REAL-LIFE CASE IN POINT
The first decision managers used the tool for regarded blower capacity at the Hillsboro plant.
Initially, the utility thought the plant needed a higher-capacity blower. But after refining the analyses and related assumptions they concluded additional blower capacity wasn't necessary. Even so, they wanted to see how transitioning to newer technology would affect long-term operating costs compared with multistage centrifugal blowers.
A team of consulting and utility employees identified and refined options:Existing blower systemAdd 150-hp turbo blowerAdd 200-hp turbo blowerAdd 250-hp turbo blower
For options 2 – 4, the size of blowers was the primary differentiating feature. Initial capital investment costs and annual operating cost estimates were developed and run through the spreadsheet's financial modules. Where appropriate, projected cost streams reflected electricity utility incentives provided through the Energy Trust of Oregon to reflect the true net costs of implementing each option.
The model allows the user to set the time period for the analysis and make decisions on a number of parameters, such as whether or not to include inflation. The user inputs basic financial information such as the interest rate for borrowed funds and the estimated rate of inflation. Based on several decisions the user makes, such as whether to enter costs and revenues in inflated or uninflated dollars, the model applies an appropriate discount rate within the specified time frame. Embedded comments within the model and pop-up boxes document the formulas used for the key financial metrics, guiding users step by step through the process of developing appropriate input parameters.
For their blower evaluation, Clean Water Services managers excluded inflation and set a 20-year study period.
The first graphic on page 37 shows the results of the financial analysis. Even after a significant upfront capital investment, adding a turbo blower lowers overall costs over 20 years. Compared with the existing technology, the 200-hp option provides the opportunity to save nearly $200,000 over the study period on a present value basis. This option was ranked first for all of the financial metrics used in this analysis.
The model also includes output tables for each option that detail the costs and revenues over the study period. The second graphic on page 37 shows the more detailed stream of financials for the 200-hp option.
The tool also allows the user to identify a sensitivity range around the cost estimates (the third graphic on page 37) to see how sensitive the results of the analysis are in relation to the estimated accuracy of the cost estimates.
For example, the figure below shows the high and low end of present worth results for each option with the following sensitivity around the base cost estimates:Capital costs: +50% to -30%Operating costs: +15% to -25%
Because estimates for the blower evaluation were generated during the conceptual stage of planning, this fairly wide range is appropriate. In other situations, such as when an agency is considering outsourcing a function or service for which it's received specific bids, a much narrower band of cost estimates would be used.
In addition to the financial analysis, managers conducted a nonfinancial evaluation each option using the following criteria:Footprint — Differences in footprint in an existing buildingNoise — Differences in noise, which affects operator comfort, associated with the productsMaintenance — Differences in mechanical complexity and ease of maintenanceRange of operation — The blower's ability to operate over a large range of air flow ratesEase of integration — Differences in mechanical complexity and ease of integration into the existing blower system.
In this case, an equal weight was assigned to each criterion, and numerical scales were used to score the performance of each option on a scale of zero to 10 with 10 representing the best performance. Where appropriate, ProjectSelect allows the user to assign different weights to criteria and provides the capability to set up several types of performance measurement scales.
The fourth graphic on page 37 shows little difference between the options, so nonfinancial considerations had little impact on the final decision. But that's not always been the case.
In one instance, managers were weighing whether to renovate or replace a raw sewage pump station at the utility's Forest Grove facility. Nonfinancial considerations such as safety, ease of operations, and reliability outweighed the financial results, so managers opted for replacement.
One key enhancement is a “decision” sheet, the final graphic on page 37, that summarizes both financial and nonfinancial results and provides a space to document the basis for the decision.
After reviewing all the outputs, Clean Water Services decided to augment the plant's existing blower with a 200-hp turbo blower. According to Cullen, managers were surprised that operating savings alone justified transitioning to technology that requires a greater upfront investment. As a result, the utility will evaluate the cost-effectiveness of converting to turbo blowers at four other treatment facilities.
“In today's tight financial times it's even more important to identify and evaluate opportunities to save money for customers,” says Gaffi.SHARING THE WEALTH
“Our mission is to provide cost-effective, environmentally sensitive management of water resources in partnership with others,” says Clean Water Services Government and Public Affairs Manager Mark Jockers. “To achieve this goal, we see strong value in collaborating with other public agencies to advance the state of practice.”
That's why the utility is making ProjectSelect available as freeware, a decision in keeping with its reputation as a leader in innovation.
In March 2010 for example, managers created the nonprofit Clean Water Institute to commercialize the utility's intellectual property; build partnerships with policy-makers, researchers, and other nonprofit organizations; and broaden access to research and development funding directed toward watershed health.
“We're eager to share our progress with other agencies,” Jockers says.
— Matichich (firstname.lastname@example.org) is global technology leader, Financial Services, for CH2M Hill in Wash., D.C.; Cullen (email@example.com) is engineering division manager for Clean Water Services, Hillsboro, Ore.
Globally recognized leadership
Several years ago, Clean Water Services launched the “Control Our Destiny” program to position operations for a sustainable future. Think about how you might implement one or more of the following initiatives.
Re-engineering most business processes using tools such as benchmarking against public and private operations. Utility managers consolidated three labs into one location, outsourced fleet maintenance, and implemented onsite fueling. Results:Aggressive cost reductions; the operating budget fell from $46 million in 1995 to $40 million in 199722% reduction in work force (from 366 to 285) in two years$72 million in ratepayer savings over 12 years.
Restructuring compensation to include gain-sharing so all employees are rewarded for collaborative work and savings.
Each year, managers set 80 to 100 actionable, measurable stretch goals based on strategic priorities set by the utility's board and leadership team.
Each employee has an equal share in the annual monetary award based on goals achieved. The maximum possible amount is $6,200 annually; the average has been 50% to 60%.
The program rewards strategic thinking. The amount paid out is a fraction of the savings accrued from process improvements and other re-engineering efforts.
Instituting credit trading for point and nonpoint source pollutants. Faced with a potential temperature total maximum daily load that would require a significant capital investment, managers formulated an ecosystems trading program that includes stream restoration and flow augmentation. Visit http://willamettepartnership.org for details.
To access a free copy of ProjectSelect, click here.