David Walker, GHD’s APAC Market Leader, recently addressed a number of organisations in New Zealand on the process of preparing for the transfer of newly built assets from project teams to those tasked with operating them. This is particularly important given the difficulties often associated with operating new assets successfully after commissioning, as even seemingly minor elements can create ongoing and costly issues. One such example was the ability to safely replace lightbulbs in the ceiling of Terminal 5 at Heathrow Airport, London when opened in 2008. This required millions of pounds and a team of high wire walkers to replace the 120,000 light bulbs installed during the terminal build.
The outcome of not optimising the operation of a newly delivered asset is significant leakage of anticipated project value, particularly during the turnover/commissioning and ramp-up periods of the new asset lifecycle. Case studies have measured this leakage to be as much as 30% of the value that was anticipated during the early stages of the total lifecycle. As a result Total Cost of Ownership (TCO) and Lifecycle Cost (LCC) can be significantly higher during the asset’s operate and maintain phase.
Given the high volume of projects being planned or underway in New Zealand ranging from small subdivisional water networks through to the CRL, Auckland’s multibillion underground railway line, the criticality of being able to execute the efficient operation of assets sustainably is becoming even more essential.
Ideally asset operators (being the custodians of a new asset over its life) should at the point of asset handover and commission be:
- fully ready to assume ownership and management of the assets being transferred
- confident that the assets will be operable from day one
- capable of performing the safe and efficient operation of those assets in a sustainable manner.
In this regard, one of the key messages highlighted by David was the need for very early and ongoing involvement of cross functional teams (including operations) during the planning, design and construct phases of any project, labelled the ‘Operational Readiness’ phase as depicted in the asset lifecycle chart below.
So why does this loss of value occur between the capital delivery and operating phases?
The reasons can be many and varied. At the simplest level it can be due to a lack of operational input in the design phase or de-scoping during the construction phase. Having said that, a key driver underlying many operational issues is the desire to minimise upfront capital spend due to the many competing project interests.
Although the cost of building operational readiness into projects has been estimated at only 2-3% of the upfront project capital cost, the trade off with future operating costs is more significant. This needs to be fully transparent and understood by project decision makers if the value of new infrastructure is going to be optimised.
To avoid these consequences an effective approach is to not only involve asset and operational management at the beginning of the project but importantly, to accentuate it during the detailed design and construction phases and across all disciplines as depicted in the following operational readiness schedule.
A more meaningful and substantial involvement of asset managers during these key project stages reinforces their overall intent – seeking to minimise total cost of acquiring, operating, monitoring and renewing assets.
For more information about the impact of operational readiness within wider asset management please contact:
David Walker
Market Development Lead - GHD Advisory New Zealand
+64 21 904 084
Email David Walker
Nick Tompkins
Technical Leader - Asset Performance and Optimisation
+61 438 103 362
Email Nick Tompkins