A better forecast for costs

It is now more than a year since British Water established its Business Best Practice Panel (B2P2).
At the outset, a number of issues were identified by British Water members as important. Working groups were established to investigate these issues and provide guidance. Working groups include representation from water companies, contractors, suppliers and consultants. The objective of each working group is:

  • Analyse the issues and establish best practice
  • Provide guidance
  • Deliver a tangible output

The first output from B2P2 has recently been launched. Cost forecasting and reporting was identified as a real area of concern for the industry. The quality and reliability of cost forecasting and reporting has implications for all organisations throughout the supply chain from project level through to client board level and regulators.

The challenge
Cost forecasting and reporting was seen as a significant problem area for the industry with clients frequently identifying the need for improved performance. Water company efficiency targets in AMP4 are more challenging than in previous AMP periods. Commercial processes and procedures need to be more reliable, accurate and timely if we are to achieve and outperform regulatory targets.
The systems and processes used for cost forecasting and reporting have so far been developed individually, largely in isolation, and in the absence of any common best-practice code or protocol.
Procurement methodologies have led to closer, more collaborative ways of working over longer time spans. In order to realise the maximum benefit from these new arrangements, it has been recognised that a substantial level of trust and co-operation is needed between utilities and the supply chain.
The resulting introduction of integrated teams and the allocation of responsibility to the party best placed to carry it, has highlighted the need for accurate, timely and efficient communication at all levels.
This is apparent in the area of cost forecasting and reporting. The Guide to Cost Forecasting & Reporting seeks to address the need for a set of clear best-practice guidelines in order to remove the uncertainty.

The methodology
The investigation commenced with a study, undertaken by lead-sponsors, EC Harris, to capture the issues and problems that both water companies and contractors experience with cost forecasting and reporting.
The exercise was undertaken through the use of a questionnaire issued to utilities and their contractors.
The working group then sought to identify principles of best practice through a series of workshops and capture and publish them in the form of an easy-to-understand guide. A draft guide was circulated to British Water members, water companies and Ofwat. Comments were then included in the final document where appropriate.
The resulting guide is divided into sections which:
  • Define what is required to establish an effective cost-forecasting and reporting system
  • Describe what information is necessary and why it is required to meet the client reporting requirements
  • Define how this can be achieved through the implementation of people, processes and systems
    ยท Recommend that organisations measure the performance of their cost-forecasting and reporting processes through the use of KPIs
Understanding and satisfying the client requirements is paramount to the success of the project. An integrated team using effective communication techniques will produce robust forecasts and valuable data that will support the overall management of the project. Time spent in developing appropriate and adequate processes at the outset will be rewarded by efficient, accurate and timely reporting throughout the project. Robust and capable systems are necessary to enable the processes to operate effectively and efficiently. KPIs are vital to monitor and measure the effectiveness and accuracy of systems and processes together with the project teams' performance in order to drive continuous improvement.
The guide is directed at management level for adoption through the supply chain. There is a small amount of jargon but, where used, this has been defined. The guide is not prescriptive and does not promote one system above another. It provides specific guidance on the issues and enables all organisations to review their current cost reporting systems.

The benefits
The guidelines enable all participants in the cost-reporting and forecasting process to understand the client and regulator requirements. It enables the supply chain to understand why they are being asked to provide specific data.
Team working is essential if project teams are to produce an effective cost-forecasting and reporting system. This encourages more collaborative ways of working and greater integration. Greater integration and team working promotes commonality in systems and methodologies. Risks are identified and understood so that uncertainty is managed out of the process.
The guide enhances awareness and understanding and facilitates the adoption of best practice through the supply chain that leads to increased efficiency and ultimately to improved performance. Good project control leads to good project management and this is never more evident than in cost forecasting and reporting.

What next?
Steve Whalley of EC Harris, and leader of the drafting team says: "The aim of the new guide is to increase awareness of cost forecasting and reporting throughout the supply chain. It will identify, as well as promote, best practice code and protocol."
Paul Mullord, UK Director of British Water, says: "British Water members identify issues and areas of concern in the water industry. Focused working groups have been established to investigate issues, answer questions and provide guidance. This guide follows on from our Guide to Sustainable Procurement, and will be the first of a series that will include partnering, framework agreements and KPIs."
As lead sponsors, EC Harris will continue its involvement through a series of presentations and workshops to the water companies. Other sponsors of the guide include Purac, Franklin & Andrews, Saint-Gobain Pipelines, Costain, SEAMS and United Utilities. Because of sponsorship, the guide is available free from the British Water website.
www.britishwater.co.uk

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