Whole Life Costing/Value workshop

Transcription

1 Whole Life Costing/Value workshop 15 September 2016 National Railway Museum, York Malcolm Horner Mohamed El-Haram

2 The programme 1. Outputs of first workshop 2. Review of WLC/WLV 3. Challenges to WLC/WLV 4. Advanced concepts 5. Break out sessions what s needed? 6. Summary and discussion 2

3 Programme for this session 1. Whole life cost breakdown structure 2. Drivers and objectives of whole life costing/whole life value 3. Whole life costing/value process 4. The challenges in and the barriers to the application of WLC and value 3

4 What is whole life costing? 4

5 ISO 15686, part 5- whole life costing/ life cycle cost WLC is a methodology for the systematic economic consideration of all whole life costs and benefits over a period of analysis as defined in the agreed scope LCC is the cost of an asset, or its parts throughout its life cycle, while fulfilling the performance requirements 5

6 Elements of WLC ISO Whole Life Cost (WLC) Non- Construction Cost Life Cycle Cost (LCC) Income Externalities Construction Maintenance Operation Occupancy End of Life BS ISO

7 What is the life cycle? End of Life Project investment Planning adaptation Design Maintenance Installation Operation 7

8 What is whole life value? 8

9 What is whole life value? Value is what you get for what you pay 9

10 Developing measures of value Economic costs Functionality Quality Whole Life Value Performance Time Compliance Source: WSAtkins 10

11 What are the objectives of whole life costing? 11

12 Objectives of whole life costing Evaluate and justify competing options Improve awareness of total costs More accurate forecasting of cash flow Performance trade-off against cost Develop maintenance strategies to increase efficiency Managing future risks Best value solutions to all stakeholders 12

13 The key objectives of ISO15686, part 5 Establish clear terminology and common methodology for LCC Enable the practical use of LCC so that it becomes widely used in the construction industry Help to improve decision making and evaluation processes at relevant stages of any project Address concerns over uncertainties and risks to improve the confidence in LCC forecasting Provide the framework for consistent LCC prediction 13

14 The key objectives of ISO 15686, part 5 Provide guidance on when to undertake LCC, to what level and what costs should be considered Make the LCC assessments and the underlying assumptions more transparent and robust Set out the guiding principles, instructions and definitions for the forms of LCC analysis reporting Clarify the differences between LCC and WLC 14

15 What are the drivers of WLC/WLV? 15

16 Value for money is defined as the......optimum combination of whole life cost and quality (fitness for purpose) to meet the user s requirement Government Accounting

17 WLC initiatives in the rail industry A March 2011 report commissioned by the Department and the Office for Rail Regulation shows that around 40 per cent of the total cost goes on maintaining and operating trains over their lifetime Arup, Rail value for money study: Rolling stock whole life costs, March 2011 will take account of the whole life-costs of our assets as we invest in them. This will enable us to reduce safety risks to those tasked with operating and maintaining them both now and in the future Network Rail- Transforming Safety & Wellbeing Our vision and strategy

18 When is the best time to apply LCC? 18

19 When is the best time to apply LCC? 100% Committed WLC Percentage of WLC Actual WLC Planning Design Installation Maintenance/operation/ occupancy Scope to influence LCC savings over time 19

20 The life cycle costing process Preparation Reporting Estimation 20

21 The LCC process- preparation Reporting Preparation Estimation Define the purpose and scope of the LCC Plan the procedure Established the rules and methodology to be applied Compile the available data/information and record the data assumptions 21

22 The LCC process- estimation Reporting Preparation Estimation Undertake the calculations and validate the results Apply risk and sensitivity analysis Interpret the results carefully 22

23 The LCC process- reporting Reporting Preparation Estimation Report the results and document all the information and assumptions used Review the report with the client and obtain agreement to the final outputs 23

24 Standardized method of LCC for construction procurement A UK standard cost data structure A standardised method of applying LCC applicable to the UK construction industry Process mapping the LCC stages Instructions on how to define the client s specific requirements for LCC Providing practical guidance, instructions and definitions Worked examples, data sources and methods of validation Help facilitate a more accurate, consistent and robust application of LCC 24

25 Why do risks and uncertainty need to be considered? 25

26 Summary of elements of uncertainty in WLC Factors Elements of uncertainty Economic Technical Interest rate, inflation rate, taxes, income, etc. Project life span, component life expectancy, intensity of use, operational scenario, etc. Political, environmental and social Others Future government policies, unexpected use of project, environmental legislation (CO 2 ), human aspects (user expectation, vandalism), etc. Change in technology and fashion, changes in use, change of ownership, future target requirements, quality of the data available, etc. WLC/LCC Risks and Uncertainty 26

27 Factors affecting LCC appraisal Discount rate Period of Analysis (length of time over which an investment is analysed) Physical life Functional life Technological life Economic life 27

28 What are the barriers to the application of WLC and value? 28

29 Bridging the gap Finance Model LINK Integrated WLC Modelling Tool LINK Construction Costs O & M Costs 29

30 Some barriers to the successful use of LCC Failure to include life cycle cost goals in design criteria, Lack of incentive to consider the longer-term impact of decisions Desire to minimise the initial expenditure Lack of reliable data Fear of making assumptions 30

31 Whole Life Costing/Value workshop 15 September 2016 National Railway Museum, York Malcolm Horner Mohamed El-Haram

32 The programme 1. Reliability, Availability and Maintainability and WLC 2. Asset Management and WLC 3. Supply Chain and WLC 2

33 HS2 key requirements Speed and Capacity will be critical technical, operational and environmental requirements for HS2, in addition to the need to provide a safe and reliable railway. 3

34 Reliability, availability, maintainability and whole life costing 4

35 Reliability, availability, and maintainability What do reliability, availability, and maintainability mean to high speed rail/ major project and its supply chain? 5

36 Reliability, availability, and maintainability HS2 Ltd will develop a Reliability, Availability and Maintainability plan and deploy Best Current Practice in respect of engineering practices through the supply chain. In support of this objective HS2 Ltd will implement incentive strategies in the supply chain in relation to reliability performance.. HS2 Development Agreement,

37 Specifying RAM Requirements RAM requirements and specification need to include clear, measurable metrics 7

38 Reliability, availability, and maintainability RAM are design attributes that have significant impacts on the Whole Life Value (WLV) of an asset. The impact of availability on WLC/V can be measured as the cost of unavailability (e.g. the cost of losing revenue) and therefore trade-off is needed to compare the cost of unavailability with the cost of improving the required level of availability 8

39 Relationship between reliability and WLC Cost WLC Minimum WLC Capital Costs Operation Costs Replacement and Maintenance Costs Reliability 9

40 Asset management strategies and whole life costing 10

41 Asset management A key feature of good asset management decision-making is the optimisation of costs, risks and performance over short and long timeframes, within any absolute constraints. ISO

42 The benefits of adopting an AM approach Provides a mechanism to evaluate competing maintenance options over a defined period of time. Ensures an increased awareness of the life cycle costs of different maintenance options. Enables the demonstration (to decisionmakers) of the long-term performance and economic implications of alternative treatment strategies and funding levels. 12

43 Supply chain Clients intend to work with suppliers to build consideration of WLV and WLC into their contracts. 13

44 Supply chain The objective is to ensure that the Client and its suppliers have appropriate data, tools and skills to undertake RAM, Asset Management, WLC and WLV in a way which allows them to deliver high speed rail and other major projects. 14

45 Supply chain expectation The supply chain is expected to understand the purpose and role of RAM, Asset Management, WLC and WLV in the procurement process, their role in systems development, and the benefits of implementation during the operating and maintenance stage 15

46 Any questions? 18