1. Setting Service Levels: A Simple Task or a Major Challenge in Asset Management? Kevin Young Hunter Water

2. Outline Approaches world wide Categories Trade off – service level and cost Service levels vs performance indicators and penalties What makes a SMART measure? Possible Service levels for a wastewater agency

3. Setting Service Levels: Approaches Worldwide Fixed mandatory levels under an operating contract/licence with high penalties Continuous improvement to higher service levels Maintaining condition of assets (a proxy approach) Determined in consultation with customers

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

5. Setting Service Levels Requires alignment of service levels with Business Plan/Corporate Planning A number of categories:  Environment – regulated requirements/ self imposed  Health  Safety  Customers Is cost a service level?

6. Setting Service Levels and Trade-offs Service Level (Effectiveness) High Avg Low (High Costs) High (Low Costs) Productivity Level (Efficiency) Expected Tradeoff L G Best Performers K A H E I B F J MD C Inefficient: High Cost/Unit of Service Poor Performers: High Cost/Low Service Service Level Potentially Inadequate

7. Service Levels are Supported by Performance Indicators

8. S imple M easurable A ccurate R esponsive T arget SMART Measures

9. Costs for Not Hitting a Service Level Target? Additional O&M costs Excessive community costs Loss of reputation/ political comment / media response Fines/ penalties Poor morale Other costs?

10. Life Cycle Costs Must include direct and community costs  O&M, capital direct costs  Social disruption costs to community  Property damage  Environmental costs  Intangibles

11. Unplanned R&R Planned R&R Total cost NPV of community cost Level of Service Life of asset LowHigh LowHigh The Balance Between Unplanned and Planned Asset Costs

12. Total Costs (NPV) User Costs (NPV) Minimum Total LCC Agency Costs (Road roughness) Road Roughness (NRM) Life Cycle Cost vs Network Road roughness Total Life Cycle Cost (NPV) ($ Millions) A Real Example!

13. Conclusions The setting of service levels requires An understanding of customers’ and regulator’s requirements and the cost trade-offs Knowledge of asset life /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

14. Potential Levels of Service for a Wastewater Agency Discharge treatment compliance (e.g., >99%) Percent effluent and biosolids reused Odor complaints / year Number and volume of spills / 100 miles Spill response timeliness Unplanned street closures Wet/dry weather overflow frequencies

15. Questions and Discussion