2016 10 23_Asset Management Conference_FINAL

1 CH2M_20151 CH2M_2015

Government & Enterprise Asset Management Congress

Dubai, October 2016

Strategic Capital Planning in an Era of Fiscal Constraints

2 GEAM | Dubai | October 2016

Strategic Capital Planning in an Era of Fiscal Constraints

Steve ScottDirector of Project Development

MENAI Region

25+ years

International

Experience Strategy and

Planning

Project

Development


Here’s the challenge


The changed economic landscape


A significant impact on capital investment…


NEEDRegion is committed to

economic diversification; this requires continued

investment

CONSTRAINTReduced fiscal balances are

constraining the ability to invest

RESPONSEShort-term re-alignment of

budgets

HOW?

The investment dilemma…


THE GOOD…

Greater prudence

Justification

Value for money

THE BAD…

Cost cutting

Pro-rata reductions

Limited rationale

THE UGLY…

Short-termism

Reduced economic

development

Long-term impacts


The Key Question

Our VisionOur VisionOur VisionOur Vision

The prioritisation of capital investment towards high impact The prioritisation of capital investment towards high impact The prioritisation of capital investment towards high impact The prioritisation of capital investment towards high impact

projects, defined as those which best help achieve its goals and projects, defined as those which best help achieve its goals and projects, defined as those which best help achieve its goals and projects, defined as those which best help achieve its goals and

objectives. objectives. objectives. objectives.


Making the right investment decisions


Asset Lifecycle

Where…


The need for strategic capital planning

Without a strategic approach, capital

investment planning / decisions:

� Result in inflated budgets and poor

value

� Lack realistic financial planning, ‘wish-

list’ planning

� Are not transparent

� Fail to align budget and spend

� Reduce delivery confidence


Strategy

CAPITAL PLANNIN

G

Projects

• What must be achieved when

• Long term approach

• What is worth doing• When & what cost• Medium term approach

• Service delivery

• Project delivery• Immediate term actions

Tactical Capital Planning…

13 SMART SALES SOLUTIONS | Internal | March 2016

Four principles of good capital planning

Challenge and review

Clearly defined

responsibilities

FlexibilityEstablishing

priorities

Tactical Capital Planning…


The role of effective The role of effective The role of effective The role of effective prioritisationprioritisationprioritisationprioritisation within the overall capital within the overall capital within the overall capital within the overall capital

planning process is critical. It is here that projects are aligned to planning process is critical. It is here that projects are aligned to planning process is critical. It is here that projects are aligned to planning process is critical. It is here that projects are aligned to

best achieve the strategic and local level objectives driving the best achieve the strategic and local level objectives driving the best achieve the strategic and local level objectives driving the best achieve the strategic and local level objectives driving the

leadership vision. leadership vision. leadership vision. leadership vision.


Fundamentally this means moving the process from a purely budgetary decision

to one based on value for money – namely examination of the wider benefits

sought from investment

Moving from cost to ‘value for money’ basis

Cost-basis planning

Value for money


Prioritising projects

Why is it needed?

Consistent way

to sort diverse projects

�Establishes

what is important to focus, and

which, if any, could be put on

hold.

�Value for money

outcomes by aligning strategy,

budget and spend.

�Challenge and

scrutiny to the capital planning

process.


� Supports structured decision-making

� Reduces planning subjectivity.

� Quantifies projects with numeric rankings.

� Facilitates agreement and decision-making.

But, it is a TOOL and NOT the decision-maker!

Prioritising projects

Benefits of a prioritised approach


Guiding

Principles

Easy to use – to maximise use

Make the capital planning process easier

Robust and consistent outputs – a common approach

Graphic and easy to digest analysis

Remember – it is one tool in the process

As with any planning tool, its success lies in its adoption and use. If it is cumbersome, complicated and

hard to use it won’t be used!

Developing a prioritisation tool


Project name

Project Characteristics are

required to identify and track

projects, but also provide the basis

for matrix analysis to develop the

capital plan portfolio

Unique ID

Municipality

Project Owner / Entity

Municipal Sector

Asset Class

New Capital / Maintenance Project

Project TAGS provide the ability

for decision-makers to promote

projects independent of the

priority score

TAG 1:Projects promoted

by leadership

TAG 2: On-going, approved,

not-approved, etc.

TAG 3: Project Identifier(s)

Tags to be used and agreed by user level

to reflect key agendas

Components of a prioritisation framework


Multi-Criteria Prioritisation Framework

Priority Driver 1 Priority Driver 2 Priority Driver 3 etc…Key drivers that

drive priority

Driver Scoring Criteria

A set of 3-4 criteria related to the driver to

assess and score projects against







etc…

Criteria under each driver that are

scored 1 – 5 based on normalizing

statements

35% etc…15% 20%

Weighting the priority between

drivers

Weighted priority scores for each project to inform decision makingFinal Scores

(Index out of 100)

Components of a prioritisation framework

21 SMART SALES SOLUTIONS | Internal | March 2016

Key drivers of prioritisation

The objectives sought by could

(should) include:

� The need to achieve spend

� The need to provide value for money

� Balancing a portfolio within an

overall programme

� Improving deliverability of planned project

� Transparency in decision making

‘Internal’ organisation drivers

But in certain circumstance,

particularly government sector, they could (should) also include drivers

like:

� Supporting economic growth

� Improving sustainability

� Meeting political imperatives

External ‘strategic’ drivers


Vision &

Strategy

Broad

EconomicSustainability Deliverability

Risk and

Criticality

Importance to OPEX

Decreasing importance to CAPEX

Increasing importance to OPEX

Five-driver model


Vision &

Strategy

Broad


Risk and

Criticality

Rationale

Alignment to strategic objectives (internal and external) should be a key part of any prioritisation approach. Developing

criteria that challenge projects on their contribution to strategy and goals will help prioritise those projects that provide

greatest contribution to strategy.

Criteria VS1: Does the project contribute to Emirate vision and agendas?

Criteria VS2: Is it aligned to achieving Organisation level objectives?

Criteria VS3: Does the project maximise outcomes?

Vision and strategy driver


Vision &

Strategy

Broad


Risk and

Criticality

Rationale

All projects are governed by economic/financial objectives, i.e. spend, value for money, or investment returns. This driver

captures these metrics but also provides scope to capture wider socio-economic criteria that are more important to public

sector projects.

Criteria EC1: Does the project have identified need and demand?

Criteria ES2: Will the project contribute to economic impacts?

Criteria ES3: Is it good value for money?

Broad economic


Vision &

Strategy

Broad


Risk and

Criticality

Rationale

Sustainability drives both public policy and corporate social responsibility. Projects should be assessed against the positive

impact they may have on health, safety and environment; in terms of the direct impacts they may have on environmental

assets/eco-systems; and if a physical project the credentials of the construction and operation of assets.

Criteria SS1: What impact is made on the environment?

Criteria SS2: Does the design meet sustainability criteria?

Criteria SS3: Is it financially sustainable?

Sustainability


Vision &

Strategy

Broad


Risk and

Criticality

Rationale

A key objective is to prioritise those projects able to be delivered. The prioritisation process needs to look at the complexity of

the project, whether there are factors (such as stakeholder agreements, approvals, etc.) which are necessary for progress,

or indeed whether the project can realistically be delivered to time and budget (in order to provide budget certainty).

Criteria SS1: Is the project design-ready?

Criteria SS2: Are stakeholders aligned?

Criteria SS3: Is delivery dependent on external factors outside of control?

Deliverability


Incorporating risk


Risk & criticality

Risk and criticality is important in priortising investment / expenditure for a number reasons

� Financial impacts

� Delays to time or programme

� Reduced performance

� Critical failure

� Customer impacts

Vision &

Strategy

Broad


Risk and

Criticality


Risk & criticality

Risk = (consequence x likelihood)

How severe are the consequences of asset failure?

How likely is it for the asset to fail?

� Health & safety implications

� Financial impact

� Regulatory compliance

� Public confidence/ image

� Service delivery

Levels of

service

� Condition of asset

� Performance of asset

� Effectiveness of O&M protocols

� Maintenance history

Condition

and criticality


In conclusion …


The Key Question

Our VisionOur VisionOur VisionOur Vision

The prioritisation of capital investment towards high impact The prioritisation of capital investment towards high impact The prioritisation of capital investment towards high impact The prioritisation of capital investment towards high impact

projects, defined as those which best help achieve its goals and projects, defined as those which best help achieve its goals and projects, defined as those which best help achieve its goals and projects, defined as those which best help achieve its goals and

objectives. objectives. objectives. objectives.

2016 10 23_Asset Management Conference_FINAL

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