Successful projects and failed programmes – the cost of not designing the whole life cycle of assets

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Successful Projects & Failed
Programmes: The cost of not
designing the whole life cycle of
assets
Ruth Wallsgrove, February 28th 2024

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© Copyright 2024 Asset Management Consulting Limited. All Rights Reserved
CurrentRole
Principal Consultant and NA Training Lead for AMCL, a leading dedicated Asset
Management consultancy globally (majority owned by Turner & Townsend, in
turn majority owned by CBRE)
Over 25 years in infrastructure Asset Management
• NSW RailCorp GM of Strategic Asset Management
• UGL Rail Product Manager for build and maintain contracts
• Wrote the IPA Project Routemap manual on Asset Management
• Works with Talking Infrastructure to develop the questions for ‘Future
Friendly Assets’. Co-author Building an Asset Management Team, 2020
Ruth Wallsgrove
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• This webinar is based on material developed for the UK Nuclear
Decommissioning Authority in 2023
• It addresses issues with current construction projects, from the
perspective of an Asset Management practitioner
• We need your help
About this webinar
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CEATI Webinars
In partnership with
Poll: How much do you already use?
1. Already actively using good Asset
Management lifecycle thinking in
projects
2. Aware but not yet able to make use of it
3. What is Asset Management, again?
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• Too many infrastructure projects fail on basic delivery
parameters: they overrun on construction costs and delivery
deadlines
• But of even more concern is how many truly deliver the
benefits in their business cases
• Do we even know how many succeed? We rarely review what
they achieve in practice in their years after handover to
operations
• We suffer from an almost universal focus on design and
construction, instead of what it takes to operate and maintain
them – so too often don’t design or even measure projects for
performance, operability, maintainability
Why do we need something more than we have?
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Case Study 1: New Rail Line/ On-going Costs
• Business case for a new airport rail line
that was approved for national
funding
• Case stated there were no additional
operational or maintenance cost
implications from building a new rail
line – which have significant
operational and maintenance costs.
No-one queried this.
• The case was approved locally, by the
state, and federally, and the railway
was built
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Lack of consideration
for on-going costs,
and where this money
was going to come
from, was not the only
issue with this project

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But this is too easy to find: everyone has
their own favourites

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And all of this can seem provocative and
boring at the same time

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Introduction:
Asset Management Thinking
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Daily
Operations
Long-term
Performance
Up-front
Cost
Local
Expertise
Age
Maintenance
Reactive
Whole-life
Cost
Integration
Condition
& Risk
Lifecycle
Management
Proactive
Managing Assets Asset Management
Fix on failure

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What’s different about Asset Management
Systematic
An Asset Management System, or
co-ordinated framework for consistently
more optimal decision-making
which may be quite small – to promote and
co-ordinate more joined up decision
processes, for capital as well as
maintenance
Core Asset
Management Team
Integrated Asset
Management Planning
across all assets,
long and short term, ideally based on risk
to organizational objectives
Strategy based on understanding cost, risk
and performance, not tactics, reactive, or
simply a list of actions
Much more strategic approach
to asset decisions…

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Cost-Benefit Analysis
• The basis for capital investment starts with the relationship between benefit and cost: that the
overall benefit is greater than the overall cost
• But even for projects where we believe we can demonstrate the benefit is greater than the cost, it
is clear that some projects give a better ratio, more benefit to cost, which we attempt to capture
via various measures of ‘return on investment’
• Asset Management has tended not to enter this area on the straight financial investment, since it
is well covered by accountants and economists already
• However, Asset Management practitioners are very concerned about the total costs, and the
failure too often to consider the costs of operations, maintenance, and performance failure
• For capital renewals, AM focuses on ‘risk reduction per £’ to look for the optimal projects and
programmes (e.g. Highways England savings)
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Opportunities v Decisions across the Lifecycle

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Whole Life Costs

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Example of ‘Optimal Life’
Year of Replacement

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Best risk
reduction per £
project
Poor RR per £
project
Risk
Cost
DIMINISHING
RETURNS
Risk and Cost: Investment Portfolio Example

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Annualized
Funding
Requirement –
around £8bn
Sustaining existing asset base in a portfolio

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And when you add new assets in a portfolio
Annualized
Funding
Requirement –
goes up to over
£10bn

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Case Study 2: Whole life cost modelling & projects
• Network Rail decided to invest in whole
life cost modelling to support asset class
decisions
• They found them invaluable for
appraising capital projects – now they
knew what the on-going costs were, they
could take them into account
• Unexpected benefit as how they
facilitated longer term planning when
Office of Rail Regulation (as was) required
a 25-year indicative asset plan
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Criteria in the Business
Case
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Where does AM thinking come into play in the Green Book?
• Strategic
• Economic – options appraisal
considering total cost of
ownership
• Commercial
• Financial – where is money
coming from, including O & M,
refurbishment, decommissioning
and disposal
• Management
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The five cases
Very important
Essential – whole life
O&M costs = key
Risk transfer and
operational assurance
Appropriate pivot points to
validate value, assumptions
and readiness for ops

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Strategic Case
• Strategic Context
• does it fit with corporate AM strategy? Is there a strategy?
• Organisational Overview
• Including how it will be operated
• Current Business Strategies
• Including today’s (bad?) AM arrangements
• The Case for Change
• Why are we doing this? How does it fit with everything else?
• Spending Objectives
• Must be whole life spending
• Business Needs
• Potential Scope
• Benefits and Risks – all significant risks
• Constraints and Dependencies
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Asset
Management
should feature
throughout
the Business
Case
Think
Objectives
and
Strategy

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Case Study 3: Sydney railways
• For many years, people had their
pet projects for new rail lines,
often motivated by search for
votes in marginal constituencies
• Latest fiasco was a new metro
abandonned before it was built at
a cost to the government of
AU$0.5 billion
• Success only came with an
integrated strategy for the whole
metropolitan area (that,
incidentally, asked where the
capacity bottleneck really was)
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But few infrastructure organisations have what you could call a
strategy for their overall portfolio, including strategic
approaches to how they maintain it
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Economic Case
• Critical Success Factors
• Across whole lifecycle
• Long listed Options
• Covering AM whole life aspects
• Have the alternatives really been investigated?
• Short Listed Options
• Status quo; do nothing option
• Economic Appraisals of Costs and Benefits
• Essential to include AM considerations over whole life
• Risk Assessment
• All significant risks, across the lifecycle
• Sensitivity Analysis
• What happens if power costs go up? If resources are scarce?
➢Preferred Option
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Asset
Management
should feature
throughout the
Economic Case
Think All
Costs and
All Risks

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More about Options Appraisal
• Is the options appraisal based on whole life costs including operational
resources, energy consumption, spares, maintenance, mid-life renewals,
decommissioning?
• What is the evidence alternatives were appropriately considered and
investigated?
• Do the figures make sense?
• A basic question is whether someone who knows about these requirements
and costs was even involved
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Case Study 4: Electric Buses/ On-going Costs
• Business case for taking national funding to
buy additional electric buses
• Analysis by AM team looked at the actual
financial impact of running these buses
• This included cost of new
maintenance facility, availability of
and need to buy new spares,
reliability and expected life, source of
power, replacing existing buses well
before their optimal life, lack of
flexibility to expand fleet – and
purchasing In a overheated market
for an under-mature technology
• They estimated it would cost an
additional $2 a mile for those routes
for the next 50 years
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Electric Bus Example
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• What is the problem it’s designed to solve?
• What’s the evidence this is a solution?
• What other non-renewable resources will it
require?
• What is the evidence so far on running costs?
• What is the evidence so far on performance?
• Requirement for new spares, tools, facilities
• Do we want to discard the embodied materials
in existing bus fleets?
• What does its overall cost benefit look like?
Decarbonization
E.g. battery materials
CO electricity from fossil fuels
High ops costs – 2 for 1
Poor reliability and shorter lives
Includes new facilities

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Commercial Case
• Procurement Strategy
• Including maintenance, spares, facilities
management
• Service Requirements
• Levels of maintenance required, reactive v
preventative v data driven maintenance strategy
• Charging Mechanism
• Risk Transfer
• But how much risk can you realistically transfer?
• Key Contractual Arrangements
• Personnel (TUPE) Implications
• Accountancy Treatment
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Asset
Management
should feature In
Procurement
Strategy and in
Service
Requirements
Think
Maintenance

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Financial Case
• Public Capital and Revenue
Requirements
• Net Effect on Prices (if applicable)
• Impact on Balance Sheet
• Impact on Income and Expenditure
Account
• Overall Funding and Affordability
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Asset
Management
should feature
In bold areas
shown
Think Whole
Life Costs -
again

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Management Case
• Transition to live ops and operational
Contract Management Arrangements
• Benefits Realisation
• Operational Risk Management
• Monitoring costs during operations
• Post Implementation Evaluation
Arrangements
• Contingency Arrangements
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Asset
Management
should
feature In
bold areas
shown
Think about
Handover &
O&M
Strategies

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Case Study 5: Handover Strategies, Plan and £
• Both the Elizabeth Line and HS2
explicitly involved highly
experienced O&M roles from the
start, and AM (including AMCL)
during the project
• HS2 hired Asset Managers before
design to look at (among other
things) operability and
maintainability in design, O&M
strategies, and handover (as-built
data, O&M manuals, maintenance
schedules)
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Neom in Saudi Arabia already has an
AM and Handover Manager in place
at the start of the 9 plus year
construction project, with funding for
her team and for everything involved
in planning and executing handover –
contracts about to be let for the latter

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Call to action
1. Closer liaison between Project Management and Asset Management, based
on shared understanding of total asset costs (‘total cost of ownership’)
2. Asset costs, risks and performance built into design considerations and the
business case right from the start
3. Asset handover properly costed and resourced from the start, as at Neom –
including development before handover of
• Operating strategy
• Maintenance strategy and schedule
• O&M Manual and training
• Asset information strategy
• And of course as-built data handed over in operations and maintenance systems,
including ‘enterprise asset management’ or work management system

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Does this require additions to Project
Management education and methodology?

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CEATI Webinars
In partnership with
Poll: Ideas for Improvement
Ideas for ways to build our education,
training and tools for project managers,
engineers and others to include the total cost
of ownership and the importance of having
this bigger picture
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1. On-going operational costs: evidence against typical costs?
• Includes sensitivity to changing power costs
2. On-going maintenance costs: evidence against typical costs?
• Includes spares, facilities, resources
3. Consideration of alternative options: evidence of process?
4. Consideration of decommissioning and disposal costs and risks: evidence using past
experiences?
5. Treatment of on-going risks?
6. Overall modelling of costs and risks?
Summary Question Checklist – in progress

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Q&A

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Thank You!

Successful projects and failed programmes – the cost of not designing the whole life cycle of assets

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