Setting Service Levels A simple task or a major challenge in Asset Management?

Kevin Young Hunter Water Corp.

11 April 2002

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Asset Management - A Definition

Meeting agreed customer service levels while minimising whole of life costs  Different approaches to meeting or determining service levels - Kevin Young  Asset capability / whole of life costing Peter Buckland 3

Setting Service Levels

 A number of categories  Environment  Health  Customers  Requires alignment of service levels with Business Plan / Corporate Planning 4

Setting Service Levels

 Range of approaches world wide  Fixed mandatory levels under an operating contract / licence  Continuous improvement to higher service levels  Maintaining condition of assets (a proxy approach)  Determined in consultation with customers 5

Hierarchy of Service Indicators in an Operating Licence Framework

Vehicle Penalty Operating Licence

Performance Indicators Data 6

Service Levels under an Operating Licence

 Determined based on historic performance  A minimum safety net of customer protection

Water Supply - Discontinuity

100 98 96 94 92 90 88 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 Result Licence 7

Continuous Improvement to Higher Service Levels

 By benchmarking  By “league tables” - comparison by embarrassment  Needs good information of cost / service level trade-off 8

Setting service levels and trade-offs

High Avg • I • L Inefficient: High Cost/Unit of Service • B • D • C • F K •

Best Performers

• • E • A • J H • M Poor Performers: High Cost/Low Service Low Low (High Costs) Service Level • G Potentially Inadequate Avg Productivity Level(Efficiency) High (Low Costs) 9

Setting of Service Levels - Link to Replace/Repair Decision INCREASED FAILURES HIGH LEVEL OF SERVICE ASSET LIFE REDUCED FAILURES LOW

Life Cycle Costs

 Must include community costs      water continuity direct costs social disruption costs traffic property damage environmental costs 11

Setting of Service Levels - Link to Replace/Repair Decision INCREASED FAILURES HIGH LEVEL OF SERVICE ASSET LIFE REDUCED FAILURES LOW

Setting of Service Levels - Link to Replace/Repair Decision INCREASING COST DECREASING SERVICE INCREASING COST INCREASING SERVICE INCREASED FAILURES HIGH A B LEVEL OF SERVICE ASSET LIFE A =MIN. COST B =MAX. SERVICE PER UNIT COST “ BEST VALUE FOR MONEY” REDUCED FAILURES LOW

Setting of Service Levels - Link to Replace/Repair Decision INCREASING COST DECREASING SERVICE INCREASING COST INCREASING SERVICE INCREASED FAILURES HIGH LEVEL OF SERVICE ASSET LIFE C C= APPROPRIATE CUSTOMER SERVICE LEVEL AND COST REDUCED FAILURES LOW

Minimum Total LCC Network Roughness (NRM)

Life Cycle Cost vs Network NRM

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Conclusions

The setting of service levels requires  An understanding of customers’ requirements and the cost trade-offs  Knowledge of asset degradation and repair/replace trade-offs  Assessment of full community costs  Pricing to be based on full costs of asset replacement and servicing  Good asset management to lead regulatory debate 16

Cumulative Reduction in Operating Cost per Property

0.05

-0.05

0 -0.1

-0.15

-0.2

-0.25

-0.3

-0.35

-0.4

-0.45

1990/91 1992/93 1994/95 1996/97 1998/99 2000/2001 Hunter Water Corp Industry Trend 17