DEPARTMENT OF THE INTERIOR AND LOCAL GOVERNMENT

Governance & Financial

Reforms for Local
Government Unit-Run
Water Utilities
Strategic Business Planning
for Local Government
Unit-Run Water Utilities
 Strategic Planning
Strategic Planning is a tool for making
resource allocation decisions among the core
business functions and investments in
expanding and/or diversifying business
functions in a way that positions the water
utility to increase the value to the
customers/stakeholders
 Strategic Planning
Strategic Plan looks at all the things the water
utility could do and narrows it down to things
that it is really good at doing .

It helps water utility determine where to

spend its resources.( time, capital, human and
money)
 Steps in Strategic Planning

1. Determine Where you are

2. Determine what is important
3. Define what the utility must achieve
4. Determine who is accountable
5. Review, monitor and refine
Strategic Planning
Business Planning
 Who are involved in the
Strategic Planning Process
Local Chief Executive
Policy Governing Body or its equivalent
Utility Management Team
Local Government(s)
Citizens Group
Vision Statement
Vision is a mental image
of a possible and
desirable future state of
the utility
It has the quality of
uniqueness.
It suggests, What in the
future should make the
organization singular and
unequaled?
 Examples of Vision
Statement

The Jagna Waterworks System stands to be

the sole provider of safe, potable, affordable
and sustainable water supply.

A demand-driven water service provider

to the whole communities and
the nearby municipalities
 Writing of Vision
Statement

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Introduction to Business
Planning for Local
Government Unit-Run
Water Utilities
 Business Planning
A systematic managerial process to ensure
that
Strategic
Operational
project and
financial planning
are carried out regularly to enable top
management to direct and control the future
of the enterprise
 Purpose of Business Planning

The preparation of a 5-year business plan

basically serves 3 purposes:
Provides the general direction and strategy to be
adopted by the utility within the planning period
Provides the owners or management of the utility
with a tool for benchmarking or monitoring of their
operations
Responds to bank requirements when applying for a
loan for the utilitys capex requirements
 Elements of a Business Plan

Generate reliable financial reports showing the

true performance of the water utility
Generate information that can be used to
determine the appropriate tariff
Build a financially viable and self-sustaining
water utility
 Purpose of Business Planning
Guideline
Directs the management of the
water utility through the business
plan development procedures,
following a structured model
Guideline is supported by a
Spreadsheet Workbook, which
allows the water utility to record
and calculate results based on data
and assumptions entered by the
utility management.
 Benefits of Planning

Minimizes management by crisis

Conserves valuable resources

Promotes program stability, continuity,

and orderly change

Enhances employee and managerial

morale

Promotes effectiveness/efficiency
Major Activities in Ring-Fencing
Who Should be Involved in the
Business Planning Process

Water Utility
Management and Staff
Policy Governing Body
Local Government
Officials
 Structure of a Business Plan
Model
GENERAL INFORMATION SHEET
Fill up yellow cells only

Name of Waterworks Antequera Waterworks System

Name of Local Government Unit, Province Antequera, Bohol

Year Covered 2007

POPULATION FIXED ASSETS

Total LGU
Population in service area 10,390 Land 10,000,000

Results
Persons per household 6 Buildings 50,000,000
Persons served 9,984 Total for LGU 60,000,000
Population served, % 96%
Office Furniture, Fixtures and Equipment 5,000,000
CONNECTIONS Motor Vehicles 8,000,000
Total for LGU 13,000,000
Total Connections 1,664
Public taps - Waterworks
Residential / Institutional 1,654 Land -
Commercial / Industrial 10 Buildings -
Total used by Waterworks -
Metered Connections - Total 1,664
Public taps - Office Furniture, Fixtures and Equipment
Residential / Institutional 1,654 Motor Vehicles -
Commercial / Industrial 10 Total used by Waterworks -

Unmetered Connections - Total - % of Waterworks

Public taps - Land 0.00%
Residential / Institutional - Buildings 0.00%
Commercial / Industrial -

Total Revenue
Office Furniture, Fixtures and Equipment 0.72%
New Connections for the Year 59 Motor Vehicles 0.00%

PRODUCTION REPAIRS & MAINTENANCE

Of Municipal Engineer's Office

Needs
Non-revenue water, % 47%
Annual production, cu. m. 504,576 Total LGU
Annual volume billed, cu.m. 269,799 Land -
Buildings
Production Capacity, lps 16 Total -
Ave. Consumption per conn./ month, cu.m. 13.51
Ave. consumption per capita per day, liters 75.06 Office Furniture, Fixtures and Equipment 35,880
Motor Vehicles -
COLLECTIONS Total 35,880

Collection Efficiency, % 107% Total Repairs & Maintenance, Total LGU 35,880
Collectin Period, Days 62
Waterworks Share
Total Billings for the year, PhP 1,577,772 Land -
Total Collections for the year, PhP 1,692,919
Unpaid Bills, end of the year, PhP 270,036 Buildings -
Total -
PERSONNEL

Tariff Policy and

Office Furniture, Fixtures and Equipment 257
Staff / 1000 Connections 9.01 Motor Vehicles -
WW Personnel / LGU Personnel, % 9.74% Total 257

Total personnel, Waterworks only 15 Total Repairs & Maintenance, Waterworks 257
Regular 5

Strategy
Casual 7 REVENUES AND EXPENSES
Job order 3
Operating Ratio 197%
Total personnel, entire LGU 154
Regular 54 Operating Revenues 1,805,449
Casual 70 Operating Expenses 3,563,234
Job order 30

Reconstructed FS
Data Analysis
 Elements of a Business Plan
General Description of the Utility
Mission Statement
Policy Governing Board Overview
Assessment of Current Conditions and Priority Issues
Strategic Goals
Water Demand Management Analysis/Forecast
Organizational Structure and Staffing
Performance Improvement Program
Five-Year Capital Investment Program
Five-Year Operations and Maintenance Budget
Revenue Needs/Tariff Analysis/Pricing Strategy
Business Plan Outline
General Description
of the Utility
 Brief Description and
Background Information
Nature of the services provided by the water utility
Date when the water utility was first established and the
relative age of the infrastructure
Legal form of the water utility and its ownership structure
Type, location and safe yield of water sources in active use
Nature of the water supply system
Nature of water treatment used, the frequency of water
quality testing, and the type of testing parameters
Total number of waterworks staff, as well as the staff
structure
Area of Coverage

An LGU-run
water utility
normally covers
the
Administrative
Area of the
LGU.
 Key Performance Indicators
KPI Value
Service Coverage (% of Total Population):
Water Supply
Sewerage
Septage Management
Population Served (% of Total Population):
Water Supply
Sewerage
Septage Management
Average Water Consumption (m3/day/connection):
Residential (also in lpcd)
Level 3
Level 2
Commercial
Industrial
Institutional
Metering:
Customer Metering (% of Total Connections)
Production Metering (% of Total Water Sources)
Mission Statement
Mission Statement
Presents a Short, Clear
Statement Describing an
Organizations Purpose,
and Why It Exists.
Serves as the Guiding
Principle for All Goals
and Plans for the
Organization.
 Elements of a Mission
Statement

Purpose of Organization

Priorities for Organizations

Future

Values of Organization
 Examples of Mission
Statement
Mahayag, Zamboanga del Sur Alburquerque, Bohol

To provide safe and

The Municipal Waterworks System of
sufficient water Alburquerque guarantees to provide
supply and help in sufficient supply of safe potable water to
improving the its constituents by improving the utility,
economic, health safeguarding the environment and
and living condition sustaining the working relationship of
of the people stakeholders
 Writing the Mission Statement

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Major Challenges Facing the Utility

Increase the level of water supply coverage

to the Administrative Area
Provide a secure water supply, in sufficient
quantity and good quality
Reduce Non-Revenue Water
Increase the sanitation/sewerage coverage
by implementing a capital investment
program to extend to the unserved areas
Provide quality sewage/septage collection,
treatment and disposal services in
compliance with environmental standards
Operate the Utility in a commercial manner
to be financially self-sustaining, based on
the tariff structure
Build staff capacity by implementing a
comprehensive staff training program
Business Planning Monitoring
Functional areas to be monitored
Performance indicators to be
applied for each of the functional
areas
Frequency of monitoring/
measuring the results of the
performance indicators
Persons designated to be
responsible for the monitoring task
Schedule of meetings to discuss the
progress of the Business Plan
implementation, based on the
monitoring.
Business Planning Reporting
Type of reports and data to
be provided
Frequency of reporting
Designation of the person,
within each section, who
shall be responsible for the
reporting
Use of reports
Corrective Measures

Identify any new

challenges or issues

Provide for the

respective solutions to
each of them, as
appropriate.
Assessment of Current
Conditions and Priority
Issues
 Assessment of Current
Conditions and Priority Issues
Current/Expected
Conditions Internal
to the Utility
Current/Expected
Conditions External
to the Utility
SWOT Analysis
Priority Issues
 Current/Expected Conditions
Internal to the Utility
Performance Indicators
Organizational Affiliations and Trends

Internal Nature of Work Force

Physical Assets
Environmental Conditions Environment and Skills

Physical Assets Capital Investment

Environmental Conditions Program

Resource Optimization
 Current/Expected Conditions
External to the Utility
Changes in Sector
Legislation & Regulations

Trends in Power Service

Continuity and Price
External Trends in Chemical Supply
Environment and Price

Changes in Economic
Conditions Affecting Customers

Changes in Labor Laws

Affecting Employment
SWOT Analysis
Areas of Priority Issues

Management Performance
Financial Performance
Operations Performance
Maintenance Performance
Human Resources
Performance
Customer Service
 Management Performance

Lack of internal regulation

Lack of routine performance
improvement programs
Lack of performance monitoring
and reporting practice
Difficult relations w/ local
governments
Excessive political
pressure/influence
 Financial Performance

High total labor cost due

to overstaffing
Insufficient revenues to
cover operating costs
No reserves to cover new
capital investments
Insufficient tariff levels
for financial obligations
Operations Performance

Significant water supply problems

at the sources
Delays in capital investment
program
Low water supply coverage
No program for environment and
sanitation
Maintenance Performance

Technical losses from visible leakage

Lack of stored materials for timely
repairs
Lack of preventive maintenance
system in place
Severe, repeated equipment damage
due to voltage fluctuations
Absence of wastewater treatment
ant disposal
Human Resource Performance

Overstaffing
Poor quality of staff due to low
salaries
Aging staff with no qualified
replacements
Political interference in hiring
practices
Scarcity skills-upgrading
opportunities
Customer Service
Fragmented customer service
activities across several
departments
Lack of computerized billing and
accounting system
Low billing and/or collection
efficiency
High non-revenue water
Illegal connections
Lack of public relations/customer
communications plan
 Very Urgent
Issues/Problems
Very Urgent Issues/Problems Rank
1.

2.

3.

4.

5.

6.

7.

8.

9.

10.
 Priority Issues
Priority Issues of the Water Utility
1.

2.

3.

4.

5.

6.

7.

8.

9.

10.
Strategic Goals
 Strategic Goals are
identified to accomplish
the utilitys mission

Strategic goals identify

the primary areas of
focus for the utility
within the planning
period.
Strategic Goals Achieve
identify what an Preserve
organization Reduce
wants to:
Eliminate
 Characteristics of a Strategic
Goal

= + + +

Goal Specific Measurable Time-bound Achievable Acceptable

 Examples of Strategic Goals

Increase the amount of produced water that is billed, such that

the Water Utility is billing 70% of its water production, as
measured at the sources, by the end of 2015, with interim
goals of 50% by the end of 2011, and 60% by the end of 2013.
Achieve a water quality regarding the presence of e-coli
bacteria by not exceeding the e-coli standard in more than 10%
of the samples taken and tested by the Department of Health
by 2013.
Achieve full cost recovery, to include annual interest and
capital repayments on current loans, and a defined annual
contribution to a capital repair and replacement reserve fund
by the end of 2013.
 Strategic Goals

Strategic Goals
1.
2.
3.
4.
5.
6.
7.
8.
14.
15.
Water Demand
Management
 Importance of Water
Demand Analysis
Water demand analysis will
Avert deterioration of service
quality
Highlight certain decisions to be
made now necessary for future
requirements
Prevent pre-mature or excessive
CAPEX
Basis for OPEX and CAPEX
requirements
 Importance of Water
Demand Analysis
Determine requirement for new
sources
Determine requirements for
operational efficiency (NRW,
rationing)
Identify coverage requirements (%
of
franchise area population
Forecast sales (volume)
Determine production
requirements
(volume and costs)
 Steps in Demand
Analysis
1. Water Balance Audit
A water balance audit attempts
to quantitatively account for all
the water that is input to the
system, and thereby identify how
much water is sold and lost and
eventually what that loss costs the
utility.
Components of a Water Balance
 Steps in Demand Analysis

2. Forecast Water Demand

Use Excel Spreadsheet
Franchise Population/Served Population
Water Demand of various connection types
HH Connections
Commercial / Industrial
Institutional
Non Revenue Forecast
Annual Sales Forecast
Organization Structure
and Staffing Levels
Organizational Structure and
Staffing Level

Staffing structure and staff

empowerment drives success
Organizational principles must
be understood and put into
practice
Historical structures may not
fit tomorrows challenges
Principles of
Organization
 Span of Control
Ratio of subordinates to supervisor
Inefficient to have 1 to 1
Inefficient to have 10 to 1
Factors to consider:
Capabilities of manager
Capabilities of subordinate
Similarities of work activities supervised
External pressure on manager
External help available to manager
 Delegation of Authority and
Responsibility
Effective utilities actively and
aggressively delegate responsibility
and authority.
Both delegations must be done in
parallel: Responsibility without
authority will
frustrate staff and lead to failure.
Delegation takes place within
Chain of Command.
 Work Specialization and Cross-
Training
Water and wastewater work most
technically complex in public sector
at local level, and requires special
skills.
Specialization should not create
inefficiency of staffing, especially in
small utilities.
Cross-training will improve staff
competencies and diversity of work
routine.
 Line and Staff Authority
Mission
Support
the Mission

Staff Authority

Execute the Mission Line Authority

 Line Authority

Supply Metering
Treatment

Line Authority
Distribution Commercial
 Staff Authority

Public Relations

Legal Engineering
Staff
Authority
Accounting Personnel
 Current Cognitional Structure
and Lines of Reporting
Prepare graphic representation of current
organizational structure.
Clarify the Chain of Command who reports to
whom?
Note the Span of Control for each person in a
supervisory position.
Using two colors, reflect which positions are line and
which positions are staff.
Typical Organizational Structure
of an LGU-run Water Utility
 Optimal Staffing Level
Staffing level affected by technology,
automation, skill level, geographic size
Common performance indicator is number of
staff per 1,000 water+sewer connections
Well performing utilities
Water only = 2.5 to 4.0
Water and Sewer = 3.5 to 5.0
 Changing and Transitioning
Staffing Level
Consider functional areas currently understaffed
Consider functions that are not specifically defined
in the organization
Consider cost centers and functional areas such as
bulk services and retail services
Consider a transition strategy if down-sizing is
necessary
Documenting Current
Staff
 Performance
Improvement Program
 Performance
Improvement Program
Establishing the imperative for change and
performance improvement.

Moving from Strategic Goals to Performance

Improvement through an Action Plan.

Measuring performance to document success

against the defined standard of performance.
Performance Gap

Where is the Utility

today?
Where does the Utility
want to be tomorrow?
How does the Utility
begin to close the
Performance Gap?
 Performance
Standards
Express how the Utility
should be performing in all
aspects of its work .
Defined in a unit of
measurement to allow for
rational monitoring
(deadline, cost, quality,
quantity, or other).
 Measuring
Performance
What to measure?
Usually defined by the
standards established.
How to measure?
Balance between getting
the data and cost in time
and money.
When to measure?
Frequent enough to
understand situation in
terms of performance.
Evaluating Actual vs.
Expected
Managers interpret
deviation and identify
problem.
Managers decide on
need for corrective
action.
Decision on corrective
action is implemented
immediately and all are
responsible.
 Performance
Improvement Plan
Clear direction and
explanation on actions to
achieve each stated
Strategic Goal.
Sets the implementation
schedule and interim
milestones.
Does not replace need for
detailed work plans
(weekly, monthly)
 Elements of PIP

Statement of Specific Action

Strategic Goal Addressed
Description of Primary Actions
Schedule of Tasks and Milestones
Application of Investment Capital
Measurable Improvement in Performance
Sample Format of PIP
Approval of the Policy
Governing Body
Policy Governing Body
must buy-in and approve
of the Performance
Improvement Program.
Presentation made by
Management.
Policy Governing Body
must believe that PIP will
close the Performance
Gap.
Operations and
Maintenance
Budget Forecast
 Documenting Recent Financial
Performance

Gather financial information for at least the

past three years
Evaluate expenditure trends
Identify factors influencing future expenses
Sincerely evaluate operational and
maintenance expenses
 O & M Categories

Personal Services (PS)

Maintenance and
Other Operating
Expenses (MOOE)
 Itemizing O & M Cost Categories
Personal Services MOOE
Salaries and Wages Travel Expenses
Allowances Training
Bonuses Materials and Supplies
Contributions Treatment Chemicals
Electricity/Power
Other personnel
benefits Communications
General Services
Repair and Maintenance
Other maintenance and
operating expenses
 Capital Expenditure
and Investment Forecast
 Capital Expenditures
Capital Renewal
Underground or Buried Assets
Capital Repair and Replacement
Above-ground Fixed and Movable Assets
New Capital Investments
Add New Technology
Expand Systems or Increase Coverage
 Underground Assets

Capital Renewals Expense

Buried Pipelines and Networks

Indeterminate Useful Life
Hidden Conditions
Difficult to Apply Depreciation Rates
Budget on Annual Expense Base
 Above Ground Assets

Capital Repair/Replacement Fund

Operating Equipment
and Structures
Actual Conditions
Technical Innovations
Consider Depreciation Rates
Determine Average Contribution
Used as the Needs Dictate
 New Capital
Investment Fund
New Technology or Services Level
24-hour Pressurized Water
Higher Treatment Standards
More Water Available
Improve Performance

Increase Service Coverage

New Connection
Increases Customer Base
Higher Water Production
 Capital Investment
Plan and Sources
Capital Investment Plan Forecast
Performance Improvement Program
Capital Expenses/Reserve Fund Needs
Timing Contributions/Expenditures
Identifying Sources of Capital Investment
Capital Reserve Funds
Different Local Grants or Credits
Credits or Grants from Donors
Credits from Commercial Banks
Revenue Needs
 Revenue Needs
Operation and Maintenance
Debt Service
Interest Payment
Principal Repayment
Debt Sinking Fund
Capital Expenditures
Capital Renewal Expenditures
Capital Repair and Replacement Fund
New Capital Investment Fund
Subsidies
Tariff Policy and
Strategy

Specific Conditions
Abundant water supply
Limited water supply
Largely variable seasonal demand
High fixed cost element in revenue
needs
Customer group with low
affordability to pay
Customer categories have similar
usage patterns
Addressing Tariff
Policy
Corresponding Tariff Policy
Encourage water consumption and sales
Encourage water use conservation
Conserve usage in high season and encourage
consumption in low season
Consider both a fixed and variable elements to
price structure
Off-set rates to subsidize initial life-line
quantities
Apply a uniform pricing policy
 Building the Tariff
Strategy
Key Questions to be Considered:
What is the current tariff structure of the utility?
How political are decisions regarding tariff setting within the
Administrative Area?
What are the established tariff methodologies and how flexible
are they in their application?
How is the tariff approval procedure applied?
Will tariffs vary for citizens at different income levels?
How many and what customer categories will exist in the tariff
structure?
What has been the tariff trend over the past five years, and how
does this compare with the cost trend?
What are the main problems associated with the collection of
tariffs?
 Tariff Structures
Uniform Rates

Declining Block Rates

Increasing Block Rates

Seasonal Rates

Combined Fixed and Volumetric Rates

Non-Metered Tariffs
 Specific Fees and
Charges
Field Service Fees

Office Service Charges

Service Application, Engineering,

and Inspection Fees

Contract Work and Merchandise Sales

 Business Planning
Update and Monitoring
Business Planning
Update Process
Scheduling to Conduct the
Business Plan Update
Preparing for Business Plan
Update Process
Conducting the Business
Plan Update Process
Approval of Policy
Governing Body
 Business Planning
Monitoring
Importance of a Monitoring
Process
What Should Be
Monitored?
Reporting and Monitoring
Performance
MARAMING SALAMAT!!!