Transcript Network Rail’s efficiency - Railway Study Association

Value for money
Rail Value for Money Study
Railway Study Association
7 March 2012
Sir Roy McNulty
Chair, RVfM Study
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Value for money
Contents
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The RVfM Study – Findings and Recommendations
Things that surprised me
Things the Report didn’t say
Progress since the Report was issued
Making Change happen
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Terms of Reference
1. To examine the overall cost structure of all elements of the railway
sector and to identify options for improving value for money to
passengers and the taxpayer while continuing to expand capacity
as necessary and drive up passenger satisfaction.
2. In particular, to examine:
 what legal, operational and cultural barriers stand in the way of efficiency
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improvements;
the incentives across different parts of the rail industry to generate
greater efficiency;
the role of new technology, processes and working practices in
fostering greater efficiency;
ways of generating more revenue, e.g. car parking, gating at stations,
better utilisation of property; and
to make recommendations.
3. The study will examine the whole industry costs and revenues and
their composition. In doing so, it will look at comparable industries in
the UK and abroad.
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GB Rail Performance
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In many ways GB Rail has performed well
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Increasing customer satisfaction
High levels of operational performance/punctuality
Continued improvement in safety
Significant investment
Important contributions to decarbonisation, and to the
economy
• Sustained growth – passenger and freight
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Figure 2.1: Change in network length (route-km),
passenger-km and journeys, 1948-2009
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And GB rail has major opportunities for the future
• Prospect of doubling current levels of traffic by 2030
• But NOT if railway economics remain as they are
• GB rail has to earn its “licence to grow”
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The efficiency gap
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Figure 2.3: Industry expenditure per passenger-km
(2009/10 prices)
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Table 2.3: Impact on industry costs of “should cost” exercise
(2008/09 prices)
Low
High
Savings
Savings
(£bn)
(£bn)
Total industry expenditure (2008/09 actuals)
12.0
12.0
Effect of closing the total efficiency gap
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-3.5
Resultant reduced industry costs (using 2008/09 base)
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8.5
On this basis, the efficiency gap is 20 – 30%
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International benchmarking
• Benchmarking GB rail against France, Netherlands,
Switzerland and Sweden, based on 2009 data
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Figure 2.10: Comparison of whole system costs (partly normalised)
£/k passenger-km
[GBP / k passenger-km]
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GBR
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1) Infrastructure has been fully normalised, train operation and rolling stock has
been normalised for the countries where normalisation factors were known
Numbers do not include track access charges
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Infrastructure
Rolling Stock
Passenger train operation
Track access charges
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Figure 2.13: Total income streams
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Findings on Costs and Revenues
• Unit costs of the GB passenger railway have not improved since the mid
1990’s
• The study’s desk analysis suggested that GB rail should cost 20-30% less
than it did in 2008/09
• Benchmarking against four European comparators indicates an efficiency
gap of some 40%
• Some of the difference between 20-30% and the 40% is due to
difference in train utilisation, some of which may be systemic
The result of GB Rail’s higher costs is that GB Passengers and Taxpayers
are each paying at least 30% more than their counterparts elsewhere
GB Rail should aim for a 30% reduction in unit costs by 2018/19
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Barriers to efficiency
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Barriers to Efficiency
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Fragmentation – Structures and Interfaces
The ways in which the main players have operated
Roles of Government and industry
Incentives/Franchising
Fares structures
Legal and contractual framework
Supply chain management
Limitations on whole-system approaches
Relationships and culture
The basic principles of the UK approach do not need to be changed, but
there is a need for improved Collaboration and Alignment
Some of the issues apply to UK Infrastructure generally
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Barriers to Efficiency - Conclusions
• Not a cause for despair
- we need a thorough understanding of the causes of excessive
costs
- these barriers can be overcome, with strong leadership and
concerted effort by all
- nothing to be gained from “blame games” or “inquests”
• Not a simple set of problems; no “silver bullet”
• The problems get solved if everyone contributes
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Principal Recommendations
(1) Creating an Enabling Environment
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Creating an Enabling Environment
• Leadership from the top
• Clearer Objectives
• More Devolved Decision-making
• Changes to Structures and Interfaces
• More Effective Incentives (particularly in Franchising)
• Changes to Regulation
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Principal Recommendations
(2) Delivering greater efficiencies
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Delivering Greater Efficiencies
• Asset Management
• Programme and Project Management
• Supply Chain Management
• Safety, Standards and Innovation
• HR Management
• Information Systems
• Rolling Stock
• Lower cost Regional railways
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Principal Recommendations
(3) Driving implementation
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(3) Driving implementation
• Learn the lessons from the past
• Rail Delivery Group to take a lead
• Small independent change team
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Some broader reflections from the Study
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Things that surprised me
• Good GB Rail Performance (other than costs)
• Scale and complexity of operations and projects
• Organisations and people committed to “the railway”
• Organisations and people ready for change
• Extent of Government involvement
• Lack of clear Focus on Costs
• Lack of clarity as to what the Subsidy is buying
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Things the Report didn’t say
• The UK got it wrong
 the basic principles of the UK approach are sound
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privatised/liberalised/competitive
clear separation of roles (track/train, franchises etc)
clear accountability
strong independent regulation
transparency of costs
 but in addition, there is a need for better Alignment and Cooperation, particularly at Industry and Route levels, and
between Customers and Suppliers
 and we need an environment which encourages/enables a clear
focus on Costs and Value for Money.
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Things the Report didn’t say (cont’d)
• Sweep away the whole complicated structure and start
again, instead of trying to make what we’ve got work
better
 in an industry as big and complex as GB Rail, no structure is
going to be simple and easy to operate
 even more importantly, no other conceivable structure is likely
to yield sufficient additional savings to compensate for the 5-7
years delay, which major reorganisation would involve, in
addressing the areas where savings can clearly be made
 passengers and taxpayers want their burdens eased NOW
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Progress since the Report was issued
• Rail Delivery Group
- formation/composition
- programme of work
• asset, programme and supply chain management
• contractual relationships
• train utilisation
• technology and innovation
• Rail systems Agency
• Initial Industry Plan
- commitment from those involved
- interaction with Government and ORR
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Progress since the Report was issued (cont’d)
• Network Rail
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devolution to Routes
new ways of working with suppliers
external benchmarking and competition
behaviour safety programme
asset condition systems
all this on top of existing commitments
• Train operators
- review of rolling stock procurement and management
- new Franchises
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Progress since the Report was issued
(cont’d)
• Network Rail and Train Operators
- support for Rail Delivery Group
- alliancing
- Initial Industry Plan
• DfT
- changes to franchising
- Command Paper
• ORR
- expanded role
- capability review
• Areas where more progress is needed
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Why major change on this scale is achievable
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The barriers and solutions are well understood;
Easier in an environment of growth;
Significant changes are already in progress;
Many people in the industry ready for change;
The industry can provide the vision, leadership and
energy to make change happen; and
• We have a Secretary of State who is determined to see
this happen.
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Making Change Happen
A Framework for Change
•Recognising the need for change
•Creating and communicating a new vision
•Empowering people to act on the vision
•Institutionalising change
Key Ingredients
•Vision
•Leadership
•Energy
•Relationships
•Structures
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Value for money
Rail Value for Money Study
Rail Study Association
7 March 2012
Sir Roy McNulty
Chair, RVfM Study
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