Case study

using strategic planning as foundation for a major capital project

Introduction

The purpose of this paper is to describe how a large public agency, King County Metro Transit (Metro Transit), used a strategic planning process borrowed from private industry to develop management policies that guide investment decisions and priorities to improve and expand transit operating facilities (bus bases, warehouses, etc.). The strategic plan serves as the framework for the multiyear capital plan that defines and justifies specific projects and budget for a transit operating facility capital program. The strategic planning process has placed Metro Transit staff in a strong position to move forward and obtain approval for a multimillion-dollar facility development program during an era of significant political change and uncertainty.

Background/Political Context

Metro Transit provides bus service to residents of King County including the City of Seattle, suburban cities, and unincorporated King County. The service area is over 2,100 square miles and includes urban, suburban, ex-urban and rural areas. In 1999 King County provided 3.3 million hours of transit service, using a fleet of approximately 1,300 buses and five streetcars assigned to seven bus bases.

In 1994 governance for Metro Transit was transferred from the Municipality of Metropolitan Seattle (Metro) to King County. The governing board was changed to the directly elected King County Council with responsibility for general-purpose county government.

The first transit action of the County Council was to cancel the transit liquid natural gas (LNG) program. The clear message was that the council wanted to prioritize bus service. Service hours were projected to increase from three million hours in 1997 to more than 4.5 million hours in 2020.

While the governance change for Metro Transit was taking affect, a broad-based interest in changing transit service structure resulted in the Six-Year Plan. The public expects more local services tailored to community needs and more midday, evening, and weekend service. These expectations are true of both central city neighborhoods and suburban areas. There has also been an interest in increasing services to the suburban job markets, providing suburb to suburb and central city to suburb bus service, as well as interest in inter-community services using smaller buses.

A regional transit organization, Sound Transit, was authorized in 1993. Voters approved a regional plan for express bus, commuter rail and light rail service for three counties including King County in 1996. Sound Transit took over regional transit leadership.

Transit financing is undergoing changes. The Six-Year Plan approved in 1995 revised the allocation of sales tax revenue. This change in allocation represents a 12.5 percent increase in funds for operations, which reflects a desire to provide more hours of transit service. It also represents a 25 percent reduction in local dollars available for capital investment.

In November 1999 Washington State voters approved Initiative 695 (I-695). The initiative, also known as the $30 car tabs initiative, removed a significant funding source for many types of transportation—roads, ferry system, state rail office, and transit. A second part of the initiate stated that any additional taxes or fees would require a vote. As King County Metro is faced with potential loss of one-third of the transit operating budget the expansion project was put on hold. Service expansion plans are in abeyance.

The changes in the fiscal environment create a new public awareness of the importance of selecting only the most cost-effective capital projects. Any major capital initiative is at risk as a result of I-695.

The Challenge

In 1996 Transit’s Operating Facilities Development group was asked to develop a transit base expansion plan. The staff contracted for the professional services of a team of transportation planning consultants including BRW, Inc., LKC Consulting Services, Inc., and Hewitt Architects. Together, the Metro Transit Operating Facilities Development staff and the consultants are referred to as the project team.

When Metro took over transit services in 1973 transit base capacity was heavily concentrated in the Seattle area. Metro undertook an ambitious base expansion program and opened four outlying bases between 1978 and 1990.Three central bases were updated and expanded. However, these bases did not add capacity to the system; they replaced capacity lost at three older closed bases in Seattle. Metro Transit lacked the base capacity to meet service plans.

Prior to 1996, Metro Transit management rejected a major base expansion project that had been in planning for over two years. Staff proceeded under guidelines provided them by a manager that left the agency. The remaining management team reacted strongly to the cost of the project and the fact that the project required demolition of existing buildings. It was obvious that management team had not, and did not, buy into the guidelines provided to staff. The reaction was to reject the entire project, including the need for additional base capacity— in essence, to “throw the baby out with the bath water.”

The challenge: How was staff going to move forward and get approval for a multimillion-dollar base expansion plan during an era of significant change and uncertainty? Any project would likely have some level of controversy. The County Council’s priority for transit was increased service hours, not capital facilities or projects. Everyone appeared to shy away from costly or controversial projects.

In addition there was a wide range of stakeholder needs and issues. Some of these appeared contradictory. How were we going to get these stakeholders to “buy-in” to the same plan?

We believed that we needed a process that not only accommodated change, but also embraced change. We anticipated that any inflexible plan would not be approved or able to adapt to inevitable changes in service plans. After reviewing the political climate, stakeholder issues, and failure of other projects, the project team decided to develop a two-phase process.

The first phase developed a 20-year strategic plan with a strong business focus. The concept of strategic planning has long been recognized as an important element of successful business practice in private enterprise. However, the application of strategic management principles is not well established in the public transit industry. Today’s more competitive environment requires public transit managers to think strategically. The second phase included development of site-specific base expansion plans.

The Project

The project team’s task was to determine where, when, and how much new base capacity would be needed to meet projected service plans. One of the greatest challenges of determining needs was the divergent opinions of many of the key stakeholders.

The Stakeholders

While transit base capacity is not a topic that typically interests the general public, there are a wide range of stakeholder interests and concerns. These range from mechanics, drivers and other field personnel, to service planners and schedulers, to supervisors and management, to elected officials, local jurisdictions, neighboring businesses, environmental interest groups, and manufacturing and industrial groups.

The stakeholders have significantly different issues and concerns.

•   Field personnel are primarily focused on how well the facility not only meets their needs, but also usually want more space and amenities than currently supplied.

•   Management, is not only looking for good business decisions, but is also concerned about both support from field personnel, the public for whom they provide service, and elected officials who must provide project approval.

•   Elected officials are generally looking for good cost effective solutions, but may also have other interests related to constituent groups.

•   The City of Seattle is concerned about the erosion of and demand for industrial land.

•   Local manufacturing and industrial groups are concerned about the loss of industrial land for private sector use and increased demand resulting in higher land values.

•   Adjacent businesses are concerned about the effect of a base on their business.

Identification of the Issues

The general issues facing this project are similar to other large projects in both the public and private sector. We think these issues are relevant for both high and lower profile projects. There is a significant element of change—both known and unknown. There are concerns about making the right decision on major capital investments. There is no strong external project champion. And, most importantly, there are dozens of reasons why different stakeholders could opt out. Specific issues identified included:

Expectations of Stakeholders. How could we develop a plan that met the needs of transit and met the expectations of a wide variety of stakeholders? We knew there would be detractors; we knew that there would likely be conflicting stakeholder expectations.

Changing Service Plans. Transit service plans are flexible and change for numerous reasons. How could we create a plan for expanding capacity that was flexible enough to accommodate future known and unknown service changes? A plan that could accommodate a wide range of future scenarios was needed.

Uncertain Political Context. The transit operating facility expansion plan was the first large transit project since the merger with King County government. What were the proper procedures to follow in the new organization? What were the expectations?

Lack of Public Profile. Transit maintenance facilities require a significant investment. However, they are not high status projects. There are rarely external proponents of maintenance facilities. However, there usually are NIMBYs (not in my back yard). We needed some way of getting the proper attention and decision-making to a project that, while requiring a significant investment, did not have a high profile.

Difficult Site Location. The economy of the City of Seattle is doing well. There is little developable industrial property available in key corridors. Land values are high.

Requirements for Technical Credibility. The project team identified the need to develop plans based on sound technical reasoning and documentation. For example, there was a need to answer the question of how much capacity was needed, when was the capacity required, and where is the capacity needed?

Capacity. There were two separate capacity issues. What are future capacity needs and what is the current capacity of the bases? We also needed to address how existing capacity would be affected by changes in service plans. There was inconsistency among base supervisors about the capacity of each facility. Some managers questioned the need for more capacity. Sometimes these discussions seemed similar to the metaphor “which straw will break the camels back?”

Where? Stakeholders had many different visions of where capacity is needed. Preliminary analysis indicated we needed more capacity in Seattle. However, needing more central capacity at the same time we were adding service in the outlying areas didn’t make intuitive sense.

When was capacity required? Could it be planned incrementally? Different and changing service scenarios significantly affect the timing of needing new capacity. Since many people want to have fixed capital project schedules, how could we develop a plan that could adjust to changes in timing? We knew there was a danger of projects being prematurely abandoned when the timing of the need changed. In some cases, the timing change caused people to also question the location and amount of capacity needed.

Need for Focus on Business. The team realized that many projects had been abandoned because their link to the service plan and other business decisions was too weak to withstand challenges. A process would need to have a strong foundation in the basic business of the agency—provision of transit service.

The Solution

The problems faced by this project—moving forward in the face of changing leadership, mergers, organizational change, changing funding priorities, and political uncertainty with a broad range of stakeholders with conflicting interests—are similar to challenges faced by many projects in both the public and private sectors. To move forward we borrowed a variety of techniques, including a strategic planning focus used in the private sector.

Metro Transit was in need of a management strategy to determine requirements for additional capacity and to assess the agency’s competitive position in an increasingly difficult operating environment.

The concept of strategic management has long been recognized as an important element of successful business practice in private enterprise. However, the application of strategic management principles is not well established in the public transit industry.

Strategic Planning Process

The project team relied on elements of the strategic planning process more typical in the private sector. We developed goals and objectives, worked with the management team and key staff to develop a SWOT analysis, applied several unique methods to ensure technical credibility, and ensured stakeholder buy-in through a series of focus group discussion.

Goals and Objectives

At the beginning of the planning process in May 1996, a Management Steering Committee was formed to guide the development of the strategic plan and to provide direction for the project team of staff and consultants. Members of the Management Steering Committee included the Transit General Manager and section manager’s affected by base capacity. This group developed a set of goals and objectives.

From the time the goals and objectives were adopted by the Management Steering Committee, the project team began each briefing by reviewing goals and objectives. This focus helped “cement” the connection to business and ensured a regular “blessing of project.” Goals and objectives were also reviewed with new groups before presenting other information.

SWOT Analysis

In private business, a strategic planning effort begins with the traditional SWOT analysis. SWOT stands for process used to identify “strengths, weaknesses, opportunities and threats.” The Metro Transit planning effort called for a similar effort; however, the private sector terms were modified to reflect identification of assets and needs, and opportunities and risks. The strategic planning process established management policies to resolve critical issues and define the tactics proposed to address deficiencies at transit operating bases.

The development of the strategic plan was a collaborative process. The Management Steering Committee established eight “taskforces” composed of the transit managers and staff most knowledgeable about the issues. They would also be responsible for implementation of the recommended strategies. Each taskforce was asked to research a series of strategic questions and to address critical management issues that cut across departmental boundaries.

The taskforces presented their work to managers at a workshop. Taskforce leaders presented the research and findings of their team. The presentations helped the Management Steering Committee and the staff that participated on the taskforces develop a consensus on the appropriate strategies to handle critical management issues. The workshop participants then developed a series of recommendations to achieve the key themes of the strategic plan.

Technical Analyses and Quality Control

Strong technical analysis tied to key business issues was critical in developing stakeholder “buy-in” for staff, elected officials and outside stakeholders. To ensure the quality of the technical analysis that supported the strategic planning process, the project team developed five key analytical tools that are more commonly found in other industries.

Capacity Constraint Model

When the planning process for transit operating facilities began, one of the most often cited needs was a methodology to calculate current capacity at each bus base. Historically, Metro Transit, like most transit agencies, relied on two simplistic measures of capacity: buses per maintenance bay and bus parking space. These two measures did not consider changes in fleets or fleet mix, different maintenance requirements for different bus types, or different miles and hours of service. Further, the two variable capacity estimate did not allow for other capacity constraints, such as employee parking, operator report area, or parts inventory space. Calculations for capacity were not determined consistently at each base.

The project team developed a capacity model that is multivariable; i.e., it looks at the range of service characteristics that could constrain capacity at each bus base. The model is flexible and sensitive to changes in the types of service.

Level of Service Analysis

Base capacity estimates are not absolute numbers. A new bus base is not warranted because an existing facility is five buses over optimal capacity. However, crowded conditions are associated with inefficient operations. To reflect flexibility, the project team developed the “level of service” concept used in highway capacity analysis. Highway capacity is characterized by the severity of traffic congestion and congestion levels are ranked by level of service (LOS) from A to F. For example, LOS A is free-flow traffic. LOS E is stop-and-go traffic with severe congestion—there is little or no additional capacity. Highway congestion is analogous to crowded conditions and increasing inefficiencies at an operating base.

The capacity constraint model uses the LOS concept to define capacity for transit operating bases. LOS A and B are not appropriate in an urban environment similar to King County. Stall parking and surplus maintenance bays require more land area than may be available in central (or suburban) locations. For purposes of the capacity constraint model, capacity is calculated at each base by three different LOS levels: LOS C, D, and E. Each LOS represents a higher capacity for each base, but the increased capacity may result in less desirable operating efficiency. LOS C represents current best practices and is intended to optimize efficient use of available space.

Net Present Value

Working with stakeholders, the project team developed six different scenarios for adding needed bus base capacity. The scenarios include both expansion of existing bases and building new base capacity. Each scenario differed in assumptions for the order and timing of adding expanded or new capacity. Net present value (NPV) was the method used to evaluate the different investment scenarios.

NPV is used extensively in the private sector to evaluate competing investments and can be applied to the public sector. In the private sector, a project where revenue exceeds costs is a good investment. When comparing investments, the higher positive net present value is the better investment. In the public sector, the revenues often are not expected to exceed costs. The net present value is expressed in terms of the investment required for a project, and therefore, the lower NPV is the better investment.

Based upon the NPV calculations, the different scenarios are evaluated and compared to choose the most cost-effective investment. The differences in NPV costs were used to quantify the value of the right investment in terms of service hours. This was particularly appealing to King County Council members. A council question anticipated was, “why don’t we spend this money on more service hours rather than a bus base?” We had the ability to objectively show why the investment was needed and tie the choices into service hours. The recommended approach was able to save $1.2 million a year in overhead costs. We were able to translate this into the ability to provide 23,000 hours of bus service per year with “funds that would otherwise be spent on overhead costs.”

Base Assignment Model

Optimum fleet assignments do not always match available facility capacity. The project team developed a bus assignment model to determine where capacity is needed with the criteria for operating cost efficiency, flexibility, and maximizing existing assets in mind.

While some routes clearly should be assigned to only one base, many routes can be assigned to more than one base. These routes represent the “elasticity” or flexibility in the system. However, assigning a bus to a non-optimal base can result in significant costs. The base assignment model helps staff minimize and/or predict the risk of non-optimal base assignments in future scenarios.

Stakeholder “Buy-in”

Based upon the experience of the Managers’ Workshop, the concept of taskforce involvement in strategic planning was continued. The project team realized it was important to discuss a range of opinions and perceptions. Accordingly, a series of focus group discussions were held which involved stakeholders at every level. The focus groups met at each stage of the strategic planning process to ensure full disclosure of information and continuous buy-in to the process and the conclusions drawn. The project team reacted to stakeholder suggestions and reinforced our commitment by meeting with stakeholders at each key decision. Stakeholders were briefed following each significant management steering committee meeting.

Conclusions and Lessons Learned

The process worked to address issues identified by the project team. Working through the technical analysis developed “buyin” from a wide range of stakeholders. Even in the face of lost funding, there is general support for the expansion plan. The details of the plan may change, but there appears to be continuing support for the general recommendations of the strategic plan.

We have a plan that we can discuss with people in a business like manner. We can now discuss the plans given the background of transit service decisions, rather than the details of capital planning.

Strategic plan. The strategic plan provided a vehicle for combining direction from transit management to the project team, with communicating transit business issues to others. It also provided a vehicle for “buy-in” from a wide variety of stakeholders—from mechanics to elected officials.

Technical analysis. The strong technical analysis tied to key business issues was critical in developing stakeholder “buy-in” for both staff and elected officials. The ability to quantify scenarios and translate cost differences into something council members cared about, service hours, was beneficial in getting their “buyin.” It also provided the team a means of showing that we had heard the council mandate for additional service hours even though we were recommending a significant capital investment. The technical analysis and NPV analysis provided council members with a business approach they could understand. An elected official can take credit for making a decision that allows 23,000 additional service hours per year.

The capacity model assured field personnel that the plans weren’t under estimating capacity demand. The model assured management and elected officials that we were not over building.

Education. The technical process was an opportunity to educate others and ourselves about how different factors affect the economics of sitting and running bus bases. Key managers knew many of the basic issues. However, they were not as well understood or “bought into” by many staff or elected officials. In a large organization staff often only work on one part of the equation. One element of a cost equation can be optimized at the cost of a significantly more expensive element. In our case, we found that the extra overhead costs of a separate base significantly exceeded travel timesavings perceived significant by service planning.

Repeatable Process. We have a repeatable process to fall back on. By rerunning the process we have demonstrated that changes managers thought would change the recommendations did not. After repeating analyses several times we became very knowledgeable of how the variables reacted to each other. This gave us the ability to predict what level of service change would be needed to change the basic conclusions of our work. It gave us confidence in our conclusions and recommendations.

Flexible and resilient plan. The plan is flexible to changes in service plans and provides the ability to respond to new and different scenarios. Since the plan has a strong connection to business plan, we have a good understanding of the types of decisions that could dramatically change outcomes. In facing changes from I-695 we can discuss the risks and consequences of different choices with a strong understanding of how service decisions affect base expansion choices.

New ideas can be accommodated and reviewed with our model. We can review many ideas logically, based on our knowledge of the technical work performed, rather than running through the entire model. More complex ideas, such as a co-located maintenance base with Sound Transit’s light rail yard were accommodated without significantly delaying the schedule or losing momentum.

Risk Assessment. The process provides the ability to do better risk analyses. Since we understand the dynamics of how different economic factors related to bus bases affect each other, we are better able to quantify and assess risks. This was particularly useful in evaluating the risks of non-optimal base assignments in different scenarios.

Planning Horizon. The ability to look beyond the immediate planning horizon provided a solid basis for the expansion plan. It allowed us to acknowledge that we need a base in the area intuitive to most people—the growing south end area of King County—but also state that it was needed after the expansion of the Central Campus.

Risks and Recommendations

Risks/Concerns

The process entailed a significant amount of work and investment of resources. While these are more than offset by the risk and costs of having to redo plans or abandon projects, this investment is not appropriate for every project or organization. We think it is well suited for large organizations, organizations undergoing significant change and for large lower profile projects.

This process also requires time and ‘buy-in’ from a wide variety of staff—including those not typically part of capital project teams. To function well, this work needs to be aligned with an organization’s business functions and decision-makers. This process requires staff or consultants that can bridge the issues between the organization’s business and the planning necessary for capital projects.

The process needs to be conducted methodically. An organization that is too impatient to get a project started may not have the patience to complete the process.

Recommendation

We recommend the process. The strategic planning process worked well given the complexity of the project, the level of change and uncertainty, the wide range of stakeholders, and the significant investment coupled with a lower profile project. The process was able to accommodate change that has occurred to date and we anticipate it will be able to accommodate future changes.

The process allowed us to focus on the business of transit and how different decisions affect that business. In a time when we hear and see conflicting statements about the public wanting government to run like a business at the same time sometimes advocating decisions that are not conducive to that business, we think this is a productive model.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

Proceedings of the Project Management Institute Annual Seminars & Symposium
September 7–16, 2000 • Houston, Texas, USA

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