Capital Portfolio Management

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Australian capital portfolio management firms look set to return to growth in 2021 as governments announce the fast-tracking of billions worth of infrastructure projects. As part of the infrastructure-led recovery from the COVID-19 economic recession, this year’s Federal Budget contains a goal to create 250,000 infrastructure jobs by 2023. Such a lofty goal, however, also highlights the challenge of managing hundreds of capital work projects simultaneously, each ranging in cost from millions to billions of dollars. The question remains: can Australia actually deliver the projects on time and within budget, given the scale of emerging mega-projects nowadays.

Unlike small construction works, capital portfolio management has evolved into a complex process that requires a lot more strategic planning and delivery as well as being ahead of certain risk areas. One of the challenges to risk management in a capital portfolio is the rapid rate of globalisation that is making supply chains longer and more complex than ever. At the same time, climate change is increasing the incidence of natural disasters around the globe, making it harder to plan and manage capital portfolios so that they fulfil the expectations of the asset owners.

Large portfolios of projects present even more uncertainties since they encompass many moving parts, resources, and contractors that may keep changing over years. It is not surprising that they are breaking the records of cost overruns in Australia. Melbourne’s Northeast Link was costed at $6 billion in 2008 but is now expected to cost $15.8 billion. The Sydney Metro City & Southwest was costed at $11 billion in 2015; this year the NSW Government announced the latest estimate was $15.5 billion. These are only parts of an overrun of $24 billion so far on just six current megaprojects, mostly due to inadequate planning & capital portfolio management.

To avoid projects ending up in costing more or providing fewer benefits than anticipated, or both, asset owners are all looking for more efficient, faster, and higher-value capital portfolio management tools. Developing better cost estimates at early stages could minimise the likelihood and extent of cost overruns in large portfolios throughout their lifecycles.

Captial portfolio management teams need not only more thorough & timely data, they also need better software for cost estimation and risk measurement. The industry was historically reliant on hundreds or thousands of construction documents and Excel spreadsheets to collect, structure, and integrate past data. One of the many responses to this situation has been the call for more strategic benchmarking data to track the costs of capital works programs over time. Software systems such as Mastt have taken things further and developed new methods of predicting, rather than reacting, to changes in capital portfolio data.

Mastt has developed a global first project Anomaly Detector that allows capital portfolio managers to automate identification of risks and issues and foresee problems before they occur. “Today, the focus for Mastt is very much around ‘data’ as we start to unlock the value of data that has previously been left dormant in excel spreadsheets and documents,” said Mastt’s Managing Director Doug Vincent. With this new, enriched capability, owners can compare the impact of hundreds of performance drivers on business outcomes across large capital portfolios. There is a growing appetite for systems like this among capital portfolio management teams as they offer transparency and a clear accountability of responsibilities across individual projects and programs.