delivery management guidelines delivery process 1 ... - cidbtoolkit.cidb.org.za/shared...

Delivery Management Guidelines

Delivery Process 1 - Portfolio Management

Version control

Version 9-1 Date 2010-10-18 Status Approved

Portfolio Management

Delivery Management Guidelines: DP1 - Portfolio Management

2

The IDMS

Prov Infr Strat

G1(a) G2G1(b)U-AMP C-AMP

PC1

PF1.4PF1.3 PF2.1 PF2.2 PF2.3 PF3 PF4PF5

PF1.1 PF1.2

DP1: Portfolio Management

DP1-2 Programme ManagementDP1-1 Infrastructure Planning

Develop/review U-AMP (including prioritised MTEF works list)

Develop/review C-AMP (incl portfolio level Work Plans)

Develop /review Constr

Proc Strat

Develop /review

IPMPManage Implementation

Authorise Implementation

Monitor & Control

Close Out

G3 G4 G5 G6(a) G6(b) G7 G8PC2

PC3

PC4a

PC5

PC4b


T1 T2

PEP2PEP1 IPIP PEP3

DP2: Project Management

DP2-1 Implementation Planning

Prepare Packages

Define Packages

Develop/Review IPIPs (Prgr & Proj level)

DP2-2 Design

Design devlpmt

Detailed design

Compile MFC Info

DP2-3 Works

Construct / Deliver works

Handover works

DP2-4 Close Out

Contracts Close Out

Adminstv Close Out

PEP4 PEP5 PEP6 PEP7


G8

DP3: Operations & Maintenance

DP3-1 Recognise & accept assets

DP3-2 Mobilisation for Facilities Mgt

DP3-3 Operations DP3-4 MaintenanceDP3-5 Demobilisation

of Facilities Mgt

G9b

G9a



3

Structure of the Infrastructure Delivery Management Toolkit (IDMT)

Delivery Management Guidelines

Management Companion

Infrastructure Delivery Management System(IDMS)

Practice guides

PG1: Prov InfrStrategy

PG2: ConstrProc Strat

PG3: Perform

Mgt



4

Table of Contents 1. Purpose of this Module ..................................................................................................................................8

2. Where am I within the Delivery Management Guidelines ..............................................................................8

Section A: General ................................................................................................................................................9

3. Introduction.....................................................................................................................................................9

3.1 Overview ...................................................................................................................................................9

3.2 Outputs from Delivery Process 1 ............................................................................................................11

3.3 Benefits of Portfolio Management ..........................................................................................................13

3.3.1 Good Governance ..........................................................................................................................13

3.3.2 Reliable Infrastructure Levels of Services ......................................................................................14

3.3.3 Optimising Infrastructure Decision Making .....................................................................................14

3.3.4 Managing Infrastructure Risks ........................................................................................................14

3.3.5 Improving Infrastructure Management Procedures and Systems .................................................14

4. Statutory Requirements for Portfolio Management .....................................................................................15

4.1 Legislation applicable to National and Provincial Departments .............................................................15

4.1.1 Public Finance Management Act of 1999 (PFMA) .........................................................................15

4.1.2 Government Immovable Asset Management Act of 2007 (GIAMA) ..............................................15

4.2 Standards and Guidelines ......................................................................................................................17

4.2.1 International Infrastructure Management Manual (IIMM) ...............................................................17

4.2.2 Standard for Portfolio Management ...............................................................................................17

4.2.3 Standard for Program Management ...............................................................................................18

4.2.4 Guides for Asset Management Plans .............................................................................................18

5. Risks .............................................................................................................................................................19

5.1 Risk Management ...................................................................................................................................19

5.1.1 Key Components of Risk Management ..........................................................................................19

5.1.2 Outputs from the Key Components ................................................................................................19

5.2 Portfolio Management Risks ...................................................................................................................20

5.2.1 Infrastructure Planning Risks .........................................................................................................20

5.2.2 Programme Management Risks .....................................................................................................22

6. Infrastructure Estimating, Budgeting, and Prioritisation ..............................................................................23

6.1 Estimating and Budgeting .......................................................................................................................23

6.2 Prioritisation ............................................................................................................................................30

6.2.1 Initial schedule of work and first budget .........................................................................................30

6.2.2 Second scheduling of work ............................................................................................................31

7. Alignment between the Infrastructure Planning and Budget Cycles: The ―Alignment Model‖ ....................32

7.1 Background .............................................................................................................................................32

7.2 MTEF Budget Cycle ................................................................................................................................32

7.3 The Previous Infrastructure Delivery Cycle ............................................................................................33

7.4 Improvements to the Infrastructure Delivery Cycle ................................................................................34

7.5 Alignment of the Infrastructure Delivery Cycle with the MTEF Budget Cycle ........................................36



5

7.6 Concurrent Infrastructure Delivery Activities ..........................................................................................36

7.7 Managing Cash Flows across Years ......................................................................................................37

7.8 Note on the Timeframes shown in the Alignment Model ........................................................................39

8. Components of Infrastructure Portfolio Management ..................................................................................40

9. Life Cycle Costing Analysis ..........................................................................................................................47

9.1 Introduction .............................................................................................................................................47

9.2 Life cycle costing process .......................................................................................................................47

9.2.1 Sub-process 1: Define life-cycle analysis terms of reference ........................................................47

9.2.2 Sub-process 2: Establish alternative technical and operational solutions .....................................48

9.2.3 Sub-process 3: Costing of life-cycle costing elements for each alternative ..................................48

9.2.4 Sub-process 4: Conduct life-cycle costing and sensitivity analyses ..............................................48

9.2.5 Sub-process 5: Review alternative solutions and select most viable option .................................49

9.3 The asset life-cycle .................................................................................................................................49

9.4 Elements of life-cycle costing .................................................................................................................50

9.4.1 Sequential costing elements ..........................................................................................................51

9.4.2 Costing elements under acquisition or sustaining elements ..........................................................51

9.5 Further detail on sequential life cycle costing elements .........................................................................52

9.5.1 Initial Costing of Capital investments .............................................................................................52

9.5.2 Costing of Asset Management: Operations ...................................................................................52

9.5.3 Costing of major upgrades, refurbishments and renovations ........................................................53

9.5.4 Costing of disposal of assets ..........................................................................................................54

9.6 Time-value of money ..............................................................................................................................54

9.7 Life-cycle analysis concepts ...................................................................................................................54

Section B: Infrastructure Planning .......................................................................................................................55

10. Introduction .............................................................................................................................................55

11. User Asset Management Plan (U-AMP) .................................................................................................55

11.1 Determine New / Review Infrastructure Needs (Demand) .................................................................57

11.2 Review existing infrastructure (Supply) ..............................................................................................59

11.3 Conduct gap analysis .........................................................................................................................59

11.4 Determine / Develop Infrastructure and Non-Infrastructure Solutions ...............................................60

11.5 Develop Organisation Support Plan (OSP) ........................................................................................60

11.6 Budget Analysis ..................................................................................................................................62

11.7 Prioritisation and Selection .................................................................................................................62

11.8 Review and Identify Asset Management Plan Improvements ...........................................................63

11.9 CIDB Gateway Process Gate 1a: Approve U-AMP ............................................................................63

12. Custodian Asset Management Plan (C-AMP) ........................................................................................63

12.1 Compile and Review Portfolio Profile .................................................................................................64

12.2 Compile Infrastructure Performance Report ......................................................................................65

12.3 Life Cycle Planning .............................................................................................................................65

12.4 Conduct Portfolio Analysis ..................................................................................................................65

12.5 Develop/Review Work Plans ..............................................................................................................65



6

12.6 Develop Organisational Support Plan (OSP) .....................................................................................66

12.7 Develop Infrastructure Management Budget .....................................................................................66

12.8 Review and Identify C-AMP Management Improvements .................................................................66

12.9 CIDB Gateway Process Gate 1b: Approval of the C-AMP .................................................................66

13. Portfolio Performance Management .......................................................................................................66

13.1 Key Performance Management Concepts .........................................................................................67

13.2 Typical Portfolio / Strategy Level Indicators .......................................................................................69

13.2.1 Impact Indicators ............................................................................................................................69

13.2.2 Input, activity and output Indicators (applicable to work performed at the Portfolio level) ............69

13.3 Performance of the individual .............................................................................................................69

Section C: Programme Management ..................................................................................................................71

14. Introduction .............................................................................................................................................71

15. Key concepts and benefits ......................................................................................................................71

16. Governance ............................................................................................................................................71

17. Programme management processes .....................................................................................................72

17.1 Components of Programme Management .........................................................................................73

18. Develop and Review Infrastructure Programme Management Plan (IPMP) .........................................73

18.1 Develop/Review construction procurement strategy ..........................................................................73

18.2 CIDB Gateway Process Gate 2: Approval of the Construction Procurement Strategy (CPS) ..........74

18.3 Develop/Review the Infrastructure Programme Management Plans .................................................75

18.3.1 Formulate the Organisational Support Plan (OSP) ........................................................................75

18.3.2 Formulate the Programme Time Management Plan ......................................................................75

18.3.3 Formulate Programme Cost Management Plan ............................................................................75

18.3.4 Formulate Programme Risk Management Plan .............................................................................76

18.3.5 Formulate the Programme Quality Management Plan ..................................................................76

18.3.6 Formulate the Programme Communication Management Plan.....................................................76

18.3.7 Review and Implement Improvements to the IPMP .......................................................................76

18.4 Authorise Implementation ...................................................................................................................77

18.5 Monitor and Control Implementation ..................................................................................................77

18.6 Programmes Review and Close Out ..................................................................................................77

19. Programme Performance Management .................................................................................................78

19.1 Performance management at the programme level ...........................................................................78

19.2 Typical Programme Level Indicators ..................................................................................................79

19.2.1 Outcome Indicators ........................................................................................................................79

19.2.2 Input, activity and output Indicators (applicable to work performed at the Programme level) .......79

19.3 Performance of the individual .............................................................................................................79

Section D: Conclusion .........................................................................................................................................81



7

Table of Figures and Tables Figure 1: Portfolio Management in relation to other delivery processes ..............................................................8 Figure 2: Portfolio Management inputs and outputs ...........................................................................................10 Figure 3: Generic Planning Process ...................................................................................................................11 Figure 4: Relationship between Infrastructure Management Plans and Programme Management Plan ..........13 Figure 5: Estimate for new infrastructure ............................................................................................................27 Figure 6: Infrastructure budget build up for an organisation ...............................................................................28 Figure 7: Summary Infrastructure Budget ...........................................................................................................29 Figure 8: Portion of MTEF work schedule developed before budget allocation finalised ..................................30 Figure 9: Portion of work schedule showing "best" match between available budget and an organisation's strategic priorities ................................................................................................................................................31 Figure 10 : MTEF Budget Cycle ..........................................................................................................................33 Figure 11 : The Previous Infrastructure Delivery Cycle Juxtaposed against the MTEF Budget Cycle ..............34 Figure 12 : Improved Infrastructure Delivery Cycle ............................................................................................35 Figure 13 : Alignment of the Infrastructure Delivery Cycle with the MTEF Budget Cycle ..................................36 Figure 14 : Concurrent Infrastructure Delivery Activities in any one year ..........................................................37 Figure 15: Managing Cash Flows across Years (potential under expenditure) .................................................38 Figure 16 : Managing Cash Flows across Years (proactive solution) ................................................................39 Figure 17: Portfolio Management Processes ......................................................................................................40 Figure 18: DP1 Portfolio Management Processes ..............................................................................................46 Figure 19: Process for conducting a life cycle costing analysis..........................................................................47 Figure 20: Asset life cycle ...................................................................................................................................50 Figure 21: Components of the U-AMP ................................................................................................................56 Figure 22: Asset View of Project/Works List .......................................................................................................58 Figure 23: Programme View of Project/Works List .............................................................................................59 Figure 24: Organisation and Support Process ....................................................................................................61 Figure 25: Components of the C-AMP ................................................................................................................64 Figure 26: Programme Life Cycle .......................................................................................................................71 Figure 27: Components of Infrastructure Programme Management ..................................................................73 Figure 28: Annual Cycle for the Development/Review of Construction Procurement Strategy .........................74 Table 1: Annual Portfolio Management Outputs .................................................................................................11 Table 2: Link between Portfolio Management Processes and the U-AMP and C-AMP deliverables ................18 Table 3: Cost Estimating through the Project Life Cycle ....................................................................................25 Table 4: Approach to performance management ...............................................................................................67 Table 5: Programme Management Framework ..................................................................................................72 Table 6: Key Tasks in Programme Management Improvement .........................................................................77



8

1. Purpose of this Module The purpose of this module is to assist users in:

understanding the benefits of portfolio management

understanding the statutory requirements of portfolio management

understanding the basics of portfolio and programme management risks

infrastructure estimating, budgeting and prioritisation

creating alignment between infrastructure planning and budget cycles

understanding the components of infrastructure management portfolio management

understanding the life cycle costing analysis

preparing a User Asset Management Plan (U-AMP)

preparing a Custodian Asset Management Plan (C-AMP)

understanding performance management elements that relate to Portfolio and programme management

understanding the benefits of programme management

developing and reviewing an infrastructure programme management plan(IPMP)

monitoring and controlling programmes

2. Where am I within the Delivery Management Guidelines

Figure 1: Portfolio Management in relation to other delivery processes

Practice guides

PG1: Strategy

PG2: Constr

Proc Strat

PG3: Perf Mgt



9

Section A: General

3. Introduction

3.1 Overview Public organisations are required to provide their mandated services effectively, efficiently and reliably. Well managed infrastructure assets assist organisations to achieve these objectives by creating the physical environment and networks enabling the delivery of the organisation‘s services. Thus Infrastructure Portfolio Management is a component of an organisation‘s (department, municipality, etc) service delivery procedures. This is supported by the Project Management Institute‘s primary focus for portfolio management i.e. ―Portfolio Management is concerned with doing the right work‖ (Project Management Institute‘s Standard for Portfolio Management 2006). As stated in the foreword to the International Infrastructure Management Manual – Version 3.0 2006: ―Infrastructure networks, ... represent a vast investment, made over many generations ... that support the fabric of modern living in our communities. It is important that we employ the very best management skills and practices to ensure that related services are delivered economically and sustainably. There has been a growing recognition that it is not sustainable to focus on meeting infrastructure needs through investment in infrastructure creation without recognising the long term life cycle costs associated with the ongoing operation, maintenance and renewal of their networks. Improving the management of infrastructure can bring major benefits by ensuring that scarce resources are used in the most cost effective manner, thereby enhancing economic growth, improving living standards and improving environmental sustainability.‖ Portfolio Management is thus the combination of management practices applied to infrastructure assets with the objective of developing, implementing, monitoring and controlling prioritised works based on long term plans, available budgets and an organisation‘s management capacity. Portfolio Management also includes identifying and managing non-asset solutions to provide the required environment for the delivery of an organisation‘s services. Figure 1, above illustrates the delivery cycle as well as the interaction between the three delivery processes, the supporting guides and the strategic environment within which infrastructure assets are provided and managed. Portfolio Management is one of three Delivery Processes used to provide infrastructure assets for an organisation. Infrastructure Portfolio Management is based on an organisation‘s infrastructure management policy which must be aligned with the organisation‘s strategic plan to provide its mandated services. Portfolio Management links an organisations‘ strategic service delivery plan with the infrastructure it will require to deliver those services in an efficient, effective and reliable manner. The Figure 2 below shows the key process inputs, controls and mechanisms and outputs from Portfolio Management. Furthermore G1(a), G1(b) and G2 show the position of the first two gates as described in the Gateway system.



10

Figure 2: Portfolio Management inputs and outputs

Infrastructure management plans (User – Asset management plan (U-AMP) & Custodian – Asset management plan (C-AMP) are developed to match specific strategic service delivery strategies focussing on the four key asset management areas, namely:

Acquisition (new construction, upgrades, extensions and additions)

Renewal and Rehabilitation

Maintenance and Operations

Disposal. Plans developed and updated in these four areas are used to develop the Medium Term Expenditure Framework (MTEF) budget for infrastructure, as well as the Infrastructure Programme Management Plan (IPMP) that describes the construction procurement strategy and management arrangements for work packages. The implementing organisation executes the work packages and hands each asset back to the user/service organisation as they are completed. The user/service organisation then takes them back into service and applies its operations and maintenance management procedures to these assets. Key to these activities is the asset register. All assets must be recorded in sufficient detail to enable effective planning and decision making. The asset register must also reflect the condition of each asset and record any work carried out on each asset, at least annually. Portfolio Management improvement is an important component of Portfolio Management and is based on monitoring of planning processes and feedback from implementation of work packages. Generically the planning process for both asset solutions and organisational capacity discussed in this module are based on identifying needs, comparing these to current services and facilities available and developing solutions to any gaps. This process is diagrammatically explained in Figure 3, below.


• Service delivery mandates

• Asset Register

• Budget allocation

• Monitoring & Feedback

Infrastructure management capability:

• Organisation

• Custodian

• Industry

• Infrastructure strategy

• Legislation & policies

• Long Term asset priorities

• U-AMP (G1(a))

• C-AMP (G1(b))

• Construction Procurement Strategy (G2)

• IPMP

• Monitoring Reports

• Recommended actions



11

• What

infrastructure / organisational capacity is needed to comply with the organisation’s strategic plan and to support delivery?

• What infrastructure / organisational capacity does the organisation have?

• What infrastructure / organisational capacity is required?

• What

alternatives to physical infrastructure /

internal organisational

capacity can the organisation use / develop?

• What options does the organisaton have for providing the required infrastructure / organisational capacity?

SupplyNeeds

Gap

Plans

Alternative Solutions

Determine Options

• What are the plans (long, medium and short term) for providing the infrastructure / organisational capacity defined in the documented and agreed options.

Figure 3: Generic Planning Process

Needs are often categorised into infrastructure programmes to facilitate monitoring and reporting on strategic priorities and goals. This view of the Needs is reflected in a ―Programme View‖ of the required work. Needs also include infrastructure requirements to meet norms and standards for service delivery – size, location, functionality, etc. - as well as ongoing maintenance requirements. These needs are more easily indentified in an ―Asset View‖ of the required work‘ i.e. all the work that will be required at each asset (maintenance, rehabilitation, extensions & upgrading). All the work required must be shown in both views. Thus amending work in one view must automatically amend the work in the other view. These two views are described in more detail in Section B: Infrastructure Planning. This module is based on the Guidelines for the preparation of User Asset Management Plans (U-AMPs) and Custodian Asset Management Plans (C-AMPs), the 2006 Toolkit (Infrastructure Delivery Management Guidelines), the Project Management Institute‘s (PMI) Standards for Portfolio Management and Programme Management and the International Infrastructure Management Manual (IIMM).

3.2 Outputs from Delivery Process 1 Table 1 below shows the key outputs and organisational responsibility for them as discussed in this module. As discussed in the section on Joint Programme Management in the overview module, this work is more effectively carried out if there is a close working relationship between User and Custodian. Table 1: Annual Portfolio Management Outputs

Annual Portfolio Management Outputs

User organisations Custodian organisations

U-AMP

Construction procurement strategy

C-AMP

Work Plans



12

Annual Portfolio Management Outputs

User organisations Custodian organisations

IPMP

Organisation and Support plan

Monitoring reports

Recommended actions

Organisation and Support plan

Monitoring reports

Recommended actions

Section B: Infrastructure Planning describes the infrastructure planning requirements of organisations. This section provides guidelines for the development of long-term asset management plans and budgets that support an organisation‘s service delivery in accordance with the organisation‘s strategic plans, and for developing the associated medium term expenditure frameworks (MTEF‘s) for assets. These infrastructure plans and associated budgets also inform the organisation‘s Performance Plans and the Asset Management Plan. Section C: Programme Management describes the programme management requirements of user organisations. This section provides guidelines for the overall programme management responsibilities of the organisation - those portions of the delivery management function that must be performed by the user organisation and cannot be outsourced. Delivery Process 2 (Project Management) will focus on that portion of delivery that can be outsourced to an Implementing Agent. Portfolio Management focuses on developing asset management plans and does not address the processes related to either Implementation (of programmes, projects or packages) or to Operations and Maintenance which are described in Delivery Processes 2 and 3 respectively.

Figure 4, overleaf illustrates the above principles.



13

Figure 4: Relationship between Infrastructure Management Plans and Programme Management Plan

Where insufficient capacity is available in an organisation to effectively develop the required plans, professional assistance should be sought from other organisations or ―in-sourced‖ using an appropriate procurement method. However the organisation as shown in Table 1 remains accountable for these outputs and must therefore ensure that all assistance is managed in accordance with the organisation‘s service delivery strategy.

3.3 Benefits of Portfolio Management Infrastructure provides the physical networks and environment used by organisations to deliver their mandated services to the public effectively. Managing infrastructure in a transparent, effective and reliable manner will assist an organisation in meeting its requirements for good governance as well as assisting the organisation to deliver its services effectively. Some of the additional important objectives are discussed below.

3.3.1 Good Governance The infrastructure portfolio used by most organisations has been built up over many generations and has a high replacement cost, many times the organisation‘s total annual budget. Portfolio Management will assist the organisation to ensure that these assets are managed properly and that they are able to continue to provide a service delivery environment. In addition Portfolio Management will assist the organisation to identify assets that will not be required until many years before that situation arises, thereby reducing an

Infrastructure

Plan

Org &

Support

Plan

Long

Term

Budget

MTEF

Window

DP2: Project

Management

DP3: O&M

Strategic

Plan

Asset

Management

Plan

Annual

Performance

Plan

MTEF Infrastructure Budget

MTEF Org & Support Budget

Prioritise

Infrastructure Programme Management

Plan (IPMP)

Construction Procurement Strategy

Programme Management Plans

(Scope, Time, Cost, Quality, Risk, etc)



14

organisation‘s liability for operation and maintenance costs and allowing funds and resources to be redirected.

3.3.2 Reliable Infrastructure Levels of Services Infrastructure levels of service are based on departmental service delivery mandates. Typically norms and standards for infrastructure have been, or will be developed that will ensure the correct level of service is provided in a standardised manner. Portfolio Management:

Sets appropriate minimum target levels of service for infrastructure

Establishes methods to achieve the required levels of services cost effectively

Enables effective monitoring (performance and condition) of levels of service.

3.3.3 Optimising Infrastructure Decision Making Infrastructure management requires the commitment of resources over long periods. Portfolio Management assists in making decisions about the commitment of the resources by:

Investigating all options to achieve the required levels of service

Ensuring the provision of the infrastructure environment and networks at the lowest life cycle cost

Establishing and monitoring good practices to manage and protect infrastructure

Establishing and monitoring the implementation of infrastructure decision criteria

Monitoring current levels of utilisation, performance and condition of infrastructure

Including risk assessment in decision making.

3.3.4 Managing Infrastructure Risks Organisations need to manage the health and safety risk, operational and capital funding risks, and infrastructure management skills risks to ensure a reliable provision of infrastructure. Portfolio Management assists by:

Identifying and mitigating in a cost effective manner the consequences of failure

Identifying infrastructure in danger of imminent failure

Driving regular consistent assessments of infrastructure

Reducing an organisation‘s liability in the event of infrastructure related claims.

3.3.5 Improving Infrastructure Management Procedures and Systems Systems record historical and planned infrastructure activities, budgets, expenditure, decisions, cash flows, etc. as well as infrastructure information. Portfolio Management will assist in improving these systems by:

Developing plans to address gaps in the current systems (data, procedures, capacity) to at least comply with legislation

Provide executive management with reliable, consistent, updated infrastructure information to make optimised infrastructure decisions

Monitoring improvements to infrastructure management procedures and systems.

Portfolio Management Benefits:

Good governance over portfolio

Reliable levels of service

Best value for investment

Improved risk management

Legislative compliance

Consistent reporting



15

4. Statutory Requirements for Portfolio Management

4.1 Legislation applicable to National and Provincial Departments

4.1.1 Public Finance Management Act of 1999 (PFMA) As stated in Part 2: Responsibilities of Accounting Officers:

Section 38. (1)(a)(iv) requires accounting officers to ―ensure that the department, ... has and maintains .. a system for properly evaluating all major capital projects prior to a final decision on the project;‖

Section 38. (1)(b) states that ―the accounting officer .. is responsible for the effective, efficient, economical and transparent use of the resources of the department, ..;

Section 38. (1)(d) states that ―the accounting officer .. is responsible for the management, including the safeguarding and maintenance of the assets, and for the management of liabilities, of the department, ..:‖

Chapter 5 (Strategic planning) of the Regulations issued in terms of the Public Finance Management Act of 1999 requires the accounting officer of an institution to:

Prepare a strategic plan that is consistent with the period covered by the Medium Term Expenditure Framework for approval by their minister or member of the executive committee

Provide parliament or the relevant legislature with their institution‘s medium term strategic plan, and where applicable, its annual performance plan, in order to facilitate annual discussion of individual votes.

The regulations require strategic plans to, inter alia:

Cover at least three years and be consistent with the institution‘s published medium term expenditure estimates

Include specific constitutional and other legislative, functional and policy mandates that indicate the output deliverables for which the institution is responsible

Include policy developments and legislative changes that influence programme plans over the mtef framework

Include the measurable objectives, expected outcomes, programme outputs, indicators (measures) and targets of the institution‘s programmes

Include details of proposed acquisitions of fixed or movable capital assets, planned capital investments and rehabilitation and maintenance of physical assets

Include details of proposed acquisitions of financial assets or capital transfers and plans for the management of financial assets and liabilities

Include multi-year projections of income and projected receipts from the sale of assets

Include details of the service delivery improvement programme.

4.1.2 Government Immovable Asset Management Act of 2007 (GIAMA) The GIAMA provides for:

A uniform framework for the management of an immoveable asset that is held by a national or provincial department to ensure the co-ordination of the use of an immoveable asset with the service delivery objectives of a national or provincial department



16

The issuing of guidelines and minimum standards for immoveable asset management by a national or provincial department.

The principal objective of this Act is for a custodian to provide infrastructure to users to meet their service delivery objectives. The guidelines issued in terms of the GIAMA define an immoveable asset as any infrastructure acquired or owned by government. Infrastructure is further described as land and any immovable improvement on that land, and which have enduring value and consist of assets of residential, non-residential or infrastructure nature and include machinery and equipment that have been installed and are an integral part of infrastructure and include all assets both state-owned and leased. The application of the definition means that the types of assets listed below, will be construed to be infrastructure for the purposes of this guideline.

Land including but not limited to developed, undeveloped, vacant, cultivated, non-useable or inaccessible land

Buildings including but not limited to office accommodation, prison buildings, police stations, courts, schools, hospitals, and houses

Rights in land including servitudes, ―right to use‖, leases.

Infrastructure including but not limited to roads, harbours, railway lines, airports, transmission lines, dams and pipe lines

Machinery, plant and equipment including but not limited to pump stations, machinery and irrigation systems for as far as such machinery, plant and equipment are construed to be immovable in terms of the common law applicable to property

Conservation, cultural and heritage assets including but not limited to monuments, historical sites, heritage sites, conservation areas and sites of scientific significance

The guidelines also define the following terms:

Custodian - a national or provincial department designated in terms of GIAMA that must plan, acquire, manage and dispose infrastructure.

User - a national or provincial department that uses or intends to use infrastructure in support of its service delivery objectives (and includes a custodian for an infrastructure that it uses or intends to use in support of its own service delivery objectives).

GIAMA distinguishes between the roles of users and custodians of infrastructure. Users utilise infrastructure to give best effect to their functions and therefore must produce a user asset management plan (U-AMP) to ensure:

Accountable, fair and transparent management of infrastructure

Effective, efficient and economic use of infrastructure

Reduced overall cost of service delivery

Reduced demand for infrastructure.

Custodians are responsible for all activities that are associated with common law ownership and therefore must produce a Custodian Asset Management Plan (C-AMP) to ensure that infrastructure is:

Government Immoveable Asset Management Act: Minimum contents of immoveable asset management plans Section 7 requires that a custodian immoveable asset management plan must consist of at least:

A portfolio strategy and management plan

A management plan for each immoveable asset throughout its life cycle

A performance assessment of the immoveable asset

Subject to section 13(1)(d)(iii), a condition assessment of the immoveable asset

The maintenance activities required and the total and true cost of the maintenance activities identified

A disposal strategy and management plans.

Section 8 requires that a user immoveable asset management plan must consist of at least:

A strategic needs assessment

An acquisition plan

An operations plan

An infrastructure surrender plan.



17

Efficiently and effectively managed throughout their lifecycle

Provided in a transparent and cost effective (best value) manner to meet the service delivery requirements of users

Maintained in the state in which it would provide the most effective service

Assessed in relation to their performance, suitability, condition, as well as the effect thereof on service delivery

Disposed of, if the assessments so indicate, at best value for money to the state, in respect of financial and/or social returns.

Custodians and users are required to settle any dispute in accordance with the intergovernmental relations framework act of 2005 GIAMA requires that an accounting officer of:

A custodian must submit to the relevant treasury a copy of its C-AMP on a date determined by that treasury

User must submit to the relevant treasury a copy of its U-AMP as a part of its strategic plan on a date determined by that treasury and a copy to the custodian.

GIAMA also requires the user to annually revise its U-AMP after its budget allocations have been finalized and incorporate the revised U-AMP in its strategic plan, and submit such revised plan to the custodian. The custodian in turn is required to annually revise its C-AMP after receipt of a revised or amended U-AMP or when other factors necessitate a revision.

4.2 Standards and Guidelines Portfolio Management is based on the following standards and guidelines:

4.2.1 International Infrastructure Management Manual (IIMM) The IIMM was developed in Australia and New Zealand in response to serious infrastructure failures experienced in New Zealand and Australia in the 1990‘s. The IIMM Version 3.0 2006 includes a chapter on South African conditions. This edition has been endorsed by the Department of Co-Operative Governance and Traditional Affairs (CoGTA) (previously the Department of Provincial Local Government (DPLG)) and the Institute of Municipal Engineers of South Africa (IMESA). These two South African organisations are leading the challenge to improve infrastructure management in the municipal sphere of government. Although this sphere of government is primarily focused on ―network‖ infrastructure (water, electrical and sewer reticulation, storm water systems, roads, etc) the principles are also applicable to buildings and facility type infrastructure. The IIMM is based on holistic management of infrastructure to achieve the lowest life cycle cost of infrastructure while providing the required level of service. The manual describes four life cycle asset management plans, namely:

Routine Maintenance

Renewal/Replacement

Creation/Acquisition/Augmentation

Disposal.

4.2.2 Standard for Portfolio Management This standard was produced by the Project Management Institute (PMI) as part of its series of documents and guidelines to define and improve the body of knowledge supporting the project management profession.



18

This standard describes a documented set of processes that represent good practices in portfolio management.

4.2.3 Standard for Program Management This standard was produced by the Project Management Institute (PMI) as part of its series of documents and guidelines to define and improve the body of knowledge supporting the project management profession. This standard describes a documented set of processes that represent good practices in programme management.

4.2.4 Guides for Asset Management Plans Two guides for the preparation of asset management plans have been developed in terms of the GIAMA namely, the Custodian Asset Management Plan (C-AMP) and the User Asset Management Plan (U-AMP). The key deliverables of each of these plans in relation to the deliverables of this module are shown in the Table 2. Table 2: Link between Portfolio Management Processes and the U-AMP and C-AMP deliverables

Portfolio Management Processes Asset Management Plan Deliverables

Section Process U-AMP C-AMP

Infrastructure Planning including MTEF Planning

Determine / Review Infrastructure Requirements including Local Government IDP‘s, National & Provincial strategic priorities, statutory requirements and existing work commitments (Demand)

Review infrastructure strategy

Identify infrastructure needs

Consolidate user infrastructure needs

Review existing infrastructure (Supply)

Review existing infrastructure including performance and condition

Compile portfolio profile

Review infrastructure life cycle plans

Analyse gap between supply and demand

Analyse gap Analyse portfolio

Develop and evaluate solutions (Pre-feasibility Studies)

Develop and evaluate solutions

Develop Work Plans

Develop / Review Organisational Support Plan



Budget Analysis Budget Analysis Budget Analysis

Selection and Prioritisation of Solutions

Selection and Prioritisation of Solutions



19

Portfolio Management Processes Asset Management Plan Deliverables

Section Process U-AMP C-AMP

Implement infrastructure management improvements



Programme Management including Construction Procurement Strategy

Delivery management Select solutions Develop work plans

Contracting strategy

Procurement arrangements

Authorise implementation

Allocate budget Implement work plans

Monitor and control Monitor and Control performance

Monitor performance

Implement programme management improvements



5. Risks

5.1 Risk Management Standard risk management techniques should be applied to the management of infrastructure as prescribed by best practices. These are briefly outlined below.

5.1.1 Key Components of Risk Management The following is an adaptation of the PMBOK

1 Project Risk Management:

Risk Identification — determining which risks are likely to affect Portfolio Management and documenting the characteristics of each

Risk Quantification — evaluating risks and risk interactions to assess the range of possible outcomes

Risk Response Development — defining enhancement steps for opportunities and responses to threats

Risk Response Control — responding to changes in the risk profile of the portfolio.

5.1.2 Outputs from the Key Components

Risk Identification o Sources of risk o Potential risk events o Risk symptoms o Inputs to other processes

1 Duncan R, A guide to the Project Management Body of Knowledge, PMI Pennsylvania, USA



20

Risk Quantification o Opportunities to pursue, threats to respond to o Opportunities to ignore, threats to accept

Risk Response Planning o Risk management plan o Contingency plans o Reserves (contingency funds to utilise in case risk events materialises) o Contractual agreements (moving risk from Department to others)

Risk Response Control o Corrective action o Updates to risk management plan.

5.2 Portfolio Management Risks The main risks faced by infrastructure management that Portfolio Management assists in mitigating, but require the application of consistent good asset management practices, are discussed below.

5.2.1 Infrastructure Planning Risks 5.2.1.1 Infrastructure Requirements for Adequate Service Delivery

Infrastructure requirements are determined by the agreed norms and standards. These norms and standards set the type, size, quantity, performance, location, etc for infrastructure. This risk includes:

Providing infrastructure where none is required, thus increasing operational requirements while receiving no service benefit

Not providing sufficient infrastructure, thus providing a lower level of service

Infrastructure is not able to meet the performance specification, thus providing a lower level of service and requiring additional operational and maintenance expenditure

Infrastructure is not suited to the service delivery mechanism, resulting in a lower level of service being provided and additional operational expenditure.

This risk is mitigated by ensuring that:

High quality infrastructure planning procedures are implemented

High quality infrastructure design, construction and life cycle management takes place

Optimised decision making, using a consistent prioritisation process, is used to allocate resources to infrastructure management and implementation.

5.2.1.2 Quality of Infrastructure

The quality of the assets does not meet the requirements for which they are meant. From a capital expenditure point of view, if infrastructure:

Of a quality that is too high is provided, it will not deliver additional benefits, but require additional operational expenditure

Of a quality that is too low is provided, the assets will not meet the minimum service level requirements and result in a poor service being delivered. Additional capital and/or operational expenditure will be required.

Where operational procedures are deficient, the following may occur:



21

Safety and hygiene problems

Unreliable availability of infrastructure due to poor maintenance, utilities management and/or cleaning

Unusable infrastructure due to inconsistent reporting on the condition, utilisation and suitability of infrastructure.

Mitigation measures include:

Establishment, institutionalisation and continuous improvement of portfolio management procedures

Establishment, implementation and improvement of standard operating and maintenance procedures for infrastructure

Monitoring and improving infrastructure assessments

Improving infrastructure management capacity

Improving infrastructure budgeting and expenditure management.

5.2.1.3 Infrastructure Life Cycle Costs (LCC) too high

High life cycle costs are usually incurred when inappropriate infrastructure is used to deliver services. High life cycle costs adversely impact the cost of service delivery. As most of the infrastructure provided by pubic organisations is used to provide social services, benchmarking life cycle costs rather than Cost-Benefit analysis should be used to manage high costs. Benchmarking against industry, local, national and where appropriate, international norms, is encouraged. Mitigation methods include:

Determining whole life cycle costs from an early stage; an initial LCC estimate should be determined during the feasibility phase and updated as the project moves through its development phases

Monitor and update local, national and industry LCC norms regularly

Ensure that infrastructure suited to the local environment is developed and operated.

5.2.1.4 Capacity of infrastructure delivery industry declines

Public sector infrastructure work provides a large source of work for the infrastructure industry, especially in smaller provinces. Thus, being able to provide a steady source of work for the industry will assist in establishing a reliable and efficient industry. As a large proportion of the work is labour based, skills need to be developed which requires some certainty of the demand. However once the demand is stable, a steady flow of work will be created, thus contributing to sustainable employment. Should the work become unpredictable, the infrastructure industry capacity will decrease, especially in rural areas. This will lead to high prices/rates when infrastructure work is required due to the lack of competition and greater establishment costs. In addition, quality of work will suffer as there is no surety in continued work flow, reducing the incentive for the industry to train and mentor new entrants. Mitigation measures include:

Consistent and transparent infrastructure planning and implementation

Consistent decision making

Reliable and transparent budget and expenditure management

Consistent management and leveraging of public infrastructure capacity development programmes

Development and enhancement of a life cycle management approach to infrastructure delivery. 5.2.1.5 Insufficient Operating Capacity



22

Once infrastructure has been provided this infrastructure needs to be operated efficiently. The organisation that will use the infrastructure to deliver its mandated services is responsible for the efficient operation of the infrastructure. This risk is often manifested by:

New infrastructure standing empty or not being used to deliver services

Infrastructure not being used correctly or being used inefficiently

Service delivery is slow and / or inefficient

Consumable resources are wasted. Mitigation measures include:

Ensuring that planning is integrated with all spheres of government, especially local utilities providers

Ensuring that planning is integrated across the organisation to at least include: o Human resources for operating and service delivery staff o Operating sections of the organisation to ensure that equipment, furniture and consumables

are provided, installed and commissioned o Maintenance units / sections / organisations include the new infrastructure in their planning

and budgeting

Financial resources are budgeted and provided timeously.

5.2.2 Programme Management Risks 5.2.2.1 Poorly Defined Benefits of Programme(s)

Should the benefits of the programme not be clearly defined and aligned with the organisation‘s strategic priorities, efforts to implement the programme may not be effective due to changing goals. This will be reflected in changing deliverables and targets. To mitigate this risk:

Ensure that strategic priorities are understood as well as the role infrastructure will play in achieving these priorities

Describe / define unambiguous targets and reporting milestones

Review the benefits of the programme regularly. 5.2.2.2 Poorly Resourced Programme Management Office

The Programme Management Office (PMO) is the primary source and co-ordination of programme information. The PMO should provide decision makers with relevant information so that management actions can be initiated timeously. Inaccurate and late information will delay decisions possibly causing delays in programme implementation resulting in wasted resources and poorer service delivery. Mitigation measures could include:

Clearly defined objectives for the PMO

Effective resource allocation and budgeting

Implementing a continuous improvement programme for the PMO. 5.2.2.3 Lack of Effective Management Action

Management action is the key element of Programme Management. Without this activity being executed effectively programme management will not achieve the results expected (improved benefits across all programmes). This may occur where delegations of authority to the correct decision making level has not



23

been done, there is lack of resources (experience, skills) or actions are directed by someone without access to PMO type resources. Mitigation of this risk could include:

Ensuring that decision making delegations are included in the PMO establishment and are reviewed regularly

Documenting decisions made including the reasons – for regular / routine decisions standardised reports should be developed

Monitoring the implementation and impact of decisions made

Monitoring the time taken to make decisions.

6. Infrastructure Estimating, Budgeting, and Prioritisation

6.1 Estimating and Budgeting In order to implement an Infrastructure Plan and its related Organisational Support Plan, resources will have to be made available to the responsible unit within an organisation. The resources will include:

Funds (financial resources) to plan and implement work based on the life cycle of each asset and projected additional assets required in the future

Human resources to do and manage this work

Systems directly related to assisting infrastructure asset management, e.g. an asset register management system, a GIS, etc.

Support services such as filing, communications, offices, transport, etc.

All these resources require financial resources at particular times in the planning and implementation cycle of infrastructure assets. These estimated financial projections are used to generate a long term estimate of the required cash flow for managing an organisation‘s infrastructure portfolio. The costs associated with the life cycle stages of infrastructure fall into two categories – capital costs and operating costs:

Capital costs include: o The acquisition cost of the infrastructure, inclusive of commissioning costs o If the infrastructure must be developed or constructed, capital costs might include the

design, construction, commissioning, start up and training costs o Periodic rehabilitation o Disposal

Current costs include: o Day to day maintenance to ensure that the infrastructure exceed their minimum required

service condition, including routine repairs, activities to ensure that health and safety obligations are met and supplier warranties are maintained

o Human resources to implement and/or manage the various infrastructure asset management work

o Cost of systems required to ensure that the systems are able to support asset management operations; they will include both operation and maintenance costs for the infrastructure, and departmental organisation and support costs.

Cost estimating for the long term infrastructure plan is conducted at high level. The costs for infrastructure work are related to the life cycle of each asset while the cost estimates for the organisational support work are based on the capacity required to manage this work effectively. The accuracy of estimates for work,



24

initially included in the long term infrastructure asset plan, improves as the plan is reviewed each year and as scheduled work is included in the MTEF period (requiring a pre-feasibility study). This increasing accuracy of estimates is based on ―progressive elaboration‖ of the scope of work. This concept is shown in Table 3 overleaf.


Delivery Management Guidelines: Portfolio Management 25

Table 3: Cost Estimating through the Project Life Cycle

Cost Estimating through the Project Life Definition of various Cost Estimates and associated Levels of Confidence Cost Estimate Name

Gateway Process Stage

Estimating Techniques and Characteristics

Basis of the Estimate Accuracy Contingencies Level of Confidence Scope of

Work Specifications

Conceptual

Infrastructure Planning

Prepared for strategic planning purposes, preferably 3 or more years before proposed implementation; Purpose is to identify long term financial requirements. Estimate done at project level; Based on limited data and a broad level of detail as described in the preliminary scope statement; Also known as Order-of-magnitude estimate. Estimate could be based on average cost of recent similar projects.

Project scope is a conceptual ―vision‖ based on previous projects; without any detail.

Limited technical information available; specifications undefined; possibly based on similar previous projects.

Variance of 100%

May exceed 100%.

Low

Pre-feasibility

Package Preparation

Based on a preliminary scope of work and pre-feasibility study. Should be carried out before project enters MTEF period; Purpose is to enable effective prioritisation; Estimate will be improved each year as project progresses through MTEF period Based on similar previous projects.

Project scope is based on conceptual design

Specifications may be 40% defined

Variance up to 60% in outer MTEF year

Range between 30% and 50%

Low, approaching moderate in inner MTEF year

Preliminary

Design package definition and Development

Done during the Preliminary Planning Phase and is based on site visits Estimate of each phase of the project

Project scope is defined but lacks detail.

Project specifications 60% to 70% defined.

Variance of 40% Range between 20% and 40%.

Moderate


Delivery Management Guidelines: DP1 - Portfolio Management 26

Cost Estimating through the Project Life Definition of various Cost Estimates and associated Levels of Confidence Cost Estimate Name

Gateway Process Stage

Estimating Techniques and Characteristics

Basis of the Estimate Accuracy Contingencies Level of Confidence Scope of

Work Specifications

Tender

Design development and Documentation

Done during the Detail Planning and Design Phase; Quantities extracted from detail design drawings; Rates from recently completed projects; Purpose is to serve as reference for the evaluation of bids. Calculation based on unit cost to serve as benchmark for Tender Evaluation.

Project scope defined, but changes (variations) may occur.

Project specifications 90% defined, but may be changed before or during construction.

Variance of 20% Range between 10% and 20%.

High

Definitive

Works Done at Tender Award and continuously during the Construction Phase in order to forecast the expected cost at completion. Based on the preferred bid price and a provisional amount for escalation. Professional Fees should be included to determine total project cost.

Committed to Project scope as in Tender Document; part of works completed; part of works contractually committed; reduced possibility for scope changes.

Project specifications completely defined and should not change.

Variance ranging from 20% to 0%

Range up to 20%.

Optimal

Final

Hand over and Close Out

Done after final completion and during the Retention/Liability defects Period in the Closing Phase; Included in the Close Out Report.

Project assessed and scope of work delivered verified.

Project assessed and compliance to specification verified

100% None; total cost reported.

Complete

Please refer to the CIDB‘s practise note 22 of 2010 for more details on the Gateway Process stages. Using these cost estimates an organisation will be able to construct a budget requirement statement.



An example of a long term budget for an infrastructure asset is shown in Figure 5. (Note this example illustrates the ―Asset View‖ of a works/project list.)

Figure 5: Estimate for new infrastructure

As shown in the example and in accordance with life cycle planning and norms and standards, amounts have been estimated for:

Rehabilitation after every five years;

Maintenance – day to day; and

Organisation and support required to manage the infrastructure development, rehabilitation and operation. The following example (see Figure 6: Infrastructure budget build up for an organisation) is based on an organisation having 3 assets in its portfolio that it is managing. In this example, infrastructure asset A replaces asset B when acquisition of asset A is complete, thus asset B is disposed of in year 5. Asset C is extended (additional capacity) in year 5. Note, in this case the extension is not included in the rehabilitation estimate in year 8, but is included in the rehabilitation estimate in year 13. The Infrastructure Planning and Programme Management functions (Portfolio Management), including both personnel and support systems (software, equipment and organisational support services) needs to be budgeted for separately. Where identifiable additional management costs are required for work to be carried out at an asset these costs should be added to the budget for that work.

Cost Category Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17

Infrastructue Asset A 9 000 23 600 42 000 27 400 3 060 3 060 3 060 3 060 3 060 7 140 3 060 3 060 3 060 3 060 7 140 3 060 3 060

Maintenance Current - - - - 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000

Rehabi l i tation Capita l - - - - - - - - - 4 000 - - - - 4 000 - -

Acquis i tion Capita l 8 500 23 100 41 500 26 900 - - - - - - - - - - - - -

Extens ion Capita l - - - - - - - - - - - - - - - - -

Upgrading Capita l - - - - - - - - - - - - - - - - -

Disposal Capita l - - - - - - - - - - - - - - - - -

Organisation & Support Current 500 500 500 500 60 60 60 60 60 140 60 60 60 60 140 60 60

Capital estimate for development of Infrastructure Asset A showing amounts required in each financial year

Capital estimate for rehabilitation after 5 years of use

Estimate for annual maintenance

Acquire/ Develop asset Use asset to deliver services



Figure 6: Infrastructure budget build up for an organisation










Infrastructue Asset B 1 835 1 835 1 835 1 835 1 020 0 0 0 0 0 0 0 0 0 0 0 0

Maintenance Current 1 800 1 800 1 800 1 800 - - - - - - - - - - - - -

Rehabi l i tation Capita l - - - - - - - - - - - - - - - - -

Acquis i tion Capita l - - - - - - - - - - - - - - - - -



Disposal Capita l - - - - 1 000 - - - - - - - - - - - -

Organisation & Support Current 35 35 35 35 20 - - - - - - - - - - - -

Infrastructue Asset C 820 820 2 450 820 2 560 8 920 11 380 2 850 1 230 1 230 1 230 1 230 3 260 1 230 1 230 1 230 1 230

Maintenance Current 800 800 800 800 800 800 800 1 200 1 200 1 200 1 200 1 200 1 200 1 200 1 200 1 200 1 200

Rehabi l i tation Capita l - - 1 600 - - - - 1 600 - - - 2 000 - - -


Extens ion Capita l - - - - 1 700 7 940 10 360 - - - - - - - - - -




Organisation & Support - Portfolio Management 450 450 450 450 450 450 450 450 450 450 450 450 450 450 450 450 450

Personnel Current 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250

Systems Current 200 200 200 200 200 200 200 200 200 200 200 200 200 200 200 200 200

Capital estimate for development of Infrastructure Asset A

In this example Asset B is maintained until Asset A is operational after which the organisation disposes of Asset B

Asset C is extended in year 5

Rehabilitation nowincludes the extension

Estimate for organisational Portfolio Management function. This is in addition to identifiable management / supervision of work at specific assets



The summary estimate for the Infrastructure Plan of this organisation is shown in Figure 7. (Note this example illustrates the ―Programme View‖ of a projects/works list)

Figure 7: Summary Infrastructure Budget


Total Infrastructure Estimate 12 105 26 705 46 735 30 505 7 090 12 430 14 890 6 360 4 740 8 820 4 740 4 740 6 770 4 740 8 820 4 740 4 740

Maintenance Current 2 600 2 600 2 600 2 600 3 800 3 800 3 800 4 200 4 200 4 200 4 200 4 200 4 200 4 200 4 200 4 200 4 200

Rehabi l i tation Capita l - - 1 600 - - - - 1 600 - 4 000 - - 2 000 - 4 000 - -

Acquis i tion Capita l 8 500 23 100 41 500 26 900 1 700 7 940 10 360 - - - - - - - - - -




Programme xx yy - - - - - - - - - - - - - - - - -

Programme xx yy - - - - - - - - - - - - - - - - -

etc. etc - - - - - - - - - - - - - - - - -

Organisation & Support Current 1 005 1 005 1 035 1 005 590 690 730 560 540 620 540 540 570 540 620 540 540

Infrastructure programmes managed by the organisation. Programmes match reporting requirements which are linked to goals and priorities



This process is repeated for all assets in an organisation‘s portfolio and is reviewed at least annually. Ideally the long term budget is updated as more accurate information becomes available (from completed work, new norms and standards, etc). As the MTEF cycle advances each year work schedules need to be adjusted to match the available budget. The prioritisation process determines which work is implemented in an MTEF period and which work is delayed into the future.

6.2 Prioritisation Prioritisation is necessary when the demand for infrastructure work exceeds financial and/or organisational resources to allow delivery of projects according to the desired or initially planned timeframes. Prioritisation in the infrastructure environment is an interactive process broadly described as follows:

6.2.1 Initial schedule of work and first budget The initial scheduling shown in the infrastructure plan is based on technical and organisational considerations and constraints as well as relative needs based on known strategic objectives contained in the organisation‘s Strategic Plan. Although initial scheduling applies to both work on the long term budget (typically outside the MTEF period) and work within the MTEF period, estimates for work within the MTEF period will have been subjected to a pre-feasibility study. This study ensures that estimates (scope, cost and schedule) are more accurate. An example of this is initial scheduling is shown in

Figure 8 below.

Figure 8: Portion of MTEF work schedule developed before budget allocation finalised

1

Year 0D J F M A M J J A S O N D J F M A M J J A S O N D J F M

Year 1 Year 2

Planned Multi-year Commitments

ImplementationDesign & Documentation

Implementation

Implementation

Design & Tender

Work scheduled before budget allocation finalised


The total value of the work in this year equals the Annual Budget for

this year



6.2.2 Second scheduling of work Once the outcome of the budgeting process and progress on current work is known (typically in the 3

rd

financial quarter of the financial year), it may be necessary to adjust the scheduling of work to match the available funds both in respect of infrastructure expenditure (capital and current) as well as organisational and support expenditure. Considerations during rescheduling of work could include:

Availability of organisational resources to operate the infrastructure asset

Availability of organisational resources to manage the infrastructure asset processes

Changed strategic priorities (in relevant sphere of government, sector, or community)

Availability of maintenance capacity and funding in the long term. An example of this rescheduling process is shown in Figure 9, below.

Figure 9: Portion of work schedule showing "best" match between available budget and an organisation's strategic priorities

The prioritisation process is therefore based on weighing up several factors to determine what work should proceed within a specific MTEF budget period. The following considerations must however be kept in mind:

Prioritisation does not ―cancel‖ work, but merely moves the whole or a part of the work forward or backward in time

The outcome of the prioritisation process must be adjusted so that the budget totals for the 3 years falling within the MTEF window equals the available funds for capital as well as organisation and support

Extreme care must be taken regarding the impact of prioritisation on the delivery programme. It is never good practice to stop, delay or decrease previously approved funding levels on ongoing projects, because this usually leads to increased costs and claims by contractors, which can be construed as fruitless or wasteful expenditure as well creating uncertainty in the industry

2


Year 1 Year 2


Design & Documentation

Implementation

Implementation

Design & Tender

Prioritised Work Scheduled

Some work is delayed to match the available budget according to priorities

The total value of the work in this year equals the Annual Budget for

this year



In order to be able to respond to changes in funding levels, it is a good idea to have a ―stockpile‖ of work that has been processed through concept and pre-feasibility phases. The cost of carrying out these studies is relatively low, thus reducing the risk of fruitless expenditure should this work not be implemented. This practice allows lead times to be reduced and the additional planning will also provide greater certainty in respect of budget requirements

Prioritisation practices should optimise the delivery of work to match the organisation‘s capacity to deliver, operate and maintain the planned infrastructure.

7. Alignment between the Infrastructure Planning and Budget Cycles: The ―Alignment Model‖

7.1 Background Infrastructure spending by government departments has in the past, and is still often characterised by poor expenditure patterns resulting in either under or over-expenditure in a financial year. Expenditure patterns are often characterised by very little spending in the first three financial quarters of the year and then a sudden flurry of expenditure in the 4

th quarter. This results in what has become known as the fourth quarter

expenditure spike. Associated with this trend is either under-spending which results in rollovers, or over-spending, which results in departments running out of money before the financial year has been completed or ―rushed‖ expenditure on goods and services that may not be in accordance with long term infrastructure management plans. In an effort to kerb this trend Cabinet, in 2007, approved a framework to align infrastructure delivery cycles with the MTEF budget cycle in order to improve planning, implementation and cash flow management that would, among other things, deal with the fourth quarter expenditure spike. This framework is commonly known as the ―Alignment Model‖ which is simply a diagrammatic representation of the infrastructure cycle juxtaposed against the budget cycle, showing the parallel processes and critical linkages between the two cycles. The Alignment Model is best viewed in MS PowerPoint where animation has been effectively used to build up and explain the various diagrams. Also included in the MS PowerPoint presentation are comprehensive notes which can be printed out which explain each slide in detail. The MS PowerPoint presentation of the Alignment Model is included in the IDMS and CD. A summarised version of the Alignment Model is provided hereunder.

7.2 MTEF Budget Cycle Government has adopted very comprehensive Strategic Planning and MTEF Budgeting Cycles which supports the implementation of financial management reforms underpinned by the PFMA and MFMA. A number of instruments, including strategic plans and budget statements have been introduced to facilitate effective use of multi-year budgets adopted by government in 1997/98. It is important to note that the budget cycle (shown in Figure 10) takes 3 years to complete, with Planning, Implementation and Close-out being the predominant phases undertaken in each year. Every year a new budget cycle is started resulting in budget cycles overlapping each other. Thus, in any one year, officials will be busy with activities relating to 3 different budget cycles each of which is in a different phase. Unfortunately there is still a strong element of incremental budgeting where organisational budgets are prepared on the basis of historical budget information based on previous MTEF Budget Cycles. As a result the budgets for infrastructure are often not properly informed by estimates for infrastructure work that is ready to be implemented. This may result in organisations either ending up with too much money which they are not able to spend effectively or not having enough money to complete all of the scheduled work for a particular year.



Figure 10 : MTEF Budget Cycle

7.3 The Previous Infrastructure Delivery Cycle In trying to understand the causes of the problems relating to under spending of budgets it became evident that the timeframes of the Infrastructure Delivery Cycle was one of the root causes. This was due to the lack of a long term infrastructure plan being in place resulting in projects being identified in an unstructured way and often being identified too late for the year in which expenditure on these projects was expected to take place. As a result insufficient time was being allotted for due process to take place before these projects could reach the implementation phase. The outcome was that projects that were intended to contribute toward the spending in a particular year were being delayed resulting in an overall under-expenditure for the year. It became evident that the problems associated with poor planning and under spending could not be resolved unless the due process required for infrastructure work was properly aligned with the timeframes for MTEF planning and budgeting. The delivery of infrastructure work requires a due process which incorporates key stages including work identification, programme management planning, design and procurement before the work reaches construction / implementation stage. The initial stages required result in very little expenditure against the budget and it is only once the work reaches the construction/implementation phase that the bulk of the money is spent. It was found that the infrastructure delivery cycle was running in parallel with the budgeting cycle and therefore work which was expected to contribute towards the expenditure in a particular year was only being identified in the year prior to the anticipated construction/implementation. This was problematic for the following two reasons:

9

A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J

Year 4Year 0 Year 1 Year 2 Year 3

3 Year MTEF Period

Bu

dg

et D

ay

MTEF Budget Cycle

Preparation of Annual

Performance Plan (APP)

Budget Preparation

Process

Closure

Processes

Quarterly Reporting

Implement Budget



Budget Preparation

Process

Closure

Processes

Quarterly Reporting

Implement Budget



Budget Preparation

Process

Closure

Processes

Quarterly Reporting

Implement Budget



Budget Preparation

Process

Quarterly

Reporting

Implement

Budget

In the past there has been a

tendency for annual budgets to be

prepared by updating the previous

year’s budget with a factor for

inflation.

The annual budgets submitted to

treasury did not appear to be

informed by actual projects to be

implemented in the following year.

Year 1 Budget Year 2 Budget Year 3 Budget

These are all the concurrent

budget activities that need to

be undertaken in any 1 year



Firstly, work was being identified at the same time as the infrastructure budgets were being prepared and therefore the infrastructure budgets could not be informed by the actual properly estimated infrastructure work

Secondly, due to the nature and complexity of the Infrastructure Delivery Cycle as well as the number of different role-players involved, the planning, design and tendering phases of the cycle normally takes in excess of the one year which was being allotted to these processes. This meant that these processes would ―spill over‖ into the year allocated for construction/implementation resulting in there being less than one year remaining for the construction/implementation of the projects. This invariably led to the infrastructure work not being completed resulting in unspent budgets being rolled-over into the next year. This was very often exacerbated by the lack of clarity between client (user) departments and their implementing agents (often public works departments) of what precisely should have been delivered, where and when, by whom, and at what cost.

This situation is shown in Figure 11, below.

Figure 11 : The Previous Infrastructure Delivery Cycle Juxtaposed against the MTEF Budget Cycle

7.4 Improvements to the Infrastructure Delivery Cycle In order to improve planning and efficiency in the delivery of infrastructure, the Alignment Model was developed which called for the amendment of the timeframes of the Infrastructure Delivery Cycle to include appropriate due processes in the cycle as well as to create the critical linkages that are necessary between the Infrastructure Delivery Cycle and the MTEF Budget Cycle. The details of the project delivery cycle are described in DP2 – Project Management. This section seeks to show the indicative time frames of the cycle as well as the linkages with the Budget Cycle.

11


Year 4 Year 0 Year 1 Year 2 Year 3

Infr. Plan

update

Project

Design

Project

Tender

Project

Implementation

Rolled Over

Unspent Budget

3 Year MTEF Period

Previous Infrastructure Delivery Cycle

Better supervision of infrastructure projects undertaken by government will be introduced, to ensure that capital budgets are spent without roll-overs - President

Thabo Mbeki - State of the Nation Address 2006

100%

Rollover

Bu

dg

et

Time

Cumulative Cashflow

With the Previous Infrastructure Delivery Cycle,

expenditure during the 1st half of the year is virtually impossible since most projects are still in the tender phase. The result is the 4th quarter expenditure spike

and overall under-expenditure.

The Previous Infrastructure Delivery Cycle

Budget Preparation

Process

Closure

ProcessesImplement Budget

Handover of project list from Client

Department to Implementing Agent

typically happened in September.



Figure 12, below shows the improved Infrastructure Delivery Cycle.

Figure 12 : Improved Infrastructure Delivery Cycle

It is clear that often the Infrastructure Delivery Cycle is a longer cycle (approximately 4 years) than the MTEF Budget Cycle (3 years) due to the substantial lead time required for infrastructure planning and programme management planning as well as for detailed project/works design and project/works procurement. The implication of this longer timeframe is that the latest an infrastructure project/work can be identified and included in the prioritised list of infrastructure projects/works to be implemented in a particular year is at least 2 years prior to the start of implementation for the project/works.

14



Infr. Plan

update

Project

Design

Project

Tender

Project

Implementation

Project

Design

Project Procurement

Project Works Planned Multi-year

Project Works

Infr. Plan

update

Project

Design

Project

Tender

Project

Implementation

Rolled Over

Unspent Budget

Rolled Over

Unspent Budget

Infr. Plan

update

Project

Design

Project

Tender

Project

Implementation

Rolled Over

Unspent Budget

3 Year MTEF

Period


Improved Infrastructure Delivery Cycle

LEGEND: O&S Plan – Organisation & Support Plan

IPMP – Infrastructure Programme Management PlanIPIP – Infrastructure Programme Implementation Plan

Monitoring & Reporting

U-AMP

update

O&S

Plan

IPMP

O&S Plan

IPIP

O&S Plan

Improvements to the

Infrastructure Delivery Cycle

C-AMP

update

O&S

Plan

Proc

StrategyProject

Planning

Project

Close-Out

In the past each

Infrastructure Delivery

Cycle has been

characterized by under-

expenditure and rolled

over unspent budgets.

Important note on construction procurement: It is important to note that whilst (Construction) Procurement is shown as occurring before Design in the following diagram this may not always be the case. The exact timeframe and duration for Procurement will depend on the particular Construction Procurement Strategy that has been selected for the packages in question. Refer to the particular section in the Toolkit that deals with selecting developing and managing the Construction Procurement Strategy.



7.5 Alignment of the Infrastructure Delivery Cycle with the MTEF Budget Cycle

The longer timeframe for the Infrastructure Delivery Cycle also means that the start of the infrastructure planning process leads the start of the budget planning process by at least one year. Allowing for this lead time will add immense value to the budget planning process because projects identified and prioritised during infrastructure planning can now also become an input into the budget planning process which will be strengthened with the inclusion of actual project/works estimates. This clearly indicates a dependence of the MTEF Budget Cycle on the Infrastructure Delivery Cycle. Figure 13 shows the alignment of the two cycles.

Figure 13 : Alignment of the Infrastructure Delivery Cycle with the MTEF Budget Cycle

7.6 Concurrent Infrastructure Delivery Activities Similar to the Budget Cycle shown earlier, the Infrastructure Delivery Cycle is also a multi-year cycle with a new cycle that starts each year. This means that the cycles overlap each other and in any one year officials will be busy with activities relating to a number of different infrastructure delivery cycles, each of which is in a different phase. Figure 14 attempts to show this complexity, although in reality the picture is far more complex as there are a multitude of individual projects and works, each with their own start and finish dates in each of the different cycles.

19


Year 2Year -2 Year -1 Year 0 Year 1

Budget Preparation

Process

Closure

ProcessesImplement Budget

MTEF Budget Cycle

The improved Infrastructure

Delivery Cycle now facilitates the

alignment of the Infrastructure

Delivery Cycle with the Budget

Cycle.

The budget preparation process

can now be strengthened by

actual projects identified during

Infrastructure Planning.

Alignment of the Infrastructure Delivery Cycle

& the Budget Cycle

Project

Design

Project

Tender

Project

Implementation

Rolled Over

Unspent Budget


Infrastructure

Planning

Previously Infrastructure Planning

was undertaken too late to facilitate

effective alignment of the

Infrastructure Delivery Cycle with

the Budget Cycle.

Project

Design

Project Procurement


Project WorksMonitoring & Reporting

U-AMP

update

O&S

Plan

IPMP

O&S Plan

IPIP

O&S Plan

C-AMP

update

O&S

Plan

Proc

StrategyProject

Planning




Figure 14 : Concurrent Infrastructure Delivery Activities in any one year

7.7 Managing Cash Flows across Years It is important to note that the sum of the values of all the activities planned for a particular year must equal the budget allocation for the year in question. Individual projects/works or clusters of projects/works realistically have different durations as well as different start and end dates. Projects/works are also prone to being delayed or new priorities may be identified resulting in projects/works which were to be undertaken in later years having to be brought forward and started in the current year. Any unplanned movement in project/work start or end dates has an impact on the expenditure patterns versus the planned cash flows for the current year. In this example (Figure 15), three projects are delayed for reasons beyond the control of the programme manager (e.g. site conditions, labour unrest, weather conditions, etc). These delays would typically lead to potential under-expenditure in the year in question. In order to avoid this scenario the programme manager should explore ways to expedite expenditure on other projects to offset this potential under expenditure.

17



3 Year MTEF Period


LEGEND: O&S Plan – Organisation & Support Plan

IPMP – Infrastructure Programme Management PlanIPIP – Infrastructure Programme Implementation Plan

These are all the concurrent

infrastructure delivery activities that need to be undertaken in any 1 year

Infrastructure

Delivery Cycle

Project

Design

Project Procurement



U-AMP

update

O&S

Plan

IPMP

O&S Plan

IPIP

O&S Plan

C-AMP

update

O&S

Plan

Proc

StrategyProject

Planning

Project

Design

Project Procurement



U-AMP

update

O&S

Plan

IPMP

O&S Plan

IPIP

O&S Plan

C-AMP

update

O&S

Plan

Proc

StrategyProject

Planning

Project

Design

Project Procurement

Project Works


U-AMP

update

O&S

Plan

IPMP

O&S Plan

IPIP

O&S Plan

C-AMP

update

O&S

Plan

Proc

StrategyProject

Planning

Project Procurement


U-AMP

update

O&S

Plan

IPMP

O&S Plan

IPIP

O&S Plan

C-AMP

update

O&S

Plan

Proc

StrategyProject

Planning



Figure 15: Managing Cash Flows across Years (potential under expenditure)

In Figure 16, it can be seen that some designs for projects that were originally planned to be implemented in the following year have already been completed and therefore tendering of these projects could be brought forward to enable these projects to start earlier, thereby offsetting the potential under-expenditure caused by the delayed projects. Also some projects/work may have been scheduled (according to the construction procurement strategy) to be executed using framework contracts which are already in place. These works/projects can be implemented earlier as long as their early implementation compliments other activities that the department has planned for service delivery.

22


Year 1 Year 2

Infr. Plan update IPMP IPIP

IPIP


Project ImplementationProject Design & Tender

Project Implementation

Implemen-

tation

Tender Planned Multi-year Commitments

There are already some projects

that have been designed and are

ready to go to tender

Some projects or clusters of projects

in the current year can be delayed

causing potential under expenditure

NB: The total value of the work in this year

equals the Annual Budget for this year

Managing Cashflows Across Years

For this to occur it is critical that the User Department has a proper Programme Management System in place as well as an Early Warning System to inform the Programme Manager i.e. an effective Programme Management Office (PMO) as described in Section C.



Figure 16 : Managing Cash Flows across Years (proactive solution)

7.8 Note on the Timeframes shown in the Alignment Model The overall objective of the Alignment Model is to ensure that projects are identified early enough to allow sufficient time for due process to take place to effectively implement the infrastructure delivery cycle and to ensure that organisation budgets are informed by actual projects/works estimates. In this model certain indicative timeframes have been indicated or implied by the length of bars representing the various processes as well as the start and end dates of the bars. Whilst some of these timeframes may be accurate it is not the intention of the Alignment Model to suggest or impose these timeframes on any project. The Model is an attempt at instilling good practice for infrastructure delivery but it must also be acknowledged that many projects/works could have shorter or longer timeframes than those shown for the various processes and individual projects/works will also have unique start and end dates which may or may not coincide with other project start and end dates. It is also acknowledged that in some unique cases it is impossible for a project/work to be identified as far in advance of its construction/implementation date as proposed in the Alignment Model (e.g. disaster relief projects). For such instances specific processes should be devised, documented and implemented by the organisation.

23


Year 1 Year 2

Infr. Plan update IPMP IPIP

IPIP


Project ImplementationProject Design & Tender

Project Implementation Planned Multi-year Commitments

These projects need to be tendered earlier

and start implementation in Year 1. This

will offset the potential under expenditure

caused by the delayed projects

Implemen-

tation

Tender

Managing Cashflows Across Years



8. Components of Infrastructure Portfolio Management Portfolio Management is a continuous management function that produces plans and reports at scheduled times in the cycle of reporting in a financial year. In order to produce these and other plans and reports portfolio management activities need to be implemented. These activities are shown in the following figure. In order to provide effective portfolio management, users and custodian should work closely together. This working arrangement is summarised in their Service Delivery Agreement (SDA). The SDA should be reviewed annually and be based on the Guidelines for Managing Joint Programmes (2007). Figure 17 illustrates the Portfolio Management processes.

Figure 17: Portfolio Management Processes

Figure 18 consists of six diagrams illustrating the processes in more detail. Infrastructure Planning is discussed in Section B and Programme Management is discussed in Section C.

DP1.1:

Infrastructure

Planning

DP1.2:

Programme

Management

IPMP ( including Construction Procurement

Strategy ( G2))

DP2: Project

Implementation

• Asset Register

• Service delivery mandates

• DP2 feedback

• DP 3 feedback

• Performance Management

DP3: Operations

& Maintenance

• Infrastructure Strategy

• Long term Asset Priorities

• Legislation & Policies

C-AMP G1(b)

Infrastructure asset management capacity:

• Organisation

• Custodian

• Industry

U-AMP G1(a)



Figure 18: DP1 Portfolio Management Processes



9. Life Cycle Costing Analysis

9.1 Introduction Costing is an important aspect through-out the life cycle of any asset and takes on different shapes, each fulfilling the costing needs depending on the life-cycle phase of the asset. In general, life-cycle costing is the most important aspect of the decision-making process to decide during the initial stages of a project whether to proceed with the acquisition of a specific asset or whether to abort. Life-cycle costing is the activity whereby all costs during the life-cycle of a product (asset) is taken into consideration during the initial stages of a project in order to make informed decisions and includes costs estimates of capital expenditure e.g. initial acquisition cost and future upgrades, refurbishments and renovations as well as operations and maintenance costs.

9.2 Life cycle costing process Figure 19 depicts a simplistic five-step process how to conduct a life-cycle costing analysis and to select a final viable option from alternatives. Figure 19: Process for conducting a life cycle costing analysis

9.2.1 Sub-process 1: Define life-cycle analysis terms of reference The purpose of this sub-process is to establish the terms of reference against which the life cycle costing analysis will be done and includes the following steps:

Establish the problem statement and the objectives why the project is undertaken to address the problem

Establish assumptions and parameters against which the broader life-cycle cost analysis will be done including specific economic and financial input e.g. discount rates, inflation rates, market rental rates

Establish any exclusion or assumptions or parameters not to be used during the analysis

Establish a plan to deliver the complete life-cycle costing analysis and decision-making.

Define project objectives and life

cycle analysis assumptions &

parameters Establish alternative

technical and operational

solutions each over life cycle

Costing of life cycle costing

elements for each alternative

Review alternative solutions analyses

outcomes and select viable

option

Conduct life cycle cost and sensitivity analyses including

NPV/IRR

1 2

3

5

Life cycle analysis terms of reference

Alternative project solutions

Set of viable life cycle solutions and costs

Proposed selected solution

Trigger: Project identification

4

Costing of life cycle elements

Selected viable option



It is important to capture all information that will impact the analysis in order to align the analysis with objectives with the primary aim to establish a viable solution to the problem. Economic and financial guidelines to be used in the analyses should also be set in order to ensure synergy amongst analysts conducting these analyses so that different projects and viable solutions could be compared on the same basis during a specific time of an economic cycle. This sub-process starts when a notification is issued that a project has been initiated and that project concepts have been established. It ends with the issuance of a Terms of Reference against which the analyses could be conducted and the end-result measured. It is important to note that the responsible person for leading and conducting the life-cycle costing analyses should also establish a plan for conducting the life-cycle costing analysis and to implement and follow the plan.

9.2.2 Sub-process 2: Establish alternative technical and operational solutions The purpose of this sub-process is to build a set of alternative solutions stating the technological concepts to be used in the acquisition stage as well as operational concepts during the Operations & Maintenance stage and to identify all life-cycle phases for the alternative and includes the following steps:

Analyse the Terms of reference document

Analyse the projects concepts

Establish various alternative life-cycle solutions

Align each alternative solution against ToR. This higher-level structuring of alternative solutions is required prior to conducting the analyses with the aim to use this information for broader consultation in order to prevent unnecessary detailed calculations for acquisition and operational concepts that are not really acceptable to the stakeholders. This sub-process starts with the issuance of a Terms of Reference and ends with the acceptance of the alternative solutions.

9.2.3 Sub-process 3: Costing of life-cycle costing elements for each alternative The purpose of this sub-process is to gather costing information and to cost each life-cycle costing element in constant money terms and for each technological and operational possibility and includes the following steps:

Identify all life-cycle costing elements for each alternative

Establish cash flow estimates of all costs for each specific life-cycle costing element

Establish upper and lower limits of all typical costs within each costing element

Consolidate all monthly costs into an annual costing schedule for each costing element and sub-elements (in constant money terms).

It is important to note that the initial costing should be done in constant money terms (e.g. Constant 2010 money terms – usually the time value of the year in which the analysis will be done), should not be escalated at this stage due to inflation and should be indicated as such in all documentation (i.e. to always differentiate between the two money terms, namely constant (analogous to real) or current (analogous to nominal). This sub-process starts with the issuance of alternative solutions and ends when the majority of costs (all in constant money terms) have been allocated to all alternative life-cycle costing elements

9.2.4 Sub-process 4: Conduct life-cycle costing and sensitivity analyses



The purpose of this sub-process is to take the available alternative solutions and costs of all life-cycle costing elements and to conduct a variety of life-cycle costing and sensitivity analyses with the aim to be able to select the most viable single solution and includes the following steps:

Identify and determine all possible revenue streams (e.g. lease of office space) and annualised revenue in constant money terms and

Apply applicable inflation/escalation rates for each type of costing element and revenue stream and convert constant annual cash flows to current (nominal) annual cash flows

Establish upper and lower limits for costs, rates and quantities for sensitivity analyses

Conduct NPV and/or IRR calculations and sensitivity analyses

Summarise and compile results ready for review and decision-making. This is the heart of the life-cycle costing process and aims to build decision-making support for decision-makers to select the most viable solution to their problem. These analyses are combinations of financial and economic understanding of the environment as well as technical and operational concepts applicable to the alternative solutions for the project. There is, however, one important difference to the previous sub-process, namely that it is preferred to conduct the analyses in current (nominal) terms, which means that all allocated costs (and revenue) should be escalated or de-escalated with specific inflation rates and not only e.g. the CPI. An example here would be that the inflation rate for capital expenditure on construction could be very different to the inflation of labour cost for cleaning during the operations phase. This sub-process starts with the issuance of the data on all costs for each costing element of the life cycle and ends when the results of the life-cycle costing and sensitivity analyses for each alternative solution have been issued.

9.2.5 Sub-process 5: Review alternative solutions and select most viable option The purpose of this sub-process is to engage stakeholders in the decision-making process to review the results of the analyses and to reach consensus on the selection of the most viable option and includes the following steps:

Conduct a review meeting of all feasible life-cycle alternatives

Select the most viable alternative solution. This sub-process starts with the issuance of the results of the alternative solutions analyses and ends with the selection of the most viable solution.

9.3 The asset life-cycle Figure 20 illustrates the key concepts of an asset life cycle:

The asset is obtained at an initial acquisition cost. Ordinary use of the asset leads to wear and tear, requiring preventative maintenance to ensure that the asset remains above its minimum required performance level

After an initial period preventative maintenance is no longer able to ensure the minimum level of performance and the asset requires renovation/rehabilitation. The renovation restores the assets to its original condition. Preventative maintenance now continues

During the asset‘s life it may be upgraded or extended, increasing the value of the asset

The asset could be renovated/rehabilitated a number of times. However (typically at the end of the asset‘s planned life), systems supporting the asset can be expected to fail. The asset now requires major rehabilitation/refurbishment which may involve a major overhaul of systems and/or replacement of these systems or components of systems



Once the refurbishment has been completed a new economic life cycle begins.

Figure 20: Asset life cycle

9.4 Elements of life-cycle costing There is no fixed breakdown for elements of life-cycle costing and it is recommended that the user of this document understands the broader concepts of life-cycle costing analysis and how elements of costing are being derived at and then creates a purpose-made breakdown of costing elements suitable for the specific analysis. Please note that some elements of life cycle costing are also contained in module DP3: Operations and Maintenance (O&M), however the discussion in DP3 is more around the O&M as opposed to a more comprehensive discussion in this module, due to the nature of Portfolio Management. There are two ways in determining the costing elements, namely

By identifying the costing elements in a sequential manner, whether of capital or operational nature, or by

Identifying and sorting the costing elements under acquisition cost elements or sustaining cost elements.



9.4.1 Sequential costing elements The primary sequential elements of a life cycle:

All initial costs due to consulting, feasibility analyses, field tests, planning etc

Acquisition of land, establishment of servitudes, etc

Acquisition of the physical asset including project management, specification, design, construction, installation, commissioning

Operations including staffing, facilities management, maintenance of buildings and infrastructure, utilities etc.

Any change of capital nature, namely upgrades, refurbishment or renovation

Disposal including demobilisation, demolition of the asset and re-instatement of the land if required.

9.4.2 Costing elements under acquisition or sustaining elements Below is an example (Barringer, 2003 – slightly modified) of a costing element breakdown in acquisition and sustaining elements:

Acquisition o Research and development cost

Programme/project management Technology/systems research and development Design/Engineering design Equipment development and testing Engineering data

o Non-recurring investment costs Spare parts and logistics Manufacturing and operations and maintenance Initial training Technical data

o Recurring investment costs Upgrade parts Support equipment upgrades System integration of improvements Utility improvement costs Green & clean costs

Sustaining costs o Scheduled and unscheduled maintenance costs

Labour, materials and overhead Replacement and renewal costs Replacement and renewal transportation costs System/equipment modification costs Engineering documentation costs

o Facility usage costs Energy costs and facility usage costs Support and supply maintenance costs Operations costs Ongoing training for maintenance and operations Technical data management costs

o Disposal costs Permits and legal costs allowing disposition Working/disposal costs Remediation costs Write off/asset recovery costs Green and clean costs.



(Source: A Life Cycle Cost Summary, International Conference of Maintenance Societies (ICOMS – 2003), Barringer, H.P., Maintenance Engineering Society of Australia) It is not the intention that the above breakdown is used in exactly the same way in all applications but that the user apply a similar approach when identifying life cycle costing elements if not using the sequential life cycle costing elements approach.

9.5 Further detail on sequential life cycle costing elements This paragraph provides further detail on costing elements and serves as a checklist of absolute minimum requirements on what should be included in the list of life-cycle costing elements.

9.5.1 Initial Costing of Capital investments The major components of costing of assets (excluding personnel costs) during initial capital investments are:

Consulting costs

Acquisition of land

Acquisition of physical assets

Fit-out of facilities. Consulting costs These costs (whether separately contracted or part of a turnkey project) include general consulting fees, planning activities, field tests and reports, and project management costs. Acquisition of land These costs include the purchase cost, legal costs, transfer costs, the cost of registering servitudes, etc. Acquisition of physical assets These costs include construction costs, procurement of client furnished long lead items, equipment, spares, initial training where applicable, installation, testing, commissioning etc. Fit-out of facilities These costs include fit-out of offices, furniture, laboratory equipment, machines, office equipment and other assets of capital nature.

9.5.2 Costing of Asset Management: Operations The major components of costing of assets (excluding personnel costs) during operations, namely:

Utility costs, rates and taxes

Facilities Management: Soft services (assumed to be outsourced)

Facilities Management: Hard Services and engineering infrastructure maintenance costs (assumed to be outsourced).

Utility costs, rates and taxes These costs need to be estimated taking the existing bills, assets, staffing and services into consideration when estimating the cost for future years and annually inflated with a realistic inflation rate.



Facilities Management: Soft Services As most of the facilities management services will be outsourced through contracts with duration of approximately two years, cost estimates should be based on the existing contracts and should reflect values as indicated in the contract. As contracts do not all start at the beginning of a financial year, estimates for monthly costs should be increased with a realistic inflation rate starting at the next month after the expiry of a current contract. It means that cost estimates for Facilities management should be done per month to capture the above impact of staggered contracts and then add the monthly costs to obtain an annual cost of a specific service. Contracts for Soft Services should include manpower, equipment/tools and consumables, which means that the Asset Management team should always control the number of people actually performing the services compared to what was stated in the contract. Hard Services and maintenance The costing of maintenance over the remaining life of an asset should take into account the recurrent type of maintenance such as preventative and breakdown repairs but excluding major upgrades, refurbishments and upgrades. Costs involving contracts to manage recurring types of maintenance and repairs usually include:

Manpower

Inspection of systems and infrastructure

Spares and repairs of breakdowns up to a specified value

Preventative maintenance.

It should be noted that maintenance service providers in general do not include repairs of breakdowns that will be done by vendors or where the cost of spares exceeds a certain value. These costs will then not be covered through the contract but will be billed to the client. If the client insists on a 100% type of maintenance and repair contract, the cost will be very high as all risks will be carried over to the service provider. It is therefore necessary to cost these special repairs above the normal limit allowed for in contracts. As contracts do not all start at the beginning of a financial year, estimates for monthly costs should be increased with a realistic inflation rate starting at the next month after the expiry of a current contract. It means that costs estimates for maintenance should be done per month to capture the above impact of staggered contracts and then add the monthly costs to obtain an annual cost of a specific maintenance service.

9.5.3 Costing of major upgrades, refurbishments and renovations The remaining life-cycle costing should reflect all major upgrades, refurbishments and renovations. This could be based on the original decision and plan prepared during the initial stages of the life cycle or could be based on the latest analyses of monthly and annual data on maintenance expenditure and asset performance. Costing of these types of projects should include at least the following:

Alternative accommodation e.g. office space (if not infrastructure)

Alternative methods of utilities e.g. water, power, sewage (if infrastructure related)

Project costs

Demobilisation and mobilisation.



9.5.4 Costing of disposal of assets These costs include all costs related to the disposal of an asset, for example commission payable to agents, legal costs, demolition cost, rubble removal, re-useable asset recovery costs, remedial costs, etc.

9.6 Time-value of money Care should be taken not to mix the value of money while conducting a costing exercise. There are two time values of money to be used namely:

Constant terms at the value of a specific year (also related to real terms)

Current values (also related to nominal terms).

Budgets depicted in Government reports such as the Medium Term Expenditure Framework are all presented in current (or nominal) terms, often referred to as ‖what you see is what you get‖. It is also important to note that the percentage growth in budget could be far less than the inflation rates related to construction and maintenance, which means that cost estimators must present the costing in current (nominal) terms in order to compare the annual cost estimates with the annual budget and at the same time-value of money.

9.7 Life-cycle analysis concepts Below are a few life-cycle analysis concepts that should be taken into consideration when conducting a life cycle costing analysis:

Do not mix different time-value of cost i.e. constant (real) vs. current (nominal)

Always compare alternatives in current (nominal) terms – the reason is for example the difference in the growth rate of a budget and the inflation rate of construction

Determine the level of detail of a life cycle costing analysis by taking the value of the project and duration into consideration

If no revenue will be collected from an asset, conduct Net Present Value (NPV) analyses and select an alternative solution with the minimum NPV

The Discount Rate for conducting an NPV analysis is not the inflation rate per say. Usually the Discount rate is the cost of capital, which is a weighted mix of the borrowing rate, bond rates, and for the private sector percentage dividend allocation, etc

Government is not profit-driven but there could be instances where the user will have to be billed for example office space, which could mean a ―revenue stream‖ to be considered during the life-cycle costing analysis. In this case an Internal Rate of Return (IRR) analysis could be conducted by aiming for a nearby 0% IRR, indicating a break-even point over the life of the asset. Care should, however, be taken not to establish rates for rental income that are far above market related rates just to achieve the required IRR.

The following requirements should be taken into consideration in determining the objectives for a life-cycle costing analysis

o How to meet the requirements of a project manager trying to deliver the project at specification, in time but at a minimum cost?

o How to minimise long-term maintenance cost on the one hand but not to spend too much on reliability?

o How to prevent high maintenance or spare replacement cost due to unexpected failures of critical elements that could cause damage to the functionality of the asset?

o How to minimise the annual expenditure over the life cycle of an asset? o How to ensure functional performance at all times without experiencing unnecessarily high

expenditure?



Section B: Infrastructure Planning

10. Introduction Components of Infrastructure Portfolio Management outlined the two main sub-processes in Portfolio Management, namely Infrastructure Planning and Programme Management. Section B describes Infrastructure Planning in more detail. Infrastructure planning is the process where an organisation considers its service delivery mandate and determines the infrastructure assets it requires to provide the environment within which to deliver these mandated services. During this process organisations will also determine any non-asset solutions that it may develop to assist in providing the environment for service delivery. Collaboration between the User and Custodian ensures that the User's service delivery objectives are supported by good asset management practices (See the overview module section on Managing Joint Programmes). Infrastructure asset requirements and management are based on the Portfolio Strategy and life cycle asset management plans. The key outputs of the Infrastructure Planning process are the User Asset Management Plan (U-AMP) and the Custodian Asset Management Plan (C-AMP). These plans, prepared by the User and Custodian organisations respectively, are used to manage the infrastructure asset environment used to deliver services. A long term list of work with estimated costs, durations and scheduling, both asset and non-asset related is developed and focussed on supporting the organisation‘s service delivery strategies. In the current legislative and financial environment, users are responsible for financing and managing most of the work on the infrastructure assets it uses to deliver its mandated services. However, the infrastructure assets often fall under the custodianship of one or more custodian organisations. These custodian organisations are often also the custodians for infrastructure assets used by a number of other organisations. Thus a User‘s asset portfolio consists of all the infrastructure assets it uses (with custodianship resting with at least one, but possibly more than one custodian organisation), while the Custodian‘s asset portfolio may consist of infrastructure assets used by one or a number of User organisations. As discussed previously, best results are obtained when the Custodian and User collaborate in the production of the U-AMP and C-AMP. However, the responsibility for producing the U-AMP lies with the User organisation and the responsibility for producing the C-AMP rests with the custodian organisation. In the gateway system approval of the U-AMP is considered to be gate G1(a) and approval of the C-AMP is considered to be gate G1(b). These two plans are discussed separately but are closely linked.

11. User Asset Management Plan (U-AMP) User organisations are accountable for preparing and submitting a U-AMP for the infrastructure asset it uses to deliver its mandated services. Figure 21: Components of the U-AMP, below outlines the delivery processes required to produce the U-AMP.



Figure 21: Components of the U-AMP

Infrastructure strategy

Service delivery priorities

Norms & Standards Works List

Demographic analysis

Local Government IDP's

Reviewed & revised infrastructure categorisation

Previous works lists

Feasibility studies (existing)

Authorised infrastructure and non-infrastructure works lists

Implementation reports

O&M reports & recommendations

Improvements to step

Infrastructure Register reports

Utilisation

Performance Revised works list

Condition Updated portfolio profile

Life cycle requirements

Remaining economic life of infrastructure


Category conditions & constraints

Purpose of each infrastructure category


Life cycle cost estimates

Statutory infrastructure requirements

Alternative solutions Non-infrastructure works list

Possible solutions Additional goals

Impacts of infrastructure work

Portfolio profile requirements

Pre-feasibility studies Pre-feasibility studies


Schedule of infrastructure requirements Organisational Support Plan

Alignment with infrastructure management requirements

Training, mentoring, coaching schedule & assignments

Analysis of support requirements Systems improvement schedule

SDA

Funding sources

Estimated availability of funds Funding requirements

Budget reporting requirements Long term budget

Feasibility studies (new)

MTEF Budget allocation

Finalised annual budget

Prioritisation criteria & conditions

Revised infrastructure works list

Non infrastructure works list

Additional goals of infrastructure categories

Improvement priorities Plan improvement goals

Previous Improvement plans Scheduled improvement actions

Improvement reporting formats

AMP performance indicators

G1a: U-AMP

Determine & Review

infrastructure Needs

Review Existing

infrastructures

Determine / Develop

infrastructure & non-

infrastructure

solution options

(Including pre-

feasibility studies)

Conduct Gap Analysis

Gap described by category, quantity,

location, type & schedule

Reviewed & revised infrastructure

category list

Works lists described by category, location, type, estimated

cost & schedule

DP3: Operations &

Maintenance

Approval of U-AMP

Existing organisational capacity (systems, skills,

procedures)

Develop

Organisational

Support Plan

Budget analysis

Review and Identify

U-AMP

improvements

Prioritisation &

Selection (Including

feasibility studies)

Prioritised MTEF works list

Feasibility studies

Rescheduled long term works list

New/reviewed Infrastructure

Programmes and Categories

Develop C-AMP

DP1.2: Develop/

Review IPMP

Revised infrastructure works list



11.1 Determine New / Review Infrastructure Needs (Demand) This sub-step requires the User department to identify its infrastructure needs. These requirements will be based on, amongst others:

The user‘s service mandate which has been translated into infrastructure norms and standards

Strategic objectives and policy mandates from the strategy development process

Assessment reports received from the custodian as well as from the user‘s own operations managers (usually based on asset register reports and life cycle plans associated with each asset).

These needs will be categorised into the following time frames:

Long term – covering capital projects (new building, upgrade and scheduled refurbishment) and projections for funding of the life cycle costs of operating / using existing infrastructure

Medium term – covering updated projections of works and budget required in the medium term, typically based on condition assessments, rehabilitation, life cycle commitments initiated in the current MTEF period. This list is further prioritised to take account of the updated budget allocation the organisation makes available for infrastructure asset work and management

Short term – covering approved work and committed budgets to be carried out in the current or following financial year.

The outputs from this process will be:

Revised portfolio lists of collated and categorised infrastructure needs

Supporting documentation

Revised infrastructure categories and programmes.

The revised portfolio lists are typically presented in two views – a programme view and an asset view. These two views report on the same work over the same time frames, but are sorted into different reporting categories (in Excel these two views could be generated by using the ―pivot table‖ function). The programme view is best suited to reporting on strategic priorities while the asset view is best suited to illustrating life cycle planning and improvements/upgrading planned for each asset. These two views were illustrated in Figure 6 (Asset View) and Figure 7 (Programme View) previously. Figure 6 is reproduced for ease of reference below as Figure 22 and Figure 23 is a modified Figure 7 showing how the programmes are made up of projects and work at each asset.



Figure 22: Asset View of Project/Works List










Infrastructue Asset B 1 835 1 835 1 835 1 835 1 020 0 0 0 0 0 0 0 0 0 0 0 0

Maintenance Current 1 800 1 800 1 800 1 800 - - - - - - - - - - - - -

Rehabi l i tation Capita l - - - - - - - - - - - - - - - - -





Organisation & Support Current 35 35 35 35 20 - - - - - - - - - - - -

Infrastructue Asset C 820 820 2 450 820 2 560 8 920 11 380 2 850 1 230 1 230 1 230 1 230 3 260 1 230 1 230 1 230 1 230

Maintenance Current 800 800 800 800 800 800 800 1 200 1 200 1 200 1 200 1 200 1 200 1 200 1 200 1 200 1 200

Rehabi l i tation Capita l - - 1 600 - - - - 1 600 - - - 2 000 - - -


Extens ion Capita l - - - - 1 700 7 940 10 360 - - - - - - - - - -




Organisation & Support - Portfolio Management 450 450 450 450 450 450 450 450 450 450 450 450 450 450 450 450 450

Personnel Current 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250

Systems Current 200 200 200 200 200 200 200 200 200 200 200 200 200 200 200 200 200



Figure 23: Programme View of Project/Works List

11.2 Review existing infrastructure (Supply) This process helps identify and evaluate the level of service provided by the infrastructure that Users are currently using /occupying. This data should be available as a standard report from the Asset Register. The data should be categorised in the same manner as the data on needs. The User will provide/confirm data such as utilisation, suitability for services delivered, cost effectiveness and availability of the assets. The Custodian will provide this data such as life cycle management information, condition assessments and confirm maintenance requirements. The User department should also confirm the need for and the anticipated duration these assets will be required for. The outputs from this process include:

Reviewed and revised lists of infrastructure work

Reviewed and updated asset management plans

Initiation of and reviewed infrastructure programmes.

11.3 Conduct gap analysis The infrastructure gap is identified and quantified by comparing the outputs of 11.1 and 11.2. The analysis includes:

Categorising these gaps to assist developing integrated solutions including non-asset solutions

Scheduling the solution – when should the solution be provided

Description of the consequences of not addressing the gap.


Tota l Infrastructure Estimate 12 105 26 705 46 735 30 505 7 090 12 430 14 890 6 360 4 740 8 820 4 740 4 740 6 770 4 740 8 820 4 740 4 740

Maintenance Current 2 600 2 600 2 600 2 600 3 800 3 800 3 800 4 200 4 200 4 200 4 200 4 200 4 200 4 200 4 200 4 200 4 200

Asset A 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000

Asset B 1 800 1 800 1 800 1 800

Asset C 800 800 800 800 800 800 800 1 200 1 200 1 200 1 200 1 200 1 200 1 200 1 200 1 200 1 200

Rehabi l i tation Capita l 0 0 1 600 0 0 0 0 1 600 0 4 000 0 0 2 000 0 4 000 0 0

Asset A 4 000 4 000

Asset B

Asset C 1 600 1 600 2 000

Acquis i tion Capita l 8 500 23 100 41 500 26 900 0 0 0 0 0 0 0 0 0 0 0 0 0

Asset A 8 500 23 100 41 500 26 900

Asset B

Asset C

Extens ion Capita l 0 0 0 0 1 700 7 940 10 360 0 0 0 0 0 0 0 0 0 0

Asset A

Asset B

Asset C 1 700 7 940 10 360

Upgrading Capita l 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Asset A

Asset B

Asset C

Disposal Capita l 0 0 0 0 1 000 0 0 0 0 0 0 0 0 0 0 0 0

Asset A

Asset B 1 000

Asset C

Organisation & Support Current 1 005 1 005 1 035 1 005 590 690 730 560 540 620 540 540 570 540 620 540 540

Asset A 500 500 500 500 60 60 60 60 60 140 60 60 60 60 140 60 60

Asset B 35 35 35 35 20

Asset C 20 20 50 20 60 180 220 50 30 30 30 30 60 30 30 30 30

Portfol io Management 450 450 450 450 450 450 450 450 450 450 450 450 450 450 450 450 450



Outputs from this process include:

Quantified and categorised description of gaps

Schedule of solution requirements

Description of the consequences of not addressing the gap

Reviewed and revised (as necessary) asset categories.

11.4 Determine / Develop Infrastructure and Non-Infrastructure Solutions

Integrated solutions to address the gaps identified above are developed. These include combinations of asset and non-asset solutions as well as scheduling solutions to minimise the consequences as described in the gap analysis. Pre-feasibility studies are carried out at this stage to develop conceptual estimates for costs and durations. Solutions will result in lists of non-asset and asset related work in the following broad categories:

Maintenance

Refurbishment and rehabilitation

Acquisition (new building and leasing)

Disposal/transfer of infrastructure between Users. Outputs from this process include:

New and reviewed pre-feasibility studies

Evaluation of solutions

Reviewed, revised list of non-asset work with estimated costs, duration and scheduling

Reviewed, revised list of asset work with estimated costs, duration and scheduling

Reviewed and revised categories of asset and non-asset work

Additional specific goals of infrastructure solutions

Revised description of consequences of not implementing or delaying required solutions.

11.5 Develop Organisation Support Plan (OSP) This plan will identify the organisation and support (additional specialist skills, reports, data and systems) required to manage the implementation of the infrastructure plan, including the reporting and control functions from the organisation‘s perspective. All activities in the implementation of the infrastructure plan must be managed by the organisation. To do this the organisation may be supported by:

Temporary in-sourcing of professional assistance (typically specialist analysis)

Out-sourcing of certain functions (typically to implementing agents). However the organisation should have the skills and expertise to manage the inputs from in and out sourced capacity and execution of the work in order to take timeous executive decisions. Thus the OSP consists of:

Improving internal organisation management expertise

Utilising external expertise in a cost effective and sustainable manner

Improving systems used to support information management (asset register, accounting systems, GIS, document & information storage and retrieval and other software requirements).

The associated estimated costs will include:



Departmental Resource

Requirement AssessmentSTEP 1

Individual Skills

AssessmentSTEP 2

Appraise Skills Appraise Skills andand

CapabilitiesCapabilities

Best PracticeBest PracticeFor PositionFor Position

IndividualIndividualSkills GapSkills Gap

Resource Resource Requirement in Requirement in Infrastructure Infrastructure

DeliveryDelivery

Appraise Appraise ExistingExisting

Resource Resource AllocationAllocation

ProvincialProvincialResourceResource

RequirementRequirementGapGap

DevelopDevelopCapacitationCapacitation

PlanPlan

ImplementImplementCapacitationCapacitation

PlanPlan

MeasureMeasurePerformancePerformance

STEP 3

AgainstAgainst AgainstAgainst



Individual Skills

AssessmentSTEP 2






DeliveryDelivery






PlanPlan


PlanPlan


STEP 3




Individual Skills

AssessmentSTEP 2






DeliveryDelivery






PlanPlan


PlanPlan


STEP 3


The internal establishment of the management information systems

Internal expertise (including skills and expertise improvement)

Costs of managing work that is outsourced

Costs of professional services in sourced. The process is illustrated in the Figure 24. Figure 24: Organisation and Support Process

The key inputs to the process are:

The Infrastructure Plan

Organisational infrastructure management policy

Previous OSP. The key output of this process is the OSP linked to the organisation‘s skills development plan and including a:

System for infrastructure management development plan

Description and schedule of in and out sourced services

Estimated costs and a schedule for implementing the OSP.



11.6 Budget Analysis This sub-process involves collating all the estimated costs and schedules of these costs for implementing the infrastructure plan. This required budget will include:

Costs of the asset work required, including: o Work commitments carried over from previous financial years o Maintenance o Rehabilitation / refurbishment / renewal o New construction o Disposal

Costs of the OSP work required

These estimates will be scheduled according to their implementation plans leading to a required cash flow.

To enable effective reporting, the budget should be categorised to match infrastructure asset reporting items. The inputs to the sub-process include:

The infrastructure planning sub-process outputs, especially costing and scheduling outputs

Previous infrastructure asset budget

Funding sources and requirements

Expenditure reporting requirements. Outputs from this process are categorised:

Long term estimated budget for infrastructure asset implementation (the works)

Long term estimated budget for the OSP

Sources of funding. These budgets will include the estimated costs of work and OSP requirements for the next MTEF period.

11.7 Prioritisation and Selection This sub-process deals with activities that are primarily focussed on work (infrastructure and OSP) that will be included in the next MTEF period. The sub-process includes feasibility studies of this work to enable improved management decision making. Medium term planning requires the User and Custodian to consider their available resources, mainly funding, but including organisational, and then to prioritise the asset and non-asset work that will be implemented in the next MTEF period. Typically the work scheduled for the following financial year is only adjusted to accommodate currently committed work where the scope or completion dates have changed. Although infrastructure asset priorities were included in previous planning sub-processes, it is important to revisit these priorities in conjunction with considering the available funding during this prioritisation process. Life cycle implications of changing the work schedule should also be noted. Inputs to this sub-process include:

Reviewed and revised prioritisation criteria

Feasibility studies (new and reviewed) for work that may be included in the next MTEF period

Outputs from the Budget analysis sub-process

Funding availability (all sources).



Outputs from this sub-process include:

The updated prioritised MTEF works list –asset and non-asset related

Updated OSP action plan

Updated long term budget and works list – asset and non-asset related

Revised prioritisation criteria.

11.8 Review and Identify Asset Management Plan Improvements

This sub-process is designed to monitor the continuous improvement in asset management practices. The organisation should identify and prioritise areas for improvement in their asset management practices. Base on this identification, action plans should be designed, implemented and monitored. Finally the impact of these improvements on the asset management and the services that the organisation provides should also be reported on in subsequent asset management plans.

11.9 CIDB Gateway Process Gate 1a: Approve U-AMP The organisation formally approves the U-AMP. This is usually done by the head of the organisation (or the executive manager responsible for infrastructure delivery) after approval by the senior management committee/executive committee. The committee confirms that the plan addresses the required strategic goals, that resources (funds, staff and systems) are available and have been committed to implementing the work required and then signing off on the plan. Approval of the U-AMP constitutes the first part of the first gate in the CIDB Gateway Process.

12. Custodian Asset Management Plan (C-AMP) The custodian organisation is accountable for preparing the C-AMP for all infrastructure assets forming part of its portfolio. The Custodian is also required to submit the C-AMP to the relevant treasury (e.g. Provincial or National) Figure 25, overleaf outlines the delivery processes required to produce the C-AMP.



Figure 25: Components of the C-AMP

12.1 Compile and Review Portfolio Profile This sub-process is used to:



Confirm, consolidate and understand all user organisations‘ infrastructure asset requirements – existing and projected

Confirm the infrastructure assets that are currently used for delivering services by user organisations.

12.2 Compile Infrastructure Performance Report This report is based on both User and Custodian assessments. The following indicators are generated:

Functional performance indicator

Utilisation indicator

Condition indicator

Financial value indicator

Remaining life of the asset. This sub-process will enable the custodian to determine those infrastructure assets that:

Are in an acceptable condition to the User – normal maintenance to continue

Are suitable to User‘s requirements, but require technical condition assessment as the asset performance does not meet minimum functional requirements

Have been identified as unsuitable to the current User‗s requirements.

12.3 Life Cycle Planning Life cycle plans are captured in the asset register. These plans consist of:

Historic data – including acquisition costs and date

Planning data – required routine maintenance and inspection, scheduled refurbishment, estimated useful life

Current data – utilities costs, maintenance actions and costs, refurbishments carried out and their costs.

Life cycle plans for asset should be reviewed annually and updated to take account of the current state of the asset and activities carried out on the asset.

12.4 Conduct Portfolio Analysis This sub-process links Users‘ infrastructure asset requirements to the performance report of all assets as well as the life cycle plans of assets. This sub-process can be used by Users in the Prioritisation sub-process when preparing the User‘s MTEF prioritised works list. A key output of this sub-process is a description of the consequences of not carrying out scheduled maintenance, inspections or refurbishments.

12.5 Develop/Review Work Plans This sub-process produces the implementation plans for work to be carried out on infrastructure assets. The plans are aligned to User‘s requirements, including:

Procurement objectives

Reporting formats and frequency.



The works plans deal with

Capital expenditure works including: o New construction o New acquisition o Refurbishment work o Disposal work

Current expenditure works including: o Lease / rental payments o Routine maintenance o Small repairs o Scheduled inspections o Utilities costs.

12.6 Develop Organisational Support Plan (OSP) This sub-process is similar to the sub-process for developing the User‘s OSP (11.5). In addition the Custodian should make provision for systems, skills and expertise that will be able to provide data, analysis and advice to all users included in its portfolio to facilitate their infrastructure asset planning and execution. The custodian will develop, in-sourcing, outsourcing and internal capacity building plans to provide these services.

12.7 Develop Infrastructure Management Budget This budget consists of two components – one deals with the estimated cost and scheduling of carrying out the infrastructure asset work and the other deals with funding the organisational support plan. The funding for carrying out the infrastructure asset work is usually mainly provided by Users while the funding for the Custodian‘s OSP is provided by the Custodian. Both budgets should be categorised to assist planning and reporting for both the Users and the Custodian.

12.8 Review and Identify C-AMP Management Improvements The Custodian should identify and implement improvements to the planning and implementation of the C-AMP in a similar process to that described for Users in 11.8. The Custodian should also report on the impact that improvements in its systems and processes had on users‘ asset management practices.

12.9 CIDB Gateway Process Gate 1b: Approval of the C-AMP The Custodian organisation formally approves the C-AMP. This is usually done by the head of the organisation (or the executive manager responsible for infrastructure delivery) after approval by the senior management committee/executive committee. The committee confirms that the plan addresses the required strategic goals, that resources (funds, staff and systems) are available and have been committed to implementing the work required and then signing off on the plan. Approval of the C-AMP constitutes the second part of the first gate in the CIDB Gateway Process.

13. Portfolio Performance Management The following paragraphs provide a summary of some of the performance management principles and how they relate to Portfolio Management. Please refer to PG3 – Performance management for more details.



13.1 Key Performance Management Concepts Performance Management at the portfolio level is used to determine whether the inputs we deploy are achieving the desired results to perform the planned activities. This means that the level of success achieved with, for example, services delivered in accordance with a specific strategic objective, is measured by comparing the achieved results against the original planned intentions contained in the baseline strategic plan. A small variance is acceptable, a large negative variance is bad, a large positive variance is perhaps an indication that the targets were set at an inappropriately low level. Many strategic objectives are however long-term and requires thousands of activities to be performed over many years. A strategic objective, for example, to increase the number of engineers and scientists in the workplace and research institutions, might require the construction of hundreds of school laboratories to enable science learning at schools. At a strategic level, we cannot and should not be concerned by activities such as casting foundations and installing test-benches for these labs. However, because lower order plans are guided by the targets and indicators of higher order plans, the indicators, in this case ―impact indicators‖, must be carefully chosen to ensure that the desired results and intended consequences are in fact achieved. On the other hand, because it might take years for the intended final impact to materialise – the learners in grade 6 who will use the new labs will only enter the workplace in a decade or two election cycles later. We therefore need more immediate indicators to measure the performance of the infrastructure value chain while the assets are put in place to support the objective. The outcomes based performance management model adopted by government and the roadmap steps to implement the performance management function in a department is fully described in the PG3 - Performance Management Practice Guide. This approach dictates that we plan, perform and measure as follows: Table 4: Approach to performance management

Level Planning Execution Measurement

Strategic or Portfolio

Strategic Plans Perform portfolio management related work

Input indicators rolled up from below

Input, Activity and Output Indicators for work performed at a portfolio level. These indicators are however found in the Annual Performance Plan of the unit responsible and not necessary in the departmental strategic plan

Programme Programme Implementation Plans

Perform programme management related work

―Outcome indicators‖ rolled up form below

Input, Activity and Output Indicators for work performed at a programme level.

Project or Operational

Project Execution Plans or Operational Business Plans

Deploy Inputs to perform activities and produce outputs for projects and operational work including project management and operational management work

Input indicators

Activity Indicators

Output Indicators

The key elements of the outcomes based model from a portfolio management perspective are:

A hierarchy of plans are developed, each to a greater level of detail. These plans define the inputs and activities required and the outputs (project or operational-level), outcomes (programme-level) and impacts (at a strategic-level) expected from performing the planned activities. The Departmental Strategic Plan will contain one or more ―impact level‖ indicators defined for each strategic objective. These Impact- level indicators serves as a basis against which performance is



ultimately measured, but also serves as the guiding inputs that are being unpacked in further detail in lower order plans.

The planned inputs are deployed (in other words ―people, money, tools and materials as well as controls are used to perform the work‖)

The activities are performed (in other words ―the work is done‖) It is important to remember that there are work activities to be performed at each of the higher order levels, not only at the project / operational level. See examples in the discussion on indicators below

These activities produce the outputs and outcomes and impacts (in other words ―results of the work‖). The results are considered in different ways at the different levels. At a strategic level, management is less concerned with the detailed metrics of whether an activity was performed within time or budget (i.e. output metrics), but is rather interested in whether the work performed resulted in the desired impact, or in other words the consequences resulting from setting a strategy and deploying resources to implement the strategy.It is important at a portfolio level to differentiate between impact results which are rolled up from the underlying outcomes and portfolio level outputs where the work was performed at a project level (e.g. constructing a school) versus output results at a portfolio level were the work was performed at the portfolio level (e.g. produce a business case)

The results are measured to determine whether the achieved or actual results are aligned with the original planned results, and the variances are noted. We cannot measure everything – so we pick specific metrics or indicators that best represent the desired results and which will give management the assurance that the work originally intended is being performed according to plan. Whereas output and outcome indicators are measured at a project level and rolled up, Impact level indicators often require more indirect ways of measurement.

If the performance variances fall outside of the allowed tolerances, management action is taken to address the issues and rectify the performance.

Management action must be appropriate to the level of the measured variance. For example it would be inappropriate for an HOD or strategic level manager to take management action by intervening directly at a project or operational level based on out-of-scope Impact Level Indicator variances. Management action aimed at addressing the root causes through perhaps policy changes or funding changes would be more appropriate. Much more direct management actions aimed at responsible individuals would however be required where input / activity or output indicator variances occur for portfolio management work.

From the above description of the service delivery value chain, it is obvious that targets for achieving impact indicators cannot be set in isolation without regular and significant interaction with those lower order managers responsible for developing the lower order plans. Impact indicator targets needs to be determined with inputs from across the value chain in a top down / bottom up iterative manner. Remember that the impact indicators at a strategic planning level provides guidance to the lower order planners of what the desired programme level outcomes needs to achieve. If these are unclear, the eventual work performed will not be what was intended. Management action at the strategic level in response to reported performance is a core fundamental in strategy execution. However the ability of management to take appropriate action will always be directly related to the accuracy of available performance information, and if the performance management system fails in this regard, then inappropriate decisions with unintended consequences will follow. Conversely, if strategy is poorly defined, especially if the desired impacts expected to be achieved from the implementation of strategy is not adequately detailed and documented, then the value chain starts to unravel very quickly and unintended consequences will follow as a result of incorrect planning, targets will not be met and the un-served will remain un-served.



13.2 Typical Portfolio / Strategy Level Indicators

13.2.1 Impact Indicators Impact level indicators are the highest level indicators and exist only at a strategic / portfolio level. Impact indicators provide performance information in respect of the ultimate results or consequences resulting from work performed at project level, rolled up through the programme level and now measured at a portfolio / strategic level. Impact indicators may only be able to determine whether the strategic objectives where met several years after the original deployment of resources, such as:

% increase in learners passing matric higher grade science (long term indicator as a result of a

laboratory building programme at schools – this indicator can only be measured a number of years

after the labs have been commissioned and the first wave of science learners have moved through

the system)

% of increase in numbers of students taking Science as a subject per grade. (This can be measured

more immediately, however note that 1) these metrics are not measured by the infrastructure unit,

but will be measured by the operational unit and 2) the operational units metrics might not include

this indicator and a special negotiation might be required to define and roll out the requirement to

measure this new metric in all schools!)

o Cumulative Cost Performance Indicator for all capital / infrastructure programmes in a

Department2 This and the other examples below are indicators within the locus of control of

the infrastructure unit and can be determined / derived / rolled up from lower order

indicators, provided that they have been planned accordingly.

Cumulative budget performance indicator for all capital / infrastructure programmes in Department

Cumulative Schedule Performance Indicator for all programmes in Department.

13.2.2 Input, activity and output Indicators (applicable to work performed at the Portfolio level)

In addition to the Impact level indicators discussed above, there are also work to be performed by the portfolio manager and his or her staff. The performance of this work is measured with Input, activity and output indicators. Typically these output indicators would be items such as:

% of staff available as a percentage of planned staff (input indicator)

% of issues elevated to portfolio level for Management Action open and % closed. (activity indicator)

Cost Performance Indicator of PSP appointed to provide support at this level (that is performing

work at a portfolio level) (input indicator)

Budget performance indicator of the portfolio unit‘s own budget (the units own internal budget

performance) (activity indicator)

Indicators related to timely submission of strategic planning documents such as plans, strategies,

reviews, reports etc. (This can for example be measured in days variance (early or late) from due

date) (output indicators).

13.3 Performance of the individual

2 See project level indicators for detail on Cost, Schedule and Budget performance indicators



The fourth performance roadmap step, as depicted in the Performance Management elements of the IDMS, namely ―Review & Appraise Performance of Individuals responsible‖ for deploying the inputs, performing the activities and measuring the outputs is a vital imperative for the success of the performance management system. The performance processes and indicators discussed above will be meaningless if they are not mapped in a structured organised manner to the specific individuals responsible, AND if instances of poor or under-performance is not regularly followed by appropriate management action to address these. This process cannot only be performed once per annum through the formal appraisal process, but must be performed on a continuous day-to-day basis in interaction up and down the organisational chain of command based on the contents of the performance reports.



Section C: Programme Management

14. Introduction The Infrastructure Planning process defines the scope of infrastructure projects required within an organisation. Infrastructure Planning also converts an ―Asset View‖ of the work (all the work required at each asset – maintenance, rehabilitation, extension and upgrading) into a ―Programme View‖ of the work to facilitate monitoring and reporting on priorities. Programme Management integrates these two ‖views‖ of the work to facilitate effective implementation of the work. The PMI‘s Standard for Program Management defines a programme as ―a group of related projects managed in a coordinated way to obtain benefits and control not available from managing them individually‖.

15. Key concepts and benefits Programme management encourages the establishment of a Programme Management Office (PMO) to assist the Programme Managers in the planning, monitoring and control of programmes. The PMO will enhance the work of the Programme Manager by providing consistent, timeous and accurate data for each programme. The PMO will thus assist the organisation to achieve the benefits available by implementing the programme management approach. Programme Management, in contrast with project management, is the centralised, coordinated management of a group of projects to achieve the programme's strategic objectives and benefits. The Programme Management Approach should therefore lead to better and quicker response to project issues, queries, approvals, etc. These benefits will contribute greatly to the efficiency of the management processes and in particular to improved coordination and control of the projects in the programme.

16. Governance The PMI Program Management Standard introduces a generic programme life cycle that ―will apply to most programs most of the time‖. Public sector infrastructure management has introduced the concept of managing joint programmes to accommodate co-ordination of common goals and to create synergy across organisations in implementing similar programmes. The generic life cycle is shown in Figure 26 (adapted from figure 2.2 in the PMI‘s Standard for Program Management, 2006).

Figure 26: Programme Life Cycle

Programme Governance is shown as a process that spans the entire programme life cycle phases, using phase reviews (of deliverables, performance, risks and issues) as the primary governance tool. Phase reviews provide an opportunity to assess the programme in terms of the following strategic and quality related criteria:

Phase 0:Establish Joint Programme Management Fucntion

Phase 1:Pre-Programme Set Up

Phase 2:Programme Set Up

Phase 3: Establish Programme ManagementOffice

Phase 4:Programme Delivery Management

Phase 5:ProgrammeClosing

Programme Governance



A programme and its constituent projects are still aligned with the organisation‘s priorities, goals and strategy

Expected benefits are in line with the original programme business plan

Level of risk remain acceptable

Prescribed generally accepted good practices are being followed. Table 5 illustrates the programme management framework and where the concepts are described as applicable to Portfolio Management. Table 5: Programme Management Framework

Programme Management Framework

Phase Description Application to infrastructure Portfolio Management Name

0 Establishment of the Joint Programme Management Function

This function is dependent on organisations agreeing to this strategic implementation methodology. Once this methodology has been agreed as a priority, organisations then need to establish and obtain approval for the joint programme management structure, policies and procedures.

This function takes place in the Programme Management sub-process where management mechanisms are developed and implemented. This function will establish a joint programme management office to support the organisations involved

1 Pre Programme Set Up

To compile and obtain approval for the Programme Charter. The Programme Charter will provide input to the Infrastructure Programme Management Plan

This process should take place during the needs identification of Infrastructure Planning. Here the organisation can decide to establish a programme to achieve a strategic objective and review this decision at least annually.

2 Programme Set Up

To compile and obtain approval for the construction procurement strategy and the Infrastructure Programme Management Plan (IPMP).

Development and management of the Construction procurement strategy and the IPMP are key to the Programme Management sub-process

3 Establish Programme Management Office

Establish the organisation and support systems to manage the implementation of the programmes. If a joint programme management office has been established some (most) of these functions can be carried out by that office

Programme Management relies on accurate and timely reports, evaluation and management action. These all need to be carried out in a consistent manner.

4 Programme Delivery Management

To initiate the implementation of the constituent projects; to monitor progress; and to verify completion of the programme scope.

Carry out management action based on reports provided by the PMO and management‘s assessment of the benefits provided by the actions

5 Programme Closing

Most programmes will be long term/on-going programmes as they are aimed at achieving strategic priorities. The annual review of programme charters (Phase 1) will identify any programmes that should be closed.

Should a programme be closed the Programme Management function will provide the required documentation.

17. Programme management processes This phase of Portfolio Management culminates in the formulation of the:

Construction Procurement Strategy



Infrastructure Programme Management Plan (IPMP).

17.1 Components of Programme Management The following figure illustrates the components of Infrastructure Programme Management form a User Organisation perspective.

Figure 27: Components of Infrastructure Programme Management

18. Develop and Review Infrastructure Programme Management Plan (IPMP)

The IPMP consists of management plans, beginning with the construction procurement strategy.

18.1 Develop/Review construction procurement strategy The formulation of the construction procurement strategy is detailed in the PG2 – Construction Procurement Strategy. The practice guide states: ―Construction procurement strategy is the combination of the delivery management strategy, contracting and procurement arrangements. A construction procurement strategy can be developed for a single project, a programme of projects/work/programmes or a portfolio of projects to identify the best way of achieving objectives and value for money, whilst taking into account risks and constraints.

U-AMP Delivery management strategy

C-AMP Contracting arrangements

OSP Procurement arrangements

G2: Construction Procurement Strategy

U-AMP Reviewed/revised IPMP

C-AMP

OSP

Reporting formats, frequencies Implementation instructions

Standard formats Reporting formats

Approved Budget

IPIPs Progress reports

Progress reports, VO's Management actions

PEP1 & PEP2

Strategic brief, concept report

Design development report

Programme objectives Review and continuation report

Progress reports Close out reports

Programme budget Infrastructure asset register updates

Impact assessments

Develop / Review

Construction

Procurement Strategy

Develop / Review

Programme Management

Plans

Authorise

Implementation

Monitor and Control

DP3: Operations &

Maintenance

Approval of Construction

Procurement Strategy

DP2: Project

Implementation

Programme review &

Close Out

DP 1.1: Develop/

Review U-AMP



Once the necessary decisions relating to the delivery management strategy, the contracting and procurement arrangements have been made, the construction procurement strategy may be implemented in respect of each package.‖ As stated in the practice guide, a construction procurement strategy is developed by:

Analysing the medium term immoveable asset expenditure plan and identifying / confirming categories of projects

Performing an organisational and market analysis Formulating primary and secondary procurement objectives

Making certain strategic management decisions

Packaging the works

Allocating risks and deciding on a suitable pricing strategy for each package

Establishing requirements for outsourced professional services and the manner in which such resources are to be contracted

Deciding on the high level procurement arrangements

Documenting the choices made in relation to the delivery management strategy, the contracting strategy and the procurement arrangements in each category and subcategory of spend.

The main elements of developing and/or reviewing Construction Procurement Strategy are shown in the following figure. The Procurement Practice Guide describes this process more fully.

Figure 28: Annual Cycle for the Development/Review of Construction Procurement Strategy

The approval of the Construction Procurement Strategy forms gate G2 as described in the CIDB Gateway system. This strategy is the input to the development and/or review of the other management plans required to complete the development of the IPMP.

18.2 CIDB Gateway Process Gate 2: Approval of the Construction Procurement Strategy (CPS)

The organisation formally approves the draft Construction Procurement Strategy by confirming that:

Delivery Management Strategy

Contracting Arrangements

Procurement Arrangements

Review, identify and implement improvements

Work Packages

Contracting Strategy

G2:Construction Procurement Strategy



The CPS contributes to achieving its strategic objectives

Resources (staff, funds and systems) are available (or will be developed) and have been committed to infrastructure delivery.

This is usually done by the head of the organisation (or the executive manager responsible for infrastructure delivery) after approval by the senior management committee/executive committee. Approval of the CPS constitutes the second gate in the CIDB Gateway Process.

18.3 Develop/Review the Infrastructure Programme Management Plans

18.3.1 Formulate the Organisational Support Plan (OSP) The organisation establishes the management and support structures required to deliver infrastructure programmes. The Users requirements for Programme Management should be included in the OSP developed in DP1.1. This reinforces the User‘s accountability for managing infrastructure delivery by either developing its management capacity or its implementation capacity.

18.3.2 Formulate the Programme Time Management Plan Typically the overall Infrastructure programme cycle will include pre-defined major milestones to be achieved. The target date for achieving these milestones is then defined as the baseline against which the progress of the overall Infrastructure programme can be measured. Progress is tracked against either the overall programme milestones and/or key sub-milestones.

18.3.3 Formulate Programme Cost Management Plan The purpose of this plan is to define how the multiple project budgets and expenditure control will be managed and rolled up to infrastructure programme level. This plan will detail the processes, structure and systems that will be used to manage programme expenditure. The plan will define what type of expenditure will be reported on (certified, paid etc) and it will define who is responsible for obtaining, maintaining and reporting the data. As a minimum, the plan will prescribe at least the following:

Cash flow estimates will be established in the first month of the financial year, indicating planned expenditure according to budget allocations for all 12 months

Variations to the initial planned expenditure shall be shown separately from the original planned cash-flow. Variations should clearly differentiate between required variations and approved variations

Actual Expenditure will be reported against Planned Expenditure for the current month and all previous months

While expenditure control at project level will be at a high level of detail, only key expenditure activities will be rolled up to a programme level

Planned and actual expenditures will be reported both as a functional breakdown (in alignment with organisation categories) as well as in the prescribed Economic Classification.



The organisation will track the costs of the internal Programme Management team.

18.3.4 Formulate Programme Risk Management Plan A risk assessment and management plan is formulated for the infrastructure programme, including determining the major risks which could occur, measures to mitigate the risks, and how the risks will be managed. The key factors for success are then documented and monitored to ensure that these are achieved.

18.3.5 Formulate the Programme Quality Management Plan The user organisation will establish the minimum quality requirements for all the works forming part of a programme or package. This plan is often based on norms, standards and reporting requirements. In addition use of best practices should be included in implementation requirements.

18.3.6 Formulate the Programme Communication Management Plan Programme communication should include the following key activities in respect of communication management:

Communications Planning - determining the information and communications needs of the stakeholders: who needs what information, when will they need it, and how will it be given to them

Information Distribution - making needed information available to project stakeholders in a timely manner

Performance Reporting - collecting and disseminating performance information. This includes status reporting, progress measurement, and forecasting

Administrative Closure - generating, gathering, and disseminating information to formalise phase or project completion.

The Communication Management Plan for the infrastructure programme is formulated including determining lines of communication, major events within the Infrastructure programme (e.g. launches and handover ceremonies, target market, message, medium, frequency, responsibility, risks, activities and cost). Outputs

Communications management plan

Programme records

Programme performance reports

Programme change requests.

18.3.7 Review and Implement Improvements to the IPMP The Infrastructure Programme Management Plan should incorporate a formal evaluation of the plan itself to critically review it and to identify and assess:

Gaps

Major risks

And improvements to the IPMP. Key tasks included in this sub-process are shown in Table 6 :



Table 6: Key Tasks in Programme Management Improvement

No. Key Tasks Description of work, actions, inputs

1 Review Infrastructure Programme Implementation Plan

Is last year's plan still valid? Which elements of the plan require updating? On an annual basis, review the existing Infrastructure Programme Implementation plan and check each sub-plan for continued relevance and validity. Update items such as budgets, mandates, scope statements, time frames and project groupings.

2 Workshop Infrastructure Programme design with programme team

Obtain inputs, buy in and commitment from the programme team

3 Workshop Infrastructure programme design with senior management

Obtain strategic direction, buy in and commitment from senior management

4 Finalise Infrastructure Programme design and programme plan format

Include all relevant inputs from stakeholders

18.4 Authorise Implementation This process formally allocates resources to ensure effective implementation of programmes via the packages that have been designed. Key to this authorisation is the IPMP (including the Construction procurement strategy) and the Service Delivery Agreement (SDA) between the User and an implementing agent. The sub-process will also detail the required reporting formats and frequencies.

18.5 Monitor and Control Implementation The user organisation remains accountable for programme management, but can use the services of others to provide key information and inputs. Monitoring and Control (evaluation of data, making management decisions and monitoring the implementation of these decisions) is therefore a key function of the user organisation. Collation of monitoring and control data is one of the key functions of the PMO, especially when the PMO is established as part of Joint Programme Management. To manage the interface between itself and an implementing agent optimally, the user organisation should use the procedures described in the management of Joint Programmes protocol. The key purpose of reporting is to communicate infrastructure programme progress and achievements and to provide managers with tools to monitor the projects, work and programmes and make management decisions. In addition the implementation of these decisions must be monitored. Therefore, the format of reporting should be designed to achieve this purpose. Monitoring should focus on outputs as opposed to activities. In practice a combination of monitoring achievement of key progress milestones as well as achievement of desired outputs is required.

18.6 Programmes Review and Close Out



Although programmes may continue indefinitely, they could also be closed out (strategic objectives addressed, the priority is now incorporated into normal operations, etc). Work packages within each programme may be completed and require handover from an implementing organisation to the user so that the infrastructure can be used to deliver services. These procedures are described in DP3 Operations and Maintenance. Generally, programmes are reviewed at least annually as part of Infrastructure Planning, where decisions about continuing a programme or starting a new programme are made, and as part of the review of the IPMP where methodologies (primarily the construction procurement strategy) are reviewed.

19. Programme Performance Management

19.1 Performance management at the programme level Outcome Indicators at a Programme level often differs from Impact indicators at a portfolio or strategy level in that they can be derived or rolled up from lower level project or operational indicators. The Programme Office thus has a role to design a performance indicator framework for all its projects and sub-programmes to ensure that this can be achieved. Examples of outcome level indicators are provided in the section below. Because of the critical governance role that a Programme Office fulfils in respect of its projects and the important role that the programme manager plays in respect of providing infrastructure specific support to strategic level managers, the PMO tends to be the centre of performance management in many organisations. It is therefore essential that the programme manager:

1) Fully understands all of the concepts contained in government‘s outcomes based performance model as described in the Performance Management Practice Guide and supporting documentation

2) Ensures that the Performance Management Roadmap steps are implemented – these are:

Develop Performance Indicators - Takes ownership and designs a cohesive, practical performance management system to be used in the programme and its projects and in upstream reporting based on appropriate indicators and asking questions such as:

o What do we want to achieve? o How will we know when we have achieved it? o What are we going to do to achieve it? o Who of us are responsible for what? o How do we improve performance?

Monitor & Evaluate Programme, Project and Operational Performance o Monitoring involves collecting, analysing, and reporting data on inputs, activities, outputs,

outcomes and impacts as well as external factors, in a way that supports effective management

o Evaluation is a time-bound and periodic exercise that seeks to provide credible and useful information to answer specific questions to guide decision making by staff, managers and policy makers

Publish Performance Information in a variety of formats and media as required and appropriate

Review & Appraise Performance of Individuals responsible for the programme work as well as the Projects and the project work

Take Management Action where necessary to address unacceptable variance. In support of the management action process. The PMO will usually establish and maintain an Issue management System, where issues are logged and closed or elevated for higher levels of management‘s decision and action.



19.2 Typical Programme Level Indicators

19.2.1 Outcome Indicators These are the second level indicators providing performance information in respect of the work performed at project level, rolled up to the programme level.

Scope outcome indicators relevant to this programme. For example a programme to build laboratories at schools will have an indicator to say:

o % (and number) of total laboratory projects completed to date as a percentage of total to be completed across all years of the programme

o % of laboratory projects completed as a percentage of planned to be completed to date o % of learners now having access to science laboratories at schools etc. o Number of additional learners having been provided access through this programme etc.

Cumulative Cost Performance Indicator for all capital / infrastructure projects under each stand alone programme

Cumulative budget performance indicator for all capital / infrastructure projects under each stand alone programme

Cumulative Schedule Performance Indicator for all projects under each stand alone programme

Other relevant project performance outcome indicators that can be rolled up across all projects. These indicators can measure management of changes and variations in scope, quality performance or safety performance for example.

19.2.2 Input, activity and output Indicators (applicable to work performed at the Programme level)

In addition to the Outcome level indicators discussed above, there are also work outputs to be performed by the programme managers and their staff. The performance of this work is again measured with output indicators. Typically these output indicators would be items such as:

% of staff available as a percentage of planned staff (input indicator)

% of issues elevated to Programme level for Management Action closed (activity indicator)

Cost Performance Indicator of PSP appointed to provide support at this level (input indicator)

Budget performance indicator of the Programme unit‘s own budget (activity indicator)

User output Indicators related to timely submission of: o U-AMP o Construction procurement strategy o IPMP o Organisation and Support plan o Monitoring reports o Recommended actions

Custodian output Indicators related to timely submission of: o C-AMP o Work Plans o Organisation and Support plan o Monitoring reports o Recommended actions.

19.3 Performance of the individual The fourth performance roadmap step, as per, PG3 – Performance Management namely ―Review & Appraise Performance of Individuals responsible‖ for the performance of deploying the inputs, performing the activities and measuring the outputs is a vital imperative for the success of the performance



management system. The performance processes and indicators discussed above will be meaningless if they are not mapped in a structured organised manner to the specific individuals responsible, AND if instances of poor or under-performance is not regularly followed by appropriate management action to address these. This process cannot only be performed once per annum through the formal appraisal process, but must be performed on a continuous day-to-day basis in interaction up and down the organisational chain of command based on the contents of the performance reports.



Section D: Conclusion Although the work and reports produced by the processes described in this module are often required to be delivered at specific times in the financial year, Portfolio Management is a continuous operation. The reports (feasibility studies, estimates, works lists, budgets, recommendations, evaluation of management actions, etc) are snapshots of the work at a particular time based on the available data. Effective collaboration with the custodian is essential in order to maximise the benefits of providing an infrastructure portfolio for the user within which it can deliver its services. Formal and informal communication channels should be established to develop a long term, ―inter-generational‖ team approach to Portfolio Management. As the portfolio of assets is intended to be available for the long term, it is essential that all relevant documentation is captured and recorded so that future portfolio managers can build on successes achieved and lessons learned.

delivery management guidelines delivery process 1 ... - cidbtoolkit.cidb.org.za/shared...

Documents