Utilities Webinar Asset Lifecycle Management and Capital Projects & Infrastructure

Transcription

1 Utilities Webinar Asset Lifecycle Management and Capital Projects & Infrastructure October 31, 2013

2 Agenda 1. Context - the Utility CEO s Agenda 2. Asset Lifecycle Management and Utilities 3. What s at Stake? Capital Projects & Infrastructure 4. Assuring Success in Capital Projects 2

3 Context the Utility CEO s Agenda 3

4 The 13th Annual Global Power & Utilities Survey About our survey: 53 companies across 35 countries Unique window into the Utility CEO mindset and agenda Challenges and opportunities: Predict complete transformation or important changes to the power utility business model Believe there is scope for power and utility companies to achieve cost and efficiency improvements of more than 20% 4

5 Survey Results Percentage of respondents saying there is high or very high scope for improvement in the following areas of power utility company operations: Asset Lifecycle Management-related Opportunities 5

6 Asset Lifecycle Management and Utilities 6

7 s Connected Power & Utility Framework Our framework to help companies align operational strategy to the core drivers of value to maintain a balance across operational excellence, risk management and cost effectiveness. Assets Employees Core Drivers of Value in the Utility Industry Customers Operational excellence Regulation Risk management Cost effectiveness Fiscal Integrity Commodities s Asset Lifecycle Management Practice helps utilities optimize capital expenditures and the installed asset base to help you safely deliver reliable, cost effective energy through: Effective selection and delivery of capital projects Development and implementation of the appropriate strategies to operate and maintain assets. Slide 7

8 Capital Expenditures in Utility Sector Massive capital expenditures are underway in the Canadian Utility Sector. Required Capital Investment - Billions of $ (in 2010) Year Generation Transmission Distribution Total Source: The Conference Board of Canada, Shedding Light on the Economic Impact of Investing in Electricity Infrastructure, February Some specific examples: A multi-year overhaul of all Darlington four reactors is set to start in 2016 estimated at more than $10B Manitoba Hydro Development plan, including transmission, generation and modernization, amounting to an investment greater than $17B Alberta utility projects through to 2015 planned at $5.5B BC Clean Energy Project estimated capital investment of $7.9B through to 2020 Pipeline project investments >$2B from 2013 through to 2015 Bruce Power continued refurbishment and capital improvement efforts, estimated at >$1B per year over next 5 years 8

9 What is Asset Lifecycle Management and why is it important? Utilities need to answer many asset-related questions What assets do I have? What is their condition? What asset related risks are there? How do I compare them? What assets should I invest in? And when? How do I optimize my capital allocation decision making over time? How do I manage the regulator and other stakeholder expectations? How am I doing on my capital projects? What risks do I have that I won t meet the plan? Do I have management capacity and capability to deliver the plan? Can I effectively procure and manage the right design, engineering, financial and materials suppliers to deliver the plan? and do this with an aging workforce while increasing capital spend year over year. 9

10 Asset Lifecycle Management throughout the lifecycle of a capital project Plan & Design Procure & Build Commission Operate Maintain Decommission Strategy Structure People Process Technology Design in Maintenance Capital Projects Enterprise Asset Management (EAM) Real Estate Asset Lifecycle Management (REALM) 10

11 What s at Stake? 11

12 Scope Definition Cost Performance - a cross road with trend of 75% of projects incurring cost overruns 2005 $ 1.4B 2008 $ 1.7 B 2010 $ 2.0B 2012 $ 2.4B 100% 75% Cost Envelope 24% 45% 0% Project Definition 3%-5% Schematic Design 15%-20% Design Development 35%-45% Construction Documents 90%-100% Source:, Correcting the Course of Capital Projects, April

13 Why do projects fail? Design errors and omissions leading to scope growth / re-work Poor project controls (cost & schedule) Ineffective Project governance, management & oversight Weak / ambiguous contract terms, misaligned incentives Unanticipated site conditions Technical problems 4% Suppliers failures 8% 4% Inappropriate/inadequate resources Inadequate Project Environment 10% 11% Directly related to technical aspects Insufficient planning / poor estimating Cost overruns / schedule delays Imposed cash constraints / delayed payment Inadequate Planning/ Monitoring Lack of clear objectives 15% 20% 92% Directly related to managerial aspects Inadequate communication / slow decision making Late design / poor project definition Skilled labor availability Inexperienced management team Lack of management (organizational) 36% Poor risk identification, management and response strategy 13

14 Capital projects represent substantial risk, and require the appropriate oversight and governance Thirty-seven percent of directors believe there is no clear allocation of specific responsibilities for overseeing major risks among the board and its committees. 37% 82% n=400 82% of Directors reported having limited or no engagement in capital projects 14

15 Assuring Success in large business programs 15

16 Capital Project Oversight Framework The framework is a six-step process that: Provides a structured approach for management and boards to help with their oversight obligations Offers flexibility for industry specific needs or special circumstances Identifies key intervention points on complex projects to assess risk profile, Includes leading oversight practices to facilitate discussions with the CFO, project sponsors, management, or external stakeholders Identifies issues not currently on management s or the board s radar

17 Internal audit s role as a 3 rd line of defense against big risks Business Execute and Manage (1 st line of defense) Responsible for the ownership and accountability of assessing, controlling and mitigating risks Management Oversight e.g. ERM (2 nd line of defense) Responsible for facilitating and monitoring the implementation of ERM practices by management Responsible for helping risk owners report adequate risk-related information up and down the firm Internal Audit Assure (3 rd line of defense) Responsible for providing objective assurance to the board and executive management on how effectively the organization assesses and manages its risks, including how 1 st and 2 nd lines operate It is imperative that the 3 rd line of defense: 1. Is at least as strong as the first two lines 2. Provides competent objective assurance to avoid inadequacy or obsolescence of practices 3. Has the mandate, including resources, and support from executive management and audit committee 17

18 Internal audit s role in project risk management Internal audit can help identify many risks early in the project lifecycle, which in turn will provide you with sufficient time to course correct Inspection and Test Execute and Manage (1 st line of defense) Responsible to conduct inspection and testing activities to determine product conformity Quality Control Program (2 nd line of defense) Responsible to plan and implement levels of inspection and testing required in accordance codes and standards Responsible for maintaining status of product conformity Quality Assurance Assure (3 rd line of defense) Responsible for providing objective assurance to management on how effectively the organization assesses and manages product quality, including how 1 st and 2 nd lines operate 92% of chief audit executives see internal audit s role as being important or very important in managing large program risks. s 2012 State of the Internal Audit Profession Study 18

19 Internal audit s role to support Capital Project risk management Partnering with the project management organization throughout the lifecycle of the project to develop, implement and monitor management systems aligned with corporate risk and governance framework Operate & Management System Development & Improvements Management System Project Implementation Product Quality Management Strategy Assess Design Construct Implement Policy, Standards and Requirements Internal & Supplier Assessment, Capabilities & Risks Product Quality Requirements: Codes & Standards Risk Based Product Quality Assessment Management System Planning & Documentation Project Implementation Planning Quality Planning - Provision of Input to Product and Deliverables Supplier Quality Surveillance & Inspection Planning Project Site & Materials Management Quality Planning Communications Training & Awareness Implementation of Specified Quality Requirements Supplier Implementations and Quality Plan Implementations Review Measurement, Feedback & Review Internal Monitoring, Surveillance & Audit and Review Supplier & Contractor Monitoring, Surveillance, Audit and Review A large project goes through distinct stages, from the time it is planned until the time benefits are realized. There s a significant role for internal audit to play throughout the project lifecycle. 19

20 s Capital Projects team Our global team has capabilities and skillsets in all areas critical to Capital Projects. Benefits of engaging our Capital Projects team: Our Capital Projects practice is represented by over 700 practitioners worldwide, 200 within US & Canada including civil, mechanical and Mexico chemical engineers as well as project management, construction, accounting and IT professionals. Our team has: An experienced group of portfolio, program and project controls specialists: Large scale capital project execution expertise: Michel Grillot Canada Peter Raymond US Francisco Ibanez International client experience in mining, oil and gas, utilities, healthcare, and transportation Lars Tvede-Jensen Julian Smith Sweden CEE & Russia Martin Blokland Netherlands Tony Poulter UK Hansjorg Arnold Germany Peter Vickers France Patricio de Antonio Lorenzo Spain Guido Sirolli Italy Charles Lloyd Middle East Carlos Biedermann Sotiris Pagdadis Brazil India Mark Ally South Africa Vishal Agarwal Central Africa Tim Nicolle Russia Yumiko Noda Japan Hongbin Cong China Andrew Chan SEAPAN (inc. Malaysia) Mark Rathbone Singapore Brian Gillespie Australia 20

21 Case study New build power generation $35Bn capital program, including an aggressive program to build new power stations, return to service and major power lines. Two new 4800 MW coal fired power stations are part of the program, where a no Surprises effort has assisted in assessing performance and trends to date, predicting risks in subsequent phase, enhancing delivery capabilities, and providing an added layer of assurance and insight. Actions Reviewing and assessing selected major work packages and current project management systems and processes: Establish whether the identified work packages are being managed in accordance with the contract and applicable policies, mandates, and regulatory prescripts Supplemental claim/dispute strategies to minimize exposure to additional costs Schedule and cost support Risk and issue management support Capital Project Governance Project Impact and Outcomes Identify overall exposure to cost overruns and schedule delays Identify potential contractual and commercial remedies to recover costs Mitigation plans for overruns, delay or other significant concerns observed Improvements to existing contract management designed to control cost growth and schedule slippage

22 Contacts Lana Paton National Utilities Leader Toronto Brian Poth Partner, Utilities, Consulting Toronto Robert Obertreis Director, Capital Projects, Consulting Toronto Mark Burnes Director, Internal Audit, Consulting Toronto Arun Gupta Partner, Internal Audit, Consulting Edmonton