Work with Maxwell Stamp colleagues continues in Saudi Arabia. Gene Tunny and I got a great view of the significant changes occurring right now in downtown Riyadh, including the construction of the city’s USD22.5 billion metro (176km of track and 85 stations). We are on the Sky Bridge at the Kingdom Center, one hundred floors above the city.
Intra regional trade and the effectiveness of 147 active zones (economic, industrial and free) in the Middle East will be under consideration by Lytton Advisory. The firm has been given a mandate to develop advice for the Gulf Cooperative Council Secretariat on the next phase of closer economic cooperation between member states. This will involve a baseline review of existing economic zones, careful analysis of customs arrangements between Gulf states, an examination of World Trade Organisation implications and economic modelling of preferred solutions. Lytton Advisory is looking forward to working with colleagues from Maxwell Stamp in the Middle East, building on engagements in the region over the past three years.
Thanks again to Gene Tunny for inviting me onto his podcast ‘Economics Explained’.
I’ve just published part 2 of my Economics Explained podcast discussion on the economics of infrastructure with Craig Lawrence, Managing Director of Brisbane-based Lytton Advisory:
Craig Lawrence has three decades of experience as a professional economist and has advised on a wide range of infrastructure projects in Australia, the Pacific, and the Middle East. Part 2 of our conversation covers, among other things:
- public private partnerships or PPPs, their pros and their cons;
- challenges in infrastructure provision in emerging economies;
- the merits of quasi-independent infrastructure advisory bodies such as Infrastructure Australia and Building Queensland; and
- the geopolitics of infrastructure (e.g. Chinese takeover of a Sri Lankan port, Australia blocking Huawei’s involvement in 5G infrastructure, and the 99-year leasing out of Darwin port to a Chinese company).
On PPPs, you might…
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Thanks to Gene Tunny, Principal at Adept Economics, for inviting me onto his new podcast series – Economics Explained. We discussed the nature of infrastructure, the services these assets supply and how good economic analysis helps select better infrastructure projects. Gene and I have collaborated on a number of projects over the last two years. He is a leading independent economist who blogs regularly at queenslandeconomywatch.com.
You can listen to the podcast here: https://queenslandeconomywatch.com/2019/09/16/economics-of-infrastructure-interview-with-craig-lawrence-of-lytton-advisory/
Today marks the sixth anniversary of Lytton Advisory as an independent economic consulting practice. Over that time, we have worked on a wide range of economic issues. This has taken us to places as diverse as the Solomon Islands, Papua New Guinea, Kuwait and Saudi Arabia.
We have never lost our enthusiasm for helping clients make smarter capital investment decisions. Neither have we wavered in our passion for proper planning, prioritisation and funding of infrastructure. In more recent years, our work has been around leading project teams of committed, experienced economists and professionals to bring high conviction analyses to our clients. Good cost benefit analysis is at the heart of what we do.
In the first half 2019 founder, Craig Lawrence took, in effect, a sabbatical from the practice to lead the establishment of the Economic and Social Infrastructure Program in PNG. This $130 million 4+4 year Cardno-delivered, Australian Government funded program seeks to improve the quality of planning, prioritisation and funding of infrastructure to achieve economic outcomes and social development goals for Papua New Guineans.
Whether it is: developing an investment manual to incorporate climate change adaptation in infrastructure development decisions in the Solomons; a full cost pricing algorithm for food and drug regulatory services in Saudi Arabia; or generating savings from waste transfer station closures that fund a ten-year capital works program – Lytton Advisory is up for the challenge. At every stage, it is about driving value for the clients and communities affected by infrastructure.
We are excited about the future for infrastructure, its contribution to sustainable economic and social development, and how emerging economic incentives, new social paradigms and innovative technologies are shaking up these services.
Recently Lytton Advisory has been thinking about infrastructure in terms of why-how-what. Focussing on asset management, we thought about why that is a good thing.
Organizations with infrastructure commitments can sharpen their operations and improve their investment performance with better asset management. Effective asset management increases organisations’ capacity and capability for infrastructure service delivery.
So how could this be achieved? What kind of asset management goals might support this? Lytton Advisory has done some of the initial thinking for you and come up with the following list of ten suggestions.
- Lower asset management costs over the long term
- Align strategic initiatives across the asset management system
- Increase the engagement of people, including leadership, communications, and cross-disciplinary teamwork
- Align processes, resources and functional contributions
- Better understand and use data and information to provide consistent and informed decisions
- Pursue consistent, prioritised and auditable risk management
- Improve asset management planning
- Improve customer service, and maintaining overall network performance
- Increase auditability across the asset management life-cycle
- Reduce regulatory risk through implementing robust and demonstrable asset management governance processes
This is by no means the entire field and it is easy to suggest the how. The real challenge is to unpack the ‘what‘. The activities needed to deliver on these goals requires a clear view of an organisation’s baseline on each, the value of pursuing stronger efforts and whether the proposed activities will actually be effective.
So before diving into specific asset management tasks or activities, stop for a moment to think about the options available in terms of asset management goals and why they will deliver on your organisation’s overall mission.
Last month I introduced day two of the 2018 PNG Investment Conference in Brisbane. This included an overview of some key PNG infrastructure sectors and an observation that the country needed to increase its infrastructure spending.
The Lowy Institute has provided a preview of PNG through seven snapshots. Each can be found here:
I was pleased to make a small contribution to the overall effort.
People often ask me what do I do? The kind of work Lytton Advisory engages in is varied, contextual and driven solely by client needs. However, a few broad themes have emerged over the past four years. I recently ran my CV through wordle.net to make a word picture in thirty words or less. In this case thirty words says a thousand.
Nothing is more hair raising than exposure to risk without a sense of the level of that exposure. This is especially true in capital investment decisions.
Monte Carlo simulations perform risk analysis by building models of possible results by substituting a range of values—a probability distribution—for any factor that has inherent uncertainty and significant impact on the final result.
By using probability distributions, variables can have different probabilities of different outcomes occurring. Probability distributions are a much more realistic way of describing uncertainty in variables of a risk analysis and improve the quality of sensitivity analysis.
During a Monte Carlo simulation, values are sampled at random from input probability distributions. This is done hundreds or thousands of times, and results in a probability distribution of possible outcomes. It provides a much more comprehensive view of what may happen.
Advantages over deterministic, or “single-point estimate” analysis include:
- Probabilistic Results. Showing how likely each outcome is.
- Clearer Graphical Results. Visual presentation of probabilities.
- Improved Sensitivity Analysis. Sharper sensitivity analysis to show what counts.
- Scenario Analysis: Model repeated variations in combinations of factors to show which scenarios need further investigation.
- Correlation of Inputs. Represent how, in reality, when some factors goes up, others go up or down accordingly.
Done poorly or with low quality input data, the results can be potentially misleading – producing a level of certainty on the basis of some very uncertain assumptions.
Lytton Advisory holds an @Risk software licence which enable us to provide this type of probabilistic analysis to clients, helping them make better informed decisions. Examples of how we have applied this for clients include:
- Estimating financial costs of schedule delay on a major metropolitan public transport project.
- Assessing probability of breaching a cost contingency levels on a +$500 million infrastructure program.
- Building probabilistic NPV profiles in cost benefit analyses given uncertainty about key economic inputs.
Contact us today to find out how we might be able to help you.