water asset management I N T E R N A T I O N A L JUNE 2005 ISSUE 2 ■ VOLUME 1 3 CEO VIEWPOINT Chuck Clarke, Director, Seattle Public Utilities, USA PAPERS 5 Regulation and asset management: driving value within Melbourne Water Charmaine Quick and Susan Farr 9 New developments in Investment Planning and Project Evaluation: optimising expenditure to meet multiple objectives with limited resource Jason Cox 16 ’Thumbs Up’ for WSAA Asset Management benchmarking project Chris Massey and Bruce Hammond 19 Ipswich Water’s meter replacement strategy Chris Egbars and Jayam Tennakoon 22 New data warehouse offers improved accuracy and environmental performance Martin Dunkley 24 AM UPDATES AM ‘down under’: a focus on Australia WRc wins World Bank IBNET benchmarking contract T he WRc Group has announced that it has won a second contract with the World Bank to further develop and improve the International Benchmarking Network known as IBNET. The contract value is $300,000 and will be undertaken over the next nine months. ‘Benchmarking at a local, national and international level can help all water and sanitation utilities, whatever their developmental status, to measure their performance and identify their shortcomings, find comparators for identifying and sharing best practice and new knowledge as well as driving performance improvement,’ comments Simon Gordon-Walker of the WRc Group. IBNET is an online resource that allows users to access and share data with utilities from dozens of countries and regional groups world- wide. A search option allows users to select specific groups of data from a range including: ● Service Coverage ● Water Production and Consumption ● Assets ● Non-Revenue Water ● Network Performance ● Operating Costs and Staff ● Quality of Service Users can also define ‘peer groups’, enabling you to compare the performance of your utility with those that share similar characteristics and operational circumstances. It is also possible to set up a number of different peer groups either based on geographic region, on economic status or type of utility operation, such as water supply only utilities. You can also select individual or groups of indicators. ‘By providing the mechanics whereby many national benchmarking schemes are developed and linked in a common framework, IBNET widens the benchmarking horizon, allowing any utility to compare its performance internationally and to access the wealth of data and knowledge available in the sector worldwide,’ adds Simon. Additionally, IBNET is designed to meet the needs of other stakeholders in the water industry. This encompasses governments and public bodies, the regulatory authorities, funding bodies including commercial funders, development institutions and funding agencies, as well as customers. The value of the network increases with each new partner and data set that is added. More information, and the IBNET Benchmarking Toolkit can be found at www.ib-net.org. ● W elcome to the second issue of Water Asset Management International. This issue focuses in particular on the practice of asset management in Australia, with papers from five different utilities and consultants providing an overview of the advanced state of AM uptake ‘down under’. The contribution that Australia is making in this field is underlined in this issue’s ‘CEO Viewpoint’, where Chuck Clarke, of Seattle Public Utilities in the US, sets out how his organisation has embraced asset management and the influence that developments in Australia have had. We also look at: how Melbourne Water adapted its processes to meet the requirements of economic regulation; Ipswich Water’s model for making consistent decisions on meter replacement; and feedback from a participant utility, Goulburn Valley Water, on the Water Services Association of Australia’s asset manage- ment benchmarking project. We also hear from South East Water on implementation of a new ‘data warehouse’ system, and Jason Cox of UMS Group Global Management Consultants on the latest developments in investment planning and project evaluation. Meanwhile, in this issue’s news you can read about Penny Burns’ intention to ‘take asset management to the streets’. IWA Specialist Group on Asset Management Writing in the June issue of IWA magazine Water21, IWA President Laszlo Somlyody called for the formation of a new IWA Water Asset Management Specialist Group. Interested professionals, utilities, utility people, regulators, scientists and others are invited to contact Andrew Speers, Director, Member Services and Programmes: [email protected]. Further information will follow in the September issue of Water Asset Management International.
Transcript
water assetmanagement I N T E R N A T I O N A L
JUNE 2005ISSUE 2 ■ VOLUME 1
3 CEO VIEWPOINTChuck Clarke, Director,Seattle Public Utilities, USA
PAPERS5 Regulation and asset
management: driving valuewithin Melbourne WaterCharmaine Quick and Susan Farr
9 New developments in Investment Planning and Project Evaluation: optimising expenditure to meet multiple objectives with limited resourceJason Cox
16 ’Thumbs Up’ for WSAA AssetManagement benchmarkingprojectChris Massey and Bruce Hammond
19 Ipswich Water’s meterreplacement strategyChris Egbars and Jayam Tennakoon
22 New data warehouse offersimproved accuracy andenvironmental performanceMartin Dunkley
24 AM UPDATES
AM ‘down under’:a focus on Australia
WRc wins World Bank IBNET benchmarking contract The WRc Group has announced that it has
won a second contract with the World Bankto further develop and improve the InternationalBenchmarking Network known as IBNET. The contract value is $300,000 and will beundertaken over the next nine months.
‘Benchmarking at a local, national andinternational level can help all water and sanitation utilities, whatever their developmentalstatus, to measure their performance andidentify their shortcomings, find comparators foridentifying and sharing best practice and newknowledge as well as driving performanceimprovement,’ comments Simon Gordon-Walkerof the WRc Group.
IBNET is an online resource that allows usersto access and share data with utilities fromdozens of countries and regional groups world-wide. A search option allows users to selectspecific groups of data from a range including: ● Service Coverage ● Water Production and Consumption● Assets● Non-Revenue Water● Network Performance● Operating Costs and Staff● Quality of Service
Users can also define ‘peer groups’, enabling youto compare the performance of your utility withthose that share similar characteristics andoperational circumstances. It is also possible toset up a number of different peer groups eitherbased on geographic region, on economic statusor type of utility operation, such as water supplyonly utilities. You can also select individual orgroups of indicators.
‘By providing the mechanics whereby manynational benchmarking schemes are developedand linked in a common framework, IBNETwidens the benchmarking horizon, allowing anyutility to compare its performance internationallyand to access the wealth of data and knowledgeavailable in the sector worldwide,’ adds Simon.
Additionally, IBNET is designed to meet theneeds of other stakeholders in the water industry.This encompasses governments and publicbodies, the regulatory authorities, funding bodiesincluding commercial funders, developmentinstitutions and funding agencies, as well ascustomers.
The value of the network increases with eachnew partner and data set that is added. Moreinformation, and the IBNET BenchmarkingToolkit can be found at www.ib-net.org. ●
Welcome to the second issue of Water AssetManagement International. This issue
focuses in particular on the practice of assetmanagement in Australia, with papers from fivedifferent utilities and consultants providing anoverview of the advanced state of AM uptake‘down under’.
The contribution that Australia is making inthis field is underlined in this issue’s ‘CEOViewpoint’, where Chuck Clarke, of Seattle PublicUtilities in the US, sets out how his organisationhas embraced asset management and theinfluence that developments in Australia havehad. We also look at: how Melbourne Wateradapted its processes to meet the requirementsof economic regulation; Ipswich Water’s modelfor making consistent decisions on meterreplacement; and feedback from a participantutility, Goulburn Valley Water, on the WaterServices Association of Australia’s asset manage-
ment benchmarking project. We also hear fromSouth East Water on implementation of a new‘data warehouse’ system, and Jason Cox of UMSGroup Global Management Consultants on thelatest developments in investment planning andproject evaluation. Meanwhile, in this issue’snews you can read about Penny Burns’ intentionto ‘take asset management to the streets’.
IWA Specialist Group on Asset ManagementWriting in the June issue of IWA magazineWater21, IWA President Laszlo Somlyody calledfor the formation of a new IWA Water AssetManagement Specialist Group. Interestedprofessionals, utilities, utility people, regulators,scientists and others are invited to contactAndrew Speers, Director, Member Services andProgrammes: [email protected] information will follow in the Septemberissue of Water Asset Management International.
WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 2
Water Asset Management International is an international newsletter on assetmanagement in water and wastewaterutilities. The focus of the newsletter is on the strategic aspects of this developingfield, providing utilities with internationalperspectives on infrastructure planning and maintenance as they seek to delivercost-effective services to their customers.
Instructions for authors are available at:www.iwapublishing.com/template.cfm?name=iwapwami
Papers for consideration should besubmitted to the editors or to:
Water Asset Management International is published four times a year (March,June, September, December) by IWAPublishing. Statements made do notrepresent the views of the InternationalWater Association or its Governing Board.
Asset management on theagenda at GWRC workshopTo advance research into water asset
management, a Global Water Research Coalitionworkshop was recently held in Alexandria with theobjective: to allow practitioners from Research organisations around the world to meet, to discussissues of interest and to identify areas where projectscould be proposed. Participating coalition members inasset management research include: UKWIR (LeadAgent), AwwaRF, EAWAG, EPA, Kiwa, WERF, WRC-SA andWRF, with remote input from Stowa (Rioned) and WSAA.
The two day workshop was arranged to coincide witha Collaborative Working Session on Asset Managementbeing organised by US EPA, NSF and a number of USutilities in Washington DC. Coordinating the two events in this way ensured maximum global learning andunderstanding could be taken into account whendeveloping proposed research topics.
Day one of the workshop had a theme of sharingknowledge and agreeing general principles of assetmanagement relating to the water industry. Key areaswere agreed, that had to be taken into account whendeveloping a sustainable asset management strategy, as illustrated below.
Day two was devoted to the identification of research proposals for further development andrecommendation to the GWRC Board. Researchproposals were identified as shown below:● International Asset Management Framework -
making the case for asset management● Process Map - standard approach to agreeing
process and definitions● Tools Models and Techniques● Risk Management
These proposals are now being developed in moredetail to ensure the objectives of the research are welldefined and able to be clearly articulated.
About the GWRCThe water industry has become a global community with common issues and concerns arisingaround the world. Global coordination of research must occur to improve the knowledge and sciencesupporting the invaluable water resources of the world.An actively managed, centralised approach to globalissues will allow coordinated research strategies andavoid duplication of efforts.
Twelve world-leading research organisations sawthe compelling need for a coordinated effort and haveestablished an international water research alliance:the Global Water Research Coalition (GWRC). GWRC is a non-profit organisation that serves as the collaborative mechanism for water research. TheCoalition focuses on water supply and wastewaterissues and renewable water resources: the water cycle. The GWRC is dedicated to promoting international cooperation and collaboration in water-related research. The GWRC was officially formed inApril 2002 with the signing of the partnership
agreement at the International Water Association 3rd
World Water Congress.GWRC plans to expand its membership to enable a
good global representation with respect to knowledgeand needs of the whole world water community.
Issues of the present GWRC research agenda are:Water Quality and Health (Algal Toxins and WaterbornePathogens), Emerging Contaminants like EndocrineDisrupting Compounds, Pharmaceuticasl, MTBE andNDMA, and Water Quality in Distribution Systems. Newareas which were recently selected are Water Reuse,Asset Management, Wastewater Treatment (membranebioreactors) and Water Concepts of the Future. ●Andrew Smith and Frans Schultingwww.globalwaterresearchcoalition.net
The founding members of the Global Water ResearchCoalition (GWRC)
A simple illustration of the three key areas ofconsideration when developing a sustainable assetmanagement strategy
WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 3
Internationally, water and wastewater utilitiesare challenged to manage their assets in an
ever-changing regulatory environment, where ratepressures and public scrutiny are inescapable,infrastructure is ageing, and environmentalsensitivity is essential.
In early 2002, Seattle Public Utilities (SPU)was acutely aware of the many challenges facingall water and wastewater utilities, but had not yetadopted a corporate strategy to effectivelymanage them. In response to the need to meetthese challenges, SPU began the implement-ation of a comprehensive asset managementprogramme. Although our asset managementconcept is years away from reaching full operation, major advances have been achievedthat have resulted in immediate and significantbenefits to customers.
Asset Management at SPU is defined as:‘Meeting agreed customer and environmentalservice levels while minimising life cycle costs.’ At SPU we now think of asset management asnearly analogous to utility management. Assetmanagement at SPU has been developedaround a core philosophy that focuses on thedelivery of cost-effective services to customers –today and into the future. Asset managementpenetrates nearly every facet of our capital andoperational resource allocation decision making,including risk management, customer andenvironmental service levels, trade-offs betweencapital and O&M dollars, efficiency in ourdelivery of services, and the tracking and reporting of results.
The Australian InfluenceAustralian and New Zealand asset managementmethods have been highly influential. Starting in2002, with the assistance of Kevin Young,Managing Director of Hunter Water, and SimonZander, Hunter Water’s Asset Manager, SPU hastransformed the way infrastructure decisions aremade. Based on influence from Kevin andSimon, SPU is now working to:
● Clearly establish customer and environmentalservice levels along with precise performanceindicators
● Assess and quantify risk and consider thelikelihood and consequence of failure whenmaking resource allocation decisions,
● Consider life-cycle costs and benefits whenmaking initial investment commitments,
● Assess projects and initiatives based on atriple bottom line approach (wherein weconsider financial, social, and environmentalcosts and benefits);
● Consider the importance of asset data anddata systems, and manage ourdata systems with a corporatefocus on asset managementneeds;
● Clarify roles and responsibili-ties within the utility (includingdistinguishing between specifiers and service providers);
● Develop short-term planning documentswherein information about various asset categories is compiled and capital renewal plans are developed along with maintenance strategies;
● Create a more explicit capital resource decision-making body where decisions are made in a transparent manner based on assetmanagement concepts;
● Track, assess, and focus improvementinitiatives on efficiency and effectiveness ofproject management as well as our operationsand maintenance activities, and;
● Assess our performance relative to othersthrough benchmarking.
Results to dateThe asset management programme has helpedreduce operations and maintenance budgets by
ten percent, and productivity levels haveincreased. The utility has reduced its six-yearCapital Improvement Program by about $150M –or fifteen percent. Staffing, as measured byregular, temporary, and contract employees has
been reduced over thepast two years by eightpercent. Utility rateshave been reduced incomparison to earlierplanned levels, cashreserves have
increased, and projects are being financed with less reliance on debt.
Asset management initiatives are integrated into SPU’s Strategic Business Plan and budget, and SPU continues to benchmark with other organisations. Capital investment decisions aremade based on life-cycle financial, social, andenvironmental costs and benefits – and thediscipline required for this analysis has createdmore interactions among internal stakeholderswhen planning for capital improvements.
Most significantly, we believe that we are on apath to permanently change the organisationalculture at SPU. We are becoming a ‘customer-centric’ organisation. We understand the importance of transparency in how we makedecisions and the importance of holding ourselves accountable.
The results of an internal survey conducted inFebruary 2005 indicated that staff within cont: ➤
CEO VIEWPOINT
CHUCK CLARKE BECAME DIRECTOR ofSeattle Public Utilities in January 2002.Prior to joining SPU, Clarke served as one offormer Seattle Mayor Paul Schell’s twodeputy mayors, responsible for issues andprojects dealing with utilities, transportationand the environment.
He is the former Regional Administratorfor the Environmental Protection Agencyand managed its operations in Alaska,Washington, Oregon and Idaho for six years.He worked with community, business,environmental, tribal and local governmentleaders from the region, dealing with issuesranging from endangered salmon to
transportation and growth management.Clarke has served in a variety of state jobs
in Washington, including Director for theDepartment of Community Developmentand the Department of Ecology. He alsoserved as Agency Director at the VermontAgency of Natural Resources.
Clarke grew up in Bremerton,Washington, and earned both a Bachelor of Arts degree and a Masters degree inbusiness administration from PacificLutheran University in Tacoma. He is amember of the Board at the Association ofMetropolitan Water Agencies and at theWashington Academy of Performing Arts. ●
biography
The Australian influenceAsset management - a CEO’s point of viewChuck Clarke, Seattle Public Utilities
…asset managementpenetrates nearly every facet
of our decision making…
WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 4
On May 5-6 2005, WashingtonDC, approximately 140
water and asset managementprofessionals from 12 countriesattended a Working Session toexplore opportunities to enhance collaboration by water andwastewater utilities in advancingasset management.
Convened by the USEnvironmental Protection AgencyOffice Of Wastewater Manage-ment, the session broughttogether representatives from the water/wastewater industry,academics, professional associations, the researchcommunity and the consultantengineering and related consultant sector for two days ofintensive collaboration, to developan agenda for advancing assetmanagement throughout thewater industry.
The meeting was the first of itskind to take place in the US, asSteve Allbee of the EPA pointed
out: ‘In America, this is the firsttime that we have broughttogether leading elements of thewater and wastewater utilities,education and research interest,consulting and business interestat a session where we havesubstantially exploration of theopportunities to advance assetmanagement practices. This was,without a doubt, the single mostimportant session that we haveheld on Asset Management.’
The US EPA set out with theaim of identifying a three to five-year action agenda for theadvancement of asset manage-ment practices in the waterindustry and in state and localgovernment.
In view of the disparate interests of the attendees, a seriesof ballots were held in whichparticipants from each of thesectors represented voted, from alist of approximately 40 ‘Actionitems’, on their top ten most
important action steps. As mightbe expected, the voting forspecific Action items ‘variedrather widely based on the sectorrepresented’; however from thesepolls a final shortlist of ten actionitems was compiled (see box).
The prevailingtheme thatemerged from the meeting was, in the words of Steve Allbee:‘the need for and benefits ofknowledge transfer - the effectiveand efficient accumulation,organization and dissemination of ‘best practices’ regarding asset management concepts,processes and practices.’
The organisers hope thatfollow-up sessions will build onthe foundations laid at this initialconference.
In the meantime, full details of the organisation of the firstsession and its outcomes are now available to view online at: www.epa.gov.owm/assets1_management. ●
Washington hosts Advanced AssetManagement working session
NEWS
ACORN Inc is a new, Australia-based community group withthe goal of fostering positive community development throughimproved communication between decision makers and assetmanagers. The group does not restrict its scope solely to thewater industry, but encourages participation from all partiesinvolved in infrastructure maintenance and developmentthrough a raft of innovative communication initiatives. Below DrPenny Burns of ACORN Inc introduces the group’s aims andscope:
‘ACORN Inc is a public interest association designed to openthe communication lines between community leaders andopinion formers on the one hand and asset specialists on theother, with the aim of generating better infrastructure decisionsthat are sustainable and support present and future communi-ties. There is, of course, much more to life than infrastructureasset management - but there is very little of that life that doesnot depend in one way or another on the kind of infrastructurewe choose and the way that we maintain it. ACORN Inc isdesigned for asset specialists who don't want to sit and whingeabout being misunderstood but are prepared to do somethingabout communicating; are prepared to listen to what thecommunity really want; and to take a creative look at the waythe world might look in the future. Develop Sim City as a trainingtool, explore being "A Tourist in Your Own Town", take part inHypotheticals - and join us at ACORN Live!’Visit: www.acorninc.org
➤ SPU who have been closest to the newasset management capital approvalprocess believe that it has added value,created better decisions, and is a verygood change in emphasis for SPU.Employees appreciate the transparencycreated by the open session decisionmeetings, and believe that the addedrigour now required for investmentdecisions is a good thing for our customers.
As we continue to make asset management operational at SPU, weare not only focusing on the technicalwork of asset management, we are alsoincreasing the emphasis on the changein management work that must takeplace within SPU’s work force to embedasset management principles.Leadership is working to enhance the broad ability of SPU to truly operationalise asset management and to create a future where assetmanagement is not just a businessmodel, but our way of doing business.
ConclusionWhen SPU management made thedecision to implement an asset manage-ment program, we sought best practicesand made a deliberate decision to launchinto what we termed an ‘early gains
approach’. We felt that a comprehensivegap analysis with the resultant massiveprogramme would ‘drown’ progress.Instead, we chose to establish a corephilosophy, implement key asset management elements, and focus onearly gains to build staff confidence. Weobtained assistance from peers outsidethe United States while adopting newtechniques.
At SPU we are now nearly three yearsinto our Asset Management programme.There will be continuous improvementsand course corrections, but results todate are extremely compelling. We are on a course towards a future that is becoming clearer every day. Our journey,however, is just beginning.Chuck ClarkeDirector, Seattle Public Utilities, USA
Seattle Public Utilities provides water,wastewater, drainage, and solid wasteservices to customers within Seattle andthroughout the region; in total about 1.3million people receive services fromSPU. The utility has an annual operatingbudget of about $600M, a 6-year capitalprogramme of about $1 billion, a work-force of 1400, and assets totaling about$4.5 billion.
Taking asset managementto the streets
● Best Practices● Defining AM/building business
cases● Development of a central
depository of high quality dataavailable to researchers
● Develop an international trainingand resource clearing house
● LOS/AM business model● Research on tools for cost
effective physical conditionsassessment including designstandards
● Develop uniform national standards for conditions assess-ment and asset reporting
Melbourne Water is owned bythe Victorian Government.
We manage Melbourne’s watersupply catchments, remove andtreat most of Melbourne’s sewage,and manage rivers and creeks andmajor drainage systems in andaround Melbourne.
Melbourne Water is a significantbusiness,managing $7.9 billion ofnatural and built assets.The annualoperating revenue of more than $520Mis earned from water supply, sewagetreatment and drainage rates.This isused to fund operational and infrastructure projects including water, sewerage and drainage upgrades,as well as projects to improve andprotect Melbourne’s rivers and creeks.Melbourne Water is committed todecision-making based on economic,social and environmental considerations.
An independent Board of Directorsis responsible for the governance ofMelbourne Water.The responsibleMinister is the Minister for Water.
Regulation of the Victorian WaterIndustryFigure 1 shows the industry structureand regulatory framework for themetropolitan Melbourne water industry.
Technical regulators set the parametersfor environmental outcomes and waterquality. Supply agreements with theretail water businesses specify customerperformance parameters.
The Essential Services Commission(ESC) became the economic regulatorfor the water industry in Victoria from1 January 2004.Melbourne Watersubmitted its first price submission(Water Plan) to the ESC on 1September 2004.The Water Plan is acomprehensive plan describingMelbourne Water’s regulatory andcustomer service obligations,demandforecasts, planning processes, proposedcapital expenditure,operating expend-iture, required revenue and tariffs.
The process of preparing the organisation for economic regulationand producing the Water Plan hasprovided an incentive to improve
WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 5
Regulation and Asset Management:driving value within Melbourne Water
Figure 1Industry andregulatory framework Figure 2
Tests applied to expenditureproposals
REGULATION AND ASSET MANAGEMENT: DRIVING VALUE WITHIN MELBOURNE WATER
Driving value through asset management makes good business sense. Melbourne
Water’s approach has evolved over the past 15 years, with strategic leaps being
made following:
● Contracting out in the early 1990s
● Process Benchmarking from the mid 1990s
● Asset risk management from the mid 1990s
Economic Regulation introduces rigorous scrutiny of asset management processes,
where prices and revenue depend on satisfying four regulatory tests:
● Reasonableness of expenditure to satisfy obligations
● Likelihood that expenditure will deliver outcomes
● Sufficient processes for planning
● Deliverability of proposed expenditure
This paper explores how Melbourne Water’s processes have adapted to the
requirements of economic regulation and improved value in the latest evolution for
asset management.
That the proposed programme of expenditure is deliverable over the three yearregulatory period
That asset management planning and processes are sufficient for forecastingand long term views
That the proposed operational and capital expenditures are likely to meet newobligations and/or higher service levels
That the forecast operational and capital expenditures under existing obligations and service standards are reasonable
Reasonableness
Likelihood
Sufficiency
Deliverability
Test Description
management process.‘Value’ can becaptured through:● Improvements in lifecycle costs,
asset operability,maintainability● Protection of environment,people
or contractors● Reduced risk● Innovation and continuous
improvementThe core components of the ValueEngine existed prior to economicregulation.The main challenge arisingfrom regulation has been translatinginternally oriented information andprocesses to an external audience.Adaptations have included:
20 Year Capital Plan TemplateA review of the Planning Frameworkand Capital Investment Policy resultedin changes to the 20 year capital plantemplate, enabling the assessment ofproject information from a range ofperspectives including:● Product (Water, Sewerage, etc)● Programme (Production, transfer,
water quality, etc)● Asset class (water mains,pump
stations, etc)● Primary and secondary business
driver (renewals, compliance,growth, etc)
asset management disciplines andtransparency.
The ESC review process applied fourtests to expenditure proposed in theWater Plan: see Figure 2.
This paper will discuss howMelbourne Water’s asset managementprocess has adapted to suit a changedregulatory environment.
Reasonableness Test - Removing shades of greyDemonstrating ‘reasonableness’ to athird party introduced a number ofnew disciplines for Melbourne Waterand provided a useful framework forclarifying accountabilities that hadpreviously been ‘grey’. Improvementsto processes included:● Documentation of all regulatory
and customer service obligations ● Creation of a Statement of
Obligations between the Minster for Water Resources and MelbourneWater, clarifying accountabilities for government obligations notregulated through legislation orlicences (eg recycling,water conservation,dam safety, risk management, river health,drainage)
● Review of performance indicatorsand targets
● Consultation process and sign-offfrom technical regulators (environment,health) and customersof requirements driving expenditure.
Prioritising projects and determiningoptimum timing is also more transparent and takes account of inputfrom our customers and stakeholders.
Figure 3 describes the prioritisationconsiderations and stakeholder involvement for different programme/project drivers.
Demonstrating that proposedexpenditure is efficient to a third party has required the capture and documentation of historical andproposed efficiency initiatives for bothoperating and capital expenditure. It isnot enough to know it - you have to beable to show it!
Regulation has improvedMelbourne Water’s capture and documentation of:● Contract and procurement savings● Case studies of innovation● Value management / engineering
improvements● Process improvements● IT benefits
This was a bit of a treasure hunt the firsttime around;however,processes tosystematically capture the ‘gems’ arebeing implemented.
Likelihood Test – Linking expenditure to outcomesThe regulatory environment requires
much stronger linkages betweenregulatory and customer expectations,planning, expenditure and prices.Figure 4 shows Melbourne Water’sStrategic Framework and the linkagesbetween planning,outcomes,expenditure and prices.
A thorough review of businessdrivers for all capital and operationalexpenditure helped to demonstratehow expenditure would achieveoutcomes, and differentiated between‘business as usual’ expenditure to meetexisting service standards and ‘newobligations’ to meet new or improvedservice standards.Figure 5 shows hownew obligations account for 42% ofMelbourne Water’s capital expenditureduring the Water Plan period.
The Water Plan clearly shows whichobligations are driving price increases,which has benefited our technicalregulator’s understanding and appreciation of cost/price implicationsfor changes in standards.
Sufficiency Test – Right tools for the jobRecent benchmarking of AssetManagement shows that MelbourneWater’s performance is above averageand close to best practice in all categories, except asset acquisition:refer Figure 6.The lower performancein this category is due to the lack ofstandard design processes,which arenot generally applicable to headworksinfrastructure.
In a regulatory environment benchmarking is a key tool for demonstrating sufficient processes and for identifying improvement opportunities.
Melbourne Water has developed acomprehensive set of asset managementprocesses known as the ‘Value Engine’(Figure 7).The Value Engine comprisesthe policies, frameworks and procedures to deliver outcomes andimprove value at all stages of the asset
WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 6
REGULATION AND ASSET MANAGEMENT: DRIVING VALUE WITHIN MELBOURNE WATER
Driver Planning and prioritisation considerations Stakeholders
● Maintenance opportunities optimised?● Consequences of deferral (residual risk)
● Internal ● Retail water
businesses
● Retail water businesses
● Developers
● Community● Board
● Technical regulators
Renewals
Growth
Compliance
Other
● Can demand/peaks be influenced?● Consequences of deferral (residual risk)
● Can timing/standard be negotiated?● Consequences of deferral (residual risk)
Meet existing service standards
Meet new service standards
Not if but when?
Do we have to do it? If so, when?
● Can it demonstrate positive effficiency gains?● Will it meet environmental or social strategic objectives?● Will it mitigate risk?● Is the community willing to pay?
Figure 3Planning andprioritisationconcerns
Figure 4Melbourne Waterstrategic framework
strategic context, performance obligations,historical and futureexpenditure for significant asset classesand strategies.The age profile and riskassessment of existing assets are used toinform planning for the future,including allocations for renewals.
Programme Plans also help tooptimise lifecycle costs by analysingoperating and capital expendituretogether. Strategies for efficient delivery of common projects andsynergies with other programmes arenow considered at a programme level.
Maintenance DataThe reporting of operational performance did not require significantmodification as we had seven years ofdetailed costs and future maintenanceprojections in our asset managementinformation system,‘Hansen’. Data on past efficiencies in maintenancemanagement and the introduction ofnew assets was easily extracted from thesystem in a format that could bepresented to a regulator.
Figure 9 (overleaf) shows how totalmaintenance costs have decreased inreal terms,despite an increase in theasset base.Better asset managementplanning and improvements to themaintenance contracts have increasedthe proportion of scheduled maintenance and improved efficiency.
Deliverability Test – Plan to deliverFigure 10 shows the forecast capitalexpenditure for the Water Plan periodin the context of actual expenditureover the last four years and the long-term forecast.
The investment profile for the waterindustry and Melbourne Water inparticular can be quite variable due topeaks caused by ageing assets and thesize of significant projects.
The capital plan peaks in 2004/05
and 2007/08 are due to aberrationscaused by significant individual projects.This capital profile requires aflexible approach to delivery that canbe scaled up or down.
The majority of project manage-ment and contract management isoutsourced,providing flexibility andaccess to specialised skills throughcompetitive processes as required.Internal resources are focused on thecapital programme delivery anddevelopment of delivery strategies.
Melbourne Water’s ContractStrategy,Capital Delivery Frameworkand new Project PortfolioManagement System (PPMS) aim toimprove efficiency and reduce projectmanagement risk.
PPMS has been integrated withMelbourne Water’s finance system andcapital procedures and aims to improveforecasting, scheduling, tracking andprocess disciplines during the projectmanagement process.PPMS capturesproject information and progress fromthe inception of the project to handover and post implementationreviews.This will improve managementof individual projects and overalloversight of the delivery programme.
Regulation has shifted the deliveryfocus from spending planned dollars todelivering planned outcomes,moreefficiently than planned.Corporatetargets, performance plans and culturehave had to adapt to this shift.Reporting will need to show howoutcomes have been delivered, inaddition to time and cost, and trackvariations from the Water Plan for allthree dimensions.
Committing to the delivery ofcapital plan outcomes four years inadvance will be one of the mostsignificant changes. In the past there has been much greater flexibility toreprioritise projects and respond to
WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 7
● Business objective (MelbourneWater business objectives)
Programme PlansA new layer of planning was introduced at a Programme level.Programme Plans provide a strategicperspective and common understand-ing for stakeholders and regulators fora group of projects without needing to convey the individual details ofhundreds of projects (see Figure 8).
WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 8
REGULATION AND ASSET MANAGEMENT: DRIVING VALUE WITHIN MELBOURNE WATER
Figure 9Water and sewerage direct maintenance costs(2003/04 AU$)
Figure 10Actual and forecastcapital expenditure2001/02 to 2010/11
customer and stakeholder require-ments.Greater discipline will berequired as revenue will be fixed for the regulatory period and prices aretied to the delivery of specified outcomes.Unscheduled increases inexpenditure will negatively impactMelbourne Water’s bottom line andbusiness value.Conversely, innovationsthat result in outcomes being deliveredbelow budget will result in improved value.
Processes will need to ensure justified variations are accounted for in prices during the next regulatoryperiod.External organisations whocontact us mid-cycle are alreadygetting a surprise when we say ‘you will have to wait for the next boat’.
The road aheadJust as we breathe a sigh of relief thatthe Water Plan has been delivered, thenext regulatory cycle looms around thecorner.The first Water Plan period wasfor three years (2005/06 – 2007/08).Future regulatory periods will be forfive years.Planning and consultationfor the next Water Plan will commencein July 2005.Challenges for assetmanagement going forward include:● Synchronise planning and
consultation with customers/technical regulators with the regulatory cycle
● Improve triple bottom line businesscase assessment
● Improve processes for estimating and recording stage of planning‘accuracy’
● Incorporate incentives for achievingoutcomes below plan in corporatetargets, performance plans, contracts
● Tracking and reporting variations tothe Water Plan
● Capturing value of efficienciesachieved
● Improving cost allocation model for customers
From a cultural perspective, regulationmeans that the economists, scientistsand engineers are working togethercreating stronger links between assets,outcomes,prices and business value.Ultimately,we think this is a great thingfor our customers and the community.
ConclusionOverall there have been few materialchanges to Melbourne Water’s coreasset management processes as a resultof economic regulation.The keychallenge has been translating aninternally oriented process to enableexternal evaluation and understandingthrough documentation of MelbourneWater’s processes, procedures andexpenditure profiles – ‘it is not enoughto know it: you have to be able to show it’.
There is a transaction cost in increasing transparency;however, thebenefits include greater credibility and accountability with a focus on delivering better value to our customers and the community.●
Water Plan Period
WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 9
Against a background ofincreasing pressure to better
manage assets, utility companiesare extremely concerned aboutthe effectiveness of their assetmanagement capabilities.Whilstthe Asset Management concepthas been embraced globally by the utilities industry, for mostutilities their Asset Management capabilities have yet to be tested
by the pressures of a truly competitive environment.Thereare a number of key areas of AssetManagement that will be criticalto the success of utilities facingregulatory, shareholder or competitor pressures, and eacharea has an underlying processthat is intertwined with the next,such that each is as vital a link inthe chain as the next.One areathat has achieved particular attention recently is theInvestment Planning processwhich will be the focus of this article; however, before considering the value and themethodologies required forInvestment Planning,we need first to consider its place in theStrategic Asset Management(SAM) value chain.
Asset intensive businesses have opted for Asset Management businessmodels to effectively tie together coreprocesses and focus their businesses onextracting optimal returns from theirassets in accordance with short andlonger term financial and risk strategiesdecided by their owners.
Successful Asset Managementrequires a fundamental change inphilosophy from a tendency to targetmaximum performance,minimum risk and least cost approach to one that targets minimum acceptable performance, active risk managementand an approach where all spend isbased on benefit and risk trade-offs,rather than historical budget or rate-based mentality1 .Hence there is a fundamental culture shift required ofcompanies embracing these concepts,in addition to organisational structure
New developments in investment planningand project evaluationOptimising expenditure to meet multiple objectives with
limited resource
As Asset Management continues to develop into a business function in its own right,
separate from asset ownership and asset services (maintenance etc), leading utility
companies are recognizing the different business drivers between Asset Owner, Asset
Manager and Asset Service Provider, and are organising their businesses accordingly.
Asset Managers are focusing on extracting value from Assets whilst managing the long-
term sustainability of those assets for their key stakeholders, whilst Asset Owners set
their expectations and performance targets and Service Providers perform the physical
work on the asset.
For Asset Managers, the ability to optimally ration capital and operational
expenditure is crucial to both deliver short term value and ensure this sustainability.
Most utilities have historically made investment and project selection decisions based
on a prioritisation of projects according to risk assessment and therefore are finding
the philosophical transition towards achieving goals and objectives a difficult one.
Leading Asset Managers are realising that if the company’s strategic objective and key
performance indicators are appropriate, and support the medium and long term
sustainability of the company, investment should be targeted at meeting those
objectives. Utilities are realising that to be world-class Asset Managers they must
become pro-active businesses rather than asset caretakers.
This paper considers the processes and strategies being purchased or
developed by Best Performing companies, in seeking an answer to the question: ‘What
is it that leading Asset Management companies are doing, and doing well?’
NEW DEVELOPMENTS IN INVESTMENT PLANNING AND PROJECT EVALUATION
Jason CoxUMS Group Global Management Consultants,Melbourne,Australia
WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 10
changes, supporting systems andprocesses and asset information.
What is asset management?The Asset Management model provides the tools and processes to enable and sustain thetransformation of a business to acommercially driven and dynamicorganisation that continuously operatesto optimise its value.When donecorrectly, the result can be a dramaticreduction in costs coupled withincreases in shareholder value,reliability, customer satisfaction, andemployee productivity, satisfaction, andskill level.Each of these parameters areimportant for the viability and longterm sustainability of an organisation.Effective Asset Management requiresthe highest level of commitment tothree fundamental tenets:● A clear focus on maximising return
on assets, by achieving secondarygoals of lifecycle cost minimisation,optimised renewal and capitaldeployment, and effective risk andperformance management.
● Contestability of services drivingcosts to the minimum consistentwith required timing, logistics andquality.
● Separation of responsibility for themanagement of the workforce fromthe management of the assets (seeFigure 1).
Asset OwnerIn this model, the asset owner, assetmanager and asset service provider playdistinct and important roles supportingthe economics and performance of theasset.Asset Owner roles includemanaging the license, corporategovernance, corporate performance,business development,merger and acquisition strategy, regulatoryrelations,profitability management,stakeholder management, competitivestrategy and asset manager interface.
Asset ManagerAsset Management involves several key changes in the way the business ismanaged,whereby the responsibilitiesand accountabilities for asset manage-ment decisions, regarding O&M or capital investment in plant and equipment (including design,acquisition, commissioning,operation,maintenance,performance, retirement,and replacement) are separated fromthe management of the workforce.Alldecisions must be understood in termsof financial impact and viewed in thecontext of implications for existingassets (returns,prioritisation,utilisation,risk, future replacement/ refurbish-ment costs, etc.).A shift in focus to alonger-term lifecycle view of costs, riskobjectives and return on investment
must be an integral part of day to dayasset management decisions.
The business of Asset Managerincludes those processes, sub-processesand applications (tools) necessary tomake consistent, effective and efficientdecisions related to the assets.Thesedecisions deal with optimising theoperation,maintenance,upgrade,design of new portions of the asset, retirement of assets, and investment/business opportunities.Effective risk management is thecornerstone of all decision-makingprocesses within the AssetManagement business function.
Asset Service ProviderWorkforce management decisionsregarding staffing, skills, training,incentives, productivity,work rules,and union relations are made withinthe context of a focused marketcompetitive services organisation.Asset Service providers therefore takecare of the ‘field’work associated withthe asset, covering processes such asDesign and Construction,Operate,Maintain and Restore,PerformanceManagement and involving corecompetencies such as works manage-ment and resource management.
Key Asset Management ProcessesThe UMS Group SAM model considers Asset Management to becomprised of several intertwinedprocesses that are supported by tools,systems and capabilities to enableoptimal CapEx and Opex decisions fora given asset that has a range of desiredobjectives and targets.These processesare described in brief below:
● Ownership Interface.Through thisprocess, the Asset Owner shouldclearly communicate objectives andhigh level corporate strategy as wellas expectations for the performanceof the asset whilst the Asset Manager should communicate assetperformance, risk and strategy so thatthe owner has adequate informationfor decision making.
● Asset Strategy.All technical considerations related to the asset are contained within Asset Strategyprocesses and are integrated andapplied to the asset through the AssetManagement process.Asset Strategyis a broad process incorporating anumber of sub-processes that mergetraditional utility planning conceptswith the performance and risk focus of the Asset Managementphilosophy.These include:❍ System Planning:Process for
system design to maximise assetutilisation and system reliability,ensure system integrity and public
safety,minimise load loss, etc.❍ Standards: Standards development
and maintenance is essential tocost effective system planning andasset strategy as well as assistingsupply chain management,etc.
❍ Maintenance Optimisation:LinksCondition Based Assessment(CBA),Reliability CentredMaintenance (RCM) and End ofLife analysis (EOL) into aneffective maintenance process.
● Investment Planning.All financialconsiderations and investmentproposals are addressed withinInvestment Planning processes andare integrated and applied to theasset and to the overall businessthrough Asset Management process.Investment Planning links tightly to Asset Strategy,PerformanceManagement,Risk Management,Regulatory Management andContract Management.However,owners are concerned about morethan current returns andfuture risk.They are concernedabout the long term viability of their business and hence desire theappropriate trade-off betweenreturns, risk,public image, employeesatisfaction and any number of otherobjectives.A detailed analysis ofInvestment Planning is presentedlater in this paper.
● Risk Management.Risk management is an intricate processthat combines market influences,asset performance capability, and acceptable levels of risk to deter-mine the optimal direction.Theinputs to the process are highlydynamic and the processes andmodels need to be flexible enoughto respond to changing conditions.Risk analysis actually fits into anumber of areas within the AssetManagement processes but isfundamental to Asset Strategy and the development of Asset Plans and Life Cycle Plans as well as the development of strategy scenarios.
● Contracting Strategy.ContractStrategy does not include thespecific management of the work-force in the field,performed byproject managers, supervisors orforemen.What it does include isdecisions around contracting, such as maintenance insourcing versusoutsourcing, standard versus performance-based contracts,single versus multiple contractorsand decisions on whether assetmanagement and/or networkservices are insourced oroutsourced.
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WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 11
amounts have been spent on them.’Most utilities have historically made
investment and project selectiondecisions based on a prioritisation ofprojects, based upon risk assessment,and therefore find the philosophicaltransition towards achieving goals andobjectives a difficult one.Leadingcompanies are realising that if thecompany’s strategic objective and key performance indicators are appropriate, and the strategy is sound,investment should be targeted atmeeting those objectives.Utilities arerealising they must become pro-activebusinesses rather than asset caretakers.
Investment Planning DefinedThe process begins with the definitionof asset portfolio and business goals.It proceeds with monitoring andmeasurement of asset performance,initiation of a business case for aninvestment decision and then analysesa range of investments to determine therecommended course of action tomaximise strategic and economicvalue.At a high level, the InvestmentPlanning Process essentially follows fivekey steps;Gathering Information,Analysis and Decision andImplementation (see Figure 2).
How well are utilities managing this process?Most utilities we work with performreasonably well at gathering information,particularly with theadvent of technologies to remotelymonitor, capture and upload data suchas equipment faults, alarms, etc.Monitoring and communicatinginformation is an area some companiesstruggle with but generally there isadequate information available some-where in the organisation to enableinformed decisions on assets.Onecommon problem for utilities is thatinformation dispersed throughout thebusiness can be time consuming togather, as has been the experience for
many utilities involved in multi-company benchmarking programs inrecent years.Leading works manage-ment systems and detailed fixed assetregisters facilitate data collection andmonitoring and thus support thePerformance Management process butcan be expensive to implement.
The Analyse and Decision step of theprocess however, is where many AssetManagers find real difficulties inmaking consistent and defensibleinvestment decisions in a timelymanner.System planners have differentviews on expenditure from financiersor from operations or back office andplanners are often unclear as to theobjectives of their executive or are notaligned to these objectives and try topush ‘pet’ projects through.This trend isconsistent across electricity, gas,water,telecommunications and rail infra-structure utilities and is one of the keyreasons that Investment Planningprocesses have come under closescrutiny by companies and theirstakeholders across the world in recent years.
A Best Practice approach to InvestmentPlanningBest Practice Investment Planningensures that different business unitswithin an organisation do not makeinvestment decisions in isolation, andthat the overall objectives of thebusiness are in sight for any expenditure scenario.Furthermore,all investment decisions are aligned to the organisational risk appetite andthere is a transparency, accountabilityand a formal documentation of theinvestment decision process.Finally,the process should allow for an optimisation step to ensure that a‘balanced’ spread of objectives isachieved and therefore investment is covering a range of corporateobjectives.These key InvestmentPlanning attributes will be discussed in more detail below.
● Performance Management.Performance Management involvesall the people,processes, systems,initiatives, functions, and activitiescurrently conducting performancemonitoring analysis, continuousimprovement, initiatives and/orquality control for the assets of thecompany.Performance Managementincludes all the processes and stepsrequired to develop,define and track performance of the assets and service providers necessary toprovide quality management data for strategic decision making for the owner. It is fundamental in thatit pervades all business owner, assetmanagement and service provisionprocesses.
● Supporting Technology.Datacollection, storage, and retrievalsystems, transposing effective SLA’sand contracts across many parts ofthe business, inventory optimisationtools, etc, are vital to the effectiveoperation of an Asset Managementbusiness.
Investment Planning: a critical competency in leading asset management businessesIncreasingly executives are seeking tomake appropriate investment trade-offsbetween tangible and intangiblecompany assets, but whilst the value oftangible assets tend to be measurablethrough formulae and calculation,intangible assets such as employeecompetencies and knowledge manage-ment systems are very difficult toevaluate.The latest tools and invest-ment planning processes attempt toadd method,process and calculation tothe ‘intuition’upon which suchdecisions have historically been made.
Developers of the original BalanceScorecard model,Kaplan and Norton,believe that ‘measuring the value ofintangible assets is really about estimating how closely aligned thoseassets are to the company’s strategy’.2
An effective investment planningprocess must align spend decisions to company strategy and ensure appropriate weighting betweentangible and intangible assets.Intangible assets tend to be the keydifferentiators between businesses andtherefore a chief potential source ofcompetitive advantage as they are noteasily transferred.Kaplan and Nortongo on to say:‘if the company has asound strategy and if the intangibleassets are aligned with that strategy,then the assets will create value for theorganisation. If the assets are notaligned with the strategy or if thestrategy is flawed, then intangible assetswill create little value, even if large
Figure 2Basic investmentplanning process
Figure 3Advanced
investment planning process
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Portfolio Optimisation:a key concept in investment planningAsset Owners are concerned aboutmore than current returns and futurerisk.They are concerned about thelong term viability of their business and hence desire their investments to address the appropriate trade-offbetween returns, risk,public image,employee satisfaction and any numberof other objectives.
Many businesses are talking abouttriple bottom line objectives, but in factsome have moved past triple bottomline and are optimising their businessesto meet owner objectives over five ormore ‘bottom lines’.The process isknown as investment PortfolioOptimisation and it is the latest toolavailable to companies intent onpositioning themselves to achievemaximal alignment between strategyand spend.
Portfolio Optimisation takes aholistic view of all expenditure byproject and enables the determinationof a list of projects that fit a givenbudget constraint and produce thehighest cumulative weighted benefitacross all nominated strategic objectivesand sub-measures (KPIs) of the business3.The principles of optimisation were first employed in the early 1950s when HarryMarkowitz put forth his theories on modern portfolio managementpertaining to financial assets andutilising the concepts of variance andco-variance to deliver maximumreturn for a given level of risk4.Theseprinciples have been expanded uponand applied across a number ofdomains including project portfolioanalysis for business investment planning.The optimisation process thus focuses on selecting the optimumbundle of projects that maximise thestrategic value with an acceptable riskexposure. It is not intended to supportthe analysis of limitations or formula-tion of projects that address theselimitations.The contribution ofindividual projects is measured withinthe bundle that meets the financialrestraints. Smaller high-value projectscan be selected in the bundle becausethe basic process of optimisation is tomaximise value for minimum cost.
Using Decision Support ToolsSupporting the decision step of theprocess should be a wealth of know-ledge and information about the assetand the objectives the owner has forthat asset and the business as a whole.
Furthermore, leading asset Managersare adopting tools to support decisionanalysis and leverage off the knowledgeand information within the business.The leading decision analysis tools
combine economics, logistics, technicaland decision theory to select the bestinvestments as measured by a balancedscorecard of business value and withinan acceptable risk profile. Such decisionassistance tools provide companies witha robust approach for maximising thereturns from constrained funding, andoptimising the value of investmentsacross their current and future assetportfolios.
Why are decision support tools morethan just a prioritisation calculator?Decision support tools provide manyhard and soft benefits for the AssetManager:● They can reduce ‘politicking’
by project advocates which drivesobjectives instead of criticality of need.
● Decision makers tend to unconsciously discount objectivesbelow their ‘top 3’priorities.
● Snap judgments or ‘gut calls’ bydecision-makers in the reviewprocess can overturn months ofcareful analysis.
● Proven but mature programs canstarve more promising new programsof investment.
● They can provide greatly increasedcommunication of investmentconstraints and limitations of thebusiness to owners and regulators.
● They can achieve a transparentselection mechanism to displayproject selection criteria.
● They can communicate risk exposure and quickly highlight un-funded projects that fallwithin defined high risk categories.
It is not uncommon to find fiveExecutives with five different views onwhat the corporate Vision Statementreally means, and what the true objectives of the company are.Aligningthe company around its true objectivesis a difficult but critical step for anybusiness and linking the objectives toactual investment and the activities ofthe company actually becomes anenabling factor in achieving thecorporate Vision.
Decision support tools should not beexpected to replace common sense,sound judgement and hard-earnedexperience5.Decision support tools aredesigned to assist planners and decisionmakers by arming them with adequateinformation with which to make adecision and by providing them with aflexible scenario planning calculator toassist in predicting benefits and risksassociated with possible investmentchoices or portfolios.Any selectedportfolio must be analysed to ensurethe risks associated with that portfolioare acceptable to the business and thebenefit align with overall businessstrategies.
Linking Investment to StrategicObjectives and BusinessPerformanceA Best Practice Investment Planning process begins through the development of a DecisionFramework based on the StrategicObjectives of the company.Theframework consists of a set of weightedstrategic objectives and sub-measures.Management must therefore firstidentify and reach consensus on a set of Strategic Objectives which typicallycover financial drivers, any regulatoryobjectives, customer related objectives,employee or other internal objectivesand reliability objectives.Each objective must be clearly defined andthen weighted using a robust approachsuch as Analytical HierarchyPreferencing (AHP) methodologiesbased on decision tree logic.6
Once a set of weighted strategicobjectives is established the next step is to identify sub-measures of eachStrategic Objective which must bemeasurable on a project by projectbasis. Sub-measures can therefore bethought of as Key PerformanceIndicators (KPIs) and each sub- measure is defined in terms of a scoring range against which projectscan be assessed.
For each goal developed in theStrategic Objective Workshop, a set ofcontributing metrics is established intoa project scoring matrix.Efforts shouldbe undertaken to define the extremesof value for the range of projects andprograms under consideration and theaim is to develop and test rigorousscoring criteria such that no twopeople in the organisation would scorethe same project differently.This is a critical and difficult step in thedevelopment of a robust frameworkand requires inputs from a range ofareas within the organisation toachieve a well defined and widelyaccepted set of definitions and projectscoring criteria.For each Objectiveand each sub-measure, it is a good ideato develop sample projects and programmes that would producepositive and negative scores in order to assist personnel in scoring their own projects.
For enterprise-wide engagements,a good ‘road-test’ of a DecisionFramework is to conduct cross-functional challenges to assure theequivalent rigour of scoring is presentacross the enterprise.This will ensurefurther buy-in to the process, a betterconsensus on scoring parameters and abroader understanding of the reason-ing behind each measure.Experiencehas also proven these workshops provide an excellent platform forcommunicating between business unitsand aligning the wider organisation
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exposure that will at some point needto be addressed.
In addition to the StrategicObjective scoring framework, theInvestment Decision Framework mustalso include a matrix of consequenceand probability scores to allow eachproject and programme to be scored asto the resultant risk to the business ofnot being selected in the optimisation.In a similar manner to the StrategicObjective scoring definitions, risk istypically defined across a number ofrisk domains such as Financial Risk,Technical Risk,Socio-political Risk,etc.7 Each domain of risk defines arange of potential consequences foreach risk type and a probability of arisk event in that domain should theproject be deferred.
Once all projects are assessed in terms of the consequence and probability of a risk event if the project is deferred, the Executive and Management of the company have a register of known risk to thecompany and its assets and can set thecompany ‘risk appetite’ – the level ofrisk deemed intolerable.The riskappetite of the company will be thedefining factor as to whether a projectshould be selected on risk criteria.
Project ScoringEach project is scored on Sub-Measures which are then weighted andsummated to produce a score againsteach high level Strategic Objective.Aproject may receive a range of negativeand positive scores across both Sub-Measures and Strategic Objectives.Each project is also scored for consequence and probability in eachdefined risk domain, typically using ascoring range 0 to 5 for each,wherezero is low consequence (no impact) orlow probability (very unlikely) and 5 ishigh consequence (catastrophic) orhigh probability (almost certain).
Scoring Training for Engineers andPlanners will help ensure consistencyand familiarity with scoring templatesacross the business.The ProjectPortfolio Manager is responsible formonitoring scoring consistency andshould look for trends within departments or work groups that might undermine portfolio information quality.From time to time the Portfolio Manager mayrefine Scoring Descriptions,Definitions and examples as necessaryto maintain scoring consistency.
All individual projects are scored and added to the project portfolio,orlibrary,until a complete list of potentialprojects is developed.
Finding the Trade-offsOne key benefit from creating a projectportfolio on a common assessment
platform is the ability to see in a matter of minutes what impact a givensubjective project selection decision has on the rest of the project portfolio and indeed on the objectives of thebusiness.The Portfolio Manager can also utilise this holistic view of company projects to determinewhether some projects could bebundled due to similarities in timing,geography or personnel that mightresult in an overall summated cost less than the summed cost of eachindividual project.This is sometimesreferred to as ‘the Portfolio Effect’.
There should be enough flexibilityin the process and optimisation toolthat the Portfolio Manager and indeedManagement and Executive teams havethe discretion to nominate ‘Mandatory’projects, or to force-select projectsfitting certain criteria such asCustomer Requested Work,Governmental ad Compliance driven projects.However the questionmust be asked,‘when is somethingmandatory?’ It must be recognised thata decision to nominate a project asMandatory may render a portfolio sub-optimal and hence only projectswhich absolutely must go ahead shouldbe labelled Mandatory.These mightinclude projects that are almost completed from previous budgetperiods,projects that are legal requirements or political decisions that the company must abide by.Notehowever, that even Mandatory projectsshould be scored on both StrategicObjective benefit and Risk in order todetermine their impact on the overallproject portfolio.
Best Practices in InvestmentPlanningTo summarise,we find that leadingasset management companies exhibit anumber of keycharacteristics:● Optimise rather than simple rank or
prioritise.● Invest resources to accommodate
specific needs and objectives ratherthan spend to a budget limit.
● Considering financial and non-financial indicators as go/no-gocriteria.
● Consider risk as part of the analysisand decision making process.
● Understand the risk of NOT doinga project as a real risk scenario forthe business.
● Do not treat everything as ‘nondiscretionary’ spending.
The Common Objections toImproving Investment PlanningUMS has worked with many utilities to implement Decision Support Tools and in particular our PortfolioOptimisation Process and
around company objectives.The finalstep is then to assemble the package of matrixes for review by ExecutiveLeadership.
Risk AssessmentWith the advent of commercialisation,privatisation and disaggregation of theutilities industries in Australia,manybusinesses have become significantlymore commercially focused andconsiderate of ownership pressures,community obligations and thefundamental business tenets of costminimisation, revenue growth,profitsand sustainability.Management teamsin many major utilities have developedstrategies beyond those of networkmaintenance and demand manage-ment and have set their businessobjectives around satisfying financial,customer, regulator and employeerequirements,often in conjunctionwith business growth strategies.Yetdespite this commercial focus and clear objective from managementteams to operate viable and sustainable businesses,most utilities base theinvestment decisions almost entirely on risk mitigation,with little or noconsideration to their stated businessobjectives. In doing so, they face twomajor disadvantages:1.They push important investment
decision making out of the executive or management domainand into the engineering domain;
2.They operate without an intrinsicunderstanding of the impact of risk-based decision making on theirability to meet stated objectives.
Risk mitigation is just one of severalimportant criteria for investmentdecisions and may not achieve anyparticular measurable benefit for thecompany. Investment planners aretherefore beginning to think of theinvestment decision in two parts:1.Benefits to be achieved for a given
investment portfolio, and;2.The Risk associated with that
investment portfolio.
Within an Investment decision analysistool there clearly must be a facility todetermine the risk exposure thebusiness faces for any given spendscenario. In other words, for any set of selected and deferred projects, thedeferred projects are associated with arisk profile that the company will beexposed to if it does not go ahead withthose projects.Many projects aredesigned to mitigate risk so to defersuch a project is to leave the companyexposed to that risk.The projectportfolio should therefore serve notonly as a project register and a registerof potential strategic benefit to thecompany,but also a register of risk
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Optimisation Tool that is aligned withall the Investment Planning criteriadiscussed in this paper. Speaking toPlanners,Asset Managers,FinancialControllers and CEOs in each businesswe often initially hear a number ofcommon objections to an optimisation-based InvestmentPlanning process,which are referred to below.
‘It’s too hard’ - There is no questionthat portfolio optimisation requiresboth inspiration and perspiration,butthe rewards are worth the effort. It isestimated that companies can improve20-40%8 through efficient deploymentof investment expenditure as a result ofa rigorous investment planning process.
‘Scoring projects and setting up aframework is too time intensive’ - Likeanything worth doing, an effectiveInvestment Planning process willrequire an upfront effort.The goodnews is that once an initial projectportfolio is established,ongoing effort is incremental.As a project is conceptualised it should always bejustified in terms of a business case.With a decision framework in place,that business case is given structure and rigour and ensures the businesscase targets key business objectives.Project scoring becomes an integralpart of business case development andin many cases may replace existingbusiness case templates.
‘Scoring is subjective’ – True,but so is any other method of investmentdecision making. Investment planningis a process that will always involvespeculation about the impact of acurrent spend on future outcomes.Many utilities discard the value of aportfolio optimisation process on thebasis that it involves subjective projectassessment,but this is an illogicalexcuse considering historical decisionsare entirely subjective and bases on thebest thinking of one or two systemplanners. Investment Planning is not an exact science,but using knowledge,tools and a rigorous assessmentmethodology we can tighten up thespeculation considerably.
‘The error margins in the prediction ofproject outcomes outweighs precision ofproject selection’– Organisations willvary considerably in their access tohistorical failure rates, asset conditioninformation, etc, and in their ability toforecast project impacts on intangiblefactors such as customer satisfaction,business growth opportunities andcorporate citizenship.The aim of arobust decision framework and projectportfolio analysis is to capture andrecord the best available information inthe organisation and make decisions onthat platform.There are a number ofsteps that can be taken to then obtain areasonable understanding of the range
of possible outcomes for a portfolioselection decision.Leading AssetManagers with best practice portfoliomanagement processes in place will useconfidence intervals on possible projectoutcomes and then portfolio scenarioanalysis to predict a range of possibleoutcomes and likelihoods (see nextsteps) for a given spend decision.Theproduction of ‘best case’,‘worst case’and 95% confidence scenarios will givethe Asset Manager an understanding ofthe probability of achieving targetedstrategic objectives for a given budgetand the risk that the investment willunder-achieve or over-achieve.This is a separate risk assessment from theproject-by-project scoring of the riskof deferring a project.
‘Investment Planning should be humandecision’ – Absolutely.We do notadvocate ‘decision tools’ but stronglysuggest a ‘decision support’ tool suitecan help provide people with the mostup-to-date, comprehensive, accurateand timely information possible to helpwith the decision.
‘How will portfolio optimisation link tobusiness planning?’ – Through theadoption of a Decision SupportFramework based on the StrategicObjectives and Risk Domains of thebusiness, there should be a direct linkbetween Investment Planning and thewider Business Planning activities.
‘Optimisation is just a fancy word forprioritisation’ – Actually,optimisation isa significantly more complex processthan prioritisation,which is why it is dependent on sophisticated mathematical modelling tools ratherthan the ‘Sort’ function of a standardspreadsheet application.Optimisationinvolves choosing a combination ofprojects based on their scores andindividual costs that achieve the overallhighest benefit to the business given aspecific budget constraint.Prioritisation will only list the bestprojects by their value,or at best, bytheir value per dollar.Prioritisationtools cannot link project dependenciesand exclusivities and will not re-shuffle projects to meet specificspend constraints.
‘We don’t have the data available to setup a portfolio optimisation process’– This isa very common response and high-lights an even greater need for aDecision Framework.With the rightmeasures and definitions, the ‘bestthinking’of the organisation can becaptured without the need for extensive ‘hard-data’, and the resultingproject portfolio will actually create aninvaluable information repository forthe business on risk,project types,budget requirements ad allocation,expenditure profiles, regional productivity, etc.
‘Owners don’t know what they want’ –
If this is true, the investment planningprocess is critical as a communicationsplatform to educate the owner ratherthan fight with them.They are, after all,the key stakeholder.
‘Everything is a risk decision and is donefor engineering reasons’ – The AssetManager with this philosophy shouldnot think of Asset Management as abusiness, but rather as a CommunityService.Asset Managers talk aboutprofit,NPV,ROI,ROA,EBIT,etc, andtherefore decisions are not alwaysrelating to risk. If the organisation has ahuman resources department, a CFOposition or a business developmentdivision then it is concerned aboutmore than risk mitigation.
‘If it is cash positive it will be doneregardless’ – Finance is not the onlydriver of a business. Sustainabilityrequires customer support, employeecommitment, capabilities and knowledge, system reliability, etc.Explore the trade-offs, understandthem,and then make that decision.
‘We only have about 10% discretionaryspend, so this is a waste of time’– 10%probably still amounts to severalmillion dollars and we should not losesight of this, however the real issue iswhether non discretionary spend istruly mandatory.Does the executiveunderstand the decision on whethersomething is mandatory or not on aproject by project basis? If not, there iswork to do.
‘The asset manager knows where moneyshould be spent so it is his or her decision’ –It is a high risk strategy to place all faithin one or two people to make thesedecisions. If that person leaves or ishurt, ill or dies, the decision makingcapabilities of the company are compromised, and worse, the basis ofpast and current project decisions willbe lost.The allocation reasoning is lostand there is no-one accountable fordecisions. In the time it takes to up-skill someone else you could wastemillions.A documented,well under-stood analytical framework willprovide a repeatable basis for decisionmaking that enables knowledge to beretained by the business in thosesituations.Ultimately the loss of adecision maker would be difficultanyway,but at least there would beclear guides to his/her successor andclear documentation of past decisions.
‘Budget is not a constraint!’ – Fewutilities can legitimately claim not tobe cash-constrained,however there aresome companies operating in lenientregulatory environments where agenerous return on investment regimeeffectively removes financial constraints.Where this is the case,there tends to be a higher emphasis onresource constraints for internal labour,project management skills, contracting
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WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 15
and procurement processes and supplychain bottlenecks.A portfolio optimisation process need not optimiseon budgets, but may optimise onlabour hours,numbers of projectmanagers, etc.
‘What about resource limitations?’ – Anoptimisation process can optimise onresource constraint as easily as it can onbudget constraints.
Change Management – Enabling the Investment Portfolio Optimisation ProcessSuccessful implementation of aPortfolio Optimisation Process forInvestment Planning often requires aconsiderable change in organisationalculture.A move away from incrementaladjustments of historical budgets and towards funds allocation alongoptimised expenditure lines can causeanxiety and defensive behaviour frommanagers who perceive a loss of powerwhen their budgets become lesssecure.On the other hand,manymanagers and planners feel a reductionin pressure with the introduction of this process as they are no longerindividually accountable for riskmanagement for their business unit ormanaged assets – the responsibility forrisk, as previously discussed,moveshigher in the organisation and hasbroader input.
Planners also sometimes havedifficulty initially adjusting to thenewly established strategic objectiveframework which may include objectives they do not have a personalinterest in and therefore do not usuallyconsider when nominating projects.This is actually a positive step for theorganisation as it forces a commonunderstanding of strategic direction.Consideration of such diverse factorsas socio-political risk, training anddevelopment,occupational health andsafety targets, revenue growth andpublic image typically produces morewell-rounded project briefs with morerigorous financial review and a soundunderstanding of potential projectbenefits.This arms an investmentplanner with a strong understanding of the nature of each project within aproject portfolio and thus enoughinformation to make decisions onwhich projects to include in theupcoming budget period.
Another organisation considerationis when and where the PortfolioOptimisation step will be performedwithin the business. Ideally,PortfolioOptimisation takes place once projectcosts are firm and design is establishedsuch that a project can be reasonablyaccurately assessed for impact on KPIsand strategic objectives as well as risk.This information is collated in theproject library,or portfolio. In most
utilities there historically tends to be nosingle person or group who hasaccountability for portfolio analysis.Special OPEX (projects) tend to followa different process and are managed in aseparate area, adding to the complexityof the investment planning process.Portfolio optimisation should sit withthe business unit responsible for settingbudgets, and this is generally theFinance business unit.However,the process may be effectively implemented within each business unit in the organisation to ensureoptimal effectiveness of expenditure of apportioned budgets, etc.
For longer term (five year) planning,obtaining accurate financial and benefitdata is often not possible,however thisdoes no preclude companies fromusing a Portfolio Optimisation process.Inherent errors bands around estimates,budgets and target objectives are theinherent nature of Investment Planningand the elements of the process –project register, thorough review of benefits and risks, scoring andassessment criteria and selection ordeferring of projects – still applies.Projects can be assigned categories such as ‘approved’,‘pre-approval’,‘preliminary design‘,‘identified need’,etc, so that an indication of portfolioanalysis accuracy can be determined.The process will add rigour to what isalways a largely speculative planninghorizon.
Where to now?The wise Asset Manager understandsthat the business must crawl before itwalks and walk before it runs.Withinvestment planning, there are existingprocess that do enable companies totake large steps when moving towardsan optimised portfolio selectionprocess and indeed take large stepsacross a number of other SAM processes including risk management,ownership interface, contractingstrategy and asset strategy.
However, as is always the case,there is a bigger picture and a morecomprehensive view that can be takenand that must evolve following theadoption of a best practice InvestmentPlanning process.
Some initial next steps once anInvestment Optimisation Process isin place:● Scenario modelling – learning what
to target.● Risk history – expansion on failure
rate analysis. Improve predictabilityof risk using historic data.
● Benefit history and confidenceinterval revision – improve benefitpredictability.
● Performance indicator selection –are we focussing on the right KPIS
and are we correct about theirrelative importance?
● One year in,have we been successfulwith our ‘optimal’ list of projects?❍ What could we have done
differently?❍ Has it been an academic exercise
or have we learned something?
Some items for consideration as partof an expanded process:● Benefit risk assessment – Monte
Carlo analysis, risk distributions, etc.Probability of a given scenariooutcomes.
● Understanding the business – if whatwe say is true, is this the business tobe in? Are we just asset caretakers?Does our owner understand this?
● Tying in our new knowledge withother processes – are our Life CyclePlans realistic? How often should werevisit them? Are we collecting abroad enough picture of the assetwithin the life cycle plan? ●
References1 Richard Brown (2004) - ‘AssetManagement:Balancing Performance,Costand Risk’, in Asset Management forUtilities published by Energy Central2 Robert S.Kaplan and David P.Norton,‘Measuring the Strategic Readiness ofIntangible Assets’3 Neville Turbit (2003) - ‘Project PortfolioManagement’,The Project PerfectWhitepaper Collection, published atwww.projectperfect.com/au4 Edward Teach and John Goff (2003) -‘Analyze This:The Fundamentals ofPortfolio Management are being Applied toCorporate Technology Assets’, in CFOmagazine, published at www.cfo.com5 Charles Eldred (2004) - ‘AssetManagement Through PortfolioOptimization’, published at www.energypulse.net6 Scott Sydney (2003) - ‘A New Look atSpending Optimization’, published atwww.energypulse.net7 Ken Pollock (2004) - ‘Programs of WorkOptimisation’, published by ESAAResidential School in Electric PowerEngineering.8 Lee Merkhofer (2004) - ‘Choosing thewrong portfolio of projects; and what yourorganisation can do about it’, published onwww.maxwideman.com
NEW DEVELOPMENTS IN INVESTMENT PLANNING AND PROJECT EVALUATION
WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 16
Figure 1Grouping by number of propertyassessments ofparticipant supplyutilities
Figure 2Map of GoulburnValley, located in
North CentralVictoria in
Australia’s southeastern corner
THUMBS UP FOR WSAA’S BENCHMARKING PROGRAMME
Thumbs up for WSAA’s Asset Managementbenchmarking programme
This paper is for the information of water and wastewater asset managers and strategy
planners considering involvement in future WSAA Asset Management Bench Marking
studies. It presents a case study of Goulburn Valley Regional Water Authority’s
experience in participating in the benchmark study conducted during the first half
of 2004. The paper provides background on the benchmark process, the perceived
benefits that encouraged Goulburn Valley Water’s participation and includes detailed
discussion of the immediate outcomes and future implications for the Authority.
The Water Services Association of Australia (WSAA) Asset Management
Benchmark study report details potential future asset management practices,
supporting software packages and goals aimed at improving asset management
functions.
The study confirmed that Goulburn Valley Water’s relative asset management
performance is advanced in comparison with a group of eight similar sized water supply
utilities. Importantly, the Authority is now aware of aspects of its asset management
performance in need of attention and has the tools and information to formulate
effective strategy to improve its processes and systems.
Water Services Association ofAustralia (WSAA) developed
the asset management benchmarkstudy in response to its memberscall for a comprehensive bench-mark survey capable of identifyingbest practice between comparablesize and function water supplyutilities.
A total of 23 water supply utilitiesparticipated in the study (see Figure 1).Of these,19 were Australian, two NewZealand and two from the UnitedStates of America.
Goulburn Valley Water has approximately 54,000 property assessments and can therefore bedirectly compared with seven otherwater supply utilities that participatedin the study.
Asset baseGoulburn Valley Water was formed viathe amalgamation of 15 water supplybodies in 1996, and has an asset basewith a replacement cost value ofAU$680M.The Authority services 62
water supply facilities, 27 wastewaterfacilities and more than 330 wastewaterpump stations. Its southern region issteeply undulating with the southernboundary being the ridge of Australia’sGreat Dividing Range,whereas thenorthern region is dominated by flatterrain with the northern boundarybeing the Murray River.The diverseenvironment and the dispersed natureof the assets is an ongoing challenge toservice delivery.
Reasons for participationGoulburn Valley Water’s reasons forparticipation in the study included:● With 22 other water supply utilities
participating in the benchmarkstudy, the exercise provided a comprehensive basis for comparisonof asset management policies,procedures and practices betweenwater supply utilities;
● WSAA proposes to repeat thebenchmark study every five yearsproviding a viable measure ofperformance improvement in asset
management functions;● Due to the significant regulatory
pressure applied to manage assets ina cost effective manner, the assetbenchmark study provides anobjective appraisal of a water supply utility’s asset managementperformance.This allows advancedasset managers to be recognised for their efficient and effective techniques while exposing developing asset managers toalternative asset managementpractices and the associated opportunities for improvement;
● The ability to demonstrate duediligence in asset managementprovides a sound background forservice delivery risk management.Conversely, areas in need ofimprovement are comparativelyidentified with respect to best practice;
● The independent identification of areas of excellence within the
Chris MasseyStrategic Operations EngineerBruce HammondManager Strategic Operations Goulburn Valley WaterAustralia
Number of property assessments Number of water supply utilities35,000 - 150,000* 8150,000 - 500,000 7Greater than 500,000 6
*Two other water supply utilities were in the range of 35,000 to 150,000 property assessments, however due to their function as only bulk water retailers were not includedin this category.
● Melbourne
GoulburnValley Water region
WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 17
Goulburn Valley Water business is an effective due diligence initiativefacilitating confidence in the soleshareholder, the VictorianGovernment. It also providesrecognition to the employees whohave developed and maintain theasset management functions;
● The assessment process involvesmanagers and line staff throughoutthe organisation improving communication and highlightingunderlying success factors that maybe applicable in other sections of theorganisation.
In summary,Goulburn Valley Water hasadopted a continuous improvementphilosophy.The Benchmark Studyprovides a means of assessing the status of asset management practices,identifying gaps in need of improvement and facilitating strategyformulation to target the gaps ofhighest risk.
Structure of the studyThe questions of the Asset BenchmarkStudy were structured in a hierarchy asshown below:
- 7 Functional Areas - 62 Processes
- 319 Sub Processes - 918 Measures
The first six functional areas coverasset management functions, involving540 measures.Each of these measurescontains a prompt to four sub-measures: process development,process documentation,processcoverage, and process frequency, eachrequiring a graded response (ie, 1 to 5scoring).The seventh function coversBusiness Systems, involving 378measures each of which has a singlequestion requiring a similar gradedresponse.Provision for a comment isprovided with all measures allowingdetailing of relevant documentation,systems and processes that support the rating.
Questions were answered onlineusing the Internet and while responsetime was occasionally slow and dropping out of the service did occur, it did overcome formatting andconfiguration problems associated withbulk data transfer.At completion of thestudy this media also allowed onlineasset management performancecomparison with the group of similarsized water supply utilities.
Management of the study Senior management clearly communicated its commitment to the project at inception stage andestablished it as a high priority for all staff involved.A coordinator wasappointed to manage the study, andwas primarily responsible for
identifying the most appropriate asset management specialists to respond tothe questions and provide details ofrelevant documentation of assetmanagement practices.The coordinatorwas also responsible for ensuring thatthe questionnaire was completed on schedule.
The challenge involved matchingareas of responsibility with theBenchmark Study’s process areas.Where the lines of responsibility wereblurred across more than one specialist,all were requested to contribute.TheWSAA benchmark study questionswere downloaded in Microsoft Excelformat enabling asset managementspecialists to prepare their responses.Time scheduling was used to coordinate online data entry.
At completion of the study twointernal reviews were undertaken.The first review was a comprehensiveevaluation of the accuracy of theresponses by a manager with a comprehensive knowledge of theAuthority’s operation.This reviewlooked for inconsistency in responsethroughout the questionnaire and gapsin information.A second independentreview followed the first review andconsidered a sample of responses,with the aim of assessing their validityand reliability.
The project coordinator wasinvolved in the Benchmark Study for a period of nine weeks full time.Thecollective sum of specialists’ andmanagers’ time amounted to six weeks of a full time equivalent.
Audit processPrior to the external audit beingundertaken,Directors and Managers of Goulburn Valley Water directlyinvolved with asset managementcompleted a rating of importance foreach of the functional areas: see Figure3. This enabled the auditor to focusattention on areas considered of thehighest priority by the Authority.
The external auditor carried outreview and evaluation of 220 of the918 measures.Attention was focusedon questions with a higher priority asdesignated by Goulburn Valley Water,resulting in an audit of approximately50% by weight of the total score.
The audit process took five days and involved detailed presentation ofGoulburn Valley Water’s asset manage-ment policy,procedures and practices.During the process Goulburn ValleyWater’s asset management specialistspresented documentation supportingtheir response to the measure questions.Preparation for the audit by the project coordinator was a keysuccess factor in its timely completion.Again, a schedule was developed tocoordinate presentations.
As a result of the audit, the auditorincreased the score of 24%,agreed with73% and decreased the score of 3% ofthe responses.No translation of scoreadjustment on a relative basis wasapplied to the balance of the unauditedmeasures: ie,no adjustment was madeto the balance of the 918 measures.
Comparative performanceIn order for the water supply utility to proceed to the next study phase ofcomparative performance, it wasnecessary for the audit to be passed.
At successful completion of the
Figure 4Goulburn ValleyWater’s assetmanagementperformance,relative to theseven other utilitiesin its range
Figure 3Summary of assetmanagementfunctions identifiedfor improvement
THUMBS UP FOR WSAA’S BENCHMARKING PROGRAMME
LegendFull titles of Asset Management Functionacronyms are detailed in Figure 4;Vertical line indicates the range of scoreswithin the group; Top of each bar indicates Goulburn Valley Water’s score;Diamond indicates median score of group.
Item Asset managementfunction
Importancerating
Assessed score %
Estimated scoreafter improvements
Suggested long-term target score
1 Corporate policy &business planning
5
5
3
4
4
3
2
58
68
54
72
60
59
57
68 75
75
70
75
75
70
57
72
59
75
65
64
57
Asset capability forward planning
Asset acquisition
Asset operation
Asset maintenance
Asset replacement and rehabilitationBusiness support
systems
2
3
4
5
6
7
audit,Goulburn Valley Water was able to view its asset managementperformance relative to the group of all water supply utilities that participated in the study and against its category of 35,000 to 150,000property assessments via the Internet.The Authority attained the highestscore in three of the functional areasand an above median score in the otherfour areas in its category: see Figure 4.
Report’s recommendationsA key outcome of the independentaudit was the report which detailedGoulburn Valley Water’s relative performance in addition to specificrecommendations for improvement to fill gaps identified in key functional areas.
Figure 3 is an extract from theconsultant’s report, and summarises theasset management function areasidentified for improvement.
The assessed score is the scoreGoulburn Valley Water attained in the Benchmark study.The estimatedscore after improvements is the recommended short term (five year)improvement objective.The suggestedlong-term target score is the score that the auditor considered as themaximum target for the GoulburnValley Water business from an overallbenefit, economic and sustainabilityperspective.
The auditor focused on the functionareas that Goulburn Valley Waterconsidered of high importance totarget an effective application ofresources.For example,BusinessSupport Systems,which has beenassigned a relatively low rating by theAuthority,did not attract attention inthe improvement formulation process.
The auditor’s report identified 80individual measures for improvementalong with a method for their improvement.Figure 5 details theformat of this detailed analysis and aparaphrased example of one measureimprovement.
Asset management improvementstrategyThe 80 measures identified forimprovement are yet to be consideredin detail by the Authority for inclusionin its asset management improvementstrategy.However, taking into consideration available resources, it has been concluded that there are toomany measures to implement in themedium term.Going forward,Goulburn Valley Water proposes toprioritise the auditor’s recommendedimprovements, arrive at a preferredshortlist and integrate the outcomesinto a revised strategy.
A series of internal workshops isproposed to develop the revised assetmanagement strategy.The evaluationmethod is planned to commence with workshop participants ranking the importance of each of the improve-ments.Calculation of mean andstandard deviation for each improve-ment provides an indication of theirrelative importance to Goulburn ValleyWater.This will enable short-listingapproximately 20 improvements thatare to be considered in detail.Detailedinvestigation of each of the short listitems will involve identification of themethod of implementing the improve-ment,on going resourcing require-ments and associated costs and benefits.Workshop participants will berequested to evaluate the comparativebenefit of the improvements comparedto the cost of implementation,with theaim of developing a ranked list ofmeasure improvements to be includedin the revised strategy.
Lessons learntHaving completed the benchmarkassessment and audit for the first time,we have learnt a number of lessonsfrom the process.
1.Greater attention should havebeen given in assigning the importancerating of the seven asset managementfunctions.The auditor used thesepriorities as the basis for targeting
WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 18
measures to be audited and to identifythe improvements that would mostbenefit the business.Consequently anerror in the importance rating assignedby the Authority had significantramifications for the audit and thefuture improvements recommended by the auditor.
2.While use of the Internet affords adegree of selective comparison ofscores at completion of the benchmarkstudy, it was a time consuming andsometimes frustrating medium.Reliability is sure to improve withimproving communication media.However at present allowance shouldbe made for Internet connectionduration and response time difficulties.
3.A clearly communicated commit-ment to the project by senior manage-ment, assigning a dedicated projectcoordinator and adhering to fixedschedules for those involved were keysuccess factors in its efficient andeffective implementation.TheAuthority will repeat this managementapproach in future studies.
ConclusionGoulburn Valley Water evaluated itsrelative asset management performanceagainst all participating authorities and within its category of 35,000 to150,000 property assessments.
The authority concluded that it isperforming relatively well in the seven functional areas, providing a high levelof confidence to senior management,the board and the sole shareholder thatthe business’s asset managementactivities are conducted effectively.
Equally important was the identification of areas where performance could be improved. The80 potential improvements suggestedin the independent auditor’s report willbe considered for inclusion in thefuture revised asset managementimprovement strategy.
Involvement in the study has resulted in significant benefit toGoulburn Valley Water with furtherbenefits to be realised by integratingthe study’s outcomes into an updatedasset management improvementstrategy.These benefits more thanoutweighed the resource intensivenature of the survey and audit process.Consequently Goulburn Valley Waterwill be a willing and active participantin future asset benchmark studies.●
AcknowledgementsAndrew Foley – Project Director-IndustryRegulation,Water Service Association ofAustraliaSandy Muir – Principal Consultant-Advisory Services,Maunsell AustraliaAllen Gale – Director Technical Services,Goulburn Valley Water
Function 2 Asset capability forward planning
2.3 Planning for asset optimisation
2.3.1 Assign responsibilities and accountabilities
2.3.1.1 Clearly assigned responsibility and accountability for this processDefined and documented process for responsibility for asset optimisation managementDatabase Flow charting framework capable of detailed responsibility assignmentwithin a database format that provides identification of resources and liaison connectionsAssign specific responsibilities and specialised roles ie, emergency managementfunctions during interim period prior to upgrading works being undertaken toaddress identified risksHuman Resource Management Systems - Payglobal, HRVantage, HRIS-Pro,mySAP (ERP), JD EdwardsClear definition of responsibilities and consistency in measuring progress. Capableof generating a limited focus organisation chart for a particular area, responsibilityor task.
ProcessSub-process
Measure
Potential future practice
Systems to supportfuture practice
Use of system to supportfuture practice
Example proprietary software
Goals
Figure 5Consultant’smeasure improvementformat and exampleof measureimprovement
THUMBS UP FOR WSAA’S BENCHMARKING PROGRAMME
WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 19
As these expenses are significant, adetailed review of the meter replace-ment program was undertaken aimedat developing a strategy that givesoptimum return on capital investment.The key drivers for meter replacementare the revenue loss and equity ofcustomer charging, as a customer witha new meter subsidises the customerwith an old meter due to underregistering.
Meter accuracy determinationMeter registration is virtually the ‘cashregister’ for the Ipswich water supplybusiness and therefore accurate meterreading is a highly important activityunder the current user pay two-parttariff system.Accuracy of meters isaffected by natural wear and tear,impurities, type of meter and flowprofile. It is reported that customermeters may under-register by up to10% within 10 years of installation,rising rapidly by approximately 2% perannum thereafter. It is generally known
that it becomes cost effective to replacemeters after 12 to 15 years.As per theStandard Australia information themeter accuracy typically degrades at arate of 0.8% to 1.0% per 1000kL.
Water meters have different errors atdifferent flow rates due to the amountof water passing through withoutactivating the registration mechanism.This phenomenon is referred to as‘meter slip’.The slippage varies due toa large number of factors includingtemperature,pressure,water quality,plumbing type,mechanism,waterhammer and ageing.The combinedeffect of these parameters on theslippage varies as the meter registrationincreases due to wear and tear.Figure 1shows a typical meter performance atstandard flow rates.The envelopeprovides the limitation within whichthe measured errors should fall as perAustralian Standard (AS) 3565.1.1998.
The results show that a very lowflow through a new meter gives apositive error, and as flow rate increases
IPSWICH WATER’S METER REPLACEMENT STRATEGY
Ipswich Water’s meter replacement strategy
Ipswich Water previously replaced 13-20mm diameter residential water meters when
the usage reached 8000 kilolitres (kL), corresponding to the manufacturer’s maximum
life for a meter. Since meters typically under-register consumption with usage resulting
in loss of potential revenue, an alternate approach was explored meeting the criteria of
economic optimisation.
Sample meters were bench tested to determine error at different flow rates and
usage versus error derived. The replacement model developed is based on the concept
of achieving optimal return (recovered loss of revenue) on investment, from which the
optimal time to replace each of the 42,800 residential meters is derived. Many factors
are incorporated – tariff, discount rate, meter replacement cost less scrap value,
average historical consumption, meter installation date and loss of revenue calculated
from the meter accuracy equation.
The Microsoft Access model is linked to the customer information database to
provide a dynamic replacement selection process depending on consumption trend for
each meter. A detailed short-term work programme is prepared for meters due for
replacement in priority order. This order is according to forecast annual loss of revenue
per meter and further grouped according to location for efficient sequencing of
replacements. Importantly, the optimum future number of replacements and related
budget forecasting is determined on an ongoing basis as consumption varies.
Further, this model provides many reporting capabilities for management and
operational reporting.
Ipswich Water has some 49,100water customers of which
93.5% are metered connections.The 42,800 residential users are on13-20mm diameter meters withthe average age of the fleet beingeight years and average currentregistration 2300kL.
The total replacement value of allsize water meters including revenuemeters is $9.0M with a written down value of $4.5M and annualdepreciation of approximately $0.6M.Between $0.2 and $0.3M is spentannually on meter replacements.
the error becomes negative.An oldmeter at low flow rates makes highnegative error and as the flow rateincreases the negative errors decreasearound 1L/min and then increase overthe remaining range increase.Thereforehigh consumption meter replacementsoperating at very low flow rates couldalso provide a greater benefit toIpswich Water.
Weighted Average ErrorIpswich Water meters are tested at fiveflow rates by the Brisbane Water MeterUnit as per the AS 3565 1998.Theactual domestic flow rates are highlyvariable over a 24-hour period.Thepercentages of total domestic flow perproperty occurring within each of thetest flow rates is multiplied by themeasured error to calculate the weight-ed average error.The error of the meteris calculated by adding weightedaverage errors at the five test flow rates.
The percentages of flow per property at test flow rates was manipulated from the study done by Sydney Water Corporation andStandard Australia verified by limiteddata logging for Ipswich Water.
Loss Of RevenueLoss of revenue for a meter within ayear is calculated using the weightedaverage error of the meter, tariff andthe annual average consumption.Themeter should be replaced when thecumulative loss of revenue recovereddue to meter replacement exceeds thecapital cost of the meter being replacedin present value terms.A 20-yearhorizon is adopted for the evaluation period.
Development of meter replacement modelMany factors are incorporated in themodel calculation of the due date formeter replacement – tariff, discountrate,net meter replacement cost,average historical consumption,installation date and loss of revenuecalculated from the meter accuracyequation as per the model input sheetin Figure 2.
In order to derive the meter accuracy curve and equation approximately 100 sample meters from a range of registrations werebench tested to determine error atdifferent flow rates.A representativeflow rate profile for Ipswich Water wasderived using real time data logging ona few representative meters in-service.From this information a meter accuracy relationship (usage versusoverall error) is derived as shown inFigure 3.The corresponding age versusoverall error relationship is similar.
A conservative approach is taken,with only meter test results for overall
error not exceeding 20% consideredbecause:● Unconfirmed that sample number is
statistically acceptable;● Type of meters tested possibly not
representative of fleet range;● High error likely indicates a meter is
faulty/failed; and● Resulting linear regression portion
of curve is comparable to curvesreported by City Water West(Melbourne) and American WaterWorks Association.
The overall meter accuracy curveadopted for the model is shown inFigure 4. It affords considerable flexi-bility since it is a combination of:● Linear regression derived for the
straight-line portion from zero kL toa selected registration ‘limit’ derivedfrom test results plotted separatelyfrom the model; and
● Curve generated within the modelbetween the ‘limit’ and a selected‘end point’ (which gives a forced100% error) to allow for the likelysignificant errorat higher registra-tions (although the number ofmeters in the database above 8000kL is low).
It is desirable that further investigationbe undertaken of the required testingprogram to provide a statisticallyacceptable sample for improvedaccuracy curve determination.
Model development then consistedof deriving a relationship betweenoptimal replacement age and annualusage.The resulting curve determineswhen it is feasible to replace a meter by optimising the balance betweenrevenue loss associated with decliningmeter accuracy and meter replacement cost.
The optimal replacement age iswhen the net present value of the cashinflow is maximum,which is thedifference between recovered revenueless the capital cost within the evalua-tion period of 20 years.This occurswhen average annual long-termpresent value cost of loss of revenueplus meter replacement is a minimum.It varies with annual usage - 10 years
for example 836 kL/yr usage in Figure 5.
For varying annual usage through ameter the optimal replacement age isderived as shown in Figure 6. In thisexample a maximum of 20 years of ageis adopted in the model as the reason-able upper limit of replacement age.
The model is linked to the customerinformation system ‘Pathway’ toprovide a dynamic replacementselection process using the historicalconsumption trend for each meter andthe ‘optimal replacement age curve’.
Cost - Benefit AnalysisThe above analysis is based on theconcept that a meter is replaced whenaverage Net Present Value (NPV) costis minimum based on historical cost.Further analysis was undertaken usinga NPV analysis of net cash inflowbetween the ‘do nothing’option versusmeter replacement option.A sensitivityanalysis was performed to identifymaximum net positive cash inflow fora 20-year evaluation period.
Model outputsThe model output provides separatesummary information on the current13-20mm meter fleet and the metersdue for replacement for a nominateddate:● Average replacement age;● Total cost to replace;● Average error;● Total annual volume loss and average
per meter; and● Predicted total lost revenue for next
12 months and average per meter.
WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 20
Figure 2Input parametersfor the meterreplacement model
Figure 4Overall meter curve
adopted for model
IPSWICH WATER’S METER REPLACEMENT STRATEGY
Figure 3Meter accuracy
relationship
properties containing meters to bereplaced can be produced.Maps ofparticular interest are Councillordivisional maps and meter readingroute maps.The meter reading routemaps linked to the meter replacementprogram assist the field crews to planand minimise traveling distancesbetween replacements.
A macro level single error equationis adopted in the model for all themeters.There is an opportunity todevelop separate error equations fordifferent meter brands and diameters.The model can be refined to includethese concepts resulting in a high levelreporting capability.
ConclusionsPreviously, the list of meters exceeding8,000kL was the basis for 13-20mmmeter replacements which did notprovide a strategic view for long terminvestment and cost-benefit analysis.
Ipswich Water developed a newreplacement model based on theconcept of achieving optimal return oninvestment. It is a first attempt toincorporate key factors and build alogical replacement programme.Thenext stage is to undertake a statisticallyvalid sampling and testing programmein order to refine the accuracy curvefor various meter types
The model provides an opportunityto prepare an up to date short-termworks program of meters due forreplacement in priority order.Importantly, the optimum futurenumber of replacements and relatedbudget forecasting is determined on anon going basis as consumption varies.Further, this model provides manyreporting capabilities for managementand operational reporting.●
AcknowledgementsIpswich Water acknowledges the adviceprovided by Brisbane Water in the earlyphases of the project including analysis ofconsumption data and meter testingprovided by the Brisbane Water Meter Unit.
BibliographyAmerican Water Works Association,(1999),AWWA Journal Volume 91 Issue 7.
Gusevski G. (2000) Water MeterReplacements Identifying OptimalPrograms,City West Water Ltd.
Ipswich Water (1998) Water ConsumptionPatterns.
Pitt, I.B.,How Sensitive Should YourMeter Be,Davies Shepherd Pty Ltd.
Stoff M.C., (1999) Denver Water’s MeterReplacement Program Savin Water a Meterat a Time,Conserve 99 Proceedings,DenverWater American Water Works Association.
Since the optimum replacement year isgenerated for every meter the numberof future replacements and related costis able to be forecast on an on goingbasis as consumption varies as shownin Figure 7,with a moving five-yearaverage included.This information is useful for long term budget forecasting.
Also,details of meters due forreplacement at a nominated date areprovided in three reports from which ashort-term replacement program ofpriority meters is prepared:● Summary by suburb of number and
predicted average annual revenueloss per meter;
● Meter details in priority order ofpotential lost revenue for comingyear (Figure 8); and
● Meter details by suburb accordingto the sequence meter readersfollow.
The model is linked to the ‘Pathway’system so that various GeographicalInformation System maps showing
WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 21
Figure 7Forecast for annualnumber and cost ofreplacements
Figure 5Data used tocalculate optimalreplacement age ofmeters
Figure 6Graph for plotting optimal meter replacement age
1-0.32%
2.70
$3.51
$3.28
$3.28
148
$138.32
$141.60
$141.60
2-0.82%
6.94
$9.03
$7.88
$11.16
148
$129.27
$140.43
$70.22
3-1.33%
11.23
$14.60
$11.92
$23.08
148
$120.81
$143.89
$47.96
8-3.87%
33.67
$43.77
$25.47
$126.95
$148
$86.14
$213.08
$26.64
9-4.48%
39.22
$50.98
$27.73
$154.68
$148
$80.50
$235.18
$26.13
10-5.28%
46.58
$60.55
$30.78
$185.46
$148
$75.24
$260.69
$26.07
11-6.47%
57.85
$75.20
$35.73
$221.18
$148
$70.31
$291.50
$26.50
12-8.43
76.98
$100.08
$44.44
$265.62
$148
$65.71
$331.33
$27.61
YearPercent error for 836 kL/yrLost kLLost revenueNPV of lost $Accumulated NPV of loss $Net meter capitalNPV of capital $Total NPVAnnual average
Meter code
Name &address
Next year lost revenue
Install dateAverage
consumption(kL/yr) Age (yrs)
005439 $88.80
$88.75
$85.46
$83.90
11/08/1993
07/11/1998
05/06/1997
16/05/1997
832
1270
1099
1087
10.08
5.50
6.75
6.86
10/09/2003
08/05/2004
05/03/2004
26/03/2004
062726
005051
001389C
Date
Replacement
Details arewithheld
Figure 8Meter details inpriority order ofpotential lostrevenue
IPSWICH WATER’S METER REPLACEMENT STRATEGY
WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 22
Reports had been generated using avariety of Access and Excel spread-sheets linked to the operationalsystems, all custom-built by varioususers to meet their own reportingneeds.Accordingly,definitions andclassifications varied slightly betweenthe systems,occasionally resulting inidiosyncrasies between reports.Factsretrospectively updated on separatedatabases created further minordifferences, both between systems and between reports generated forparticular time periods.There wasclearly a need for consistent reporting,as well as a growing demand forincreased access to information.
A significant amount of time hadbeen spent generating and formattingmonthly reports. It was recognised thatautomated report generation wouldnot only ensure consistency,but savetime spent on reports, freeing it up forthe data analysis essential for guidingand supporting the company’s decision-making.
South East Water has achievedexcellent results from the
first phase of development of arevolutionary new data warehousefor its network asset data.The newwarehouse system provides directbenefits for the community, theenvironment and South East Water by enabling the problemsbehind water quality failures andcomplaints to be analysed, under-stood and addressed more quickly.
The system successfully combinesthe business intelligence tools used fordata warehousing with the geographicinformation system that maps the data.This is a unique achievement inAustralia (it has been achieved onlyrarely overseas), although one largeNSW water utility developed a similarprocess at about the same time as SouthEast Water.
A key achievement of the warehouseis its interoperability – the interactionbetween business intelligence systemsand geographic information systems.This allows all data to be geographical-ly mapped, and allows the user to moveback and forth between the twodifferent business systems.This capabil-ity is essential in the water industry, as itenables the information to be regional-ly cross-referenced,putting all eventsand water quality issues into context.
A secondary achievement is that thequality of information generated by thenew warehouse provides a ‘big pictureview’ for preventative planning.
The warehouse centrally stores allthe information used to generatereports about its asset performance and replaces a variety of individuallymaintained databases.The quality of
reports generated using the data warehouse is superior to the previous system,providing improvedconsistency and accuracy of informa-tion gathered and stored in the data warehouse.
The information is arranged according to complexity (ranging from most complex to least complex),allowing it to be accessed at differentlevels, according to the user’s skill levels and business requirements.Theautomatic cross-referencing of regionalinformation allows the problemsbehind failures and complaints to beanalysed,understood and addressedmore quickly, and provides the ‘bigpicture view’.
The strategy and investigation phaseof the project spanned three years. ITArchitecture consultants CharterWilson were brought in to look atoutputs, conduct a situation analysisand project a return on investment.Theinitial financial outlay for the projectwas a significant investment,but wasjustified by the long-term cost savingsand increased efficiency it will create.
Situation analysisThe majority of South East Water’score systems were developed in-house, evolving over time to meet the company’s business requirements.
Data is stored in the company’s coreoperational systems. Informationincludes history for trend analysis,reference details such as customer or account numbers, and transaction or event data.Reporting tools arecurrently used to individually extract information from each operational system.
NEW DATA WAREHOUSE FOR SOUTH EAST WATER
New asset data warehouse offers improvedaccuracy and environmental performance
The development of a new and unique data warehousing system by South East Water
has resulted in a range of benefits for everyone associated with the utility. This paper
details:
● the factors leading to the decision to implement a new data system;
● how a systems architecture approach works;
● why South East Water’s system is particularly suited to the unique, spatial nature of
data in the water industry; and
● feedback on the system, lessons learned and future applications.
WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 23
The data warehousing solution South East Water needed an IT system that would make informationaccessible to users across the businessand provide the tools to ensure consistent reporting.The systemneeded to free up time otherwise spentgenerating and formatting monthlyreports.This would allow more in-depth data analysis, to better support decision-making and preventative planning.
In 2002,South East Water began to investigate the creation of a datawarehouse for asset information.Thestrategy building process took threeyears.Consultants were brought in toexamine outputs, perform a situationanalysis and estimate a return oninvestment.Their report predicted thatSouth East Water’s current and futurebusiness requirements would challengethe capabilities of the existing system.
How it works: A systems architectureapproachA systems architecture approachextracts data from a company’s sourceoperational systems, transforms it intoone consistent format, then loads it into a single data warehouse forstorage.The information is thenextracted from the warehouse, andtransformed for consistency onceagain, then loaded into a series of ‘datamarts’.Reporting and analysis tools areused to extract and transform theinformation once again, turning it into reports.
Reports created using a data ware-house are automatically generated andformatted.The automated reporting,plus the incorporation of one centralinformation source,makes reportingboth faster and more accurate.
A unique achievement: combininggeographic information systems withbusiness intelligence tools
The water industry is unique in thatit is very spatial – all data relates to aspecific geographical location wheresomething has occurred.The standardbusiness intelligence tools used for datawarehousing,which have no spatialelement,were not appropriate to meetSouth East Water’s needs.
The company uses a geospatialsystem with the ability to combinedata,but this system also had problemswith information being segmented andpotentially inconsistent.
Research found very little precedentfor integrating spatial facts into a datawarehouse,with the exception of oneUS report,which found that thisapproach offered a number of potentialbenefits, including increased accuracyof forecasting,optimised planning andresource allocation, and the ability toproactively fix problems.
Based on extensive research into
costs and benefits and an identified lackof existing options, South East Watertook the innovative approach ofdeveloping its own system.The company adapted their unique systemwith assistance from its long-standingvendors in the geographic informationsystem community.
The system geographically maps and automatically cross-references allinformation contained within thewarehouse.For example, events such aswater bursts are cross-referenced withdata about water quality in each region.This information can be pinpointed toits exact location,making it simple toanalyse relationships and accuratelyidentify the causes behind complaintsor events.
The improved quality and readabilityof the reporting using the new datawarehouse has the added advantage ofmaking it easier to communicateinformation such as causes behindevents to non-operational staff andoutside parties.
Piloting the systemA 12-month pilot program was developed to test the architecture,beginning with water quality data.
The system has now been runninglive for over three months. Initialreviews have been positive,with usersfinding the system simple to use andanalysis much easier to perform.Combining water quality data withevents, such as bursts, allows instantcross-referencing, leading to swiftersourcing of any problems.
The review also found that the pilot objectives had been met, strategicand tactical aims achieved, and thearchitecture assembled functioned well.
Cost savings have been identifiedthrough reduced effort in maintainingthe range of existing reporting data-bases, reduced laboratory reportingcosts, and enhanced reporting leadingto improved diagnosis and response tocomplaints. Significant reductions intime spent on report preparation areanother major advantage.
The system delivered better businessintelligence, easier access to data, andreporting and analysis that is repeatable,auditable and consistent.All of thesebenefits will lead to improved decision-making for South East Water.
The system is currently beingextended to cover data on waterreliability, then sewer quality.
User responseUsers within South East Water find thesystem easy to use and immediatelyhelpful as a time-saving device and a source of accurate, comprehensiveinformation.
Reports which had taken approximately one week to assemble
NEW DATA WAREHOUSE FOR SOUTH EAST WATER
Figure 4The user can then click on the bar chart to bring up individual dirtywater records.
Figure 5Selecting the map pin top left corner displays the selected recordswith mapbase and water network. The close cluster indicates thatthese are all to do with the same event.
Figure 2Display showing water quality zones and monthly results with piecharts that indicate, number of complaints (circle size) and breakup(pie slice). Berwick has several: the majority are dirty water.
Figure 3Picking a zone on the map shown in Figure 2 displays a graph ofcomplaints for the zone; in this case Berwick.
WATER ASSET MANAGEMENT INTERNATIONAL • 1. 2 - JUNE 2005 • 24
are now created instantly, allowingmore time for analysis.Whereas gather-ing data once took up 90% of a report-ing job,with 10% left over for analysis,the new system allows the opposite to happen.
General comments include that toolsand data access are simple and effectiveand that the average user can easily use the system to analyse and map information.
Several further opportunities to usethe system have been identified,withmany of these suggestions beingprogressively incorporated into the system.
A learning curveThe major issue identified with assembling the warehouse was theimportance of ensuring the data quality of the operational sourcesystems before incorporating them into the warehouse.
Data that perfectly suits a company’soperational needs can sometimes beimpossible to use for the reportingpurposes of the warehouse.For example, fields that don’t need to befilled in for operational uses can becrucial to the generating of reports.
The source systems need to be able to support the warehouse’s reportingrequirements for the system to function smoothly.
In hindsight, the creators of the datawarehouse at South East Water haverealised that it saves time and effort torun data profiling to clean up thesource systems before incorporatingthem into a data warehouse, rather thanfixing up the data along the way.
The good news is that assembling adata warehouse is a great way to cleanup a company’s operational systems so that they can be used for multiplepurposes.
Future applicationsThe system is currently being extendedto cover data on water reliability, thensewer quality. It will continue to beextended throughout the company,with possible future uses includinglimited customer access to the system.
South East Water staff membersinvolved in building the data ware-house believe that the process will onlyget easier as time goes on, and as thecompany’s business knowledge grows.
The water quality system willcontinue to be refined as users find
NEW DATA WAREHOUSE FOR SOUTH EAST WATER
more applications for it and discoverpotential improvements through day-to-day use.
South East Water’s data ware-housing pilot sets a new precedentfor the water industry.All watercompanies have similar issues ineffectively managing their assets andreliably reporting to regulators andthe central issue of combining geographic and non-geographic data to support decision-making is a common one.
ConclusionSouth East Water’s significant invest-ment in creating a data warehouse forits assets has been rewarded withexcellent results after a short time, andcontinued potential for improvement.
Enthusiastic user response to the system has been matched bymeasurable improvements in dataanalysis, reporting,productivity anddiagnosis and response to complaints.
The benefits for South East Waterand the community are obvious, as arethe environmental advantages ofreduced customer complaints andincreased capability to address issuesbefore they occur.●
AM UPDATES
Diary
A listing of upcoming asset management-related eventsand conferences. Send detailsof your events to WAMI forinclusion.
Water Loss ReductionSpeciality Conference12-14 September 2005, Halifax,CanadaAs Specialised Conference of theIWA Water Loss Task Force, thisevent is intended to present thelatest developments, strategies,techniques and application of the international best practices inwater loss management, auditingand control.
The conference will provide three days of technical presentations and discussionforums that will review the international approach to waterauditing, strategies for water loss reduction, performance measure-ment, real and apparent losscontrol, international bench-marking, success stories fromutility application of IWA strategies, new technology and discussion forums.www.leakage2005.com
Public Stakeholder event ofthe Water Supply andSanitation TechnologyPlatform (WSSTP)17 October 2005, Budapest,HungaryThis first ever all-stakeholderevent on the future of theEuropean water sector will be apublic consultation addressing:the vision of the sector for theshort, medium and long term;the common strategic researchagenda; and the implementationplan to make the necessaryresearch funded and implemented.
The target audience for thisevent is all those involved inwater management, drinkingwater supply, waste water collection and treatment, industry, agriculture, regulationand policy making, sustainabletechnology development andsupply (especially SMEs),finance, NGO’s, who want to contribute to the strengthening ofthe European water sector in theworld market, and believe thatcollaboration between all stake-holders involved in water is thebest way forward.
WSAA 2006 benchmarkingprogrammeThe Water Services Associationof Australia (WSAA) conducts arolling programme of processbenchmarking for its Membersand other interested water utilities. Commencing early 2006, the next programme will benchmark maintenancepractices of key mechanical and electrical assets. Utilitiesinterested in participating in the2006 project are invited to attendthe best practice workshop forcivil asset maintenance practicesin Australia in August 2005. Fordetails, please contact AndrewFoley (Project Director) at:[email protected]
The Adam Smith Institute’s 4thAnnual Conference:Infrastructure AssetManagement7-8 November 2005, London, UKFaced with increasing demandson service levels and efficiency,the management of a company’s physical infrastructure can havea huge impact on safety,
predictability and performance.Clear asset management strate-gies are crucial for the effectivemaintenance and enhancementprogrammes required to meetobligations and surpass targets.
This conference acts as aforum for debate pulling togetherimportant figures, spanning industries that all face the challenge of managing a vitallyimportant asset base. Key topicswill include:● Embedding Asset manage-
ment practices across thecompany
● Collaboration and partnershipsfor successful projects
● Optimising asset use throughrisk management and under-standing asset life-cycles
● The role of regulation in driving infrastructureimprovements
● Analysis of best practice models
Among the speakers confirmed isBill Emery, Director of Costs andPerformance & Chief Engineer,Ofwat. For more information andto register, visit:www.marketforce.eu.com/index.cfm?obj=conferences.overview&confid=68
