An incremental approach to Risk Based Asset Management (RBAM) PPM Project Prioritization Model

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2 UMS Group Confidential 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. UMS Group Inc., All Rights Reserved Private and Confidential PPM Product Overview 2

3 Why UMS Group? Implementation support of risk based Asset management with a wide range of Utilities from Electricity and Gas to Water and Rail Implementation of Risk and Portfolio Management including supporting tools for spend optimization (Spend Optimization Suite - SOS) and spend prioritization (Project Prioritization Model - PPM) Assessment capabilities of ISO (endorsed assessor IAM) and risk based asset management Global leading practices catalogue based on worldwide consultancy assignments and Asset Management benchmarks in utilities like WSAA, IDAMS and ITAMS UMS Group Inc., All Rights Reserved 3

4 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 strategic plan? The proposed investments in the wish list are being inventoried 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 UMS Group Inc., All Rights Reserved 4

5 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, leading 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, the real change should start: design, build and implement a Business Value Framework (i.e. AM Objectives, Business Values/Strategic Objectives, KPI s and Risk Matrix). Ultimately, this Business Value Framework (BVF) 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 BVF into practice, companies need to develop, as a first stepping stone, the primary skills and processes to analyze the investment portfolio based on a transparent decision framework: the risk matrix To support companies in this effort, UMS has developed and successfully implemented an analysis model to link technical solutions (projects) to a BVF 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 UMS Group Inc., All Rights Reserved 5

6 The scope of work is focused on the asset planning process to prioritize the project portfolio on risks Determine Business Value Framework Investment planning Maintenance Repairs (24/7) Asset Owner Risk Management Asset Manager Investment delivery Replacements Service Provider Capital expansion 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 UMS Group Inc., All Rights Reserved 6

9 Methodology of prioritizing projects in PPM Portfolio of projects or project proposals Current Projects New Projects 1. Determine Current Projects 2. Determine Mandatory Projects 3. Assess Projects based on BVF risk matrix 3a. Projects within risk tolerance Frequenz / Eintrittswahrscheinlichkeit 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 3b. Projects above risk tolerance Risk tolerance limit Budget Cap? So gut wie unmöglich V V V V V V N 4. Prioritize projects based on risk reduction per euro invested or NPV UMS Group Inc., All Rights Reserved 9

10 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 UMS Group Inc., All Rights Reserved 10

11 Risikomatrix Sicherheit Auswirkung / Folge katastrophal ernsthaft beträchtlich mäßig Klein Sehr klein Mehrere Tote Ein Toter/Sehr ernste Verletzung mit Dauerschaden Sehr ernste Verletzung mit langwierigem Ausfall Verletzung mit Ausfall Verletzung mit Ersatzarbeit Geringe Verletzung mit erste Hilfe ohne Ausfall Vernachlässigbar Geringe Verletzung ohne erste Hilfe Versorgungsqualität Siehe Tabelle Siehe Tabelle Siehe Tabelle Siehe Tabelle Siehe Tabelle Siehe Tabelle Siehe Tabelle Finanzen Image Umwelt- & Landschaftsschutz Compliance Sehr oft Oft regelmäßig Wahrscheinlich Möglich Unwahrscheinlich So gut wie unmöglich Business Values Beachtung Ursache > 10 mal pro Jahr > 1 mal pro Jahr > 0,1 pro Jahr; einmal pro 10 Jahre bis einmal pro Jahr > 0,01 pro Jahr; Einmal pro 10 bis 100 Jahre > 0,001 pro Jahr; Einmal pro 100 bis Jahre > 0,0001 pro Jahr; Einmal pro bis Jahre > 0,0001 pro Jahr; Weniger als einmal pro Jahre Einmal bis einige male pro Monat bei Swissgrid Einmal bis 10 mal passiert bei Swissgrid Mehrmals passiert bei Swissgrid Schon mal passiert bei Swissgrid Mehrmals passiert in der Industrie Schon mal passiert in der Industrie Nie von geört in der Industrie Schaden > 100 Mio. CHF national + politisch mutwillig, vorsätzlich (Betrug) Siehe Compliance Lizenzverlust, Gefängnisstrafe GF, Bußgeld Kartellamt 10% vom Umsatz Schaden Mio. CHF national / regional / Sektor / Bereich mutwillig, vorsätzlich (Betrug) Siehe Compliance Stiller Kurator; Gerichtsverfahre n gegen GF, Bußgeld Kartellamt <1% vom Umsatz Schaden 1-10 Mio. CHF national + politisch Fahrlässigkeit / unabsichtlicher Fehler/ höhere Gewalt Siehe Compliance Gerichtliche Weisung; Bußgeld 6. Kategorie, Rechtstreit > 5000 Kunden Schaden Mio. CHF national / regional / Sektor / Bereich Fahrlässigkeit / unabsichtlicher Fehler/ höhere Gewalt Störung wahrnehmbar über mehr als 500 m. Offizielle Weisung, Bußgeld 4. Kategorie, Rechtstreit > 500 Kunden Schaden CHF national höhere Gewalt Effekt >125% von vergleichbarer Norm oder Störung innerhalb von 500m Offizielle Warnung, Rechtstreit > 50 Kunden Schaden CHF regional / sektor / Bereich / lokal höhere Gewalt % von vergleichbarer Norm oder Störung innerhalb von 50m Gruppierte, honorierte Klage zum übertreten regeln, Rechtstreit >20 Kunden Schaden unter CHF lokal unabsichtlicher Fehler Störung auf Privatgelände Honorierte Klage zum übertreten regeln, Rechtstreit einige Kunden, U U U SH H M N U U SH H M N V U SH H M N V V SH H M N V V V H M N V V V V M N V V V V V N V V V V V V U SH H M N V unzulässig Sehr hoch Hoch Medium Niedrig vernachlässigbar Portfolio Prioritization Model Business Values: Riskmatrix Frequenz / Eintrittswahrscheinlichkeit Example Results: Sensitivity analyse: Scenario overview: Overview Project Portfolio: Composition prioritized Portfolio: 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 UMS Group Inc., All Rights Reserved 11

12 Basic principles UMS Group applies knowledge transfer as most important principle in delivering the project results 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 Inc., All Rights Reserved 12

13 Project design The PPM aims to link and assess projects to the Business Values and prioritize the projects on their risk mitigation value per euro spend. 2-4 Months 2 months 2-4 months 1 month Set up/update business value framework Determine framework/ scoring logic Data enrichment Project portfolio Risk based analysis project portfolio Configure portfolio prioritization model Joint effort UMS group/ company UMS group activity NB: This is an initial planning based on preliminary assumptions on ao the data quality of the current investment portfolio and needs to be verified and adjusted by your company if necessary UMS Group Inc., All Rights Reserved 13

14 The project covers a variety of activities and needs different skills I. determine framework/ scoring logic Iii. Data enrichment Project portfolio IV. Risk based analysis Project portfolio Ii. Configure portfolio prioritization model 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, sensitivity settings, cash out, risk profile, prioritization method, and data enrichment elements. II. III. IV. 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. 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. Risk based analysis Project Portfolio Analyzing the enriched portfolio in close cooperation with your company; ao 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. UMS Group Inc., All Rights Reserved 14

15 Scope of PPM Focus is on the assessment of the asset related investment portfolio year Y Starting point is the Business Value Framework 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 organizes the collection of (missing) basic data and list and cluster 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 prioritize the projects: ao prioritization 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 UMS Group Inc., All Rights Reserved 15

16 References PPM TenneT GazMétro Vitens Electricity Transmission (TSO) Gas Transmission and Distribution (TSO/DSO) Water Distribution ProRail Rail infrastructure Swissgrid Westland Infra Westland Infra Electricity Transmission (TSO) Electricity and Gas Distribution (DSO) AM Grid Meter Management Eles Electricity Transmission (TSO) UMS Group Inc., All Rights Reserved 16

17 UMS Group Contact Jan Schipper Managing Director Ed de Vroedt Director UMS Group Asia Pacific Macquarie House Level Macquarie Street Sydney NSW 2000 Australia Mobile: Office: Fax: edevroedt@umsgroup.com UMS Group Europe B.V. Amstel Business Park Joop Geesinkweg P.O. Box GA Amsterdam The Netherlands Mobile: XX-XX- XX-XX Office: Fax: jschipper@umsgroup.com UMS Group Inc., All Rights Reserved 17