Accuracy of Timing of Capital Works

The key elements of a capital expenditure program are the:

• Appropriateness of the works identified
• Efficiency and accuracy of the cost elements involved in these works
• Timing, ie, when they should be carried out to meet anticipated needs.

Timing is most critical. Organizations that can accurately predict the necessary timing of the works will make considerable savings by either:

• Deferring capital works and therefore saving on capital funding
• Completing the works at the most appropriate time. This reduces future operations, maintenance, and indirect costs. The accuracy achieved with the timing depends on the degree to which the organization can predict or estimate the key cost drivers and on the economic evaluation.

The key elements in choosing the right timing of a project are:

• The accuracy of predictions of the type and timing of the failure mode of the asset
• Knowledge of the capacity of the existing infrastructure system, its current utilization and the trends in that utilization
• The consequences of the type of failure for direct and indirect costs.

The organization needs to be able reasonably predict failures in terms of reliability, life condition or mortality and cost.

To predict cost failures, the organization needs an information system that can allow the identification of those assets that are costing significantly greater than the average.

The asset also needs to be considered in its role as part of a larger system, where it may be providing a service of some value. This needs to be reviewed separately from non-performing assets, where the return on the asset is inadequate to support the costs incurred in delivering this asset's services.

This is an efficiency issue rather than a capital expenditure review issue. Predicting reliability relates to tracking unplanned maintenance activity.

Predictions of future unplanned maintenance costs can be used to justify a renewal program.

A key element of renewal justification is the end of life or mortal failure for assets that have no failure history yet their condition is getting to the point that they may suffer catastrophic failure.

Determining the timing of the renewal of these assets involves accurate prediction of the probability of failure and consequences of failure.

This allows the organization to assess the current and future risk exposure and therefore make an appropriate renewal decision.

The final element of timing is the economic evaluation of the various options and their business cases.