Network Rail Uncertainty Modelling Case Study
Network Rail is currently undergoing a period unprecedented change. Over the next few years, the business will transition from being a centrally controlled organisation to one in which control over the rail infrastructure is devolved to eight Route-based organisations.
This has resulted in each of the Routes being required to develop and manage their own individual control period (CP) financial plans. CP6 which runs from 2019 to 2024 is the first control period in which the Routes will have overall management of their finances and associated work banks. Planning for CP6 begins with an initial Industry Investment Plan (IIP) which will then be developed into the actual Route business plans.
In addition to this business change the rail infrastructure in the UK is undergoing a significant upgrade. Everything from the station buildings, to electrification of the network, to the renewal of the signalling and control systems, is being improved and renewed. Network Rail has overall responsibility for managing these changes.
As illustrated above, there is significant risk involved in the business operations on a number of levels. NTTX Advisory was commissioned to perform a risk and uncertainty analysis on the initial IIP. The purpose of the project was to develop a framework for modelling expenditure uncertainty within the IIP.
The scope of the work was to cover;
Characterisation of the uncertainty associated with expenditure in the contributions to the IIP
Produce a range of total expenditure to provide a funding envelope for the IIP scenario
Provide confidence to the Network Rail board and external parties that the ranges quoted are statistically valid
Provide a platform for analysis that can be updated on an annual basis leading up to the Strategic Business Plan of 2017.
The Advisory team who undertook this work was selected because of its knowledge of financial, risk and asset performance modelling, railway project delivery and its ability to liaise with stakeholders.
Our approach was focused on the development of an Excel @Risk Integrated Expenditure Uncertainty Model (IEUM). This model built on the existing conceptual model to include more detail around the expenditure elements related to Renewals, Enhancements, Maintenance, Operations and Support (REMOS). The IEUM structure contained a systematic breakdown of specific expenditure elements. These elements were collections of, for example, item related costs and costs associated with rework or delays in delivery. The main criteria being that these elements must be clearly definable and measurable so their associated values and uncertainty distribution can be calculated. Within the UK there are a number of approaches to reporting of uncertainties (i.e. at the 80% or 95% confidence level). The Network Rail approach was clearly defined and agreed for this work.
The Advisory team experience in past modelling activities has involved evaluation of element uncertainty from a range of potential sources.