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The challenges facing water utilities
Utilities are challenged by scale and distribution of the networks, as well as extensive regulatory constraints. For water utilities, when considering a balance between performance, cost and risk, the complications are:
Based on this, these organisations are asking, “how can we manage operational risk so that we can remain agile and profitable within the revenue and budget constraints defined in pricing submissions?”.
The water utility trade-off space
Traditionally, asset management focusses on the balancing of cost, risk, and performance. With performance locked in by revenue, which itself is informed by cost, the trade-off space in which a water utility can leverage is largely limited to risk.
The management of risk is therefore the key area in which water utilities can advance profitability, so understanding which assets are critical to the business is key.
Utilising risk-based asset management
The scale and distribution of water networks makes the managing of risk challenging, but there are opportunities to link data to corporate risk drivers for iterative redistribution of available budget.
Your corporate risk appetite should make it possible for asset managers to clearly define what assets are critical to the business and which need to be prioritised for investment. The process to follow should look something like a Failure Modes, Effects and Criticality Analysis (FMECA), whereby:
Let’s look at an example of a flood event to determine the risk: A burst watermain, leading to flooding of a major road, which has a cost associated with clean-up, should have a very low risk threshold in the corporate risk appetite:
Closing the loop then, the trade-offs can be used to inform future pricing submissions and demonstrate commitments to the regulator through active risk management.
How can you apply this approach?
This risk-based approach is ideally suited to managing uncertainty and providing opportunities for trade-off that are linked to an organisation’s strategic direction.
There are five key questions to consider:
Does your risk appetite capture critical events that can impact the organisation, and is asset management connected to the associated decision making?
Jesse originally presented this perspective at the AMPEAK Conference on 21 April 2021.
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Jesse joined Deloitte in 2018 and is a specialist in the maritime assets practice. He’s a chartered engineer, holds a degree in Naval Architecture (Ship Design). Jesse’s worked across a variety of areas in the maritime industry, both in Australia and abroad, and is passionate about effective delivery of capability. Jesse’s operated naval warships, managed naval oil tankers and superyachts, designed and built patrol boats, was a chief systems engineer, and draws upon his depth of experience to solve complex client problems at Deloitte. His ambition is to change the vernacular of asset management, from one where assets are no longer the physical investment, rather the human life that needs to underpin everything we do, to create a truly sustainable future for his children.