Summary

Deecon conducted a cost validation exercise for SGN’s RIIO-GD3 submission to Ofgem. Deecon assessed £2.8bn GD3 spend data across the three network expenditure types, namely Capital Expenditure (CAPEX), Operational Expenditure (OPEX), and Replacement Expenditure (REPEX) for the next five-year regulatory control period. This exercised ensured SGN provided a robust and compelling submission to Ofgem based on Deecon’s findings and recommendations to improve costing methodologies, data accuracy, data traceability, and alignment with industry benchmarks.

The Requirement

Deecon was awarded the contract to support SGN with the cost validation of their GD3 Business Plan to inform board decisions and bilateral conversations with Ofgem. Deecon was tasked to review and evaluate the GD3 spend data across the three network expenditure types namely:

Network CAPEX

Review internal cost build up for CapEx projects

Review the allocation of risk and contingency to projects

Network OPEX

Review of the internal cost build up for OpEx related expenditure

Network REPEX

Review of historical cost data to assess the application of findings to future costs

Review of forecast cost methodology to assess the scale of cost uplifts introduced

Identify methodology improvements and/or alternative sources of data

The cost validation exercise aimed to give assurance to the Senior Management and Board of SGN that the GD3 business plan was highly robust, and to provide confidence in the underlying costs and efficiencies.

The Solution

Deecon employed a systematic approach to conduct the cost validation across CapEx, OpEx and RepEx GD3 forecasted spend data. Four levels of analysis (L0 – L3) were employed to assess key elements using a top-down approach:

Level 0 – Quality Assurance: Identify errors and ‘quality of life’ improvements

Level 1 – Cost Build Up: Review the model taxonomy and categorisation

Level 2 – Methodology Review: Assess the application and effectiveness of forecasting techniques

Level 3 – Underlying Data: Ratify underlying data is accurate and appropriate

Deecon prioritised the most significant cost areas across the different expenditure types based on risk and impact. This included reviewing six Cost Domains across CapEx, and five Cost Domains across both OpEx and RepEx.

To understand the underlying data and methods used, we worked collaboratively with the relevant SGN stakeholders, conducting workshops to seek feedback and holding bi-weekly working group sessions with the SGN project team to share quick-wins, flag key findings and raise any risks. Additionally, we leveraged our sector expertise and inhouse database to benchmark SGN data models and application of inflation indexation.

Our review of the various cost domains data across expenditure types drew insights and findings upon which we developed a Confidence Matrix which assessed the 16 cost domains across five evaluated criteria.

The Confidence Matrix, stakeholders feedback and key insights gained informed our recommendations and next steps for SGN.

The Results

Deecon engaged with over 50 stakeholders through 25 workshops and reviewed over 300 MS Excel workbooks. Based on the cost assurance assessment and stakeholder engagement sessions, Deecon delivered 21 comprehensive key insights with 28 actionable recommendations to provide a more compelling submission to Ofgem and ensure future-proofing of costing principles for future submissions.

The recommendations leveraged Deecon’s expertise and industry best practices to improve data traceability, model structure (readability), forecasted cost accuracy, governance, controls & processes and assumptions documentation.

In addition, Deecon developed a bespoke action tracker for SGN to build their timeline and deliver on the insights and recommendations to support future submissions with a centralised project management model.