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:diagnostics/ :transformation/ :investment planning/ :portfolio optimisation/ :investment economics/ :regulation and economics/ :training/. Review of the water industry UKWIR project – when to repair, refurb or replace assets ICS Consulting November 2011. Agenda.

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Diagnostics transformation investment planning portfolio optimisation

:diagnostics/

:transformation/

:investment planning/

:portfolio optimisation/

:investment economics/

:regulation and economics/

:training/

Review of the water industry UKWIR project – when to repair, refurb or replace assetsICS Consulting November 2011


Agenda

Agenda

  • Intro to the UKWIR project

    • Objectives

    • Deliverables

  • Key findings of the project

  • Application

    • Demo of the tool


Project objectives

Project Objectives

  • Project commenced in Spring 2011

  • Development of a robust modelling and costing guidance:

    • Identify potential intervention strategies for different types of assets

    • Identify and justify asset policy decisions

    • Identify intervention cost approaches

    • Map best practice approaches to Common Framework structure

    • Focus primarily on non-infrastructure assets

  • Practical examples

    • Develop Excel Tool

    • Costing and deterioration examples


What are the challenges to address

What are the challenges to address?

  • Limited scope of interventions considered – used to answer:

    • At what point do we stop reactively repairing assets and replace it due to cost considerations?

    • Should we proactively invest to get a better level of service?

  • Limited use of asset attributes

    • Lack of maintenance, environment, location, asset history, etc.

    • Hard to understand impact of some intervention if only have ‘age’ only

  • Optimal asset policy may be a mix of interventions

  • Optimal asset policy may not be optimal across the asset base

  • COTS - time consuming for a single intervention strategy, and may not be well suited to a range of different interventions strategies

  • Focus has been on next 25 years, rather than next 5 years.


Summary of the risk modelling process

Summary of the Risk Modelling Process


The guidance centres on the development and build of a risk modelling framework

The guidance centres on the development and build of a risk modelling framework

  • The framework must start with considering the TOP DOWN priorities

  • Top down priorities are generally communicated in terms of service performance (though some may be asset performance)

  • Many of these will be ‘valued’ – using WTP for example

  • We also need to model up to these service performance metrics

Customer and Environmental Values

Corporate Priorities and Constraints

Service Performance

Asset Performance

Physical Assets

Investment


Developing a modelling approach involves a number of stages

Developing a modelling approach involves a number of stages

1

Asset and Intervention definition

2

Asset deterioration modelling

3

Service Consequence modelling

4

Determining costs

5

Decision making


The modelling approach involves a number of stages

The modelling approach involves a number of stages

Stage 1:

  • Identify assets to be modelled and the range of interventions

  • Consideration of the triggers for intervention

    • Intervention when a trigger is hit can be manually set or determined by optimisation process

  • Modern equivalence may be relevant to capture

1

Asset and Intervention definition

2

Asset deterioration modelling

3

Service Consequence modelling

4

Determining costs

5

Decision making


The modelling approach involves a number of stages1

The modelling approach involves a number of stages

Stage 2:

  • Estimate asset performance profile

    • Fix on fail baseline

    • Range of alternative intervention strategies

  • To model interventions and triggers – not just age only models

  • Ideally need some measure of condition/performance – helps identify intervention impacts

1

Asset and Intervention definition

2

Asset deterioration modelling

3

Service Consequence modelling

4

Determining costs

5

Decision making


The modelling approach involves a number of stages2

The modelling approach involves a number of stages

Stage 3:

  • Estimation probability of service failure given asset failure

  • Estimate severity of the service failure

  • For the intervention strategies need to estimate:

    • Number of asset failures; number of interventions; asset base profile; expected service levels

  • Validation techniques needed

1

Asset and Intervention definition

2

Asset deterioration modelling

3

Service Consequence modelling

4

Determining costs

5

Decision making


The modelling approach involves a number of stages3

The modelling approach involves a number of stages

Stage 4:

  • Cost of interventions

  • Impact of interventions on operational costs

  • Inclusion of social costs and benefits and private costs in the costing framework

  • Discounting and NPV

1

Asset and Intervention definition

2

Asset deterioration modelling

3

Service Consequence modelling

4

Determining costs

5

Decision making


The modelling approach involves a number of stages4

The modelling approach involves a number of stages

Stage 5:

  • Selection of the optimal asset policy

  • Selection of the optimal programme of investment

  • Use of corporate tools to support decision making is preferable

  • Understand sensitivity and uncertainty around the modelling inputs and assumptions

  • Clear explanation of the choices made about investment

1

Asset and Intervention definition

2

Asset deterioration modelling

3

Service Consequence modelling

4

Determining costs

5

Decision making


Designing the framework

Designing the framework

  • Top down needs to align with bottom up

  • Failure Modes Analyses needed to develop the bottom up approach:

    • Modes – mechanical asset failure: repairable or not

    • Causes – maintenance, age, usage, corrosive environment…

    • Effects – supply interruption, pollution…..

  • Need to consider the impact of duty standby and duty assist

  • Data gaps are likely – may need to group failure modes, result asset attributes, etc in light of that

  • There is only so many gaps in data that can be dealt with elicitation and other techniques


  • Designing the framework1

    Designing the framework

    • Consistency in the framework is desirable

      • Data gaps may mean that the robustness across the whole analysis is not uniform

      • Deal with this using sensitivity analysis and uncertainty

    • Actual time and effort in modelling some elements depends on the size of the programme in relative terms – the more the expenditure, the more effort should be put in

    • It’s a journey

      • PR09 was a key learning point.

      • The time and resources to make the change to adapt to the learning could be considerable – and may not always be worth it.


    The key messages in risk modelling

    The key messages in risk modelling

    • Need to estimate pre- and post-investment profiles

    • Data gaps are inevitable and infill commonplace

      • Uncertainty around data should be explicitly considered in the analysis.

    • Survival analysis is most popular in modelling end-of-life failures for assets

      • Best practice is to use the Weibull distribution

      • AND many assets are repairable in nature

    • A mix of interventions should be included in the modelling framework

      • Proactive and reactive; Repair, refurbish and replace

      • Different levels of the asset hierarchy

      • The restoration times for the different types of interventions – rather than assets!

    • Intervention impacts articulated in terms of asset attributes and history

      • Performance, energy consumption, condition, nrs failures / refurbishments

      • Need better intervention benefits tracking


    Key messages in risk modelling

    Key messages in risk modelling

    • NI assets…. need to capture system reliability

      • BUT some reliability modelling techniques are resource and time consuming – need to be pragmatic given this

    • All service impacts need to be expressed in monetary figures

      • Aim for Cost Benefit Analysis (CBA) for all investments

    • Decisions based on CBA need to be made at the programme level even though the modelling is at asset group level.

    • Uncertainty and sensitivity analysis are crucial

      • Understand robustness of decisions and the impact of data gaps and modelling errors


    Examples and demo of the tool

    Examples and Demo of the Tool


    The example in the tool

    The Example in the Tool

    • Asset Selection by the Steering Group

    • Rapid Gravity Filter

    • Simplified to the four major assets

      • Actuator

      • Blower

      • Tank

      • Pipework

    • Demo of costing and deterioration modelling principles


    What does the data need to look like

    What does the data need to look like?

    • Excerpt of the failure data for actuator…..

    • Need to model qualitative data as a dummy


    Weibull modelling

    Weibull modelling….

    • Stata and R Weibull model

    • Stata estimates the shape parameter (b and 1/b); R estimates (1/b) only

    • Intercept and predictor coefficients in R are scaled by b. Hence for the constant in Stata of -10.28, the equivalent in R is -10.28/3.595 = 2.861

    • Key: Know the parameterisation of the software and the modelling tool !


    What about repairable rates

    What about repairable rates

    • Again, know the parameterisation of the software and the tools

    • Need to use count data regression – note: the offset/exposure

    • Choice between exponential and power model – need to be sure which you are modelling – depends on the nature of the age variable


    Looking at the tool

    Looking at the Tool…..


    Summary of inputs and outputs

    Summary of inputs and outputs

    • Service measures and social values

    • Discount rates

    • Energy prices & carbon prices

    • Asset lists – age and attributes

    • Deterioration models

      • Weibull end of life survival rates

      • Repairable failures

    • Service impacts

    • Interventions – costs and impacts

    • Intervention strategies

      • Age based triggers

      • (Repairable) failure based triggers

    • Pre and post simulation strategies

      • Age profile

      • Numbers of failures

      • Numbers of interventions

      • Intervention costs, energy costs

      • Service WTP, carbon costs

    • Cost benefit assessment of each strategy

      • Change in risk/service benefits (between pre and post)

      • PV of Benefits

      • PV of Costs

      • NPV

      • Graph of breakdown of NPV by asset

      • Ranking of strategies – to select ‘best’ one


    Diagnostics transformation investment planning portfolio optimisation

    :diagnostics/

    :transformation/

    :investment planning/

    :portfolio optimisation/

    :investment economics/

    :regulation and economics/

    :training/

    Review of the water industry UKWIR project – when to repair, refurb or replace an assetICS Consulting November 2011


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