Water Sector Benchmarking Matures

By Iain Naismith

Senior Consultant, WRc, plc

ABSTRACT

Water sector benchmarking is maturing as more and more schemes are developing, particularly at the national level. This paper identifies the current need for a simple mechanism for comparing performance data between schemes to facilitate the international search for best practices and considers two front-runners. However, it is also emphasised that comparisons of data do not affect the organizational and procedural changes within a utility that may be necessary to improve performance. Rather, benchmarking is simply a tool that utilities must integrate into the strategic planning process and an effective mechanism for implementing the results.

I. Introduction

In recent years when speaking at conferences, I have made the point that the water sector has been relatively slow to adopt benchmarking, but that this is now changing rapidly. Interest in comparative performance and best practice is expanding, driven variously by the needs of regulators and international financial institutions, by industry associations, by groups of utilities, and by individual utilities.

In particular, many new national metric benchmarking initiatives are being introduced covering both public and private operators. Each scheme differs according to local regulatory and business conditions, as well as the objectives of the organizing bodies. These exercises generally compare, on an annual basis, data between utilities and thus allow individual utilities to track their relative performance over time.

As these schemes have matured, interest in comparative performance has been extending beyond national borders. Consequently, there is a need for a convenient, cost-effective means of facilitating international comparison.

It is important to note that participation in metric benchmarking exercises does not in and of itself bring about the organizational and procedural changes that lead to performance improvement within a utility. In fact, the comparison of data across utilities may be a pointless activity unless it is integrated into the utility's strategic planning process. For metric benchmarking to be useful, a means is needed by which the business needs of utilities can be linked to the identification and implementation of best practices to achieve genuine performance improvements. The identification of appropriate best practices requires a robust process benchmarking methodology that examines individual business processes, compares the activities of different organizations, and seeks to identify best practices that can be implemented within the utility, so effecting performance improvement.

While it is relatively easy to identify the spread of metric benchmarking schemes, progress on process benchmarking, best practice exchange, and implementation is less clear, since much of this work is undertaken in-house and tends to be confidential. There is of course a reluctance among utilities to publish benchmarking results as they find themselves exposed, often for the first time, to performance comparisons and must grapple with public disclosure. At the same time, others in the industry are sceptical of the benefits to be gained from such 'expensive, time-consuming' exercises. What utilities must do, if they are committed to external comparison of their performance, is to practically integrate benchmarking into their strategic planning process and find a way to implement and monitor the results.

II. Key Points

Over the past 15-20 years there has been a continuous and expanding interest in benchmarking since Xerox first generated world-wide interest by using benchmarking to turn around its ailing fortunes. The ongoing development and intensification of benchmarking activity has been such that it is now embraced by most industries and is employed by the public as well as the private sectors. It is being increasingly used as a continuous, routine tool by organizations for a variety of purposes including reducing costs, improving efficiency, creating safer working environments, improving customer service, and improving product quality.

For most organizations that undertake benchmarking, their involvement follows the tried and tested route of:

1. Metric benchmarking to identify performance gaps;
2. Process benchmarking with same or out of industry partners; and
3. Adaptation and implementation of best practices.

The scale of water sector benchmarking exercises varies, ranging from international comparisons of utilities through national schemes down to the internal comparison of the individual divisions within a utility. The latter may be major exercises in themselves in the case of companies like Ondeo Services and Thames Water. The largest inter-utility scheme appears to be SPBNET.Africa, which is comparing metric data from 110 utilities in 40 countries across Africa. Among the smallest inter-utility schemes, in terms of number of participants but not complexity, is the regulatory benchmarking of the single publicly owned water utility on the British mainland, Scottish Water, against the private sector data generated by Ofwat for England and Wales.

Though these individual schemes may involve international comparisons, it is often very difficult to identify what is available and then to compare the results between schemes. Problems tend to arise from incompatible measurement of metric data. As the quest for compatibility has evolved, two voluntary schemes have emerged that attempt to facilitate international harmonization of metric data on utility performance:

• The World Bank Water and Sanitation Program - Benchmarking Start-Up Kitwww.worldbank.org/html/fpd/water/topics/bench_network.html
• International Water Association - Performance Indicators for Water Supply Services - IWA Manual of Best Practice www.iwapublishing.com

Through its Benchmarking Start-Up Kit, the World Bank is encouraging water utilities and national utility associations to compile and share a basic set of cost and performance indicators. It identified that the reason such information is not routinely available is not because of a lack of interest, but more because of a lack of a common framework within which to communicate and share the information effectively. The Bank's Start-Up Kit is therefore free, simple to use, employs a relatively small number of performance indicators, and has a web-based presentation tool. Though intended for countries and utilities that have not used benchmarking before, its use of dispersed databases with a common format, accessible through the web, offers a common platform that could be applied to the majority of benchmarking schemes across the world.

Currently, the World Bank system includes locally-hosted web data on utilities in the USA, Africa, the UK, Saudi Arabia and Uruguay. What the scheme offers is a means for a utility manager interested in an issue, such as leakage, to rapidly identify leakage rates across the world, hone in on good performance and then drill down into the more complex data of the specific benchmarking scheme for more detail. The linked websites approach of the World Bank could therefore provide a world-wide umbrella scheme for the industry if sufficient international, national and local schemes are prepared to re-format some of their data into the Bank's core key performance indicators (KPI's) and host this on a website.

The IWA, in contrast, has concentrated on developing a more complex set of performance indicators than those used by the World Bank. So far it has issued a manual for water companies with the intention that utilities use them for their own purposes. It offers a comprehensive reference on the definition of KPIs that has been developed with input from the industry and academics from across the world. Although not intended to be a benchmarking exercise, the scheme is being field trialed by utilities and some appear to be establishing national benchmarking exercises based on the IWA Indicators. A second set of indicators for wastewater is in preparation and the IWA is considering following up with a manual on metric and process benchmarking.

Metric benchmarking schemes will continue to be developed to meet the particular needs of the users. With a comprehensive reference on data definitions now available from the IWA and an inexpensive means of making core data available using the World Bank approach, these need no long exist in isolation.

Moving on to the issue of how to use this data to effect improvements in performance, it is important to note that any metric or process benchmarking methodology employed is just a tool that forms part of an overall strategy that leads to the effective implementation of best practices. Benchmarking can be an extremely expensive and resource-hungry process and can become an end in itself. Simply comparing a business process among a group of organizations will not maximize improvements unless a separate internal mechanism exists to link the exercise to a utility's internal planning and operational strategies. These must ensure that any process benchmarking exercise meets strategic objectives, generates buy-in by all stakeholders to its objectives, and creates the will to implement the findings. Therefore to be successful, benchmarking must fit within an overarching internal system within a utility that combines a mechanism for identifying projects that meet business needs with an effective means of implementing the results.

Implementation must include a mechanism for monitoring the benefits achieved against the benefits anticipated at the end of the benchmarking exercise. Overall, the process needs strong ownership and a will to drive forward implementation. When insufficient attention is applied to implementing the results, the exercise simply becomes one of 'industrial tourism'.

Although some organizations have published manuals that explain how to undertake process benchmarking exercises (e.g. the American Water Works Association, the Water Environment Federation and UK Water Industry Research) the issue of integration into the strategic planning process tends not to be addressed in the literature. Perhaps this is because each utility really needs to consider carefully a bespoke system that reflects its internal structure and culture and integrates with existing communication mechanisms.

III. Conclusions and Summary

We now find ourselves in a position where water sector metric benchmarking is well established and, looking to the future, the next step has to be harmonization of schemes at the utility, national and international levels in order to facilitate the global exchange of best practices.

Such harmonization will help utilities to measure their performance and identify where they might find best practices to emulate. However, it will still fall to the utilities themselves to find the will to embrace external comparison, to invest resources to create their own internal mechanisms for performance improvement, to monitor their own performance, to take the risks of exchanging data and to implement best practice when they find it.