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 Bain Andrew 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 DraftsmenElectrical Design DraftsmenMechanical Design DraftsmenPiping Vent Design DraftsmenStructural Design DraftsmenOther Design EngineerElectrical EngineerMechanical EngineerFluids EngineerNaval Architecture/Structure and Arrangements EngineerCombat Systems EngineerSignature Analsysis EngineerPlanning/Production EngineerTesting EngineerManagement EngineerEngineering Support EngineerOther Engineering Total 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 Labour market model to produce skills gaps for each ANZSCO occupation Map each employment of interest based on major ANZSCO codes Based on the labour market model output, identify potential pressure wages growth for each employment category Calculate final impact on cost estimate

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 3. Population by age groups (Demographi c Model) 2. Employment by occupation (Occupation al Demand Model) 5. Labour force by occupation (Occupation al Supply Model) Labour Demand Labour Supply Model system control of inputs and outputs

10 © 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. Model Output for each year Industry 1.Industry Industry 19Industry 20 Total Demand Total SupplySkills Gap Occupation 1 Occupation 2 Occupation Occupation Occupation 473 Occupation 474 Total Employment 20 Industries: ANZSIC 1 Digit Classification 474 Occupations: ANZSCO 4 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

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

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

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)

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

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

19 © 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. Questions