FBMP Guide Doc 22Feb2013 - UBCMand~Policy/Policy/... · 2017. 3. 30. · SWSFinancial#BMPGuide#####22nd#February#2013#####Union#of#BC#Municipalities# # SustainableInfrastructureSociety###2013#

SWS Financial BMP Guide 22nd February 2013 Union of BC Municipalities

Sustainable Infrastructure Society 2013

Financial Best Management Practices for Small Community Water Systems in British Columbia February 2013 Prepared for: Union of British Columbia Municipalities Suite 60 10551 Shellbridge Way Richmond, BC V6X 2W9

Prepared by: Sustainable Infrastructure Society PO Box 3075 STN CSC R-‐Hut McKenzie Avenue University of Victoria, Victoria B.C. V8W 3W2 Tel: 250-‐472-‐8660 Fax: 250-‐721-‐6497 Email: [email protected] Web: www.WaterBC.ca

SWS Financial BMP Guidelines 22nd February 2013 Union of BC Municipalities

2 | P a g e S u s t a i n a b l e I n f r a s t r u c t u r e S o c i e t y 2 0 1 3

Acknowledgements

1. We are very grateful for direction provided by the members of the UBCM Steering Committee during the course of this project.

2. We are pleased to acknowledge the contribution of individuals associated with several

provincial government ministries concerned with the supply of water, and of staff of regional health authorities.

3. We very much appreciate the assistance from members of regional water associations and from

knowledgeable individuals with specialist experience related to the financial aspects of small water systems.

4. We are especially grateful to those members of the various small water systems who

participated in the pilot projects, which were an important part of the development of the BMPs included in this project.

5. The Sustainable Infrastructure Society (SIS) is very grateful to the team of experienced

individuals who contributed to this document.

Questions Questions and comments concerning the content of this document should be directed to:

Vernon John Rogers M.Sc. P. Eng Sustainable Infrastructure Society

Email: [email protected] www.WaterBC.ca

Please Note This document and the information it contains are intended only as a general guide. It is not intended to replace the services of experienced specialists where these services are warranted by specific circumstances. The information presented in this document was compiled for the purposes stated in this document, and with the understanding that each user accepts full responsibility for the use and application of the document and the information it contains. The Sustainable Infrastructure Society, its directors, advisors, staff, and contractors, have exercised reasonable skill, care and diligence to assess the information acquired during the preparation of this document; however, they make no guarantee or warranties as to the accuracy or completeness of this information, make no representation as to the appropriateness of the use of this document in any particular situation, and do not accept any liability for loss, injury, or damage that may be suffered by any person or entity as a result of the use of this document.



Contents 1 Is this Guide for Me? .............................................................. 4 1.1 Benefits of BMPs ........................................................................................................... 4

1.2 Contents of This Guide ................................................................................................... 5

1.3 Getting Started .............................................................................................................. 5

1.4 Terms Used in this Guide ............................................................................................... 6

2 About Best Management Practices ........................................ 7 2.1 Why Start with Financial BMPs ...................................................................................... 7

2.2 The Make-‐Up of a BMP .................................................................................................. 8

2.3 Creating Building Blocks ................................................................................................. 8

2.4 Six Financial Best Management Practices ..................................................................... 10

2.5 About Reserve Accounts .............................................................................................. 11

2.6 BMP “Road Map” and Linkages .................................................................................... 12

3 Six Best Management Practices ............................................ 14



Your Team “Your team” as used in this Guide is a flexible term. In some cases it may mean only a small group of volunteers, or even just the owner and family members. In another case it may include volunteers, a part-‐time operator, trustees, and even a paid staff member.

Confidential Completed worksheets from this Guide could contain sensitive information about your system. Be sure to store these worksheets in a secure place.

1 Is this Guide for Me? This Guide is for owners and operators of small water systems in British Columbia ranging in size from a handful of connections to one hundred or more. The Guide describes aspects of financial management and provides tools to develop a financial plan for the lifetime of your system. Specifically, it outlines a series of Best Management Practices that are practical and proven methods used by successful water systems to operate sustainably. An explanation of terms used is given in Section 1.4 below. There are six Best Management Practises (BMPs) described in this Guide. They help to:

BMP A. Create a basic asset inventory BMP B. Build an asset management plan BMP C. Create a five-‐year operating plan BMP D. Establish a long-‐term financial plan BMP E. Determine sustainable water rates and charges BMP F. Develop a communications plan.

You do not have to use all six at once. You may choose to apply one or two to start, and then implement other BMPs when you have the resources. You should encourage the members of your team to look through this Guide.

1.1 Benefits of BMPs Using BMPs in your water system will provide you with important benefits. For example, they may help you to:

• develop water rates that reflect the true cost of service • justify water rates to users • budget for infrastructure upgrades, both current and future • propose reasonable timelines for compliance • explain future plans to customers and decision-‐makers • prepare successful loan applications • demonstrate due diligence to regulators and lenders • reduce the possibility of omitting important issues • save money and improve communication.



Quick Start To make a quick start and build confidence, look though Section I of this Guide. Then review the first BMP in Section II and complete the first simple worksheet. Now you are on your way.

1.2 Contents of This Guide This Guide is divided into these sections:

1. Is This Guide for Me? 2. About Best Management Practices 3. Six Financial Best Management Practices

Part 2 provides an overview of BMPs. Part 3 includes six financial Best Management Practices and provides the tools you need to apply them to your water system. In each BMP you will find links to further information to help in the management of your water system.

1.3 Getting Started Before you start thinking too much about individual BMPs, it’s a good idea to think about overall goals for your water system. For example, you might set as a goal the achievement of long-‐term financial sustainability. That goal may then lead you to set a quantifiable objective (one that you can measure) such as: “We will introduce sustainable water rates by 1st January 2014”. BMP C will help you with goal setting. Having a quantifiable, measureable, objective will encourage you to identify the actions necessary to achieve the objective, and in turn you can identify any barriers to taking the actions. These barriers may suggest certain skill-‐building required by your team members. And that encourages learning about individual BMPs. To get started in the use of BMPs, look through Section 1 of this Guide. Then look through one of the BMPs in Section 2 to get an idea of how they are used. The first BMP: Create a Basic Asset Inventory, is a good one to start. To use this Guide effectively, you need to take a team approach. Even if you have a very small system, say twelve connections, you can create a team by bringing together interested property owners. Share this Guide with key members of your team so that you have a common understanding of Best Management Practices and their benefits. It’s important to note that the BMPs in this Guide do not cover every aspect of the financial management of small water systems. The BMPs cover certain topics only. They support and enhance financial management tools, such as a statement of income and expenses, that most water systems already have in place. You will find it easier to work work with the BMPs if you already have basic financial information available, such as a worksheet showing your annual operating budget.



1.4 Terms Used in this Guide

BMP or Best Management Practice

A method which is shown to be an effective and practical means to achieve an objective while making the best use of resources

Building Blocks The name given to various checklists, schedules and worksheets which together make up the core components of each BMP.

Excel worksheet An electronic worksheet created using Microsoft Excel software.

Inventory A list of equipment and other assets owned by the water system

Reserve account or Reserve Fund

A pot of money that is set aside for a specific named purpose such as an “Emergency Reserve.” Reserve accounts are defined in BMP C: Create a Five-‐year Plan

Stakeholder A person or group who affects, or can be affected by, the actions of your organization.

Sustainable Meeting the needs of today without compromising the ability to meet future needs also.

Word document An electronic document created using Microsoft Word software.

Note: The terms Capital Reserve , Construction Reserve and Investment Capital are sometimes used interchangeably. The terms Renewal Reserve, Replacement Reserve and Sustainment Capital may also be used interchangeably.

Deferred Capacity Reserve Fund (DCRF) This is another form of Reserve Fund which is sometimes used. It holds money for future upgrades that will be paid for by developers who want the water system expanded to service their new developments.



BMPs This Guide is concerned with financial Best Management Practices. To keep things simple we refer to them as Best Management Practices,or BMPs .

2 About Best Management Practices A Best Management Practice (BMP) is simply a method or approach that is shown to be an

effective and practical means to achieve an objective while making the optimum use of resources. A "best" practice can evolve to become even better as improvements are discovered. Creating BMPs is an iterative process: do it the first time, implement the BMPs, and then make improvements as experience is gained. BMPs for water systems can be grouped in three categories:

• Management and Making Decision • Operations • Finance.

The BMPs in this Guide are in the Finance category. In future, BMPs may be developed to cover the other categories related to small community water systems in British Columbia. For example, one suggestion received during the pilot phase was a BMP about securing easements and rights-‐of-‐way. You may need to be selective in using the BMPs. For example some very small systems may not have use for all the information provided, and in some cases there may be parts of the worksheet templates that you can delete because they do not apply to your system. Adapt the BMPs to suit your circumstances and resources, in a way that helps you to deliver safe, secure and sustainable water supplies

2.1 Why Start with Financial BMPs Small water systems in BC will benefit from a range of BMPs covering management, operations and financial topics. We started with financial BMPs for several reasons, including:

• When asked about the challenges facing small water systems, the owners and operators frequently say that their biggest problems are to do with finance.

• Some customers of water systems may think that because rain falls from the sky that water supply should be almost free. They don’t realize that there are continuing costs for things like operation, maintenance, and testing.

• Some customers are not aware that infrastructure such as pipes, pumps, and reservoirs all have a limited life, and eventually need renewal and replacement.

• Many water sources are threatened by contamination, and money and resources are required to monitor and manage upstream activities, both natural and man-‐made, to ensure the water supplied is safe.



Using Worksheets Blank worksheets are included that you can complete by hand. Or you can use the electronic versions. In this case a member of your team will need basic experience with using Microsoft Excel or a similar software program.

Note Your checklists, schedules, and worksheets will need regular updating. Plan to re-‐visit these building blocks at least annually.

• Water rates in BC, even after significant increases are made to cover the full cost of water, are very reasonable compared to other living costs, and remain low compared to most other parts of the developed world.

• There are advantages to rural living, one of which is avoidance of municipal taxes. However rural living may also mean being responsible for a small water system that is unable to achieve the same economies of scale as found in larger urban systems.

The financial BMPs in this document will help the owners and operators of small systems deal with financial realities and make progress towards sustainable operations over the long-‐term.

2.2 The Make-‐Up of a BMP A BMP may be viewed as a simple structure that is assembled using several “building blocks” To succesfully use a BMP in your water system, you also need other things to be in place:

o Sound Leadership o Effective Planning o Efficient Organization o Monitoring and measurement o Good customer communication.

Some of these topics may be covered in future BMPs. In the following sections of this Guide you will find information that helps create the building blocks that make up the financial BMPs for your water system. A BMP is what it says it is-‐ a “practice” -‐ and practice means to do something again and again to learn to do it well. Best practices can improve over time, and you will experience this as you become more skilled and efficient in BMP use. It’s a good idea to update each BMP at least once a year. Over time you may even find a better way to do a BMP. The important part is to get started!

2.3 Creating Building Blocks

Building Blocks typically take the form of checklists, schedules, and worksheets These help you to answer questions related to a specific financial topic. For example, the question “What are our annual income and expenses?” is answered by creating the building block “Statement of Income & Expenses.” Blank templates for most of the building blocks are included with each BMP. These may take the form of checklists, schedules, and worksheets. You



Using the Excel Worksheets Note the following when using the worksheets: 1. Note the tabs at the bottom of

each worksheet file 2. Some data, such as Useful Life is

found in reference worksheets 3. Enter data in yellow shaded cells 4. Customize for your water system. 5. Use the Cut and Paste functions

to transfer data from one worksheet to another.

fill in the blanks with your own water system information, to create useable building blocks. A version of the template, with notes showing how the template is completed, is also included. In some cases, information is filled-‐in to illustrate how the template is used. Much of the information that you will need is found in your existing operations files and financial records. In some cases, you may have to talk with specialists such as your local drinking water officer or other people associated with the water system, or look at “as-‐built” plans if you have them. You may also gather required information by doing a “walk-‐about” with a notebook and measuring tape to confirm details such as pipe size and construction material. Take photographs to add to your system records. Some water suppliers may have undertaken a risk assessment of their system in the past, and this may be a source of useful information also.

Most of the building blocks mentioned in this Guide are available in both print and electronic form. Generally, the building blocks are most conveniently completed in electronic form. To do this you will need a computer and experience in the use of Microsoft Word and Excel, or similar software. Internet access is also very helpful. However, if you do not have a computer, or have no-‐one on your team who is familiar with electronic worksheets, you can complete blank printed versions of the worksheets by hand. In the end you will have the same results, whether you create building blocks in “electronic” form or by hand.

Some worksheets may have more, or less, details than you want for your size of operation. Very small systems may not need to complete all worksheets, while others will want to add more lines or categories. Feel free to adjust the spreadsheets, worksheets, and other materials to suit your situation. In some cases you may want to copy information from one worksheet and paste it into another. This saves entering the same data twice. Some Building Blocks are used within more than one Best Management Practice. For example, you can use the Building Block: Asset Replacement Schedule in both the BMP: Prepare an Asset Inventory, and the BMP: Prepare a Long-‐Term Financial Plan. As you assemble each BMP, it is a good idea to keep all your work together in one place: a printed copy in a filing cabinet, and several electronic copies in secure locations. If you have an electronic version of the documents you may be able to use the links embedded in the individual building block symbols within each BMP to go directly to the building block worksheets.



2.4 Six Financial Best Management Practices The following table summarizes the BMPs outlined in this document. Table 2.1: The Best Management Practices

Best Management

Practice

What It’s About

Why You Need It

A. Create a Basic Asset Inventory

This is a list of water system assets with details such as: • component manufacturer/model • installation date, • original cost • condition of the asset

• If you don’t know what you

have, you can’t manage it effectively.

B. Establish an Asset Management Plan

The plan is a written document that includes: • a basic asset inventory • a priority list for repair or replacement

of assets • an annual budget, including estimates

for replacement reserves • a schedule for implementation

• Provides useful information to develop options for service delivery

• reduces number of loss of service incidents and emergency repairs because of planned replacements

• prioritizes needs and allows for cost-‐effective research

• increases customer confidence in ability of system to provide safe, sustainable water.

• increases ability to comply with all regulatory requirements

C. Create a Five-‐Year Operating Plan

The plan is a written document listing the conclusions of a planning process and that shows what you want to do with your water system in the next five years, and how you expect to do it.

• Provides context for preparing

the annual budget • enables focus on what you

want to achieve

D. Establish a Long-‐Term Financial Plan

The plan forecasts revenues and expenses over a period of at least ten years into the future. Includes provision for:

• asset replacement & renewal • proposed financing • projected reserves.

• You need to estimate your

future financial condition to know how to provide for asset renewal and to establish realistic water pricing today and into the future .



Best Management

Practice

What It’s About

Why You Need It

E. Establish Sustainable Rates & Charges

Your water rates and charges should cover costs of:

• regular maintenance • operating costs • planned replacements • contribution to reserve funds • debt repayment

• Sustainable water rates and

charges are essential to adequately fund operations safely and effectively in the present and for the foreseeable future.

F. Create a Communications Plan

You should share information, motivate your team, and enlist support of decision-‐makers, regualtors and consumers about the operation of your water system.

• Stakeholders, including

customers, health officials, suppliers, funders and others, need to know your situation.

2.5 About Reserve Accounts In the BMPs we use the term “reserve” or “reserve account.” A reserve account is basically a pot of money that you set aside for a specific purpose. There are four types of reserve accounts mentioned in the BMPs. These are: Operating Reserve, Emergency Reserve, Construction Reserve, and Replacement Reserve. In practice some very small water systems may not maintain four separate bank accounts for these purposes. Certain reserve accounts can be set up as “virtual” reserves, and the balance tracked as part of financial record keeping. The important thing is that everyone knows what these accounts are for, that the money is only used for the purpose intended, and that you manage them effectively. You can accumulate money in the reserve accounts by making contributions from your operating budget. You should make sure you earn interest on these accounts. Before you set up reserve accounts make sure that regulations do not prohibit your category of water system (E.g. Improvement District, Private Water Utility) from creating certain types of reserve accounts.



2.6 BMP “Road Map” and Linkages Fig. 2.1: Building Block Road Map Last Update:

A B C D E F

Basic Asset Inventory

Asset Management

Plan

Five-‐year Operating Plan & Annual Budget Long-‐Range Plan

Sustainable Rates & Charges

Communications Plan

Estimated Service Life

25th February 2013

Service Providers

Estimated Service Life

C1. Current Yr Operating Budget

B1. Asset Prioritization

C4. 5-‐Yr Capital Costs

C2. 5-‐Yr. Goals

C3. 5-‐Yr Operating Costs

C5. 5-‐Yr Operating Budget Frst.

D2. Capital Reserve Account

D1. Long-‐Term Capital Plan

E1. Rates & Charges

B3.Renewal Reserve Account

F3. Communications

Plan

F2. Communications

Strategy

F1. Possible Stakeholders

A1. Asset inventory

Plans & Documents

B2. $ for Asset Renewal

Key

Worksheet (Excel) included in Guide

Worksheet (Word) included in Guide

Reference (Excel) included in Guide

From your water system files

Other information transfer

Fig. 2.1 shows all the building blocks that make up the six BMPs outlined in this document. This figure may be viewed as a ‘Roadmap” that can be used to navigate through financial BMPs. Fig.2.2 on the next page, also shows the building blocks, and highlights the linkages between each block. If you are creating all the BMPs, start with the building blocks shown in the figure. In many cases you require the output from one building block as the input to another building block. In the next section of this document you will find descriptions of the Best Management Practices. Each BMP consists of text and figures and several worksheets (which are mostly in the form of Excel documents). Each BMP has blank versions (as well as the versions with Notes) of the worksheets appended, which you can fill in with information about your water system to create your building blocks.



Plans & Documents

Details of water system

A1. Asset Inventory

Asset and useful life


Asset renewal and priority

B2. $ for Renewal Reserve

Annual contributions required

B3. Renewal Reserve Account



Planned capital expenditures



BMP A

BMP B

Plans & Documents (These are unique to your system)


A1. Asset Inventory

Asset and useful life


Asset renewal and priority

B2. $ for Replacement Reserve


B3. Replacement Reserve Account


C1. Current Year Operating Budget

Annual contributions available

C5. 5-‐Year Operating Budget Forecast


C2. 5-‐Year Goals

Overall system goals

C4. 5-‐Year Capital Costs

Planned capital spending

C3. 5-‐Year Operating Costs

Planned new operating costs


Planned capital expenditures



E1. Sustainable Rates & Charges

Cost per connection

BMP A

BMP B

BMP C

BMP D

BMP E

Fig. 2.2: Linkages Between Worksheets

Start with these worksheets

These require input from other worksheets

F1. Our Stakeholders F2. Communications Strategies: Examples F3. Communications Planning

BMP F



3 Six Best Management Practices Please see separate files for all BMPs and worksheets:

BMP A: Create a basic asset inventory

BMP B: Build an asset management plan

BMP C: Create a five-‐year operating plan

BMP D: Establish a long-‐term financial plan

BMP E: Determine sustainable water rates and charges

BMP F: Develop a communications plan.

If you have an electronic version of this document you may be able to click on a link above to go directly to the BMP.

BMP A: Create a Basic Asset Inventory 22nd February 2013 Union of BC Municipalities

1 | P a g e Sustainable Infrastructure Society 2013

Annual Ops. Budget

Service Providers

Remaining Service Life

List of Assets

Plan of System

Life Expectancy of Components

Best Management Practice

BMP A: Create a Basic Asset Inventory

1 What, Why and How? What is an asset inventory? An asset inventory is a list of items of value owned by the water system, with information about each item. Detailed information may include the manufacturer name and model number, installation date, and original cost. More detailed versions may include the condition of the asset and remaining useful life. Why do we need an asset inventory? The asset inventory increases your knowledge of the system, and gives you specific information to make better financial decisions. The inventory will help you schedule repairs and replacements and ensure that you are getting the greatest value possible from your assets. If you don’t know what you have, you can’t manage it effectively. How do we prepare an asset inventory? Here are the main steps in preparing an asset inventory. These steps are explained further in following sections. For each step, you create a building block.

Step 1: Create a plan of your system Step 2: Identify and list your system’s assets Step 3: Find out the life expectancy of components Step 4: Work out the remaining service life of each asset Step 5: Create a list of service providers

2 Challenges and Benefits Challenges to Overcome Benefits of an Asset Inventory • You don’t know what you have, what condition it’s in,

or when it needs to be renewed. • You have unexpected failures because you don’t know

the condition of components. • You do not know how much money to set aside to

renew your assets. • You cannot explain properly to customers why you

need money to renew assets.

• Shows the strengths and weaknesses of your physical assets, which helps to avoid unexpected problems with operation and water quality.

• Enables you to plan for replacement and renewal and to know when money must be spent.

• Provides overall picture of your system, and helps you share this with customers and regulators.

• Enables more efficient emergency response • Enables operator succession planning • Enables inventory for emergency repairs



List of Assets

Create Plan of System

3 Steps to Follow Follow the steps outlined below. Create building blocks using the worksheets and other tools provided. Step 1: Create a Plan of System Create a clear and current plan of your water system. You may find that information on your system is already on file, or spread out in various locations. Now is a good time to pull together information from all available sources and keep it in one place. This will save time when you need to refer to this data again in later steps of asset management, or in communicating with stakeholders such as issuing your annual report. Information on your system can come from:

• As-‐built plans • manuals and purchase receipts • well logs

• Construction Permits

• maintenance logs • water system risk assessment reports • land surveys

• past annual reports

If you have original as-‐built plans, you will need to check them carefully, from source to tap, and update them with any recent additions or replacements. A scale plan may help you identify not only components, but lengths and sizes. Be sure to keep your updated files in a secure location for future reference. If you do not have a scale plan, do check with outside agencies such as the regional health authority or engineering consultants who may know about your system, and ask for copies of their documents.

Step 2: Identify and list your system’s assets The figure below is an example of a schematic for a small water system. Your water system may have more or less components. You should create a schematic of your system, which consists at a minimum of the water source, treatment, and distribution components. The schematic may help you in listing your assets (see worksheet in the appendix for additional information). In listing the assets, also collect and record the following information for each:

• Condition • Age • Service History • History of breaks and malfunctions • Useful life.

You can keep an ongoing record of your assets by completing the asset inventory form by hand. Or you can use an Excel computer spreadsheet. Get the best information that you can, but don’t get bogged down. It is okay to use estimates where you don’t have complete information. New information will become available as assets get replaced or rehabilitated, and your inventory of assets will improve.



Schematic of a Water System

Source Treatment StorageIntake

and / or

Well Buildings, Electrical Monitoring & Control Systems

Distribution

Industrial

Valves Hydrants Commercial

Institutional

Service lines

Residential

Consumption

Life Expectancy of System Components

Remaining Service Life

Creating the inventory is your best opportunity to assess the information you have about your assets and to identify gaps in knowledge. Step 3: Find out the life expectancy of components Using the Reference Sheet “Typical Life Expectancies,” find information about your water system components. Information about the typical life expectancy of components is also available from a number of other sources. There is some flexibility in the way you define an “asset”. Some of your water system “assets” may consist of a single component such as a pump. Other “assets” may result from the combination of several components which together make an “asset” such as a pumping station, which includes pumps, pipework valves and other components. You might consider grouping components of similar life expectancy as one “asset”; for example group curb stop and corporation stop valves together. Step 4: Work out the remaining service life of each asset Knowing when to repair, rehabilitate, or replace an asset will help you get the most value from your assets. At some point, continuing to repair the asset will no longer be cost-‐effective and you will need to rehabilitate or replace it. A number of factors can affect remaining service life, including quality of routine servicing and maintenance, excessive use, and environmental conditions such as poor source water quality, soil quality, and climate. Use your local knowledge plus manufacturers’ recommendations in working out remaining service life. Assets that are in poor condition, not regularly maintained, or subject to

VJ Rogers� 13-2-22 2:42 PMDeleted: ‘Residential’ was not included in Consumption. Normally ‘Institutional’ is not large enough to be in its own category. I prefer schematics without the grid lines.



List of Service Providers

excessive use or soil quality issues will be at the lower end of the expected useful service life range. Step 5: Create a list of service providers Once you have an up-‐to-‐date inventory of assets, it is a good idea to record details of the people who service the assets and of suppliers who can provide replacements. Storing this information together with your inventory records will save time in the future when you have questions or concerns about individual assets. This information can also be used to help explain repair and replacement costs to users when developing a budget or requesting a rate increase.

4. How long will this process take? The table below shows a typical timeframe to prepare this BMP for implementation. This includes communication time to discuss details with key people, bring together individuals who can contribute to the process, and administrative time to assemble the information needed for the individual building blocks. Preparation of each building block, perhaps in the form of a worksheet or checklist, may only require one or two hours, once you are familiar with the process. The time required to gather information about assets will depend on the size and complexity of the system involved. Expect to revisit your asset inventory at least annually to update information. This review and update will take less time than the initial planning process, and is important for good financial decision-‐making.

Building Block Weeks > 1 2 3 4 5 6 7 8

1 Plan of System 2 Asset Inventory 3 Typical Life Expectancies 4 Remaining Service Life 5 List of Service Providers

4. More Information More information on the topic of this Best Management Practice is available from the following: Drinking Water Health Authority Contacts: http://www.health.gov.bc.ca/protect/dw_ha_contacts.html Drinking Water Resources and Associations: http://www.health.gov.bc.ca/protect/dwresources.html

For information to help with an asset inventory: • Records of your water system held by your Health

Authority. • Possibly well logs prepared when your well was

drilled.

WaterBC.ca http://www.waterbc.ca/resources/best-‐management-‐practices/

BMP B: Create an Asset Management Plan 22nd February 2013 Union of BC Municipalities


Renewal Reserve

AssetPrioritization

Asset Inventory

Money for Asset Replacement

Asset Replacement Schedule

Best Management Practice BMP B: Create an Asset Management Plan

1 What and Why? What is asset management? Asset management is a process that helps you to manage your assets so that you get the most value from them, and to have the financial resources to renew them when necessary. Why do we need an asset management plan? Effectively managing your assets by planning for timely renewal and avoiding unexpected failures will help you to provide safe, reliable, and secure drinking water. How do we prepare an asset management plan? Here are the main steps in preparing an asset management plan. These steps are explained further in following sections. For each step you create a building block. Step 1: Create an asset inventory Step 2: Work out the order to replace assets Step 3: Work out the money you need Step 4: Prepare an asset replacement schedule Step 5: Set up a replacement reserve fund

2 Challenges and Benefits An asset management plan will help overcome certain challenges and provide several benefits: Challenges to Overcome Benefits • You may have limited records and plans of your water

system and of the individual components. • You may not know the location of components, their

age or condition, or their remaining useful life • If you do not know the condition of your assets, you

cannot work out when they should be replaced or how much money you will have to spend.

• If you do not know how much money you will need to spend, or when it will be spent, you cannot do effective long-‐range financial planning.

• Managing assets effectively often requires money to be spent systematically and may require increases in water rates.

• Make better financial decisions; this will help in

several ways such as such as meeting regulatory requirements and upgrading system security.

• Reduce system “down-‐time” and the number of emergency repairs.

• Prioritize rehabilitation and replacement needs and provide time to review cost-‐effective options.

• Show customers and regulators that you are using their money effectively.

• Improve your access to financing.



Prioritization Methods One approach is to prioritize in order from most critical to least critical: 1. Existing threats to public health, safety or environment 2. Potential public health, safety or environmental concern 3. Internal safety concern or public nuisance 4. Improved system operations and maintenance (O&M) 5. Nice to have …

B1. Asset Prioritization Worksheet

A1. Asset Inventory Worksheet

3 Steps to Follow Follow the steps outlined below. Create building blocks using the worksheets and other tools provided. Step 1: Create an asset inventory (See other BMP) Your tangible assets are the things like pipes and pumps that make up your water system. Before you can create an asset management plan, you need to know what assets you have. If you have not already done so, implement the BMP Make an Asset inventory. If the asset inventory was done more than year ago, review and update it by inspecting each component of your system and recording new information.

Step 2: Work out the order in which you replace assets Once you have inventoried your assets, your next step is to prioritize your assets based on their importance to your system. Prioritization means giving an importance ranking to the assets in your system to help you allocate resources. There are several ways of prioritizing asset renewal and replacement. Typically, assets are prioritized based on their remaining useful life. Another method is shown in the box; choose a method that suits your circumstances. Factors involved in prioritization include:

• What is its remaining useful life? • How important is the asset for safe drinking water? • How important is the asset to the operation of the system? • Can other assets do the same job?

A water system is sometimes one of several responsibilities of a community. Other factors can influence which water system projects are funded and when they are completed. For example, in some small communities, distribution system rehabilitation and replacement is tied to the road repair schedule and annual budgeting. Developing an asset management plan and prioritizing your assets will help you work out when you should replace your assets so as to not jeopardize water delivery. You may have to work with your community to develop a replacement schedule that works for all parties.

An asset management plan linked with long-‐term planning will help you forecast your financial needs well into the future and develop a rehabilitation and replacement schedule appropriate for your system. At this point in the process, you may want to tell your customers that you are undertaking organized asset management, and communicate the benefits to them. The worksheets associated with this BMP provide information on the useful life of a range of assets. Certain assets in your system may not be shown: in this event look up the references provided.



B3. Replacement Reserve Fund

B3. Asset Replacement Schedule

Preventive Maintenance A Preventive Maintenance Program will help to maximize the useful lives of your assets, avoid problems and reduce or delay replacement costs.

B2. Money for Asset Replacement

Step 3: Work out the money you need You can show the money you need for asset replacement using the Money for Asset Replacement worksheet. On the worksheet: list your assets, their replacement priority, the year until replacement is needed, the estimated cost and the annual reserve required. Work out how much it will cost to rehabilitate and replace them as they deteriorate. Gather information on all of the costs associated with the rehabilitation or replacement of an asset, such as equipment purchase, installation, pilot tests, labour charges, cleanup, and disposal of the replaced asset. For information about what rehabilitation or replacement might cost, ask suppliers and consultants and talk to other systems people about the cost of their replacements. You may also find useful information on this web page: WaterBC BMPs Step 4: Prepare an asset replacement schedule Previous building blocks help you to work out the remaining useful life of an asset and the priority in which it should be renewed of replaced. You can summarize this

information for all assets on the Asset Replacement Schedule. To protect public health and deliver safe water, you need to rehabilitate and replace your assets in addition to operating your water system. Many systems need considerable lead-‐time to budget and gather necessary funds. By developing an asset management plan, you will be able to allocate your resources in the most efficient way.

Step 5: Set up a Replacement Reserve fund A key element of asset management is having a Replacement Reserve Fund, where you accumulate money for future asset renewal. This reserve fund should be protected from other use. The Replacement Reserve Fund1 worksheet leads you through the steps necessary to determine how much money to put in reserve each year to fund your highest priority activities. The worksheet shows you how much money to set aside for your replacement reserve fund this year. It’s important to make sure your customers understand that, although the total reserves needed each year may seem like a lot of money, it is easier to put aside $200 a year to replace, say, a chlorinator, than to come up with $2,000

1 Your Replacement Reserve Fund (RRF) is partly like funded depreciation of your waterworks system. It ensures funds will be available to replace system components when required. Depreciation is the portion of the system that is being used up annually and is an expense of the period. It is not good practice to dispense with a RRF in an attempt to keep rates lower for current customers. This results in intergenerational inequity, because future customers will have to pay much higher rates and be faced with serious “rate shock”.



once it fails. Customers on limited incomes often cannot suddenly find significant sums to pay for unexpected repairs. Your system’s finances and costs of new assets can change from year to year. It is important to update this worksheet annually. This will ensure that you have enough reserves to cover necessary rehabilitations and improvements. This has several other benefits; for example, if you have enough money in the bank, it may be easier for individual property owners to sell their homes because new buyers have some assurance that they won’t suddenly receive an unexpected large charge. Note that this worksheet only calculates additional funds to renew and replace assets. Standard operating and maintenance (O&M) costs, for example, utility charges and chemicals for disinfection, are not included in the calculations on this worksheet. Key decision makers (for example, the trustees or key property owners) want to understand the financial requirements related to the renewal of your assets. The draft version of this BMP should be presented to key decision makers at an early stage, and your customers informed also. This information should be reviewed annually and modified as necessary.

3. How long will this take? The table below shows a typical timeframe to prepare this Best Management Practice for implementation. This includes communication time to discuss details with key people, bring together individuals who can contribute to the process, and administrative time to assemble the information needed for the individual building blocks. Preparation of each building block, perhaps in the form of a worksheet or checklist, may only require one or two hours, once you are familiar with the process. Expect to revisit your asset management plan at least annually to update information. This review and update will take less time than the initial planning process, and is important for good financial decision-‐making.

Building Block Weeks > 1 2 3 4 5 6 7 8

1 Asset Inventory Worksheet 2 Asset Prioritization 3 Asset Replacement 4 Renewal Reserve Fund 5 Asset Management Budgeting

4. More Information More information on the topic of this Best Management Practice is available from the following: Drinking Water Health Authority Contacts: http://www.health.gov.bc.ca/protect/dw_ha_contacts.html Drinking Water Resources and Associations: http://www.health.gov.bc.ca/protect/dwresources.html

WaterBC.ca http://www.waterbc.ca/resources/best-‐management-‐practices/

BMP C: Create a Five-Year Operating Plan 22nd February 2013 Union of BC Municipalities


Best Management Practice: BMP C: Create a Five-‐Year Operating Plan

1 What, Why and How? What is a Five-‐Year Operating Plan? A Five-‐Year Operating Plan shows what you want to do with your water system in the next five years, and how you expect to do it. Why do we need a Five-‐Year Operating Plan? A five year plan provides context for preparing your annual budget and also enables greater focus on specific objectives than does your long-‐range plan. How do we prepare a Five-‐Year Operating Plan? Here are the main steps in preparing five-‐year plan. These steps are explained further in following sections. For each step you create a building block. Step 1: Review the current year Operating Budget Step 2: Set goals and objectives for the next five years Step 3: For each “Operating” objective prepare a cost estimate Step 4: For each “Capital” objective prepare a cost estimate Step 5: Create five-‐year operating budget forecast Step 6: Ensure reserve accounts are in place.

2 Challenges and Benefits A five-‐year plan will help overcome certain challenges and provide several benefits: Challenges to Overcome Benefits • Many water system improvements and renewals

require planning well in advance • Your annual budget only covers 12 months; some

projects need longer to plan and implement • It is common for owners, operators, and trustees to

think only of the short-‐term. • In short term planning, it is easy to overlook important

but unseen components (“out of sight, out of mind”)

• You can identify future expenditures that influence your operating budget, your asset renewal plans, and important system improvements.

• Planning for five years encourages you to look well into the future.

• Five year plans provide information for your long-‐term planning.

3 Steps to Follow Follow the steps outlined below. Create building blocks using the worksheets and other tools provided.



C1. Current Year Operating Budget

Ten Parts of Your Water System

1. Water Source Reliability 2. Water Quality 3. Customer Satisfaction 4. People Development 5. Operational Effectiveness 6. Financial Viability 7. Infrastructure Condition 8. Operational Resiliency 9. Stakeholder Support 10. Community Sustainability

C2. Five-‐Year Goals

Fire Protection Some water suppliers need to recover the costs of items such as hydrants from fire protection authorities. See references for more information.

Tolls & Taxes Some types of water suppliers charge both Tolls and Taxes. Tolls are charges made to cover the direct supply of water, and are part of operating revenues. Taxes may be in the form of a parcel tax, which is used for capital construction projects.

Step 1: Review the Current Year Operating Budget An annual budget is one of the most important tools you can have; one that every water system should complete with care. It provides a reference point for your activities over the year and can help you to get through challenging financial periods, for example, when you are faced with unexpected expenses. Your financial records showing past revenues and expenses will help you build a realistic budget for the current year. A spreadsheet program such as Microsoft Excel or similar software will be useful in preparing the budget, although you can create a budget “long-‐hand” on a paper-‐based worksheet. BMP D; Establish a Long-‐Term Financial Plan provides further guidance on creating operating forecasts. You probably have an annual budget already in place. As you work through this BMP, you may see opportunities to change and improve your annual budget. For example, there may be expenses to operating your water system that you have not previously recognized and that should be included. As you budget for full cost recovery (See BMP E), it may become clear that you need to increase your water rates to cover new expenditures. BMP E: Implementing Sustainable Rates & Charges gives guidance in setting fair rates and charges.

In budgeting, it may help to think of your expenses as including fixed costs and variable costs. Variable costs are those expenses in your water system that increase or decrease from month to month, for example, your cost for pumping water is determined by volume used. Fixed costs are those that are not generally dependent on the water volume you provide. These may include such items as rent, water testing, insurance, and so on. The worksheet Current Year Operating Budget helps you to summarize your revenues and expenses.

Step 2: Set goals and objectives for the next five-‐years

Consider all aspects of your water system when preparing a five-‐year plan. You can divide the system into the ten parts shown. For each of these parts, set goals that outline what you want to achieve in the next five years. It’s a good idea to involve others in your goal setting process; these may include customers, health officials, consultants and financial advisors. Your preliminary long-‐range plan, if you have one already, will also help you identify five-‐year goals. Complicated goals can be broken down into steps with milestones and indicators to keep you on track. Use the Five-‐Year Goals worksheet. Once you have a list of goals, you can identify specific objectives to help you reach those goals. Objectives should be “SMART” that is:

specific, measurable, achievable, reasonable, and timely (come with timelines). What is the difference



C3. Five Year Operating Costs

C4. Five Year Capital Costs

An “Iterative” Process Using some of the worksheets for financial planning is an iterative process. That is, you make an initial forecast of a certain value, see what the effect of that forecast value is on other items, and go back and change the forecast value if it does not have the desired effect.

between goals and objectives? Think of goals as the things that might result from a meeting of all your customers in which desired results are identified in broad terms, such as “provide safe and reliable drinking water”. Objectives are generally more specific, or quantifiable (for example, “We will install filtration to reduce the turbidity below 1 NTU”), or come with a date by which they should be achieved. An estimate of the costs of achieving the objective is always useful. For example, a goal might be to remove a Boil Water Notice and provide a safe water supply to your customers. This goal may need more than one year to reach. The objective in Year 1 may be to revise your water rates so that you can begin to pay for treatment. The objective for Year 2 might be to send your operator, volunteer or otherwise, for training about water treatment technology; and the objective for Year 3 would be to install upgraded water treatment equipment. The answers to the following questions will help you establish specific objectives, a timetable for achieving the objectives and a cost estimate.

• Where are we now? • Where do we want to be? • How do we get there? • How do we measure our progress?

Note that some of the objectives you identify may be fulfilled if you continue to operate in the way you are currently operating, and therefore will not involve your spending any more money than you are spending now. Where that is the case you do not need to include these objectives in the following steps, which are intended to help you budget for new expenditures only. Step 3: For each “Operating” objective prepare a cost estimate

Now that you have your list of new five-‐year goals and specific objectives, you’ll need to attach cost estimates to achieve them. You will need to decide if the costs should be paid from your operating budget or your capital budget. If the objective will lead to creation of a physical asset, such as a reservoir, with a value

exceeding $2,000 say, then regard it as a capital item. If the objective leads to a smaller expenditure, then it can be part of the operating budget. Some new objectives, such as providing operator training, will obviously be part of the operating budget. Enter specific operating objectives onto the Five-‐Year Operating Costs worksheet, together with your estimate of total cost over the five years. Show the estimated percentage of the work you plan to do each year towards the objective, and the annual cost for that work. Complete the

worksheet and add up all the new costs for each of the five years. This completed worksheet can be referenced in preparing your annual budgets and the long-‐range financial plan. Step 4: For each “Capital” objective prepare a cost estimate



Create Reserve Accounts • Replacement Reserve Fund • Operating Reserve Fund • Emergency Reserve Fund • Construction Reserve Fund

C5. Five Year Operating Budget

Last Three Years & Making Forecasts If you have figures for last 3 years, create additional columns in the worksheet for Year -‐2 and Year -‐3. You can then work out averages for the last 3 years. Identify any non-‐recurring or extraordinary expenses and take account of these in working out averages and creating forecasts of future costs and revenues. Make sure you keep an explanation of your forecast expenses together with your worksheets.

In the previous step you identified certain objectives as part of your five year operating costs. The costs for achieving the remaining objectives, those associated with capital projects, belong in the worksheet: Five-‐Year Capital Costs. As is the case with the operating objectives, you can sum the total of your estimated capital costs over the next five years and use this information in other worksheets. In particular, you should carry forward your forecasted capital expenditures over the next five years to the worksheet: D1. Long-‐Term Capital Plan in BMP D: Long-‐Term Plan Step 5: Create five-‐year operating budget forecast In Step 1, you assembled information about your current year budget and your revenues and expenditures for past years. Now use this information to make an initial forecast of the revenues and operating expenses for existing administration and operating expense items that you will incur over the next five years; allow for inflation where appropriate. Enter information in the worksheet Five Year Operating Budget Forecast. Note that you should exclude the new operating expenses you identified in Step 3. Enter the forecast expenditures over the next five years that you identified in Step 3 on the line “New Operating Expenditures”. The worksheet will add up all the operating expenses to give you the “Total Operating Expenses” for the next five years. Under the heading “Contributions to Reserves” on the worksheet, enter the amounts you have worked

out as a result of following other BMPs. Now the worksheet will give you the “Total Annual Costs” over the next five years. The line below shows the “Total Revenues less Total Costs”. You may have to adjust your forecast of the revenues or the expenditures to make sure this amount is always positive. For example, if your initial forecast of revenues over the next five years results in Total Costs exceeding Total Revenues, you may have to increase water rates in the future. The BMP: Sustainable Rates & Charges will help with this. Whatever the effect on water rates, it is important to continue communications with your customers so that they are aware of the benefits of your activities, including the 5-‐year plan.

Step 6: Ensure reserve accounts are in place

Creation of a five-‐year plan requires you to think beyond your current annual budget and the events of the coming year. As you think about the longer term, the value of creating reserve accounts will become clear. The reserve accounts that are useful for water systems are shown in the box.



Maintain Flexibility Sometimes the dividing line between expenditures from the Replacement Reserve and the Construction Reserve may not be clear. For example, if you are replacing an aging asbestos cement pipe with a pvc pipe, this could be considered an improvement, payable from the Construction Reserve. Obtain specialist advice in setting up reserves if necessary, and maintain flexibility.

Replacement Reserve: You operate a water system which includes expensive assets, some of which may last a long time, and which have to be maintained and eventually replaced. So you should set aside money each year in your Replacement Reserve fund to provide for eventual renewal or replacement of equipment. Systematic renewal will reduce downtime and avoid extra costs due to breakdowns. Your asset management plan1 will help with this. Operating Reserve: During your annual budget process, you may consider preparing projections for three scenarios – best case, worst case, and middle of the road. The difference between the annual expenditures for the worst case and the middle-‐of-‐the-‐road case may give an indication of �