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Delivering Whole Life Value & Whole Life Costing

http://www.railsupplygroup.org/



Delivering Whole Life Value & Whole Life Costing

Presented by:

Andrew GreenTechnical Director of Whole Life Cycle Costing and Asset Information Modelling(advisor to HS2 on WLVfM and Life cycle costs; TfL WLC model and NR WLC manual)Co author of the Guide to Achieving WLV in infrastructure an buildings; RICS NRM 3 and LCC standards ATKINS

Contributions from

Navil ShettyFellow and Technical Chair for Strategic Asset Management(advisor on WLV/WLC and BIM application for HS2)ATKINS

Rail Supply Group - WLV/WLC event Held on 9th March at MTC Campus Coventry




Focus of the presentation

1 Outcomes focused – base all investment, engineering and procurement decisions on whole life value for money

2 Drivers – understanding what ‘value’ means to different stakeholders and difference types of decision making

3 Whole life Value for Money (WLVFM) framework and how to apply in practice (appraisal process - steps 1 to 5)

4 Optimising WLV/WLC/VFM – making WLVfM decisions throughout the project and asset life cycle process

5 Overcome the Challenges – how to embed into project delivery and beyond

6 Practical examples and benefits of decisions making based on WLVFM




Outcomes Focused – based on WLVfM decision making

Investment, engineering and procurement decisions – based on a Whole life Value for Money

By ensuring decisions are informed by Whole Life Value, Whole Life Costs and by Value-for-Money considerations - via a suite of coherent Benefit, Cost, Performance and Risk Models.

Prime Objectives:

Align all investment and engineering decisions to the High Speed Railway - Strategic Goals and Business Case

Transparently demonstrate Whole Life Value For Money ( evidence based )

Key Considerations:

Developing a whole life value for money framework and appraisal process

Identify the models that would be required to implement WLVfM in practice

Combining the use of Value for Money, WLV/WLC and LCC (Life Cycle Costing)




Drivers - what ‘value’ means to different stakeholders

Value

Business Case

(HMT)

Value-for-Money (BCR)

Appraisal

Strategic Goals

Balanced Scorecard

Benefits Measurement

Efficiency & Effectiveness

Measurement

Supplier Performance Assessment

Project Earned Value Assessment

Driving whole life value for money into decision making for

difference types of drivers and difference stakeholder’s view,

as the 5 value models [highlighted by the square boxes].

WLVfM can be incorporated into the procurement process

as part of the value management engagement, to cover the

remaining 3 value assessment models – streamlined with the

balance scorecard (consolidated for supply collaboration)




Whole Life Value for Money (WLVfM) – Decision Criteria

Integrate with other transport

Designed and delivered for the people

Connect citiesCreate jobs

and skills

Promote sustainability and

respect the environment

Deliver value to the UK tax payer

Aspire to the highest health

& safety performance

High Speed Railway Infrastructure Strategic Goals

Customer Outcomes

Business Outcomes

Environmental Outcomes

Economic Outcomes

Societal Outcomes

Integrated Transport Network

Journey Experience

Connected Cities

Jobs & SkillsOperational Excellence

Net Revenue

Value Criteria

Health, Safety

& Security

Environmental Sustainability

Social Sustainability

STRATEGICCASE

ECONOMICCASE

(Value-for-Money)

COMMERCIALCASE

FINANCIALCASE

MANAGEMENTCASE

HS2 Business Case

Strategic Fit Economic Environmental Social Viability Affordability Deliverability

Source; HS2WLVF framework(Initial findings 2015)




Whole Life Value for Money - Combining WLV, WLC & VfM

Renewals Operations Maintenance End-of-Life

LCC Categories

Whole Life Cost

Rolling Stock LCC Infrastructure LCC

Indirect CostsLife Cycle Cost

Construction

WLVfM = WLV / WLC

Whole Life Value

Integrated Transport Network

Journey Experience

Connected Cities

Jobs & SkillsSocial

SustainabilityEnvironmental Sustainability

Health, Safety & Security

Operational Excellence

Net Revenue





Whole Life Value for Money (WLVfM) – Appraisal Process

1-a. Identify decision points and WLVfM application areas (at project life cycle stages)

1-b. Identify key decisions and evidence required to support WLVfM appraisals

2-a. Define decision options – and the basis for assessing the WLVFM in practice

2-b. Agree value criteria; their relative importance and constraints with stakeholders

3-a. Assess and compare options based on combination of the WLV/WLC and VfM

3-b. Assess sensitivity to assumptions and uncertainties

4-a. Assess impact on Benefits Cost Ratio (BCR), Capex & WLC and the Business Case

4-b. Assess impact on Benefits v Strategic Objectives

5-a. Seek approval for the decision (based on evidence of WLV/WLC and BCR etc.)

5-b. Implement the decision and monitor delivery against set WLVFM outcomes

1. Identify Decisions

2. Define Options & Criteria

3. Assess Options

4. Evaluate Decision

5. Implement Decision





Development

Parliamentary Process

RP1 RP2 RP3

PR3Commence

Build

PR4Ready for trial ops

Sponsor’s Remit

Delivery

DfT Review Points

1. Develop Programme

Brief

2. Develop Strategic

Business Case

3. Develop Outline

Business Case

4. Develop Full Business Case

5. Detailed Design and Build

SG6. Close and

Review

Closure Paper

G1 G2 G3 G4 G5

Sponsor Remit

Programme Development Programme Delivery

Operations

ProcurementScope,

Schedule & Budget

BriefDecisions

Strategic Business

Case

Outline Business

Case

Full Business

Case

Test Readiness

Optimise WLVfM decisions – throughout the project & asset life

Source; HS2WLVF framework(Initial findings)



Overcome Challenges – How to embed into project delivery

Contents:

1 Purpose and use of the manual

Glossary of key terms

2 Core principles

3 Roles and responsibilities

4 Establishing the WLC for projects

5 Procurement & supply chain engagement

6 Methods, Models and parameters

7 WLC analysis tasks during GRIP stages

8 Enhancement adjustment mechanism

Appendices:

A Elements of WLC /cost breakdown structure

B Case studies

FAQs and feedback

Whole life Costing Manual

April 2014




Project Objective; the National Level Crossings reduction programmewas established to replace pedestrian crossings with footbridges tominimise and reduce public risks / harm – based on WLC (best value).

Contracting Strategy; addressing the root cause of inefficiencywhilst harnessing supply chain innovation to optimise WLC options

Material Choices Concrete v Steel (based on whole life best value)

Savings and Benefits Realised :1. Reduced risk of public harm and delivery reduced from 4 to 2.5 years2. Innovation – best technical solution adopted (Capex reduced by 15%)3. Over 90 innovative ideas resulting in over 30% reduce in WLC (Totex)4. New program developed with cost certainty for entire control period5. Major workload resources reduction due to volume of supply chain6. Post construction improvements – maintainability, reliability, others7. Overall savings translated into more bridges and safer railways

Source - Network Rail – WLC Manual Case Study

Whole Life Value for Money – National Footbridge Study (1)




12

Current issues

• Uncertain “flow” of work leads to significant inefficiency in supply base

• under-utilisation of resources

• reluctance to invest in innovation and “game-changing” solutions

• Lack of strategic alignment with NR agenda

• “Tender engine” vs “strategic supply chain management”

• Tactical and transactional, “arms length” tender process rather than strategy & insight

• Hundreds of single tender events – often compressed & rushed – resource intensive

• Too much admin and reporting vs pro-active cost and supplier management

• Fragmented supply base – inefficient and hard to build strong relationships

• Leverage “atomised” (e.g. 300 + suppliers used in last 3 years)

• Supply chain too long with weak links

• Poor understanding of extended supply chain (1st, 2nd, 3rd tiers)

• Too many suppliers to develop genuine strategic relationships

• Innovation frustrated by process and cultural issues

• Over prescribed technical solutions constrains innovation and value engineering

• Lack of commitment drives under investment in innovation and continuous improvement

• Too much lump-sum – with tender award often rising by + 20% at out-turn cost

• 70% of tenders under £1M value

• Poor understanding of actual cost-base or “should cost”

• Cultivates opportunistic approach and “Claims culture” behaviour

Lack of committed work bank

Transactional focus

Fragmented leverage

Poor out-turn cost value

Innovation Frustrated

Root causes of inefficiency






Figure 2 - Total Installed Bridge Cost Reductions - as a result of the Supply Chain Innovation

Material ChoiceThere are four major variables that shape the WLC and material choice:• Maintenance interventions – cost, timing (i.e. when in the 30 or 60 year view) and frequency

• Installed CAPEX cost – i.e. manufacture and installation which determines the number of bridges that can be procured within budget. This drives the FWI

• Innovation opportunities – i.e. scope for value engineering the bridge structure to reduce CAPEX cost

• The WLC assessment point – 30 or 60 years

Figure 1 - Examples of key identified steel opportunities






Whole Life Value for Money – Summing Up

Taking WLV/WLV into consideration is vitally important, to fulfil the project lifetime objectives and commitments and making decisions that deliver long term efficiency and effectiveness – not just based on lowest CAPEX, but:

Full cost of ownership – including operations, reliability, maintenance and renewals

Considering WLC correctly will reduce overall cost of the railway for all stakeholders by making decisions moreexplicitly, that will also will contribute to achieving the Governments Construction Strategy Targets and beyond.

Embedding WLV/WLC and VFM into the project investment, engineering and procurement will drive more value!

Involving the supply chain in the early development of the options appraisals will unlock innovation and efficiency

The Future – SAFER, FASTER, LEANER, SUSTAINABLE RAILWAYS - which create a legacy we can all be proud of!

Thank You!



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