Bringing people along on the journey: learnings from a recent capital prioritisation improvement project

Summary

• Capital prioritisation is one of the more challenging and resource intensive exercises performed by asset-intensive organisations each year.
• Asset owners are increasingly turning to technology solutions that enable vast amounts of asset information to be utilised when prioritising projects.
• In our experience, regardless of their technological maturity, organisations can achieve significantly improved prioritisation outcomes through a focus on increasing trust in, and transparency of, their prioritisation process.

Introduction

In asset-intensive organisations, the annual process of prioritising capital investment is almost always a challenging exercise. It requires assessment and selection of often highly diverse projects each addressing different and hard to compare objectives, with uncertainty in costs, benefits, and impact on organisational risk.

Asset managers are routinely challenged on whether:

• the approach to prioritisation is defensible,
• the right criteria to compare projects are being used,
• the best possible information is being used, and
• the right stakeholders have been engaged, to the most appropriate extent.

With increasing availability of information, and advancement in analytics and visualisation software, executives have increasingly been trialling the use of digital applications to support prioritisation efforts. Such tools represent value through enabling standardisation of prioritisation processes, more efficient access to asset information, and more effective communication of relevant information to those making prioritisation decisions.

In our experience, while significant value can be realised through use of digital applications, the value proposition from what is often a significant investment can quickly be eroded, and worse never realised, if:

• prioritisation processes are not aligned to how organisations realise value,
• the information used to inform prioritisation is non-existent, inconsistent or not defensible, or
• decision makers and stakeholders are unable to engage transparently with the basis for prioritisation.

A recent project to improve a prioritisation framework at an Australian water utility offers lessons on the value of improving ‘softer’ elements of the prioritisation process, regardless of their level of technological maturity. For those considering adopting technology solutions, or those that simply want to improve the outcomes of their prioritisation process, we recommend focussing on the following 2 areas:

1. Ensuring transparency in what information is used and how, and
2. Engendering trust in the outcomes of the prioritisation process.

Transparency

Be open and inclusive

Include the people who compete for funds in a portfolio or program in the prioritisation process.  Insist on openness, frank conversations, and a team approach to prioritising projects for mutual benefit.

Maintain a map of the prioritisation process

Organisations should maintain and make available a map of the end-to-end prioritisation process, including key steps, interfaces, information transfer, systems being used, and decision-making, from needs identification to project funding. Delineating the process helps to communicate it to stakeholders, establish what’s working and what’s not working, and the opportunities for improvement.

Ensure transparency in input data

Providing visibility to stakeholders and decision makers on input information increases the likelihood of project proponents generating defensible information on project costs and benefits. It also increases the efficiency of decision making, as executives spend less time questioning underlying data.

• At this water utility, a recent effort to improve the objectivity and governance of information and risk assessments resulted in a 30% increase in the annual budget for the capital portfolio – the first increase in several years. This was attributed to improved visibility of the link between projects and risk reduction for executive decision-makers.

Streamline information flows between information management systems

Prioritisation efforts can be crippled by poor management of asset and project information. Improving data flows between information systems pays huge dividends for relatively low effort, and may not require external technology solutions. By setting up simple database queries between asset information / registration systems, asset deficiency registers, risk assessments, and project management / financial systems, asset managers and prioritisation leads can have access to a single, continuously updated source of truth for the portfolio.

• At this water utility, an internal team was able to create automated links and produce a live portfolio dashboard within 8 weeks, providing enhanced visibility on a portfolio of hundreds of projects totalling $120 million in cost.

Encourage enquiry and respond rapidly to questions on prioritisation outcomes

Have a small cross-functional team that performs rapid analysis to provide answers to questions from project proponents, asset managers and decision makers on prioritisation outcomes. Stakeholders inevitably find issues with any prioritisation framework, especially after the first rollout. Be ready to answer their concerns objectively through data.

• At this water utility, a common perception of users was that a risk-based framework disadvantages smaller assets that are routinely failing. This often led to suggestions to fund all proposed renewals for assets that have failed or will ‘imminently’ fail. Being able to readily quantify, in dollar terms, the impact of this issue led to meaningful insights that informed more pragmatic decisions to be taken.

Trust

Adopt a pragmatic philosophy to prioritisation

Portfolio prioritisation in asset-intensive settings is challenging because of the way in which capital is allocated (i.e., once a year), resulting in there often being a lack of maturity in understanding project benefits and costs when prioritisation takes place. For this reason, the emphasis when developing any prioritisation process should be on ensuring that the relative order of projects is directionally correct (i.e., there is clear and defensible rationale for the projects ranked 1-10 vs 20-30) rather than precisely correct (i.e., that project 10 is better than project 11).

Ensure the prioritisation process is relevant

A robust framework for prioritisation is a key pillar in enabling effective and defensible prioritisation, increasing the likelihood of stakeholder buy-in. Organisations should routinely review their prioritisation process to ensure it is fit-for-purpose and flexible to potential future changes in organisational priorities, systems, knowledge availability and decision-making frameworks.

Further, organisations should ensure that their prioritisation framework accommodates multiple lenses on value. Effective asset management requires balancing cost, risk and performance, and being singularly or overly focussed on one dimension can cause challenges.

• This water utility, like many other asset-intensive organisations, have pursued risk-based decision making and investment allocation. This has represented an effective step forward in maturity, improving the visibility of current risks and their treatments (projects). With effective line of sight between expenditure and risks, executives have had increased confidence that they have been effectively mitigating their organisational and operational risks.

However, challenges do occur when organisations use risk as the sole decision criterion for comparing the merits of projects. These include:

• Missed opportunities for projects which provide company or community benefits but do not address a risk;
• ‘Quick-win’ projects with robust financial benefits, such as energy efficiency projects, being frequently de-prioritised, particularly for assets with low consequences of failure; and
• Operational areas or regions with a high concentration of larger, high-failure-consequence assets receiving the lion’s share of funding, leaving other areas with recurring asset failures.

Creating a simple yet robust prioritisation framework which brings together considerations relevant to an organisation pays dividends in terms of stakeholder understanding and buy-in.

Beware the ‘black box’

There are numerous digital asset management and portfolio prioritisation tools on the market. An increasingly common trap is expecting a tool to solve asset investment challenges in the absence of a robust decision framework. This frequently results in a new tool being introduced, without the proper change processes.

This often results in a few people enthusiastically adopting use of the tool, with the remainder remaining sceptical, leading to the tool eventually being orphaned. Asset decisions require human knowledge and intervention. Further, organisational priorities often change, prioritisation frameworks evolve, and available information is always increasing. Organisations should focus their effort on increasing objectivity and robustness of their decision processes first – tools should follow thereafter.

If considering technology, focus on enhancing communication

If embarking on increasing technological maturity, consider first adopting simple digital communication tools and dashboards (versus complex analytical tools) that work with existing models to communicate outcomes of the prioritisation process and help decision makers interrogate and communicate prioritisation assumptions and outcomes. A number of web-based open-architecture models are now available.

Celebrate progress, aspire to improve

Take time to look back and look forward with the team responsible for prioritisation. Remind them of the maturity of the prioritisation process in previous years, the improvements made since then, before looking ahead to what could be improved. Measure success in time saved or asset manager sentiment surveys, and track improvements.

Conclusion

Organisations are on a perpetual improvement journey with capital prioritisation. While we expect technology and access to information will improve the effectiveness and efficiency of asset investment prioritisation processes, material improvement can continue to be made through a focus on increasing trust in, and transparency of, how prioritisation is undertaken.