How do I maximise return on my infrastructure investment?
In an increasingly global and competitive market, the answer requires a shift in mind-set from those managing assets and individual projects - and from those advising them.
In the years that have followed the global financial crisis, a new way of looking at infrastructure assets, be they transport operating companies, fixed infrastructure assets or utilities, has emerged. This change has largely been driven by investors and regulators demanding demonstrable value for money over the delivery and operation of assets. It requires that the creation and operation of these assets be viewed not simply as large construction projects or major renewal works, but as enablers to delivering a great customer experience.
The relationship between efficiency, growing revenue and providing a great customer experience is critical to the value of the business. It is this demand for value in terms of the service outcome that has led some of the most progressive organisations to abandon the ideas of having a silo capital and operational spend and instead think about Totex or Botex. Every decision must be assessed with respect to its impact on the customer, with as much emphasis placed on optimum capital expenditure as efficient operating expenditure and revenue generating opportunities.
The relationship between efficiency, growing revenue and providing a great customer experience is critical to the value of the business
This requires a paradigm shift in mind-set for those overseeing asset delivery, operation and those advising them must look beyond project and programme delivery to a new set of skills which encompasses business case development, benefits measurements and consumer experience.
Leading the way
We can find examples of this new approach in every infrastructure sector. Heathrow has matured its capital projects team with a development team whose brief is to evaluate business cases balancing expenditure of Capex and Opex with the need to create a world class and resilient airport that delivers the best experience for the travellers passing through the airport. Assessing performance standards from a user point of view ultimately leads to optimising shareholder’s return.
Heathrow’s development team is engaging with its supply chain earlier and earlier in the business case development and design process to help with the evaluation of options. And those supply chain members are responsible for working across Heathrow’s asset lifecycle from delivering new facilities to making existing ones run more efficiently.
Transport for London (TfL) has been developing a process it calls ‘Innovative Contractor Engagement’ (ICE), which it used for the procurement of the £563m Bank Station Upgrade. Rather than present contractors with a design, TfL presented bidders with the problems that the station faced: the pinch points for passenger flows and the predicted growth in the number of travellers. In response, the winning contractor Dragados employed transport modellers and other experts to work alongside its commercial teams to devise the scheme which delivered the best solution for the future users of the station.
In the utilities sector, Anglian Water looks to the designers and contractors in its main Alliance to play a strategic role, finding the best solutions for delivering or improving its services to customers. The members of the Alliance are incentivised to deliver savings on Anglian’s investment programme, which are then shared between them.
Technology and the collection and interpretation of data have a huge part to play if owners are to optimise value and understand how capital and operational decisions will impact on customers in the future.
Future collaborations between Highways England and Google could see driverless cars and electric roads which charge as you drive
Network Rail’s Digital Railway programme aims to meet the increasing capacity demands of the rail network by upgrading the signalling and traffic management systems used to control the trains – rather than building new lines. By replacing pre-digital systems with modern ones, the space between trains – or headroom – can be safely reduced which Network rail estimates it can increase capacity by 40 percent. On the South West Main Line, for example, 11 more trains will be able to run at peak time, with a £130m saving on capital costs compared to a conventional strategy.
Highways England is harnessing technology to help optimise road users’ experiences. In 2008 it teamed up with Google to provide traffic information onto Google Maps. Future collaborations between the two organisations could see driverless cars and electric roads which charge as you drive.
And by July this year, Highways England will have a new system in place, which will allow it to manage its technology assets, provide information to maintenance contractors and monitor faults and repairs. The system will also help contractors to access and interact with the system using their own devices.
The advances in technology and digitisation, as part of Building Information Modelling (BIM), have paved the way for asset management in real-time, which improves decision making, helps managing capacity and maximising efficiency.
Asset owners need a more sophisticated approach to asset management that links data and analytics, technology, design information and historical performance.
New capabilities open new investment horizons
Some of these emerging models raise a question mark over the role of the ’Tier One’ contractor. For mega-programmes such as Thames Tideway or HS2, their core capabilities in planning, logistics and construction are needed. For more modest programmes, some owners may choose to increase their in-house capabilities and form direct relationships with the ’Tier Two’ suppliers.
Anglian Water has taken the latter approach with its main alliance. It contracts directly with its 400-strong supply chain in the delivery of its £2bn programme. Others could follow suit.
The challenge for our industry, in supporting these new approaches to asset management and improved service delivery, is to develop and provide the new set of skills and capabilities that are required. Contractors must have in-operation knowledge that they can feed into the feasibility and design phases of any works.
Owners of infrastructure assets, delivering services to the users need organisations that understand how their businesses bring value to the consumer over a long-term horizon, and who can think strategically about the impact of doing – or not doing – maintenance and development work on the end-user. This will inevitably lead to better management of demand and capacity, more efficient use of resources and overall improved customer experience.