Using Business Cases And Triple Bottom Line Analysis To Manage Capital Decisions

Many utilities have discovered that fine tuning their capital planning process to integrate asset management concepts and tools can often yield rapid and measurable cost savings and performance improvements. This presentation will discuss the major components of a business oriented and financially driven CIP (Capital Investment Planning) process focused on effective project prioritization and analysis. Utilities that have taken this approach have found that a key critical success factor is involving the whole organization from the beginning including leadership an d management and representatives from engineering, operations and maintenance, and finance.Critical to an asset management focused CIP is the development of a “business case” approach to proposed projects, requiring project sponsors to produce a comprehensive summary for each major project. Business cases typically include information and analysis such as: project description and purpose, assessment of service level impact, identification of major criticality and risk issues, life-cycle cost forecasts, as well as financial analysis including ROI (Return on Investment) and rate impacts. Business cases must also include an evaluation of other likely project alternatives and scenarios.After business cases are completed a transparent framework for project ranking and scoring helps to ensure that CIP projects are properly validated and that the most important projects are funded first. Developing specific and detailed criteria across all elements of the triple bottom line can ensure a balanced capital program that delivers on each utility’s specific strategic plan objectives incorporating not only asset condition and risk, but other elements such as efficiency/energy, community/growth, and financial, and system reliability/service levels. This is especially critical in today’s environment of limited funding and drive to do “more with less”. An objective ranking process ensures that the most critical projects are funded, while also balancing many competing objectives.Utilities have found that an integrated, asset management focused capital planning process is effective because it builds business discipline, encourages analysis of options and alternative solutions, documents expected customer and environmental impacts, and ensures alignment with strategic asset management goals. In addition, this process provides greater transparency and integration with financial and rate analysis by ensuring that funding requirements are identified up front, customer impacts are understood, and stakeholder needs are considered.Key benefits of a formal and dynamic capital investment planning process include:Improves capital project and investment prioritization through formal business case analysis.Fosters greater understanding of the long-term service level and cost implications of capital investment decisions.Evaluates the financial, social, and environmental impacts of major capital projects.Creates greater understanding of the true life-cycle cost of capital projects by examining project specific return on investment (ROI), net present value (NPV) and other financial measures.Strengthens long-term financial decision making, enables accurate financial projections, and helps to ensure adequate funding and rate structures.Ensures that the overall CIP has tangible objectives linked to both service level and financial goals.Ensures that engineering, operations, maintenance, and financial perspectives are all considered.Creates improved trust, understanding, and transparency with the public, elected officials, and stakeholders-strengthening the case for required investments and resources.This presentation will demonstrate the above concepts through recent implementation case studies in the U.S. including: Virginia Beach DPU (VA) and the Toho Water Authority (FL). The case studies will include a description of the processes, procedures, and outcomes of the projects including the specific key activities below:Baseline condition assessment of major plant and buried assets – Development of policies, procedures and methodologies for asset condition and criticality assessment across plants, pump station, and buried assets. This includes a physical and process condition rating of key infrastructure, along with workshops and training for utility staff.Evaluation of strategic business drivers – Examination and documentation of major internal and external forces that drive capital planning and asset management decision making such as: regulatory compliance, service level demands, and financial requirements.The outcome of these case studies was a final CIP document that included a prioritized and validated list of projects including growth, rehab/renewal, and enhancement projects. After the CIP was finalized, additional efforts were made to examine the rate and financial impacts to ensure that the proposed project schedule and scope was in alignment with the financial goals and objectives of the utility including customer rates.The case studies will also focus on the following key topics and overall lessons learned from the implementation of a formal approach to capital planning and prioritization.Developing cross functional teams and committees to ensure a balanced perspective on capital planning and asset management issues and drive organizational change.Ensuring that major projects follow a formal and defined analysis and review process to ensure that projects chosen deliver maximum business value and are in alignment with asset management goals.The importance of aligning capital projects with strategic plan goals and objectives.Building an understanding of cost/benefit analysis for capital projects including the financial impact of capital projects on rates.Defining service level measures and targets that drive capital project prioritization.Developing a public support programs to educate and inform stakeholders of the need and justification for capital and asset management programs including boards, commissioners as well as civic, business, and neighborhood groups.