Reducing delivery capital of investment programs through effective program management
Water companies across the world, whether privately held or still in public ownership, rely on significant capital investment programs to expand and renew their networks both above and below ground. For example, the United Kingdom’s Scottish Water has recently announced its intention to spend £5 billion over the next 12 years on thousands of miles of water pipes, sewer networks, treatment works and other assets.
This substantial of a capital outlay is not easy to come by, however. Each regulatory period brings new cost pressures as water regulators continue to push down the cost of water and wastewater services to consumers. To eliminate excess spending, water companies are compelled to reassess their operational strategies and find more efficient ways to deliver their capital programs.
Reducing the cost of capital investment can be a difficult task. Standardization is playing an ever-increasing role in reducing design costs, but people and plant machinery on the ground still make up the biggest portion of expenditure and present the biggest risk. If they’re not fully utilized, then they will become overheads, or expenses that are not directly contributed to producing a product or providing a service. These added expenses mean that the cost of every meter of pipe laid or every cubic meter of concrete poured would inevitably increase. To prevent this, many water companies have put efficiency targets in place to address this risk, like the South Australian Water Corporation, which has set a capital delivery efficiency target of 5 per cent for the 2020 – 2024 period.
Keeping the contractor funnel filled is key to meeting capital delivery efficiency targets. The easiest way to do this is to make effective and timely decisions in every stage of the project. Achieving this requires a solid governance structure and process – from portfolio-level investment decisions to program and project initiation, design, delivery and change control – as each stage of the decision-making process can negatively impact the continuity of work on the ground and the output costs.
As programs managers, we help our water sector clients lay solid foundations for successful program delivery by defining the operating model before the initiation stage. This ensures that the governance structure is articulated clearly, together with defined terms of reference as well as roles and responsibilities. Laying the right framework enables the contractor funnel to be filled with the right work, minimizing overheads or on-costs so that clients can deliver their capital investment programs with greater efficiency and reduced cost.