{ "docId": "019dd923-5de0-76bd-a165-578b9862173f", "docSlug": "091122f6e046fa86", "documentTitle": "Rail industry cost and revenue sharing (2011)", "authorId": "misc", "authorName": "L.E.K.", "documentKindSlug": "consulting-deck", "documentKindLabel": "Consulting deck", "sourceTypeSlug": "strategy_consulting", "sourceTypeLabel": "Strategy consulting", "presentationDate": null, "orientation": "landscape", "aspectRatio": 1.414, "pageNumber": 55, "pageCount": 170, "prevPage": 54, "nextPage": 56, "slideType": "key_messages", "function": "frame_problem", "density": "overcrowded", "nDataPoints": 6, "notes": "The slide uses quotes from stakeholders to emphasize the difficulty of pricing regulatory risk into bids.", "elementsJson": [ "headline_text", "bullet_list", "quote_block" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-5de0-76bd-a165-578b9862173f/55", "deckHref": "/decks/019dd923-5de0-76bd-a165-578b9862173f", "deckJsonHref": "/decks/019dd923-5de0-76bd-a165-578b9862173f.json", "deckAnchorHref": "/decks/019dd923-5de0-76bd-a165-578b9862173f#slide-55", "components": [ { "bbox": null, "kind": "callout", "text": "The uncertainty over the efficiency gap in the final year of CP4 could easily be 15% to 35%, i.e. +/-10% vs the baseline.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd951-edab-7238-a54f-6dfa7ca16f5b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.8, "x": 0.1, "y": 0.62 }, "kind": "list", "text": "TOC stakeholders expressed serious concerns about regulatory risk during our workshops and queried how they could price this risk into their bids", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "102756c3-98f9-4e4a-ba1d-b65bacf7f593", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.8, "x": 0.1, "y": 0.43 }, "kind": "list", "text": "It should be noted that the uncertainty over the baseline could be much smaller in CP5 if NR has closed two thirds of the efficiency gap. However, a transition to regional regulation could introduce additional uncertainty", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "1984b658-7489-4540-8b3b-c6a5d2b4eb74", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.8, "x": 0.1, "y": 0.3 }, "kind": "list", "text": "Given the “central range of 30% to 50%” from the ORR’s PR08 efficiency work and the requirement for NR to catch-up two thirds of this gap in CP4, the uncertainty over the efficiency gap in the final year of CP4 could easily be 15% to 35%, i.e. +/-10% vs the baseline. It is highly unlikely that TOCs could have that much impact on NR’s cost base. As such, the risk transfer to TOCs would be disproportionate to the impact they could have during CP4", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "617b6443-e193-4394-98bb-5f32d7621b0b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.8, "x": 0.1, "y": 0.49 }, "kind": "list", "text": "The regulatory risk is further exacerbated by the fact that franchises are longer than NR’s control periods. Indeed, the DfT has announced that 15-22.5 year franchises will become the norm, i.e. 3 - 4.5 times the length of an NR control period. Franchise bidders would have to make assumptions about how future determinations will take account of the cost and revenue sharing mechanism, i.e. will the ORR assume that this mechanism will drive significant efficiency benefits and therefore factor this into NR’s baseline, thus making it harder to achieve?", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8c7d3869-e5b9-4e7b-9ed7-0bd9e6861b29", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.75, "x": 0.12, "y": 0.68 }, "kind": "quote", "text": "“… Forget that. It’s all too complicated. The things we can control are swamped by things we can’t …”\n“… There would be three periodic reviews in a franchise term, so how would you judge the risk? … what risk premium would you build into your bid? …”", "attrs": null, "subkind": "pull-quote", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "103a587b-58bc-49d1-b6a7-36beaf95a75c", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "… Forget that. It's all too complicated. The things we can control are swamped by things we can't …", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd951-edab-7238-a54f-7127eb1b7929", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.3, "x": 0.1, "y": 0.93 }, "kind": "source-note", "text": "ORR/ATOC/Network Rail. Rail industry cost and revenue sharing.", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "7bcf27d5-1b64-4956-96dd-c15040e0e64b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.8, "x": 0.1, "y": 0.16 }, "kind": "title", "text": "3 – Baseline: Using the ORR’s assessment of NR’s efficient expenditure as the baseline for a cost and revenue sharing mechanism would expose TOCs to potentially significant regulatory risk (2 of 2)", "attrs": null, "subkind": "action-title", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "159a9b83-9488-4775-a06e-e9f6a22358b0", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.35, "x": 0.59, "y": 0.08 }, "kind": "title", "text": "Analysis of sharing mechanism practicalities", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "0809145b-9c03-410e-bc6b-3a3c0f77dcf5", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 60, "from": 41, "beatId": "53cbee0d-035e-431c-8c6e-4d3f99416443", "arcName": "The Consultant's Gambit", "arcSlug": "consultants-gambit", "beatName": "Evidence & Proof", "beatSlug": "consultants-gambit-evidence-proof", "evidence": "The document provides data tables and analysis to support L.E.K.'s recommendation.", "position": 3, "confidence": 0.8, "parentBeatName": "Evidence", "parentBeatSlug": "evidence" } ], "loops": [ { "to": 56, "from": 53, "name": "Cost Of Inaction", "slug": "27-cost-of-inaction", "bestFor": "Urgent budget requests, compliance, risk mitigation", "matchId": "a1c07005-1c15-4eb7-ace0-d904e7c612af", "evidence": "The document emphasizes the potential risks and downsides of not implementing a cost and revenue sharing mechanism.", "position": 0, "objective": "Highlighting the risks of not implementing a cost and revenue sharing mechanism", "structure": "The Status Quo -> The Hidden Costs Accumulating -> The Future State of Inaction -> The Tipping Point", "confidence": 0.7, "description": "Quantify what happens if the audience does nothing" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }