1. Business case expectations: Transport Infrastructure Project Analysis Susan Gillett Metropolitan Transport Forum Tuesday 22 June 2010

2. DTF Project analysis What part of “no” don’t you understand?

3. Project Investment Analysis +Frameworks and policies +Long term planning +Context for investment +Business Case consideration

4. Investment Development Process & Guides Strategic Assessment Options Analysis Business Case Procurement Strategy Funding Strategy Solution Implementation Service Strategy Asset Strategy Multi-Year Strategy Investment Management Standard (ILM & ICB) ‘Action for Victoria’s Future’ Government Policies ‘Gateway’ Risk-Assessments at Strategic Points Different funding treatments for ‘Sustain’ Vs ‘Growth’ Investment Investment Evaluation Policy Guidelines eGovernment Investment Evaluation Framework & Methodology Guidelines Partnerships Victoria and Alliance Guidance Material Business Case Coverage In-Operation Monitoring & Optimisation of Existing Asset Base Asset Management Framework

5. Investment LifeCycle Guidance Launched July 2008 DTF website: www.lifecycleguidance.dtf.vic.gov.auwww.lifecycleguidance.dtf.vic.gov.au

6. Project Investment Analysis +Frameworks and policies +Long term planning +Context for investment +Business Case consideration

7. Long Term Planning +Service Strategy –Drivers –Risks –Opportunities –Challenges +Asset Strategy –Supporting sustainable service delivery +Multi-year Strategy –Scheduling

8. Indicative (unabated) future demand (using indicators or proxies such as demographic growth ) Service Delivery Time Demand Management Strategies Moderated future demand Four Dimensions of Strategic Capital Planning Planned new investment over time, to replenish existing capacity (sustain) or to increase/ improve existing capacity Service Gap Capacity of existing infrastructure to support Service Delivery over time

9. CCS Redevelopment Bail Support Home Detention Rehabilitation ‘Futures Scenarios Modelling’ Example: Prisoner Numbers Prisoner Projections Trendline with No Action Prisoner Population 200620082010201220142016 3300 3400 3500 3600 3700 3800 3900 4000 4100 4200 4300 èMost probable scenario èLeast likely scenario èPossible scenario.

10. Project Investment Analysis +Frameworks and policies +Long term planning +Context for investment +Business Case consideration

11. Melbourne’s Daily Movement

12. Transport Challenge CONGESTION In 2005 road congestion cost Australia $10b – will be $20b by 2020 Load breaches on Melbourne’s rail system grew more than 500% in 3 years Melbourne freight kms to increase 80%, car kms to increase 22% by 2020 Victorian freight will double from 560m tonnes to 1,100m tonnes in 2030 Port of Melbourne freight current 2m TEU p.a. to 8m TEU in 2035 Increased traffic with Melbourne@5million In 2005 congestion cost Melbourne $3b

13. Victoria’s Transport Challenge +East West Link Needs Assessment –Investigation to identify the best transport solutions for connecting Melbourne's eastern and western suburbs –20 recommendations –Critical projects included: Melbourne Metro Rail Tunnel Regional Rail Link Intermodal Freight Terminals +Victorian Transport Plan –VTP supports Victoria’s growth by transforming our transport network –$38 billion investment over 12 years

14. Project Investment Analysis +Frameworks and policies +Long term planning +Context for investment +Business Case consideration

15. What DTF looks for  Alignment with Government priorities.  Service need / urgency and risks.  A strong evidence base.  Robustness of submission, including costings (over whole-of-life).  Funding and procurement options.  Readiness of initiative.  Impact of individual decisions on overall asset base.

16. Strategic Assessment 1.Confirm Service Need Description of Service Need Stakeholder Identification Project Objectives and Scope 2. Analyse Options 3. Evaluate to Determine Preferred Option 4. Recommendation 5. Implementation Strategy 6. Executive Summary  Used by decision makers to assess whether there are sufficient grounds for the proposal and if its development should continue at this time; and  Forms basis for project objectives and scope, and description of the service need in the business case

17. What is a Business Case? - Purpose  Builds on solutions outlined at strategic assessment stage to present detailed single view of options’ costs / benefits / risks / interdependencies / governance, to meet identified need.  Recommends preferred option to meet the service delivery needs, based on detailed analysis of benefits, costs, risks and opportunities.  Provides living blue print of project to be referenced by sponsor / advisors / management, to inform all high-level decision making and change requests …… through to post-delivery evaluation of benefits. Grouped elements 3. Evaluate to Determine the Preferred Option: Social & Environmental Analysis Economic & Financial Analysis Risk Analysis & Management Budget Analysis & Funding Strategy Procurement Strategy 1.Identify / Confirm Service Need 2.Identify Options 4.Recommendation 5.Implementation Strategy 6.Executive Summary

18. Using a business case +In a business case options, including a “do nothing” option, are evaluated to identify a preferred option +Central agencies seek to assess: –the supporting evidence base –The relative merit of the options considered (or omitted) –the rigour of the analysis and assumptions of the individual project in the context of –competing projects –service specific issues –budgetary capacity

19. How much…. The business case should:  Present costs and benefits of options, by year: –Whole of life costs - capital and operational. –Benefits should be genuine, attributable and measurable. –Separately identify asset disposal aspects.  Determine the ratio of discounted costs to discounted benefits: –Discount costs to benefits (C:B) to a point in time –Public good investments may have C:B<1  Assess TBL (social/environmental/economic) aspects: –Did this analysis alter the recommended option –Were the criteria and weightings valid? (sensitivity analysis)

20. Case study: Melbourne’s Public Transport System 3 Modes + Myki  Trains (Metro) 160 six car sets 830 km of track 214 million passengers carried in 2009  Trams (Yarra Trams) 500 Trams 3 rd largest network in the world (249 km of double track) 179 million passengers carried in 2009  Buses 30+ operators 100 million passengers carried in 2009

21. Melbourne’s Public Transport System Vertically integrated franchise model  State owns infrastructure, stations and majority of rolling stock  Privately owned rolling stock is leased to franchisee  Franchisee provides an operational service, and also maintains the rolling stock and infrastructure (i.e. track, signalling,)  Bus operators have separate contracts

22. Why Franchise? +International Expertise – Innovation/Best Practice +Government can focus on strategic matters +Improved performance since PTC days +Efficient asset management, vertical integration and reduced access issues – creates incentives +Given patronage growth need maximum flexibility to shift resources where most needed

23. What is DTF looking for? +Sustainability of offer is critical +Working in Partnership is important ie. short-term issues and strategic network issues –Political risk remains with Government +Adequacy of resources eg. in: –Running the tender process –Contract managing the franchise agreement +High quality due diligence, a critical ingredient to an efficient tender process +Understanding State service outcomes and expectations –Clarity on role of Government vs role of operator

24. What is DTF looking for? (contd) +Proper consideration of commercial principles –Performance regime –Contract term +Adequate consultation with market at various stages –Before a decision is made to franchise –Once high level commercial principles are developed –When detailed contracts have been drafted –Interactive tender workshops throughout tender phase

25. ……. In Conclusion

26. Understanding a potential Investment Using an investment logic map to support decision making