Our client is responsible for critical infrastructure. The company has specialized technical capabilities which are highly leveraged by making use of external skills and delivery capabilities. Total value of underlying assets is more than €10 billion; annual budgets for maintenance, replacements and enhancements exceeds €1 billion. To stay fit for the future, steps are required to make the infrastructure smarter. How to manage this huge maintenance load? How to balance availability with cost? Is there a trade-off or a win-win?
Management requested support in making the key decisions. In a series of projects, over a two-year period, we provided the economic insights required to make the managerial decisions.
In essence, we structured the decision-making by segmenting the big questions into logical elements. For each element, we developed a perspective on the economics. We combined the client’s technological knowledge and operational experience with the actual facts (accounts of many projects, business unit accounts, field visits in the night, etc).
Part 1: Towards output driven steering
First, we helped them switch (mentally) from input to output driven steering. Traditionally, the amount and type of maintenance needed was specified. We defined output levels like peak capacity of infra-elements and the acceptable (un)availability (both planned and unplanned). This gave contractors incentive to work smarter and build expertise.
Part 2: Balancing costs and availability
Then we determined the drivers of costs and availability. Review of cost drivers showed that maintenance and repair costs proved highly dependent on the size/scale of the project, e.g. one big project vs many small ones. Preparation, logistics and execution of replacement can have a significantly lower cost when performed on the right project scale. And reduce the “downtime” as well: a win-win!
Part 3: Optimal scope and conditions for contracting
Finally, we defined the optimal scope and conditions for contracting. We incorporated the desired output driven requirements and size project scope (‘scale’) based on the earlier projects, all from a viewpoint of the potential contractor. Also, the market landscape of contractors was evaluated and bonus/ malus incentives were determined.