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

1. Setting Service Levels- A simple task or a major challenge in Asset Management? Kevin Young Hunter Water Corp. 11 April 2002

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

4. Setting Service Levels • A number of categories • Environment • Health • Customers • Requires alignment of service levels with Business Plan / Corporate Planning

5. 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

6. Hierarchy of Service Indicators in an Operating Licence Framework Vehicle Penalty Operating Licence Performance Indicators Data

7. Service Levels under an Operating Licence • Determined based on historic performance • A minimum safety net of customer protection

8. Continuous Improvement to Higher Service Levels • By benchmarking • By “league tables” - comparison by embarrassment • Needs good information of cost / service level trade-off

9. Setting service levels and trade-offs High K Best Performers • • • I E • • L A • H • B Inefficient: High Cost/Unit of Service Service Level (Effectiveness) Avg F • • Expected Tradeoff • D M • J • C • G Poor Performers: High Cost/Low Service Service Level Potentially Inadequate Low Avg Low (High Costs) High (Low Costs) Productivity Level(Efficiency)

10. PER UNIT COST TO COMMUNITY RISK(INTERNAL & EXTERNAL) ie repair costs/ social costs INCREASED FAILURES REDUCED FAILURES LEVEL OF SERVICE Setting of Service Levels - Link to Replace/Repair Decision HIGH ASSET LIFE LOW

11. Life Cycle Costs • Must include community costs • water continuity direct costs • social disruption costs • traffic • property damage • environmental costs

12. PER UNIT COST TO COMMUNITY RISK(INTERNAL & EXTERNAL) ie repair costs/ social costs PLANNED (INTERNAL) INCREASED FAILURES REDUCED FAILURES LEVEL OF SERVICE Setting of Service Levels - Link to Replace/Repair Decision HIGH ASSET LIFE LOW

13. Setting of Service Levels - Link to Replace/Repair Decision INCREASING COST- DECREASING SERVICE INCREASING COST- INCREASING SERVICE PER UNIT COST TO COMMUNITY B TOTAL A RISK(INTERNAL & EXTERNAL) ie repair costs/ social costs PLANNED (INTERNAL) A=MIN. COST B=MAX. SERVICE PER UNIT COST- “ BEST VALUE FOR MONEY” INCREASED FAILURES REDUCED FAILURES LEVEL OF SERVICE HIGH ASSET LIFE LOW

14. Setting of Service Levels - Link to Replace/Repair Decision INCREASING COST- DECREASING SERVICE INCREASING COST- INCREASING SERVICE CUSTOMER DEMAND PER UNIT COST TO COMMUNITY TOTAL RISK(INTERNAL & EXTERNAL) ie repair costs/ social costs PLANNED (INTERNAL) C C= APPROPRIATE CUSTOMER SERVICE LEVEL AND COST INCREASED FAILURES REDUCED FAILURES LEVEL OF SERVICE HIGH ASSET LIFE LOW

15. Minimum Total LCC Total Costs (NPV) User Costs (NPV) Total Life Cycle Cost (NPV) ($ Millions) Annual Agency Cost ($ Millions) Agency Costs (Max Network NRM) Agency Costs (Average NRM) Network Roughness (NRM) Life Cycle Cost vs Network NRM

16. 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