Business Planning Criteria

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Network Rail

Business Planning Criteria

March 2006



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Network Rail Business Planning Criteria

Contents

Introduction .....................................................................................................................................3 Part 1: Strategy .........................................................................................................................4 1 Corporate strategy.....................................................................................................................5 2 Stakeholder and statutory requirements...................................................................................9 Part 2: Asset management....................................................................................................11 3 Asset management framework...............................................................................................12 4 Utilisation and output specification..........................................................................................13 5 Asset policies ...........................................................................................................................17 6 Investment regulations.............................................................................................................21 7 Asset plans...............................................................................................................................28 Part 3: Appendices.................................................................................................................31 Appendix 1: Supporting documents...........................................................................................32 Appendix 2: Integrated Risk Management Process.................................................................33 Appendix 3: Regulatory targets..................................................................................................34 Appendix 4: How the criteria are applied in practice.................................................................36 Appendix 5: 26 strategic routes..................................................................................................38 Appendix 6: Route classification................................................................................................39 Appendix 7: Draft network capability parameters .....................................................................40



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IntroductionNetwork Rail has a pivotal role in a complex

industry, with responsibility for the operation,

maintenance, renewal and, in conjunction with train

operators and funders, the development or

enhancement of the national rail network. As a

consequence, the way in which we look after ourassets affects a wide range of people. For

example, it is important for train operators,

passengers and freight users that we operate and

maintain the network in a way which allows their

services to run safely, efficiently and reliably. In

addition, there are wider benefits to society and the

environment to be gained from delivering an

effective national rail network that provides an

integrated, socially inclusive and sustainable

transport system.

Our aim is to carry out the asset management

activities that support these responsibilities in a way

that provides demonstrable value for money to

passenger and freight operators and to the ultimatecustomers of the railway – the fare paying

passengers, freight users and the taxpayer. We are

committed to integrating environmental

management with the safe and efficient operation of

the railway and treat all legal obligations as the

minimum standard.

PurposeThe purpose of this document is to help our

employees and industry partners understand:

• the context in which investment and other

decisions are made to meet our obligations

• the criteria to be applied in making these

decisions in accordance with Condition 7 of our

network licence (including the priority and timing

of maintenance and renewal works and the parts

of the network where this will be carried out)

• where constraints exist (e.g. the availability of

funding, access to the network or resources to

carry out the work), how activities should be

prioritised and trade-offs made

• how we engage with our stakeholders on the

development of these plans and ultimately

improve the value delivered by the rail network.

ScopeThe criteria detailed in this document apply to all

assets that are owned and managed by NetworkRail that constitute the national rail network, and

cover design, installation, maintenance and renewal

– both at an individual asset and at a system level.

This document does not specifically address

operational issues. Our operating policies set out

how the services on the route will be delivered

safely and reliably, including the contribution made

by the production of a resilient timetable. The

Railway Operational Code (ROC) sets out the

arrangements for the day-to-day management and

control of the network and includes both network-

wide sections and route sections reflecting the

specific circumstances of the route.

The Business Planning Criteria is the primary

document for outlining the principles by which we

deliver our asset management responsibilities.

There are a number of other documents that areimportant in this process, as outlined in Appendix 1.

Additional information on the key principles

contained in these documents and the context

within which they are used are referenced

throughout this document as appropriate. In

addition, some of the content of these documents

has been duplicated here to minimise the need for

the reader to access multiple documents. During

2006 it is our intention to replace these references

with hyperlinks and remove much of this duplicated

text.

This document has been updated following the

consultation issued in 2005 and subsequentdiscussion with stakeholders. Although it is not

subject to further consultation before being

established it will continue to be developed in the

light of further discussion with these stakeholders.

In particular we would hope to simplify the

document considerably with the detail being

updated separately as the issues become more

widely understood and accepted. To this end users

of this document are invited to send their views and

feedback to:

Director, Planning & Regulation

Network Rail

40 Melton Street

LondonNW1 2EE

This document is available on the Network Rail

website (www.networkrail.co.uk).



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Part 1: Strategy



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1 Corporate strategy1.1 Our strategyThe successful delivery of our asset management

responsibilities requires a robust and consistent

framework that defines the actions we take to

optimise the overall cost of the railway and the

services to passengers and freight users. Deliverymust be achieved within the available funds and be

consistent with the reasonable requirements of our

stakeholders. Our strategy to achieve these aims is

as follows:

• we will continue our focus on passenger and

workforce safety and strive to maintain the

position where rail travel is one of the safest forms

of transport

• we plan to deliver all existing contractual and

regulatory commitments, except where analysis

and consultation demonstrates that better value

for the available funds would be obtained by

agreeing changes to the required outputs

• our future plans for the network will be developed,following consultation, in a manner that meets the

reasonable requirements of our customers,

funders and other key stakeholders. These plans

will be sufficiently transparent to enable key

stakeholders to plan their own activities with a

reasonable degree of assurance

• to continue working with ORR, DfT and Transport

Scotland on the development of a long-term

strategy for the network

• as it is generally in the long-term interests of the

industry, and where funding constraints and

industry processes allow, we will manage our

business on an optimised whole life, whole

railway cost basis, and avoid compromising the

future affordability and performance of the

network. Where funding or deliverability

constraints necessitate a departure from this

approach, consideration will be given to the

impact on passengers and freight users and to

minimising the impact on future costs or outputs

• we will continue to seek refinements to the

regulatory and contractual regime which (a)

incentivise and empower our employees to ‘do

the right thing’, (b) provide them with appropriate

levers to enable them to do this, and (c) provide

for proportionate and targeted monitoring

enforcement which allows the business to focus

on delivery without excessive intervention

•

we will continue to enhance the value of therailway by improving the efficient delivery of our

investment in the network. Where possible we

will seek to be the delivery provider of choice, but

where appropriate we will establish processes

that facilitate third party delivery and financing of

options to help grow the railway

• we will work with the rest of the industry to

understand our environmental impacts, identify

good practice and plan improvements.

Imbalances in the cost and revenue streams

between various industry partners will invariably

result in initiatives being progressed that may have

a disproportionate effect on another part of the

industry. It is important, therefore, that when

considering the cost and benefit analysis of any

option to deliver the required outputs, the net

industry impact is the key driver of decisions.

Where the industry framework presents obstacles to

this we will seek to address these with our industrypartners and ORR.

Underpinning the way we work and to deliver our

strategy we have identified six values that we live

by:

• safety • customer focus

• integrity • excellence

• self-confidence • dependability.

We have also defined the behaviours that govern

the way that we approach our work. They are

translated into the way we conduct ourselves in our

day-to-day work through the attitudes and

behaviours we display:

• enthusiasm • pride

• teamwork • can do / will do.

1.2 The delivery of this strategyThe effective development of plans to implement

this strategy requires a holistic approach to all

aspects of asset management, and the systems we

are putting in place address the following

dimensions:

• systematic – wherever appropriate we use an

objective, evidence based approach promoting

consistent, repeatable and transparent decisions

and actions. This approach is applied at allphases of an asset’s lifecycle

• systemic – we consider the assets from a

system perspective, avoiding the optimisation of

individual assets in isolation

• risk-based – resources are allocated and

priorities set using a common set of risk assessed

management principles (see Appendix 2)

• optimal – we establish the optimum trade-off

between competing factors such as reliability,

cost and risk associated with the assets over their

lifecycles

• sustainable – wherever funding or resource

constraints allow we make sure that the future

cost base or capability of the network is not

compromised as a result of the delivery of short-

term objectives.

1.2.1 The planning criteria that underpin thedelivery of this strategyThe operation of this strategy requires a

comprehensive understanding of the criteria that

must be considered when developing and

implementing our asset management activities, and

the systematic organisation of these activities. This

will deliver:



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• assets that are managed effectively

• optimal use of resources to achieve the required

outputs

• compliance with legal, regulatory and statutory

requirements

• risks that are actively managed

•

plans that are sustainable beyond the currentcontrol period

• decision-making processes that are transparent

to our customers and funders.

The determination of the network outputs is a

complex and iterative process that requires an

understanding of a number of interrelated issues.

We have put in place an asset management

framework (described in Part 2) that enables us to

manage these interrelated issues in a manner that

supports the effective and efficient delivery of our

corporate strategy

Asset information

The availability of fit-for-purpose asset information isessential to the effective and efficient delivery of our

asset management systems. We currently have

access to a wide range of asset information to

support the discharge of these responsibilities, and

in recent years we have made considerable

improvements to our processes and systems.

However, as with many organisations responsible

for managing a large and diverse asset base, some

of our existing data remains dispersed and of an

inconsistent or undefined quality. Our Asset

Information Strategy is designed to overcome these

inadequacies and enable the effective and efficient

provision of the required data.

Unit costsThe development of appropriate unit cost

information is critical to the understanding of our

cost drivers by the company and our stakeholders.

It is particularly important when seeking to optimise

maintenance and renewal strategies, to

demonstrate compliance with efficiency targets, in

controlling activity volumes and for benchmarking

purposes. We have prioritised development of

improved unit cost information in order to maximise

our understanding of the highest value repeatable

activities, particularly in maintenance, track and

signalling renewals.

Both inter-company and intra-company

benchmarking play an important role in monitoring

and improving the operation of our processes so

that we are able to drive continuous improvements

in efficiency and performance. Intra-company

benchmarking is being enhanced by the further

development of better analysis tools and techniques

and more appropriate data specifications.

1.3 Customer reasonable requirementsIn developing the network we seek to understand

and meet the reasonable requirements of train

operators, other providers of services relating to

railways and funders. We use the criteria set out

below to assess if a requirement is reasonable.

Where a scheme is to be funded or delivered by

Network Rail all three criteria must be met for it to

progress.

1.3.1 Financial criteria

A requirement is regarded as reasonable subject toit satisfying any of the following conditions:

• it can be achieved at no extra net cost (i.e.

including future maintenance or operational

liabilities) to Network Rail or

• it can be achieved at no extra net cost to Network

Rail, as it forms part of a scheme which we are

expected to undertake for the renewal or

enhancement of the network or

• the customer or funder commits to pay extra

funds, or procure the payment of additional funds

to Network Rail, based on the cost of delivering

and financing the enhancement, including a

return which is commensurate with the risks

carried by Network Rail or• the funding for the expenditure involved is

explicitly provided for at an access charges

review

and it is not unduly difficult for Network Rail to

finance the scheme taking account of the other

financing requirements of its regulated business.

Where relevant, we will work with our customers

and funders to help secure additional sources of

funding for development of the network.

1.3.2 Compatibility with existingcommitmentsA requirement is regarded as reasonable subject to

it satisfying each of the following conditions:

• it does not conflict with the existing access rights

of other operators, including local output

commitments

• it is not designed to give unfair advantage over

other bidders in future franchise negotiations

• it does not impede our ability in the future to

deliver the published strategy on any route

(including performance objectives for the route)

• it is consistent with our obligations under the

network licence and statutory duties under the

Railways Act or other law

• we are able to operate the revised infrastructure

or service in a safe and efficient manner,

consistent with our safety case and existing

processes and procedures.

Where a proposed scheme does conflict with an

existing route strategy, consideration would be

given to amending the strategy, subject to

discussion with our funders and other operators on

the route.

1.3.3 Deliverability criteriaIn order to avoid the possibility of diverting

resources used to support the safe, efficient and

reliable running of the scheduled services a



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requirement is regarded as reasonable subject to it

satisfying each of the following conditions:

• the requirement is clearly defined and its scope

and timescale for delivery are realistic

• the output is measurable, ensuring that all parties

can agree delivery has been achieved• Network Rail has, or can obtain, the necessary

resources to implement the scheme

• network access can be made available

• delivering the scheme does not unacceptably

compromise our ability to deliver the existing

programme of works on the route.

Where there are constraints on our ability to deliver

a scheme that is proposed by our stakeholders, or

to support a third party delivered scheme, we will

work closely with the stakeholder to identify options

for relieving these constraints. In some

circumstances this may necessitate a proposal

being deferred until the resource constraints are

alleviated.

1.4 Proposed changes to network capacityor capabilityWhere a proposed investment will result in a

material physical change to the infrastructure (for

example a change to the network layout as a result

of the removal of a cross-over) or a material change

to the operation of the network (for example a line

speed increase) we seek approval for the change

through the Network Change process, under Part G

of the Network Code. This process requires

detailed consultation with funders and train

operators and consideration of the likely impact on

their businesses of the proposed change. For each

change proposal a business case is prepared. Theproposed Network Change is only considered

where industry value is enhanced: for example, any

infrastructure cost savings are in excess of

additional costs generated elsewhere, or additional

infrastructure costs are less than industry benefits.

Where relevant it is also necessary to take account

of any compensation payable under the industry

processes.

A Network Change may also have a significant

impact on a station and therefore require a Station

Change, which has a separate consultation

process. Proposed investment to the network could

also be the result of a Vehicle Change, consulted

and accepted through the processes under Part F

of the Network Code.

1.5 Dealing with surpluses and deficits1.5.1 Use of surplusesAs part of the Access Charges Review 2003 (ACR)

the Office of Rail Regulation (ORR) set Network

Rail’s access charges so that meeting the

regulator’s efficiency and output assumptions would

result in an expected level of profit which can be

used to reduce the expected increase in the

company’s debt. The company aims at least to

meet these efficiency and output assumptions and

outperformance of these assumptions may

therefore result in additional profit compared to that

which was assumed in the review. ORR has

indicated that Network Rail is best placed to

determine the use of any such outperformance in

consultation with key stakeholders, particularly DfT

and Transport Scotland. ORR has therefore askedus to set out the criteria which would be applied in

deciding between the alternative options during the

third control period. In determining the extent of any

additional profits that would arise from

outperformance we would need to take account of

the following:

• Costs. The value of scope and unit cost

efficiency savings achieved in meeting the ACR

outputs when compared against ORR’s

expenditure assumptions. However, deferral of

expenditure to future control periods would not be

treated as outperformance. Such deferrals may

be optimal, but the company would not expect to

be paid twice for this work when it needs to becarried out and it is therefore necessary to make

sure that some debt headroom is retained.

• Income. The degree to which we exceed the

ACR property and other single till income

forecasts. However, in some cases, additional

receipts may be accelerated from future control

periods and, in these circumstances, the

additional income would not be treated as

outperformance. In other cases, we would take

the opportunity to use developers’ funds to

improve station condition or facilities – we are

discussing with ORR how the resultant financial

benefits may be shared with developers and the

appropriate treatment of these improvements in

the Regulatory Asset Base (RAB).• Net effect. We would need to consider the net

effect of additional revenues, cost savings and

RAB additions to determine the overall level of

additional profit from outperformance. The

structure of charges is designed so that additional

variable track access charges arising from

incremental traffic flows are intended broadly to

offset any additional costs across the network as

a whole and it is therefore necessary to take

account of the change in net costs. Any additions

to the RAB would be treated in the same way as

additional income. Potential downwards

adjustments to the RAB where required outputs

have not been delivered would also be taken into

account.

• Outputs. Beating the ACR outputs will not

necessarily lead to additional profits in CP3 but

will improve the affordability of the rail network in

future control periods.

• Timescale. Outperformance should be assessed

over the entire control period. We are committed

to delivering the overall output requirements

within the available funds during the control

period as a whole. Outperformance in one year

may be offset by underperformance in

subsequent years. A realistic assessment of the

likely level of outperformance over the control



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period cannot be made until at least the third year

of the control period. Even in the third year of the

control period, it is appropriate for us to take a

prudent view of the potential for improvements in

efficiency or additional costs.

If there is expected to be a significant element ofadditional profits in CP3 from the above, we would

then consider the most appropriate use of that

surplus based on the following priorities.

An overriding principle is that where Network Rail

considers it necessary to reduce the level of debt for

financeability reasons or to make certain that the

company is able to comply with its obligations; any

additional profits will be used to reduce debt.

Relevant obligations would include Condition 12

(ring-fencing) and Condition 29 (level of financial

indebtedness) of our network licence. If these

constraints do not apply, the following issues would

then be considered to determine how any additional

profits should be used.

If there is no financeability or compliance issue then

we believe that at least a proportion of any

additional profit from outperformance should be

used to fund worthwhile investments that either

reduce future cost or improve the outputs from the

railway. Potential schemes would have to have a

positive industry business case (determined as

explained in other sections of this document).

Before committing to any significant investments,

we would expect to discuss the matter with the two

principal funders, Department for Transport (DfT)

and Transport Scotland, and with ORR. The two

Governments are likely to have slightly different

preferences for any additional investment and thesewishes will be taken into account in the choice of

possible schemes. For example, at the time of

writing we understand that DfT’s initial preference is

for investment to increase the capacity of the

network and that Transport Scotland’s preference is

for investment to reduce journey times on key

routes. The final decision on how we re-invest our

profits will have to rest with Network Rail. We would

also seek to use our investments to leverage other

sources of funding taking account of available

opportunities. Given the potential time horizon for

such investments, this may involve some

expenditure in future control periods – in this case

the relevant funds would be set aside so that this

can be treated consistently at the next periodic

review.

If the level of additional profit from outperformance

exceeds the value of worthwhile investments which

it is appropriate to fund from any outperformance

then we will use the surplus to reduce our debt.

Network Rail has substantial debts which it has

inherited or due to the levels of expenditure that was

necessary to address previous underinvestment in

the network. This is also reflected in the value of

Network Rail’s RAB. Reducing debt (and

increasing the level of headroom between the level

of debt and the RAB) can help to improve the

financial stability of the business, our ability to

withstand potential future cost shocks, and the

longer term affordability of the railway. Reductions

in debt will benefit the company’s overall financial

position and therefore our main funders. The

impact on the respective funding requirements inScotland and England and Wales would be a matter

for discussion as part of the periodic review

process.

1.5.2 Remedial plansWe are determined to deliver the required outputs

within the available funds through improvements in

efficiency due to procurement savings, rigorous

financial control, improved planning and increased

quality of what we deliver. It must be recognised,

however, that precise plans for achieving efficiency

targets several years away will not generally be

available. Where the required efficiency savings

cannot reasonably be expected to be achieved, a

remedial plan will be developed and reflected in ouroverall plans. In developing this plan the same

principles as used for prioritising expenditure in

general would be followed and the options would be

evaluated by considering the whole railway cost and

benefits delivered. As a general principle, therefore,

our continued priority would be to seek to achieve

an appropriate balance between infrastructure costs

and the value of services provided on each route.

Actions to achieve the necessary reduction in

expenditure in line with these principles would

include:

• the potential non-achievement of efficiency

targets would be subject to a rigorous challenge

and further opportunities sought, includinginitiatives to reduce further the costs of

maintenance and renewal activities and the

scope of individual schemes, where this does not

compromise the required outputs

• further expenditure savings could be realised by

the deferral of renewal activities or by allowing

asset condition to deteriorate where there is no

immediate impact on contractual or regulatory

outputs. When considering this option the whole-

life cost impact would need to be determined to

confirm that the future cost of the railway is not

compromised

• we would re-examine the route infrastructure and

service balance to identify any further

opportunities to amend route reliability and

capability (with corresponding adjustments to

existing contractual commitments as appropriate)

where such a course of action would realise

whole railway cost savings.

Any remedial plans would be developed following

engagement with our stakeholders as part of our

normal planning processes and be reflected in our

annual business plans. They would therefore be

subject to review by ORR to confirm that they are

consistent with the requirements in Condition 7.



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2 Stakeholder and statutoryrequirementsThe effective delivery of our asset management

responsibilities requires close cooperation with train

operators and other stakeholders. It also highlights

the need for a comprehensive understanding of

their expectations, encompassing both contractualand regulatory obligations, and their aspirations for

the development of the network.

2.1 Key stakeholdersOur immediate customers are the passenger and

freight train operators. On generic industry-wide

issues, passenger operators are often represented

by the Association of Train Operating Companies

(ATOC). However, our own focus also needs to be

on our ultimate customer – passenger and freight

users. Our approach is to work closely with

operators to focus jointly on the final users of the

railway, which are often represented by Passenger

Focus, London TravelWatch, the Rail Freight Group

(RFG) and the Freight Transport Association (FTA).

The main funders of network outputs are the

Department for Transport (DfT) and Transport

Scotland. Other funders include Welsh Assembly

Government, Transport for London (TfL), the

Passenger Transport Executives (PTEs), local and

county councils, the European Union (EU) and third

parties. Our many suppliers have a key role in the

quality, cost and reliability of the rail infrastructure

and we are working closely with them to deliver

improvements in effectiveness and efficiency.

We are subject to independent economic and safety

regulation by the Office of Rail Regulation (ORR).

Effective stakeholder consultation is essential to the

development of our investment plans. We achieve

this via a series of regular bilateral and cross-

industry meetings with these stakeholders. These

communication channels are discussed in more

detail throughout this document.

2.2 Contractual and regulatorycommitmentsOur obligations arise from various commitments that

are described below.

2.2.1 Contractual commitments

Our contractual commitments to the passenger andfreight train operators and funders are documented

in the track access agreements, the associated

Network Code and various agreements to provide

enhancements to the network. The Network Code

provides a common set of rules that apply to all

parties to regulated track access contracts. It forms

a set of conditions for access to the network, setting

out the protection for, and obligations of, Network

Rail and train operators. Network Rail and train

operators are responsible for the development of

the Network Code (subject to regulatory protection

by the ORR) to make sure that it provides an

effective basis for their partnership in improving the

overall performance of the railway. We have

developed template enhancement contracts that are

intended to simplify arrangements and provide for a

reasonable allocation of risk.

2.2.2 Reasonable requirements under

Condition 7 of the network licenceCondition 7 of the network licence places a number

of requirements on Network Rail in respect of our

stewardship of the network, including its operation,

maintenance, renewal, improvement, enhancement

and development. The overall purpose of these

requirements is that we carry out these activities in

accordance with best practice and in a timely,

efficient and economical manner so as to satisfy the

reasonable requirements of persons providing

railway services and funders in respect of the quality

and capability of the network. The ORR established

the main elements of our reasonable requirements

through the 2003 ACR and this includes a series of

measures of network capability, performance,

serviceability and condition. A summary of thesemeasures can be found in Appendix 3. We are

required to develop detailed plans consistent with

these reasonable requirements.

We are also required to understand and meet the

reasonable requirements of train operators, other

providers of services relating to railways and

funders. Defining these requirements includes

discussion with train operators about the future

capacity, capability and reliability of the parts of the

network on which they run their services. The

criteria that need to be considered when assessing

if a requirement is reasonable are set out in Section

1.3. Following the Rail Review our reasonable

requirements include those of the Secretary of Stateand Transport Scotland, with these requirements

represented by the regulatory outputs agreed with

ORR. We are working with the ORR, DfT and

Transport Scotland to develop these arrangements

for the 2008 Periodic Review. Network Rail and

ORR recently agreed amendments to Condition 7 in

the light of the company’s new responsibilities

following the Rail Review. These changes clarify

our role in relation to the facilitation of overall

industry performance and the development of Route

Utilisation Strategies.

2.2.3 Other regulatory requirementsThe stewardship requirements arising from

condition 7 of the network licence are underpinned

and supplemented by a number of other licence

conditions, including:

• Condition 9 (timetabling) – we must plan

investment on the network in a timely and efficient

manner to enable reliable timetable information to

be provided to passengers

• Condition 10 (non-discrimination) – in carrying

out our activities we must not unduly discriminate

between particular persons or between any

classes or descriptions of persons



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• Condition 24 (asset register) – this requires us to

establish and maintain a register of relevant

assets, including their condition, capability and

capacity

• Condition 25 (dependent persons) – the

principles and procedures that we apply in our

dealings with potential or actual providers orfunders of railway services and facilities

• Condition 26 (disposal of land) – the principles

and procedures that cover the disposal of land

• Condition 28 (Management Incentive Plan) –

specifies the matters that Network Rail must have

regard to when developing its Management

Incentive Plan, including the achievement of the

purpose of Conditions 7 and 25.

2.2.4 Safety and environmentalrequirementsWe have a duty to make certain that all our

activities, including those undertaken to meet our

asset management responsibilities, meet our

obligations under health and safety law to achieve alevel of safety risk that is As Low As Reasonably

Practicable (ALARP). We are also subject to a

number of statutory environmental obligations that

affect our stewardship of the network.

2.2.5 European RequirementsEuropean originated legislation is increasingly

defining the standards and legislation which applies

to the UK railway network. The 1st and 2nd

Railway Packages are currently being transposed

into British law, with the 3rd Railway Package under

discussion in Brussels. The European Rail Agency

(ERA) has now been set up and is responsible for

drafting new Technical Standards of Interoperability

(TSIs) in addition to reviewing existing standards.Although ERA undertakes cost benefit analysis,

these standards may still have cost implications for

the UK railway network. Once these TSIs have

been developed there is often a second stage in the

development whereby Euronorms (EN) are

produced to further define the outputs of the

standards. The development of these can be

crucial to the UK as there is no requirement to carry

out any cost benefit analysis during their drafting.

Once published in the European Journal, TSIs

apply to all new and major upgrades of designated

High Speed and designated Conventional

Infrastructure. In addition, a condition of the

European Commission is that any scheme it

contributes to must be built to TSI requirements.



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Part 2: Asset management



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3 Asset managementframeworkThe effective and efficient implementation of our

corporate strategy requires an asset infrastructure

that meets our customers’ and funders’

requirements, in terms of capacity, capability,

reliability and cost. Our asset managementframework, and the investment planning process

that underpins it, provides a structured approach to

this challenge.

Figure 1, below, identifies the four key components

of this framework.

Utilisation and output definition – this is the

mechanism by which we establish our regulatory

and contractual commitments at a route level. It

also provides a platform for:

• consideration of our customers’ and funders’

aspirations for amendments to the existing

capacity, capability or performance of the

network, using the criteria of fundability,

compatibility and deliverability described above

• consideration of opportunities to change the

capacity or capability of a route where analysis

and consultation demonstrates that better value

for the available funds would be obtained.

The output of this process is a route specification

that defines the required capacity, capability and

performance of the route, providing clarity to

customers and funders and for the establishment of

the asset maintenance and renewal regimes to

deliver these outputs.

Asset policies – these are in place for each of our

asset groups and describe the maintenance and

renewal regimes necessary to deliver the defined

route capacity and capability. They are

differentiated by route type where appropriate,

reflecting the volume and nature of the traffic

carried. These policies address the risks that asset

failure or degradation may have on the delivery of

our required outputs, identified as part of the

integrated risk management process, and balance

current funding availability with the long-term

sustainability of the network. An understanding of

the feasibility and cost of delivering various output

scenarios is necessary as this underpins the

development of the route specification.

Investment regulations – consideration of achange to a route specification, an amendment to

an asset policy or an individual investment decision

requires a robust, objective and transparent process

to assess the value delivered. Our investment

regulations set out the methodology for assessing

this value and the sources of data used in the

appraisal. These regulations provide details of the

sources of funds available to us for investment in

the network and the rules governing the draw down

of these funds. The approach we have adopted

secures consistency and is designed to provide

visibility to our customers and funders of the criteria

we have used to determine the value of an

investment or a change in route capacity and

capability and therefore the rationale for ourproposed course of action.

Asset plans – the result of the application of our

asset policies are our forward expenditure plans,

covering operations, maintenance and renewal, and

enhancement activities. Our investment plans are

summarised in our annual business plan. This sets

out our planned activities, expenditure and output

forecasts, generally over a 10-year planning

horizon, identifying the assumptions on which the

plan is based. These plans are structured to

provide stakeholders with sufficient detail to enable

them to plan their own activities with a reasonable

degree of assurance. A similar process is used to

support the production of our submissions for the2008 Periodic Review.

The effective implementation of this asset

management framework to develop robust asset

plans requires an understanding of the context

within which they are being developed, particularly

by our stakeholders. There are a number of factors

that our planning process must address, including:

• the iterative nature of much of our decision

making, for example where major infrastructure

renewal schemes provide the opportunity to

rationalise or enhance the operation of the

network, and hence the outputs that may be

delivered

• facilitating the delivery of changes to the capacity

or capability of the network required by

stakeholders outside of the access charges

review cycle.

The remainder of this document has been

structured to explain how these factors are

considered. Appendix 4 provides an illustration of

how this framework supports the application of our

planning criteria.

Figure 1 Key elements of the asset management

framework

InvestmentRegulations


E

na

ble

rs

Corporate strategyCorporate strategy

Asset plansAsset plans

Utilisation and outputdefinition


DeliveryDelivery

Asset policiesAsset policiesInvestmentRegulations


E

na

ble

rs

E

na

ble

rs





DeliveryDelivery

Asset policiesAsset policies





DeliveryDelivery

Asset policiesAsset policies



13


4 Utilisation and outputspecificationTo exploit opportunities on the network to improve

overall value for our customers, funders and rail-

users requires an understanding of the output

requirements at a local level. Our move to route-

based planning is designed to facilitate this process,with the key components illustrated in the figure

below.

This section identifies the key benefits to Network

Rail and our stakeholders of route-based planning

and explains how these route plans are developed,

including:

• how we identify our funders’, customers’ and

passengers’ aspirations for the route in question,

including the role that Route Utilisation Strategies

(RUSs) play in this

• the criteria that are used to develop our longer-

term strategy for the route

•

the production of route specifications that willdeliver the desired strategy and how these

specifications are used with our asset policies to

produce plans for the section of the network

under review.

4.1 The move to route-based planning4.1.1 The key benefitsThe implementation of route-based planning is

designed to:

• improve the way we plan our business by

establishing a framework built around the

required outputs. This could, therefore, involve

incremental improvements in some areas and

reductions in other areas, subject to theestablished industry processes, rather than

automatically maintaining the capability on a like-

for-like basis

• deliver a clear route-by-route specification of the

outputs required in order to develop improved

operating and asset management plans to deliver

the outputs required

• facilitate the examination of changes in route

outputs where this will deliver improved value for

money for the rail industry and society in general

• create an environment where investment

opportunities are considered in an efficient,

consistent and systematic way and within a

framework that maintains clarity as to the over-

arching objectives and strategy for the network at

a route level

• provide greater transparency of our plans to our

customers to allow them to plan their businesses

more effectively and to improve the dialogue with

customers and wider stakeholders to refine andimprove both our customers' and our own plans

• create a coherent and transparent link from

stakeholder and customer requirements

(including the HLOS – the High Level Output

Specification) through to our operating,

maintenance, renewals & enhancement plans.

4.1.2 The segmentation of the network intostrategic routesOur ‘units’ of the network for planning purposes are

the 26 strategic routes that are illustrated in

Appendix 5. The composition of these routes in part

reflects the relevant markets of our customers and

is consistent with those used previously by the SRA

as part of its RUS analysis process.

The network is also differentiated by route type,

reflecting the volume and general nature of the

traffic carried, see Appendix 6. This approach

provides an effective means of identifying the

differing reliability and performance requirements of,

for example, high intensive routes carrying inter-city

traffic from those with a more infrequent service.

This allows for asset policies to be differentiated by

the type and nature of traffic carried and make

certain that decisions on routes with similar usage

characteristics are managed in a consistent manner

across the network.

Even at this level of disaggregation of the networkthe routes are not homogenous in terms of the

railway infrastructure, operations, asset condition

and operational characteristics. In order to support

more accurate and granular cost modelling, and

better route planning in general, we have therefore

developed a set of around 300 Strategic Route

Sections (SRS). These are contiguous subsections

of the strategic routes which are both meaningful to

external stakeholders and are more ‘homogenous’

pieces of infrastructure. All of the pieces of the

network within each SRS have the same route

classification (Primary, Secondary, London and

South East, Rural and Freight), and also broadly the

same traffic and capability characteristics.

The geographic scope of these routes is kept under

review to make sure that they remain relevant to our

customers and funders.

A key aim of our approach is to deliver plans that

provide the information required by operators and

funders to enable them to plan their activities with a

reasonable degree of assurance. Each route plan

sets out what is expected of the route, including:

Figure 2 Route-based planning

Asset policies

Route specifications and plansRoute specifications and plans

Route strategiesRoute strategies

Contractualcommitments

High LevelOutput

Specification

Customeraspirations

RouteUtilisationStrategies

Asset policies

Route specifications and plansRoute specifications and plans

Route strategiesRoute strategies

Contractualcommitments

High LevelOutput

Specification

Customeraspirations

RouteUtilisationStrategies



14


• route output targets

• expenditure, activity and network access

assumptions

• any agreed change in capacity or capability that

will be delivered over the life of the plan

• the planned utilisation of that capacity.

The strategic route is becoming the bedrock of our

planning process and our route plans provide the

backdrop against which individual stewardship

decisions are made. Our Investment Board and

Renewal Investment Panel will authorise individual

schemes against the specification and principles set

out in the route plans and asset policies.

Effective route-based planning requires close

collaboration between each of the key functions

within Network Rail, in particular Planning &

Regulation, Engineering, Maintenance, MP&I and

Operations and Customer Services. Our Route

Strategy Planning Groups (RSPGs) have

representatives from each of these functions.These groups are responsible for providing clarity

on the required current and future outputs from the

network and stations on each route, and for

ensuring that the forward route investment

programme is developed to deliver these outputs in

an effective, efficient and consistent manner,

optimising whole life costs within funding and other

constraints. It is a cross-functional forum that

discharges its accountabilities through the

mechanisms of formal meetings, reviews and

workshops. The emphasis is on considering issues

early in the planning life-cycle to improve direction

and the quality of decision-making. Formal

authorisation is, however, through the Renewals

Investment Panels and Investment Board asdescribed in our Investment Regulations.

Our forward route investment programmes are also

discussed on a quarterly basis with train operators

at the Route Investment Review Group (RIRG)

meetings. The purpose of these meetings is:

• for Network Rail to set out its forward asset

renewal programme and any plans we have to

change the capacity/capability of the route

• to identify any firm plans that other industry

stakeholders have to enhance the

capacity/capability of the route

• to explore how these plans may be amended to

meet the reasonable requirements of operators

on the route, either funded by Network Rail’s own

funds, the Network Rail Discretionary Fund

(NRDF) or by the operator or other funders.

In addition, there are a number of forums for a

consideration of broader strategic issues, as

discussed below.

4.2 Input analysis4.2.1 Route Utilisation StrategiesThe Route Utilisation Strategy (RUS) process was

established by the SRA. The initial programme of

RUSs was focussed on areas of the network where

there is a potential to generate greatest benefits,

where there is a significant mix of traffic causingissues not capable of resolution within a single

passenger franchise specification or track access

variation and where congestion exists with

significant levels of reactionary delay. To do this,

the analysis and appraisal sought to understand

which options maximise the net industry and

societal benefits rather than that of any individual

organisation or group affected.

A consequence of the Rail Review is that we have

taken on responsibility for drawing up RUSs in

which these priorities are assessed. Work on these

RUSs is now much more closely integrated with the

development of our own plans and we are

developing these in conjunction with the rest of theindustry. The current programme is primarily aimed

at informing the programme of franchise

replacements and the development of the HLOS. It

is intended that the RUS programme will evolve to

address other key decision points such as major

asset renewals. The need to appraise options from

an industry and societal perspective continues

under the Network Rail programme of RUSs. The

RUSs provide a key input to the franchise process

enabling consistency between the franchise

specification and the plans for the network.

The development of RUSs requires close

collaboration with the DfT and Transport Scotland to

understand their requirements for the routes inquestion. As a consequence, a Planning and

Franchising Steering Group has been established,

with representation from the DfT and Network Rail,

and a similar group has been established with

Transport Scotland. These groups are responsible

for overseeing the overall programme for the

preparation of RUSs, overseeing the development

of the RUS process and ensuring that the process

integrates with wider industry planning, including the

franchise specification.

It is also important to work closely with the rest of

the industry. A Rail Industry Planning Group has

therefore been established, chaired by Network

Rail. Representation includes the DfT, Transport

Scotland, PTEG, Passenger Focus, ATOC, freight

operators, Rail Freight Group, TfL and the Welsh

Assembly Government (WAG). Its purpose is not to

review individual RUSs; rather it is to consider the

overall programme and approach to RUSs. Where

appropriate, it may also discuss multi-route issues

such as freight and long distance strategies. In

addition, each individual RUS also has its own

stakeholder group, which includes representation

from the relevant funders and operators.



15


The key stages in the development of a RUS (as

set out in the RUS Technical Guide) are as follows:

• seeking clarity from the DfT of its high level

specification for the route which is expected to

draw input from stakeholders and Regional

Planning Assessments• carrying out a detailed baseline exercise for the

route, understanding asset condition and

capability, freight and passenger demand, and

infrastructure and train operator performance

• undertaking a gap analysis, considering the

strategies and plans of funders and operators on

the route

• generating options to meet the gaps, using a

toolkit of possible solution types and stakeholder

suggestions

• structuring and packaging these options where

appropriate

• filtering and reviewing the list of options

• assessing and evaluating the remaining options

to identify those requiring full appraisal• carrying out a socio-economic cost/benefit

appraisal in accordance with the agreed criteria

(this is set out in Section 6.2.2)

• selecting solutions consistent with the route

utilisation objective, and refining them into a

coherent strategy.

Throughout this process we consult with rail industry

stakeholders and the wider community to make

sure that aspirations are understood and, where

appropriate, included in the study. Representatives

of the RUS stakeholders are informed on a regular

and frequent basis of progress with the study and

participate in determining further action as

appropriate.

A RUS may recommend actions from all industry

parties and Government, not just Network Rail. For

example: fare changes, service changes, rolling

stock changes as well as infrastructure changes

could all be recommended. Those actions that fall

to Network Rail are delivered through Network

Rail’s business processes including the route-based

planning process and via inclusion in the

appropriate route specification. Some options may

require additional funding prior to Network Rail

agreeing to implement the scheme.

Extensive information on the RUS programme, the

methodology, and the individual RUSs is contained

on Network Rail’s website.

4.2.2 Other inputs to be consideredThe RUS methodology also provides a process of

review for other inputs to be considered, including

where:

• an established RUS is not definitive or has

identified issues that require further consideration

• a RUS has not yet been, or is not currently

planned to be, carried out

• a RUS is established for the route but as it was

carried out some time ago the issues addressed

at the time need to be reviewed

• a third party has an aspiration for the route that

warrants a re-examination of the strategy for the

route (e.g. Crossrail, EWS’s ‘Big Freight Railway’

strategy) or• the HLOS has identified something specific

relating to a route.

Cost/benefit analysis of any option under

consideration is carried out using the approach set

out in Section 6.2.2. In carrying out this analysis we

consider opportunities to improve overall network

value by amending existing outputs. In the longer-

term the infrastructure cost model will be used to

cost potential scenarios. Potential options are

discussed with customers and funders as

appropriate and any network change proposals are

progressed as set out in Section 1.4.

4.3 Route strategies, specifications andcapabilities

4.3.1 Route strategiesThis input analysis is used to define the strategy for

the route, identifying specific links between key

inputs and the resultant strategy. This strategy sets

out the overall intent for the route in terms of:

• the underlying assumptions considered in the

development of this strategy, including traffic

growth

• any proposed changes in capacity or capability

and when these changes are likely to be

implemented

• any key changes in train services or service

patterns• any proposed changes to network access

• those changes that are linked to specific franchise

issues

• any proposed changes in service reliability

• any proposed changes to station facilities along

the route (car parking etc)

• those factors or dependencies that may impact

on the delivery of the proposed strategy

• any unresolved issues that require further

consideration.

The strategy also sets out a framework against

which potential investment options can be tested for

strategic fit with the proposed purpose and

objectives for the route.

The strategy for each of our routes and the

underlying planning assumptions are published in

our annual business plans. We make clear within

this document those aspects of our plans that are

firm, and those that are currently aspirational.



16


4.3.2 Route specifications and plansThe route specification provides clarity on those

aspects of the strategy for the route that are to be

delivered and by when. Its purpose is to:

• provide a statement of the required outputs of the

network at a route level in order to give clarity ofrequired capability to those developing operating,

maintenance and investment plans

• provide clarity to customers, funders and other

external stakeholders of the current and future

capability expected on the network at a route level

to allow them to plan their businesses

• provide clarity to customers and funders and

other external stakeholders of what Network Rail

is funded to deliver on the route.

The route specification sets out:

• current route capability, capacity, performance

and operational requirements

• the expected current and future demand on aroute (in terms of train path requirements and its

translation into equivalent annual tonnage)

• the future required capability, capacity,

performance and operational requirements of the

route and the timescale by which these changes

must be made.

The overall specification of the routes reflects the

fact that each route is not homogeneous and

consequentially our asset management and service

delivery policies are differentiated within the route. It

is against this specification that renewal,

maintenance and (where appropriate) enhancement

plans are developed (as set out in Section 5) and

identified in our annual business plan (as explainedin Section 7).

4.3.3 Route capabilityIt is acknowledged that the current method of

defining route capability has limitations, particularly

with regard to understanding the ability of some

routes to deliver additional freight services. In

addition, there are a limited number of routes on the

network where there is a discrepancy between the

actual and published capability of the route. As a

consequence we are:

• discussing with industry partners a revised

definition of infrastructure that will deliver

increased clarity on the capability of the network

and provide a mechanism to improve industry

efficiency. Our initial work on this is described in

Appendix 7

• we are developing plans to strengthen our

internal processes for managing the Sectional

Appendix (as this is the current repository for

infrastructure capability), together with its

maintenance and distribution

• where there is a difference between actual and

published capability we are working to eliminate

these discrepancies. As part of the freight RUS

process we will be receiving the detailed industry

freight traffic forecasts. Through further

discussions with industry colleagues we aim to

understand the cost implications arising from the

forecast traffic levels. This information will be

identified by each route and form a key input into

the freight RUS process.



17


5 Asset policiesAsset policies provide the pivotal link between our

strategy for meeting our stakeholder/statutory

requirements and how we manage our asset base.

Policies are in place for each asset type, setting out

the maintenance and renewal regimes that will

deliver the required network and route outputs forthe funding available. Assets are designed,

constructed, inspected, maintained and replaced in

accordance with these policies. These policies

have been developed over a number of years and

reflect our extensive asset management

experience.

The framework within which these policies are

developed, and the individual asset policies

themselves, are currently being updated. This is in

part to make sure that the criteria against which we

operate our asset management systems are

consistent with the company’s overall risk

management framework. In identifying areas for

attention, we examined best practice within thecompany, in other businesses and the Institute of

Asset Management’s publicly available specification

on good practice in asset management (BSI PAS

55). Our policies will provide an important input to

our submission for the 2008 Periodic Review.

The relationship between our asset policies and

those factors that influence their development is

illustrated in the figure below.

This section sets out:

• the principles by which we are developing and

implementing our asset policies and how they

remain aligned with our strategy for the

management of the network

• the supporting information that underpins the

effective development and delivery of these

policies

• those aspects of our policies that do not meet the

principle of minimising whole life costs and the

implications of this.

5.1 A risk-based approachOur approach is centred on a risk-based

methodology, used to identify those factors that may

impede the delivery of our corporate objectives.

The effective management of these risks is

achieved by the allocation of resources and the

setting of priorities, and this is documented in our

asset management processes and policies. The

principle purpose of these documents and how they

contribute to the delivery of the required outputs is

explained below.

5.1.1 Network Rail’s asset management

policy

Network Rail’s asset management policy sets outthe framework and key principles against which our

functional policies (i.e. policies for track, signalling

equipment etc) are developed and maintained, as

follows:

• asset policies shall be developed to meet the

capability and functional requirements, defined by

the route or network specification, taking account

of any current funding and deliverability

constraints. Where such constraints limit our

ability to deliver these requirements on a whole

railway, minimum whole life cost basis, short term

decisions shall be designed to minimise the

variance from this preferred approach and enable

its re-establishment when such constraints are

overcome. Consideration must be given at all

times to the impact of these decisions on

passengers and freight users

Figure 3 Asset policy framework

Utilisation and output specification

Asset inventory,condition and costs

Functional assetpolicies


Network Rail’s assetmanagement policy


WorkbanksWorkbanks

Regulatorycommitments

Safety andenvironment

Legislation

Fundingavailable

Supplier resource

Workforce resourceand skill base

Investment plans

Utilisation and output specification

Asset inventory,condition and costs





WorkbanksWorkbanks



Legislation

Fundingavailable



Legislation

Fundingavailable



Legislation

Fundingavailable

Supplier resource

Workforce resourceand skill base

Investment plans



18


• assets shall be managed compliant with relevant

statutory and legislative requirements

• company standards, specifications and standard

functional procedures shall be created and

maintained to bring into day-to-day effect the aims

of the asset policies

•

sufficient relevant asset information shall bemaintained to support the defined needs of both

internal and external stakeholders

• proposed changes to functional asset policies

shall be subject to a risk and economic

assessment that will take into account the impact

of the change on industry partners, including any

proposed changes to network access. In most

circumstances these changes shall only be

progressed where they improve overall industry

value

• clear economic and performance criteria shall be

identified for the major asset interventions that

drive expenditure and deliver outputs (i.e.

inspection, maintenance and renewal). These

criteria should be based on an assessment ofrisks associated with the delivery of the required

outputs, using the methodology identified in the

company integrated risk management framework

• before commencement of the business

processes for renewal, the opportunity for change

(enhancement or reduction) of an asset or asset

system shall be considered by reference to the

capability and functionality as defined in the route

specification

• the decision on timing of individual asset

replacement shall include consideration of

replacement timing of other assets at a location.

When economically justified, a mixture of life

extension and premature replacement shall be

pursued in order to achieve overall railwaysystem best value including consideration of the

impact on train service delivery of repeat

interventions

• wherever practical and economic, materials used

for assets and their construction and life cycle

management shall be from sustainable sources

and accord with Network Rail’s Corporate Social

Responsibility policy

• as far as is reasonably practical, new and

renewed assets shall be designed to minimise

subsequent need for attention requiring human

intervention or co-existence with train movements

or exposed live electrical equipment

• the design of assets or asset systems shall

comply with the company ergonomics policy and

standards to deliver optimum operability and

maintainability, thereby minimising loss of

functionality performance or capability through

human error or human performance limitations

• the use of standard designs, products and

technique shall be maximised to avoid

unnecessary diversity and complexities of training

and competence for constructors, operators and

maintainers

• new asset products shall be identified, developed

and approved only where overall business

performance improvement outweighs the risks

and costs of diversification

• the design and construction of new and renewed

assets shall minimise reliance on repetitive

human examination and subjective assessment.

Centralised remote monitoring by technical

instrumentation of current status and aspects ofcondition shall be a requirement for new or

renewed assets or asset systems

• enhancement or change of assets or their

management, within the maintenance period of

their life cycle shall be effected only as a

consequence of changed use or required

capability following a business risk and

opportunity evaluation taking into account the

whole railway system

• asset examination technology and techniques

shall be operated to support an overall

engineering maintenance strategy of measuring

deterioration trend and arranging intervention on

a planned basis before loss of asset functionality

or capability. This will enable the progressivereplacement of traditional ‘find and fix’ reactive

maintenance with ‘predict and prevent’ active

management.

5.1.2 Functional asset policiesFor each asset group a functional asset policy is in

place (these are currently being updated as part of

the 2008 Periodic Review submission). Assets are

designed, constructed, inspected, maintained and

removed in accordance with these policies. These

functional policies identify the individual asset types

covered and set out how each of the policy

statements identified in Section 5.1.1 is being

addressed.

In drawing up these policies, consideration is given

to the following:

• the physical condition of the assets, age profile

and suitability for the desired usage

• asset deterioration mechanisms, and failure

modes and effects

• how the asset interacts with other infrastructure

assets

• asset-related risks identified as part of the

integrated risk management process

• the potential costs and delivery risks of delivering

a variety of likely route or network outputs both

during and beyond the current control period

• asset lifecycle costs for alternative maintenance

and renewal regimes and the likely long term

impact of these regimes on future costs and

network sustainability

• network access required and the likely impact on

train operators

• supplier resources

• the potential cost and benefit impact on

passengers and freight users of alternative

regimes

• where appropriate, the potential wider social cost

and benefit impact of these regimes.



19


A key challenge is to identify the optimal

maintenance and renewal trade-off (i.e. the asset

condition level, or proxy for condition, where

ongoing maintenance is not cost-effective and the

asset should be renewed). Opportunities to

improve the safety of the network using funds

explicitly identified for this purpose at the 2003Access Charges Review are also considered when

developing these policies.

Where appropriate, the policies are differentiated by

route type, reflecting the volume and general nature

of the traffic carried, as described in Section 4.1.2.

Route-specific modifications are made to our asset

policies where this improves the alignment between

activities and outputs.

Functional policy assumptions and justification

Each functional asset policy is supported by

information that sets out the basis on which the

policy has been based. This provides a summary of

the policy options that were considered and theprocess by which the chosen policy was selected,

and includes:

• the assumptions made in developing the policy

• the outputs which the asset supports and the

risks which the policy is designed to mitigate

against

• the key interfaces with other assets

• an assessment of current asset condition (or

proxy for condition) and key drivers of asset

degradation and failure

• the policy options that were considered and the

rationale for the selected policy

• any key dependencies in terms of future

technology developments or changes in materialor labour costs

• where the policy is sub-optimal in terms of whole

life costs, the longer term cost impact and the

balance between cost and the delivery of current

outputs.

Proposed changes to these policies are supported

by financial analysis to make sure that the benefits

delivered are commensurate with any additional

costs that may be incurred. This includes schemes

to deliver our safety and environment plan, for which

the incremental outputs, costs and benefits to be

delivered must be clearly identified.

Changes are initially assessed using the whole

railway financial analysis as set out in Section 6.2.1.

The net present value is determined over the life of

the asset, which can generally range from 15 years

for telecom assets to 50 to 100 years for major

structures. Where the proposal would not increase

the cost of the railway in the next or subsequent

control periods the policy change would proceed

subject to any funding constraints during the current

control period.

Where a proposal has a more significant initial cost

impact its implementation may require additional

Government funding. Under these circumstances

the overall societal impact must be assessed using

the approach identified in Section 6.2.2. The

outcome of this analysis will be discussed with

ORR, before any further action is taken.

Decision support toolsThe development of asset policies to deliver the

required route capacity and capability necessitates

an understanding of how assets degrade and what

causes this degradation. It is important to recognise

that the relationships between inputs (in the form of

activity undertaken) and outputs (asset condition

and serviceability) are complex and few of the

output forecasts can be assessed purely through

formulaic models. A number of different techniques

are used in the production of our long-term

forecasts, according to the nature of the assets

involved, the extent of understanding of the way in

which they degrade and the availability of data on

asset type, installation date (age), usage, condition

and rates of degradation. These techniques are notmutually exclusive and the forecasts in most asset

categories involve elements of more than one of

these methods. However, as these tools are an aid

to decision making, it is necessary to apply an

element of judgement in their application.

The output of these decision support tools are used

within the Infrastructure Cost Model where

appropriate. This is discussed in Section 7.

Key decision support tools include:

• track (T-SPA – Track Strategic Planning

Application and IMM – Infrastructure and

Maintenance Model)• civils (SCMI – Structures Condition Marking index

and SACP – Structures Annual Cost Profile)

• signalling (SICA – Signalling Infrastructure

Condition Assessment).

These cover the major components of our

maintenance and renewal expenditure and are well

developed, although they may require further

improvement to refine their application or calibration.

For the other asset categories, significant work is

required to develop decision support tools. We

intend to work closely with the ORR on the

development of these tools where appropriate in

advance of the 2008 Periodic Review.

Policies to be produced

Policies have been produced for each of our asset

groups, i.e. track, civils (incorporating operational

property), signalling, electrification and plant, and

telecoms.

In addition we are considering developing an

enabling policy relating to our involvement with the

specification of rolling stock. This is intended to

consider both Network Rail owned rolling stock and

that operated by train operators. The latter is

particularly important as for a number of years the



20


lack of integration between rolling stock specification

and acceptance and network management has led

to a situation that has inflated both rolling stock and

network management costs. In part this has

resulted from an inadequate consideration of train

and network interfaces, poorly understood

acceptance processes and late changes beingrequired to the infrastructure or retrofitting of trains.

Although a number of problems have been

addressed, the consideration of whole railway

issues consistently at an early stage in the process

is still crucial.

We are working on this issue with train operators

and other stakeholders, via the System Interface

Committees, and believe that the model adopted by

the airline industry provides a basis for further

consideration. In this model we would, in

consultation with the DfT, specify the base

engineering specification of the vehicle (including

bogie design, wheels, brakes, power, weight etc).

This specification would be developed inconjunction with rolling stock manufacturers and

would be based on balancing train design,

production and maintenance costs with

infrastructure management costs. Other aspects of

the design of the rolling stock would be for the TOC

and manufacturer to determine. This is being taken

forward as part of the reform of the Network Code.

5.1.3 Standards, specifications and thedevelopment of workbanksThe asset policies provide the mechanism to

determine the default position with regard to the

actions that should be carried out, based on asset

age, condition or performance etc. It is the

application of the asset policies that drives thedevelopment of the forward maintenance and

renewal programmes (known as workbanks). As a

consequence we supplement our high-level policy

documents where appropriate with standards,

specifications and work instructions. These provide

more specific information for determining the

appropriate action on individual assets following

routine inspection or asset failure. They identify

when continued maintenance is likely to be

uneconomic and renewal should be considered.

Where an asset renewal is required they specify the

product that must be installed or the design

parameters for any new product, as appropriate.

They may also identify the competencies required to

carry out these tasks.

The criteria considered for including a scheme in the

workbank for a route take account of:

• operational impact if no action is carried out, for

example line closure, imposition of temporary

speed restrictions etc, including an assessment of

our ability to meet operators’ access rights

• activities necessary to maintain (or achieve) the

required asset specification

• degradation rates increasing the maintenance

workload and future renewal costs.

The content of these workbanks are reviewed on a

regular basis to test for the consistent application of

the asset policies and associated standards. This

review process also provides important feedback to

enable the suitability of the current policies to be

assessed and identify where potential changes may

be required.

5.2 The impact of funding restrictionsFunding restrictions over many years have resulted

in asset policies that have met short-term

imperatives at the expense of increased future

costs. Our current high cost base is in part due to

this. As stated above, wherever possible our

policies are based upon optimised whole life asset

management costs and we continue to drive

improvements in efficiency that improves

affordability. However, where funding constraints

limit our ability to operate on this basis, it is

necessary to maintain a balance between short-

term savings and the future affordability of the

railway. The main areas where a whole lifeapproach is not applied fully at present include:

• civils – an optimised whole life cost policy

necessitates preventative maintenance being

carried out, for example painting to preserve the

fabric of a metal bridge. Funding constraints

restrict our current policy, referred to during the

2003 Access Charges Review as policy B, to

allowing structures to deteriorate until repair or

replacement is necessary to maintain operational

requirements. At the time of intervention, we then

carry out work sufficient to achieve lowest long-

term costs for the structure

• track – funding and access constraints limit our

opportunities to bring forward, from the nextcontrol period renewal items that may provide

work volumes that are more economical to

deliver. However, where this can be done

efficiently within the available funds and without

causing excessive disruption, we will do so; and

• telecoms – funding constraints have delayed the

roll out of the Fixed Telecoms Network and GSM-

R. This has left existing legacy transmission and

radio systems requiring expenditure to be

committed for life extension work.



21


6 Investment regulationsWhen considering an investment in the network it is

important that a consistent approach is followed in

identifying and assessing the benefits that we

expect to be delivered by the scheme (the value for

money and affordability criteria).

The rules and procedures governing these

decisions are set out in detail in our Investment

Regulations. This section identifies the key

principles that are contained within these

regulations and how they are applied, including:

• the sources of funds available to the business

and the rules governing the draw down of these

funds

• the methodology we adopt to assess the eligibility

of a scheme, primarily in terms of value for money

• details of our authorisation process, including how

this is designed to minimise and mitigate the risks

associated with delivering such schemes on an

operational railway.

Additional information relating to the application of

these criteria can be found in ORR’s “Policy

Framework for Investments: Conclusions” (October

2005) and “Implementing the policy framework for

investments: guidelines on arrangements and key

processes” (March 2006).

6.1 Funding for investment schemesFunding for schemes is dependent upon the type of

investment scheme under consideration, as shown

in Figure 4. The rules governing the drawdown of

these funds are specific to the fund in question and

are discussed in detail below.

1. Enhancement schemes that are self financing in terms

of income generation or cost saving.

An investment scheme may be a combination of

condition-led renewal, capacity/capability

enhancement and third party funded

enhancements. For such schemes the rules

outlined below apply to the appropriate component

of the overall scheme.

6.1.1 Expenditure allowanceThe majority of Network Rail’s investment on the

network is funded by our regulatory expenditure

allowance. This allowance is determined through

the five-yearly access charges review that provides

funds via track access charges, direct grant, and

agreed adjustments to the RAB, to deliver the

network outputs as agreed with the ORR. There

are three types of scheme that are eligible for the

use of this fund.

Condition-led maintenance and renewalsThese consist of maintenance regimes or individual

asset renewal schemes that result from the

application of current asset policies and standards.

These must satisfy the following criteria:

• the scheme is consistent with the current asset

policy and relevant standards (see Section 5)

• the capacity/capability provided by the

maintained/renewed asset is consistent with the

requirements as set out in the route specification,

and the RUS where relevant (see Section 4).

As the asset policy, the relevant standards and the

route specification are subject to a financial analysis

that has to balance a number of issues at both routeand network level (as explained in Sections 4 and

5), an individual cost/benefit analysis of each

scheme that reflects the application of the policy is

not generally necessary. However, a financial

analysis must be carried out where the following

conditions apply:

• the investment scheme is at variance with the

existing asset policy or standard, or

• the asset policy provides guidance only or

identifies a range of options that can be

considered, or

• the scheme is inconsistent with the current output

specification or contractual commitment related to

the route.

These schemes are assessed by determining the

value delivered against a reference base-case, asset out in Section 6.2.1. The appraisal period is the

life of the asset. Where an asset does not have a

defined life an appraisal period of 25 years is used.

Where an amendment to an existing policy or

standard is proposed, the base-case is the

application of the current policy/standard. Where

the existing policy allows for a range of options, the

base-case is generally the lowest cost option.

Figure 4 Funding source by scheme type

Scheme type Funding source

Expenditure RAB adjustments Network Rail’s ThirdAllowance or grant funding own funds party funds

Condition-led maintenance and renewals

Network enhancements 1

Safety & Environment

Third party funded schemes



22


Network enhancements

The criteria governing the draw down of expenditure

allowance funds for an investment initiative

associated with a network enhancement are as

follows:

•

the enhancement scheme was a fundedrequirement in the final conclusions following the

access charges review

• the proposed investment initiative is consistent

with the identified strategy and business case for

the scheme as defined at the time of the access

charges review.

Where these circumstances apply no further

cost/benefit appraisal is required.

Where the proposed initiative would imply a material

change in the overall scheme (and with the

agreement of ORR) the scheme value is

determined on the basis of a socio-economic

cost/benefit appraisal, as set out in Section 6.2.2.The base-case against which the value is compared

is the current scheme strategy. Where appropriate,

any substantial changes in the proposed approach

in the light of this assessment would be discussed

with ORR and the relevant funder.

Safety and Environment plan

Safety enhancement schemes are designed to

reduce industry risk to tolerable levels where there

is a quantifiable safety or environmental benefit net

of any cost, but no other business efficiency saving.

Network Rail has a limited funding provision from

the ORR to undertake safety and environment

enhancements to the network (or exceptionally its

processes). The funding is usually for site specificenhancements where the risk is not As Low As

Reasonably Practicable (ALARP) and Network Rail

is not currently funded to manage the risk down

effectively.

Individual schemes are assessed on the basis of

their value, see Section 6.2.3.

In general, environmental projects are national

initiatives, agreed with ORR and designed to

address compliance with legislation introduced

since the previous access charges review.

6.1.2 Regulatory Asset Base adjustments orgrant fundingAdjustments to the RAB (or the provision of grants

from Government or other public sector bodies)

provide a mechanism for funding investment

schemes that were not funded by the last charges

review. Any scheme that is proposing funding for all

or part of the investment via this mechanism must

satisfy the ORR criteria that determine if such an

adjustment is appropriate. Although there are some

variations in the criteria, dependent on the size of

the scheme (see below) all schemes must

demonstrate that:

• Government support the ongoing financial

commitment arising from a RAB addition

• the proposed scheme enhances the economic

value of the network

• the expenditure has been efficiently incurred

• the outputs specified within the scheme have

been delivered.

Where the expenditure does not add to the

economic value of our assets we will explain:

• why the proposed RAB addition represents an

efficient whole-industry solution and why we

should fund the scheme and

• how the proposal will add economic value to the

rail network

Schemes may be developed on either an emerging

or fixed cost basis. Where the latter is chosen, the

level of contingency is agreed between Network

Rail and the funder and is dependent upon the risks

associated with the delivery of the scheme, as setout in ORR’s “Policy Framework for Investments:

Conclusions” (October 2005). For schemes where

there is limited interaction with the operational

railway or for schemes costing less than £5 million

the contingency will be a maximum of 10 per cent.

For other schemes the contingency will generally

not exceed 15 per cent, with a maximum of 25 per

cent in exceptional circumstances.

Major network enhancements

There are circumstances under which the DfT or

Transport Scotland may wish Network Rail to

implement a major enhancement scheme that was

not funded at the previous access charges review.

A letter of support from the DfT or TransportScotland and formal agreement from the ORR is

required concerning the provision of the grant or an

agreement in principle to an adjustment to the RAB

for Network Rail to progress the scheme.

Where the DfT or Transport Scotland decide not to

proceed with such a scheme, Network Rail’s

scheme development costs to date will be added to

the RAB providing ORR is content that they have

been efficiently incurred.

Network Rail Discretionary Fund

It is important that opportunities are taken to

enhance the capacity and capability of the rail

network where this will deliver value for money,

delivery resources are available and it can be

delivered efficiently. We have agreement from the

DfT, Transport Scotland and ORR to the creation of

a programme of small enhancement schemes up to

a total expenditure of £200 million over the four year

period 2005/06 to 2008/09 – the Network Rail

Discretionary Fund (NRDF). Funding will be via an

adjustment to the RAB in April 2009.

For a scheme to be eligible for this fund, it must

meet the criteria as determined by the DfT, as

follows:



23


• it must provide a business case with a positive net

present value as defined by the Benefit Cost

Ratio indicator for Government (as set out in

Section 6.2.2). This analysis uses the socio-

economic cost/benefit approach to take account

of the economic impacts that are expected to be

delivered by the scheme• the amount to be logged to the RAB for each

scheme must not exceed £5 million (without the

prior agreement of ORR, and following discussion

with DfT or Transport Scotland). This allows

schemes with a total cost in excess of £5 million

to be eligible, where costs in excess of £5 million

are funded by Network Rail or a third party.

It is expected that many schemes will involve

incremental enhancements linked to renewals as

this is likely to provide the greatest value for money

and the minimum disruption to existing rail users.

However, stand-alone schemes are also possible.

The method for determining the scheme cost, usedin assessing the amount that will be logged up to

the RAB, is dependent on how the scheme is being

delivered, as follows:

• for stand-alone schemes, the scheme cost is that

determined at the completion of GRIP stage 5

(including risk and contingency allowances)

• for enhancements/improvements linked to a

renewal scheme the percentage of the overall

scheme cost which is attributable to the

enhancement/improvement is identified at GRIP

stage 3. This percentage would then be applied

to the actual scheme cost in order to determine

the amount to be added to the RAB.

Where a decision is taken not to proceed with a

scheme, Network Rail’s scheme development costs

will be added to the RAB providing they have been

efficiently incurred.

Schemes are generally prioritised on the basis of

their Benefit Cost Ratio, see Section 6.2.2.

The fund is not generally intended to support

enhancements where the financial benefits to

individual stakeholders, or a group of stakeholders,

are sufficient to warrant them funding the scheme

directly. Therefore where the benefits accrue wholly

to a single third party it would generally be funded

as a third party scheme. Similarly, where a scheme

would generate sufficient additional income or cost

savings for Network Rail we would progress the

scheme using our own funds, as set out below.

We take a lead role in identifying opportunities to

enhance network value, and details of the schemes

we are considering for this fund are set out in our

route plans, published annually as part of our

business plan suite of documents. This provides

the opportunity for other stakeholders to comment

on and provide input to our plans. In some cases,

however, the greatest value will be obtained from

schemes that are identified at short notice.

We will consult with passenger and freight

operators, and where appropriate other

stakeholders, on proposed NRDF schemes.

As the principles under which this fund is to be

managed have been agreed with ORR, prior

approval is not required before an individual

scheme can be progressed. However, it is

expected that the independent regulatory reporters

will assess a representative sample of schemes to

check for compliance with the criteria. As set out in

ORR’s “Policy Framework for Investments:

Conclusions” (October 2005) we will provide ORR

with:

• a quarterly summary report, setting out actual and

budgeted NRFD expenditure and showing

progress in achieving outputs

• at year-end include details of NRDF schemes inour regulatory accounts.

6.1.3 Network Rail’s own fundsThere are three categories of schemes that Network

Rail may consider investing its own money in, as

defined below:

• schemes designed to increase the

capacity/capability of the network that may in the

future result in additional track access or station

lease income (for example the provision of an

additional station platform or the conversion of

signals to allow bi-directional operation). They

may be stand-alone schemes or part of a larger

condition-led renewal initiative• investments that can be justified through savings

in Schedule 8 performance payments and

investments in assets, plant or equipment that will

reduce the future cost of maintaining or operating

the railway

• commercial schemes designed to generate

income for the business, e.g. a retail scheme at a

station where the capital outlay will be recovered

through increased rental income from retail units,

or capacity/capability schemes that generate

track access revenue from open access

operators.

For a scheme to be considered it must provide a

positive net present value (see Section 6.2.1).

Where the payback period for the scheme extends

beyond the end of the current control period and the

scheme provides sufficient revenue (or cost

reduction) to cover the associated return on the

RAB, ORR have agreed the principle of Network

Rail adding the expenditure to the RAB. Any

scheme that generates sufficient income and/or cost

savings in less than 20 years are eligible for

inclusion under this category of scheme. Generally,

specific approval from the Government for such a

scheme being added to the RAB is not required as



24


there should be no additional call on Government

funds. We will provide details of expenditure and

income generated (or costs saved) for such

schemes as part of our annual regulatory accounts.

Hypothecated gains

In consideration for Network Rail land, developerswill commonly offer a mixture of cash and

enhancements to railway assets – typically station

buildings and surrounds. We receive the full benefit

of cash, but the benefits of enhanced assets

typically accrue to other parties such as the Station

Facility Operator (SFO). We are in discussion with

ORR on the regulatory treatment of these benefits

and are proposing that the net value of the

enhanced asset is added to the RAB so that we are

incentivised appropriately. We want to reach

agreement with ORR for this approach but

nevertheless will agree to development deals that

provide worthwhile railway enhancements.

Our plans for the next control period (CP4) willinclude projections for income as well as assumed

investment in facilities where this provides better

value for money.

ORR are currently consulting on this issue and on a

mechanism for sharing with developers the value

that will be generated by our granting of property

rights to a third party.

6.1.4 Third party fundsThird party funded schemes are those that are

funded by an organisation other than Network Rail.

The scheme may be delivered by Network Rail or

directly by the third party.

Where a scheme is to be funded by a third-party it is

not necessary for that body to satisfy Network Rail

of the value delivered by the scheme. However, the

scheme must be compatible with the existing

strategy for the route, as set out in the tests for

‘reasonableness’ in Section 1.3. In addition, where

Network Rail is to deliver the scheme we must be

able to deliver it without compromising our other

delivery commitments.

Schemes may be developed on either an emerging

or fixed cost basis, generally at the discretion of the

third party. Where the latter is chosen, the level of

contingency is agreed between Network Rail and

the funder and will be dependent upon the risks

associated with the delivery of the scheme, as set

out in ORR’s “Policy Framework for Investments:

Conclusions” (October 2005).

Where the scheme can be delivered more efficiently

by bringing forward renewals from future years, the

third party would pay for the financing cost of the

accelerated renewal. The cost of the renewal would

generally be added to the RAB if the renewal is in a

future control period. No adjustment to the RAB will

be necessary for renewals brought forward from

within the current control period.

Any additional operational and maintenance costs

up to the end of the current control period that we

will incur as a result of the scheme will be funded by

the scheme funder. Longer-term operational,

maintenance and renewal costs would be included

in our periodic review submissions. ORR are

currently consulting on this issue and on a rebatemechanism to enable funders to recover an

appropriate proportion of their additional costs from

beneficiaries.

Risk funds

Risks associated with third party funded schemes

are allocated to the body best able to manage and

mitigate them. However we are proposing that

most liabilities are capped (for both third parties and

Network Rail) and we have established two funds

as follows:

• a Network Rail Fee Fund (NRFF): a ring-fenced

fund where payments from third parties to cover

our own costs and liabilities are put into the fundand the fund is drawn upon as necessary. Any

surplus that we derive from our charges to third

parties will be retained within the fund. We have

contributed £10 million to this fund. This provides

an incentive to manage effectively liabilities that

might arise

• an Industry Risk Fund (IRF), funded by third party

contributions based on a proportion of scheme

costs. This is intended to act as an insurance

against low-probability, high-impact risks.

If liability caps are breached and the NRFF and IRF

are both exhausted, Network Rail would finance any

additional costs until the next periodic review, at

which time there would be an addition to the RAB.This is subject to Government support, as set out in

ORR’s “Implementing the policy framework for

investments: guidelines on arrangements and key

processes” (March 2006).

We have drawn up a set of template agreements

with model terms and conditions, under Part G of

the Network Code. These will provide third parties

with transparency on risk allocation, payments to

Network Rail and our obligations and accountability.

We will provide ORR with quarterly reports on all

schemes with access to these funds.

6.2 Value for money assessmentWhere a value for money assessment is required

the approach used is dependent upon the source of

funds, as follows:

• where the scheme is to be funded by Network

Rail a whole railway financial analysis is required

or

• where the scheme will be funded by a public

grant or an adjustment to the RAB a socio-

economic cost/benefit appraisal must be carried

out.



25


For all schemes the costs and benefits are

compared to a base case (i.e. ‘do minimum’), which

should include:

• committed and funded future plans

• the achievement of required policies and

standards• activities required to meet contractual, regulatory

and statutory requirements.

6.2.1 Whole railway financial analysisThe net costs and benefits that are expected to be

delivered by a proposed scheme are risk adjusted

to obtain ‘expected values’ and discounted to obtain

a net present value (NPV). The NPV is assessed

as:

• the revenue and any other financial benefits

delivered by the scheme (including changes in

schedule 4 and 8 payments) less

• the cost of implementing the scheme, including

any ongoing maintenance and operational costs.

In general only schemes with a positive NPV are

progressed. However, schemes with a marginal

business case may be progressed where there are

significant non-monetary benefits.

For commercial property related revenue generating

schemes the real internal rate of return (IRR) must

be in excess of 10.5 per cent. This hurdle rate is

based on our cost of capital, including a premium to

reflect the commercial risks of such investments.

For all other schemes a real discount rate of 6.5 per

cent (reflecting the agreed rate of return on the

RAB) would be used to determine the NPV over thelife of the asset (or a period agreed with ORR were

an adjustment to the RAB is proposed – see

Section 6.1.3).

With the exception of capacity enhancement

schemes, the impact on industry stakeholders is not

addressed separately as the regulatory regime is

designed so that this analysis takes account of the

financial impact on other railway parties, primarily

through schedules 4 and 8, the Network Code and

its equivalent for stations and depots. Where it is

apparent that the impact on other parties would not

be covered adequately by this regime additional

analysis would be undertaken and we would consult

with ORR, and DfT or Transport Scotland as

appropriate.

6.2.2 Socio-economic cost/benefit appraisalFor RAB or public grant funded schemes, or

enhancement schemes funded through the access

charges review the assessment must include

consideration of the societal and financial benefits,

using an approach agreed with the DfT and

Transport Scotland. This includes consideration of:

• overall passenger journey time

• environmental and safety benefits arising from

modal shift from car or lorry to rail

• reliability and crowding for rail users

• employment and regeneration impacts.

All benefits and costs of the options under

consideration are quantified in real monetary terms,where possible, using net present values, discount

rates and appraisal period as defined by HM

Treasury (The Green Book 2003). Discount rates

are currently 3.5 per cent for the first thirty years of

the appraisal, at 3.0 per cent for years 31-75 and

2.5 per cent thereafter until 125 years – this is the

Social Time Preference rate, reflecting the value

society attaches to present, as opposed to future,

consumption.

Scheme costs include monetised risk and

contingency. In addition optimism bias is added to

correct the historically observed tendency to

underestimate costs. In accordance with DfT and

Transport Scotland guidance, cost estimates atGRIP stage 3 are uplifted by 40 per cent and by 6

per cent at GRIP stage 5 (these figures are currently

under review by DfT and Transport Scotland).

We apply the principle of proportionality to the

appraisal process, with the methodology adopted

based upon the value and complexity of the scheme

under consideration (below £1 million, between £1

million and £5 million, and above £5 million). This is

to limit the analysis overhead on low cost or

relatively straightforward schemes.

Network Rail’s Route Utilisation Strategies

Technical Guide provides a comprehensive

explanation of the data sources and benefit analysismethodology used when considering major

investments. For schemes that are to draw down

on the NRDF a simplified methodology has been

agreed with the DfT, Transport Scotland and ORR,

(The Appraisal Guidance for the Network Rail

Discretionary Fund).

Appraisal Summary Table

The Appraisal Summary Table (AST) is used by

DfT and Transport Scotland to compare the cost

and benefit of each option to enable comparison

between options to be made. The five sections of

the AST cover the five broad Government

objectives for transport of: environment; safety;

economy; accessibility; and integration.

Where possible the costs and benefits of options

are quantified in monetary terms. Non-monetary

(qualitative) impacts are used for assessing the

environment, accessibility and integration sections

of the AST. Their impacts are appraised using a

five point qualitative scale. The non-monetary

impact is used when assessing the relative merits of

options that have a similar economic value or to

assist in prioritising schemes where funding or

resource constraints exist.



26


Transport Economic Efficiency table

A monetary assessment of the benefits delivered by

each option is carried out using the Transport

Economic Efficiency (TEE) table. The value of the

scheme is determined by calculating the net present

value of benefits delivered. This is defined as:

net revenues – private sector costs + subsidies +

rail user benefits + non-user benefits.

This analysis includes consideration of:

• net revenue changes to TOCs and Network Rail

• the cost of capital (where Network Rail will initially

fund the scheme and recover costs via an

adjustment to the RAB)

• welfare benefits such as journey time, reliability,

rolling stock or station ambience changes to rail

users divided by business and non business rail

users

• benefits to non rail users and society, for example

environmental benefits arising from modal shift ofusers from another transport mode.

For both DfT and Transport Scotland appraisals all

benefits and costs expressed in monetary values

use 2002 as the price base. This allows the results

of the scheme to be compared to all other

appraisals completed in accordance with

DfT/Transport Scotland criteria. The appraisal

period follows HM Treasury and DfT guidance and

should cover the period over which any liabilities

(actual or contingent) fall on the funder’s budget.

All options should be appraised over the same

period. If there is no exact life (such as the life of

the asset before first renewal) then the appraisalperiod is set at 60 years.

The overall measure of value for money used by the

DfT, Transport Scotland and Network Rail is the

Benefit Cost Ratio (BCR) which is set out in the

TEE table. The BCR is defined as:

NPV (as defined above) .

present value of costs (PVC) to Government

Guidance on the use of the minor discretionary fund

from the DfT is that:

• most, if not all, schemes should provide high

value (i.e. with a BCR of greater than 2.0)

• some schemes may provide a medium level of

value for money (where the BCR is between 1.5

and 2)

• very few schemes should provide low value for

money (with a BCR of between 1.0 and1.5) – and

such schemes must deliver other benefits

• there should be no schemes providing a poor

level of value for money (a BCR of less than 1.0).

In addition to providing an absolute measure of the

value for money provided by a scheme, the BCR is

also used to prioritise schemes where the number

of eligible schemes exceeds the funding available.

Sensitivity analysis

Sensitivity analysis is used to test the vulnerability of

the options to future unavoidable uncertainties.

These are likely to include uncertainty associatedwith the achievement of either the levels of benefit

or base demand, usage or patronage profile.

Examples of option sensitivity tests include:

• reducing all option benefits such as performance

savings by 15 per cent or 40 per cent

• removing growth from the values used to

monetise the benefits

• the identification of the switching value, i.e. the

level to which the cost must increase or the

benefits decrease for the NPV to move from

positive to negative

• using various patronage scenarios as well as the

central case for the demand profile.

Sensitivities in costs may also be considered.

However risk should already be addressed in the

cost profile as a result of including an appropriate

optimism bias in the appraised cost.

6.2.3 Safety business case assessmentA financial analysis is carried out over the life of the

asset to determine the NPV, using a discount factor

of 6.5 per cent.

Safety benefits are defined as the safety benefits

achieved in terms of the equivalent fatalities

prevented less any safety disbenefits delivered by

the scheme. In assessing if a risk is ALARP,

Network Rail uses the Value of Preventing a Fatality(VPF) as a means of applying a monetary value to

the benefits delivered. The VPF applies to

equivalent fatalities and is the threshold value

attached to reducing the risk by one fatality, 10

major injuries, or 200 minor injuries. More details on

how this methodology is applied and on the current

monetary value assigned to the VPF can be found

in Network Rail’s Railway Safety Case.

6.3 Governance processOur Investment regulations set out the governance

process applicable for all types of investment

schemes.

Authorisation of investment schemes in Network

Rail is delegated to investment panels, depending

on the scheme type and the forecast level of

expenditure. All panels share the responsibility to

ascertain that:

• the scheme is consistent with asset policies and

route or network strategies

• the appropriate scheme development and

implementation processes have been adhered to

• roles and responsibilities have been clearly

defined



27


• adequate budget provision for the scheme is

available

• the efficiency target for scheme has been

achieved

• the scheme is deliverable.

We have developed an approach to managinginvestment schemes to minimise and mitigate the

risks associated with delivering such schemes on

an operational railway – the Guide to Railway

Investment Projects (GRIP). The approach is

based upon best practice within Network Rail and

other industries that undertake major infrastructure

projects as well as practice recommended by the

major professional bodies. It covers the investment

lifecycle from inception through to the post-

implementation realisation of benefits, as follows.

Funding is in discrete stages to limit the risk of

committing resources to the wrong scheme. The

authorisation process provides a check mechanism

(budget and funding availability, consistency with

asset and route policy etc.) to deliver the continued

effective operation of this process.

We are in the process of reviewing our GRIP

documentation.

Figure 5 Key stages of the investment lifecycle

1

Outputdefinition

2

Pre-feasibility

4

Single optionselection

5

Detaileddesign

6Construction

test &commission

7

Schemehand back

8

Projectclose out

3

Optionselection

1

Outputdefinition

1

Outputdefinition

2

Pre-feasibility

2

Pre-feasibility

4


4


5

Detaileddesign

5

Detaileddesign

6Construction

test &commission

6Construction

test &commission

7

Schemehand back

7

Schemehand back

8

Projectclose out

8

Projectclose out

3

Optionselection

3

Optionselection



28


7 Asset plansHaving developed asset policies that are designed

to deliver the required network outputs within the

applicable constraints, the activity and expenditure

plans are produced by applying these policies.

There are two key outputs of this planning process:

our annual business plan and our periodic reviewsubmissions. This section describes:

• the models we are developing to produce activity

and expenditure forecasts

• the role of our annual business plan and the

process by which it is produced

• how these plans are used to develop our periodic

review cost submissions.

7.1 Modelling tools7.1.1 Infrastructure cost modelWe are currently developing the first version of an

Infrastructure Cost Model (ICM). This is intended to

be a strategic planning tool to produce forecasts of

activity volumes, expenditure and outputs fordifferent specifications of usage and capability. The

ICM will cover all elements of our business,

including operating, maintenance and renewals

expenditure. It will provide, for the first time, an

integrated model across all asset types and will

improve our ability to analyse the costs of specific

segments of the network.

The ICM will, wherever possible, derive ‘bottom up’

estimates of activity volumes as functions of the key

cost drivers and based upon the application of our

asset policies. These cost drivers include the

volumes of different types of assets, their

associated capacities and capabilities, and the level

and type of traffic that uses them. The model will

reflect the existing level of understanding of asset

degradation relationships and cost drivers, which

varies across our asset portfolio, drawing on

existing decision support tools. The forecast costs

of delivering these activity volumes will be informed

by progressive improvements in unit cost data,

following the standardisation of our cost data

collection processes. The model will incorporate

high level input – output relationships, quantifying

the impact of different levels of activity, expenditure

and traffic usage on key network output measures,

including measures of asset condition and failure

rates.

Transparency, consistency and ease of audit will all

be key principles guiding the development of the

model. The first version of the model, which will be

completed in spring 2006, will be used to produce

our first cost submission for the 2008 access

charges review in June 2006. It will also link in to

the wider industry Network Modelling Framework

being developed for the DfT.

The model will continue to be developed and refined

over time, serving as a focus for, and a driver of,

progressive improvements in the understanding of

core relationships including asset degradation rates,

the trade-offs between maintenance and renewal,

the relationship between unit costs and possession

regimes, and the relationships between activity input

and asset condition and performance outputs.

7.1.2 Performance model

We are currently developing the first version of amodelling tool to help us produce longer term

forecasts of network performance. The model will

forecast the effects on performance of three types of

change:

• in asset condition and failure rates, based on

outputs from the ICM

• in traffic levels on the network, based on

relationships between the capacity utilisation

index and delay

• other changes, for example those affecting the

robustness of the timetable, such as

improvements in incident management. The

model will not itself forecast the effects of these

changes, but will enable the estimated effects ofthese changes to be consolidated in a transparent

and consistent manner.

The primary output of the model will be delay

minutes and (for passenger operators) PPM, at

operator level.

7.2 Annual business planOur route investment plans result from the

application of our asset policies, adjusted where

necessary (primarily in terms of the timescale for

delivery) to reflect current business priorities. These

are detailed in our annual business plan and set out

the actions we are undertaking to make certain that

the capacity and capability of each route are asagreed with our stakeholders via the processes set

out in Section 4. We also identify our plans to

improve the effectiveness of our asset management

activities, our income projections and our plans for

financing the required expenditure.

Within the plan we identify the following for each of

our 26 strategic routes:

• our high-level strategy for the route

• the current capability for the route, and the timing

of any change in this capability

• forecast maintenance, renewal and enhancement

activities and costs

• the assumptions we have made (traffic growth

etc) in developing these plans.

It is important that our plans are sufficiently

transparent to enable our stakeholders to plan their

own activities with a reasonable degree of

assurance. Business planning guidelines are

provided to support the production of appropriate

and consistent plans. These guidelines set out the

procedures and processes for the development of

the plan and contain key assumptions that should

be used in the preparation of the plan.



29


7.2.1 Demand forecastingA key set of assumptions used as an input to our

Business Plan is a demand forecast; or, more

precisely, the train service growth expected over the

next 10 years. This informs two principal elements

of the plan: maintenance and renewal costs and

performance. It is important that the forecasts usedin the plan are seen in context. The eventual level

of train services run on the network in future years

will of course be the outcome of a number of

decision-making processes, notably the HLOS, the

2008 Periodic Review, RUSs, enhancement

projects which are funded separately and

franchising decisions.

For passenger services, forecasts for the first two

years of the plan are based known service changes,

via the timetable development process and

discussions with TOCs. In some cases, train

service changes (especially significant ones) can be

anticipated further ahead than this. For example,

some franchise plans contain commitments tocertain service changes. The longer term forecast

is based on top-down forecasts of future growth in

passenger demand. This involves forecasting

unconstrained passenger demand, expressed in

terms of passenger-miles. We then make

assumptions as to what proportion of this growth will

need to be accommodated by means of increasing

train services, whether by running more trains or

lengthening existing ones.

The short to medium term forecasts for freight

services are also based on known service changes

through the usual timetable development process

and discussions with FOCs. The Freight RUS that

is currently underway will look in some detail at longterm freight forecasts. Unconstrained growth

forecasts are being prepared by the rail freight

industry and the Freight RUS will consider these

forecasts and how (or to what extent) the growth

can be accommodated on the network. Freight

traffic forecasts in future business plans will be

largely based on the conclusions of the Freight

RUS. However, as these growth forecasts have not

been finalised, our 2006 Business Plan has

considered growth at a commodity level, based on a

combination of historical trends, the draft forecasts

from the industry and judgement as to the likely

effects of capacity constraints.

7.2.2 Target settingOur business planning processes are designed so

that the disaggregation of output targets to the

appropriate component parts of the organisation are

set at a level that enables us to meet our contractual

and regulatory outputs. In addition, these planning

processes are used to validate and amend our

portfolio of asset investment initiatives, to facilitate

the optimum delivery of these outputs.

SMART (i.e. Specific, Measurable, Achievable,

Realistic and Time-related) targets are set at a

network, functional and area level as appropriate.

Wherever possible, asset condition and

performance targets are set at a delivery (i.e. Area)

level. Local target setting is based upon asset

population, outputs delivered previously and the

likely outcome of current asset and other initiatives.

These targets include asset reliability, train service

reliability and the number of broken rails. Networktargets cover those asset condition measures

where a disaggregation to area level would not

assist in the development of local delivery plans.

The move to route-based planning is improving

significantly our ability to set Area targets, and

provide appropriate budget provision for their

delivery. Functional targets are set at a level

necessary to achieve the required cost and

efficiency levels.

7.2.3 The translation of the workbank intoannual plansThe application of the asset policies (described in

Section 5) will identify the workbank necessary to

deliver the defined route specification. For manyitems within the workbank the policies will have

identified the point by which ongoing maintenance

will no longer be economic and a renewal should be

considered. Our annual work plans, and

corresponding budget and resource allocation, are

targeted at delivering the appropriate elements of

these workbanks.

A risk-based approach is used to prioritise delivery

of the defined work, based upon the following

hierarchy:

• protecting expenditure on safety critical schemes

• maintaining defined capability of the route

• meeting targets for operational performance andasset condition.

Other factors considered when determining the

scheduling of a scheme include:

• the availability of resources (both internal and

external) to deliver the work

• the cost and benefit impact of deferring the

scheme, particularly where reductions in unit

costs are imminent

• the packaging of works to minimise service

disruption and network access costs and to

improve delivery efficiency.

Where resource constraints limit our ability to deliver

items of work a mitigation plan is developed to

eliminate any safety impact and minimise any

impact on the delivery of contracted services until

the work can be rescheduled.



30


7.2.4 Review processIn addition to the routine reviews of the contents of

the proposed workbanks described in Section 5, a

more formal review takes place on an annual basis.

This review, led by asset heads, provides an

additional challenge to the content of the asset

investment portfolio. It assesses the consistentimplementation of asset policies, the likely impact of

the resultant plans on performance and other output

measures, overall deliverability issues and the

appropriate budget provision to support the delivery

of these plans.

Regular reviews are also carried out by the

Executive Directors to monitor progress against the

plan, with a key focus on the resilience of our plans

and the achievement of our efficiency and

performance targets. Reviews are also held with

Area and functional teams across the organisation

on their plans to deliver these targets. In addition,

the Renewal Investment Panel authorises individual

elements of the asset renewal programme,considering the deliverability of the overall

programme, its affordability and if it meets our

efficiency challenges.

As our planning processes mature the linkage

between the annual business plan and the

necessary adjustments that are required to be

made during its implementation throughout the year

will be improved. This enables the plan to become

‘live’, in that it is amended to reflect what is

happening throughout the year. The availability of

an up-to-date plan against which progress can be

assessed facilitates the monitoring process and will

reduce considerably the effort needed to create

annual plans in future years.

7.3 Periodic review submissionsThe 2008 Periodic Review for Control Period 4 will

determine Network Rail’s access charges for the

five year period from April 2009 to March 2014.

This review has been initiated with the publication of

the ORR’s first consultation document (August

2005) and the initial assessment of our revenue

requirements (December 2005). Network Rail will

be providing the ORR with our initial draft cost

submission in June 2006, with a further cost

submission with our 2007 Business Plan. The

criteria set out in this document and the

methodology we have adopted to applying this

criteria are pivotal to the development of our plans

as an input to this process, allowing us translate the

regulatory requirements into required action plans

and assessing options for value for money.

As described above, the route specifications define

the required capability, capacity, performance and

operational requirements of the route and the

timescale by which these changes must be made.

The Infrastructure Cost Model will be used to assist

in forecasting the cost of delivering these plans, with

the asset policies providing the basis for estimating

activity and expenditure forecasts associated with

the delivery of the required route and network

outputs. These policies are adjusted, and funding

re-allocated between asset groups, based upon the

contribution of each asset group to the delivery of

the required route and network outputs. This

process assists in determining:

• the cost of delivering the outputs required during

the next control period (including defined network

enhancements) based upon current asset policies

• the likely long-term cost and sustainability

implications of these policies

• options to reduce long-term costs (measured in

terms of net present value) by additional

investment in asset management during the

forthcoming control period.

The latter is particular important as it enables

funders to consider the value delivered by route

capacity or capability enhancements with those

delivered by improved long-term infrastructure

management policies. Although the format of ourcost submission is still under review with the ORR it

is likely to include a detailed description of our plans

and the underlying assumptions so that they can be

reviewed by ORR, including:

• our corporate objectives

• a forecast of our likely position at the end of the

current control period

• our base plan, i.e. what we are seeking to deliver

and our delivery plans

• the outputs that these plans will achieve, e.g.

capacity, safety and performance

• the assumptions that underpin this plan

• maintenance and renewal activities and spend by

asset type• our operational costs and single till income

• our funding requirements and proposed financing

arrangements

• details of any enhancement options that have not

been included in our base plan.



31


Part 3: Appendices



32


Appendix 1: SupportingdocumentsThe following documents contain additional

information relevant to the application of our

Business Planning Criteria.

A1.1 Network Rail documents• Our Integrated Risk Management Process

provides the framework against which risks to the

delivery of our corporate objectives are identified

and managed.

• The Railway Safety Case describes our activities

and health and safety responsibilities as

infrastructure controller and demonstrates how

risks on our infrastructure are controlled. This

covers those activities undertaken to meet our

asset management responsibilities.

• OurCorporate Responsibility Report provides

a review of our efforts to be a good neighbour, a

responsible employer, and a custodian of an

important part of Britain's natural environment.

• Our Environmental Policy sets out our

environmental aims and the commitments we

have made to integrate environmental

management with the safe and efficient operation

of the railway.

• Route Utilisation Strategies (RUSs) play an

important role in the planning activity for the rail

industry and the RUS Technical Guide sets out

how Network Rail develops these strategies with

other industry parties.

• Asset policies set out the engineering

stewardship regimes for each of our asset types,

identifying the point at which continued

maintenance is likely to be uneconomic and

detailing the appropriate action to be taken.Proposed changes to the asset policies are

evaluated using the criteria set out in this

document.

• Our investment regulations comprise the

following two elements:

o the appraisal criteria set out the criteria

used to assess proposed changes to

the infrastructure and reflect the

principles set out in this document

o the Guide to Railway Investment

Projects (GRIP) identifies the actions

that must be carried out at each stage

of the investment lifecycle

• Our annual Business Plan sets out our plans for

improving the effectiveness of our assetmanagement activities and our expenditure plans

for the next 10 years. It identifies the principles

and assumptions under which these annual plans

are drawn up. It also incorporates our plans for

each of the 26 strategic routes.

• Our Asset Information Strategy (AIS) sets out

our strategy for the provision of fit for purpose

asset information to support the delivery of our

asset management responsibilities.

• In line with the Customer Sponsored

Enhancement consultation that we have

undertaken with the industry, we have developed

a suite of template agreements that we intend to

use with customers for their schemes. A brief

summary of each of these agreements is

contained in our Template ConsultationAgreement for Customers undertakingRailway Projects.

• The Land Disposal Licence Condition identifies

the screening process we adopt with regard to

land disposals that do not need the consent of the

ORR.

All of these documents are either made available to

industry group members where appropriate or will

be available on our website.

A1.2 External document list

• ORR’s “Policy Framework for Investments:

Conclusions” (October 2005)

• ORR’s “Implementing the policy framework forinvestments: guidelines on arrangements and key

processes” (March 2006)

• DfT “Appraisal Guidance for Network Rail

Discretionary Fund Schemes” (January 2006) –

www.dft.gov.uk

• HM treasury “The Green Book: Appraisal and

Evaluation in Central Government” (2003)

• DfT value for money guidance – www.dft.gov.uk

• DfT appraisal rules – www.webtag.org.uk

• Scottish Transport appraisal rules – www.scot-

tag.org.uk.



33


Appendix 2: Integrated RiskManagement ProcessA2.1 PrinciplesIn order to increase the certainty of meeting our

corporate objectives we have implemented a

comprehensive, structured and robust framework. It

is designed to make sure that key risks aremanaged and our processes provide transparency

on how they are being managed.

A2.2 Process overviewOur integrated risk management process can be

summarised by the following six basic steps:

• corporate objectives – identify the objectives that

could be impacted by the action or process under

consideration

• identify risks – determine what could go wrong or

what opportunities could be missed

• assess and prioritise – assess how exposed we

are and determine what should we tackle first

• identify mitigation – determine what, if anything,

we should do, or do differently

• implement – carry out the appropriate action

• monitor – determine if we are delivering the

expected results.

A2.3 Risk identificationRisk owners are identified based upon their

accountability for the action under consideration. It

is their responsibility to assign and allocate priority

risks to plan managers. These managers are

responsible for developing and implementing action

plans to mitigate the risks and monitoring progress

on the completion of the plan. Risk identification

may be carried out during:

• the development or update of asset policies

• the consideration of material changes in capacity

or capability of the network

• prior to and during renewal, enhancement or

maintenance projects

• the development of annual business plans.

A2.4 Assessment and prioritisationHaving identified the risk, a ranking system is used

to determine prioritisation based upon a numerical

assessment of its impact on the business and the

likelihood of it occurring,

i.e. Risk ranking = Impact + Frequency

A2.4.1 ImpactThe assessment of impact is based upon its effect

on our corporate objectives, covering:

•

finance• safety

• performance

• capability

• asset stewardship

• business performance

• customers and stakeholder.

When determining the impact, the primary business

objective is identified, i.e. which of the above will the

risk impact on more than the others.

The range of impact scores is from 1 to 5. For

example, for capability the loss of a major route for 5

hours would receive an impact score of 1, whereas

the loss of such a route for 5 days would beallocated a score of 4. Similar guidance is provided

for each of the above objectives.

A2.4.2 FrequencyFrequency is an estimate of the potential for the

maximum credible impact occurring.

A2.5 Identify mitigationThe risk ranking (the sum of the impact and

frequency scores) is used to determine the action

that should be carried out to manage and control

the risk, using the following approach.

Figure 7 Frequency scoring

Frequency Description Score

More than or equal to five per year Recurring 5

Less than five per year

More than or equal to one per year Expected 4

Less than one per year

More than or equal to one in five years Possible 3

Less than one in five years

More than or equal to one in 25 years Unlikely 2

Less than one in 25 years Remote 1

Figure 6 Identification of actions for risk control

Risk region Rating Safety risk Other risk

Unacceptable 7-10 Additional controls will be introduced to Additional controls will be introduced to reduce the

region reduce the risks to the tolerable region risks to the tolerable region (or lower) unless it is

(or lower) demonstrably not cost effective to do so

Tolerable 5-6 Additional controls will be introduced to Additional controls will be introduced to reduce the

region reduce the risks risk unless the cost is risk unless the cost is disproportionate to the benefit

disproportionate to the benefit (i.e. ALARP)

Broadly 2-4 Action not usually required unless Further action not usually required

acceptable region reasonably acceptable practicable

measures are available



34


Appendix 3: Regulatory targetsNetwork Rail’s regulatory targets for the third control

period (CP3), April 2004 – March 2009, were set in

the ACR 2003: Final Conclusions. These targets,

summarised below, are distinct from Network Rail’s

internal targets, which are the company’s way of

managing the assets to achieve agreed regulatorytargets, and from incentives, which provide a means

of additional remuneration to Network Rail if it

improves on certain baseline levels of performance.

These targets have been translated into values,

which Network Rail believes are to be met on a

measure by measure basis. In addition, using a

methodology agreed with DfT, Transport Scotland

and ORR, we have disaggregated these targets

and produced indicative outputs for England and

Wales and Scotland. These are set out in figure 9.

Note that condition assessments are based oninspections during the year stated and previous

years, hence do not necessarily describe the

condition of the asset base at the year taken as the

baseline.

Figure 8 Regulatory targets for the five year period 2004/05 to 2008/09

Name of measure Regulatory targets

Total Network Rail attributed delay (million minutes) 2004/05: 12.3

2005/06: 11.3

2006/07: 10.6

2007/08: 9.8

2008/09: 9.1

Train delay minutes/100 train kms 2004/05: 2.34(franchised passenger operators) 2005/06: 2.12

2006/07: 1.97

2007/08: 1.80

2008/09: 1.65

Broken rails Reduction in the number of broken rails to no more than

300 per annum by 2005/06. No increase thereafter.

Track geometry Reduction in the number of L2 exceedences per track mile

to no greater than 0.9 by 2005/06. No increase thereafter.

Track geometry (standard deviations) - the regulatory

target is to maintain 2003/04 levels.

Temporary speed restrictions Annual reduction required.

Structures and electrification Condition and serviceability to return to 2001/02 levels.

Other measures Other asset condition and serviceability measures to showno deterioration from 2003/04 levels.

Network capability Maintain the capability of the network for broadly existing

use at April 2001 levels (subject to network changes

authorised under the Network Code).



35


Figure 9 Values of regulatory targets and disaggregated indicative outputs for the period 2004/05 to 2008/09

Measure Regulatory target Indicative outputs

England Scotland

& Wales

Total Network Rail attributed 2006/07: 10.6 9.713 0.887

Delay (million minutes) 2007/08: 9.8 8.980 0.820

2008/09: 9.1 8.338 0.762Train delay minutes/100 train 2006/07: 1.97 1.99 1.74

kms (franchised passenger 2007/08: 1.80 1.82 1.59

operators) 2008/09: 1.65 1.67 1.46

M1 Broken rails Reduction to no more than 300 broken rails per annum 270 30

by 2005/06. No increase thereafter.

M3 Track geometry 35m top (vertical) 50% 62.4% 61.2% 69.8%

90% 89.2% 88.7% 92.4%

100% 97.0% 96.9% 97.9%

35m alignment (horizontal) 50% 72.7% 73.2% 69.3%

90% 92.9% 92.9% 92.9%

100% 96.5% 96.5% 96.7%

70m top (vertical) 50% 63.6% 63.1% 67.1%

90% 92.3% 92.3% 92.4%

100% 95.3% 95.3% 95.2%

70m alignment (horizontal) 50% 79.5% 79.8% 77.7%

90% 95.8% 95.8% 95.8%

100% 97.2% 97.2% 97.3%

M5 Level 2 exceedances Reduction in the number of L2 exceedences to no 0.93 0.70

per track mile greater than 0.9 by 2005/06. No increase thereafter.

M4 Temporary speed Annual reduction required from 2003/04 level of 1091 108

restrictions 1,199 TSRs (track, structures and earthworks)

M6 Earthwork Covered by “other asset condition and serviceability” 37 10

failures and derailments with no deterioration from 2003/04 levels.

M8 Bridge condition Condition1 and serviceability to return to 2001/02 levels 2.0 2.0

which was approximately 2.0, but the full target cannot be

firmly established until all bridges have undergone Structures

Condition Monitoring Index, anticipated to be in 2007/08.

M9 Signalling failures Covered by “other asset condition and serviceability” 25,150 2,948

with no deterioration from 2003/04 levels i.e. 28,098

signalling failures at 59 million train km per annum.

M10 Signalling asset Covered by “other asset condition and serviceability” 2.5 2.5

condition with no deterioration from 2003/04 levels

M11 AC traction power No deterioration from number of incidents reported in 97 10

incidents causing train delays 2001/02

M12 DC traction power No deterioration from number of incidents reported in 30 NA

incidents causing train delays 2001/02

M13 AC Feeder stations and Condition1 and serviceability to return to 2001/02 levels, 2.18 1.61

track sectioning points i.e. 2.1.

M14 DC Traction substations Condition1 and serviceability to return to 2001/02 levels 2.3 NA

M15 AC Traction contact Condition1 and serviceability to return to 2001/02 levels 1.83 1.61

systems

M16 DC Traction contact Condition1 and serviceability to return to 2001/02 levels 1.8 NA

systems

M17 Station condition index Covered by “other asset condition and serviceability” with 2.29 2.02

no deterioration from 2003/04 levels

M18 Station facility score No regulatory target - -

M19 Light maintenance Covered by “other asset condition and serviceability” with

depots – condition index no deterioration from 2003/04 levels 2.7 2.7



36


Appendix 4: How the criteria areapplied in practiceThis section provides an illustration of how our

business planning criteria are being applied. The

scenario examined is an asset renewal scheme and

addresses three key questions: why we are carrying

out work on this asset in this location, why at thistime and why to this specification.

There are three components of the decision making

framework against which these considerations will

be addressed:

• the asset policy

• the route specification

• the annual business plan.

This framework enables us to make individual

decisions that collectively address the complex and

interrelated issues that govern the management of

the infrastructure, and in a manner that best

supports the effective and efficient delivery of our

corporate strategy. Individual renewal decisions

must be seen in this broader context.

A4.1 Asset policyThis addresses when, how and why we would carry

out work on this type of asset in this sort of location.

It also partly addresses: why at this time.

The asset policy (and corresponding standards)

identifies the inspection and maintenance regime for

the asset type under consideration and identifies:

• the frequency of inspection and maintenance

•

the information that should be collected duringinspection

• the tasks that must be carried out during

maintenance

• the age/condition/usage criteria that should be

used to identify if the asset should be renewed.

For example, for a switch and crossing the criteria

used when considering the most appropriate action

to take will include: the condition of the ballast,

recent performance history, current levels of

maintenance necessary to maintain geometry and

component condition.

The following factors will have been explicitly

addressed by the development and application ofthis policy:

• the risk that this asset imposes on our business in

terms of delivering the required route and network

outputs (Section 5.1.2)

• the optimum maintenance/renewal interface (i.e.

the point at which the asset should be renewed

as ongoing maintenance is considered not to be

cost effective). This is based upon an

assessment of the whole life cost of managing the

asset (Section 5.1.1)

• the type and nature of the traffic on the route and

its forecast change over time (Section 5.1.2)

• an assessment of the overall impact on the

delivery of our output commitments of varying the

funding available for each asset group (Section

7.3).

The corresponding renewal item will be contained

within a workbank; detailing when the work shouldbe completed by and any necessary mitigation

measures should the work be deferred beyond this

date (5.1.3).

A4.2 Route specificationThis addresses the question: why to this

specification.

The required capacity/capability of the route

containing the asset to be renewed is defined by the

route specification. This is based upon

consideration of:

• the current and future contractual and other

commitments, and changes to capacity/capabilityagreed with customers and funders via the RUS

process (Section 4.2)

• analysis of opportunities to grow the value of the

route by considering the cost implications of asset

management policies and the value of services

provided (Section 1.1)

• consideration of customers’ reasonable

requirements for enhancements to the current

route specification (Section 1.4).

For component or minor renewal no further analysis

would generally be carried out and the renewed

asset would be designed to meet the requirements

of the route capacity/capability as currently

specified.

For major renewal, system replacement or where

the route specification indicates that enhancement

opportunities should be explored, a more detailed

consideration would be given to the design

specification. This is likely to include an

assessment of the impact on overall industry value

of varying the design of the renewed asset, and

hence the route capacity/capability that would be

delivered.

For example, consideration may be given to

enhancing the capacity/capability of a route by

increasing the line speed through a switch and

crossing that is due for renewal. The potential value

delivered by this ‘enhanced renewal’ would be

determined by consideration of the financial and

socio-economic benefits using the methodology set

out in Section 6.2. Where these benefits outweigh

the additional cost, and subject to industry

consultation and funding availability, the asset

would be renewed to the higher specification.

Network Rail would generally draw down on the

Network Rail Discretionary Fund (Section 6.1.2) to

cover the additional cost of delivering the elevated

line speed.



37


Conversely, proposed major work on a bridge

where future traffic flows no longer justify

maintaining existing capability may warrant

consideration with industry partners of the financial

and socio-economic impact of a reduction in route

capability or a diversion of existing freight services.

A4.3 Annual business planThis addresses: why this actual timing for the

renewal.

The application of the asset policy will identify that

an asset renewal is required and provide a target

date by which this renewal should be achieved.

The route specification would assist in determining

the required capacity/capability of the renewed

asset. The actual timing of the renewal work is

determined using a risk-based approach that takes

into account a number of additional factors, as set

out in Section 7.2.2. These include:

• prioritising safety critical schemes• maintaining defined capability of the route;

• meeting targets for operational performance and

asset condition

• the availability of resources (both internal and

external) to deliver the work

• the packaging of works to minimise service

disruption and network access costs and to

improve delivery efficiency.



38


Appendix 5: 26 strategic routes

Figure 10 26 planning routes and 8 operational routes



39


Appendix 6: Route classification

Figure 11 Route classification



40


Appendix 7: Draft networkcapability parametersA7.1 Track and route mileageThis parameter defines the amount of mileage on

the network.

Tracks are shown in the Sectional Appendix astrack layout diagrams. Different types of track are

shown by full, dashed and dotted lines (usually

denoting running lines used by passenger trains,

other running lines, and sidings).

Individual tracks are held in GEOGIS as either

running lines, sidings or closed tracks. Statistics are

produced to show the number of miles of track

(expressed as Single Track Miles, being the sum of

the extents of the individual tracks), either for

running lines or sidings, and the number of miles of

route (Route Miles, being the sum of the extents of

the routes), for the open network.

A7.2 Length capabilityWe have described this capability by the following

components which contribute to the overall

understanding of the impact of length as a measure.

Possible measures to be considered include:

• platform length – recognising that the capabilities

can equally apply to the passenger business, the

length of the platforms over a route can define the

maximum level of train which a passenger train

company can operate

• loop length – to deliver an appropriate level of

train performance across all operators, there are

loops positioned at strategic places across the

network which enables the maximisation ofcapacity – the length of these loops will define the

potential length of freight trains which may require

use of these loops

• junctions length – the physical length of the route

which is available across a junction which is used

as a measure so that trains do not extend across

other signalled areas

• signal section length – this is part of the loop and

junction length issue, and involves each of the

signal section lengths for the part of the unit of the

network we are considering. This is particularly

relevant where the signals are relatively close

together and freight trains are routinely longer

than a signal section length.

A7.3 Linespeed capabilityThis parameter defines the maximum speed at

which trains can travel on a track.

In some locations, a different maximum permissible

speed applies to different types of train (differential

speeds). The Sectional Appendix defines which

types of train the different speeds apply to. On

tracks used in both directions, speeds may be

defined separately for each direction.

The speeds in the Sectional Appendix are not all

held in GEOGIS, as only 4 different speeds for a

track can be stored, which are:

• maximum permissible speed (normal)

• maximum permissible speed (raised)

•

maximum permissible speed (wrong direction) or• maximum permissible speed (override) (not now

used).

Where more than two different speeds apply in the

normal traffic direction, only two may be held in

GEOGIS, one of which is always the highest speed;

and where more than one different speed applies in

the ‘wrong’ traffic direction, only one may be held in

GEOGIS, which is always the highest speed.

Moreover, the types of trains to which the speeds

apply are not held in GEOGIS.

A7.4 Gauge capability

This parameter defines the maximum size of vehicle

that is permitted on a route.

Gauge codes (e.g. W6) are assigned to vehicles

and routes, and a vehicle is permitted to travel over

a route if the vehicle gauge is within the route

gauge. The gauge code for a vehicle is derived

from the dimensions of the vehicle; the gauge code

for a route is derived from the dimensions of the

structures. Tables in the Sectional Appendix show

which passenger vehicles and locomotives are

permitted on which routes.

A spreadsheet holds the freight gauge (W6 to W10)

for each route.

A7.5 Route Availability (RA)This parameter defines the maximum weight of

vehicle that is permitted on a route.

RA numbers are assigned to vehicles and routes,

and in general terms, a vehicle is permitted to travel

over a route if the vehicle RA is less than or equal to

the route RA, but there are exceptions. The RA

number for a vehicle is derived from its maximum

axle loads and axle spacing; the RA number for a

route is derived from the strength of the under-track

structures. RA numbers for routes are shown in the

Sectional Appendix. Tables in the Sectional

Appendix show which passenger vehicles and

locomotives are permitted on which routes. A

spreadsheet holds the route availability for each

route.



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A7.6 Electrified track capabilityThis parameter defines the type of electrification on

a track.

Electrified tracks are defined in some of the

sectional diagrams in the Sectional Appendix.

Tables in the Sectional Appendix show whichelectric multiple units and locomotives are permitted

on which routes. GEOGIS holds codes for the

electrification type at track level in the Age of Road

files.

A7.7 Total tonnage capabilityThis is an important component of infrastructure

capability, but there is no straightforward

methodology to quantify this. We are exploring the

following approach:

• using ACTRAFF to measure total tonnage

currently running on routes (and possibly total

tonnage running at April 2001, subject to data

limitations)• identifying routes that could accommodate more

tonnage than the current level (possibly sub-

divided by band according to the potential level of

additional tonnage)

• identifying a process by which the remaining

routes could be examined regarding their

potential to accommodate more tonnage that the

current level (prioritised according to customer

aspirations and routes identified through the RUS

process).

A7.8 Gradient profileThis parameter defines the gradient on a route (and

at track level at locations where different tracks have

different gradients). Gradient is expressed as ‘1 inx’, or ‘level’, and the direction of the rising gradient is

defined. Five Mile diagrams (where available) show

the value and direction of the gradient.

Business Planning Criteria

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