1. Simulation Competition Who Builds the Best Improvement Plan

2. Team Competition

3. Your Utility Profile
Production capacity of 600,000 m3 per year at 95% utilization
350 liters average daily consumption per connection
2570 active connections
47% NRW
5 months accounts receivable balance
20% bad debt expense annually of A/R balance
Inventory levels at 7 months of operating expenses
Currently profitable at F$383 but projected cash shortfall next year.

4. Available Performance Action Items
Leakage Reduction Program: F$500 for every 1% reduction in NRW.
Customer Connection Program: Each new connection costs averages F$2. Part of this cost is paid by a connection fee of F$ .6. Max of 350 new connections per year.
Increase in Treatment Capacity: the utility can increase water capacity in 50,000 m3 intervals at a capex cost of F$3,500.
Collection Program: 50 household can be disconnected at $F1 per connection in legal fees. Each 50 disconnections reduce A/R by 1 month and bad debt expense reduced by 5%.
Tariff Increase: The regulator has allowed your utility to increase the average tariff by 5% over the next five years. However for every percentage increase in tariff there is a .9% corresponding reduction in average consumption.
Inventory Management: An F$100 in inventory management systems will allow the utility to reduce inventory levels by 2 months. However the utility much keep a minimum of 3 month balance.
Available Performance Action Items

5. Instructions Give a name to your utility
Put together your best performance improvement plan over the next 5 years. Choose carefully the staging of action items.
Your BoD has approved maximum external financing of F$7,500.
The winning plan will be the one meets all the following conditions:
Achieves the Highest Consolidated Net Present Value
Does not run out of water
Does not run out of money

6. Recap: What is Net Present Value?
The NPV Is the value of the sum of projected cash flows discounted at the cost of capital. Any value over zero indicates adequate return, but the higher positive value show a higher return. The Financial Internal Rate of Return is the rate of return expressed as a percentage that that equates the NPV to zero. In other words if your NPV is 0 at 15% discount rate then the FIRR should be 15%.

7. Financing Donor External Financing
Total External Financing: F$ 7,500 in 15-year maturity and 3 years grace on principal. This financing can only pay for CAPEX, not a general financing gap.
Government Grant: F$1,125 or 15% of total financing.
Loan 1: F$ 6,375 or 85%.
Own Generated Funding and Commercial Loan
Any access cash can be reinvested and used to leverage additional borrowing with Loan 2. Loan 2 can be used to pay down a general financing gap as well as for CAPEX. But Loan 2 has no grace period and 5-year maturity.