Ten Practices of Highly Effective Water Utilities

Jan. 12, 2005
Take these steps to improve and prepare your water system

About the author: Janice A Beecher, Ph.D., is director of the Institute of Public Utilities, in the Department of Political Science at the Michigan State University. She can be reached at [email protected]. Scott J. Rubin, J.D., is an attorney and consultant. He can be reached at [email protected].


Highly effective water utilities do not just comply with drinking water standards. They do not merely meet the minimum requirements for demonstrating technical, managerial and financial fitness. To be highly effective, a water utility will strive for continuous improvement, implementing practices on an ongoing basis that promote not just service but service excellence. The concept of continuous improvement complements the idea of developing a water systems’ capabilities over time to ensure safe and reliable water service.

The benefits of becoming a highly effective water utility are self-evident. Highly effective utilities are responsible and responsive. They win not only the approval of regulators, but also recognition from industry peers and customer support. Various tools are available to help water utilities improve their effectiveness. Effective utilities do not necessarily use every specific capacity development tool, but they engage in recognized practices in a number of key performance areas that can be summarized in 10 categories, within which a number of specific tools can be identified.

The following list of categories and specific tools is not meant to be all-inclusive; it is meant to highlight some key information processes that highly effective utilities undertake.

1. Prepare Reports

Highly effective water utilities know a lot about themselves—they will prepare regular reports on their operations. Reporting is a very basic function, and a building block for many in-depth planning and managerial activities. Financial reports usually are provided to oversight bodies, including regulators, board of directors and shareholders. Technical reports are used to keep track of a utility’s inventory and compliance with standards.

Report tools include:

  • Financial report—a thorough picture of a utility’s financial condition;
  • Shareholder report—a summary of a utility’s operations and finances (also known as an annual report);
  • Credit report—a detailed analysis of credit risks;
  • Technical inventory—a thorough assessment of a utility’s physical capabilities;
  • Compliance assessment—a legal assessment of past and current compliance with government regulations; and
  • Consumer Confidence Report—a required annual report to a system’s customers about its water quality.

2. Manage Information

Highly effective water utilities use modern information systems to maintain and track data, which facilitates planning. Information systems, including geographic information systems, can be used for technical monitoring. Information systems also can be used for financial and managerial purposes, and they play an essential role in maintaining customer metering and billing records.

Information systems tools include:

  • Computer hardware—basic computer equipment to run the software described below;
  • Information management system—a comprehensive package to track and manage utility operations (often includes management and financial modules);
  • Technical software—could include computer-aided design, SCADA, flow monitoring, and other software to monitor a utility’s physical operations;
  • Management software—to track information about personnel, customer complaints, billing, and related information;
  • Financial software—to track capital investment, expenses, revenues; and
  • GIS—a computer system that integrates customer and technical system information such as location of valves, pipe sizes and flow rates.

3. Follow a Budget

Highly effective water utilities practice accepted budgeting practices. Budgeting involves keeping track of revenues and expenditures in major categories. Budgeting also involves analysis of trends and anticipated change within categories, such as operations and capital expenditures. Preparation of a relatively detailed budget is a key element in improving a utility’s effectiveness.

Budgeting tools include:

  • Budget preparation;
  • Budget analysis;
  • Capital improvement budget; and
  • Operation and maintenance budget.

4. Practice Self-Improvement

Highly effective water utilities embark on various paths to self-improvement. These range from simple self-assessments to a broad range of training opportunities for staff and board members. Self-improvement processes should be highly participatory and include staff members’ ideas for improvement.

Self-improvement tools include:

  • Self-assessment checklist—a process to highlight utility strengths and weaknesses;
  • Technical training;
  • Management training;
  • Board member training; and
  • Public official training.

5. Conduct Audits

Highly effective water utilities conduct routine and special audits, as needed to identify opportunities for improvement. Audits can be performed on an in-house basis, but also by outside experts. Audits can address various aspects of a utility’s operations. Audit results can serve as a guide to other improvement strategies.

Auditing tools include:

  • Technical audit—a review of a utility’s technical operations (treatment plants, water sources, pumping, storage, distribution, fire protection);
  • Financial audit—a review of a utility’s financial condition;
  • Management audit—a review of utility management practices (labor practices, customer service, billing, metering, regulatory compliance);
  • Energy audit—a review of energy uses and costs; and
  • Comprehensive audit—a combination of some or all of the above.

6. Perform Studies

Highly effective water utilities conduct analytical studies of various aspects of their operations. Studies or assessments are used to gain in-depth knowledge that could be useful for management and planning. Some studies may require data collection, research, statistical analysis or assistance from outside experts. Studies at individual utilities can be undertaken as part of research conducted through governmental agencies and trade organizations.

Analytical study tools include:

  • Cost-of-service study—to ensure that rates are designed to recover utility costs in a manner that is fair to all customers;
  • Valuation study—to ensure that a utility understands the value of its system;
  • Demand analysis—to evaluate how, when and where water is used;
  • Source-water assessment—to determine quality and adequacy of water sources;
  • Customer satisfaction survey—to ascertain if a utility is meeting its customer’s expectations;
  • Need assessment—to estimate future utility capital requirements;
  • Regionalization study—to understand the needs and resources of a utility’s neighbors; and
  • Options analysis—to outline strategic options for meeting future utility needs.

7. Seek Revenue Enhancements

Highly effective water utilities explore opportunities for revenue enhancements. An analysis of revenues and rates, along with a cost-of-service study, can point to the need for modifications to a utility’s rate structure. Special funding, such as the State Revolving Loan Fund, can provide additional opportunities for revenue enhancement. Revenue enhancement tools include:

  • Revenue analysis—to analyze each source of revenue;
  • Rate-structure modification—to determine the effect of changing rates;
  • Loan application; and
  • Grant application.

8. Accept Peer Review

Highly effective utilities engage in processes that build capacity through shared expertise and comparisons with similar utilities, including processes that encourage constructive peer review and benchmarking to evaluate performance in a noncompetitive format. Professional associations, such as AWWA through its QualServe program, can encourage these processes and partnerships. Other processes that lead to improvement include those that encourage ongoing stakeholder involvement and participation to provide a utility with performance feedback. Review process tools include:

  • Shared expertise—a utility works with at least one other utility to find areas where they might be able to assist one another;
  • Peer review—personnel from other utilities evaluate a utility’s effectiveness;
  • Benchmarking—determining how a utility compares to a broad cross- section of similar utilities;
  • QualServe participation—participating in AWWA’s comprehensive utility assessment program; and
  • Stakeholder involvement—involving customers, water resource users, governments and other interested parties in the utility assessment process.

9. Plan Strategically

Highly effective water utilities are dedicated to strategic planning, although plans can be flexible to allow for modifications in response to changing conditions. Planning can address specific areas of operations, such as water-resource management and capital improvements, or can be more broad-based, such as developing a comprehensive business plan. The ability to prepare a basic business plan is a key indicator of a utility’s effectiveness because planning encourages self-assessment, goal-setting and strategic thinking.

Planning tools include:

  • Financial plan;
  • Management plan;
  • Water resource plan;
  • Conservation plan;
  • Emergency response plan;
  • Capital improvement plan;
  • Operation and maintenance plan;
  • Energy plan;
  • Watershed plan; and
  • Strategic business plan—a combination of most, if not all, of the above plans.

10. Explore Restructuring

Highly effective water utilities are open to restructuring options that can enhance their ability to provide safe and reliable water service to customers. Restructuring is not necessary or desirable for all water utilities. However, for many smaller utilities, restructuring may provide significant opportunities to enhance capacity and improve service performance. Highly effective water utilities explore opportunities to engage in strategic restructuring with other utilities in order to expand water markets and address the needs of their peers. Restructuring tools include:

  • Change of ownership—selling a utility to, or merging it with, another entity;
  • Satellite management—contracting with another entity to operate and manage some or all of a utility’s operations;
  • Partnering with public agencies;
  • Regional agreements—cooperating with neighboring utilities on various aspects of operations or management; and
  • Partnering with private companies.

As a practical matter, not all of these tools can be implemented at once. Fortunately, resources are available to help water systems evaluate and improve their effectiveness. By collecting information, assessing the utility’s strengths and weaknesses, and planning for the future, utility managers will be able to improve performance, achieve financial and service goals, meet consumers’ expectations and help their utilities to become more effective in all aspects of their operations.

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