April Hutchen, Client Director, SEAMS LtdJonathan Hagan, Asset Modelling & Strategy Analyst, Severn Trent Water24 November 2016

ASSET VERSUS PORTFOLIO CENTRIC INVESTMENT MODELLING & THE USE OF ANALYTICS

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WHAT IS OPTIMISATION?Definition of optimisation:

• An act, process, or methodology of making something (as a design, system, or decision) as fully perfect, functional, or effective as possible; specifically : the mathematical procedures (as finding the maximum of a function) involved in this.

Optimisation in Asset Investment Planning:

• Use of complex mathematical algorithms to minimise Whole Life Costs of asset investments across operational interventions, capital replacements and inspections.

• The optimiser will trade costs against expected benefits (or risk reduction) to arrive at an optimal investment plan.

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ASSET CENTRIC VERSUS PORTFOLIO MODELLING

Asset Centric • Considers all capital, operational and inspection interventions for each asset within

specific asset classes • Investment model trades investment at asset level or across multiple asset classes

Portfolio • Looks to optimise a set of predefined projects• Investments are described as discrete projects with benefits/costs described at project

level • Selects the optimal mix from the previously defined projects provided to it

Combined Approach • Optimiser selects the optimal mix of interventions at an asset level • Drives the definition of projects which feed into a Portfolio model for latter optimisation• Higher efficiencies & speed of Portfolio Modelling

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BENEFITS/CONSTRAINTS – ASSET CENTRIC

Benefits of Asset Modelling

• Right investment intervention for the right asset at the right time • Increases buy-in from all stakeholders• High efficiencies, typically between 7 and 17% • Increases the transparency of the investment planning cycle• Challenges historic, recurring decisions• Best replicates real-world intervention options and constraints

Constraints of Asset Modelling

• Where there are large volumes of assets, models can be time consuming to run as the data is granular – cohorts or combined approach may be recommended

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BENEFITS/CONSTRAINTS - PORFOLIO

Benefits of Portfolio Modelling

• Delivers more value from the investment program for a level of spend• Increases the transparency of the investment planning cycle• Maximises the value of existing and ‘siloed’ investment approaches • Ensures the highest ‘value engineering’ projects are taken forward• Increases buy-in from all stakeholders

Constraints

Have the right projects been chosen to be optimised?Have the benefits and costs been accurately reflected? • Controls need to be in place to avoid gaming

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CASE STUDYSevern Trent Water (STW)

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SEVERN TRENT WATER• Severn Trent Water• Water company and waste company• Regulated industry (OFWAT)• 5 year Asset Management Planning cycles

• Infrastructure Assets:• 47,000km of clean water pipes (1.3m assets)• 40,000km of sewer pipes (1.4m assets)

• Non-Infrasturture Assets:• 125 Water Treatment Works• 1,100 Sewage Treatment Works• 667 Water Pumping stations• 3,000 sewage pumping stations• 455 distribution service reservoirs• 45 Sludge treatment facilities• 259,000 mechanical, electrical and instrumentation assets in total

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SEVERN TRENT WATER• Decision Support Tools (DSTs), predictive and prescriptive analytics, enable the processing of

large, complex datasets. For asset-focussed organisations, DSTs provide two benefits: • Insight and foresight for deterioration, service, performance, safety and risk • Forecasting of the impact of different investment patterns or maintenance strategies

• DST’s allow us to find the appropriate balance between proactive and reactive investment

• STW has a suite of mature models that help the business make investment decisions

• In Water Infrastructure, STW have used asset modelling since PR09.• STW use a number of other asset models, e.g. Sewer infrastructure model, non-infra models.

• Outputs from asset models are transferred to a “Portfolio Optimiser”

• Last year upgraded from WiLCO to Enterprise Decision Analytics (EDA)

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EDA OVERVIEW

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CHOOSING THE RIGHT MODEL

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CHOOSING THE RIGHT MODEL

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TYPES OF MODELLING

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WATER INFRASTRUCTURE

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OPTIMISATIONModel Options

• Constraints• Performance Area – Company level, Water Resource Zone (WRZ) level• Supply Interruptions > 6 hours – Improve, maintain or relax• Leakage – Maintain, Sustainable Economic Level of Leakage, Environment Agency aspiration

• Assumptions• Leakage deterioration• Water Framework Directive impact on Water Available for Use• Maximum renewal rate

• Optimisation type • Genetic Algorithm

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RESULTS• Optimised plan for a given scenario• Pipe Plan• Selection of supply schemes

• Other EDA models produce optimised plans for given scenarios:• Sewer Infrastructure model• Linear Otimisation

• Non-Infrastructure models

• What next?• Portfolio Optimisation

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PORTFOLIO OPTIMISATION

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PORTFOLIO OPTIMISATION USING FICTIONAL DATA

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EXAMPLE NEED AND SOLUTIONNeed

ND-0001

Non-modelled 1

t0 t1 t2 t3 t4 t5 t6 t7 t8 t9 t10OPEX £k 0 190 190 190 190 190 190 190 190 190 190Water Quality Complaints 5 5 10 10 15 15 20 20 25 25 25

Solution

SN-0001/01

Non-modelled 1

t0 t1 t2 t3 t4 t5 t6 t7 t8 t9 t10OPEX £k 110 110 110 110 110 110 110 110 110 110CAPEX £k 2400 0 0 0 0 0 0 0 0 0 0REOC Total £k 85 85 85 85 85 85 85 85 85 85Water Qulaity complaints 5 10 10 10 10 10 10 10 10 10 10

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NO INVESTMENT SCENARIO

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NO INVESTMENT SCENARIO

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SCENARIO 1

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SCENARIO 1

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SCENARIO 1 – CHOICES

Series Years Years Years Years Years Years Years Years Years Years Years

Series 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

NS 1 1 0 0 0 0 0 0 0 0 0 0

NS 2 0 0 0 0 0 0 0 0 0 0 0

NS 3 1 0 0 0 0 0 0 0 0 0 0

NS 4 0 0 0 0 0 0 0 0 0 0 0

NS 5 0 0 0 0 0 1 0 0 0 0 0

NS 6 1 0 0 0 0 0 0 0 0 0 0

NS 7 0 0 0 0 0 0 0 0 0 0 0

NS 8 0 0 0 0 0 0 0 0 0 0 0

NS 9 0 0 0 0 0 0 0 1 0 0 0

NS 10 0 0 0 0 0 0 0 0 0 1 0

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SCENARIO 1 – OVERALL SPEND

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END TO END DELIVERY

Strategic Asset ModellingAMP Planning

Portfolio OptimisationPrice Review – Business Plan

Delivery Asset ModellingAnnual delivery planning

Portfolio OptimisationAnnual plan – delivery projects

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ARE THERE ANY QUESTIONS?

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