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Totally Totex – we need to think differently

The water industry is not immune from the attention of government and regulator in the drive to get all utilities to deliver better value for their customers.

A good example of this is how Ofwat, the water industry regulator, has moved to a Totex (total expenditure) approach to expenditure, measured against long term, customer-focused outcomes. The aim is to drive water companies to consider expenditure in a more holistic way. The distinction between capital and operational expenditure has been removed allowing different and innovative approaches to be combined in the management of assets to achieve the delivery of customer-valued services.

This is totally different to the previous “whole life”, asset-based approach. It means embracing wider issues, like the balancing of maintenance, operational and replacement options, source control catchment-based approaches and behavioural change programmes. But it’s a great opportunity to create and deliver pioneering solutions and it will create happier customers.

To get the most from this approach, all those working within the industry, whether operators or suppliers, will need a transformational change in their culture and ways of working. This change can be effected through a series of enablers which fall into two broad areas.

Firstly, founding risk based decision making on improved asset data. This will require greater integration of the right performance data with business intelligence and planning to enable greater understanding of both asset performance and the financial impact of activities. The challenge of improving the collection and use of both asset operational and cost data is tremendous, but it is achievable. However, without fundamental changes to the way customers, water companies and their supply chain interact and align mutual benefits; investment in data will not deliver its return.

A simple example of the potential benefits of this approach is to look at sewer blockages. Although approximately 20% of blockages are due to asset condition or design and 80% are caused by materials which should not be in the sewer network, to date the response has been to apply blockage clearance techniques or to go straight to sewer redesign or rehabilitation. A Totex approach to reducing sewer blockage incidents would involve first collecting the right asset data. This can then be used to drive more pro-active maintenance work together with a campaign to reduce unwanted material from the network by changing customer behaviour. This might create a short-term increase in operational expenditure but the long term reduction in operational incidents increased customer satisfaction and improved health and safety would more than balance the books.

Secondly, putting the right structure in place to enable change to be effective. This cannot be confined to just a single part of the industry, it needs to be applied across water companies and their supply chains in a collaborative and integrated way. Key enablers for success will be alignment of organisational structure, business culture, and operating philosophy to the Totex approach. The recognition and will to fully understand the new Totex environment, plus the commitment to implement the necessary organisational, behavioural and operating changes, needs to start at the highest levels across the water industry.  Innovation needs to be embraced, not just in developing new solutions to solve actual needs, but to create new approaches to procurement and mutual incentivisation.

If the water industry really embraces the Totex approach the prize is a big one. The freedom to invest in and operate assets in an integrated way will present opportunities to deliver different and innovative solutions to meet the outcomes being sought by both customers and regulators.

  • Richard Ratcliff is water sector director at MWH

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