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1© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Combining Labour Market Economic Modelling with Traditional Cost Estimation
Mr Iain BainAndrew Nicholls
KPMG
2© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Traditional Approach
• Labour/Effort
• Cost
• Schedule
• Generic Indexation
• Risks
3© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Labour/Effort - Replacement Submarine Design Effort
Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029Draftsmen Electrical Design 6 12 16 20 48 77 96 96 96 77 39 20 20 10 10Draftsmen Mechanical Design 6 8 12 20 31 39 58 58 58 39 20 12 12 12 12Draftsmen Piping Vent Design 6 10 10 20 31 39 67 86 86 67 39 18 18 12 12Draftsmen Structural Design 16 20 29 58 96 134 134 134 134 96 50 29 29 20 20Draftsmen Other Design 10 10 14 29 39 58 58 58 58 39 20 20 20 20 20Engineer Electrical 10 14 20 29 39 58 58 58 58 39 20 10 10 10 10Engineer Mechanical 8 10 10 20 29 39 39 39 29 20 10 6 6 6 6Engineer Fluids 4 10 10 20 29 39 39 39 29 20 10 6 6 6 6Engineer Naval Architecture/Structure and Arrangements 16 29 39 58 77 96 96 96 77 58 39 29 29 20 20Engineer Combat Systems 16 29 39 58 77 77 77 77 77 58 58 58 58 39 39Engineer Signature Analsysis 6 6 10 14 20 23 29 23 20 16 10 10 10 20 20Engineer Planning/Production 2 4 6 6 10 20 20 20 20 10 6 6 4 4 4Engineer Testing 2 4 6 6 10 10 10 10 10 6 4 4 6 10 10Engineer Management 6 10 16 20 20 20 20 20 20 16 16 10 10 6 6Engineer Engineering Support 6 10 16 20 39 39 39 39 39 20 20 10 10 10 10Engineer Other Engineering 6 10 16 20 29 39 58 58 58 39 29 29 39 48 58
Total 126 196 269 418 624 807 898 911 869 620 390 277 287 253 263
Source: Australia’s Submarine Design Capabilities and Capacities, RAND, 2011
4© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Price: Some Simplifying Assumptions
Experienced and highly trained workforce required
Using $100,000 p.a. as not unreasonable, but also for simplicity
Source: Australia’s Submarine Design Capabilities and Capacities, RAND, 2011
5© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Design Activity: Nominal or Out-turned Price
Over $1bn using standard approach
6© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Question:
We all understand potential cost risk for highly skilled workforce, but can these be quantified
7© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Bringing in Economic Modelling approach
• Intergrates labour market economic modelling into traditional cost estimation
• Provides more robust estimation of budget related to personnel by
• projecting the economy-wide skills gaps for required skills
• accounting for such skills gaps in individual occupations that are required by a specific project
. Has application for projects that may have significant demand for highly sort after skills within the economy.
.
8© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Methodology: A Step-by-Step
9© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
A practical application of our approach : Step 1 - apply labour market model to produce skills gaps for each ANZSCO occupation
1. Employment by industry(Macro CGE
model)
4. Labour force by
education (Education
Model)
Balancing Occupational Demand
& Supply
Balancing Occupational Demand
& Supply
3. Population
by age groups
(Demographic Model)
2. Employment
by occupation(Occupational Demand
Model)
5. Labour force by
occupation (Occupation
al Supply Model)
Labour Demand
Labour Supply
Model system control of inputs and outputs
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KPMG and the KPMG logo are registered trademarks of KPMG International.
Model Output for each year
Industry 1. Industry 2 ...... ...... Industry 19 Industry 20Total
DemandTotal Supply Skills Gap
Occupation 1
Occupation 2
Occupation 3
.....
Occupation 40
.....
.....
.....
Occupation 473
Occupation 474
Total Employment
20 Industries: ANZSIC 1 Digit Classification
11© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Step 2 - Map each employment of interest based on major ANZSCO codes
Occupational projection of number of employment for a specific project
12© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Mapping Skill Sets to ANZSC codes
Note that ANZSCO codes also go to lower levels, but these have not been used in this example
13© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Step 3 - Identify potential pressure wages growth for each employment category
The index designed to capture wage pressure at the occupational, INDEX_OCCUPATIONAL, produces a rather different picture as opposed to the national index, INDEX_NATIONAL
.03
.04
.05
.06
.07
.08
.09
.10
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
INDEX_NATIONALINDEX_OCCUPATIONAL
14© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Step 4 - Calculate final impact on cost estimate based on the occupational index
Accordingly, using our approach gives a different budgetary outcome over the lifespan of the project
0
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
140,000,000
160,000,000
180,000,000
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
COST_NATIONAL COST_OCCUPATIONAL
15© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Difference made by considering occupation specific wage pressure
-10,000,000
-5,000,000
0
5,000,000
10,000,000
15,000,000
20,000,000
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
DIFFERENCE
0
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
DIFFERENCE_ACCUMULATIVE
16© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Issues dealing with sub-skills set
• analysing the concentration of technical skills in the occupations needed for the project
• a higher wage pressure results from higher concentrated sub-skills set in a occupation
(results a 10% increase in the occupational index)
0
40,000,000
80,000,000
120,000,000
160,000,000
200,000,000
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
COST_NATIONALCOST_OCCUPATIONALCOST_OCCUPATIONAL1
17© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Issues dealing with sub-skills set
budget gap over time and accumulative budget gap
0
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
1,400,000,000
1,600,000,000
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
COST_NATIONAL_ACCUCOST_OCCUPATIONAL_ACCUCOST_OCCUPATIONAL1_ACCU
-8,000,000
-4,000,000
0
4,000,000
8,000,000
12,000,000
16,000,000
20,000,000
24,000,000
28,000,000
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
DIFFERENCE DIFFERENCE1
0
40,000,000
80,000,000
120,000,000
160,000,000
200,000,000
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
DIFFERENCE_ACCUMULATIVEDIFFERENCE_ACCUMULATIVE1
18© 2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
Concluding Remarks
- Large complex projects significantly benefit from integration of economic and costing analysis.
-Labour Market risks can be quantified.
- Approach has broad application for Defence and Natural Resources industries