enrique ugarte - uts helmsman centre

C O N Q U E R E DCOMPLEXITY© Helmsman International Pty Ltd 2016

Who is Helmsman

EXPERTS IN COMPLEX ASSET PERFORMANCE

Strategy Contracts Transformation Sustainment

Delivering Outcomes across the End-to-End Complex Asset Value Chain

ACCELERATE VALUE CREATION BRING PEOPLE TOGETHER DELIVER COMPLEX CHANGE IMPROVE ASSET PERFORMANCE

• Large Complex Asset Acquisitions

• Product & Technology Commercialisation

• Outsourcing/Insourcing

• New Market Making Ventures

• Asset System Operations & Expansion

Legal & Social Contract Alignment:

• Organisational Alignment

• Industry Alignment

• Executive Alignment

• Client-Supplier Alignment

• Corporate-Compliance Alignment

Strategy & Funding:

• Corporate Strategy Execution

• Portfolio Execution Capability

• Complex Asset/Infrastructure Delivery

• Merger & Acquisition Integrations

• Mega Project Intervention & Recovery • Sustainment System Transformation

• Asset Management Operating Model

• Corporate Governance Systems

• Shutdown Maintenance Performance

• Asset Performance improvement

Complex Project Execution: Maintenance Organisation Performance:


Bruce Ferguson, chief executive at Helmsman International, said that much of the $150 billion spent on

infrastructure annually in Australia “is wasted, due to cost blowouts and inefficiencies”.

He gave as examples the Brisbane Airport link and the Chevron Gorgon liquefied natural gas project in

Western Australia.

The former, he said, cost $4.1bn, but suffered from unexpectedly poor geology and problems in sourcing

steel, and experienced $1bn in writedowns as a result.

Gorgon was “another prime example” — with the original budget of $US34bn blowing out to $US54bn

($75bn).

He expressed confidence that “by bringing academia and industry together with government” the

productivity of such projects could be enhanced by 5 to 10 per cent nationwide.

“That’s a potential saving of between $5bn and $15bn a year that can go back into the Australian

economy,” he said.

Organisations and executives needed to “manage the wider complexities” that often caused delays and

cost overruns, he said.

Management consultants Helmsman and the University of

Technology, Sydney, are setting up a centre to improve the

productivity of mega-projects.

The centre — likely to receive about $6 million over five years — will

be based at the university’s business school. It will be part of an

international collaboration with Canada, India, Holland and the UK.

The UTS-Helmsman Centre for Mega Projects


A measurable difference to the Australian Economy

“Making a measurable difference to the Australian Economy

by improving the performance of Complex Assets and Mega Projects”


Objective 1: Deliver a measurable improvement to the Australian economyEnabling improved business performance for Industry and improved economic performance

for the Country

Objective 2: Be the Australian reference example for University/Industry InnovationA New Model that will be the reference example of how Australia can innovate via

University/Industry collaboration

The Mega Projects Centre has 2 Objectives


Fixed InfrastructureSuch as road/rail infrastructure, machine units, bridges, buildings and structures

Fleet InfrastructureSuch as rolling, flying and floating stock

Network Infrastructure Such as pipelines, powerlines, road, rail and telecoms networks

Process InfrastructureSuch as mining/drilling operations, oil & gas refineries, power plants, continuous manufacturing and

production facilities

Information InfrastructureSuch as social welfare, national administration systems, healthcare, telecoms, central control systems

and financial services

The Mega Projects Sector


PUBLIC SECTOR PRIVATE SECTOR RESEARCH & EDUCATION

MEGA PROJECTS INDUSTRY

Participation – Early Conversations


In Procurement, the elements of Probity, Governance and Innovation cannot always pull in the same

direction and demand that trade-off decisions need to be made. However, industry believes Innovation is

being unnecessarily compromised for Probity and Governance and this imbalance is having a significant

impact on Project Productivity.

It creates an adversarial relationshipThe legal cost of avoidable disputes between parties is approximately 2.5% of total expenditure.1

It drives inefficiencyAdministration and Bureaucracy related to procurement and contracting is more than 10% of total cost.2

It stifles innovationThe instructional nature of procurement contracts undermines vendors’ ability to be innovative.

Anecdotal evidence suggests that the loss in value as a result of unfulfilled innovation is greater than 20%.3

Better Procurement Australia

References:

1. ARCADIS, Global Construction Disputes2014

2. Implications for design and construct contractors operating in a PPP environment - Jefferies, M, 2016

3. Constituent Interviews & Two Stage Open Book Procurement in Construction (UK)


Innovation is born in Ambiguity

Ideas Fluidity

OutcomeFluidity

OptionsFluidity

ApproachFluidity

Triple-C Fluidity

HIGH AMBIGUITY: HIGH INNOVATION LOW AMBIGUITY:LOW INNOVATION

Procurement Innovation Value Chain


Innovation requires Collaboration

• Left Field (No RFI)• Unique Proposition

• Blue Sky• Strategic Thinking

• Greenfield• Design Thinking

• Blueprint• Critical Thinking

• Schedule & Plan• Planning Thinking

• Non-Competitive• Supplier led Prop

• Direction Defined• Outcome Undefined

• Outcome Defined• Solution Undefined

• Solution Defined• Approach Undefined

• Requirements Defined• Trade-offs Undefined

Ideas Fluidity

OutcomeFluidity

OptionsFluidity

ApproachFluidity

Triple-C Fluidity




Collaboration needs a Mechanism

Unsolicited Proposal

Innovative Concept

Innovative Option

Innovative Tender

Competitive Tender

Mechanism Mechanism

• Left Field (No RFI)• Unique Proposition

• Blue Sky• Strategic Thinking

• Greenfield• Design Thinking

• Blueprint• Critical Thinking

• Schedule & Plan• Planning Thinking

• Non-Competitive• Supplier led Prop

• Direction Defined• Outcome Undefined

• Outcome Defined• Solution Undefined

• Solution Defined• Approach Undefined

• Requirements Defined• Trade-offs Undefined

No Mechanism

Ideas Fluidity

OutcomeFluidity

OptionsFluidity

ApproachFluidity

Triple-C Fluidity




New Innovation Mechanisms


Requires 3 New Capabilities


New Innovative Procurement Pathways


1. Safe Harbour (Legal Construct)The ability to engage openly and candidly with total confidence that ideas, copyright and intellectual

property will remain confidential and protected

2. Apples & Oranges - Option Evaluation & Selection (Business Management)The ability to consider and evaluate wildly varying concepts and ideas; not apples & apples

3. Accountability in Uncertainty (Management Theory)Empowering the team to respond to shifting environments and emergent issues; not set things in stone

Industry needs to adopt 3 new capabilities


A Penal Colony

Australian Government was originally established as a gaol with an inherent intention to direct and

control….not to innovate. Is this inherent in our DNA?

Fortress Australia

Border security is appropriately rigorous and effective particularly when it comes to flora and fauna.

Have we transported these procedures across to other departments and agencies?

No Board of Directors

Private sector organisations generally have a Board of Directors who take accountability for innovation risks.

And learn from mistakes. Will an organisation without Board accountability tend to avoid mistakes?

Projects and Procurement is a Distributed Capability

Projects and Procurement don’t have a dedicated agency, department or minister to lead the way. As a result

are approaches and methodologies being developed at an operational level rather than a strategic level?

4. Drivers of this (procurement) behaviour


Policy LayerNew probity frameworks and controls to be applied to both procurers and vendors.

Process LayerA new way of thinking and behaving at procurement control centres across.

Supplier LayerNew supplier capability as part of their bidding, proposition, design and innovation approaches.

Knowledge LayerConsumable education and professional development offerings for Industry

Solution Dissemination and Adoption


The Office of Government Commerce (OGC UK)The Office of Government Commerce (OGC UK) was established as

part of the HM Treasury in 2000. It was a 10 Year initiative and was

closed in 2011.

The OGC was set up to become the Government's centre of excellence

in procurement for up to 200 Government Departments, non-

governmental bodies and agencies. It had the remit of improving the

efficiency and effectiveness of the Government's £13 billion annual civil

procurement budget.

Overall annual budget for the initiative was AUD$80 million (total) to $20

million (conservatively – external consultancy cost only). So over 10

years this equates to somewhere in the order of a AUD$200 - $800

million investment.5

As at 2006 the OGC was able to claim annual savings of AUD$29 BN.

Of this, direct productivity annual savings of $17Bn (conservatively –

procurement & time only) delivered a conservative return of 35X times

the total investment each year.

References:

Deloitte Access Economics – Large capital projects report for the Business Council of Australia (BCA), April 2012

ABS 56250.0 data series – 12Yr Average 1999 –20011

UK House of Commons Treasury Committee, 2007 Budget

Precedence (UK Government)

Two Stage Open Book Procurement in Construction (UK)The Government Construction Strategy (GCS UK) published in May 2011 stated

an intention to reduce the cost of public sector construction by up to 20% by the

end of the parliament, and to stimulate growth in construction.

The Government Construction Strategy: Final Report of the Procurement/Lean

Client Task Group, published in July 2012, developed three potential new

strategies to help achieve this aim:

• Two Stage Open Book.

• Cost Led Procurement (CLP).

• Integrated Project Insurance (IPI).

By 2014 a number of trial projects were established to assess the two-stage,

open-book method had been completed and achieved the desired benefits

• Ministry of Justice, Cookham Wood – achieved a 20% cost saving

• Surrey County Council, Project Horizon – achieved a 17.4% saving over 5yrs

• Hackney Homes and Homes for Haringey – achieved a 14% cost saving

The UK construction industry represents some 7 per cent of GDP. Around 40 per

cent of this - more than £40 billion worth of work - is delivered for the public

sector with the government acting as the industry’s largest customer.

References:

Government Construction Strategy: Final Report of the Procurement/Lean Client Task Group. July 2012

UK Cabinet Office, 2014


Better Procurement Australia’ Governance BoardThe Governance Board will set direction and also act in the capacity of Design Authority.

Implementation Partner Service providers with the desire to support solution implementation.

Solution DesignerOrganisations are invited to participate in facilitated boardroom Co-design sessions.

Research ContributorAccess people and information for the purposes of data collection and analysis.

Solution Signatory (obligatory)Observing organisations may wish to support the initiative without being direct contributors.

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Contact

Enrique UgarteUTS-Helmsman Centre for Mega ProjectsM: 0413 942 808E: [email protected]