Customer requirements. Asset management planning Inspection and assessment Route asset planning Annual work plans Contracting strategy

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1 Section 8 Output monitoring Inputs Customer requirements Safety standards Outputs and funding SRA and Government Policy Network stewardship strategy Asset and operational policies Maintenance & renewal strategies 10 year business plan Planning Asset management planning Inspection and assessment Route asset planning Annual work plans Contracting strategy Operational planning Capacity planning Annual timetable Short term planning Delivery Engineering delivery Maintenance, renewals and enhancement Route delivery programme Output monitoring Operational delivery Network management Risk mitigation Monitoring Key performance indicators Management information Performance monitoring Output Network capability Asset condition Train performance Safety

2 Section 8: Output monitoring Page 2 of 12 Objective Our core business processes, described in Sections 3 to 7, can only be delivered effectively if there are appropriate process measures in place and that these measures are supported by adequate information. Through the production of the business plan we set clearly defined performance targets and key performance indicators that are structured to allow us to assess our effectiveness in meeting our funders and stakeholders expectations. There needs to be a clear and concise methodology to monitor and review performance against these targets to ensure that remedial action is taken and that, where appropriate, strategies and plans are reviewed and revised. Approach Information needs to be provided to managers, operatives and third parties that is easy to interpret and relevant to their individual roles to enable the appropriate action to be taken. Figure 8.1 Output monitoring Inputs Engineering delivery Operational delivery Output monitoring Key performance indicators Management information Performance monitoring Outputs Remedial action Revised policies, strategies and plans In this section we identify the key activities required to develop a robust output monitoring regime, describe current areas of weaknesses in these activities and set out the actions we will take over the next two years to deliver robust processes.

3 Section 8: Output monitoring Page 3 of 12 The key activities are: key performance indicators measurable objectives that together define our business outputs; management information how we are utilising effective information management to provide the required data and systems to support monitoring the delivery of these objectives; and performance monitoring the development and implementation of processes to support the effective monitoring of performance. Our goal is to monitor and review our business performance in a timely and effective manner through: an appropriate, clearly defined, hierarchy of performance indicators; timely, comprehensive and accurate management information delivered by world-class systems; and systematic and rigorous performance monitoring, root cause identification and swift remedial action. We have prioritised the necessary actions to improve significantly our performance monitoring capability and have identified the following actions that we are progressing to achieve this goal: embedding the recently defined key performance indicators across our core business processes; developing a comprehensive suite of supporting cascade indicators, filling existing gaps and eliminating duplications; identifying key data that will underpin this monitoring regime and ensuring that this data is available and meets the required quality standards; introducing a corporate dashboard across the business which will provide up-to-date information on key performance indicators to all who require it; extending the corporate dashboard to include the supporting of cascade indicators; operating timely and rigorous business reviews across all areas of the company; creating of a train performance information warehouse and appropriate analytical tools; and developing plans to replace the existing train management systems with readily accessible realtime information. Our information requirements are complex and considerable work is required to ensure that timely and up-to-date information is available. In parallel to this work we are exploiting the opportunities provided by the implementation of the new functional organisation by developing plans to overhaul our existing monitoring and target setting processes. This section concludes with our current thinking on these plans.

4 Section 8: Output monitoring Page 4 of 12 Key performance indicators Our mission has been related to a series of outputs, each of which has measurable objectives as shown in the table below. Although we are only in control of a proportion of the factors that contribute to the industry-wide objectives relating to safety, performance, capability and relationships, this approach reflects the need to coordinate and align the interests of all industry participants in working together towards the delivery of a better service. These measures will be developed into a comprehensive suite of supporting indicators that will be designed to ensure that: key outputs which contribute to our objectives are identified, measured and monitored; planned activities to achieve the outputs are quantified and their delivery is reviewed; and activities and outputs are linked with accountable individuals across the organisation. Figure 8.2 Outputs, objectives and measures Outputs Objectives Measures Improved safety Reduced number of accidents Public safety index Higher performance Better punctuality and reliability Public Performance Measure (PPM) Increased system capability Facilitate SRA s Strategic Plan to increase passenger and freight usage RAB adjustment for passenger and freight volume incentives Improved customer and stakeholder relationships Increased passenger satisfaction Passenger complaints per 100,000 journeys Improved financial control Improved financial efficiency Financial efficiency index Improved asset stewardship Improved business performance Improved and better value stewardship of the infrastructure Greater employee engagement Asset stewardship incentive index Employee engagement measure By using a methodology based on activity linkage we can articulate a clear trail from individual and team activities through to our corporate goals. This encourages more proactive management of levers rather than reactive management of outputs. Together with timely information and management review, this will enable the rapid identification of problems and causal factors and the implementation of swift remedial action.

5 Section 8: Output monitoring Page 5 of 12 The overall framework will be: Level 0 key performance indicators (KPIs) to measure success against the corporate objectives (Figure 8.2). Level 1 key outputs contributing to the objectives. Level 2 activities required to achieve the outputs. To date we have completed development of the Level 0 and Level 1 measures and these have been used in preparation of this business plan. Over the next three months we will embed them throughout our reporting and review mechanisms. As an example the key output measures (Level 1) for asset stewardship are shown in the table below. In his final conclusions the Regulator established a new asset stewardship incentive index, replacing the asset stewardship index that had been in place since our acquisition of Railtrack. This index is calculated on a national network basis using a weighted average of the specific asset measures, using the weightings shown below. Figure 8.3 Asset stewardship measures Weighting Number of broken rails 15% Level 2 exceedences (per track mile) 15% Number of signalling failures 20% Traction power supply failures (causing >500minutes delay) 10% Track geometry 20% Structures and earthworks TSRs 10% Points and track circuit failures 10% Activity measures (level 2) have been developed for our objective to improve our asset stewardship. This includes both volumes of activity and unit cost measures. During 2004/05 we will: complete the full cascade for asset stewardship by eliminating historical measures no longer required and linking to accountability statements; develop Level 2 measures for the other corporate objectives; undertake a post implementation review of the KPIs in light of actual results to ensure their continuing relevance and effectiveness; and re-define KPIs impacted upon by the re-organisation of the company. We will also continue to measure and report on all asset condition, serviceability, activity volume and network capability measures and targets as outlined in Sections 2, 3 and 4 respectively of the Annual Return to the Regulator, subject to any subsequent modifications agreed with the ORR.

6 Section 8: Output monitoring Page 6 of 12 Management information support At this stage it is not possible to finalise the details of the full information requirements for reporting, as they will inevitability change as the business evolves. These needs include: information necessary for improved cost control, such as metrics on unit costs; information necessary for us to control our business operations, and deliver safe and reliable infrastructure and operations; information necessary to support management reporting; and information necessary to enable measurement of the KPIs, disaggregated by business unit and route. Detailed information requirements (for example, content, format, frequency, delivery mechanism) will be defined in consultation with the SRA, ORR and other parties in the rail industry. Information must have in place strict governance rules, and be subject to quality control to avoid errors, duplication and unnecessary cost. Once controlled and assured the information needs to be made available to the business and its stakeholders through an easily accessible and shareable means. Reporting A standard information reporting process is required to support the business, regulatory and management information needs and their evolution. This integrated process will provide to the Board and management the information that supports the development of the business plan and also satisfy regulatory requirements. One of the new requirements is a network-wide system to report the key performance indicators discussed earlier. Standardised common information about the network, namely the system-wide measures and internal KPIs, is being delivered via a corporate portal. Access to the portal is controlled by role-based security, which allows information and its presentation to be tailored according to the role defined for the user. Our licence conditions require that specific information be supplied to our regulatory bodies. Similarly we have obligations to the HSE and HMRI as well as Local Output Commitments to train and freight operating companies and other interested parties. This portal is also being designed to allow external parties access to appropriate data. Information system improvements To improve the quality of the information systems within the company, together with the underlying data, requires a significant cultural shift from how information management is delivered today. We need to capture and monitor a range of data, including information about safety, train performance, financial performance, asset performance and asset stewardship. It is critical that the data is collected on a consistent basis across the company, in order to be able to identify how successful we are in meeting our stewardship and regulatory obligations, as well as monitoring the costs and other resource implications of our activities. The 10-year vision has been developed to describe, at a high level, the strategy for improved information management that supports the corporate objectives. The strategy provides the framework and services that transform the current bespoke, disjointed applications, data and technology into a toolset using the same consolidated assured data operating within a secure and extendable infrastructure.

7 Section 8: Output monitoring Page 7 of 12 To develop a meaningful vision there needs to be a credible over-arching business model. This domain model has been built around our six core processes as described in Section 2. This model helps us to understand the overall systems architecture and how components can be constructed, assembled and, in due course, retired and replaced. It also helps us build: data architecture a corporate data model with an information stewardship strategy that defines how it should be maintained and enhanced; application architecture identifies the business and service components needed to provide the business functionality; and technical architecture the physical structure of data stores, messaging tools and a hub is defined in the technical architecture. These architectures were used to define the organisation structure for the development and delivery of the programmes needed to provide the technical and business services. Some of these programmes are now underway to provide reusable infrastructure components that will provide services to the whole of the company. Information delivery improvements The data services programme has already implemented a management dashboard to report on initial KPIs. The programme is now focused on establishing which information is needed to satisfy the reporting requirements, building the data warehouse and a secure portal. The strategy is to deliver information through a secure portal, which provides the information in a userfriendly manner at the required level of aggregation. This portal has already been piloted for internal use and is the process of being rolled out. With the addition of an external services gateway (due May 2004), authorised external partners will be able to access information, depending on role-based security access. This forms a secure collaborative environment where information required for joint reporting between and other rail bodies can be delivered. Output from these tools will be published via a secure portal that will allow users to configure a web page with information that they are granted access to. These portal pages will be available over three channels: the intranet will provide access for internal staff to information they require; an external services gateway will allow industry partners to see information that we either choose or are required to make available to them; and the internet will allow the general public access to portal information that they would find helpful. Corporate network model A corporate network model (CNM) is being developed which will deliver one sustainable master set of data that describes the railway network. This traversable model of the railway network can be used as the base for reliable and detailed understanding of relationships between asset maintenance, traffic timetabling and recording, and fault management. The CNM will also establish the necessary business processes and data standards to support the transfer and maintenance of network model information between different business domains.

8 Section 8: Output monitoring Page 8 of 12 Work has already been undertaken to collate and document the business needs that will be satisfied by the use of network modelling techniques, and to evaluate the ability of current models to meet these needs. The validation of requirements and definition of the functional and data specifications is expected to be complete by April 2004, with the production of the model forecast for completion by the end of September This will then allow the retirement and replacement of some existing systems. Short-term programme and timescales The short-term programmes of work establish a stable basis for moving the long-term strategy forward. The table below provides indicative timescales for some of these key activities. Figure 8.4 Short-term implementation programme Action Date Status Based on the ten-year vision, a more detailed description of strategy is produced (including proposed system architecture) 31 August 2004 Started First cut of the corporate data standards 30 April 2004 Started Develop customer and supplier service and service level frameworks 31 December 2004 Started Strategy for implementation of knowledge management, developed together with prioritised potential projects, design of suitable pilot(s) and pilot implementation January 2004 Completed Extension of management dashboard to incorporate secure portal, data warehouse, reporting needs and cascading KPIs. Delivery of a corporate data model and framework that enables current data to be stabilised and forms the basis for provision of required information MIMS migration strategy NMP IM support for processes Management - infrastructure in place to support the provision of data management services such as tools for ETL, data discovery and profiling Delivery of further services, likely to include HR, payroll - these services are to be confirmed as this programme is further defined On-going phased delivery until April 2004 On-going phased delivery until April 2004 On-going phased delivery Started Started

9 Section 8: Output monitoring Page 9 of 12 Performance monitoring The importance to the company and our partners of delivering train performance is such that it receives particular attention in the development and implementation of our output monitoring processes. At present, many of our existing monitoring tools have their origins in the pre-privatised railway and do not exploit fully the available data, nor do they provide the level of sophisticated analysis that current tools can provide. We are developing plans to address these shortcomings. Identification of key requirements A detailed examination of this issue has identified a series of monitoring and forecasting requirements. Although these have not yet been finalised, and are subject to further consultation within the company and with our industry partners, they do provide a clear indication of some of the challenges we must overcome. There are three key areas we are planning to address. Improved performance monitoring We need to improve our understanding of emerging trends and have better information relating to the causes of delay and the impact on performance of individual improvement initiatives. A key requirement is the ability to explain trends in performance in a more rigorous way and be able to identify the successful delivery and resultant impact on performance of individual initiatives. Thus reporting becomes an analysis of the following: have actions been delivered; are they producing the expected results; do they show through in the overall results; and are underlying trends getting better or worse; and if so in which categories; and why? Greater integration of performance reporting is also required, reducing the number of different reporting channels and approaches that exists at present. The analysis must also be capable of being carried out at differing levels of disaggregation of the network (e.g. route, train operator). Although it is unlikely (and perhaps undesirable) that completely automated tools will be developed, the current high levels of manual activity must be reduced, as must the requirement for intervention by expert users. Our ability in these areas is, at present, limited. This section concludes with details of our plans to address many of these shortcomings. Short-term performance forecasting We need to expand our current short-term performance forecasting capability. Again, analysis must be capable of being carried out at differing levels of disaggregation of the network. This is essential if we are to improve our target setting and also plays an essential role in agreeing local output commitments with our customers. We need to improve our ability to forecast PPM by operator and TOC-on-TOC and TOC-on-self delays, as well as delays. Integrated tools are required, eliminating the need for separate analysis. As with performance monitoring, the requirement for manual intervention should not be excessive.

10 Section 8: Output monitoring Page 10 of 12 Longer-term performance forecasting Our longer-term performance forecasting requirements are based upon a need to understand the impact of alternative asset management strategies and future major performance improvement initiatives. We also need to be able to estimate the performance impact of individual route plans. Proposed initiatives The Performance Systems Strategy, outlined in the 2003 Technical Plan, set out to deliver better performance and train operating data in a phased approach. Initially, a transaction repository, new warehouses and analysis tools were to be implemented to provide better consolidation and analysis of data from existing systems. Further phases would then address the future of the current base systems. As the initial phase progressed, greater understanding has led to a refocusing of the strategy. It is still the intention to deliver the new set of analysis tools and warehouses but these are now undergoing further design development. To formulate the approach to the train management systems a study will be undertaken to address these issues through a short consultancy exercise (April 2004 to August 2004) to determine the risks, scope, options, costs and benefits and understand where the priorities should lie from a and industry viewpoint in rationalising the present large suite of systems. We also intend to develop new forecasting models to extend or replace our existing models. The key steps proposed are: consult with key users and potential users of these models to obtain their views on the required outputs, and to understand the performance management processes that the models will need to support following s ongoing reorganisation. We have already had initial discussions with the DfT about its plans to develop an industry performance model, and it may be beneficial for the our model to link with this; consider the data management implications; evaluate alternative technical approaches in terms of the statistical methods and software options; and build prototypes and test their performance against existing models, before full development of the new models. We will also intend to examine further the relationship between delay, lateness and PPM, whether as part of the above model development or as a separate exercise. Measurement and forecasting of small delays An important issue for the industry is the measurement and forecasting of small delays. We have identified and exposed the scale of this sub-threshold delay. Approximately half of all delay minutes incurred fall into the category of less than three minutes and therefore are not generally attributed through the performance systems. These delays do, however, have a significant adverse impact in the performance regimes and public performance measures. Work is underway to develop a structured approach to measurement and analysis of this sub-threshold delay using the Six Sigma methodology. This will underpin our understanding and allow robust forecasting. The identification of strategies to address small delays are likely to require cross industry commitment, with an emphasis on attention to detail in all aspects of operational planning, train service delivery and performance management.

11 Section 8: Output monitoring Page 11 of 12 Enhancing our output monitoring capability Existing output monitoring processes are, to an extent, an ad hoc collection of tactical and strategic solutions. Many have been developed in response to specific initiatives and provide considerable benefits to the business. Others have evolved over time and do not necessarily provide adequate, or sufficiently timely, information to enable effective decisions to be made. The challenges facing us in terms of the delivery of the required network outputs, including performance, means that this incremental approach to developing enhanced monitoring capability is unlikely to provide us with the robust platform required. The previous 12 months has seen considerable activity in this area, with the ongoing development of the KPIs and the introduction of Six Sigma and its requirement for robust information, to support the analysis and follow up phases. Whilst this work will continue we intend, in parallel, to develop an output monitoring capability that enhances our ability to meet our business objectives. We believe that there are four components to the development of an integrated framework that would underpin this capability, as shown in the diagram below. We will use the current business objectives and KPIs as a basis for the development of our performance monitoring capability. Clarification and clear definition of the core process and activity elements will then enable the development of a business metric hierarchy. This will describe the suite of cascaded lead and lag metrics required to monitor the health of each area across the business and show how they each contribute to achieving our KPI targets. Where there are gaps between our current performance and agreed targets, these metrics will monitor our progress towards delivering performance improvement initiatives. Figure 8.5 Improving output monitoring Customer requirements Safety standards Outputs and funding SRA and Government Network stewardship strategy 1. Objectives and KPIs Asset management planning Engineering delivery Operational planning Operational delivery 2. Identification of processes and activities Output monitoring 3. Business metrics hierarchy 4. Performance improvement and review Each of the four core components shown in the above figure is discussed briefly below. It should be noted that as the individual sections are developed to achieve an integrated model, the way in which they are defined and presented is also be expected to develop. We expect to have a more detailed plan of how we will achieve the desired level of improvement in this area within the next few months.

12 Section 8: Output monitoring Page 12 of 12 Objectives and KPIs We have earlier described our approach to developing a framework to assist us in prioritising our actions and developing our KPIs. Some of these high level KPIs are developed in response to a specific need to provide information to external bodies (for example, our asset stewardship index). Others are used to map progress against our corporate objectives. These KPIs are becoming established within the business and are used as the basis for high level reporting. They will, therefore, be used as the basis for development of our lower level KPIs and business metrics. Processes and activities A clear understanding of processes and activities undertaken within the business is required to ensure that the developed set of business metrics is both balanced and comprehensive. The work we have carried out to date on process definition within the four core processes shown above will be further developed. The development of Six Sigma competencies across the company will aid in the pace and integrity of business process definition. Objectives and outputs of the processes will be clarified to enable the proper identification and specification of the required metrics. The work we have carried out in defining the roles and responsibilities of individuals and teams within our new functional organisation provides a solid platform for this to be progressed, and for metric accountability to be integrated into the organisational structure. Business metrics hierarchy Once we have clearly defined the objectives and outputs of our processes we will develop and agree the appropriate measures required to monitor process and activity performance. We will apply consistent tools to clearly define all the required information and utilise the experience and development within information systems and delivery to ensure we achieve a balanced and comprehensive metrics hierarchy. There are many ways in which business metrics can be presented to those involved in delivering and managing the business activities. Different presentation forms are appropriate for different purposes and the development of the business metrics will look at the most appropriate presentation methods for different metrics and different stakeholders. Performance improvement and review The development of a clear metrics structure and hierarchy will enable the various performance improvement programmes across to be progressed more effectively. The identification of gaps between actual and target performance will allow improvement projects to be quickly and clearly scoped. The ongoing measurement of the relevant metric will provide clarity on the progress and success of the project in delivering real benefit to the organisation. In addition, the metrics hierarchy will provide a useful means for improvement project teams to drill down towards the root cause of the problem, and learn from other areas of the business that are achieving higher levels of performance. The development of this performance capability is an ongoing process that will be subject to regular reviews. The review cycle will ensure that the programme continues to optimise business value and will therefore focus on such areas as: benefit reviewing the model s capability to deliver improved measurement and performance; validity ensuring that the model remains valid within a dynamic environment; and integration ensuring that the model supports the requirements of other major business programmes (for example performance forecasting, efficiency and business planning).