Developing Conceptual Design of Mega Infrastructure Project: Creating Innovation and Added Value. Mohammed Ali Berawi and Bambang Susantono

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1 Developing Conceptual Design of Mega Infrastructure Project: Creating Innovation and Added Value Mohammed Ali Berawi and Bambang Susantono Abstract Infrastructure development plays a strategic role in encouraging investments and in driving economic growth to meet the targets set by the government. The existence of Sunda Strait Bridge (SSB) is expected to contribute to the infrastructure development and national economic growth, since the bridge connects two major islands in Indonesia, Java and Sumatera. Being one of the initiatives of the government s mega infrastructure projects listed in the Master Plan for the Acceleration and Expansion of Indonesia s Economic Development (MP3EI) in 2011, Sunda Strait Bridge construction requires an optimum study in the aspects of planning, funding and techniques of the project development in order to enhance economic growth and regional development. This research is proposed to conduct a comprehensive study on the conceptual design of SSB to produce added value for the construction of SSB. Value engineering has been used as a methodology to provide added value and to enhance maximum result for project development in terms of improvement on quality, technology, and innovation. Quantitative approach is conducted through online and offline questionnaire surveys to major stakeholders. Results and discussions from the questionnaire survey are presented, including risks identification that may affect project performance, identification of additional functions for innovation, and finally, key success factors of Public Private Partnership (PPP) scheme in Indonesia to provide partnership funding for the infrastructure SSB project 1. Introduction Indonesia is a vast archipelago country, with its large and dynamic economy reflected by average economic growth reaching 6% per annum (BMI, 2012) and has various potentials that can be developed. In order to achieve the acceleration of economic development, the government of Indonesia, through the National Medium Term Development Plan (RPJMN) , is targeting a gradual economic growth from 5.5%-5.56% in 2010 to 7.0%-7.7% in 2014 or at an average growth rate of 6.3%-6.8% in 5 years. Sunda Strait Bridge is one of mega projects offered by the Indonesian government that would spend of about ± US$ 25 billion (Bappenas, 2011). SSB development will be one of the longest bridges in the world with 30 kilometers in length, which is expected to drive the national economic growth in Indonesia (Bappenas, 2009).The key success in SSB project realization lies in the project readiness preceded by feasibility study aiming to obtain benefits and to create proper resources distribution. There are certain points to be considered in evaluating the feasibility study, such as1) Sufficient financial resource for design and construction (Berawi, 2004); 2) Government approval, land use regulation, environmental impact and safety (Dikun, 2005a); 3) Resources, manpower with various expertise, materials and energy (Sugiyarto, Oey-Gardiner,et al.,2006);and 4) Social acceptance (Sarwono, 2001). Sunda Strait Bridge (SSB) construction requires maximum assessment in terms of technical implementation and financial aspects which have the potency to the continuity of economic activity and the impact of the SSB construction itself to the regional social development. Therefore, this assessment should be done by applying Value Engineering (VE) method. VE is expected to enhance optimum added value in the SSB project. VE method has been systematically tested to analyze the function of a system (Berawi&Woodhead, 2005a; Berawi & Woodhead, 2005b) which is expected to produce optimum outcome for a project quality (Abdul-Rahman & Berawi, 2002; Berawi,2004), technology (Berawi & Woodhead, 2005c; Berawi, Abdul-Rahman, et al., 2008), efficiency (Abdul-Rahman, Berawi,et al., 2006; Berawi & Woodhead, 2008), and innovation (Berawi & Woodhead, 2008; Berawi, 2009a). Furthermore, Sunda Strait Bridge development requires large amounts of costs, which will lead to the difficulty of providing fund when the financial scheme is left entirely to the government. Therefore, in order to create a more feasible project, PPP scheme is offered which is expected to provide efficiency and effectiveness of project financing by applying a clear division of responsibilities. Value engineering in this

2 research also involves the activity of risks identification and analysis to assist the decision makers in formulating a strategic way to reduce the risks impact to the project. 2. Function and Innovation In many countries, Value engineering implementation is a proven method to solve problems and to increase further their competitiveness in construction and manufacturing industries (Daddow &Skitmore, 2003; Berawi, 2004; Berawi & Woodhead, 2008; Berawi, 2008a; Berawi, 2009a; Berawi, 2009c). VE capability to increase construction industry competitiveness cannot be separated from the benefits that is provided to a construction project, one of them is to generate creative ideas and innovation (Berawi,2004; Berawi&Woodhead, 2005a; Berawi&Woodhead, 2005b; Berawi&Woodhead, 2008; Leung & Kong, 2008; Robinson, 2008; Berawi, 2009a; Berawi, 2009c; Berawi, 2009d). Innovation has been seen as idea generation in the creativity stage (Oetinger, 2004; Birdi, 2005), formalization processes (Bodewes, 2002), and successful application of concept in terms of output or product (Cumming, 1998). The value of a thing can be measured from how well the thing performs its designated functions and achieves its purpose. Functions can be modeled as intention and as unthinking cause-effect relationship in an explanatory model of how a system works. The implied functional and process theories in product development are often purposive, and as such, teleological and intentional. However, other functional and process theories are also found in the context of causal relationship, and consequently, represent alternative methods to support the intentionality. Since identifying functions enables us to propose alternative ways to perform those functions in the activity of idea generation, an extended function will set a new context (purpose and goal) of a system. It also leads to an improvement of products. The ability to consider alternative ways or processes that could perform the same set of tasks with added benefits stimulates inquiry and explores further the original ideas as shown in the figure below (Woodhead & Berawi, 2008; Berawi, 2010). Real World Outcomes Purpose New Purpose Conceptual Processes A Alt Processes Processes A Functions Extended Functions Causality Intentionality Recognition of processes in relation to functions leads to ideas. Further, this can be extended to suggest new functions and new purposes. Figure 1.Functional Thinking enables Innovation 2.1 Risk Management Risk is an uncertain event or condition that, if occurs, has an effect on at least one project objective. Objectives can include scope, schedule, cost, and quality (Stackpole & Noll, 2004). Accordingly, our objective of risk management is trying to reduce or compensate losses or damages from unwanted event and at the same time also requires developing different mechanism and mitigation step which are most appropriate with the situation and environment occur in the project. The project life cycle of Sunda Strait Bridge can be categorized into internal and external factors, particularly on the selection of technology that can respond to natural disaster (i.e. tsunami and earthquake), and safety design as a combination of multi-functions that has been proposed in SSB project development.

3 2.2 Public Private Partnership Yescombe (2007) defines the Public Private Partnership (PPP) as a long-term contract between the government and the private sector to carry out the planning, development, financing, and operation of public infrastructure by the private sector. Countries like Australia, America, and Britain have developed the concept of Public Private Partnership (PPP) or Private Finance Initiative (PFI) to support the development of infrastructure. PPP scheme became popular in America and Europe due to fiscal crisis in public sector, so they needed to locate other sources for funding and PPP was assured to improve financial efficiency from the private sector. PPP infrastructure development in Indonesia has actually been done since 1980s. Infrastructure sectors which initiated cooperation between the government and private sector are electricity and highways. So far, the implementation of PPPs until the period in infrastructure development still faces many obstacles. From 91 infrastructure projects offered by the Government in Infrastructure Summit 2005 only some were executed, and with the lack of realization from model project of IICE in 2006, it is created a mountain to climb. There were things that were suspected to be the obstacles for the realization of infrastructure acceleration through PPPs, including lack of PPP s governance in infrastructure development, limited human resources, and lack of optimization in project preparation. In order to face the challenges in the provision of infrastructure through the PPP, the government needs to follow up cross-sector reformation strategies that have ever been implemented before. Things needed to be done include: synchronizing the legal and institutional framework that encourages the PPP; Policy reformation, and facilitation of project preparation and transaction. 3. METHODOLOGY In order to achieve the research objectives, this research was conducted by using quantitative approaches through online and offline questionnaire surveys. Online surveys were distributed through mailing lists related to construction industry stakeholders, such as Indonesian Society of ion Management, Indo Energy, Indonesian Contractors Association, while offline surveys were distributed to respondents from various fields, such as investors, state-owned enterprises, private companies, universities, and Local Government Agencies. Data analysis was conducted using descriptive and inferential statistics. Descriptive statistics includes frequency and mean distribution (Trochim, 2006) and inferential statistics were analyzed using cronbach s alpha to analyze the reliability of the result in the minimum range of 0,70 and one-sample t-test approach to determine the confidence level (Payne,1993). 4. RESULT AND DISCUSSION Data processing was performed based on the result of the respondents answers to the questionnaire surveys which were created in such a structured way so that it would be easy to be understood and shortly filled. The result of the questionnaire itself consisted of three parts, namely identification of risk, identification of additional function for innovation, and key success factors of the PPP scheme. 4.1Respondents Background In this section, the questions asked were in the form of employment information, educational level, position in the company and the experience within the company as well. The largest part of the respondents work in private companies with a coefficient of 43% and the second largest part of the respondents work in government agencies with a coefficient of 26%. Meanwhile, educational background of the major part of the respondents is graduate and post graduate. Most of the respondent s position in the company is coming from engineer with a coefficient of 40%, while manager/associate manager is about 9% and general director with a coefficient of 11%. With the data above, the questionnaire has already been able to touch the middle & managerial level positions. The working experience of the respondents in their respective companies is mostly in the range of years with coefficient of 23%, and above 20 years that reaches 26%.

4 4.2 Additional Function (Innovation) Innovation in Sunda Strait Bridge (SSB) is driven by seeking any potential resource lies around the Sunda Strait. There are natural resources such as great wind, ocean wave caused by tidal current, potential tourism to be integrated at Sangiang and Prajurit islands around the Sunda Strait, efficient distribution of oil and gas as well as the development of internet network between Java and Sumatra islands inspired to create additional functions in Sunda Strait Bridge. Kinetic energy generated by wind power plant and also tidal current could be used to produce electricity in order to obtain optimum benefit to the islands and the country in general. While Sunda Strait span could be used as an alternative to place oil and gas transmission pipeline also fiber optic cables in order to enhance information technology. This leads to the development of Fast diagram as shown in Figure 2. HOW IF - THEN WHY Create Added Value Develop Infrastructure Connectivity Resist Natural Disaster Ensure Safety Design Objective Function All the Time Function Increase Economic and Social Benefit Hanging Train Toll Road Upper Structure Railway Fiber optic Protect Public Interest Stimulate Economic Growth Connecting two Island Transport People and Goods Distribute Load Bridge Oil&Gas Pipeline Generate Income Wind Turbine Create Tourism Industry Expand Industrial Areas Produce Energy Transmit Data/Telecom & Electrical Power Lower Structure Tidal Power Distribute Oil & Gas Support Environment Surrounding Develop Manufacture Industry Develop National/Inter national Port Purpose FUNCTIONS ANALYSIS FOLLOWED BY PROCESSES Outcomes Figure 2.Sunda Strait Bridge FAST Diagram

5 Based on the respondent s answers, the results showed on each additional function the kind of benefits that the respondents expected and the magnitude of escalation that they deemed worth as well. Would there be any incompatible gap between benefit and cost, the iteration based on VE methodology is therefore expected to be able to provide solutions leading to project creation, which is more competitive in quality, cost, and time. The result can be seen in the following table 1 (Berawi, et. all, 2012). Added Function Table 1. Additional Function Variables 1 Tidal Power Plants Generate Electricity Expected Benefit New step in implementation of renewable energy Natural Resource efficiency Pollution - free 2 Wind power plants Generate electricity Reducing dependence on traditional energy sources Pollution - free 3 Oil pipelines and gas distribution integration Streamlining the distribution of oil and gas Cost efficiency Ease of accessibility 4 Fiber optic integration Streamlining communication and information Cost efficiency Ease of accessibility 5 Tourism Development Attract domestic and foreign tourists Creating new jobs Increase regional Economy 6 Development along Sunda Strait Fishery development Power Plant Manufacture industry Heavy Industry In addition to creating new functions, VE is able to produce optimization for project in terms of quality, technology, innovation, and cost efficiency. Figure 3 shows the visualization of Sunda Strait conceptual design as determined from value engineering study. Furthermore, the findings show that in the absence of additional functions in the SSB construction, the respondents expected that VE would be able to optimize 1-15% of the total investment cost of SSB construction.

6 Figure 3. Visualization of Sunda Strait Bridge Conceptual Design 4.3 Risk Identification on Sunda Strait Bridge Development Risk in Sunda Strait Bridge is classified into safety issue on SSB design; construction; operation and maintenance and natural disaster (e.g. earthquake, tsunami); and changes in government policy and political intervention. 4.4 Key Success Factors In PPP Scheme PPP scheme has been applied in many countries as an effective method to provide project funding particularly in infrastructure sector. Benefits and value-added of PPP scheme for Sunda Strait Bridge project have been identified in this research as shown in table 2. Table 2 Key success Factors in PPP Scheme Variables Variable Values Key success Factor Responses X108 Warranty of return on investment 21 X109 Balanced risk-sharing 25 X110 Selection of the parties based on performance and skill 20 X111 Good communication and solid cooperation between parties 19 X112 Trust and equality between parties 18 X113 Communication and strong support of the decision makers 18 X114 Clear and measurable Key performance indicator (KPI) 24 X115 Benchmarking and continuous performance monitoring 20 X116 Solving problems by negotiation and mediation 14

7 Furthermore Table 3 shows that the cronbach s alpha value of key success factors PPP scheme equals to 76,7% reliable (trustworthy). The result shows a high level confidence since it was beyond the upper threshold in 0,70. Table 3 Croncbach s alpha analysis Furthermore, table 4 shows the t-value and sig. (2-tailed) of the key success factors of the PPP scheme that include balanced risk-sharing, clear and measurable Key Performance Indicator (KPI), warranty of return on investment, selection of parties based on performance and skill, benchmarking and continuous performance monitoring, and good communication and solid cooperation between parties. Table 4 One-sample t-test analysis

8 Meanwhile, those who will be responsible for the financial activities of the Sunda Strait Bridge project are illustrated in table 5. The largest percentage for each stage in the whole life project cycle is indicated in the last column. It also requires clear division of responsibilities and risks allocation, so that in the end it will lead to the establishment of common goals to be achieved by using this PPP scheme to improve the effectiveness and efficiency of the project and the quality of products and services also. Table 5 shows the portion between the government and private varied in several financial project life cycle stages. Table 5. Parties Responsible for Project Financing Activities NO Description Public Private PPP Largest % 1 Pre FS 60% 14% 26% Public 2 Feasibility Study 43% 20% 37% Public 3 Planning and Design 26% 31% 43% PPP 4 Land Acquisition 68% 6% 26% Public 5 ion a. Sunda Strait Bridge 14% 29% 57% PPP b. Sustainable Energy 20% 31% 49% PPP c. Tourism 29% 37% 34% Private d. Telecommunication 20% 40% 40% PPP/Private e. Industry district 17% 34% 49% PPP 6 Operation and Maintenance a. Sunda Strait Bridge 14% 37% 49% PPP b. Sustainable Energy 20% 37% 43% PPP c. Tourism 29% 42% 29% Private d. Telecommunication 23% 37% 40% PPP e. Industrial district 20% 46% 34% Private Responding to the research result, the current research stage focuses on an analysis of Life Cycle Cost (LCC) project particularly in terms of Rate of Return, Payback Period and Benefit Cost ratio for the investment of the proposed conceptual design of SSB. 5. CONCLUSION VE method has been systematically used to produce optimum outcomes for project. Value engineering application in Sunda Strait Bridge (SSB) mega project generates additional functions, including tidal and wind power plants to produce energy, oil &gas integration as well as fiber optic integration to transmit fuel and data, and develop tourism area to attract local and foreign tourists. Moreover, this study also identifies major risk factors in the project and key success factors to implement PPP scheme in the project financing activities. This research produces integration between new functions discovered for Sunda Strait Bridge Conceptual Design, and yet provides stakeholders a better understanding of risk and responsibility sharing to create more value to the project.

9 ACKNOWLEDGEMENTS The research was fully supported by a research grant from Ministry of Education and University of Indonesia. REFERENCES Abdul-Rahman, H and M.A., Berawi (2002), Managing Change in ion Contracting, Contract Management. NCMA Press, Vol 21 Issue 42, pp Abdul-Rahman, H., M. A Berawi, et al (2006), A Conceptual Model for Mitigating Delay in ion Projects Using a Project Learning Approach. Journal ion Management and Economics, Vol 26 Issue 1, pp Bappenas (2009), Public Private Partnership: Infrastructure Project in Indonesia Bappenas, Jakarta. Bappenas (2011), Public Private Partnership: Infrastructure Project in Indonesia Bappenas, Jakarta. Berawi, M. A. (2004), Quality Revolution: Leading the Innovation and Competitive Advantages. International Journal of Quality & Reliability Management, Vol 21 Issue 4, pp Berawi, M. A. (2008a), Managing Education and Practical Workshop for Value Management/ Value Engineering Program. Journal of the Society of American Value Engineers (SAVE) International, Vol 31 Issue 2, pp 2-3. Berawi, M. A. (2009a), Enhancing value Added in Project/Product Designs and Processes. Journal of the Society of American Value Engineers (SAVE) International, Vol 32 Issue 3, pp 2-3. Berawi, M. A. (2009c), Managing Innovation Indicators in Value Engineering. Value World, Vol 32 Issue 1, pp 2-3. Berawi, M. A. (2009d), Process and Product Optimization Using Value Engineering/Value Management. Journal of the Society of American Value Engineers (SAVE) International, Vol 31 Issue 3, pp 2-3. Berawi, M. A. (2010), A Guide for Idea Generation and Creativity Using Function Analysis. Journal of the Society of American Value Engineers (SAVE) International. Berawi, M. A., H. Abdul-Rahman,et al. (2008), Achieving Excellence Through Project Management. International Conference on Project Management, Kuala Lumpur. Berawi, M. A., R. M. Woodhead (2005a), How-Why Logic Paths and Intentionality. Value World, Vol 28 Issue 2, pp Berawi, M. A., R. M. Woodhead (2005b), The If-Then Modelling Relationship of Causal Function and Their Conditioning Effect in Intentionality. Value World, Vol 28 Issue 2, pp Berawi, M. A., R. M. Woodhead (2005c), Application of Knowledge Management in Production Management. Human Factors and Ergonomics in Manufacturing, Vol 15 Issue 3, pp Berawi, M. A., R. M. Woodhead (2008), Stimulating Innovation Using Function Models; Adding Product Value. Journal of the Society of American Value Engineers (SAVE) International, Vol 31 Issue 2, pp 4-7. Berawi, M.A., Susantono, B., Miraj, P., Gunawan and Husin, A.E. (2012), Conceptual design of Sunda strait bridge using value engineering approach, International Conference on Value Engineering And Management, Hong Kong, 6-7 December Birdi, K. S. (2005) No idea? Evaluating the Effectiveness of Creativity Training. Journal of European Industrial Training. Vol 29 Issue 2, pp BMI (2012). Indonesia Economic Growth Bodewes, W. E. J. (2002), Formalization and Innovation Revisited. European Journal of Innovation Management, Vol 5 Issue 4, pp Cumming, B. S. (1998), Innovation Overview and Future Challenges. European Journal of Innovation Management. Vol 1 Issue 1, pp Daddow, T. and M. Skitmore (2003). Value Management in Practice; An Interview Survey. The Australian Journal of ion Economic and Building, Vol 4 Issue 2, pp Dikun, S. (2005a), Indonesia Infrastructure: Attracting Private Investment and Maintaining the Conducive Environment. Asia Infrastructure Congress. Bangkok. Leung, M.Y and S. S. Kong (2008), Identifying Key Competencies of VM Facilitators Based on International Standards. International Value Management Conference. Hongkong.

10 Oetinger, B. (2004), From Idea to Innovation: Making Creativity Real. Journal of Business Strategy. Vol 25 Issue 5, pp Payne, A. (1993). The essence of services marketing Hemel Hempstead: Prentice Hall. pp 37. Robinson, J. L. (2008), Value Added Strategies to Sustain A Successful Value Improvement Program. Value World. Vol 31 Issue 3, pp Santos, J. R. A. (1999). Cronbach s alpha: A tool for assessing the reliability of scales. Journal of extension, 37(2), 1-5. Sarwono, S, Wirawan (2001), Adolescent Psychology, PT RajaGrafindo Persada, Jakarta Stackpole, C and K. R. Noll. (2004) A Guide to The Project Management Body of Knowledge (PMBOK Guide). Project Management Institute,inc. Pennsylvania. Sugiyarto, G., M Oey-Gardiner, et al. (2006), Labour Markets in Indonesia: Key Challenges and Policy Issues. Labor Market in Asia: Issue and Perspective. J. Felipe and R. Hasan. Trochim, W.M.K., 2006, Research Methods Knowledge base (online). Yescombe, E. R. (2007), Public Private Partnership. Principle of Policy and Finance. Elsevier Woodhead, R.M. & Berawi, M.A. (2008), An Alternative Theory to Idea Generation, International Journal of Management Practice, Volume 3, No. 1, pp.1 19, Inderscience. ABOUT THE AUTHORS Dr. Mohammed Ali Berawi received his PhD in innovation management from Oxford Brookes University at Oxford, UK. He currently researches value engineering/ value management and innovation in the context of infrastructure, construction and manufacturing industries. He has authored and co-authored more than 50 scientific publications. Dr Berawi has also involved in many national and international research collaboration and consultancy works. His research leadership is reflected through various academic awards recipients and the election as editorial board member and invited referee for various international journals published in USA, UK, Canada, and Africa. His biography is featured in the 24th edition of Who s Who in the World (2007). He is currently the Head of Integrated Design and Technology (IDTech) Research Group, Faculty of Engineering, University of Indonesia. Dr. Susantono holds a PhD in infrastructure planning from the University of California at Berkeley. He is the Head of Infrastructure Management Graduate Program, Faculty of Engineering, University of Indonesia. He has authored and coauthored numerous books, articles and scientific publications. Besides teaching in the university, Dr. Susantono has been appointed in various positions both in the public and private institutions. Most of his duties deal with mega-scale and strategic projects. He was one of the eminent person of the Master Plan of ASEAN (Association of Southeast Asia Nations) Connectivity. Dr. Susantono was former President of Indonesia Transport Society and Vice President of Eastern Asia Society for Transportation Studies (EASTS). He is currently the President of Intelligent Transportation System (ITS) of Indonesia, and serves as the Vice Minister of Ministry of Transportation, Republic of Indonesia.