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Business case expectations:Transport Infrastructure Project AnalysisSusan GillettMetropolitan Transport ForumTuesday 22 June 2010
DTF Project analysis
What part of “no” don’t you understand?
Project Investment Analysis
+ Frameworks and policies+ Long term planning+ Context for investment+ Business Case consideration
Investment Development Process & Guides
Strategic Assessment
Options Analysis
Business Case
Procurement Strategy
Funding Strategy
Solution Implementation
Service StrategyAsset Strategy
Multi-Year Strategy
Investment Management Standard (ILM & ICB)
‘Action for Victoria’s Future’ Government
Policies
‘Gate
way’
Ris
k-A
ssessm
en
ts a
t S
trate
gic
P
oin
ts
Different funding treatments for ‘Sustain’ Vs ‘Growth’
Investment
Investment Evaluation Policy Guidelines
eGovernment Investment Evaluation Framework & Methodology Guidelines
Partnerships Victoria and Alliance Guidance
Material
Bu
sin
ess C
ase C
overa
ge
In-Operation Monitoring & Optimisation of Existing Asset Base
Asset
Man
ag
em
en
t Fra
mew
ork
Investment LifeCycle Guidance
Launched July 2008
DTF website: www.lifecycleguidance.dtf.vic.gov.au
Project Investment Analysis
+ Frameworks and policies+ Long term planning+ Context for investment+ Business Case consideration
Long Term Planning
+ Service Strategy – Drivers– Risks– Opportunities – Challenges
+ Asset Strategy– Supporting sustainable service delivery
+ Multi-year Strategy– Scheduling
Indicative (unabated) future demand (using indicators or proxies such as demographic growth)
Se
rvic
e D
eliv
ery
Time
Demand Management
Strategies
Moderated
future demand
Four Dimensions of Strategic Capital Planning
Planned new investment over time, to replenish existing capacity (sustain)or to increase/ improve existing capacity
Service GapService Gap
Service Gap
Service Gap
Capacity of existing infrastructure to support Service Delivery over time
CCS RedevelopmentBail Support
Home DetentionRehabilitation
‘Futures Scenarios Modelling’ Example:Prisoner Numbers
Prisoner Projections Trendline with No Action
Prisoner Population
2006 2008 2010 2012 2014 20163300
3400
3500
3600
3700
3800
3900
4000
4100
4200
4300
Most probablescenario
Least likelyscenario
Possible scenario.
Project Investment Analysis
+ Frameworks and policies+ Long term planning+ Context for investment+ Business Case consideration
Melbourne’s DailyMovement
Transport Challenge
In 2005 congestion
cost Melbourne
$3b
Increased traffic with Melbourne@5million
Port of Melbourne
freight current 2m TEU p.a. to 8m TEU in
2035
Victorian freight will
double from 560m tonnes
to 1,100m tonnes in
2030
Melbourne freight kms to increase 80%,
car kms to increase 22%
by 2020
Load breaches on Melbourne’s rail system grew more
than 500% in 3 years
In 2005 road congestion
cost Australia $10b – will be $20b by 2020
CONGESTION
Victoria’s Transport Challenge
+ East West Link Needs Assessment– Investigation to identify the best transport solutions for
connecting Melbourne's eastern and western suburbs– 20 recommendations– Critical projects included:
• Melbourne Metro Rail Tunnel
• Regional Rail Link
• Intermodal Freight Terminals
+ Victorian Transport Plan– VTP supports Victoria’s growth by transforming our transport
network– $38 billion investment over 12 years
Project Investment Analysis
+ Frameworks and policies+ Long term planning+ Context for investment+ Business Case consideration
What DTF looks for
Alignment with Government priorities.
Service need / urgency and risks.
A strong evidence base.
Robustness of submission, including costings(over whole-of-life).
Funding and procurement options.
Readiness of initiative.
Impact of individual decisions on overall asset base.
Strategic Assessment
1. Confirm Service NeedDescription of Service NeedStakeholder IdentificationProject Objectives and Scope
2. Analyse Options 3. Evaluate to Determine Preferred Option4. Recommendation5. Implementation Strategy6. Executive Summary
Used by decision makers to assess whether there are sufficient grounds for the proposal and if its development should continue at this time; and
Forms basis for project objectives and scope, and description of the service need in the business case
What is a Business Case? - Purpose
Builds on solutions outlined at strategic assessment stage to present detailed single view of options’ costs / benefits / risks / interdependencies / governance, to meet identified need.
Recommends preferred option to meet the service delivery needs,based on detailed analysis of benefits, costs, risks and opportunities.
Provides living blue print of project to be referenced by sponsor / advisors / management, to inform all high-level decision making and change requests …… through to post-delivery evaluation of benefits.
Grouped elements
3. Evaluate to Determine the Preferred Option:•Social & Environmental Analysis•Economic & Financial Analysis•Risk Analysis & Management•Budget Analysis & Funding Strategy•Procurement Strategy
1. Identify / Confirm Service Need2. Identify Options
4. Recommendation5. Implementation Strategy6. Executive Summary
Using a business case
+ In a business case options, including a “do nothing” option, are evaluated to identify a preferred option
+ Central agencies seek to assess:– the supporting evidence base– The relative merit of the options considered (or omitted)– the rigour of the analysis and assumptions of the individual
project
in the context of – competing projects– service specific issues– budgetary capacity
How much….
The business case should: Present costs and benefits of options, by year:
– Whole of life costs - capital and operational.– Benefits should be genuine, attributable and measurable.– Separately identify asset disposal aspects.
Determine the ratio of discounted costs to discounted benefits:
– Discount costs to benefits (C:B) to a point in time– Public good investments may have C:B<1
Assess TBL (social/environmental/economic) aspects:– Did this analysis alter the recommended option– Were the criteria and weightings valid? (sensitivity analysis)
Case study: Melbourne’s Public Transport System
3 Modes + Myki
Trains (Metro)• 160 six car sets • 830 km of track• 214 million passengers carried in 2009
Trams (Yarra Trams)
• 500 Trams• 3rd largest network in the world (249 km of double track)• 179 million passengers carried in 2009
Buses
• 30+ operators• 100 million passengers carried in 2009
Melbourne’s Public Transport System
Vertically integrated franchise model
State owns infrastructure, stations and majority of rolling stock
Privately owned rolling stock is leased to franchisee
Franchisee provides an operational service, and also maintains the rolling stock and infrastructure (i.e. track, signalling,)
Bus operators have separate contracts
Why Franchise?
+ International Expertise – Innovation/Best Practice
+ Government can focus on strategic matters + Improved performance since PTC days+ Efficient asset management, vertical integration
and reduced access issues – creates incentives+ Given patronage growth need maximum
flexibility to shift resources where most needed
What is DTF looking for?
+ Sustainability of offer is critical+ Working in Partnership is important ie. short-term issues
and strategic network issues– Political risk remains with Government
+ Adequacy of resources eg. in:– Running the tender process– Contract managing the franchise agreement
+ High quality due diligence, a critical ingredient to an efficient tender process
+ Understanding State service outcomes and expectations– Clarity on role of Government vs role of operator
What is DTF looking for? (contd)
+ Proper consideration of commercial principles– Performance regime– Contract term
+ Adequate consultation with market at various stages– Before a decision is made to franchise – Once high level commercial principles are developed– When detailed contracts have been drafted– Interactive tender workshops throughout tender phase
……. In Conclusion