Kathleen McGrail, managing director – Advisory Services at WSP Middle East sheds light on the nascent need for transformational lifecycle portfolio management in capital projects and infrastructure
The Capital Projects and Infrastructure sector is facing a challenging market landscape across the Middle East. Many public and private bodies who were driving the design, build and operation of assets – in the pursuit of supporting governments’ centralised agendas of economic diversification – have now been affected by the implications of oil price volatility and the impact of the COVID-19 pandemic. As a consequence, many capital projects have been cancelled or placed on hold and existing owners and operators have been left with assets generating negligible returns for shareholders.
As we approach the end of 2021, it is unlikely that strategic priorities will start to change, notably with those responsible for multiple assets, such as developers, owners and operators, conducting urgent portfolio reviews. However, in order to progress beyond this period of slower economic activity, and to reduce the immense pressure on public finances, there simply must be a change in approach towards how to generate satisfactory returns and realise true potential asset value across the whole portfolio.
This is no easy challenge; historical trends and future forecasts indicate that investments have been made in infrastructure assets specifically because they are expected to deliver strategic value for many years. However, the promise of long-term value is of course simple to make when the assets are just plans on a drawing board. Ultimately, assets are only valuable if they continue to serve the ongoing needs of their users and shareholders. This is true of any investment, whether it’s a highway serving commuters travelling home from work or a stadium providing regular access to various forms of entertainment. Therefore, any public or private body responsible for developing and managing these assets should be constantly striving to realise the assets’ greatest lifetime value.
In order to fund new capital projects and realise the true benefits from existing assets in the long term, it is time to utilise a more holistic approach and look not only to address the full asset lifecycle, but also to manage asset portfolios more effectively.
‘Transformational Lifecycle Portfolio Management’
Lifecycle Portfolio Management is a substantive enabler for encouraging desirable private sector participation in capital projects and infrastructure assets, particularly in the Middle East. Lifecycle Portfolio Management looks at the whole portfolio being managed by an organization, from capital projects in their infancy being assessed for investment approval to maturing assets undergoing disposal reviews. By looking at everything in an overarching and integrated manner, organisations can reap significant benefits which would not be achieved by looking at projects and assets in isolation.
The key to Lifecycle Portfolio Management is the continuous process of selecting and managing the optimum set of opportunities, projects and assets that deliver the maximum in business value or return on investment. A significant proportion of existing infrastructure in the Middle East is ageing whilst demand grows to meet the needs of population growth, the desire for better quality of life and higher standards of safety, and improved health and environmental protection. However, these objectives can only be achieved by adopting this transformational, integrated, holistic approach to managing capital projects and assets, both within an organisations portfolio and across their lifecycle.
It is of course very difficult to design and build an asset of substantial scale and complexity that is durable, resilient to change and able to meet future needs sustainably over a long periods of time. It’s even harder still to manage an asset’s associated ecosystem of interactive and supportive parts, often a fast-moving mix of constraints and demands, including:
- Misalignment on the allocation of constrained resources
- Fluctuations in availability of supply chain and logistics
- Changes in stakeholders’ priorities
- The introduction of new technologies
- Shifts in demographics and social behaviours
All of these challenges will have the potential to significantly impact the continued operation and associated value creation of each asset. Only by mitigating these challenges can we expect an enhancement to the delivery of services to customers and optimisation of all available resources to manage risk and ultimately improve shareholder value.
‘The whole is greater than the sum of its parts’
In the words of Aristotle, “The whole is greater than the sum of its parts”. This is true for any public or private entity that has separate operations with different remits across the asset lifecycle. Despite this, optimisation of a portfolio will only occur when all individual assets are considered as one entity, as they are worth far more than if the parts are considered in silos.
So how can we provide assurance across the lifecycle of these assets that they will deliver value and realise the benefits that were identified and sold to investors?
At WSP Middle East, our approach to portfolio management enables decision makers to reach consensus on the best use of constrained resources and then focus upon targeting new and existing sources of capital infrastructure that are achievable and strategically aligned with their business goals and objectives. We do this by utilising the Lifecycle Portfolio Management approach, which includes the continuous reassessing, rebalancing, re-prioritising and re-allocating of capital and resources in order to assess the costs and benefits of an entire capital projects portfolio – not just individual projects or assets. This method of portfolio management prevents the gap between strategy and execution, and ultimately ensures that the intended value from the assets is realised.
By adopting an overarching, holistic approach, decision makers can be far more effective at optimising their overall portfolio of value creators rather than just relying upon separate information from each business area, whether it be investment appraisal or asset maintenance.
In order to fund new capital projects and realise the true benefits from existing assets in the long term, it is time to utilise this more holistic approach and look not only to address the full asset lifecycle, but also to manage asset portfolios more effectively. Lifecycle Portfolio Management is the key towards unlocking and transforming the potential of asset portfolios – it’s time to start reaping the benefits of the ‘whole’ and not only ‘the parts’!