Performance Indicators for Water Supply Services

Performance Indicators for Water Supply Services

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Overview

The IWA Performance Indicator System for water services is now recognized as a worldwide reference. Since it first appearance in 2000, the system has been widely quoted, adapted and used in a large number of projects both for internal performance assessment and metric benchmarking. Water professionals have benefited from a coherent and flexible system, with precise and detailed definitions that in many cases have become a standard. The system has proven to be adaptable and it has been used in very different contexts for diverse purposes. The Performance Indicators System can be used in any organization regardless of its size, nature (public, private, etc.) or degree of complexity and development. The second edition of Performance Indicators for Water Supply Servicesrepresents a further improvement of the original manual. It contains a reviewed and consolidated version of the indicators, resulting from the real needs of water companies worldwide that were expressed during the extensive field testing of the original system. The indicators now properly cover bulk distribution andthe needs of developing countries, and all definitions have been thoroughly revised. The confidence grading scheme has been simplified and the procedure to assess the results- uncertainty has been significantly enhanced. In addition to the updated contents of the original edition, a large part of the manual is now devoted to the practical application of the system. Complete with simplified step-by-step implementation procedures and case studies, the manual provides guidelines on how to adapt the IWA concepts and indicators to specific contexts and objectives. The manual includes a new version of the software Sigma Liteincorporating all the new developments and an improved graphical user interface. This new edition of Performance Indicators for Water Supply Serviceswill be an invaluable reference source for all those concerned with managing the performance of the water supply industry, including those in the water utilities as well as regulators, policy-makers and financial agencies.

Product Details

ISBN-13: 9781843390510
Publisher: IWA Publishing
Publication date: 08/15/2006
Series: Manual of Best Practice Series
Edition description: 2ND BK&CDR
Pages: 312
Product dimensions: 6.12(w) x 9.25(h) x 0.75(d)

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CHAPTER 1

INTRODUCTION

1.1 Balance of over 15 years of the IWA PI systems

The first manual of best practice on performance indicators for water supply services was born in 2000. Since then, the industry and its different stakeholders have shown a general acceptance of the need of the assessment of performance of water services and the use of performance indicators. As a result, the IWA framework has been referenced in many different regions, and its indicators applied to many different contexts.

The influence of the IWA PI systems turned them during this time in the de-facto standard of the industry for performance assessment. The inclusion of their concepts in national and international standards, their use by regulators of water services around the world and the the inspiration or even stronger presence in most of the active international performance assessment and benchmarking projects are proof of this. The IWA PI systems are often quoted as a key IWA achievement, a successful project if the success was to be measured by the number of initiatives in which the IWA PI manual is present somehow (either as a reference, source of insipiration or even at the foundation of the project).

However, a lot remains to be done and challenges still lie ahead in the way forward. While many projects include the IWA performance indicators in some form or the other, the actual framework and methodology are not as recognizable and have not been fully implemented outside a few exceptions. This is especially true around issues concerning confidence grading and data quality or the coherence of the management systems and their indicators (often not built around clear and strategic objectives). Additionally, the IWA performance indicators do not fully satisfy the needs of developing regions.

Finally, performance assessment was also a key part of the Millenium Development Goals related to water and will play at least an equal part of the Sustainable Development Goals. Although the IWA performance indicators do not focus on the same macro level, there is still room for improvement in the metrics used in these initiatives, especially given the great importance the indicators have in the actual outcome.

1.2 The water industry context, drivers and challenges

There has been a significant evolution in the water industry regarding performance assessment since the publication of the first edition of this manual. The industry has witnessed an increasing maturity in the management of water services in many parts of the world. This has resulted in institutional reforms aiming at creating and adequate scale for the water services, increasing their efficiency, transparency and accountability by means of regulatory systems. These reforms are still ongoing in some countries and others will surely follow in the near future.

Additionally, full cost recovery principles have become a more common ingredient in the governance of water services, with the consequence of a modified perspective in terms of pricing and efficiency assessment. Environmental issues, with an increased focus on energy, are also now perceived with an increased importance. However, service sustainability as a concept is still not as present as it should, and the long term outlook for infrastructure sustainability remains one of the key issues that is seldom properly addressed.

Public water supply remains an essential service for communities, part of the so called "services of general interest", being vital to general welfare, public health and the collective security of populations, as well as to economic activities and environmental preservation. Since the last edition of this manual, the United Nations recognized the Human Right to Water and Sanitation reinforcing the notion that all individuals are entitled to sufficient, safe, acceptable, physically accessible and affordable water for personal and domestic uses. Water supply services are the main vehicle to guarantee this right around the globe.

Such services allow for major scale economies and the installation and production unit costs decrease as demand increases, to a given extent. On the other hand, there is also significant scope for economy, where the production unit costs tend to decrease as similar activities are integrated (e.g., where the water supply and the wastewater treatment and disposal are managed together), due to the synergies in the management of human resources, equipment and facilities.

High value assets, representing an intensive capital sector, also characterise such activities. Additionally, these are long term assets, built up over many decades, designed for peak situations and generating idle capabilities which are not used for long periods. The infrastructures show a high degree of immobilization, as they are intended for a specific purpose and for this reason their transaction is difficult. This market shows a high relationship between the asset values and the revenues generated and low demand-price elasticity, as they are essential structural services.

Different relevant markets can be identified in the water sector. The most important is the transaction market between water utilities and final users, which is a natural monopoly. Other markets are the transaction market between bulk and retail utilities, which is in general a legal monopoly, the transaction market between utilities and services and goods suppliers, which is a competitive market, and the transaction market with owners of water resources, which is a quasi-monopoly.

Such features contribute to limit competition within the sector with regard to the service to the consumer. In practical terms, only the existence of one operator for every served geographic area is feasible, which originates a monopoly, either at a local or regional level, the user in such a context being not able to choose either an operator or the most convenient price-quality ratio. Natural monopolies occur whenever the cost structure is characterised by the falling of the production average marginal costs as the productive system develops, due to the existence of scale economies. In such cases, the whole production cost for a given demand issue is inferior whenever the service supplier is not just one.

Of course such a fact does not induce a continuous incentive to the water utility to increase effectiveness and efficiency, and this important weakness of this sector must be minimised as much as possible.

As always, the water supply sector faces major challenges in the future, and these are in constant evolution. Current pressures on the sector include:

* the adaptation to climate change, taking into account the potential water stress and extreme events situations result in from in;

* the reduction in energy use in an energy-intensive activity such as water supply;

* keeping pace with the population growth, especially in rapidly-growing urban areas, but also with social changes (migrations, aging, etc.);

* financial pressures induced by the global economy;

* the evolution in the users' expectations and the political pressures for tariff reductions;

* the increasing age of infrastructure and the overall sustainability of the service

Maintaining a truly sustainable system in the water supply sector is as difficult and important as making the initial capital investment. The provision of safe water is a service and requires a service-orientated attitude on the part of the water utilities involved. Water services may normally be set at an affordable level for the consumers and managed and operated in accordance with the principles of good business practice and with the regulations, which are intended to protect the consumers and the environment.

The form of management will vary according to the local situation, and can be public, private or a partnership between both. In any case the continuous improvement of the quality of service is an essential target to be achieved.

1.3 The IWA approach to water services management

The management of water services needs to follow an integrated approach. Historically, the technical management of the services has focused on the engineering side of the business, considering decisions from the top management and financial decisions as inputs or constraints. However, water services above other sectors, greatly depend on technical criteria to face strategic decisions. A critical portion of all investments in water services are destined to expand, maintain and renew assets (in network based systems); at the same time, the capacity to tackle new constraints (environmental, social, quality of service, etc.) is strongly dependent on network characteristcs. For example, the possible strategic decisions of expanding the network, increasing resilience to water shortages, improving the quality of water or reducing the energy use cannot be efficiently made independently of technical decisions. A performance assessment system should then be based on taking the pulse of the critical aspects driving the success of such initiatives.

For this reason, the IWA PI framework advocates for a selection of indicators that is directly based on the strategic objectives for the service. An integration that should be clearly established for strategic asset management.

Asset management should always have as an overarching objective the sustainability of the service itself with time. This implies understanding the evolution of assets, but also of demand and constraints (e.g., the need to improve quality of service, more demanding environmental standards or new challenges like climate change). Once the strategic, long-term objectives have been set, the medium and short-term objectives can follow, and the adequate performance assessment metrics chosen to control and help to achieve such objectives.

1.4 The increasing importance of performance assessment systems

Performance assessment systems have become a more common practice for water services worldwide in the past 15 years, but the need for their use has also increased in importance. Water services have always been framed in a complex reality, where macroeconomic, social and environmental drivers were relevant to the core functions of the utility. The amount of intertwining factors keeps growing and, therefore, so does the complexity of the services (e.g., the water-energy nexus has become much more relevant in the recent past, and direct and indirect greenhouse emissions are now part of the equation when managing water supply services).

This ever increasing complexity requires the use of systematic tools that provide a global view and support decision making. Tools that, like performance assessment systems, can be configured to simultaneously consider the different constraints and drivers in a simplified way.

Performance assessment systems can also be used to facilitate the communication among the different stakeholders involved in water supply services. By providing simple, aggregated, reliable information, performance indicators represent a good communication tool between the different management levels, between the utility management and the elected politicians and regulators and even with society at large.

Further examples on why performance assessment systems represent an increasingly important tool are:

* The pressure from society for increased transparency and accountability, as described by the Lisbon Charter.

* The increase of data available to utility managers (data flooding) from new information systems, real time data-acquisition sensors, tools and software

* Increased financial stress with little or no room for poor investments and inefficiencies in the use of capital

* Further requirements for cost recovery and the need to improve internal processes to gain efficiencies in the process.

1.5 Users of performance assessment systems for water supply services

The most important entities or 'stakeholders' in water supply are:

* the water utilities, which can be public, private or combined organisations who manage the water supply systems;

* the consumers or direct users, with whom a water utility has a relationship between supplier and customer;

* the indirect stakeholders, who do not have a direct connection to the system but may be affected by it or its impact on the surrounding environment (e.g., the consequences of water mains bursts, the quantitative or qualitative impact of water abstraction, etc.);

* the pro-active stakeholders, such as environmental organisations, consumer protection agencies and other pressure groups;

* the policy-making bodies, at local, regional and national level;

* the regulatory agencies, responsible for economical and quality of service regulation and for setting up and verifying compliance with statutory and other obligations;

* the financing agencies, of particular importance in such a capital-intensive sector as the water industry.

Other interested parties may include international agencies, from humanitarian associations to political organisations and multi-national companies.

Irrespective of their nature (private, public or combined) or geographical extent, it may be presumed that all water supply utilities share a common purpose and management objectives, which may be stated as: "The achievement of the highest level of consumer satisfaction and service quality in line with the prevailing regulatory framework, whilst making best use of available resources" (Faria & Alegre, 1996).

By taking into consideration the relationships between stakeholders, resources and values (see Figure 1), it is possible to identify five types of management objectives:

* to provide an appropriate level of service to consumers, while complying with national and regional policies and meeting statutory and other obligations;

* to obtain the highest possible productivity from human resources, and offer the best employment and career opportunities according to the individuals' skills and aptitudes;

* to protect and assure a sustainable use of water and other natural resources;

* to achieve the most efficient use of financial resources;

* to plan, construct, maintain and operate the utility's physical assets as efficiently and effectively as possible. of the utility).

Performance indicators can be of use to all of the above mentioned entities, having the following potential benefits and uses:

For water utilities:

* facilitates better quality and more timely response from managers;

* allows for an easier monitoring of the effects of management decisions, particularly with regard to quality, customer service, sustainability, and economic efficiency;

* provides key information that supports a pro-active approach to management, with less reliance on apparent system malfunctions (reactive approach);

* highlights strengths and weaknesses of departments, identifying the need for corrective measures to improve productivity, procedures and routines;

* assists with implementation of a Total Quality Management regime, as a way of emphasising all-round quality and efficiency throughout the organisation;

* facilitates the implementation of benchmarking routines, both internally, for comparing the performance at different locations or systems, and externally, for comparison with other similar utilities, thus promoting performance improvements;

* provides a sound technical basis for auditing the organisation's workings and predicting the effect of any recommendations made as a result of an audit.

For the national or regional policy-making bodies:

* provides a common basis for comparing the performance of water utilities and identifying possible corrective measures;

* supports the formulation of policies for the water sector, within the integrated management of water resources, including resource allocations, investments, and the development of new regulating tools.

For regulatory agencies:

* provides key monitoring tools to help safeguard consumer interests in a monopoly service supplier situation, assessing the performance and benchmarking the utilities, and monitoring compliance with contracted goals.

(Continues…)



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Table of Contents

TABLE OF CONTENTS, V,
LIST OF FIGURES, XI,
LIST OF TABLES, XII,
FOREWORD TO THE THIRD EDITION, XVII,
ACKNOWLEDGEMENTS, XIX,
THE AUTHORS, XXIII,
MEASUREMENT UNITS AND SYMBOLS, XXIX,
ABBREVIATIONS, XXIX,
OTHER CONVENTIONS, XXIX,
PART I – FUNDAMENTALS OF PERFORMANCE ASSESSMENT, 1,
1. INTRODUCTION, 3,
2. SYSTEMS OF PERFORMANCE INDICATORS, 13,
3. FROM PERFORMANCE ASSESSMENT TO IMPROVEMENT, 19,
4. FROM PERFORMANCE ASSESSMENT TO INFRASTRUCTURE ASSET MANAGEMENT, 29,
5. THE IWA SYSTEM OF PERFORMANCE INDICATORS, 35,
6. DATA QUALITY, 83,
7. IMPLEMENTATION OF A PI SYSTEM, 89,
8. EXAMPLES OF APPLICATION, 107,
9. REFERENCES AND SELECTED BIBLIOGRAPHY, 137,
PART II – SPECIFICATION OF THE IWA PI SYSTEM, 141,
1. DEFINITIONS, 143,
2. PERFORMANCE INDICATORS, 189,
3. VARIABLES, 257,
4. CONTEXT INFORMATION, 347,
5. UNCERTAINTIES AND UNCERTAINTY PROPAGATION, 369,

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