2014 marks 25 years since the privatisation of the water industry. Post-privatisation capital investment has improved the water industry's asset base, delivering significant benefit to customers. Water companies are now working to deliver their 2010-15 regulatory targets whilst also mobilising for asset management plan (AMP) 6. The emphasis is on getting the most out of existing assets, driving out inefficiency and finding ways to minimise operational expenditure.
Long-term issues include population growth, climate change and water scarcity. The proposals in the Government's Water Bill and water regulator Ofwat's PR14 price review seek to address these challenges and are likely to lead to market reform and industry re-organisation. The regulator has called for a shift of focus, towards what it terms 'long-term outcomes', encouraging innovative ways of working that will deliver enhanced customer value with less environmental impact. Substantial efficiency savings are expected during the five-year AMP6 period and this represents a key challenge to the industry.
Substantial efficiency savings are expected during the five-year AMP6 period and this represents a key challenge to the industry.
Currently, most water companies measure operational and capital expenditure separately as required by Ofwat. AMP6 requires the use of Totex as a key unit of measurement to demonstrate that customers are getting best value for money from their investment. This is an additional issue for water companies assessing the impact of capital projects, whether new assets or upgrades.
Against this background of challenging business plans, ageing assets, and changing regulatory requirements, skilled programme managers will be key to successful AMP6 delivery. Clear and structured investment programmes, reinforcing a holistic business plan that considers all factors in the preparation, planning and delivery of the services, will lead the way to demonstrable value.
Against this background of challenging business plans, ageing assets, and changing regulatory requirements, skilled programme managers will be key to successful AMP6 delivery.
Managing a consistent profile of expenditure rather than a 'boom or bust' profile will allow water companies to plan works more effectively. Exploration of the various delivery models will also underpin the search for efficiencies. Many water companies have established longer-term frameworks or alliances to deliver their capital programmes. Confidence in these arrangements varies between companies, with some outsourcing all service and construction activities, and others engaging alliance partners to deliver certain aspects. Questioning the approach, ensuring that it’s aligned to strategic objectives and targets, and based on the regulatory framework and requirements, will best serve companies’ interests.
Some elements may well benefit from external support. There are lessons to be learned from other industries where successful Programme Management Office (PMO) arrangements have helped deliver sizeable programmes of work. The banking sector, for instance, has successfully delivered large portfolios of capital programmes and projects with central control and oversight provided from various forms of PMO. Much scrutinised in recent years, the banking sector recognised and accepted the need for a cultural change to deliver very demanding programmes at much lower cost and with greater efficiency. There are certainly opportunities for the water industry to do the same.
Confidence in the sector hinges on its ability to plan effectively and deliver results at the conclusion of AMP6.
Strategic programme management support brings greater clarity, ensuring that the ethos and preparation of the programme achieves the intended outcomes. Continued monitoring, review and collaboration, both internally and within the supply chain, will allow companies to utilise appropriate expertise and deliver innovative, best value and compliant programmes. Confidence in the sector hinges on its ability to plan effectively and deliver results at the conclusion of AMP6. Price reviews will continue to be challenging and water companies will need to maintain momentum and drive to meet rising customer expectations and contribute to water security and climate change mitigation.
Faithful+Gould supports challenging capital investment programmes across the water sector and provides strategic input at both business and project levels. We were among the first to introduce target cost contracts to the industry, and we work closely with a number of UK water companies. Our portfolio includes project and programme management, cost management and regulatory issues as well as new works, network rehabilitation, repair and maintenance.