Water/Wastewater Utilities—Business Planning
Utilities face complex issues every day. In addition to technical issues such as drought or salt migration, they must be well versed in business issues such as strategy, organization, management, finance, technology and operations. While once the domain of only the largest U.S. utilities, a business planning approach also works well in small and mid-sized utilities.
The key to a successful business plan is modifying the approach to the unique needs of the utility while maintaining a focus on overall best business practices. The following business planning approach has proven successful for water and wastewater utilities, as well as other municipal functions, specifically in small and mid-sized agencies.
Business planning process
Prior to launching a business plan, several preliminary steps should be taken. Initially, a project team comprising a cross section of the organization must be formed. This team will work with the consultant throughout the project and become the catalyst for implementation of the business plan. Next, the consultant and project team should develop a communication plan that addresses how the groups will communicate and how often broader stakeholders will be involved. This communication plan will play an important role throughout the project.
The first phase will use a data-driven process to assess the organization’s current condition. For example, in Castle Rock, Colo., key organizational issues included:
Growth impacts—in a high-growth environment, the utility must pay closer attention to master planning and growth-related policies and procedures; Work practices—changes in work practices provide the department with immediate improvements in daily business practices;
Organizational change—after significant turnover in the past, changes in management personnel have largely slowed, but the organization is still evolving; and Fiscal condition—the department faces significant growth issues and infrastructure, finance and maintenance requirements. A long-term financial model will help planning and effectiveness.
Phase I typically includes employee interviews, a computer survey evaluating organizational strengths and opportunity areas, and market assessment of issues causing strain on the organization. This analysis may use familiar tools such as strengths, weaknesses, opportunities and threat assessments. The insight generated in Phase I is then used to identify issues that will most positively impact the utility.
Phase II involves formulating the actual business plan. The city of Arvada, Colo., identified the following as key issues to address:
Aging infrastructure—staff expressed concerns that the city was not replacing enough water and wastewater lines. Most of the transmission and delivery infrastructure was installed between the 1960s and 1980s and may be approaching the end of its useful life. Additional assessment is needed to determine the condition of the pipelines and minimize the chance of failure. The city is currently replacing two to three miles of lines annually, but needs to replace 11 miles annually to meet its preliminary replacement schedule;
Employee retention—as new development diminishes, employees may be tasked with less challenging, maintenance-oriented work. What can the city do to retain employees? How can it effectively recruit younger employees? Some items discussed include fashioning the city’s pay plan to be flexible and encourage the progression of maintenance staff; continuing to mix job responsibilities; keeping employees involved in decision-making; and evaluating the amount of work done in-house versus contracted out;
Aging workforce—the department is in the midst of a significant demographic change and will likely see many retirements from its management ranks and water plant staff. This problem is compounded by fewer younger workers entering the workforce. The dual impact of retirements and fewer choices to fill the vacancies is a long-term issue; and
Technology deployment and usage—the department may need to further implement technical solutions to address staffing issues, enhance work quality and efficiency, and project the image of a high-tech workforce to attract prospective employees.
The utilities department evaluated these key issues and developed specific action steps to effectively address them. At this point, the business planning process should be evaluated to assess each initiative’s effectiveness.
The final and most important step is the implementation of the business plan. The town of Georgetown, Colo., faced a State Water Quality Control Division order to develop a plan for improving failing water and wastewater infrastructure. The town hired HDR, Inc. to help organize an overall business plan to identify improvements, generate a financing strategy to fund them, and develop an organizational structure to ensure proper management of the water and wastewater systems.
The plan included engineering pre-design and organizational recommendations, grant proposals, developing cost-sharing opportunities and modeling utility rates. The project team coordinated $30,000 worth of grants and a grant/loan application for immediate capital projects nearing $500,000.
The first step toward managing infrastructure assets was developing an asset management modeling tool—based on an inventory of existing water and wastewater infrastructure assets—to support the understanding of infrastructure demands and serve as the basis for capital improvement plan development and an analysis of revenue requirements. The asset database was developed in the GIS infrastructure mapping and needs assessment, and provides an efficient resource for tracking and planning maintenance and replacement needs. As assets age and maintenance costs rise, replacement needs and capital projects can be planned for, and appropriate funds allocated.
HDR developed a rate modeling tool to demonstrate the cost of capital improvement projects over a 20-year period and subsequent cost of service requirements. This allowed town decision makers and staff to evaluate revenue needs, assess operations and maintenance costs, incorporate business planning goals for enterprises, and adjust rates appropriately.
Modeling rate scenarios allowed the town to better understand the impact that grants, loans, service costs and capital projects had on finances, and how O&M costs were driving future rate increases. The analysis included the financial impacts of crucial organizational decisions, including short- and long-term implications of contracting for plant operator services.