performance benchmarking (presentation bm don vincent recent developments)

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Benchmarking- Where To From Here? SEAWUN Convention , Hanoi, June 7 to 9, 2005

Benchmarking – Where To From Here?

Recent Global Developments

Presenter: Don Vincent (GHD)

Co-authors: Tom Carpenter (GHD)

Philip Wixon (UMS)

SEAWUN Convention on Water and Wastewater

in South East AsiaHanoi, June 7 to 9, 2005

The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of theAsian Development Bank (ADB), or its Board of Directors, or the governments they represent. ADB does not guaranteethe accuracy of the data included in this paper and accepts no responsibility for any consequences of their use.Terminology used may not necessarily be consistent with ADB official terms.


Key Challenges for Water Managers

Increasing customer expectations for service reliability andresponse

More stringent regulatory requirements, such as water reliability,water quality and environmental standards

Need to contain utility price increases

Improve efficiency of operations

Increased scrutiny by customers, regulators and Government

Water utilities, governments, regulators and funding agenciescommonly make comparisons to look for ways to improveservice performance and operating efficiency




Benefits of SEAWUN Program To Date

A readily comparable set of performance indicators

Relatively simple data collection

Performance indicators that can be used internally for performancemanagement

An indication of who are the best performers

A forum for discussion on what are the best practices

Over time, they also provide some indication of how well utilities

are progressing in improving their performance.


Does This Lead To Some Deeper Thinking?

How do we use benchmarking to drive performance improvements?

Questions may arise such as:

Are we all comparing the same things, and using the same definitions?

How reliable is our / their data?

Utility ‘A’ is performing better than us, why?

How does the service performance relate to the financial performance?

What are the impacts of business processes?

To address these issues, recent global attention has been directed todriving the benchmarking program down into the actual processes of the utility, and the unit costs (metrics) of different activities.




Global Developments in Process Benchmarking

Benchmarking of processes has beenundertaken by various utility organisations in:

Maintenance

Operations

Asset Management

Customer Services

Information Technology

Shared Services (vehicle fleet management, payrolland other services common to larger businesses)


Global Developments in Process Benchmarking

Examples of Major Benchmarking Projects:

Combined metrics and process benchmarking:

- ITOMS (International Transmission Operations andMaintenance Study) undertaken across the electricitytransmission sector with many participants in North America,Australia, China and Europe.

- Water industry benchmarking in Australia and NorthAmerica

Process benchmarking – of Asset Management processes inmunicipal services, water and wastewater, electricity and gas inAustralia and New Zealand with some participants in the USA.For example, some 69 municipal Councils were benchmarkedin Victoria, Australia in 2002 and again in 2005.




Case Studies

Two examples used:

Case Study 1 - Activity metrics and practice benchmarking innetwork maintenance

Case Study 2 - Process benchmarking in asset management


Case Study 1 – Water Network MaintenanceBenchmarking

Major activities that comprise over 50% of maintenance costs were selectedfor benchmarking across Water and Wastewater areas.

Water Service Repair

Sewer Block (Mains)

Sewer Block (Branches)

Water Service RenewalSewer CleaningLeaking Water Main

Sewer Dig Out

Sewer ReliningStop Tap Repair Raise/Lower Access HolesPump Wet Well CleaningRepair of Hydrants

Water Main RenewalWater Main CleaningBurst Water Main

Asset RenewalsPreventive MaintenanceReactive Maintenance




Maintenance Benchmarking Process

Typically, each benchmarking project takes approximately 15-20 weeks (elapsed time)including a rigorous amount of data collection and validation effort.

Data must be comparable to be useful.

Results,Report and

Workshop

Interviewsand Benchmark

Development

DataValidation

DataCollection

OrientationWorkshop

• Discuss Project,Inputs and Outputs.

• Is sue Datacollection Materials.

• Clarify definitions.

• Resolve dataanomalies

• Normalise data.• Identify key drivers

of performance toguide on-siteinterviews.

• Look for commonthemes.

• Generate insights.• Draw conclusions.

• Identify ‘Quick Wins’.• Recommend long term

“Roadmap” of initiatives.• Deliver central workshop

• Respond toquestions.

• Provide datacollection support.

• Review submitteddata for accuracy,consistency andquality.

• Prepare for datavalidation

• Conduct interviews.• Review strategies.• Collect relevant

documentation.

• Generate benchmarkcharts.• Develop preliminary

conclusions.

F o c u s

K e y

A c

t i v i t i e s

• Get each member prepared

• Ensure comparabledata

• Providing concise,insightful observationsand recommendations• Get quality data

• Qualifying workpractices that supportthe benchmarkanalysis


Data Collection

BestPractice:Bi-monthlyReadsAction: Introduceabi-monthlymeterreadingcycleforresidential customers(assumingmonthlybillingcontinuesviaestimations)

Net FinancialBenefit

OverallAssessment: Medium-DifficultOverallimplementationfeasibilityismediumtodifficultwithchallengesassociatedwithstaff reductionandreallocation.

Potential Barriers:Regulatory:Easy InPA, GPUEis requiredtoread,ataminimum, bi-monthlybutbillmonthlyfor residentialcustomers(thereisencouragementtoreadmonthly wheretherearenoaccess issues). InNJ,GPUEisrequiredto“maintainaregularreadingscheduleandmakeareasonableeffort readmeters”forresidentialcustomers(i.e. customerscanbeonamonthly,bi-monthly,orquarterlyreadingandbillingschedule).Union: Difficult Ashifttoabi-monthlymeterreadingcyclemaypotentially reducethelaborforceby half. GPUE’scurrent unioncontractsincludeaclausethatwillprohibitterminationsofemployees whohavebeenwiththecompanyforover10years. Astaff reallocationstrategymust bedevelopedinconjunctionwiththeimplementationofthispractice.OrganizationalCulture:Easy-MediumPotentialdemoralizerforemployeescausedbylossof jobs.CustomerImpact:MediumCustomersatisfactionmay becompromisedduetotheincreasedapplicationof estimations oncustomerbills.TechnicalInfrastructure:Easy-Medium Amorereliableestimationsystemorprocessmustbeimplemented.Other:This practicewillresultinworkloadincreasesinotherparts oftheorganization(e.g.customercomplaintcalls,re-bills,andrereads).

Easeof Implementation

OverallAssessment: HighNet benefitof $10.6mperyearwithaone-offcostof $4.3m.

FinancialBenef it$11.1mperyearreductioninoperatingexpenditures. Thisiscalculatedbyassuming(1)residentialreadsarereducedby10.2m(6readsby 1.7mkwhmeters);and(2)costsarefullyvariable, thusthefullcostof themeterread($1.09)canberecovered. Resultingreductionincosts is 10.2mreads x$1.09costperread. TheFTEreductionimpliedbytheworkloadreductionisapprox.134FTEs(10.2m readsdividedby currentproductivity (76,200readsperFTE)).FinancialCostOngoing$460k peryearincreasein“secondary”costs. Specifically relatedto:(a)increasedcalls withqueriesonestimations(20%increaseoncurrentbillcomplaintcallvolumesx cost perbillcomplaint ie64k x$7or450k);(b)rebillingofpoorestimations (20%increaseinmanualbillingxcostper manualbillie380x$2.30or$880); and(c)increasedfieldorderstocheckmeter(20%increaseoncurrentrereadsxcostperrereadie700x$8.60or$6,020).One-Off $4.3mincommunication&routeschedulingexpenses. Specificallyrelatedto:(a)$650k forbillinsertsandprintcampaign($600k fortwo15cbillinserts toallcustomers(2m)and$50kforanewspaperadcampaign).(b)$2.1mforincreasedcallcenteractivity forinformationpurposes(20%increaseinbasecallsx averagecostpercallie510k x$4.20)(c)$1.5m inre-schedulingtheroutes (fordetails,seebestpracticedescriptionof “AutomatedRouteScheduling”)(d)Additionally,provisionwouldhavetobemadeforthe134FTEs eliminatedfromtheirpositions.

BestPractice: AutomatedRouteSchedulingAction: Install automatedrouteschedulingsystemtooptimizerouteschedulesandmanageworkload

NetFinancialBenefit

OverallAssessmen t: Easy-MediumOverall implementationfeasibility iseasytomediumwithminortechnicalinfrastructureobstacles.

PotentialBarriers:Regulatory:Easy None

Union:Easy-MediumTheoretically, routeschedulingsystemwilloptimizeroutessuchthatmeter readerswillbeabletoreadmoremeters perday.Apotentialbarriercanbetheunions’andemployees’resistancetohigherproductivity requirements.

OrganizationalCulture:Easy-MediumSameasUnion(above).

CustomerImpact:Easy

Thecustomers’readandbillingcycles maychangeas aresultof implementingthispractice.Sochangeannouncements tocustomersmay benecessary.

TechnicalInfrastructure:MediumGPUEwillneedtoselectateamofdedicatedresourcestoinstallthecurrentlyunutilizedrouteschedulingsoftwareandtoremodelroutes. Ideally,thesoftwareshouldbeintegratedintothenewCCSsystemsothat informationbetweenthetwosystemscanbeeasily transferredfromoneanother(i.e.capabilitytomatchupcustomeraccountnumbers withameterpointinaroute).

EaseofIm plementation

OverallAssessment : MediumNetbenefit of $1.8kperyearwithaone-offcostof $1.5m.

FinancialBenefit$1.8mreductionof operatingexpenditure,predominantly drivenbyeliminationof approximately31FTEs. Thisimpliesacost perreadreductionof $0.07per read. This iscalculatedby assumingreschedulingincreases readerproductivityby 10%(current of76,200to83,800). Thecalculationthereforeisthecurrent25.9mreadsdividedbytheincreasedproductivity (83,200)whichgives aderivedFTEfigureof 309,a31FTEreductionfromthecurrent 340.Thecostsavingsarethencalculatedby multiplyingthisFTEreductionby theaverage“fully-loaded”wageof $58,400ie$1.81m.

FinancialCostOngoing$45k peryearinadministrationcosts. This is calculatedbyassuming1analystat $45,000is requiredtocompilereports andperformdataanalysis.One-Off $1.5minrouteassessment costs.Thisiscalculatedby assuming30fieldinvestigatorFTEsat $50,000arerequiredfor6months toperform theinitialassessmentsof theroutes. Noteshouldalsobemadeofthe31FTEreductionimpliedintheincreaseinproductivity.

BestPractice: StartWorkFromHomeAction: Installcapabilitiesthat willallowmeterreaderstostart workfromhome(i.e.eliminatestheneedtocheckintoa companydepot)

NetFinancialBenefit

OverallAssessment: DifficultOverallimplementationfeasibilityis difficult withsomeunionandtechnologyinfrastructurechallenges.


Union:Difficult GPUEwillneedtonegotiatewiththeunionsbecausethecurrent contractsprohibitmeterreaderstostartworkfromhome. Allemployeesarerequiredtocheck intothedepot atthebeginningandendofthework day. Negotiations for higherproductivity requirements(formeterreaders)mayalsobeneeded.

OrganizationalCulture:MediumTheremay besomeresistancetothehigherproductivityrequirements that resultfromthe1-2extrahours of readingtimegainedbyreducedtravelandadministrativetime.

CustomerImpact:Easy None

TechnicalInfrastructure:MediumHand-helddeviceswillneedmemory upgrades(tohandlemultipledaysworthof data)andmusthavethecapability tointerfacewiththemainframefor downloadingreaddataanduploadingrouteschedules from homes. Usingthepopularmodemtechnology,theinstallationprocess willberelatively easy.

EaseofImpl ementation

OverallAssessment : MediumNetbenefitof $2.6mperyear withnoassociatedone-offcosts.

FinancialBenefit$2.6mreductionofoperatingexpenditure,predominantlydrivenbyeliminationof approximately44FTEs. Thisimplies acost perreadreductionof $0.10per read. This is calculatedbyassumingreschedulingincreases readerproductivityby 15%(currentof 76,200to87,600)oronehourperday. Thecalculationthereforeisthecurrent25.9m readsdividedby theincreasedproductivity(87,600)whichgivesaderivedFTEfigureof 296,a44FTEreductionfromthecurrent 340. ThecostsavingsarethencalculatedbymultiplyingthisFTEreductionbytheaverage“fully-loaded”wageof$58,400ie$2.569m.

FinancialCostOngoingNoadditionalongoingcosts havebeenassumed.

One-Off Nomajorone-offcostshavebeenassumed, althoughnoteshouldbemadeof the44FTEreductionimpliedintheincreaseinproductivity.

BestPractice: VehicleCost ReductionAction: Exploretheuseofpersonalcars and/orcarpoolsasfleetcost reductionalternatives

NetFinancialBenefit

Overall Assessment: Medium- DifficultOverallimplementationfeasibilityismediumtodifficultwithunionandorganizationalculturebarriers.


Union:Difficult Currentcontractswiththeunions mandatethatGPUEprovideacompanyvehicletoeachmeterreader. Significantnegotiations willberequiredtoamendthis agreement.

OrganizationalCulture:Medium-Difficult Intheabsenceofdirect benefitstotheemployees, therewillberesistancetothispractice. Significantcultural adjustment willbenecessary.

CustomerImpact:MediumWithout theuseof company cars, GPUE’scorporateimagemaybecompromised. It may beimportant toestablishaminimumstandardforpersonalvehicles(i.e. vehicleage,appearance,etc.)tobeusedbythemeterreaders.

TechnicalInfrastructure:Easy None

EaseofImplementation

Overall Assessment : MediumNet benefitof $0.8mperyearwithnoassociatedone-off costs.Theimpliedcost perreadreductionis$0.03perread.

Financial Benefit$2.7mperyearreductioninoverheadfleet costs.

FinancialCostOngoing$1.9mperyearincreaseinpersonalcarcost reimbursement. This is calculatedbyassumingthat theaveragereaderwouldusehis orhercar70miles aday, 5days aweek for50weeksat$0.315permileie$1.874m.

One-Off Nomajorone-off costshavebeenassumed.

Workload andProductivity

Salaries andExpenses

ServiceLevels

Quality andResponse

$X

$X

#

#

I L L U S T RA T I V E

Metric data is collected … Covering all relevant aspects of cost andservice performance across the benchmarked activities




The Cost – Service Trade-off

Cost/Service Level – Performance Quadrants

Quadrant III:Poor Performers

High Low

Low

High

Cost/Productivity

S e r v

i c e

L e v e

l

E x p e c t e d T r a d e - O f f

Quadrant I:Top Performers

Quadrant IV:Service Driven

Quadrant II:Cost Driven

K

JA

LB

I

M

H

GE

DC

N

K

High Cost/Low Service Quality Low Cost/Low Service Quality

Low Cost/High Service QualityHigh Cost/High Service Quality


A key output shows the size of cost gaps tobenchmarks, and the size of potential savings

The size of the bubble indicates the size of the opportunity to improve cost andservice effectiveness.

Burst Water MainLeaking Water MainRepair of HydrantsDef. Meter Repair Water Service Repair Sewer Block (Mains)Sewer Block (Branches)Sewer Dig OutWater Main CleaningReservoir CleaningPump Wet Well CleaningWater Main RenewalWater Service RenewalR/L Access HolesSewer Relining

Summary Cost Analysis

Current PotentialActivity Spending Savings

Company X Total 2002 Spending

Potential Savings 2005 49.5%%

$1,200,000$300,000$250,000$125,000

$60,000$700,000$800,000$100,000

$40,000$40,000$62,000

$1,000,000$500,000$400,000$450,000

I L L U S

T R A T

I V E

*Bubble area represents cost saving opportunities

Potential ImprovementOpportunities

C o m p o s i t e

S e r v i c e

L e v e

l

Composite Cost LowHigh

High

Low

Service Renewal

Service Rep.

R/L Access Holes

Sewer Block-main

W/M Renewal

PWW Clean

Main Clean

Sewer Block-branchMeter Rep.

Hydrant Rep.

Burst W/M

Sewer Relining

Sewer Dig Out

I L L U S

T R A T I V E

$ 598,776LC

$ 123,855$ 63,718$ 28,185

$ 324,600$ 388,390

$ 49,923$ 22,506

Outlier $ 31,279

$ 575,511$ 227,417$ 214,058$ 222,507




0 %

2 %

4 %

6 %

8 %

1 0 %

1 2 %

1 4 %

1 6 %

A ve rage BP A verag e P e r c e n t a g

e o f s y s t e m

e v e n t s h a n d l e d

b y d e d

i c a t e d s p e c i a l i s e d

r e s p o n s e c r e w s

Schedu led Ma in tenanc e

% W o r k

H a n d

l e d b y

S p e c i a l i s e d

R e s p o n s e

C r e w

0

5

1 0

1 5

2 0

2 5

M B J F G I L A K N H C D E

N u m b e r o f Lo s t T im e In c id e n t s - W a t e r

N o t R e p o r t e d

The Outputs Provide Clear Comparisons toBest Performers

T ime Spent O n T r ai ni ng per Y ear

0 %

2 0 %

4 0 %

6 0 %

8 0 %

10 0 %

LN C

ID

E

J M

A

F BGK H

M e e t i ngs I nsp e c t i o ns R e v i e w s

Br e a k d ow n o f T im e S p e n t o n Sa f e t y I s s u e s p e r Y e a r

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

D A C I H J M B G E L N

S

c h e d u

l e P e r f o r m a n c e

S chedule Pe rformanceA VG

M

S c h e d u le P e r f o r m a n c e

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

D A C I H J M B G E L N

S

c h e d u

l e P e r f o r m a n c e

S chedule Pe rformanceA VG

M

S c h e d u le P e r f o r m a n c e

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

K E C D M N A J I B G H

T i m e T o C o m p l e t e P u m p

B r e a k d o w n J o b ( H r s )

T ime To Complet e Pump Breakdow nJob AV G

Av er age T ime t o Complet e W or k - Pump Br eak dow n

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

K E C D M N A J I B G H

T i m e T o C o m p l e t e P u m p

B r e a k d o w n J o b ( H r s )

T ime To Complet e Pump Breakdow nJob AV G

Av er age T ime t o Complet e W or k - Pump Br eak dow n


Improvements can be Prioritised Relative to their Implementation Complexity and Expected Benefits

L o w

H i g h

High Low

B u s

i n e s s

B e n e

f i t

Implementation Complexity

Initiative Prioritisation Matrix

Forget Case-by-Case

Medium-LongTerm (6-24 months)

Quick Wins/ShortTerm (0-6 months)

SampleConsiderations

• RevenueEnhancement

• Cost Reduction• Service Quality

Improvement• Alignment with BU

strategic objectives

Sample Considerations• Estimated investment

required• Organisational

upheaval• Technology

implementationinvolved

• Affects more than onebusiness unit




Practices Improvements Can be Detailed

Purpose of Initiative

• Link water main cleaning to targeted water quality improvement and complaint reduction• Improve costs / benefits of water main cleaning

Timeframe

6 Months

Key Dependencies

Nil

Key Risks

• Complaints reduction and water quality improvement not realised.

Mitigation Strategies

• Review prioritisation criteria and methodology.• Check impact of external factors.

High Level Recommendations

• Develop a technique to prioritise cleaning on risk factors including water quality sample results, complaints, andwater quality problem areas eg: dead ends.

Indicative CostsName of Initiative

Eg: Water Main Cleaning

I L L U S T R

A T I V E

Estimated Benefits

drawn from gap analysis, amended bypractice assessment with respect to scaleand operational/system environmentissues

OPEX CAPEX

HIGH LOW


What Are Some Typical Findings?

Leading water utilities:

Have strong planning and work management

Have a culture of continuous improvement

Manage by service performance, which is understood by staff andrewarded accordingly

Can achieve both low costs and high performanceOptimise the balance between reactive, preventive and replacementactivities

Make worker safety the highest priority

Have work crew sizes to suit the task

Respond according to priority rating systems

Use new computer technologies and equipment where it is affordable




Case Study 2 – Asset Management ProcessBenchmarking

Asset related costs comprise all capital expenditure and up to 90% of

operating expenditure of utility businesses

Improving decisions on asset expenditure can have a significant impacton overall business costs

Decisions on expenditure are made through processes, using data andinformation systems

If we assess our processes and practices, we can identify where theyneed to improve

We can assess processes and practices individually or bybenchmarking against similar businesses

There is no metrics (cost or performance) component to this type of benchmarking


The Asset Life Cycle

Audit &Review

PlanningStrategies

Asset Costing

Operations

MaintenanceMonitor

Condition &Performance

AssessRisk &

Investments

Rehabilitation

Asset Disposal

Create or Acquire AssetsReplacement

AssetManagementactivities arethose thatrelate tomanaging theasset lifecycle.

Benchmarking of Asset Managementis directed atconsidering theactivities at eachstage of the assetlife cycle.




AssetManagement

Plan

Best Value ServiceDelivery

Commercial

Tactics

OrganisationalIssues

Information

SystemsProcesses &Practices

People Issues

Data & Knowledge

Asset Management Benchmark Elements


Ensuring you Build a Team Approach

Best Appropriate Practices Target Setting




Any Questions ?

Practice Rating Against Benchmarks


Asset Management ImprovementProgram

The approach used can go well beyond simple comparisons with similar businesses, but can be developed into a detailed and prioritised AssetManagement Improvement Program which indicates:

Areas of best value improvements (“big wins”)

Scoping of improvements into detailed projects

An implementation program

Estimated costs and benefits

The benchmarking exercise can be repeated across the group or individually, over time, to monitor progress on improvements and ensurethe next steps are appropriately targeted.




What Are The Typical Findings?

Leading water utilities:

Link all asset investments to business goals and performance criteria

Know what assets they own, where they are, how they fail, and what they cost tooperate and maintain

Hold this information in appropriate systems to allow analysis and decision-making

Identify those assets that are critical to service performance

Use this information to consider a range of options, including “do nothing”,maintain, repair or replace

Justify all asset expenditure in terms of meeting demand, service/performanceimprovement, or cost reduction

In the absence of good information, make the best use of staff knowledge toimprove decisions


Conclusions

Process benchmarking can provide utility managers andengineers with meaningful programs for improvement.

The major benefits are in:

Improved knowledge of your business services and assets

A clear understanding of the relationships between costs, process and serviceperformance

A network of like-minded colleagues

Knowledge of best practices which may be appropriate to your utility

Improved decision making based on better information.

But most importantly, the capability to define improvementstrategies appropriate to the business.

performance benchmarking (presentation bm don vincent recent developments)

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