Understanding Confidence Level Ratings

For major capital expenditure projects, detailed sensitivity analysis and risk assessment is needed.

These risk assessments will involve an in-depth understanding of the risks in project delivery/cost and income stream. The organization gets a clear idea of the distribution of the possible risk or benefit cost.

The organization can manage the risks to ensure the most satisfactory outcomes.

However, analysis of this type is very costly and time consuming, and is only warranted on major projects of significant value with identified risk levels.

Looking at the confidence level derived from the individual validations can be a "cost effective" solution.

By understanding the quality of the processes followed and the quality of the data used in that process, the organization can derive a reasonable assessment of the confidence level in the project.

Key Quality Elements

The methodology for assessing confidence levels includes 15 key quality elements:

• Understanding the existing standards of service
• The knowledge retained on assets
• Understanding the current demands on assets
• Understanding the future demands and levels of service
• Predicting the ways in which the assets will fail to meet the future demands or levels of service
• Assessing the accuracy of the timing of these failures
• Assessing the consequence of failure and its impact on the organization
• Quality of the proposed maintenance program
• Appropriateness of the operational and maintenance budgets
• Appropriateness of the renewal or life extension options
• Accuracy of the future capital costs
• Appropriateness of the capital validation process
• The way in which the asset management plan is linked to customer expectations and the best value option is adopted
• Ability to modify the plan to meet these expectations
• The way in which the plan links to the organization goals.

For each element, the process and the quality of data is assessed as a percentage of best appropriate practice.

Then the average of the two percentages is calculated, to give the quality rating.

This process is shown below:

To establish the overall confidence level, the element ratings are then multiplied by the benefit or the importance of this element to the organization and to the confidence level of the ultimate asset management plan.

Each element has a benefit weighting, with the 15 elements totaling 100%.

By assessing this across all quality elements, we are able to develop a confidence level for the current asset management plan.

This is process is shown below:

An example of the overall confidence level and the associated calculations is shown below:

From this information, the organization can identify:

• The areas needing improvement
• The relative areas of budget accuracy.

The confidence level provides some secondary data that the organization can also use to help rank and prioritize its capital works. This is done by reducing the project's NPV by the confidence level, and then ranking all projects in accordance with this revised rating.

This process is shown below: