Automation of Water Resource Recovery Facilities. Water Environment Federation

U.S. Office of Management and Budget’s (1992) Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs states, “The standard criterion for deciding whether a government program can be justified on economic principles is [NPV]”.

4.2 Risk Analysis

      Automation projects are often implemented to reduce risks associated with different potential failures. Risk analysis provides an approach to quantifying risks to the utility and communicating how the project can reduce the utility’s risk exposure. A typical risk analysis considers the probability or frequency of expected failure, the consequence of that failure, and combines the two into an overall risk assessment. Figure 2.2 shows a high-level example of risk analysis.

TABLE 2.3 Calculation of present worth (P/F factor = P/F).

      FIGURE 2.2 Risk analysis example.

      Risk is defined as the probability of failure multiplied by the consequence of failure. In the example diagram in Figure 2.2, the darker shaded areas correspond to higher risks. An example project shows a corresponding reduction in risk. Risk analysis is a reasonably straightforward analysis and there are many references available on the subject.

4.3 Approaches to Incorporate Intangible Benefits

      There are several approaches being considered and used to incorporate tangible and intangible costs and benefits, appropriately weighting each, that can provide a framework for appropriate decision making. These include approaches based on asset management principles (U.S. GAO, 2004), triple bottom line (Savitz and Weber, 2006), and “the balanced scorecard” (Kaplan and Norton, 1996).

4.3.1 Asset Management

      Many utilities are now incorporating asset management principles to managing capital infrastructure. These principles are aimed at minimizing the total cost of asset ownership while achieving desired service levels. Fundamental components of implementing asset management concepts include the following:

      • Collect information on existing assets—this includes an inventory of the assets and an assessment of the current condition, maintenance history, capacity, performance, and expected remaining useful life of the assets;

      • Analyze information—this includes considering life cycle costs for investment alternatives; assessing the criticality of the asset to the organization and the risk of failure; optimizing decisions on maintenance, repair, and replacement; and setting appropriate priorities based on the analysis; and

      • Link infrastructure projects to desired organizational service goals and operating budgets.

4.3.2 Triple Bottom Line

      The triple bottom line approach to investment decisions is also referred to as the “three Ps” of investing, that is, “profit”, “people”, and “planet”. This method includes consideration of economic, environmental, and societal effects of any investment decision and is a fundamental element used in determining the sustainability of an investment. A challenge of this method is that it is difficult to develop an overall project score because the “people” and “planet” elements are difficult to quantify in terms of dollars.

4.3.3 Balanced Scorecard

      In response to the need to consider intangible benefits in business decision making, Kaplan and Norton (1996) developed a balanced scorecard approach that is included in their book, The Balanced Scorecard. This methodology focused on business case analysis in the Information Age. The balanced scorecard approach begins with an organization’s primary vision and mission, breaking down investment decisions into the following four organizational considerations:

      • Financial effects—are we investing responsibly and are there tangible benefits?

      • Customer effects—are we providing good service and how do our customers view us?

      • Business process effects—are we efficient and providing value? and

      • Learning and growth—are we improving as an organization?

      The intent of Kaplan and Norton’s methodology is to provide a generalized approach to investment decisions that fundamentally incorporates primary organizational goals, including financial and nonfinancial goals. Although initially focused on the private sector, this approach has also been used in the public sector. The balanced scorecard approach involves developing a scorecard rating approach for projects. This allows for assigning relative weights to strategic objectives, providing a balanced look at how the project benefits the organization and meets the needs of its customers.

5.0 FORMULATING THE BUSINESS CASE

      A significant automation project or program can affect the entire organization. Therefore, development of the business case should include management and key representatives from groups involved in all levels of the process, from developing project objectives to reviewing the final business case.

      Project goals and objectives should be clearly identified and should align with the overall utility mission statement. This is particularly important for projects being considered that may not be justifiable based solely on tangible benefits. Most utility mission statements include both tangible and intangible elements. In instances where the project is being proposed in part or in whole for intangible benefits, being able to articulate how the project will directly benefit the overall utility mission will help communicate the value of the project to upper management.

      A good business case should give an honest and upfront consideration of alternatives, with a clear analysis showing the tradeoffs between the different approaches and why the proposed approach was selected. This provides management with an understanding that the recommended approach is well thought out and may help answer questions that might otherwise arise.

      A thorough cost estimate should be included that provides adequate budgeting for reasonably expected costs. It is important to state unknown factors or items that may affect costs; similarly, expected benefits should not be overstated. The business case should provide information for management to make well-informed decisions regarding project costs and expected returns.

      Some utilities look for a specific type of cost–benefit analysis to be provided for projects. A method should be selected that is inline with how the utility management typically wants to see the information. However, selecting the wrong type can result in a weaker business case being presented. Most automation projects have a strong set of intangible benefits. Thus, selection of a financial-only approach will often not articulate benefits in the correct light. Financial-only methods should only be used for projects that are being conducted strictly for tangible cost savings. For projects that reduce risks, a risk analysis should be incorporated to communicate how this project will affect its risk exposure.

6.0 REFERENCES

      Bates, R.; Montoya, M. (2010) Dewatering Automation and Optimization at the Morris Forman Water Quality Treatment Center. Proceedings of the Water Environment Federation Residuals and Biosolids Specialty Conference; Savannah, Georgia, May 23–26; Water Environment Federation: Alexandria, Virginia.

      California Energy Commission (2003) Water/Wastewater Process Energy, Electric Load Management; California Energy Commission: Sacramento, California.

      Christensen, P.; Dysert, L.; Bates, J.; Borowicz, J.; Bredehoeft, P., Jr.; Brown, R.; Burton,