An incremental approach to implement Risk Based Asset Management (RBAM)

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UMS Group |Europe region

PPM – Project Prioritization Model

June 2014

Ed de Vroedt

An incremental approach

to implement Risk Based

Asset Management (RBAM)

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Confidentiality

This document is confidential and intended for the sole use of the client to whom it is addressed. The information and methodologies outlined herein are proprietary and their expression in this document is copyrighted, with all rights reserved to UMS Group Inc. Copying or distributing this material without prior written permission is strictly prohibited.

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Why UMS Group?

• Implementation support of risk based Asset management with a wide range of Utilities in both Electricity and Gas Distribution & Transmission, Water and Rail.

• Implementation of Risk and Portfolio Management including supporting tools for full sized utilities (SOS tool suite – spend optimization) to small sized utilities (PPM – spend prioritization).

• Assessment capabilities of ISO 55000 and PAS 55 (endorsed assessorship IAM).

• Global leading practices catalogue based on worldwide consultancy

assignments and Asset Management benchmarks like IDAMS and ITAMS.

• Multi-language skills, including native German and Dutch

3 UMS Group | PPM Product Overview

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Problem description

In the current situation of most companies developing RBAM, it is difficult to

determine what the ‘right’ level of Investments should be.

•

How can be determined, based on the wish list of the current asset owners, which

investments (CapEx & OpEx) are necessary to meet the companies’ objectives framed in the Business Value Framework?

•

The proposed investments in the wish list are being inventarised and assessed by the current asset owners which usually involve people from multiple disciplines. Although this brings in sound dualism, further objectifying, for example to risks, can deliver added value to companies.

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An incremental approach to implement risk based asset management: “

“start with what you’re good at”

• In general companies all over the world have the same ambitions: to become one of the leading companies in their area of competence.

• To fulfill this mission, most asset intensive companies have embraced Risk Based Asset Management (RBAM) as leading concept in their quest to achieve their strategic goals and meet the ever growing stakeholder demands.

• At the heart of Asset Management, in the field of Risk and Portfolio Management, should the real change start: design, build and implement a Business Value Framework for the Asset Owner. Ultimately this Business Value Framework is the foundation to direct the risk analysis of the asset planning process.

• However developing and implementing risk management processes typically takes 1 to 2 years and we often see the momentum fading when practical results fail to materialize. • On the other hand we see that asset intensive companies traditionally have strong

capabilities in solution finding (developing solutions to solve problems).

• Putting the Business Value Framework into practice, companies need to develop, as a first step, the primary skills and processes to analyse the investment portfolio based on a

transparent decision framework: the risk matrix.

• To support companies in this effort, UMS has developed and succesfully implemented an analysis model to link technical solutions (projects) to a Business Value Framework to ensure that these solutions meet the overall business objectives of its stakeholders. This analysis model supports companies in prioritizing -risk based- the current portfolio of projects. • More importantly, UMS provides expert support to further develop, implement and embed

Risk & Portfolio Management capabilities within the Asset Management function.

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The scope of work is focused on the Asset Planning process to

prioritize the Project Portfolio on risks

Asset

Owner

Asset

Manager

Service

Provider

Determine Business Value Framework Risk Management Investment delivery Investment planning Replacements Capital expansion Repairs (24/7) Maintenance

Determines targets (based on the organisation context) and communicates these with the Asset Manager

Determines WHAT has to be done to realize the objectives and agrees on service level with service provider

Determines HOW and carries out tasks as agreed with the Asset Manager

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The principle behind PPM is based on “Reversed engineering”:

Link the current project portfolio to the Strategic Objectives

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Starting point for the development of PPM is the business value

framework as determined by the asset owner (Example TSO)

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Starting point for the development of PPM is the business value framework

as determined by the asset owner (Example medium sized DSO)

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Sehr oft N M H SH U U U Oft V N M H SH U U regelmäßig V V N M H SH U Wahrscheinlich V V V N M H SH Möglich V V V V N M H Unwahrscheinlich V V V V V N M So gut wie unmöglich V V V V V V N F re q u e n z / Ei n tr itts w a h rs c h e in li c h k e it Risk tolerance limit

Methodology of prioritizing projects in PPM

Portfolio of projects or project proposals

- Current Projects - New Projects

1. Determine Current Projects 2. Determine Mandatory Projects

3a. Projects within risk tolerance

3b. Projects above risk tolerance



3. Assess Projects based on BVF – risk matrix

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Outline of delivered main functionality of the PPM

 Insight in the composition of the project portfolio (before and after

prioritization) based on project phase, investment type, Opex/Capex, risk position and risk reduction -per year and multiple years-

 Impact of mandatory and current projects on the portfolio volume and the portion of the projects that are ranked by risks (discretionary volume)

 Impact of market indices and sensitivity settings (like service provider capacity, planning delays and budget accuracy) on the project portfolio

 Impact of weighting of the Business values on the ranking of the projects

 Relative ranking of projects based on risk reduction and/or risk reduction per euro spend

 Scenario analysis of the portfolio, e.g. a safety scenario where no risks on the business value safety is tolerated

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Cash Out & Sensitivity settings Parameter Risk Tolerance:

Example Results: Business Values:

Riskmatrix

Overview Project Portfolio: Composition prioritized Portfolio:

Sensitivity analyse:

Scenario overview:

Example Results of the Portfolio Prioritization Model: Ultimately the

Business Value Framework is the foundation to support the risk analysis

of the investment planning process

Risikomatrix Auswirkung / Folge

ka ta stropha le rnstha ftbe trä chtlich mä ßig Kle in Se hr kle in Ve rna ch-lä ssigba r Sicherheit Mehrere Tote

Ein Toter/Sehr erns te Verletzung m it Dauers chaden

Sehr erns te Verletzung m it langwierigem Aus fall

Verletzung m it Aus fall Verletzung m it Ers atzarbeit Geringe Verletzung m it ers te Hilfe ohne Aus fall

Geringe Verletzung ohne

ers te Hilfe

Versorgungsqualität Siehe TabelleSiehe TabelleSiehe TabelleSiehe TabelleSiehe TabelleSiehe TabelleSiehe Tabelle

Finanz en Schaden > 100 Mio. CHF Schaden 10-100 Mio. CHF Schaden 1-10 Mio. CHF Schaden 100.000 - 1 Mio. CHF Schaden 10.000 - 100.000 CHF Schaden 1.000 - 10.000 CHF Schaden unter 1.000 CHF Beachtung national + politis ch

national / regional / Sektor / Bereich national + politis ch national / regional / Sektor / Bereich

nationalregional / s ektor / Bereich / lokal lokal Ursache

m utwillig, vors ätzlich (Betrug)

Fahrläs s igkeit / unabs ichtlicher Fehler/ höhere Gewalt

höhere Gewalthöhere Gewaltunabs ichtlicher Fehler

Umwelt- & Landschaftsschutz Com plianceSiehe Com plianceSiehe Com plianceSiehe Störung wahrnehm bar über m ehr als 500 m .

Effekt >125% von vergleichbarer

Norm oder Störung innerhalb von 500m

100-125% von vergleichbarer Norm oder Störung innerhalb von 50m Störung auf Privatgelände Compliance Lizenzverlus t, Gefängnis s trafe GF, Buß geld Kartellam t 10% vom Um s atz Stiller Kurator; Gerichts verfahren gegen GF, Buß geld Kartellam t <1% vom Um s atz

Gerichtliche Weis ung; Buß geld 6. Kategorie, Rechts treit > 5000 Kunden

Offizielle Weis ung, Buß geld 4. Kategorie, Rechts treit > 500 Kunden Offizielle Warnung, Rechts treit > 50 Kunden Gruppierte, honorierte Klage zum übertreten regeln, Rechts treit >20 Kunden

Honorierte Klage zum übertreten regeln, Rechts treit einige Kunden,

Se hr oft > 10 m al pro Jahr Einm al bis einige m ale pro Monat

bei Swis s grid U U U SH H M N

Oft > 1 m al pro Jahr Einm al bis 10 m al pas s iert bei

Swis s grid U U SH H M N V Uunzulässig

re ge lmä ßig

> 0,1 pro Jahr; einm al pro 10 Jahre bis einm al pro Jahr

Mehrm als pas s iert bei

Swis s grid U SH H M N V V SHSehr hoch

W a hrsche inlich

> 0,01 pro Jahr; Einm al pro 10 bis 100 Jahre

Schon m al pas s iert bei

Swis s grid SH H M N V V V HHoch

Möglich

> 0,001 pro Jahr; Einm al pro 100 bis 1.000 Jahre

Mehrm als pas s iert in der

Indus trie H M N V V V V MMedium

Unw a hrsche inlich

> 0,0001 pro Jahr; Einm al pro 1.000 bis 10.000 Jahre

Schon m al pas s iert in der

Indus trie M N V V V V V NNiedrig So gut w ie unmöglich > 0,0001 pro Jahr; Weniger als einm al pro 10.000 Jahre

Nie von geört in

der Indus trie N V V V V V V V vernachlässigbar Freq uenz / Ei ntr itts wa hrsche inlic hkeit Business Values Image

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Basic Principles

■ We take the existing processes as starting point and adapt the model to fit your company specific situation.

■ We bring in expertise of reference projects and global leading practices.

■ We have implemented PPM in various utility sectors, from Electricity and Gas Transmission & Distribution to Rail and Water.

■ We will work in close coordination with designated staff to ensure a completely successful engagement and in which we bring in our expertise and focus on maximizing

knowledge transfer.

UMS Group applies knowledge transfer as most important principle

in delivering the project results

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1 month

Project design

2 months 2-4 months

2-4 Months

Configure Portfolio Prioritization Model Set up/Update Business Value Framework Data enrichment Project Portfolio Risk based analysis Project portfolio Determine framework/ scoring logic UMS Group activity Joint effort UMS Group/ Company

The PPM aims to link and assess projects to the Business Values and

prioritize the projects on their risk mitigation value per euro spend.

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The project covers a variety of activities and needs different skills

I. Determine framework/scoring logic

Determine, in close cooperation with your company and using the Business Value framework as basis, the scoring logic for the portfolio analysis: market indices, weighting of Strategic Objectives (BV’s), sensitivity settings, cash out, risk profile, prioritization method, and data enrichment elements.

II. Configure Portfolio Prioritization Model (PPM)

Based on the framework and scoring logic (I.), the PPM is configured by UMS group, the project library is uploaded and the scoring logic is tested. Validation of the functionality is carried out by your company.

III. Data enrichment Project Portfolio

Enrichment of the portfolio by linking projects to Business Values. This activity is carried out by your staff supported by UMS Group. This means clustering activities to projects (if necessary), determine the appropriate risks levels using the risk matrix, determine the sensitivity per project, adding missing data to projects and process the results into the project library.

IV. Risk based analysis Project Portfolio

Analysing the enriched portfolio in close cooperation with your company; a.o. defining possible scenario’s and process the results into a risk ranked portfolio, analyzing the ranked portfolio on project

interdependencies, performing sensitivity analysis, analyzing impact on business values and risk levels, etc.

II. Configure Portfolio Prioritization Model

III. Data enrichment Project Portfolio

IV. Risk based analysis Project portfolio I . Determine framework/ scoring logic

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Scope of PPM

• Focus is on the assessment of the asset related investment portfolio year Y.

• Starting point is the ‘Business Value Framework’ (ie. AM Objectives, Business Values, KPI’s and Risk Matrix) as input for the development of risk analysis skills in the Risk & Portfolio Management process and the configuration of a Portfolio Prioritization Model.

• Basic assumption is the availability of a rough basis for the Investment Portfolio, which will be used as basis for the risk based analysis.

• Company organises the collection of (missing) basic data and the inventarisation and clustering of the current portfolio of projects (wish list). UMS supports with any

rearrangement of the collected information and will focus on supporting in the enrichment/improvement of the information.

• The most important deliverable is a risk based insight in and risk based scenario analysis of the investment portfolio year Y.

• Moreover, the knowledge and information transfer provided during the project, is adequate to review independently the asset related investment portfolio in the future.

• Furthermore, an Excel based Portfolio Prioritization Model will be configured & adapted to your specific situation. Configuration of the tool consists of building the scoring logic to

prioritise the projects: a.o. prioritisation method, sensitivity settings, mandatory settings, etc. • The Portfolio Prioritization Model (PPM) will be handed over to your company after project

completion. There is no fee applicable for the PPM and UMS Group will not service the PPM after formal delivery.

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References

TenneT

Electricity Transmission

GazMetró

Gas Transmission and Distribution

Vitens

Water Distribution

ProRAil

Rail infrastructure

Swissgrid

Electricity Transmission

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Contact details

Ed de Vroedt

Director

UMS Group Europe B.V. P.O. Box 9413 1090 GA Amsterdam The Netherlands Mobile: +31 6 10 266 162 Office: +31 20 561 7033 Fax: +31 20 561 6666 [email protected] www.umsgroup.com

www.umsgroup.com