1. Privileged and Confidential Strategic Approach to Asset Management Presented to October 2004 2004 Urban Water Council Regional Seminar

2. Privileged and Confidential Infrastructure Needs / Perceptions l Need to be cost competitive l Aging Infrastructure l EPA Reports l Accounting Changes

3. Privileged and Confidential Common Asset Management Myths l Regulatory Issue l Information Technology Issue l Preventive Maintenance Issue l Who is Responsible l One-time Event l If You Ignore it – It Will go Away

4. Privileged and Confidential Myth 1 – Regulatory Issue l GASB 34 is the answer - If you comply with the regulations you are practicing good asset management.

5. Privileged and Confidential Myth 2 – Information Technology l IT is the answer n Software – it is just a matter of having the right software

6. Privileged and Confidential Myth 3 – Preventive Maintenance l A preventive maintenance program will take care of your asset management needs

7. Privileged and Confidential Myth 4 –Responsibility l Asset management is the responsibility of: n Engineers n Accountants n IT n Management

8. Privileged and Confidential Myth 5 – One-time Event l An asset management report is the solution!

9. Privileged and Confidential Myth 6 – Ignore it l Asset management is just another fad – it too will pass

10. Privileged and Confidential Defining Asset Management l “an on-going process which enables managers to optimize the investment in their assets resulting in reduced operating and capital costs and improved business sustainability” l AM is the alignment of a utility’s business processes to provide for a more efficient and effective operation. l An effective program will turn the reams of data that today’s utilities generate with their customer information systems, GIS, preventive maintenance, financial and related systems into meaningful information, with which managers can make informed decisions, resulting in cost savings for operations and capital expenditures.

11. Privileged and Confidential Asset Management Goals and Objectives l Identify, develop or enhance business processes that cut across all business units l Identify the critical business areas that will create value and illustrate the probability of success.

12. Privileged and Confidential Asset Management Goals and Objectives l Provide effective monitoring capabilities which allow decision makers to manage identified opportunities l Prevent value destruction by stabilizing and positioning the organization for integration and implementation

13. Privileged and Confidential Major Elements n Strategy - Develop a robust program within strategic framework. n Business Review - Implement with respect to critical business needs and without impact to scheduled operations. n Technology Review - Implement technology that can support processes at the business unit level but that can also be supported at the enterprise level. n Implementation Planning - Identify an implementation schedule based on the program and corresponding costs. n Pilot Implementation - Implement in a critical business area for near term benefit and optimize implementation aspects. n Monitoring - Provide enterprise level tools and processes to supervise and examine the on-going success of the program n Change and Knowledge Management - Establish Change and Knowledge Management processes to build executive sponsorship, support management decisions, and empower staff.

14. Privileged and Confidential AM Typical Work Plan l Three Stages n Strategize n Develop n Implement

15. Privileged and Confidential Typical Strategizing Activities l Conduct Management Interviews and Planning Sessions l Develop Organizational Assessment Objectives l Develop IT Systems Assessment Objectives l Develop AM Targets l Develop AM Plan Gap / Needs Analysis Objectives

16. Privileged and Confidential Typical Business Reviews l Customer Service l Financial Planning and Forecasting l Organizational Alignment l Failure Analysis / Risk Management l Financial l Budgeting

17. Privileged and Confidential Typical Technology Reviews l Financial Systems l Supply Chain/Asset Procurement l Maintenance Management l Condition Assessment l AM Training l GIS l HR l CIS

18. Privileged and Confidential Typical Monitoring Capabilities l Performance Measures l Asset Inventory / Registers l Life Cycle Management l Optimized Decision Making l Data Collection and Reporting l Asset Valuation and Depreciation l Capital Budgeting l Life Cycle Costing

19. Privileged and Confidential Gap Analysis l Planning l Operations l Information Systems l Accounting

20. Privileged and Confidential Typical Implementation Activities l Strategy l Functional Requirements l Operational / Tactical Requirements l Supporting Technology l Monitoring Requirements l Business Case Analysis - Value Creation

21. Privileged and Confidential l Development of meaningful internal and external strategic and financial plans. l Incorporation of the financial measures, determined in the Evaluation and Integration steps, into a cohesive strategy for the client’s business strategies. The integrated strategy links each of the business areas into a cohesive, consistent, meaningful strategy. l The key to building an effective strategy is to reduce downside exposures in order to operate closer to an expected value. l Development of a comprehensive “move forward” plan optimizes the trade off of key NPV drivers and the limited resources that are available. l The final stage of develop is a meaningful communications plan that incorporates the measures identified and the corporate-debit-shareholder impacts. Value Creation

22. Privileged and Confidential Identifying a risk profile is critical to maximize value. The utility that understands the major impacts on an asset, and executes a meaningful corporate strategy, will achieve maximum value for their asset. Reduction in benefit Expected Value Initial Distribution Risk Managed Distribution

23. Privileged and Confidential Performance Monitoring l Management Challenges n How to see the ‘big picture’? n How to link day to day actions to strategy? n How to easily communicate performance to the Board? Could you expand on “Oops, looks like something bad happened”

24. Privileged and Confidential Balance Scorecard l ‘Balanced’ Scorecard – Measures the entire organization and provides feedback to help in implementing strategies and objectives.

25. Privileged and Confidential Performance Management l Immediate and Comprehensive way to manage and maximize consistent improvement within the organization, l Linking day-to-day actions with the overall vision, mission, and strategy of the Utility

26. Privileged and Confidential Change Management l Change Management Process n Organizational Assessment n Face-to-Face Communication Strategy n Develop Transition Plan n Launch Change Management Teams n Define New Roles And Responsibilities n Establish New Learning Channels n Align Leadership Teams n Build Partnerships

27. Privileged and Confidential Change Management l Change Management Outcomes n No-decline in productivity, profitability and operational excellence n Readiness for next step n Key Management processes in place

28. Privileged and Confidential Knowledge Management l Preservation n Communication n Documentation n Knowledge