CIP Program Flexibility

In the past organizations have put forward their capital expenditure work program as a single program with multiple single projects. This was considered quite adequate where the income stream and the customers' willingness to pay met the necessary CIP and recurrent expenditure for the infrastructure service delivery.

Organizations now concentrate on improving the capital expenditure validation and approval process.

However, for some organizations their aging assets and declining populations or consumer demand has meant that they need to be more innovative or selective with their capital investments.

Also, asset management plans now have planning horizons of 25 years or more. These long term plans have identified significant financial peaks or burdens in the future capital works programs, or rising user costs or charges that are considered to be unacceptable to the average customer.

In all cases it is vital that the organization understands its current and future position, including the opportunities it has for alternative investment, rather than just the optimal or perceived best option for their future capital programs.

Best Appropriate Practice Approach

A Best Appropriate Practice (BAP) approach includes:

• An optimized renewal decision making process (for life extension analysis
• A life cycle cost analysis processes (for new assets or services).

At the completion of these BAP processes, the organization should have assessed a variety of options for future strategies, involving some or more of the following options:

• Lowest life cycle cost option (generally relating to capital at low recurrent cost), an option that includes medium capital investments and recurrent expenditures
• Low capital option that may incur higher recurrent costs
• Low capital option with lower recurrent costs, where risk mitigation plans are in place to reduce the consequence of failure rather than investing to reduce its probability.

These options should be stored against the component, asset or facility/sub system so that the organization can assess this data when looking at future strategies.

This approach allows the organization to look more thoroughly at strategic options such as lower levels of service or reducing company debt, all linked to their value chain and business drivers.

By making small alterations to their information system applications, the organization can store additional data and draw on it to aggregate alternative long term cash flows, using other than the optimal capital investment solutions (lowest life cycle cost). When these are matched against predictive models, the organization can easily show different costs or tariffs against the different service levels.

This type of approach is critical to any long-term management of large infrastructure asset portfolios.

The process is shown below: