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Gwinnett CountyDepartment of Water Resources
The Case for theBusiness Case Evaluation
Asset ManagementCommittee
Water and Wastewater are MoreCapital (Asset) Intensive than Any
Other Utility
0
1
2
3
4
PlantAssets/Revenue
Source: Purvenas, T. J. “Infrastructure Replacement: CreditQuality Concerns”,Water, Spring 1998, National Association of Water Companies,Washington D.C.
Water Electric Gas
Understanding the Asset Life-CycleHelps Optimize Ownership Costs
CAPITAL
CAPITAL
BCE Considers the Whole Cost Picture
So, What is Business Case Evaluation?
• Business Case Evaluation (BCE) is used inthe asset creation process
• Repeatedly revisits the driversfor a project
• Validates the need for a solution in terms ofcustomer value
• Seeks the lowest life-cycle cost solution withdue consideration for risk and non-quantifiedfactors
How Does a BCE Work?
• Looks at the problem first, not the project
• Determines the need for a solution from thecustomer’s point of view (service levels andcost)
• Proposes alternative approaches to creatingthe solution, if a solution is needed
• Analyzes alternatives from the standpoints ofservice levels, costs, and risk
Form Expert Team
• Cross-functional team providing expertise in:
– Planning
– Design/Engineering
– Operations
– Maintenance
– Finance
– Management
Define the problemnot the project
The BCE Process Uses Life Cycle Costsand Makes Risks and Benefits Transparent
Define Driversand Objectives
BrainstormAlternatives
Conduct FatalFlaw Analysis
Risk/BenefitIdentification &Qualification
Life CycleCost Analysis
RefinedAlternatives
List
Net PresentValue Analysis
Selection ofthe Preferred
Option
Explore Widely DifferingAlternatives
Capital, R&R andO&M Costs are
Analyzed
DefineandQuantifyRisks andBenefits
Identify the Problem
• Understand the root cause for why a project orpolicy needs to be created
• Define the problem in terms of level of service
• Document the problem
• Why is this project needed?
• What are some of the issues?
• How do we define success for this project?
• What are the levels of service we need toachieve?
Project Drivers & Goals
10
Develop ProblemStatement
(complete with drivers, objectives and levels of service)
CASE STUDY/ AUDIENCEPARTICIPATION
• “Build 20 mgd treatment expansion atJackson Creek by 2012”
Original (bad) Problem Statement
14
So audience – what’s bad about it? What are objectives, driversthat should be considered? What would a good ProblemStatement look like?
• “determine the best location for the addition of20 mgd of WRF capacity by 2018, including allrequired infrastructure”
Actual Final Problem Statement
15
Brainstorm Alternatives(No alternative too flaky)
CASE STUDY/ AUDIENCEPARTICIPATION
Develop Alternatives
• Start with the “do nothing” scenario
• Nothing should be left off the table
• Utilize the knowledge of the Expert Team
• Screen Alternatives for fatal flaws
Brainstorm Alternatives
• Audience to brainstorm
Brainstormed Alternatives
• Add 20 MGD to Existing F Wayne Hill WRF
• Add 20 MGD to Crooked Creek WRF
• Add 20 MGD to Yellow River WRF
• Add 8 to 10 small automated WRFs dispersed
• Constructed Wetlands and Land Application
• Build co-use plant with neighboring County
Brainstormed Alternatives
• Baseline – Construct new Jackson Creek WRF
• Do Nothing
• Contract with Neighbor for Capacity
• Construct new WRF (2 different areas)
• PLUS 9 more !!
Understanding the Asset Life-CycleHelps Optimize Ownership Costs
Develop Life-Cycle Costs
• Operations andMaintenance
• Rehabilitation andReplacement
• Risk
• Community
• Environmental
StraightForward
MoreComplicated
How We Measure Long-term Costs —Present Value
• Typically, projects have costs and benefitsthat are realized over a long period of time
• Brings future costs back to the present timeto allow valid comparison
• Enables us to compare different optionswhich have different capital and operatingcosts as well as different useful lives
• Supports optimal lifecycle cost decisions
Pump Station Example
• Pump A costs $25,000, power is $1,200/yr• Pump B costs $28,000, power is $900/yr• How do these compare? 20-year PV, 5%…• PV of Pump A power = $14,955• PV of Pump B power = $11,216• Pump B power savings = $3,739,
outweighing its $3,000 higher initial cost• All else being equal, we would purchase
Pump B
Case Study: Problem Statement
• “To reduce and mitigate the likelihood andconsequence of failure of the 48”/42” force mainthat conveys wastewater from the City and theTown to the STP. Major risks include impacts tothe drinking water supply, property damage,public safety and regulatory enforcement.Solutions must be cost effective (i.e. optimize lifecycle costs) and facilitate effective O&Mpractices and should increase operationalflexibility.”
Lifecycle Costs
Solution
CapitalCost($M)
50-yearNPV ($M)
Ranking
Alternative #1: Existing Force Main Pipe ConditionAssessment, Monitoring and Mitigation
$2.5 $11.0 1
Alternative #2: Targeted Replacement of Existing ForceMain with Condition Assessment, Monitoring and Mitigation
$7.7 $28.5 2
Alternative #3: North Loop Force Main with TargetedReplacement of Existing Force Main, ConditionAssessment, Monitoring and Mitigation
$56.6 $78.6 6
Alternative #4: Construction of new Force Main in samecorridor as existing Force Main
$45.9 $49.6 3
Alternative #5: Construction of Mini-Loop Force MainSystem Parallel to Existing Force Main
$54.5 $60.7 5
Alternative #6: Sliplining of existing 42"/48" force main $52.2 $56.7 4
Establish Non-monetary Factors
Factor Description Weight
Facilitates effectiveO&M practices
Are the improvements easy to operate and maintain? 10
Mitigates sanitarysewer overflows
Will the improvement reduce the occurrence of sanitary seweroverflows over the life of the project?
20
Water supplyDoes the alternative reduce the potential contamination to watersupplies?
25
Increases remaininguseful life
Does the alternative increase the remaining useful life of theexisting main?
10
Public safetyDuring construction does the alternative reduce the risk to thetraveling public or residents?
15
Propertyimpacts
Does the alternative reduce the magnitude of impacts topublic/private property if it fails?
20
Alternative Solutions
50-year NPV($M)
NPVRanking
Non-monetaryFactors
Weighted Score
NMFRanking
Alternative #1: Existing Force MainPipe Condition Assessment,Monitoring and Mitigation
$11.0 1 225 6
Alternative #2: TargetedReplacement of Existing Force Mainwith Condition Assessment,Monitoring and Mitigation
$28.4 2 283 5
Alternative #3: North Loop withTargeted Replacement of ExistingFM, Condition Assessment,Monitoring and Mitigation
$78.6 6 376 2
Alternative #4: New Force Main insame corridor as existing*
$49.6 3 391 1
Alternative #5: Construction of Mini-Loop Force Main System Parallel toExisting Force Main*
$60.7 5 331 3
Alternative #6: Sliplining of existing42"/48" force main
$56.7 4 308 4
*
Costs and Non Monetary Factors
Managing Asset Risks
Risk Quantification
RISK COST =
Frequencyof Failure
(Projected events per year)
Consequenceof Failure
(Dollar cost of each event)X
MEASURE: $/YEAR
Example :Heat Exchanger in Digester Complex
– Sludge circulatesthrough one jacket,hot water through theother – heats thesludge
Heat Exchanger Failure Analysis
– Most common failure mode not condition-related
– However, potential for major problem (weld failure) thought tobe condition related, could impact the digestion processthrough the whole complex under certain conditions
– Detailed assessment performed – teardown, CCTV,ultrasound
Failure Mode Effect
Freq. per
Digester
per Year
Incident
Cost
Annual
Cost per
Digester1. Ragging of HE 1. Poor heating.
Downtime 3 days.
16 $285 $4,560
2. Failure of
welds, repairable
1. Loss of hot water to
the dirty side. High
makeup required by
Syngen and boilers.
0.18 $1,340 $241
3. Failure of
welds, not
repairable
1. Loss of hot water to
the dirty side. Heat
exchanger needs
replacing, out of
service for 14 weeks.
Unknown (has
not occurred)
$60,460 ???
More on the Heat Exchangers
• Although the detailed CA uncovered no incipientfailures, staff remained concerned
• Staff proposed several alternatives ranging fromwholesale heat exchanger replacement toadding a sludge preheating system
• Costs of these solutions ranged from $800thousand to $5.2 million
• A subsequent Business Case Evaluation withstaff found the best solution – stock a spare($114 thousand)!
• This did not affect the probability of failure, butreduced the consequence of failure to near-zero
Consequences of Failure IncludeBoth Direct and Community Costs
• Direct repair costs
• Loss of production/revenue
• Social costs (traffic, cleanup, health, etc.)
• Image repair costs
• Legal costs
• Fines, penalties
Social/Environmental Cost
• How do you put a $ on Community Costs?
– Existing Research on Costs
– Past History with Community Impact
– Reasonable Persons Test
Social Cost Example: Traffic Delaysfrom Construction
• Sewer Rehabilitation
Normal Excavation Less Disruptive ApproachCost/ft $140 $225
680 homes affected8 miles of pipe3 month delay
$3.6 M more for less disruptive method$1,760 per household/month
Would a reasonable person pay $1760/month toavoid traffic delays?
Risk/Benefit Identification& Qualification
CASE STUDY/ AUDIENCEPARTICIPATION
Problem Statement
Determine the disinfection process of thefinished water produced at the productionfacilities that optimizes safety for plantpersonnel and the nearby residents,affords the best operational effectiveness,and has the best cost efficiency.
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Alternatives Considered
• No Action (continue with chlorinegas)
• Purchased (12%) sodiumhypochlorite
• On-site sodium hypochlorite (0.8%)generation
• MIOX
• Chlorine dioxide
• Tablet chlorination
• Klorigen (proprietary system)
• Chloramines
Short-Listed Alternatives
• ALTERNATIVE No. 1: Continued Use ofChlorine Gas
• ALTERNATIVE No. 2: Bulk Delivery ofSodium Hypochlorite (“bleach”)
• ALTERNATIVE No. 3: On-site Generation ofSodium Hypochlorite (0.8%)
• ALTERNATIVE No. 4: MIOX (proprietarymixed oxidant system)
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Audience participation
1. How to quantify the unthinkable2. What Other Non – economic
factors to consider
How do we assess ‘risk’ with chlorinegas?• Last documented fatalities associated with a
non-warfare chlorine gas release
– January 6, 2005 – Graniteville, SC train
derailment (8 fatalities)
• No documented ‘fixed facility’ chlorine gasreleases resulting in deaths
• Chlorine Gas Institute – 0.6 accidentalreleases per 1M tons produced
– 13M to 14M tons of chlorine produced
annual in US
• Average WTP/WWTP accidental chlorinereleases: 4 per year
Placing Context to Consequence
• Largest Consequence is Public Safety
• “There is no “price” for life because its value isimmeasurable. Rather it is a way of expressingthe value of death. For Example, if people arewilling to pay $6.10 to avoid a one in a millionincrease in the risk of death, then the value of astatistical life is $6.1 million.” (F. Ackerman)
• From the Arsenic Drinking Water Rule, adjustedfor inflation between 9 and 11 million dollars
Risk/Benefit Evaluation
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•The Net Present Value economic analysis does not incorporatenon-cost factors
•The Risk Evaluation Tool helps in understanding the trade-offsaccepted in selecting one alternative over another. It uses agradient scale to rank the alternatives based on
•CONSEQUENCE:
•Public Health and Safety
•Failure Impact and Mitigation
•Disruption to the Community
•Compliance with Regulations
•Water Quality
•Response
•LIKELIHOOD:
•Susceptibility
•Complexity of Operation & Maintenance
•Reliability: Track Record of the Technology
•O&M Protocols
•COST:
•Net Present Worth
Risk Evaluation Tool
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Consequence Scoring
Public Health
& Safety
Failure Impact
and Mitigation
Disruption to
the Community
Compliance
with
Regulations
Water
QualityResponse
Consequence
ScoreRank
0.30 0.05 0.20 0.20 0.20 0.05
10 10 10 8 1 1 7.4 1
8 8 8 7 5 5 7.1 2
4 3 1 3 4 3 3.1 4
4 3 1 3 4 4 3.2 31 1 1 1 1 1 1.0 5
Susceptibility
to sabotage
Complexity of
Operation &
Maintenance
Reliability:
Track Record of
the Technology
O&M
Protocols
Likelihood
ScoreRank
0.20 0.60 0.15 0.05
9 3 1 6 4.1 2
4 4 2 4 3.7 4
2 5 3 4 4.1 2
2 5 5 4 4.4 11 1 1 1 1.0 5
Weight
Base - Chlorine
Production (No Action)
Bulk Sodium Hypochlorite
IDEAL ALTERNATIVE
On-Site Generation 0.8%
Mixed Oxidants
Alternative
Integer Ranking Levels, 1 Through 10: 1 (Negligible) …..2…..3….. 4 (Low) …..5…..6….. 7 (Moderate) …..8…..9….. 10 (Severe)
Alternative
Weight
Base - Chlorine
Production (No Action)
Bulk Sodium Hypochlorite
On-Site Generation 0.8%
Mixed OxidantsIDEAL ALTERNATIVE
Likelihood Scoring
Risk Evaluation Tool
48
Conseque
nce Score
Likelihood
Score
Risk
Score
Risk
Rank
Risk
Reduction
(Percenta
ge)
Net
Present
Worth
(Financial
Impact)
7.4 4.1 30 1 0 $13.3
7.1 3.7 26 2 12 $26.9
3.1 4.1 13 4 58 $44.9
3.2 4.4 14 3 54 $44.9
1.0 1.0 1 5 97 $0
Alternative 2 - On-Site Generation
Alternative 3 - Mixed Oxidants
IDEAL ALTERNATIVE
Risk Scoring
Program Modification
Base - Chlorine Production (No Action)
Alternative 1 - Bulk Sodium Hypochlorite
Risk Evaluation of Alternatives
10 20 30 40 50 60 70 80 90 100
9 18 27 36 45 54 63 72 81 90
8 16 24 32 40 48 56 64 72 80
30
7 14 21 28 35 42 49 56 63 70
26
6 12 18 24 30 36 42 48 54 60
5 10 15 20 25 30 35 40 45 50
13
4 8 12 16 20 24 28 32 36 40
14
3 6 9 12 15 18 21 24 27 30
2 4 6 8 10 12 14 16 18 20
1 2 3 4 5 6 7 8 9 10
Risk Matrix - Secondary Disinfection
Co
nseq
uen
ce
▬▬
▬►
Likelihood ▬▬▬►
Another Way of looking at Risk
Alternative
Risk
Reduction NPV Cost Ratio
Base - Gaseous Chlorine 0 13.3 0
Alt 1 - Bulk Sodium Hypochlorite 12 26.9 0.45
Alt 2 - On-site Generation 58 44.9 1.29
Alt 3 - Mixed Oxidants 54 44.9 1.20
Alt 4 - Ideal (hypothetical) 97 0 ∞
Risk Reduction/Cost Ratio Summary
Higher is Better
NonEconomic Factors
• Gaseous Chlorine
– Effective
– Smallest facilityfootprint
• On-site Generation– Effective– Inherently safer– Reduced Security
Risk– Adaptable to future
regulatory changes– Greater public
acceptance– Longer useful
equipment life (lesscorrosive)
Money talks
BCE Problem Statement Recommendation Benefit of BCE pfffftttt!
Beaver Ruin PSProvide cost ef fective and reliable conveyance of a portion of the f low s from
southw est Gw innett County to the F. Wayne Hill WRF
Pump Station Improvements at existing site and
force mains to handle 72 mgd f low s
Conf irmed baseline alternative w ith
savings of $85,000,000 (NPV) over
next low est alternative (tunnel)
4
Developer Pump
Station Standards
Establish a set of recommended changes to the "Sanitary Sew er Pump Station
and Force Main Design & Construction Manual" to optimize operation and
maintenance costs
In Progress
Mulberry PSDetermine the most appropriate means of conveying w astew ater f romthe
Mulberry basin and most of the Apalachee basin
Based on current f low projections and current on-
going projects, suff icient capacity available until
2030, Eliminate project
Eliminated $50,000,000 ProgramfromCIP
(capital)4
Old Norcross Rd PSDetermine the best means for conveying raw w astew ater f low fromspecif ic
subbasins to the FW Hill WRC
Expand Beaver Ruin PS Capacity rather than
construct another new PS
Eliminated pump station at a savings of
$12,000,000 (NPV)
Pump Station Phase-
outs
Determine the payback period to recover the decommissioning costs for feasible
pump station phase-out candidatesIn progress
Rosemoore PSDetermine the best means for conveying flow s from Rosemoore Lake and Ascot
subdivisions to FWH WRC
Proceed w ith the easement acquisition and
construction of the proposed 16-inch gravity
sew er
Demonstrated payback period of less
than 30 years to phase out pump
station
Ross Road PS
UpgradeDetermine the best means to reliably convey w aste w ater
Evolved from a Capital need BCE to an Operational
driven BCE
Savings of $7,200,000 by focusing on
operational improvements.
South Gw innett
WW Conveyance
Determine the most cost ef ficient w ay to convey and treat 2030 w astew ater
f low s in the southern part of Gw innett County
Convey flow through the NBC Tunnel and NBC
Pump Station to the Beaver Ruin PS site rather
than remain in DeKalb County
Savings of $100,000,000 compared to
remaining in DeKalb County (NPV)
West Gw innett
Sew er (NCI)
Where w ill flow in the Chattahoochee River Drainage Basin be treated and w hat
infrastructure improvements w ill be needed thru 2030In progress
Bio-Solids Handling How to best dispose of the biosolids f romWRFs In progress (Master Planning effort
Jackson CreekDetermine the best location for the addition of 20 MGD of WRF capacity by 2018,
including all required conveyance inf rastructure
Expand at the FWH WRC rather than construct
new 20 mgd WRFSavings of $50,000,000 (NPV)
Co
nveyan
ce
Water Distribution
System
Improve Water System transmission, distribution, storage and pumping capacities
to address pressure and fire protection needs thru 2030
3 sets of projects in the north and central zones
for 2010, 2020 and 2030 timeframes
1. Programsavings of $100,000,000
(capital)
2. Tailored programto specific needs
4
Secondary
Disinfection
Process
Determine the disinfection process of the finished w ater produced at the w ater
production facilities that optimizes safety for plant personnel and the nearby
residents, af fords the best operational effectiveness and has the best cost
ef ficiency
1. Migrate aw ay from gaseous chlorine
2. Implement pilot program/study to determine best
on-site generation process
1. Identified "best" alternative to
gaseous chlorine
2. Proactive in light of potential DHS
regulations
Standby Pow er
Generation
In the event of large scale pow er failure occurs, how can Gw innett County DWR
continue to provide w ater service
1. The use of on-site standby generators is the
most viable option
2. Include the design of Standby generation in
future expansions
Increased Level of Service through
reduced risk
Tre
atm
en
t
Waste
wa
ter
Wa
ter
Tre
atm
en
tC
on
veyan
ce
BCE process can be applied at all scales
Streamlined BCE Tool
• Equipment A vs. Equipment B
• Repair vs. Replacement
• Allows consideration of non-monetary factors
Key Benefits of Applying the BCE
• Fosters AM “buy-in” from all levels in theorganization
• Stresses importance of collecting good data
• Management/front line consensus ondecisions
• Opportunity to present $ savings toboard/governing body
• Repeatable, defensible, and quantitativeprocess
BCE Process (The Money Shot)
Another way of checking the pulse of theIndustry
Type of Disinfectant
BY LOCALE Chlorine GasBulk (12%) Sodium
Hypochlorite
On-site (0.8%) SodiumHypochloriteGeneration
Regionally 3 7 8
Nation Sampling 21 21 12
Total 24 28 20
BY CAPACITY
<50 1 8 6
50-100 7 11 8
100-150 7 5 5
>150 9 4 1
BCE Difference
• No distinction between capital and operatingcost – a $ is a $
• Focus on long-term, life-cycle costing
• Goal is to provide the lowest total cost to thecommunity in terms of the “triple bottom line”
– Financial
– Community
– Environmental