Last week regulator Ofwat was expected to tell water companies the final determination of their business plans for the next five years. While the companies all have different geographies and population characteristics, one thing those business plans have in common is a commitment to making massive efficiency savings.
Ofwat has told the companies that, in the forthcoming AMP6 regulatory period, they must focus on their customers and cut their spending accordingly.
“They have presented the industry with an efficiency challenge that water companies and the supply chain need to meet,” says MWH water sector director Richard Ratcliff. “We have got to get better and more efficient in AMP6.”
This challenge has not come out of the blue, and water companies have been using frameworks and alliancing for many years to try to get costs down and create greater value. But the nature of the work to be carried out in AMP6, together with Ofwat’s new emphasis on customerfocused outcomes and whole life expenditure, mean new ways of thinking will be needed.
After almost 25 years of major projects to build new treatment works, water companies have reached a position where they have most of their major assets in place. AMP6 is, therefore, all about optimising those assets and making the process of supplying clean water and sanitation as efficient as possible.
“We need to achieve efficiencies right across the project lifecycle - from starting to think about a project to when you hand it over to the end user and beyond”
Richard Ratcliff, MWH
“Water companies delivered a lot of efficiencies in AMP5, but we’ve got the law of diminishing returns, so this is going to be a real challenge,” says Ratcliff. “You can see that we need to achieve efficiencies right across the project lifecycle – from starting to think about a project to when you hand it over to the end user and beyond.”
If the water sector is to achieve its ambitious efficiency targets, management organisations need to be as effective as possible, with everyone clearly understanding their role, says MWH senior management consultant Kath Markey.
She acknowledges all the good work that can be achieved through better supply chain relationships, off site techniques and catchment management, but says: “When you come to deliver that, if you don’t have good programme management processes, you will lose efficiencies and start to erode some of these good ideas.”
AMP programmes include multiple projects, with huge numbers of variables, which are often interconnected. But they are being delivered by different organisations, some of which have never previously worked together.
“With that comes risk, and trying to get that sorted out takes time – which generally costs money,” says Markey.
“So the issue is how we get this all integrated so that everyone is working together as effectively as possible as quickly as possible.”
Classic pitfalls, Markey says, include creating management pyramids. “They think this is a way to manage information, but it just makes it worse. You get layers – people who’ve got an opinion on top of people who’re trying to do the work, and that just creates extra dead load on top of these delivery people.
“The whole thing slows down, and you end up spending more money and time, and draining morale.”
Instead, she advocates creating an organisation that only has two layers: delivery and strategic. “Delivery is the time/quality/cost triangle – that’s their job,” she says. “They are qualified people who we should trust to do it.”
The job of the people at the strategic level is to be “boundary managers”, Markey explains. “Their job is to define what the boundaries are, and set things up so that everyone understands how they’re performing. As long as they’re performing within their boundaries, they just carry on. And it is up to the strategic people to deal with the problems these people can’t deal with – like interfaces and resource management.”
He says the required approach is similar to the way the British cycling team managed to become the best in the world – by making marginal gains in every area.
“We have seen Anglian Water delivering a lot of efficiency through AMP5 with off site construction – that was highly successful,” says Ratcliff. “And the 4D alliance for Southern Water has done a lot of catchment and holistic thinking, which has resulted in some really innovative solutions.
Not surprisingly, while water companies were building and extending major treatment works, their emphasis was on reducing the physical cost of building those assets – the “pound in the ground”, as MWH Treatment managing director Paul Gledhill says.
“Now, there is a lot more emphasis on the costs associated with that pound in the ground.”
AMP6 projects will be much smaller, so the 20% efficiency savings that water companies are looking for cannot be achieved by cutting the cost of the materials or components.
“When it comes to unlocking value, the biggest difference I’ve noticed is seeing innovation coming from the service delivery people”
Paul Gledhill, MWH
This is not about trying to shave 5% or 10% off the cost of that asset – it’s about reducing the time it takes to get that asset there,” says Ratcliff.
MWH treatment director Tom Standring says this creates a completely different environment for innovation.
The water companies know that they can only make serious efficiencies in the way they operate their assets if they have accurate information about them.
As a result, many have appointed firms like IBM and Accenture in addition to engineering and delivery expertise.
MWH director Andrew Cowell refers to building information modelling (BIM) as “little BIM and big BIM”.
“Little BIM refers to what happens within the supply chain – the capital delivery partners and suppliers,” he explains. “Big BIM is when you integrate that within the long term lifecycle management systems of the owners and operators.
“In little BIM the benefits come about through better use of information for understanding the needs at the business plan stage, and selecting the preferred options that take the needs through to capital delivery. That’s where you get efficiency out of capital delivery – by getting solutions right first time, collaborating with the supply chain, using more off site construction, fabrication and standard products.”
Beyond this, water companies also recognise that better data and information allows them to operate their projects more effectively. It also gives them better knowledge about their asset performance – which in turn makes it easier for them to argue their case to the regulator and inform their customers about why they need to spend money. This is Cowell’s “big BIM”.
MWH product line leader Ajay Nair adds: “In this AMP more than any other, a lot of the work is based on capital maintenance rather than legislation and quality drivers. So how do we create better business plans and better prioritisation? How do we make sure we are repairing the right thing? If I fix that [asset], how much improvement do I get? And what about other consequential benefits, like carbon, energy and operating costs?
“We want to move into a world where we understand the unit costs across the entire boundaries of the system; and we need to understand how to get that information, because it is dispersed in different locations,” he adds. “Which means collecting it, and putting it in the right space and location, and putting the right people in front of that data so that you know how to effectively spend what capital you have to get more of the outcomes.
“That’s a big step change for water companies and that’s what they’re starting to get to grips with.”
“We are going to have to take a bite from every element of whatever we plan to deliver,” he says. “This gives us a big opportunity to go about things with a different mindset.”
This includes engaging with as many people as possible, both within the supply chain and with operators. “When it comes to unlocking value, the biggest difference I’ve noticed is seeing innovation coming from the service delivery people,” says Gledhill. “They’re the people who operate the assets, so they know how to fine tune them.”
MWH is using technology to help with this engagement, for example 3D models and immersive virtual reality so operators can “walk though” a proposed project and think about how they will maintain it.
The company is convinced that the process of building and installing assets in the water sector can be made far more efficient by minimising work done on site, and doing far more off site under factory conditions (see box). Allied to this is the need for the industry to start using standard products, rather than designing bespoke solutions for each project.
“Traditionally we have always designed a bespoke solution to something that’s a standard problem,” explains Gledhill. “If things are arriving to site that people are familiar with, it is far more productive, and standard products are facilitating that. It allows us to de-risk the programme, because we’re not designing to procure, but procuring and assembling on site.”
As Standring says: “We should start thinking of ourselves as integrators of supply chain packages, as much as constructors.”
Developing standard products requires a different relationship with the supply chain, including giving them guarantees about the volume of work they can expect. “The challenge is all about management and working relationships with the suppliers,” says Ratcliff. “I think they’re ready for challenge, but capacity has got to substantially increase.”
In addition to standardising products and components, Ratcliff says the industry also needs to standardise designs. “We need to look at programme optimisation – how can we deliver projects so they tie up together, for example by clustering projects according to geography or type,” he says.
“That means enabling people to think about standard designs – using the same products and solutions across multiple sites – to reduce the input from engineers and construction staff.”
That in itself is a significant challenge, as it involves changing how engineers see their role. “Having managed engineers all my life, I understand the importance of the way we need to present this challenge,” says Gledhill. “Traditionally their role has been taking a problem and finding a solution.
“Now we need to get people to think about standard products – designing a black box that can fit into many situations. We need to inspire people to think of that as significant an engineering challenge as was bespoke traditional design. Which means connecting the engineering workforce into the societal impact of what we do.”
Although AMP6 does not start until April 2015, most of the water companies appointed their delivery teams and framework suppliers months ago, and have been working on their programmes and putting new cultures in place to achieve the efficiencies they’re looking for. “A number of water companies have had teams preparing for the start of AMP6, and looking at where they are going to get the efficiencies from,” explains Ratcliff. “And they have started to engage with the supply chain so that, come 1 April, a lot of delivery teams will be able to break ground.”
Hitting the ground running may be the best way to avoid the ramping up and winding down that usually accompanies the start and finish of an AMP cycle, but if serious efficiencies are going to be achieved, more time must be spent making sure programmes are optimised as far as possible.
“We are starting to explore what we can do in the totex [total expenditure] environment, but we have to make decisions at a certain point, in order to get things built,” says Ratcliff.
“There will be some “no regrets” projects that will be done in years one and two, which gives you space and time to maximise efficiencies in years two to five.” These “no regrets” projects might be critical capital maintenance to meet drinking water quality or serviceability targets.
“We should see productivity efficiency, some early standard products and lean delivery in these projects,” says Ratcliff, “but we are going to get more efficient as we go through the AMP.”
The arguments in favour of off site construction and factory assembly are well rehearsed: it is safer, often quicker, is unaffected by weather, and the quality is easier to control. But even though the last AMP has seen an increase in the amount of work done off site, far more could be done.
“In electrical installation, it’s been happening for 10 or 15 years,” explains MWH Treatment operations manager Steve Kennedy. “And in AMP5 there was a marked shift from traditional in situ pouring of concrete to prefabricated civil structures. But the mechanical part of the business has lagged behind.”
At the moment, he says, projects are designed, and then the construction teams work out how much – if any – of the work can be done off site. But this is not the way to achieve all the benefits and efficiencies inherent in factory production.
“We need to change our way of thinking at the beginning of a project,” says Kennedy. “It is easy to apply off site construction if you’ve decided that at the start, but the challenge is designing projects to be done that way. “If you say ‘we’re going to build it like this’, then you can look at how everything else fits in,” he adds. “We have to get people to think in articulated lorry size blocks at the very beginning.”
If the industry adopts standardised products, as has been suggested, there will be more scope for thinking of a project as something to be assembled rather than constructed. As design manager for Anglian Water’s @One Alliance, Mark Froggatt has been involved in working with suppliers to develop a catalogue of standard designs and products.
“We call it ‘benefit by design’, and it is allied very closely to the commercial aspect and to industrialised construction,” he explains.
“What we’re trying to do is reduce construction time by 50%. It is very easy to focus on the big picture items, but we have looked at the jobs that we repeat day in day out, and made these much more efficient. We have concentrated on the things we repeat, and we have approached the supply chain on that basis and challenged them to be more efficient.”
He adds: “We are also trying to get the engineering community to be integrators rather than continually redesigning all these different bits. It’s where we connect one bit to another where the errors come about, and that’s where I want the engineering community and supply chain to work together.”
Froggatt says the alliance is fairly mature in its approach to integrating the supply chain, and this has resulted in some really good efficiency savings, but to get to the next stage “needs something different”.
“The supply chain responds to whatever we ask it, but in my view we ask the wrong question,” he says. “We ask them if they can do x, y, or z. What we never ask them is ‘what can you do for us?’”
He cites the example of GRP kiosks that house motor control centres (MCCs) within treatment works. Although the length of the MCCs varies, the width does not, so the alliance approached the GRP manufacturers to find out if there was scope for standardisation. The result is a simpler – and cheaper – manufacturing process, and cost savings for the water company.
Holistic catchment solutions
IOne way most water companies are planning to achieve efficiencies in AMP6 is by adopting a “holistic catchment approach” – lookingat supply and treatment across the whole catchment of a river, rather than at individual abstraction locations or discharge points.
It also means thinking about the whole water cycle, says MWH technical director Chris Barker. “Unless you can manage the whole water cycle, you are going to lose water at some stage. You have to look at the environmental capacity of the catchment – making sure you have enough water for supply and enough for discharge.
“You can do that in lots of different ways, for example the reuse of effluent for aquifer recharge – and by realising that water we’ve traditionally thought of as waste is not.”
One way to achieve savings would be to encourage farmers to change the way they use pesticides like metaldehyde to reduce the amount that goes into rivers. At the moment, water companies spend money treating abstracted water to remove metaldehyde – a process that is expensive and not guaranteed to work. Instead, it could be spent incentivising farmers to reduce run-off.
He anticipates some significant catchment management pilot projects in AMP6, to give water companies an idea of what can be achieved and to learn to work with new stakeholders, including landowners and the Environment Agency. “For these things to succeed, you need cooperation and understanding each others’ mutual goals,” says Barker.
Produced in association with MWH.
Technical Excellence: Meeting the efficiency challenge