Presentation by April Hutchens of SEAMS and Jonathan Hagan of Severn Trent Water on asset vs portfolio centric investment modelling and the use of analytics from a practical point of view

1. April Hutchen, Client Director, SEAMS Ltd
Jonathan Hagan, Asset Modelling & Strategy Analyst, Severn Trent Water
24 November 2016
ASSET VERSUS PORTFOLIO CENTRIC
INVESTMENT MODELLING & THE
USE OF ANALYTICS

2. WHAT IS OPTIMISATION?
Definition of optimisation:
• An act, process, or methodology of making something (as a design, system,
or decision) as fully perfect, functional, or effective as possible; specifically :
the mathematical procedures (as finding the maximum of a function)
involved in this.
Optimisation in Asset Investment Planning:
• Use of complex mathematical algorithms to minimise Whole Life Costs of
asset investments across operational interventions, capital replacements
and inspections.
• The optimiser will trade costs against expected benefits (or risk reduction)
to arrive at an optimal investment plan.
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3. ASSET CENTRIC VERSUS
PORTFOLIO MODELLING
Asset Centric
• Considers all capital, operational and inspection interventions for each asset within
specific asset classes
• Investment model trades investment at asset level or across multiple asset classes
Portfolio
• Looks to optimise a set of predefined projects
• Investments are described as discrete projects with benefits/costs described at project
level
• Selects the optimal mix from the previously defined projects provided to it
Combined Approach
• Optimiser selects the optimal mix of interventions at an asset level
• Drives the definition of projects which feed into a Portfolio model for latter optimisation
• Higher efficiencies & speed of Portfolio Modelling
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4. BENEFITS/CONSTRAINTS
– ASSET CENTRIC
Benefits of Asset Modelling
• Right investment intervention for the right asset at the right time
• Increases buy-in from all stakeholders
• High efficiencies, typically between 7 and 17%
• Increases the transparency of the investment planning cycle
• Challenges historic, recurring decisions
• Best replicates real-world intervention options and constraints
Constraints of Asset Modelling
• Where there are large volumes of assets, models can be time consuming to run as the data
is granular – cohorts or combined approach may be recommended
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5. BENEFITS/CONSTRAINTS
- PORFOLIO
Benefits of Portfolio Modelling
• Delivers more value from the investment program for a level of spend
• Increases the transparency of the investment planning cycle
• Maximises the value of existing and ‘siloed’ investment approaches
• Ensures the highest ‘value engineering’ projects are taken forward
• Increases buy-in from all stakeholders
Constraints
Have the right projects been chosen to be optimised?
Have the benefits and costs been accurately reflected?
• Controls need to be in place to avoid gaming
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6. CASE STUDY
Severn Trent Water (STW)
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7. SEVERN TRENT WATER
• Severn Trent Water
• Water company and waste company
• Regulated industry (OFWAT)
• 5 year Asset Management Planning cycles
• Infrastructure Assets:
• 47,000km of clean water pipes (1.3m assets)
• 40,000km of sewer pipes (1.4m assets)
• Non-Infrasturture Assets:
• 125 Water Treatment Works
• 1,100 Sewage Treatment Works
• 667 Water Pumping stations
• 3,000 sewage pumping stations
• 455 distribution service reservoirs
• 45 Sludge treatment facilities
• 259,000 mechanical, electrical and instrumentation assets in total
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8. SEVERN TRENT WATER
• Decision Support Tools (DSTs), predictive and prescriptive analytics, enable the processing of
large, complex datasets. For asset-focussed organisations, DSTs provide two benefits:
• Insight and foresight for deterioration, service, performance, safety and risk
• Forecasting of the impact of different investment patterns or maintenance strategies
• DST’s allow us to find the appropriate balance between proactive and reactive investment
• STW has a suite of mature models that help the business make investment decisions
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• In Water Infrastructure, STW have used asset modelling since PR09.
• STW use a number of other asset models, e.g. Sewer infrastructure model, non-infra models.
• Outputs from asset models are transferred to a “Portfolio Optimiser”
• Last year upgraded from WiLCO to Enterprise Decision Analytics (EDA)

9. EDA OVERVIEW
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10. CHOOSING THE RIGHT MODEL
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11. CHOOSING THE RIGHT MODEL
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12. TYPES OF MODELLING
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13. WATER INFRASTRUCTURE
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14. OPTIMISATION
Model Options
• Constraints
• Performance Area – Company level, Water Resource Zone (WRZ) level
• Supply Interruptions > 6 hours – Improve, maintain or relax
• Leakage – Maintain, Sustainable Economic Level of Leakage, Environment Agency aspiration
• Assumptions
• Leakage deterioration
• Water Framework Directive impact on Water Available for Use
• Maximum renewal rate
• Optimisation type
• Genetic Algorithm
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15. RESULTS
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• Optimised plan for a given scenario
• Pipe Plan
• Selection of supply schemes
• Other EDA models produce optimised plans for given scenarios:
• Sewer Infrastructure model
• Linear Otimisation
• Non-Infrastructure models
• What next?
• Portfolio Optimisation

16. PORTFOLIO OPTIMISATION
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17. PORTFOLIO
OPTIMISATION
USING FICTIONAL
DATA
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EXAMPLE NEED AND SOLUTION
Need
ND-0001
Non-modelled 1
t0 t1 t2 t3 t4 t5 t6 t7 t8 t9 t10
OPEX £k 0 190 190 190 190 190 190 190 190 190 190
Water Quality
Complaints 5 5 10 10 15 15 20 20 25 25 25
Solution
SN-0001/01
Non-modelled 1
t0 t1 t2 t3 t4 t5 t6 t7 t8 t9 t10
OPEX £k 110 110 110 110 110 110 110 110 110 110
CAPEX £k 2400 0 0 0 0 0 0 0 0 0 0
REOC Total £k 85 85 85 85 85 85 85 85 85 85
Water Qulaity
complaints 5 10 10 10 10 10 10 10 10 10 10

19. NO INVESTMENT SCENARIO
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20. NO INVESTMENT
SCENARIO
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21. SCENARIO 1
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22. SCENARIO 1
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23. SCENARIO 1 – CHOICES
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Series Years Years Years Years Years Years Years Years Years Years Years
Series 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
NS 1 1 0 0 0 0 0 0 0 0 0 0
NS 2 0 0 0 0 0 0 0 0 0 0 0
NS 3 1 0 0 0 0 0 0 0 0 0 0
NS 4 0 0 0 0 0 0 0 0 0 0 0
NS 5 0 0 0 0 0 1 0 0 0 0 0
NS 6 1 0 0 0 0 0 0 0 0 0 0
NS 7 0 0 0 0 0 0 0 0 0 0 0
NS 8 0 0 0 0 0 0 0 0 0 0 0
NS 9 0 0 0 0 0 0 0 1 0 0 0
NS 10 0 0 0 0 0 0 0 0 0 1 0

24. SCENARIO 1 – OVERALL
SPEND
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25. END TO END DELIVERY
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Strategic Asset Modelling
AMP Planning
Portfolio Optimisation
Price Review – Business Plan
Delivery Asset Modelling
Annual delivery planning
Portfolio Optimisation
Annual plan – delivery projects

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ARE THERE
ANY QUESTIONS?
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