obligations to our expenditure categories (for example, augmentation, replacement, vegetation management). We will not allow step changes for any short-term cost to the DNSP of implementing efficiency improvements in expectation of being rewarded through expenditure incentive mechanisms such as the EBSS. We expect DNSPs to bear such costs and thereby make efficient trade-offs between bearing these costs and achieving future efficiencies. Assessment process When we assess expenditure, we will typically follow a filtering process. That is, we will apply high level techniques in the first instance and apply more detailed techniques as required. For example, we must publish an issues paper early in the process. This will likely involve a 'first pass' assessment, which will indicate our preliminary view on the DNSP’s expenditure forecasts. For this first pass assessment, we will likely use high level techniques such as economic benchmarking and category analysis to determine relative efficiency and target areas for further review. We will, however, also use these techniques beyond the first pass assessment. The first pass assessment will indicate the extent to which we need to investigate a DNSP's proposal further. Typically, we will apply predictive modelling, trend analysis and governance or methodology reviews before using more detailed techniques such as cost benefit analysis and project or program reviews. While we intend to move away from detailed techniques such as project review, we are likely to rely on them in some cases, such as to assess certain types of capex. Figure 2.1 indicates a typical assessment process. Figure 2.1 Typical assessment process Assessment techniques When we assess capex and opex forecasts, we will use a number of assessment techniques to form a view on the reasonableness of the forecast. Our assessment techniques may complement each other in terms of the information they provide. This holistic approach gives us the ability to use all of these techniques, and refine them over time. The extent to which we use each technique will vary depending on the expenditure proposal we are assessing, but we intend to consider the inter-connections between our assessment
obligations to our expenditure categories (for example, augmentation, replacement, vegetation management). We will not allow step changes for any short-term cost to the DNSP of implementing efficiency improvements in expectation of being rewarded through expenditure incentive mechanisms such as the EBSS. We expect DNSPs to bear such costs and thereby make efficient trade-offs between bearing these costs and achieving future efficiencies. Assessment process When we assess expenditure, we will typically follow a filtering process. That is, we will apply high level techniques in the first instance and apply more detailed techniques as required. For example, we must publish an issues paper early in the process. This will likely involve a 'first pass' assessment, which will indicate our preliminary view on the DNSP’s expenditure forecasts. For this first pass assessment, we will likely use high level techniques such as economic benchmarking and category analysis to determine relative efficiency and target areas for further review. We will, however, also use these techniques beyond the first pass assessment. The first pass assessment will indicate the extent to which we need to investigate a DNSP's proposal further. Typically, we will apply predictive modelling, trend analysis and governance or methodology reviews before using more detailed techniques such as cost benefit analysis and project or program reviews. While we intend to move away from detailed techniques such as project review, we are likely to rely on them in some cases, such as to assess certain types of capex. Figure 2.1 indicates a typical assessment process. Figure 2.1 Typical assessment process Assessment techniques When we assess capex and opex forecasts, we will use a number of assessment techniques to form a view on the reasonableness of the forecast. Our assessment techniques may complement each other in terms of the information they provide. This holistic approach gives us the ability to use all of these techniques, and refine them over time. The extent to which we use each technique will vary depending on the expenditure proposal we are assessing, but we intend to consider the inter-connections between our assessment