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’

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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

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In-Operation Monitoring & Optimisation of Existing Asset Base

Asset

Man

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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