As we approach Asset Management Plan 7 (AMP7) in 2020, having been through price review 2019 (PR19), water companies are now looking at how they can deliver against determinations from industry regulator OFWAT. The mandated range of outcomes, the total expenditure (TOTEX) requirements, and the efficiency targets mean that water companies must deliver against a more complex model of capital programmes than ever before. The following paper outlines some of the key benefits of successful portfolio delivery, related trends in delivery models, as well as challenges in adoption.
OFWAT is incentivising a reduced cost of managing and enhancing water and waste water infrastructure and by driving efficiency here, customer bills can be reduced. Extending that theme, a reduced time to deliver capital works allows for more work to be conducted in the regulatory period, thus improving customer service.
Irrespective of the source of blame, water companies are responsible for delivering against the determinations of the regulator and penalties and improvement measures are being imposed on water companies when outcomes agreed in the determination are not achieved. As a result, there is a heightened desire for water companies to effectively and proactively manage their portfolio to help ensure successful delivery. To do this they need to learn from prior experience to drive further efficiencies in the following regulatory periods.
Against this backdrop of efficiency carrots and penalty sticks, some water companies are re-examining their supply chain delivery models – particularly how to reduce the number of layers involved in portfolio delivery to cut costs. This may bring those water companies closer to the coalface which in turn will enable them to exert more control to improve the chances of an on-time, on-budget, quality-assured deliverable.
As a result, a number of water companies are drifting away from indirect portfolio delivery models. Rather than handing the programmes to a small number of tier 1 suppliers, they’re opting to subcontract the work, and we’re seeing several water companies now procuring directly from the tier 2 / 3 supply chain providers.
This approach has three main consequences:
1. The need to expand existing, and sometimes introduce new, capabilities (such as PMOs) that are required to manage a complex portfolio delivery function
2. The need to review the processes and underlying systems to effectively manage, govern, and control a new approach to delivery, both in terms of data provision and engagement
3. The need to ensure that the service is scalable to help cope with a significantly higher number of supplier interactions.
1 THE NEED TO EXPAND OR ADD NEW CAPABILITIES TO BECOME EVER MORE EFFECTIVE
Taking on board a greater proportion of the responsibility of a traditional programme management office (PMO) is no easy feat. Simply throwing more headcount at it is expensive and often exacerbates any issues involved in what has previously often been an externally led PMO approach.
To facilitate this transition, elements within the sector are adopting an “intelligent client” approach with the supply chain. The ‘intelligence’ involves the right blend of control and transparency to help ensure that the client can rely and act upon the plans and progress those that are being fed through the many contractors. This requires strong, well-governed collaboration between the water company and its contractors to help ensure risks materialising at the project site and progress in the project can be rapidly communicated to the water company control centre.
Coupled with static desktop tools such as email and spreadsheets, having both owner and contractor teams trying to validate information is an expensive way to achieve accuracy and can quickly overwhelm the newly formed PMO.
2 REVIEWING PROCESSES AND SYSTEMS UNDERPINNING A SUPPLY-CHAIN LED PORTFOLIO DELIVERY MODEL
Even though contracting frameworks such as NEC and IChemE are required, it is still critical that organizations work to eliminate non-aligned, siloed, manual processes when managing and supporting portfolio delivery.
Compliance with these frameworks can help the water company avoid relationship-damaging disputes and costly claims in managing change.
However, time-bound decisions conforming to a contract framework run the risk of focusing on the time rather than the decision. In the interest of complying with timelines, decisions can be rushed. This can lead to sub-optimal decisions being made by the water company if there is a disconnect between the contractual activity with the supply chain and the outcomes being managed by the portfolio delivery team. The ripples caused from the change could turn into waves elsewhere in the programme.
Tightly re-coupling contract administration to the project cost and schedule then enables scenarios to be played out. The ebb and flow of cost can be modelled and impacts to the delivery schedule and risk profile more keenly appreciated. Change can be understood and controlled.
A number of water companies are now seeing the value in making the right decision at the portfolio level and are changing how their world is viewed—now seeing things from an overall portfolio perspective rather than as a disparate group of contracts held in a bubble. The need for visibility will become ever more critical, and PMOs and executives will look to make critical decisions in an agile fashion that balances the impacts of scope (change, cost, schedule, risk profile, etc.) of a contract on the project or programme.
3 MANAGING AN EXPLOSION OF DIRECT SUPPLIER INTERFACES
As the number of interfaces grows, so does the complexity. Instead, using a common platform with automated processes affords standardisation and scalability. Extending that common platform across the supply chain creates a critical single version of the truth for all parties involved in portfolio delivery.
In a portfolio consisting of a small number of projects and limited change, manual interventions could conceivably support the need. However, in a complex portfolio with many projects and where change is a constant, it is virtually impossible to manage this way. There is now a drift towards integrating contracts to the projects and programmes that spawned them in the first place. Given that contracts are a means to deliver the portfolio of work, this makes a great deal of sense.
Getting it right helps support effective decision making at all levels, including the portfolio, where outcomes and service deliverables need to be achieved in line with the regulatory plan.
Adopting a real-time portfolio delivery approach with true alignment across a significantly expanded supply chain will prompt challenges. These challenges will come in three main areas:
• Organizational change: There is a desire to adopt more in-house portfolio delivery teams. These must act as that and not become detailed project or programme managers. That requires working with trusted real-time data from the actual delivery teams to help ensure the portfolio is balanced and the outcomes can be achieved as required.
• Process change: With more supply chain touch-points, processes need to be standardized. Data requirements should be established within any contracting mechanism that will allow the seamless near real-time data flow (change, status, outcomes, etc.) that will enable the project, programme, and portfolio delivery team to make effective decisions.
• Supporting technology: Delivering on the above requires a platform that enables true vertical and horizontal integration that: allows the seamless movement of near real time data; follows all necessary security, governance, and control requirements; and facilitates transparency throughout.
Innovation should also play a key role in supporting the delivery of regulated outcomes and will be increasingly important as the supply chain base increases. Of immediate impact would be:
• Cloud: This model supports all stakeholders without impacting an organization’s IT security, allowing them to collaborate without restrictions. This collaboration on a common toolset can drive consistent ways of working through the supply chain.
• Mobility: Smart devices have been around for over a decade, with a significant percentage of users spanning all ages now using smart phones. Adopting smart devices as a major data source for the supply chain instantly helps provide the necessary information to and from stakeholders as needed.
• Internet of things (IoT): Numerous developments in IoT now help ensure that the location of people, plants, and materials can be monitored via RFID/sensor technology and the like. The data captured will be used to help make informed decisions in near real-time—and to drive improvements going forward.
• Wi-Fi/GPS: The move to 5G (depending on location) will create a simple Wi-Fi mesh for organizations to more readily leverage powerful IoT solutions to manage supply chains.
With the adoption of a more direct approach to portfolio delivery, water companies need to consider the following to ensure they deliver to regulators’ required outcomes and determinations:
• True vertical and horizontal alignment: This entails breaking down the siloed mentality and allowing contract- and project-level data to be available in near real-time for effective long-term decision-making by program and portfolio delivery teams.
• Processes: Water companies need to eliminate manual processes and instead adopt automated, standardized reflections of ‘good practice’. Manual, inconsistent processes amplify the risks of error and omission, leading to a lack of trustworthy information with which to make effective decisions at the portfolio level.
• Interface plans: A fully integrated interface plan is needed to delivering projects, programmes and portfolios. Over time, these can help drive the required outcomes, but more importantly, they help ensure the utility company has a transparent delivery engine with which to collaborate to ensure successful outcomes overall.
• Change: Change—in scope, cost, schedule, risk, etc.—must be captured in near real time and integrates to the portfolio so that its impact can be measured. This helps ensure there is no significant detrimental effect on the expected outcomes.
• Technology: Water companies must establish a collaborative, intuitive, ‘sticky’ platform that supports true alignment between the organization and its ever-increasing supply chain. The platform should enable all manual, inconsistent process to be automated to help reduce data handling and errors and omissions, and to eliminate data silos. In addition, data should be able to flow seamlessly, ensuring the impacts of change, interfaces, schedule slippages, etc., are always visible and that program and portfolio teams can make effective decisions.
• Innovation: As the supplier base increases so does the needed level of programme maturity, so any technology platform must support ongoing innovations. Currently on the horizon are tools to support resource and materials tracking for productivity purposes, as well as video progress measurement, among others. Water companies need to embrace innovations as they look to do more with less.
The benefits of adopting the above are substantial, but achieving the needed change is no small feat for many organizations. Successful adoption will require executive sponsorship as a driving force, and the transformation must be thoughtfully planned to deliver incremental benefits in bite-sized chunks. This will take time, to be sure, but such transformation is critical to meet the challenge.