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Delivering Whole Life Value & Whole Life Costing
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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
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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
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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)
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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)
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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)
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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
Source; HS2WLVF framework(Initial findings 2015)
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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
Source; HS2WLVF framework(Initial findings 2015)
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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
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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)
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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
Source - Network Rail – WLC Manual Case Study
Whole Life Value for Money – National Footbridge Study (2)
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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
Source - Network Rail – WLC Manual Case Study
Whole Life Value for Money – National Footbridge Study (3)
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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!