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Improving commercial efficiency in water Improving commercial efficiency in water utilitiesutilities
Review of business practices in private and public companies
Commercial Practices SessionMay 8, Vienna, Austria
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Table of Contents
Commercial Efficiency as a Concept 3
Focus Areas Selection 4-5
Idea Sources 6
Area 1: Commercial Cycle and Customer Service 7 – 10
Area 2: Financial Management 11
•Area 3: Business Planning 12 – 13
•Summary and Final Thoughts 14 – 15
•Contact Details 16
The Basic Idea
Commercial Efficiencies
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An industry that loses up to 80% of its product before it is physically delivered to the end client can hardly be called or even expected to be commercially efficient…
What can be done…
Some definitions:
Commercial: making or intended to make a profit
Efficient: (1) achieving maximum productivity, (2) working in a well-organized and competent way
Focus Areas
Commercial Efficiencies
Everyone thinks that utility ops is a technical & engineering business.
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Business PlanningFinancial managementCommercial Cycle & Customer Service
It is !!!
This presentation, however, will focus on rather business & commercial areas…
Common features:
Can deliver results in less than 1 year
Similar to same functions in other industries
Not very CAPEX intensive
Message: Even best performers in technical areas cannot afford to underestimate financial and commercial aspects of the job.
Focus Areas - Extended
Commercial Efficiencies
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Business PlanningFinancial managementCommercial Cycle & Customer Service
- Regulatory planning and tariff reviews
- Group-level long-term plans
- Investment programmes- Annual plans
- Financial accounting- Management accounting
- Budgeting and cost control- Treasury
- CAPEX planning- Inventory management
and procurement controls
- Meter installation, testing and maintenance
- Meter reading- Data entry and billing
- Collection- Call centres and
complaints handling- Interactive websites
Rarely a utility (or any other) company can perform greatly if some of these non-technical functional areas of the business are neglected. Terminology is not that important, what matters is processes and integrated management approach.
Idea Sources
Commercial Efficiencies
Sofiyska voda25-year Concession
Part of Veolia (private)1.3 million people served
> 4 000 km of network> 80 million m3 billed/y
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Dobrich WaterRegional Bulgarian operator
100% state owned< 200 000 population served
> 3 000 km of network< 8 million m3 billed/y
Message: Private operators focus on commercial and financial measures by default, municipal and state-owned ones – when the owner requires, when the management believes in that or when the situation demands such approach.
Commercial and financial management are integral business functions and priority of top management on daily basis.
Liquidity, cost of capital and collection rates became a priority after a rapid analysis undertaken as a result of a crisis.
1. Meter Installation and Testing
Stages of the Commercial Cycle of a Water Utility Operator
- Under-registration- Ageing- Blocking &
manipulation
- Under-registration- Ageing- Blocking &
manipulation
2. Meter Reading3. Data Entry and
Billing 4. Collection
Identified Issues among Water Operators
- Access to meter- Real vs. fake
reading- Illegal connections
- Access to meter- Real vs. fake
reading- Illegal connections
- Quality of data- Estimation rules- Control
mechanisms
- Quality of data- Estimation rules- Control
mechanisms
- Willingness to pay- Tracking
receivables- Control over clients
- Willingness to pay- Tracking
receivables- Control over clients
- Demand profiling & higher class meters
- AMR- Flow reducers
- Demand profiling & higher class meters
- AMR- Flow reducers
Scope of Measures to Address the Issues
- PDA-tracked real-time readings
- Daily schedules- Pipe tracing
- PDA-tracked real-time readings
- Daily schedules- Pipe tracing
- Implement estimation rules
- Exception handling process
- Implement estimation rules
- Exception handling process
- Aged debt report- Remotely-controlled
stop valves- External collection
- Aged debt report- Remotely-controlled
stop valves- External collection
FAILURE IN ONE STAGE = FAILED PROCESS
Commercial Cycle
Commercial Efficiencies
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Commercial Cycle: Example
Commercial Efficiencies
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Issue 2: Meter under-registration: solvableIssue 1: Falling consumption:
unsolvable
A useful Approach: Demand Profiling
Customer Service: Utilize Your Website
Commercial Efficiencies
Personalized accounts: simple way to collect customer data
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Visualized communication of interruptions of supply
Cheap & effective way to get meter readings
Develop brand identity
Make the life of your call centre easier…
Customer Service: Example
Commercial Efficiencies
Visualize Interruptions of Supply
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Financial Management: 3 useful concepts
Commercial Efficiencies
1. WACC matters. Why: In similar companies, depending on debt structure it can vary between 3% and 9%...
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3. One-step further: Activity based costing - 4 application areas
2. Budgeting is simple. 95% of the costs incurred can be summarized in 5-15 cost centres
Leak Repair Sewer Unblocking Meter Installation House Connection
Various types of planning
Commercial Efficiencies
1. The regulatory BP (usually 5-year)…
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2. The master business plan for the
shareholders…
4. The budget5. The annual business
plan (for the management)
3. The investment programme
Message: Annual business plans are down-to-earth management tools with specific and measurable targets.Multi-year (long-term) business plans are common commercial practice and should be implemented given predictability of CAPEX and regulatory requirements.
The Annual BP - Practical Approach
Commercial Efficiencies
The Annual BO is … annual
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Gives three targets to every director (at least three, at most five)
If the ops director, the commercial director and the financial director achieve all their targets, and the company is not making a progress, the CEO knows nothing about the business! Avoid easy targets!
The Annual Business Plan is the best communication tool for internal audiences!
It is also the easiest way to fire people in a legally and morally compliant way…
Summary of Good Practices
Commercial Efficiencies
1. High consumption users (>100 m3/m) & tackle their under-registration2. Introduce aged-debt reporting3. Create customer-registration option in your website
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Commercial Processes
1. Analyze who is financing the company (WACC)2. Simple cost centres & don’t forget profit centres3. Introduction of ABC where it makes sense
Financial Management
1. There are many plans, however for management and internal-communication purposes, one document has to be The Annual Plan.2 Goals & objectives3 People understand bonuses
Business Planning and Organizational Issues
Example Achievements
15% Collection improvement over 6 months
11% billed volume increase due to Class C block meters
System of 15 cost centres introduced and productivity of emergency repair teams almost doubled.
2-year stabilization plan outlined within a 6-month project.
Final Thoughts
Commercial Efficiencies
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Commercial efficiency is not about ownership, it is about management. It would be exaggerated to say that commercial efficiency is more important than technical proficiency. Business-wise, however, they are of equal meaning to a utility operator.
It does not happen overnight but a series of real measures can be implemented for something like 6 months. Results can be witnessed in less than 12 months.
Usually that is far quicker to carry out as compared to CAPEX-intensive technical projects while contribution is of similar magnitude.
Focus on where there is a combination of (1) real results, (2) visibility, (3) potential for replication.
Questions
Commercial Efficiencies
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Radoslav RussevSenior Advisor Water & Environment
New Europe Corporate Advisory Ltd.9 Narodno Sabranie SquareBG-1000 Sofiatel.: +359 (2) 988-7390Mob: + 359 886 442 758web: http://www.necadvisory.com
Question and Answers?
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