Society for Cost Analysis & Forecasting. Evaluating Performance Based Contracts within a Partnered Environment

Transcription

1 Society for Cost Analysis & Forecasting Evaluating Performance Based Contracts within a Partnered Environment Mike Peters Performance Excellence - Head of Business & Solution Modelling 12 th June

2 Objective of this briefing Raise your awareness of: Performance Based Contracts in a Partnered environment and the issues Why Analytics are so important to BAE Systems Business & Solution Modelling capability developed 2

3 Typical products we provide partnered services for include. Type 45 Destroyer Typhoon TAS M777 Howitzer Hawk IOS DLF Military Flying Training System Aircraft Service Provision 3

4 Typical products we provide partnered services for include. Radar EWACS Radar EWACS 2100 Sampson Tornado ANZAC Major Fleet Unit Group Maintenance Contract 4

5 Performance Based Contracts present different risks, opportunities and complexities Background Company progressively moving into Performance Based Availability Contracts, E.g. ATTAC, Hawk LIF, Type 45, Radar Contracts etc Performance Based Contracts: Different risks and risks that increase with time Relationship between cost, revenue and performance not intuitive Different KPI s are required for Services Partnering & Supply Chain creates greater Commercial Complexity Therefore, in 2006 EC sponsored the development of our Business & Solution Modelling capability. Appropriate application of Analytical techniques is key to de-risking our proposals, winning Value Added business and optimising Through Life performance. 5

6 Risk Exposure Through-Life Risk Profile needs to be understood at the proposal submission stage First exposure to actual on base Operations Obsolescence or Latent Defect Upgrades Design Build Transition Through Life Support Risk increases with time on long term Support contracts 6

7 What is Business & Solution Modelling (B&SM)? Business Modelling = Cash flow, NPV, costs, risk Performance Solution Modelling = Solution Optimisation Revenue Cost B&SM = Integration to understand the relationship between cost, performance, risk and revenue and optimise Value for Money. Risk B&SM Analytical techniques are effectively Risk Reduction tools, as Predictive Analysis provides real insights into Cost, Performance and Risk enabling evidence based Decision Making 7

8 B&SM Benefits Informed decision making Enhance probability of Contract Award Reduce risk Save money Determine appropriate Metrics and KPIs Operate and Continuously Improve the business Greater agility - Faster decision making Decision Making Business Questions Analysis Modelling These analysis activities are applied to a project to firstly help determine the best solution and then to underpin its ongoing operation Informed Decision Making 8

9 The application of Business & Solution Modelling analytics enables us to optimise performance in support of our Customer goals.. In Through Life Delivery to: Improve predictability and forecasting of future performance against KPIs and so optimise business performance Reduce the level of Risk through improved decision making Optimised Operations and Continuous Improvement of the business and our solution/service offerings Greater Agility Faster Decision Making The Analytical B&SM Techniques developed are applicable to ALL Prospects and Contracts in all phases of the Life Cycle Tailoring to the specific Business Issues/requirements is key 9

10 Business & Solution Modelling provides Insight to understand & manage the business Past Present Future Information Traditional Approach What Happened? (Reporting) What is happening now? (Alerts) What will happen? (Extrapolation) Insight B&SM enabled How and why did it happen? (Modelling and Analysis) What s the next best action? (Recommendations) What s the best/worst that can happen? (Prediction, Optimisation, simulation) Reference: Analytics at Work by Davenport, Harris & Morison 10

11 Customer Citations NAO report Fast Jet Support: Highly complimentary of MoD, BAE Systems and Partners Period Cumulative savings (Includes BAE Systems & RR): 1.3Bn Tornado & 109M Harrier Improved Harrier availability at Cottesmore from 2006 Makes recommendations for MoD to improve: modelling of relationship between output requirements, repairs and Support Cost Modelling Modelling of incentives on Industry Improve data availability to all budget holders B&SM is an enabling Capability to help Managers make better informed decisions and support them in achieving these goals 11

12 B&SM Achievements Since 2006 B&SM has: Underpinned > 600M savings to our UK Customer Facilitated agreement of appropriate KPI s Introduced Consistent Best Practice Standards and Validation & Verification Governance for Cost Models Delivered significant cost savings on our major contracts Chairman s Awards for Innovation Bronze Awards 20 + Silver Awards 2 Gold Awards 1 Created an entire infrastructure of B&SM Capability Global Support Capability Maturity Assessment The Management of the Programmes deliver the Benefits B&SM is a key enabler 12

13 B&SM encompasses a wide range of analysis and modelling techniques, E.g. Business Winning Solution Modelling Commercial & Financial Modelling Value Proposition Supply Chain Modelling Life Cycle Cost Modelling Solution Optimisation Inventory Optimisation Payment Mechanism Analysis KPI Analysis Process Modelling Value Analysis Trade Off studies Fleet Modelling Risk Modelling Sensitivity Analysis Operational Analysis Resource Modelling Logistics Modelling Project Commercial Finance Management Engineering Support 13

14 Strategic Analysis Value Proposition - End State Visualisation Enterprise Architecting, Modelling & Capability Analysis B&SM Planning Cost Modelling Revenue Analysis KPI & Value Analysis Incentives and Penalties Analysis Risk & Schedule Modelling (D&M Phase) Risk & Opportunity Analysis Operations Solution Optimisation We take a holistic approach to integrate the modelling and so optimise solutions Capability Decision Support Affordability, Operational Analysis B&SM Content of a Generic Proposal / Contract Modelling & Analysis Integration Business Modelling & Trade-off Analysis Solution Modelling & Performance Analysis E.g.: Fleet Processes Resources Maintenance Supply Chain Inventory Training Performance Requirements Facilities Infrastructure Data Management and Master Data Assumptions List (MDAL) Phase 0 Opportunity Analysis 1B Solution Design, Costing and Pricing 2A 14

15 Delivery of End to End Visibility and Integration BAE Systems has mapped, gathered and analysed data from the end to end supply chain giving us a unprecedented understanding of value and cost drivers Available Capability to generate military effect. this investment enables the prioritisation of those activities that have the largest impact on improved vehicle availability and reduced through life costs 15

16 Improvements targeted by BAE Systems Electronic labelling of goods will reduce receipting time by xx% per Km reduction of x% on repairables and x% on consumables (top 80% of items) Innovative approach to condition based monitoring for vehicle integrity to be reduce cost by xx% Available Capability to generate military effect Structured approach to obsolescence management with cost avoidance opportunities xx% fewer vehicles to be repaired at 4 th line xx% reduction in repair times in industry (top 80% of items) x% decrease in maintenance hrs Improve Fleet Planning and management will reduce the number of vehicle trans actions Reduced arising rates (improved reliability, top 80%) 16

17 Custom and Practice can inhibit optimisation 17

18 Efficiency can be significantly improved by investment in lean techniques 18

19 Design /Build Example output: Schedule Confidence 90% Confidence Without Risk With Risk Original completion date prior to Integrated analysis Risk Impact Figure Schedule Confidence with and with out risk These S Curves taken from a real BAE Systems programme. Points to Note: 1. Between the original completion date (Dec 07) and 90% confidence date, there was a 20 Million+ Liquidated damages clause. This clause was removed as a result of the analysis during negotiations 2. The impact of risk was clearly understood by all stakeholders 3. Management attention could be focused on opportunities to reduce risk and uncertainty 19

20 0 613,846 1,228,467 1,838,071 2,464,203 3,064,741 3,703,234 4,317,817 4,919,857 5,530,973 6,151,554 6,743,095 7,371,190 7,990,774 8,592,459 9,214,125 9,806,751 10,450,003 11,024,288 11,665,931 12,308,303 12,912,595 13,486,105 14,134,397 14,748,853 15,347,486 16,018,873 16,600,355 17,189,842 17,801,564 18,441,974 19,036,734 19,670,954 20,276,943 System Availability Example output: Trade Off Analysis % Parts Cost vs. Asset Availability % 80.00% 60.00% 40.00% 20.00% 0.00% Cost

21 Example - Training Pipeline Simulation Where are the bottlenecks? What is the impact on costs? What percentage of graduates take over 2 years? How will asset utilisation change over time? 21

22 Facilities Optimisation Demonstration How many maintenance tracks are required? How many Ground support Test equipments are required? What will be the throughput rate? Where are the bottlenecks? What level of resourcing will be required?. 22

23 Value m Risks and opportunities can be quantified and ranked according to the impact on contract NPV, providing a means to focus and prioritise the achievement/mitigation of opportunities and risks. Significant risk lies within the challenges we have undertaken to meet the affordability targets By targeting areas of highest value, at a part level, we can focus Engineering and Procurement solutions that provide the greatest NPV benefit. 23

24 Number of Aircraft on Ground Days Value Based Modelling, linking operational activity to a value impact, highlighted the need to directly manage Aircraft on Ground (AOG) days and deliver optimum operational performance Expensive items which are the cause of AOG days should be subject to a cost benefit analysis to identify the optimal solution Potential Quick hit Low unit cost items which are causing a large number of Grounded Aircraft Days Years Demands Area = 25,000 Unit Cost 24

25 Number of AOG Days Analysis is critical to prioritising effort to reduce Aircraft on Ground Days In this Fast Jet example of the 2854 structures parts only 238 have caused AOG days in the past 2 years.. The top 20 parts causing 50% of the AOG days Part Number Rank 25

26 B&SM Capability developed to support the business. Capability now embedded in many Projects and BU s Capability Infrastructure established Life Cycle Management Handbooks (8 off) Training Courses (8 off) Competency Framework Tools Catalogue Web Site Best Practice sharing events (Quarterly) Annual Conference The B&SM Capability infrastructure is pretty robust with the Handbooks and Training Courses updated annually to reflect current Best Practice 26

27 Sources of B&SM Capability. Business Units & major programmes have B&SM Capability: Military Aircraft & Information Maritime Services BAE Systems Saudi Arabia BAE Systems Australia BAE Systems Functions CORDA (A BAE Systems consultancy that provides analytical support both within and outside BAE Systems) External Providers Between BAE Systems internal capability and external partners we can access all the Analytical capability necessary to support BAE Systems 27

28 Issues that we need to address include. Data Management - Quality Data is critical to: Modelling & Analysis during BW phase Continuous Improvement of the business Predictability of future performance Timely Availability of Information is critical to: Effective decision support joined up decision making Customer Confidence Functional Sponsorship of Analytics & Integration Functions Information Management Business & Solution Modelling and analysis Analysis Modelling Decision Support Source Data Dashboards Information Management Availability of good Data and cross functional integration of analysis is critical to effective Decision Support 28

29 Summary B&SM is applicable to all Bids, Contracts and all Phases of the Project Life Cycle A robust B&SM infrastructure and capacity with proven and tested techniques is available Delivered enormous benefits for our Customer and BAE Systems Facilitates cross-functional integration which is essential to understanding the relationship between Cost, Performance, Risk and Revenue and making informed decisions Proven models and techniques give real insight to continuous business performance improvement We now need to address Data Management and continue cross functional integration of data and analysis 29

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