a Forward Rate Lock Capital Budgeting/Managing Your and Liquidity Assess liquidity and risk needs when making investment decisions; describe effective use of line of Identify improvements to capital investment decisions Calculate and analyze payback, NPV, IRR, and for proposed projects; Calculate WACC Identify relevant flows Address issues such as special , permanent equity and unclaimed capital Assess risk inherent in your capital budgeting decisions Recommend business decision based on analysis; Prepare a plant investment decision based on financial info Distinguish key characteristics of purchase versus lease options; conduct a lease vs purchase analysis

Continued on next page

3 | 7.17.18 Appendix A – Example Business Needs and Analysis/Activities, Continued

Capital Credit Allocation and Evaluate cooperative’s capital credit allocation and retirement methods and practices Consider special retirements, permanent equity and unclaimed capital Ensure your cooperative follows good capital credit practices and complies with laws The Energy Services Utility – DER/Power Supply/Broadband What technologies should the cooperative invest in? Impact and benefits of moving to a community solar model? What type/which options? Impact of G&T. . . Rate Design Perform rate design; develop rate policy statements that guide the rate decision making process Conduct/explain a cost of service study Assess how construction impacts rate design and reduces risk; perform revenue requirement calculations Link financial forecasting to the determination of revenue requirements Financial Policy Draft new or analyze existing board financial policy Take action to ensure implementation and oversight of the policy Establish target financial ranges Financial Leadership Present recommendations/analysis to decision makers Review and enhance Board Packet Lead cross-department meeting/collaboration . . .

4 | 7.17.18 Appendix B – Key Elements of the Capstone Report

COVER TITLE: Identifies the business need or • Proposed . . . Upgrades proposed action and general nature of • Cost/Benefit Study of . . .; Feasibility Study of . . . the analysis. • Business Impact Study of . . . SUBTITLE Adds additional detail, clarity or • Total Cost of Ownership Analysis interest. • Projections for fiscal years 2020–2025 • 2019 upgrade proposal for . . . • 5 yr projections based on historical data from 2017 AUTHOR, DATE “From,” “Prepared by,” “Submitted by.” SECTION: EXECUTIVE SUMMARY Summarize the issue to be addressed or decision to be made, the major considerations, the resources required to complete the project, the desired outcome, and results and recommendations.

SECTION: INTRODUCTION AND OVERVIEW What is this project about? Describe the setting, analysis of the situation, and establishes expectations. GOAL /PURPOSE States and builds on the business need • Upgrading system . . . and describes what the case will be used • Install community solar . . . for. Identifies the issues to address, such • Help decide the timing of a planned action as inefficiencies, missed opportunities, • Help choose between proposed capital acquisitions poor performance, or member feedback, • Support next year’s budget planning member demand for a new product or • Support a specific budget request service. • Help choose financing methods or vendor OBJECTIVES Objectives can be business, financial, • To increase the capacity of . . .;improve access to . . functional, or operational. Objectives • To improve customer service; responsiveness have a quantifiable value. • To meet growth or equity targets • To increase productivity; solve quality problems • To reduce costs; increase margins • To improve customer service; market share • To be recognized as a provider of . . . technology • To improve employee morale • To establish strategic alliances ANALYSIS OF . Describe how the situation came about. • Regulatory, political, demographic changes CURRENT . Conduct an internal/external scan to • Business plans, budgets, special projects SITUATION identify other business considerations. • Previous business results; important historical info . Predict what might happen if the current • New, transitioning leadership situation continues. • Other important and related management plans KEY List or note any relevant assumptions • 20% of new equipment will purchased, and the ASSUMPTIONS and risks. Consider sketching a brief remaining through capital lease AND RISKS plan for dealing with risks or other • capital proposals must show a payback period of 2 dependencies. years or less and an IRR of at least 50% • new government regulations • depends on completion of XYZ project • depends on availability of key individuals

5 SECTION: OVERVIEW OF METHODOLOGY – What will you be doing? Describes the methods, resources and actions behind the project SCOPE Describes the stages of the project • When does the analysis period begin, and when Time and location does it end? • Is the analysis synchronized with a fiscal year? • Does analysis refer to a specific or multiple sites? SOLUTION Identify and describe potential Implementation of , technology, rate OPTIONS solutions. Explore all solutions that are structures. potentially the best option. DATA SOURCES Identify all the sources of data that will • Policies; Budgets; Historical data be required to support the business case • Vendor proposals • Industry forecasts and benchmarks/KRTA • Demographic studies; Feasibility studies FINANCIAL The financial measures that will be • For a cost-benefit analysis, NPV, Payback period, MODEL developed and analysis that will be ROI, IRR, TCO (METRICS AND completed. • Financial forecast METHODS) • Activity based costing for cost estimates • Workflow analysis; interviews • Business equation (Profit = Sales Revenue–Costs) • A cost-benefit model, projected cash flow, or several cash flow statements, with tables/graphs that show key variables or relationships • A system of interrelated models NON-FINANCIAL • Environmental scan; Policy review ANALYSIS • Policy development ACTIVITIES • Board presentations; Member communication SECTION: CONCLUSIONS AND RECOMMENDATIONS - What is the best course of action or best decision and what are the consequences? Interpret the numbers & connect them to the business need, goals and objectives BUSINESS . State the complete case and support • May include contributions to corporate image, IMPACT - your reasoning with evidence from the customer satisfaction, or employee morale ANALYSIS OF preceding sections. • A cost-benefit analysis should include the FINANCIAL . Organize around stated business need, projected financial benefit to the company and a MODEL AND goals and objectives. projection of when that payoff is expected. OTHER . Present and evaluate important • Charts and graphs are often included in this section ACTIVITIES decision criteria for all options. or may be in an appendix at the end. . Examine sensitivity of results to changes in assumptions and risks. . Include impact on Equity. . Point out unexpected results & discuss findings that could be misinterpreted. RECOMMENDA- . Brings closure to the case and restate XXX is currently facing . . . , I recommend: TIONS the compelling results of the analysis 1. Approval of $XXX capital funding for XXX and a final statement. equipment and increased XXX, as proposed. . Include a recommendation for 2. An increase of $XXX in the operating budget for reexamination of the project status. fiscal year XXX, above currently planned levels, to . Restate important contingencies. cover . . . and other operating expenses. . Refer the reader back to relevant 3. That implementation of XXX proposal to begin in sections where it might be helpful. October 2019 and be completed by March 2020.

6 Appendix C – Project Template

PROJECT DESCRIPTION / INTRODUCTION AND OVERVIEW What is this project about? Describe the setting, analysis of the situation, and establishes expectations. GOAL /PURPOSE

OBJECTIVES

ANALYSIS OF CURRENT SITUATION

KEY ASSUMPTIONS AND RISKS

OVERVIEW OF METHODOLOGY – What will you be doing? Describes the methods, resources and actions behind the project SCOPE

SOLUTION OPTIONS

DATA SOURCES

FINANCIAL MODEL (METRICS AND METHODS)

NON-FINANCIAL ANALYSIS ACTIVITIES

7 Appendix D – Focus Areas Checklist

Capital - Task Force Recommendations Strategic Goals A Board-Approved Policy: Every electric cooperative should have a policy for annually allocating capital  credits and, subject to the ’ discretion and the cooperative’s financial condition, annually retiring capital credits. Equity Management Plan: Every electric cooperative should develop and implement an equity management  plan that supports its capital credits policy based on the co-op’s equity and debt requirements, financial performance and competitive situation. The equity management plan should include rates that will generate adequate cash to provide capital credits retirements. Adequate Equity Level: Each electric cooperative should seek to maintain an equity level adequate to retire  capital credits on an annual basis and meet the goals and requirements of its equity management plan. The task force suggests that a reasonable equity level for most distribution systems is in the range of 30 to 50 percent, depending on the cooperative’s financial and competitive situation. Permanent Equity: The development of permanent equity should not be a goal of a cooperative’s capital  credits policy. Any advantages of permanent equity, such as building a cooperative’s equity level or developing reserves, can be achieved in more direct ways that do not involve the same tax, takeover or other risks inherent in a policy of permanent equity. Allocating Capital Credits Member Notification: Cooperatives should notify members in writing of the dollar amount of annual capital  credits allocations. Contractual Forfeiture: Electric cooperatives should not enter contracts that require members to forfeit the  right to capital credits in return for other considerations, such as reduced rates. Allocations: Every electric cooperative should fairly and equitably allocate annual margins as capital credits  to members receiving service in a that year in accordance with applicable guidelines from tax law, state law and the cooperative’s bylaws. [Not one of original Task Force Recommendations] Retiring Capital Credits Selecting Retirement Method Based on Goals: Each cooperative should choose a retirement method that  will help the co-op achieve its goals, recognizing the effect the tenure and age of its members has on the perception of the value of membership in the cooperative. Each cooperative know the percentage of its current membership receiving a capital credits retirement each year and seek to maximize that percentage. Discount Special, Not General Retirements: If an electric cooperative chooses to make special retirements,  such as retirements to estates, the amount of the retirement should be discounted to reflect the time value of money. Cooperatives should not offer discounted general retirements. Recommended Discount Rate: If a cooperative makes discounted capital credits retirements, the task force  suggests that the discount rate selected should be based on the cooperative’s weighted cost of capital, which includes the cost of equity and the cost of debt. Age of Members: Electric cooperatives should not make special capital credits retirements based solely on  the age of the member. Compliance Director Flexibility and Discretion: Every electric cooperative should review its bylaws, state laws and other  applicable governing factors in terms of the impact on capital credits policies. If a cooperative’s bylaws do not permit the board to exercise sufficient discretion regarding the method for allocating or retiring capital credits, the cooperative should consider seeking changes to give directors such flexibility in determining capital credits policies. Maximizing the Benefits of Capital Credits Decisions Communications Plan: Every cooperative should have a communications plan for educating members about  capital credits & the cooperative’s capital credits policies. Every director & each employee should understand the policy and be able to explain how it works and why it was adopted to members who have questions.

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