Capital planning at a major US water utility

The client recognized that their existing approach to capital planning was hindered by their existing systems, tools, data, standards and organizational structure.  They needed to align their people, processes, data and technology to capitalize on asset management efficiencies and improving effectiveness.

 Effective budgeting requires a reliable process for the provisioning of capital resources to meet strategic objectives through top-down availability of funds comparison with bottom-up assessment of project requirements. This was absent in this case.

In our research into best practices and what makes the difference between ordinary companies and those with mature processes which deliver reliable outcomes we found that budgets should be linked to project plans, well documented (with assumptions) and aligned with company financial processes & systems. Estimates need to be realistic and consistent and budgets are consistently achieved with reserves used to boost margins or redeploy to other priorities.

 Referring to our project portfolio delivery effectiveness practices pyramid below, financial management is a differentiating practice and development in this area would significantly improve the overall delivery effectiveness of our client’s organization.

What we found

  • They needed to know how their systems, processes, data, standards and operations should be aligned to make the best use of capital funds for mains replacement/renewal
  • They wanted the best approach or model to predict the optimum level of capital expenditure required to maintain their network infrastructure
  • There were disparate, non integrated systems and data with organizational and system overlaps
  • Capital projects not managed according to any portfolio optimization objectives.

 What we did

  • Started out by building a Business Plan, with full participation and input from within the different business departments, that would identify prospective initiatives that if executed would move the client towards achieving their two primary capital allocation objectives.
  • Developed a prioritization model for capital budget planning to avoid time-wasting arguments and ensure a portfolio that always aligns with strategic objectives.
  • We conducted a highly participative review of existing business goals and objectives related to asset management, in addition to the supporting asset data, systems and processes in use within the business.

 What was achieved?

  • The client now possesses the roadmap of activities needed to align their people, processes, data and technology to answer the key questions related to asset management efficiencies and improving effectiveness of mains replacement and renewal expenditure.
  • We provided a Business Plan that clearly articulated the initiatives that the client should engage in to realize their objectives for improved asset management and capital allocation performance.

 This fundamental framework now underpins their planning process and budgeting delivers reliable results with the added benefit of making surplus funds available for redeployment to other priorities.

 John Hall

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