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Lytton Advisory

Economics of Infrastructure with Craig Lawrence podcast discussion – Part 2

Thanks again to Gene Tunny for inviting me onto his podcast ‘Economics Explained’.

Queensland Economy Watch

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:

Economics of Infrastructure – Part 2

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).

My new Economics Explained podcast is also available via iTunes/Apple Podcasts and Spotify.

On PPPs, you might…

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Cost Benefit Analysis Economics Infrastructure Lytton Advisory

Economics of Infrastructure Podcast

Image result for podcast

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/

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Cost Benefit Analysis Economics Infrastructure Lytton Advisory Policy

6th Anniversary

Economic Effects of Infrastructure Investment and its Financing

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.

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Lytton Advisory

Asset Management Goals

Screen Shot 2019-06-22 at 5.19.52 pmRecently 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.

  1. Lower asset management costs over the long term
  2. Align strategic initiatives across the asset management system
  3. Increase the engagement of people, including leadership, communications, and cross-disciplinary teamwork
  4. Align processes, resources and functional contributions
  5. Better understand and use data and information to provide consistent and informed decisions
  6. Pursue consistent, prioritised and auditable risk management
  7. Improve asset management planning
  8. Improve customer service, and maintaining overall network performance
  9. Increase auditability across the asset management life-cycle
  10. 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.

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Economics Infrastructure Lytton Advisory

More Infrastructure Spending Required in PNG

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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.

Six per cent of GDP required to maintain Papua New Guinea’s infrastructure

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Lytton Advisory

PNG Snapshots

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The Lowy Institute has provided a preview of PNG through seven snapshots.  Each can be found here:

http://interactives.lowyinstitute.org/publications/PNGin2017/png-in-2017-home.html

I was pleased to make a small contribution to the overall effort.

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Lytton Advisory

What Do You Do?

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.

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Cost Benefit Analysis Economics Lytton Advisory

Make the Casino Work for You

rouletteNothing 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.

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Lytton Advisory

Future Economists

On Tuesday I was very pleased to chat with students at Iona College who were considering careers in economics.  A smart group of guys who asked some very intelligent questions.  The future for economics looks bright.

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Economics Lytton Advisory Policy

A Civil Society

kuwaitidiwaniya

While working recently in Kuwait, I was privileged to be invited to a diwaniya (https://en.wikipedia.org/wiki/Dewaniya) along with colleagues from my project team.  This type of forum is fairly unique to Kuwait and it a key element of their civil society.

For around an hour we discussed industry policy with a number of leading lights from Kuwait’s business community.  I learned a lot from them.  The discussion took our project team beyond the numbers and statistics we were considering to just how the reforms might actually be implemented.  The exchanges were robust but expressed in good humour and with great politeness.

I think these kinds of gatherings are extremely important in shaping consensus.  Kuwait has hundreds of diwaniyas and candidates for public office often seek to turn up at as many as possible around election time.  In my view, it removes a lot of the adversarial nature that characterises public discourse in Western countries.  Where hard decisions are needed to effect significant change, a consensus based approach may deliver better outcomes than a crash or crash though approach.

Australia used to do evidence-based, consensus-driven public policy quite well.  It was grounded in clearly explaining the need for change.  I fear now that the people putting themselves forward for public office are increasingly driven more by populism and a startling touch of irrationality.