Asset MAnA geMent & MAintenAnce - Netpublicationnp.netpublicator.com/np/n48022885/Raconteur-Asset-Management... · Asset MAnA geMent & MAintenAnce PAGE 08 ENERGY & UTILITIES UK FACTFILE

_ 06.June. 2013

Asset MAnAgeMent & MAintenAnce

PAGE 08ENERGY & UTILITIESUK FACTFILE

PAGE 12INFRASTRUCTUREPRIVATE ASSET FIX

PAGE 14MAN FROM AUNTIETAKES CONTROL

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Historically, spending on infrastructure helped drag the

world out of economic depression

Ȗ Plans to attract some £20 bil-lion from institutional investors to build roads, power plants and hospitals in the UK over the next decade have some way to go.

In November 2011, the gov-ernment launched its second National Infrastructure Plan to support additional investment. It said that it had signed a memo-randum of understanding with two groups of UK pension funds and was also working with the Association of British Insurers to set up an Insurers’ Infrastructure Investment Forum.

According to Roger Mattingly, president of the Society of Pension Consultants: “£20 billion repre-sents less than 2 per cent of UK pension fund assets. The potential symbiotic and exponential benefits of institutional investors providing funding for infrastructure are too great a prize for this potential not to be realised.”

Matt Taylor, managing partner of Rockpool Investments, agrees that the private sector can provide the funds. “The UK’s top 500,000 wealthy individuals have invest-able assets of at least £500,000 each – that’s £250 billion in total. If they allocated just 10 per cent of their portfolios to infrastructure, we could see £25 billion flowing into the sector.”

With yields of 7 per cent not uncommon, more and more pri-vate investors are beginning to invest in infrastructure, he says. “Our investor network recently funded a £5-million social housing scheme. They liked the high yield, backed by a 20-year local authority rent guarantee.”

However, Richard Threlfall, KPMG’s head of Infrastructure, Building and Construction, says it is estimated that at least £400 billion needs to be invested in the UK’s infrastructure over the next decade. “That’s £40 billion per annum, on the current 65 per cent privately funded basis,” he says.

“Investors are crying out for more clarity from government and stability from regulators to provide a firm basis for investment,” says Mr Threlfall. “Currently there are reviews on going by government on the electricity market, airport capacity in South-East England and the strategic road network. Each of these needs to be brought swiftly to a conclusion.

“The government should also consider re-establishing tax relief on infrastructure investments in line with other G20 countries, a move that would have real and lasting impact on jobs and capital investment in the UK.”

Declan Curran, founder of prop-erty repair and maintenance firm, HomeFix Direct, says a new report commissioned by the Civil Engi-neering Contractors Association, entitled Securing our economy: The case for infrastructure, claims the UK has faced a £13.1-billion infrastructure construction output shortfall in the past ten years.

According to Mr Curran, the report shows a lack of investment in UK infrastructure has created an annual £78-billion gross domes-tic product (GDP) “black hole”, as well as highlighting how boosting the sector to the standard of other developed economies could con-tribute £10 billion to the economy annually by 2026.

He says that, if the UK’s infra-structure had progressed in line

with comparable developed econo-mies, such as the Netherlands or Switzerland, the country’s aver-age annual GDP would have been £1,536 billion between 2000 and 2010, rather than £1,458 billion.

John Woodhouse, Experts Panel chairman at the Institute of Asset Management, says more than £100 billion of assets are available in local government pension funds and that this could be called on to help finance rebuilding the UK’s infrastructure.

But he believes more needs to be done if these ambitions are to be realised. Mr Woodhouse claims there are far too many asset spe-

cialists in the UK, and not enough people with the training and skills to bridge the gap between sourc-ing funding and the various skills needed to create and maintain those assets.

Most people think an asset man-ager is somebody who works for a bank, he adds. Matching fund-ing with skill sets is likely to go a long way to rebuilding the UK’s infrastructure.

Another challenge faced by asset specialists is that they must be able to combine sharp business skills with strong technical ability. This requires the skill to spot oppor-tunities in the way IT systems are being managed to reduce costs or make more effective use of an organisation’s assets.

Provider of IT-enabled busi-ness services Steria is currently partnering with the Department of Health on the NHS Shared Busi-ness Services project, delivering

back-office services to 40 per cent of the NHS. This project required investment in back-office services that will eventually lead to savings of £4 billion for the NHS over the next five years.

A wider problem is that as much as 50 per cent of assets on the books of multinationals may be either poorly described or no longer in use and cannot be located during a physical audit. Furthermore, one asset manage-ment consulting firm judges, from over a decade of experience, that as much as 65 per cent of fixed asset data is incomplete, inaccurate or altogether missing.

Managing corporate as well as public infrastructures in the years ahead will require asset managers with formida-ble commercial, scientific and technical skills.

Utilising private funds to rebuild UK infrastructure and kick-start the economy is a job for asset managers with formidable skills, writes John Osborne

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lack of investment in uK infrastructure has created an annual £78-billion gdP ‘black hole’

sarah ahMad taMeNews editor at Infrastructure Journal, she specialises in infrastructure finance and institutional investment.

JaMes deanBusiness reporter at The Times, he was the newspaper’s online opinion editor and online law editor.

oliVia gaganSenior reporter at Infrastructure Journal, she writes about energy financing and policy.

KathrYn hoPKinsEconomics correspondent at The Times, she was a spokeswoman at HM Treasury and an economics reporter with The Guardian.

Chris JohnstonAssistant business news editor at The Times, he is responsible for digital platforms, including the newspaper’s website.

John osborneFreelance industrial journalist, he has written extensively on construction, engineering and maintenance.

raYMond snoddYWriter, presenter and media consultant, he was media editor at the The Times and Financial Times, and presented BBC Television's public accountability programme Newswatch.

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PUtting Assets tO WORK WiLL ReViVe UK ecOnOMY PUtting Assets tO WORK WiLL ReViVe UK ecOnOMY

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assessing risKs to assets should be standard Asset management includes managing risks and, as James Dean reports, work is in progress to better define best practice

Ȗ The explosion was so powerful that the British Geological Survey might have registered it as a small earthquake. The column of acrid black smoke that followed the blast could be seen hundreds of miles away. This was no bombing raid from the Blitz, but rather the most cacophonous explosion on Brit-ish soil since the end of the Second World War.

In December 2005, petrol vapour escaped from storage tanks at the oil storage depot in Buncefield, Hertfordshire. The white cloud that formed was ignited, trigger-ing a series of explosions. One

of the blasts, described later by investigators as being of “massive proportions”, measured 2.4 on the Richter scale.

A huge fire soon engulfed most of the site, sending a plume of black smoke high into the sky. After a three-year inquiry, the Major Inci-dent Investigation Board found that fundamental safety manage-ment failings were at the root of the disaster. The total cost of Buncefield was nearly £1 billion.

“There was an element, like in most disasters, of a convergence of a number of problems,” says Andrew Sharp, an infrastructure

specialist at AMCL, the asset management consultancy. “Like problems with the design and maintenance regimes at the site. The most obvious manifestation of the convergence of such problems is where things go wrong. Those are the things that will hit the headlines, like with Buncefield.”

With any asset – an oil depot or power plant, a water pipeline or sew-age treatment works, a motorway or an airport – there are myriad risks to assess throughout its lifespan. Will the other half of a maintenance deal be able to live up to their contractual obligations? What major natural

RIsk


ASSET MANAGEMENT

Clients gain from two principal concepts: total cost of ownership and whole asset life cycle

Competence in asset managementAsset-intensive organisations from all sectors are turning to KPMG’s Asset Management Competence Centre

In the current economic climate, with asset-intensive organisations in all sectors having to become leaner and do more with less, those with extensive asset portfolios are finding themselves under greater pressure than ever before.

Effective, accurate and timely management of assets is more essential than ever for organisations looking to make the right decisions on acquisition, refurbishment and replacement. Industry leaders real-ise that a properly run asset man-agement system can enable asset-intensive companies and other organisations, such as local and regional governments, which have a large or complex physical asset base, to improve the management of these assets and to increase their return on assets employed.

That’s why more and more for-ward-thinking organisations are working with KPMG’s Asset Man-agement Competence Centre.

“We’re finding that many more asset-intensive organisations, both private and public and coming from all kinds of sectors, are using our knowledge and experience as asset management specialists to help them take a more holistic, inte-grated and sustainable view of their assets, to help manage them more effectively and to create value out of their assets,” says Daniël Pai-ron, global head of KPMG Asset Management and partner of KPMG Asset Management Competence Centre (AMCC).

Organisations find that the cen-tre’s systematic approach gives them clear, documented and aud-itable information. Typically the AMCC team will perform a top-down analysis (operational, technical and finance) of all assets, to put each into context and to identify how they relate to each other. This allows it to create integrated asset management frameworks in line with international

standards on financial reporting, regulation and risk management.

Clients also appreciate the infor-mation and insights that they gain from two principal concepts: total cost of ownership and whole asset life cycle. The KPMG experts’ abil-ity to identify and manage technical, financial and operational risk also brings peace of mind.

The AMCC is staffed with experi-enced specialists providing prag-matic advice and hands-on assis-tance for the management of physical assets in a wide range of sectors. Companies in electricity, gas, water generation and distribu-tion, and sewage processing, as well as those involved in infrastructure, are all benefiting from the centre’s expertise. Clients also include tel-ecoms companies, with extensive networks to manage, as well as public-private suppliers of street lighting, railways, motorways and housing projects.

“Whatever the issue, our team can bring their specialist training and experience to bear,” explains Mr Pairon. “We can use the expertise that we’ve gained from one sector to great advantage in another – the synergies are extensive and they’re growing as our client base grows.”

As a pioneer of this increasingly sought-after service and the only big-four company in the world that is a patron of the Institute of Asset Management, KPMG’s experience is unparalleled. Clients are reas-sured to find themselves working alongside a multi-disciplinary team which combines business advis-ers, engineers, auditors, IT and tax advisers with practical experience of operations and technical issues. There are also certified auditors with an in-depth knowledge of their sector’s issues and challenges, plus an understanding of the opportuni-ties, trends and risks that they face.

As Mr Pairon says: “It means that

while we get on with managing our clients’ assets effectively, they can get on with running their businesses.”

For an initial conversation, contact our expert Daniël Pairon at [email protected]

Major assets such power plants come

with major risks

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05

or political events could have an impact? Will anyone want to buy the asset in the future?

“There’s a huge amount of inter-action between risks,” says Mr Sharp. “Asset management is by definition a process of integrating things, including risk manage-ment.” That a number of fail-ings at Buncefield should have converged to create catastrophe, highlights the importance of a co-ordinated approach to managing risks throughout a business.

These risks must, of course, be considered in isolation. Each risk to an asset will have a different weighting depending on the priori-ties of the business that owns and operates them.

Scottish Water collects and treats more than 864 million litres of water for 2.4 million households and 123,000 businesses in Scotland every day. The publicly owned company must maintain 30,000 miles of water pipes, 30,000 miles of sewer pipes, 1,800 wastewater treatment works and 280 water treatment plants.

When it comes to prioritising risks, Karen Whitehall, an asset investment manager at Scottish Water, is adamant about one thing: “We’re very much customer-first. Customers don’t want to see sewage on bathing beaches, let alone have sewage in their house. That would be our worst nightmare,” she says.

When modelling asset risks – for example, for its huge Balmore water treatment plant just outside Glas-

each risk to an asset will have a different weighting depending on the priorities of the business

gow – Scottish Water, like many other utilities, uses computer-based algorithms. Individual risks, which are given different weight-ings – heavier on the customer, in Scottish Water’s case – are inputted individually to help paint a picture of the whole risk to the business. Of course, computer modelling has its limits. “They’re useful tools,” says Ms Whitehall, “but the ultimate decision has to be human.”

Integrated risk management is commonplace in most big com-panies, especially those that own critical physical infrastructure assets. But approaches to assessing risks and then painting the whole business picture will, quite natu-rally, vary. This creates problems: external auditors, for example, will find it hard to assess risk in a company if they are not au fait

with the idiosyncrasies in its asset manager’s approach.

There is, therefore, a cross-border campaign to improve and harmo-nise approaches to asset manage-ment and analysing risks therein.

It all began in Britain. In 2008, the British Standards Institution (BSI), the UK’s national standards body, unveiled a new standard, PAS 55. The standard combines 28 different requirements for establishing an integrated system of management for physical assets, from the point of acquisition or creation of the asset to the point of disposal or renewal.

By following the PAS 55 stand-ard, an asset manager can attain a stamp of approval for demonstrat-ing competent governance of their assets. It also brings other benefits; for example, making it easier to compare performance against other industries and allowing for better external audit. The standard took six years to develop with the involve-ment of 50 organisations, spanning ten countries and fifteen industries.

This British standard might soon become an international one. Development of the Inter-national Organization for Stand-ardization (ISO) management system standard for asset man-agement, or ISO 55000, is well under way. It is based on the BSI’s PAS 55.

The Institute of Asset Man-agement has thrown its weight behind the development of the international standard, which has the aim of increasing “the degree of international and cross-sector participation in the development of asset management good prac-tice and application in many more parts of the world”. At a recent meeting in Calgary, Canada, the final draft of the new international standard was agreed.

“Having a consistent way of evaluating risks across a diverse spectrum will give a better knowledge of where best to spend money and get a better

having a consistent way of evaluating risks across a diverse spectrum will give a better knowledge tof where best to spend money and get a better return overall

Source: HM Treasury

Source: International Organization for Standardization

planned UK government infrastructure spending over next decade

countries participating in development of isO 55000

private investment needed for government’s infrastructure plans

26

UK infrastructure projects planned by government

550

Source: British Standards Institute

publication of PAs 55 asset management standard

2008

planned release of isO 55000 asset management standard

February

2014

return overall,” says AMCL’s Mr Sharp. “If you’re a board that has responsibilities towards government assets and risks, then the ISO standard will give you the mechanisms for putting those processes and structures in place.”

Good asset management govern-ance, he explains, means having “effective line of sight” from corporate objectives at the top, down through the organisation to all aspects of asset manage-ment on the ground. The British and international standards, he says, specify all the necessary requirements that allow funders and stakeholders to achieve this clarity of vision.

Take, for example, Network Rail. It has to effectively split its £33-billion budget across a huge number of assets, such as track, signals and overhead electric cables. Each asset has a different life cycle; each carries its own risks. They could each be managed separately, but with such a huge portfolio of infrastructure assets and a multi-billion-pound main-

tenance and investment budget, oversight of all risks on a corporate level is essential.

Network Rail’s executives need to understand where they should spend their money in order to miti-gate the overall risk to the country’s rail network. The ISO and PAS 55 standards, says Mr Sharp, help achieve this.

To further develop the best integrated risk practices across industrial borders, there is also the SALVO project, a collaborative three-year effort to bring about better asset management strate-gies. London Underground, Scot-tish Water, Cambridge University, Scottish Power and Centrica, the owner of British Gas, are involved, among others. The project will provide case studies, guidance, training programmes, and model-ling and decision tools.

The UK government plans to invest £310 billion in 550 infra-structure projects over the next decade. Despite the current lack of clarity about these projects and regardless of whether an airport is built in the Thames Estuary or two more runways are laid at Heathrow, the govern-ment’s intention is clear: it wants to invest heavily. When the time comes to push on with these bold plans, an integrated approach to risk management, harmo-nised across industries, would be a worthy goal.

£230bn

£310bn

Samuel Berthelot Photography

How technology is such a valuable asset

PAGE 06



06

Ȗ Catching a train, boarding an air-craft or filling up the car with petrol are everyday activities we take for granted. Yet behind the scenes, a great deal of activity goes into ensur-ing railways remain as safe as pos-sible, planes are maintained to the highest standard, and the complex process of refining oil and delivering it to petrol stations is unimpeded.

For organisations that have a sig-nificant number of physical assets – ranging from the biggest transport and infrastructure groups, and those with considerable property holdings, through to smaller outfits such as local councils – managing those assets as effectively as pos-sible is essential for maintaining services and obtaining the best value for money.

Companies in highly regulated fields, such as utilities or those where safety is paramount, are more typical users of enterprise management software, but even organisations, such as television broadcasters, use it to keep track of the location and condition of assets, including cameras, satellite trucks and generators.

Implementing this software is far from cheap, with the costs running into the tens of millions depend-ing on the size of the organisation. Knowing the true purpose of such a system is vital if it is to achieve its purpose, according to David Small-bone, head of asset management for AMCL, a consultancy set up in

1997 that has helped to create the Institute for Asset Management. “You’ve got to know what it is you want to collect, and then how to get that information out of your infra-structure and into the system,” he explains.

Affordable handheld devices, such as smartphones and tablet computers, are playing a major role in helping companies to gather the information needed. “The advent of cheaper, more glamorous technology, such as iPads and iPhones, and getting them into the hands of those on the frontline means they start using them to email a picture of a problem back to headquarters, for example,” says Mr Smallbone.

“People need to understand the value of a task to want to do it. If you’ve gone out there in treacher-ous conditions and fixed a railway or a pump, the idea of then having to fill out lots of forms is not par-ticularly appealing. You have to engineer that cultural change and get people acting as data champi-ons,” he adds.

Technology is helping Network Rail to revolutionise the way it gathers information about maintenance work on the 22,000 miles of track, 30,000 bridges and 2,500 stations it is responsible for. Patrick Bossert, director of asset information, says that 1,100 iPhones were given to track work-ers as part of its £325-million

asset information strategy called ORBIS. Although Network Rail has used handheld devices in the past, personal ownership has proved to be the key in getting staff on side. “The level of engagement as a result of this has sparked more than 500 suggestions for mobile applications,” he says.

Network Rail hopes that ORBIS will revolutionise the way it col-lects, stores and uses information about its assets, and aims to save £50 million a year by 2019.

Stuart Querns, practice lead for HCL’s global enterprise asset man-agement, likens the development of user-friendly apps for smartphones and tablets to a swan gliding across a pond with the power of the soft-ware hidden underneath the water.

HCL has provided asset manage-ment systems for clients such as airlines that wanted to make their maintenance processes more effi-cient in a bid to minimise the time a plane is on the ground. Such systems have helped to manage the complex audit trail for such maintenance and unify previously separate systems. Having a single,

TECHNOLOGY

Renew assets to plug energy gap

PAGE 08

HOW tecHnOLOgY is A VALUABLe Asset HOW tecHnOLOgY is sUcH A VALUABLe Asset

Developments in technology are aiding companies to keep track of physical assets and put them to more efficient use, writes Chris Johnston

Developments in technology are aiding companies to keep track of physical assets and put them to more efficient use, writes Chris Johnston



07

unified asset management sys-tem reduces costs for a company and makes upgrades simpler. Mr Querns says: “It means that they have one source of the truth when it comes to the assets they own.”

Given the cost of implementing an asset management system, the nature of a company’s business will influence their decisions. A train operating company is more likely to be willing to invest at the start of a franchise, but much less likely toward the end of that period when it wants to “sweat” assets to maximise profits.

Similarly, a water company will often seek to spend on technology at the start of a price control period to increase its return on invest-ment. However, they may be more likely to consider longer-term opportunities than a train com-pany knowing that they will still be in place for the next control period.

Thames Water, Britain’s largest water company catering for 14 million households and busi-nesses in London and the South East, has partnered with IBM as part of its plan to upgrade deteriorating infrastructure over the next 25 years, while keeping within price controls set by the regulator. It has decided to do so two years before the next five-year regulatory period in a bid to find the safest and most innova-tive solutions.

IBM’s Jon Bentley says that the partnership would help Thames Water to make smarter decisions on its asset management and capi-tal works programmes, and deliver better customer service. One approach will be to analyse a range of social media channels, includ-ing Twitter and blogs, to identify trends and usage behaviour.

The recession has helped con-

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Ȗ For decades the quality of human capital has not been high up on the agenda when financial and strategic business decisions are being made, but as the UK transforms itself into a knowledge-based economy all that is starting to change.

What employees hold in their heads is now more important than ever, and companies are increas-ingly hiring staff because of what and who they know.

Moreover, the worst financial cri-sis in living memory has resulted in an unpredictable global economy and less stable organisations, which means that it is vital that workers have good judgement.

Adrian Nicholls, who leads Ernst & Young’s Valuation & Business Modelling team, believes that while employees are not some-thing who would be classically recognised as a tangible asset, they are absolutely critical.

“You will lose value if you’ve acquired something and lost key individuals who’ve been support-ing the business. In some cases the reputation of a business is entirely linked to certain indi-viduals,” he says.

“The focus on people by the businesses I work with is high. When carrying out their assess-ments, they’re often looking at what drives the business and offer incentives, such as share ownership, to keep staff. There is no point buying a business and watching its key assets walk out of the door.”

Stephen Taylor, a senior lecturer in human resource management at the University of Exeter Busi-ness School, adds that companies have to invest in human capital

like any other asset to stop it “depreciating”.

There is evidence that businesses are starting to realise more and more that they need to offer pay incentives and staff benefits to keep these assets. For example, a recent survey by the Chartered Institute of Personnel and Devel-opment (CIPD) found that more than half of employers expect their pay budgets will have increased by the end of the year.

But Charles Cotton, CIPD rewards adviser, warns that employers should be wary of an over-reliance on the conven-tional carrot-and-stick approach to reward.

Research has shown that “if… then” rewards, which attach financial incentives to specific behaviour or projects, can have a detrimental impact on intrinsic motivation by creating trans-actional relationships between employees and their organisation.

Communicating collective ben-efits to employees can also serve to remind them that they are part of a social endeavour with a stake in the success of their organisation, he says.

It is also imperative that firms keep these assets fresh through training and development, accord-ing to Mr Taylor. Knowledge management practices encourage people to share knowledge so if they leave the business the extent to which their knowledge leaves with them is limited.

Networking and social events in the workplace also allow peo-ple to know each other through cross-departmental boundaries so they can pass their knowledge on to others.

PEOPLE MANAGEMENT

huMan CaPital Must not be underValuedTreating staff members as valuable business assets in a knowledge-based economy requires investment, as Kathryn Hopkins reports

sultancies such as AMCL because it has made compa-nies think about the most cost-effective ways to deploy both resources and staff. According to Mr Smallbone: “Necessity is the mother of invention – do I really want my guys out there checking this piece of kit every four weeks or is there a piece of kit that allows me to check it every eight weeks?”

However, Leonard Hayes, technical director for AMT-SYBEX, another software company set up in 1990 that focuses on utilities and infra-structure, points out that implementing an enterprise asset management system is no quick fix. “Typically it will take between twelve months and two years, and the main challenges will often be about business change and data qual-ity rather than the software itself,” he says.

Customers also want to know whether a system has a proven track record in their industry and if staff fully understand the company’s needs, he says. AMT-SYBEX started off implementing and consulting on enterprise software, but has evolved into developing its own Affinity Suite of products. It is used by almost half of Britain’s big electricity, water and trans-port infrastructure groups, and integrates well with software from the big global software groups such as SAP and Oracle.

Industrial processes rely on technology and software

affordable handheld devices, such as smartphones and tablet computers, are playing a major role in helping companies to gather the information needed

Yagi Studio



08

Ȗ The outlook for energy mar-kets across the world is constantly evolving, with countries at myriad stages of development. What every country has in common, though, is a growing demand for energy – and the assets that provide it.

Energy assets are quite literally the engine room of a nation, driv-ing industry and lighting homes. The consequences of failing to maintain these assets are far-reaching: energy deficits cripple economies and stifle business. Poorly maintained existing power plants – and poorly planned future assets – cost owners millions of pounds in inefficiencies, which must then be passed on to the con-sumer. As the cost of keeping the lights on creeps ever higher, energy supply is a frequent focus of public interest and ire.

In the UK, energy companies are all too familiar with these threats. Within the next decade, nearly 25 per cent of the UK’s current generating capacity will be lost. Five major coal and oil plants have been shut down in the past six months alone, under the EU’s carbon-curbing Large Combustion Plant Directive, with four more to be wound down by the end of 2015. A new fleet of clean energy projects needs to be built to replace the retirement-age assets due to be decommissioned. Ernst & Young puts the cost of this investment at £233.5 billion by 2020.

The construction of these new, much-needed assets is highly exposed to government policy. The long-awaited Energy Bill, which contains wholesale changes to the way in which energy in the UK is subsidised, bought and sold,

is intended to provide investors and developers with the confi-dence needed to start building. At the moment, though, the policy is still shuffling through Parliament.

Energy giant SSE’s policy and research director Keith MacLean says that the impact of govern-ment policy on energy invest-ment cannot be ignored. “A huge challenge facing the UK energy sector at present is the scale of the investment required to replace or upgrade ageing assets, at a time when the underlying policy framework is in a state of flux. Not only is this uncertainty impacting on investment in new capacity, where a worrying hiatus is developing, but it is also creat-ing problems for existing genera-tion plant,” he says.

Indeed, the UK’s ageing physical energy assets are set in a social and economic landscape that looks very different to the one in which they were constructed decades ago. Energy projects set to come online in the next decade must be adequately “future-proofed” to withstand not just the physical elements, but future political and social demands.

Dr MacLean says , for now, the UK energy industry must be ready and willing to juggle a host of demands, while it waits for the gov-ernment to make good on its policy promises. “For energy generators, the challenge now is to manage their portfolio as effectively as possible, while retaining enough flexibility, both in terms of plant and personnel, to be available if and when the market recovers and a stable policy framework has been established.”

ENERGY

renew assets to Plug energY gaPSustainable energy is an asset of national and strategic importance, which must be managed to balance supply and demand. Olivia Gagan reports

ENERGY & UTILITIESUK FACTFILE

25% 80% 88% 75%

government target to reduce greenhouse gas emissions below the 1990 baseline by 2050Source: 2008 Climate Change Act

of the British public are concerned about steep rises in energy prices over the next 20 years

of the British public are concerned the UK is not investing fast enough in alternative sources of energy

of current UK generating capacity is due to be decommissioned by 2020

£27bn additional debt that utilities will need to take on to achieve £96bn capital expenditure, increasing debt from £33 billion in 2013 to £60 billion in 2030

D

Source: Ofwat

£15.5bn cost of upgrading National Grid’s high voltage electricity transmission network in England and Wales and the high pressure gas transmission network across Britain

c

Source: Ofgem

£110bn must be invested in UK electricity generation and transmission by 2020

A

Source: DECC

£20.6bn direct contribution of the energy sector to the UK economy in 2011

b

Source: Energy UK

£96bn capital expenditure needed on water infrastructure in England and Wales between 2010 and 2030

e

Source: Severn Trent Water

g

D

e

f

c

b

A

h

Source: DECCSource: DECCSource: DECC



09

Ȗ Utilities form the backbone of the UK, with the cables, pipes, roads and tunnels they create stretching to the farthest reaches of the country. The energy, water, power and waste that flow through these arterial networks are vital to keep the UK moving.

But the nation’s utility assets are growing tired. The UK’s golden age of engineering was 150 years ago, when many of our current systems were constructed. Decades of underinvestment means that utilities have struggled to keep up with population growth and technology advances.

The workforce trained to service these assets is ageing too. A 2012 study commissioned by the Royal Academy of Engineering found that the UK will need 100,000 new graduates in science, technology, engineering and mathematics (STEM) subjects every year until 2020 just to maintain current employment numbers. Utilities have a long – and expensive – task on their hands to ensure that their assets and staff can match future demand.

The UK’s largest water utility, Thames Water, is one such busi-ness using Victorian assets to service a 21st-century population. The company serves 14 million customers and is currently pro-posing a £4.2-billion upgrade of its sewer works, which would see Sir Joseph Bazalgette’s 1865 system augmented with a new tunnel 75 metres below London.

Thames Water’s asset director Lawrence Gosden acknowledges the scale of their task. “We have a significant amount of work to do upgrading our deteriorating infra-structure over the next 25 years and beyond, while keeping cus-tomers’ bills affordable. If we are to

achieve this, a different approach is required,” he says.

The National Grid is also reas-sessing its approach to existing and future assets. The operator owns and manages the systems that deliver gas and electricity across the entire country, and beyond. Last month it signed an agreement with grid operator Statnett to push forward with plans to build the first electricity link between the two countries.

However, the UK-Norway project comes with a £1.7-billion price tag and Kjell Arne Moi, Statnett’s head of process and IT, says it is a question of carefully managing the old and the new when it comes to deciding when and how to plough their cash into these projects.

“There needs to be a very fine balance between prioritising new investment and maintenance of existing assets. It’s the art of tim-ing investments and maintenance correctly, and having a solid asset management solution in place is vital to this,” he says.

“We see IT playing a major role in physical asset management, whereby we ensure we are facili-tating the flow of real-time infor-mation across the entire business.”

The implications of failing to look after existing and nurse a new generation of assets into existence are terminal for utilities, Mr Moi says. “Without ensuring leading asset management processes, the worst case scenario for us would be that our customers would be with-out power and our license to oper-ate would be severely jeopardised.”

Utilities must embrace strong asset management practices if they are to survive. “In our industry, managing the security of power supply is vital. Blackouts will not be tolerated,” he concludes.

UTILITIEs

inVesting in uK’s FutureStrong asset management of utilities networks is required to replace ageing infrastructure while maintaining services, writes Olivia Gagan

79% 50%

of the British public are concerned about the UK becoming too dependent on energy from other countriesSource: DECC

more water is used per day per person than 25 years agoSource: Environment Agency

£1.7bn cost of proposed UK-Norway electricity interconnector

h

Source: Statnett

Source: National Grid

£90bn of capital investment in the UK water industry since privatisation in 1989

f

Source: Ofwat

£4.2bn estimated cost of upgrading the Thames sewage network

g

Source: Thames Water

new graduates in science, technology, engineering and mathematics needed every year until 2020 to maintain current employment numbers

Source: Royal Academy of Engineering

100,000

new coal and oil UK generating capacity planned over the next decade7.5gW new UK nuclear generating capacity planned over the same period

current UK peak demand for electricity

60GW

12GW

Source: Thames Water

times a year sewage has to be discharged into the River thames due to overflowing sewers60of sewage would be discharged into the River thames each year by 2023 if the sewage network is not upgraded

70m tonnes

below London is the depth of the proposed thames tideway tunnel

75metres


ASSET MANAGEMENT & MAINTENANCE

10

setting a good standard inasset ManageMentJohn Woodhouse, experts Panel chairman at the Institute of Asset Management and TWPL managing director, says raising standards is pushing up performance

the hard evidence of results is greater than many would have believed possible

One of the best-known experts in integrated asset management, John Woodhouse is author of Managing Industrial Risk, and lecturers around the world at conferences and through university and in-house management training programmes

Ȗ There is growing international interest, debate and development in the more disciplined, value-maxim-ised management of business assets over their life cycles. This is yielding surprises, some very big opportu-nities and an increasing consensus about what needs to be done.

Leading organisations are elimi-nating up to 30 per cent of the “total cost of ownership”, raising performance, reducing risks and extending asset lives consider-ably – and such opportunities do not seem to be limited to specific industries or asset types.

Improved standards in asset management should, therefore, be regarded as a business impera-tive – a competitive edge in a com-mercial environment, and a core feature of responsible governance

and transparent good sense in the public sector.

However, there is still a lot of confusion about the subject: there are many different views on what comprises an asset and what asset management involves. Financial asset management, for example, is widely recognised as a juggling of capital-worth, yield, risk and sus-tainability in cash, stock and other investment options.

The management of industrial or infrastructure assets, in contrast, is seen by some in terms of portfolio acquisitions and disposals, and by others as a matter of engineering, technical and operational chal-lenges. And there are significant groups for whom asset manage-ment means just the mainte-nance of equipment or the iden-

OPINION


ASSET MANAGEMENT

COMMERCIAL FEATURE

Standard practice Kevin Price, enterprise asset management (EAM) senior product manager at Infor, examines how PAS 55 is helping organisations across the world to improve risk management, compliance and customer satisfaction in asset management

Many organisations struggle to establish a benchmark from which to build an asset management strategy on the basis that basic information, in asset management terms, is difficult to source.

In order to overcome this, a num-ber of standards and guidelines have been developed to help organ-isations establish a framework to achieve buy-in from all those who need to be involved, estab-lish a business case and approach asset management in a structured, proven manner.

Raising standards

PAS 55 covers the life cycle man-agement of assets, establishing a framework for trade-offs between performance, cost and risk. It ena-bles the integration of all aspects

of the asset life cycle from the first recognition of a need to design, acquisition, construction, commis-sioning, utilisation or operation, maintenance, renewal, modifica-tion and/or ultimate disposal. It also provides a common language for cross-functional discussion and provides the framework for under-standing how individual parts fit together, and how the many mutual interdependencies can be handled and optimised.

Crucially, the PAS 55 specifica-tions provide asset management practitioners with the tools to be able to explain their organisa-tion’s asset management strategy to all levels, as well as providing asset owners and managers with an understandable framework for asset management, which in turn secures buy-in and the two-way

communication necessary for the strategy to be successful. It also stipulates a continuous cycle of improvement based on the PDCA (Plan-Do-Check-Act) framework.

Framework for success

PAS 55 provides an “out-of-the-box” solution to a potentially com-plex discipline, helping to explain the business case and therefore expedite the business decision to implement. In turn this is moving organisations closer to realising the benefits of effective asset man-agement and raising standards across industry.

Systems which process infor-mation and help to keep an opera-tion available, reliable and safe are crucial and can cut costs, improve decisions and boost productivity,

and there is no substitute for dedi-cation and hard work.

The power of Infor EAM

Without a system equal to the organisations objectives and chal-lenges, there are risks for a less-than-optimal return on its invest-ment of both time and money in the effort.

At Infor™, we’ve been helping customers understand the con-nection between asset perfor-mance and top-line growth for years. We deliver the capabilities our customers need to put this understanding into action and make their enterprise asset man-agement a source of greater busi-ness efficiency.

Infor™ EAM is the most configurable enterprise-grade asset management solution on the market. For more information, please visit www.infor.com/solutions/eam [email protected] +44 (0)808 238 1641

This is moving organisations closer to realising the benefits of effective asset management and raising standards across industry

The man from auntie

PAGE 14

OvERvIEw OF AN ASSET mANAGEmENT SYSTEm

Portfolioasset systems

assets

Continual improvement

Conti

nual

impro

vemen

t

UtiliseAcquire / create

Organisation strategic plan

Asset management policy

Life cycle activities

AM plans

AM objectives and AM strategies

Development plan formanagement system

AM capabilitiesprocesses, resources,

competencies and technologies

MaintainDispose / replace


ASSET MANAGEMENT & MAINTENANCE

11

tification and location tracking of moveable items.

Assets are assets by virtue of their actual or potential value. Assets exist in many forms, such as people, equipment, reputation, data, contracts and cash, and they provide value in different ways, including financial returns, service levels and customer satisfaction over various time-frames.

Also assets are often highly inter-connected; their value may be realised through their combined performance within complex sys-tems, such as electricity networks, manufacturing processes or trans-port systems. What’s more, they present different decision-making challenges and requirements for investment, utilisation, mainte-nance and renewal or disposal during the different phases of their life cycles.

Seeking the optimal mix of value-for-money from individual assets, while optimising systems performance and maximising whole portfolio value, is thus a complex business.

In addition to this complexity, asset management has to consider the dynamic nature of stakeholder expectations, asset risks (their performance, reliability and deg-radation), the volatile economic environment, uncertain supply chains, climate change and work-force competency or demographic concerns. So this is why the devel-opment of guidance and standards during the last 15 years has been useful in sorting out what needs to be done.

Aside from the long-established financial services community, the disciplined, risk-based and whole life cycle-optimised approach to asset management has emerged from two primary sources: the North Sea oil and gas sector in the 1990s, and the public services sec-tor in Australia and New Zealand during the same period.

In both cases, a “perfect storm” of financial crises, safety inci-dents and changes to legislation forced a fundamental rethink about existing siloed departmental behaviours and short-termism. The subsequent transformations in planning, cross-disciplined collaboration, risk management and sustained performance were remarkable.

In 1994, the Institute of Asset Management (IAM) was formed to share and spread the good prac-tices, leading in 2004 to publica-tion of the first publicly available specification (PAS) for the optimal management of physical assets. PAS 55 defines 28 key require-ments for achieving maximum net value through a joined-up approach to asset management.

Taken up initially by the UK power and water utilities, the PAS 55 standard is now a world-wide success, translated into six languages and being adopted in railway networks, mining enter-prises, food manufacturers, air-ports, pharmaceutical companies, local governments, hospitals, pet-rochemical plants and facility management services.

It has consistently helped to organise priorities, co-ordinate resources and provide better transparency on what needs to be done, when and why to deliver bet-ter value for money.

Building on the successes of PAS55 and following two-and-a-half years of consultation with 26 participating countries, a full ISO (International Organization for Standardization) standard is shortly to be published.

This provides the necessary rigour and independent valida-tion mechanism for assuring and demonstrating good asset manage-ment. It is designed to integrate with existing management sys-tems, such as ISO 9000, ISO 14000 and OHSAS 18000, and it is safe to

assume that it will rapidly become an expected competency for any asset-managing organisation.

So what does a management system for asset management look like? A clear “line of sight” has to be established between business goals and execution of day-to-day activities. Those responsible for practical asset management tasks need to understand the why as well as the how.

Vested interests, budget pro-tectionism and short-termism all damage value. So conflicting priorities and departmental silos have to be broken down. This often involves significant culture change, and new performance criteria to encourage proactive, collaborative behaviours instead of fire-fighting and point-scoring.

Better and more consistent, risk-based decision-making is also a key feature of good asset management. Many organisations chase greater efficiency, sometimes even to the extent of doing the wrong things faster, cheaper, better. Leading asset management organisations can demonstrate what is worth doing, when and why, and can quantify the impact of deferment or not doing things.

The outcomes of concerted efforts towards better asset man-agement, taking all the challenges into account, have been remark-able. The hard evidence of results is greater than many would have believed possible.

The prizes are clearly large and the lessons shareable. There are many blind alleys, however, and it is easy to slip backwards if, for example, senior managers change or people believe that a technology-led “solution” will solve all the problems. Maturity development in asset management is a subtle, multi-faceted roadmap, but the prizes are huge and the evi-dence of what needs to be done is increasingly available.

Organisational strategic goals and stakeholder expectations

typical priorities and concerns

mULTIpLE REqUIREmENTS IN mANAGING ASSETS

Investment planning, return on capital employed , risk and sustainability

System performance, cost and risk management

Optimise life cycle activities

PAs 55 asset management system

UtiliseCreate / acquire

Maintain Renew / dispose

corporate / organisation management

Manage asset portfolio

Manage asset systems

Manage assets

12


theraconteur.co.uk twitter.com/raconteurmedia

Ȗ Aggressive government belt-tightening and financial market deleveraging in the post-crisis era have led to restraint on infrastruc-ture investment globally. Coupled with this predicament, the world is facing a crisis as ageing infrastruc-ture is crying out for renovation and replacement.

According to a report from McK-insey Global Institute, an estimated US$57 trillion of infrastructure investment will be needed globally between now and 2030, around 60 per cent more than the $36 trillion spent over the past 18 years.

What’s more, the Organisation for Economic Co-operation and Development’s (OECD) Infra-structure to 2030 report says global infrastructure investment needed across the land transport (road and rail), telecoms, electric-ity and water sectors will amount to around $53 trillion over the period of 2010 to 2030, while global infrastructure investment needs for airports, ports, rail, and oil and gas could amount to more than $11 trillion.

Although the need for infra-structure development across the world is clearly evident, the onset of the global financial crisis in 2008 has hampered growth and led to the scaling back of procure-ment pipelines for infrastructure in many economies.

Alistair Higgins, a director at ING

bank, says: “Politically, govern-ments are saying they are spending on infrastructure, but the truth is they are not. Everyone is good at talking up infrastructure as a mech-anism for economic growth, but in reality the procurement pipeline has substantially dropped off.”

The UK is a prime example of this. Government spending cuts have led to a reduction in infra-structure spend. Recent statistics for public sector net investment, which includes infrastructure investment, show that it fell from 3.4 per cent of gross domestic product (GDP) in 2009-10 (around £49 billion) to 1.9 per cent of GDP in 2011-12 (around £29 billion). It is forecast to fall to 1.4 per cent of GDP (around £26 billion) by 2016-17.

However, the need for infra-structure development in the UK will only increase as the popula-tion grows, which the Office for National Statistics expects to reach 70 million people by mid-2027.

Richard Threlfall, UK head of Infrastructure, Building and Con-struction at KPMG, says: “The UK government needs to spend around £400 billion on infrastruc-ture development over the next

ten years. Around £200 billion is needed in energy, both conven-tional and renewables, about £100 billion in transport, and the bal-ance in everything else. The need is significantly more than we have managed to spend on infrastruc-ture in the past.”

It is not government spend-ing cuts alone that have ham-pered infrastructure devel-opment across the globe as financial market deleveraging has meant that commercial banks have scaled back lending to infrastructure projects.

Nick Prior, a partner at Deloitte, says: “The financial crisis has led to significant contraction of pri-vate financing of infrastructure, both in terms of bank debt and the capital markets, as well as pipeline.

The number of banks lending to infrastructure pre-crisis was about 40 to 50, now we are talking single digits and the terms on which they are willing to lend are significantly less attractive. Meanwhile the col-lapse of the monoline insurance market has led to a contraction in the role of the capital markets.”

According to data from Infra-structure Journal, in 2012 the overall volume of project- financed

INFRAsTRUCTURE

PRiVAte sectOR FiX FOR gLOBAL cRisis PRiVAte sectOR FiX FOR gLOBAL cRisis

The world is in the midst of a global infrastructure crisis but, with the help of asset managers, institutional capital can be put to use, writes Sarah Ahmad Tame

The world is in the midst of a global infrastructure crisis but, with the help of asset managers, institutional capital can be put to use, writes Sarah Ahmad Tame




13

institutional investors need a third-party asset manager or transaction manager to be able to help structure projects

of infrastructure investment will be needed globally up to 2030

$57trn

in assets under management in the UK pension fund industry in 2012

£1.8trn

Source: McKinsey Global Institute

Source: Towers Watson

in UK government infrastructure spending needed over the next ten years

£400bn

Source: KPMG

infrastructure schemes fell dra-matically with just 419 deals, worth $182 billion, closed – less than in 2009. Meanwhile, the total value of project finance transactions in the UK in 2012 was $10 billion, compared to $32 billion in 2007.

Since the financial crisis banks are facing growing pressure to shrink their balance sheets and deleverage, and as a result have become increasingly selective in their investments. In addition, the impending Basel III banking regulation, designed to strengthen bank capital requirements after the crisis by increasing bank liquidity and bank leverage, will apply further pressure to those banks wishing to lend long-term capital to infrastructure projects.

Mr Higgins says: “Banks are stuck in a quandary. The gov-ernment and public view is that they should be supporting public infrastructure, but regulatory

pressures are stopping them. There is real pressure on balance sheets to be shrunk; infrastruc-ture lending with its long-term investment horizon is particu-larly hard hit.”

As a result, governments are increasingly searching for a new private sector solution to the infrastructure deficit. The UK itself is on the brink of some major developments; it has refocused its attention on infrastructure as a catalyst for economic growth and is looking to the UK pension fund community as a source of long-term capital to fund its National Infrastructure Plan (NIP).

The pool of capital available within the UK’s pension fund community is vast, with £1.8 tril-lion of assets under management in 2012, according to Towers Watson. The NIP, launched in 2011, outlines a pipeline of more than 550 planned public and

private infrastructure projects, worth £310 billion, to be devel-oped over the next decade, and the government is hoping the majority of this will be financed with institutional money.

The National Association of Pen-sion Funds has also teamed up with the UK’s largest pension funds to develop the Pension Infrastructure Platform, a government-backed ini-tiative, to facilitate UK pension fund investment in UK infrastructure.

“It is a necessity to attract the private sector to fund infrastruc-ture given the constraints on government. The solution is to use private finance to bridge the gap between the lack of affordability and the infrastructure need of tomorrow,” Mr Threlfall says.

Pension funds and insurance companies are a natural fit for infrastructure investment as the asset class can provide investors with a long-dated stable cash flow to match long-term liabilities. Over the last decade there has been a sea change in the way that pension funds, particularly, are investing with a shift away from equities and gilts to alternatives, including infrastructure, as investment focus moves to liability-matching above overall return.

It is not the UK alone that sees the vast amount of capital locked away in pension funds and insurance companies as the key to infrastructure investment in the future. This has become a global campaign with govern-ments around the world hoping to attract institutional capital into infrastructure.

Mr Higgins says: “There is a strong case for pension fund and insurance money to invest in this space, but the investment oppor-tunities are complex, creating substantial hurdles.”

Mark Richards, partner in the Projects and Infrastructure Finance Team at law firm Berwin Leighton Paisner, adds: “Institu-tional investors have large pots of money sitting there waiting to be deployed. They need someone to be a third-party asset manager or transaction manager to be able to help structure those projects. It will be really important for the transition of the market to have somebody there, whether it is a bank or an asset manager, to facili-tate these deals.”

In the UK the issue is also one of scale; the country’s pension fund industry is large and frag-mented and individual pension funds have neither the size nor the expertise to invest directly in infrastructure.

Mr Higgins concludes that pension funds and insurers are not set up to invest in infra-structure. They currently lack the expertise and resources for what is a relatively complex asset class. Banks and special-ist assets managers can support these institutional investors by providing the expertise and oversight needed to deliver infrastructure for the govern-ment and public good.

Ageing infrastructure could be upgraded by investing private assets

Ȗ In the troubled economic times in which Britain remains mired, asset-intensive companies both large and small have been under pressure, having to squeeze maxi-mum value out of physical assets.

But some bean counters in the back office have been slow to real-ise the benefits of asset manage-ment, according to Daniël Pairon, head of KPMG’s global asset man-agement team.

Doing so can improve finan-cial performance by optimising maintenance costs, replacement expenditure, asset performance and asset risks, as well as give better documentation of asset decision-making, he says.

An asset management system also provides a better understand-ing of the total cost of ownership, whole asset life cycles, return of assets employed or financial-tech-nical reporting, all of which are important to corporate financial controllers and board members.

Britain is further down the road than Europe in asset management, he believes, while asset-intensive companies in most countries on the Continent are still finding out what the discipline involves and the benefits it can bring.

“Asset management needs to be positioned as high as possible in an asset-intensive organisation as a strategic function,” Mr Pai-ron explains. “It is not just about maintenance and neither is it just an accounting function. It is multi-disciplinary and, for it to be success-ful, must involve operational and technical staff, as well as those from finance, and be supported by IT.”

Being able to prove that an organi-sation has a lean and effective asset management system can also allo-cate resources, support funding or help improve its credit rating. “It will definitely lead to more accurate and transparent financial-technical reporting,” he adds.

Investors are likely to have more confidence in an asset-

intensive company with an asset management system in place, Mr Pairon says, because executives are able to give assurance that they are in control of managing their assets. Physical assets can easily account for between 60 and 80 per cent of such compa-nies' balance sheets.

A recent KPMG study, which examined 52 listed, asset-intensive companies from different sec-tors and geographic areas, found there was very little information given by management about their control of physical assets. “All we found was information they were required to report by local regula-tory or legal requirements. Almost none of those companies went any further, which demonstrates the need to emphasise the financial and non-financial advantages of involving finance in asset manage-ment,” Mr Pairon says.

The insights formulated by KPMG about financial-technical reporting and transparency have been trans-lated into the current ISO 5500x (International Organization for Standardization) final draft inter-national standard for asset manage-ment, which is due to be published by early-2014.

The danger of failing to involve finance in asset management is that, over several years, the financial accounts fail to reflect the true value and condition of physical assets.

While understating or overstat-ing the value of a disposal by £10 million seems not to be material to a company with a £50-billion bal-ance sheet, Mr Pairon points out that over time such discrepancies will add up and result in an inac-curate financial picture.

Therefore, one of the key conditions is employing reli-able technical asset data linked to identifiable and auditable accounting records. While that may be a challenge for many asset-intensive companies, it could be well worth the effort.

FINANCE

bean CountersMust taKe notecomprehensive asset management boosts the bottom line and can improve a company’s credit rating, as Chris Johnston discovers

the danger of failing to involve finance in asset management is that, over several years, the financial accounts fail to reflect the true value and condition of physical assets

Philipp Klinger

14



the Man FroM auntie in ChargeoF a new trading diVision

Raymond Snoddy meets the executive responsible for the bbc’s property portfolio

money out of property in the UK, you are not a great operator,” says the 53 year old, who once played rugby for London Irish.

Chris was advising major corpo-rate clients, such as GlaxoSmith-Klein, Nestlé and Microsoft, before moving over to the client side, first with Disney and then the BBC.

The property world, he believes, is hopelessly fragmented between asset and transaction management, design and construction manage-ment and facility management.

“They are three different streams divided by three different tribes. If you are a facility manager, you are regarded as bottom of the pile compared with the pinstripe-suited chartered surveying world, and then into design and con-struction management design,” he explains.

There is not only strife between the tribes, but also with the pleth-ora of advisers from quantity sur-veys to engineers.

Chris, at an organisation such as the BBC with public purposes, such as transparency to licence fee payers and encouraging urban regeneration with its buildings, stands in the middle.

“I see my role as instigator, inte-grator and interpreter,” he says, repeating the words that define his Twitter profile.

It adds up to interpreting between the various tribes, who often speak their own inter-nal languages, integrating the various disciplines and making things happen.

The world, he believes, has changed more than the buildings, which have yet to adapt fully to the digital and knowledge revo-lution. A building-centric world has to move to a people-centric approach reflecting the fact many people work in an office, at home and often in a third place.

As a result of Chris’s approach, the BBC will have reduced its real estate footprint by 40 per cent by

2017 and 60 per cent of it will have been modernised with annual savings in property expenditure of £47 million a year by 2016-17.

As for Salford, Chris believes the controversy, driven by short-term considerations of moving costs, will give way to an appreciation that a “Pinewood of the North” has been created uniting the BBC, ITV, independent producers and Salford University in a new Media City.

He is particularly proud of what has been achieved at New Broad-casting House where BBC jour-nalism has been brought together with the World Service.

“All you have to do is walk around it today to feel the buzz,” he says. He points out that the case for the defence, on the delayed and initially troubled £1.1 billion project, includes the £736 million of BBC property released as a result.

His remaining tasks include delivering vacant possession of Television Centre to Stanhope in March 2015 to trigger the last tranche of the purchase price, modernising the three main BBC studios and creating a new home for BBC Worldwide, the corpora-tion’s commercial arm.

In the process, Chris market-tested a conventional sale, which would have produced most cash,

against “a smart-value sale” which will not just retain major studios for BBC use, but will also produce revenues from planned media-experience ventures.

The hope is to maximise the value of the BBC brand just round the corner from the Westfield shopping centre with its millions of visitors.

While the public service con-solidates in its spiritual home in Portland Place, the commercial activities will be concentrated in Television Centre, though the listed centre will no longer be in BBC ownership.

“We’ll have the ability to shape the future and, contrary to popu-lar opinion, it’s not closing for good, it’s just an intermission,” explains Chris, who plans a port-folio existence in future. He has already been appointed a non-executive director of NHS Prop-erty Services where there might be scope for more of a strategic asset approach.

But what is he going to do about the infestation of mice at New Broadcasting House?

“Not my problem anymore,” he says, after a pause for thought.

Ȗ Chris Kane has had three differ-ent titles during his nine years in charge of BBC property – head of Corporate Real Estate, head of BBC Workspace and now, chief executive of BBC Commercial Holdings.

In an organisation famous for bestowing silly titles, the changes on Chris’s business cards have actually coincided with three fun-damental phases in the BBC’s management of more than 500 buildings across 616,000 square metres of space throughout the UK.

The task he was set was to turn property from being a commodity into “a strategic asset” for the BBC.

First he had to begin the consoli-

dation of buildings and had to cope with the fact that only 2 per cent of the BBC’s real estate was judged to be fit for purpose – less than 15 years old.

Then there was his responsibility for the “development, financing and implementation of the BBC’s £2-billion property strategy, and for managing the team that provides the right workplace for the most creative organisation in the world”.

The £2 billion has produced the BBC’s new Scottish headquarters at Pacific Quay in Glasgow and the more controversial moves to Sal-ford as well as the £1.1-billion New Broadcasting House development

in central London.Finally Chris, a genial Irishman

from County Kildare, has the task of ensuring that a strong BBC legacy – and stream of revenue – results from the sale of the much-loved BBC Television Centre to Stanhope for £200 million.

Although having qualifications in surveying and asset manage-ment, the BBC executive insists he is neither a conventional sur-veyor nor asset manager.

“The British property industry is pretty skewed to the supply side because historically it has all been down to location, location, location and, if you can’t make

INTERVIEW

Chris Kane, chief executive of BBC Commercial Holdings


the task he was set was to turn property from being a commodity into ‘a strategic asset’ for the bbC

15



cUtBAcKs ARe A cHAnce tO DO tHings BetteR Management of public sector estates is undergoing a thorough review as cuts bite, writes James Dean

Ȗ Strolling southwards from Nel-son’s Column, the city rambler passes a hotchpotch of buildings forged by more than three centu-ries of history. In five minutes, the walker has split the heart of British government, passing the Ministry of Defence, the Foreign Office and HM Revenue & Customs, before

reaching Parliament Square.These grand old shrines to

bureaucracy have not been insu-lated from modern problems. As a dearth of property continued to force up the cost of living and working space in Britain, and as the economy stuttered after the financial crisis, the cuts came.

In his 2010 Spending Review, Chancellor George Osborne told government departments to reduce their running costs by at least 33 per cent, to bring savings of £6 billion. “The cuts present major risks and challenges for Whitehall,” the Institute for Gov-ernment, the influential think

FACILITIEs

tank, says in a report, “but also an opportunity to address deep-rooted weaknesses and, poten-tially, to emerge more capable and effective in future.” These cuts are helping to reshape the way the public sector manages its estates.

The Government Property Unit (GPU) was set up in 2010 with the vision of creating “an efficient, fit-for-purpose and sustainable estate that delivers value for money, and facilitates flexible working”. The unit must put into action the Chan-cellor’s national property controls, which include a moratorium on new leases. The National Audit Office estimates that through the GPU, the government saved £212 million over the 20 months to December 2012. A further £830 million of savings are being touted.

Two years after the spending cuts were announced, consult-ants Deloitte interviewed senior figures in government estates management and private sector contractors. Based on these inter-views, Deloitte recommended five changes that would bring better public sector estates manage-ment: building a respected asset management profession within an organisation; joining up estate management with other corporate services; effectively interacting with private sector providers; col-lecting a better standard of data in order to enable the effective use of analytics tools; and building a collaborative strategy between the top tiers of public bodies.

The BBC appears to be going down this route, as does the National Health Service. Like the GPU, the NHS has centralised the management of its estates to a new unit, NHS Property Services, which is charged with catalogu-ing the health estate and ration-alising it. In April, Primary Care Trusts were abolished and NHS Property Services took over all their property. This created one of the largest centrally-managed property portfolios in Europe, with 4,000 assets from hospitals to countryside GP practices, valued collectively at around £3 billion.

The unit has already warned GPs that the rents on their surgeries will be raised to bring them into line with the rest of the market. Last month it instructed Assura, a private healthcare property company, to build a £10-million community health centre in Sud-bury, Suffolk, to replace two local hospitals.

“The single biggest challenge for individual bodies will be to get the best from private sector partners,” Deloitte suggests. “Both sides may need to accept that in future the ‘pain’ and the ‘gain’ sides of com-plex deals may have to be shared more evenly.”

Regardless of future challenges, it appears that the active, central-ised management of public sector estates, favouring greater inter-action with the private sector, is becoming the norm.

The government is turning back the clock

on public spending

Management of public sector estates is undergoing a thorough review as cuts bite, writes James Dean

cUtBAcKs ARe A cHAnce tO DO tHings BetteR

D Berwin

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