Benchmarking is essential for those developing and implementing water policy. The tools are important for documenting past performance, establishing baselines for gauging productivity improvements, and making comparisons across service providers. Rankings can inform policymakers, those providing investment funds (multilateral organizations and private investors), and customers regarding the cost effectiveness of different water utilities. In addition, if managers do not know how well their organization or division has performed (or is
performing), they cannot set reasonable targets for future performance. Metric benchmarking quantifies the relative performance of organizations or divisions and provides managers and regulators with a foundation from which they can design policies and incentive programs to improve performance.
ROLE OF BENCHMARKING
Benchmarking provides regulators and utility managers with a way to make performance comparisons over time, across water utilities, and across countries. It can promote conflict resolution between these two groups by allowing participants to focus on performance, and can help bridge the gap between technical researchers and those practitioners currently conducting studies for government agencies and water utilities (Berg, 2007). In order to address the wide range of issues that might be encountered when evaluating water utility performance, analysts have developed five benchmarking methodologies, each of which addresses specific issues.
However, more sophisticated quantitative benchmarking tools may be necessary (but not sufficient) for promoting policies that can improve company (and sector) performance. The introduction of greater rigor allows stakeholders to quantify utility progress towards meeting policy objectives, helps specialists identify high performing utilities (whose processes might be adopted by others), and enables regulators to develop targets and incentives for utilities (Mugisha et al., 2007).
Although there are several methodologies available for benchmarking, it is important to keep in mind that a single index of utility performance has the same problems of any indicator: it will be neither comprehensive nor fully diagnostic. This problem can be liked to the information a physician can collect from a patient. Knowing a patient’s temperature, pulse, height and weight help the physician determine whether the person has a dangerous fever and/or is overweight. The indicators point to potential or existing health problems. However, a set of blood tests will provide more detailed information that can aid in diagnosing the physical problems that are only partly reflected in the two health indicators. Therefore, when conducting benchmarking analyses, water professionals must understand the strengths and limitations of different metric methodologies.
BENCHMARKING METHODOLOGIES
Core Overall Performance Indicators include a number of Specific Core Indices, such as volume billed per worker, quality of service (continuity, water quality, complaints), unaccounted for water, coverage, and financial data. These partial measures are generally available, and provide the simplest way to perform comparisons, as well as a summary index
that can be used to communicate relative performance to a wide audience. However, an OPI may fail to account for the relationships among the different factors.
Performance Scores based on Production or Cost Estimates are used to identify the best performers and the weakest performers in a group of utilities. The metric approach allows quantitative measurement of relative performance (cost efficiency, technical/engineering efficiency, scale efficiency, allocative efficiency, and efficiency change). Performance can be compared with other utilities and rankings can be based on the analysis of production patterns and/or cost structures. Estimated parameters can give an indication of economies of scale and/or economies derived from the joint supply of water and wastewater services.
Engineering/Model Company approach has been used to establish baseline performance. This methodology requires the development of an optimized economic and engineering model based on creating an idealized benchmark specific to each utility— incorporating the topology, demand patterns, and population density of the service territory. As with any methodology, this approach also has its limitations. The engineering models that support it can be very complicated, and the structure of the underlying production relationships can be obscured through a set of assumed coefficients used in the optimization process.
Process Benchmarking focuses on individual production processes in the vertical production chain. This approach allows one to identify specific stages of the production process that warrant attention. Many water associations focus on process benchmarking as a mechanism for identifying potential benchmarking partners, preparing for and undertaking benchmarking visits, and implementing best practices. Thus, water utility managers recognize that information sharing and coordination is a significant performance driver across companies.
One drawback to this particular method of benchmarking is that the big picture gets lost: engineers focus on the trees and miss out on the forest.
Customer Survey Benchmarking focuses on the perceptions of customers as a key element for performance evaluation. Customer perceptions regarding service quality are central to evaluating water utility performance and surveys can reveal performance gaps and identify areas of concern. In addition, trends over time can be used by regulators and policy-makers to evaluate utility performance. Nevertheless, many other factors are relevant for evaluating the efficient provision of water services.
performing), they cannot set reasonable targets for future performance. Metric benchmarking quantifies the relative performance of organizations or divisions and provides managers and regulators with a foundation from which they can design policies and incentive programs to improve performance.
ROLE OF BENCHMARKING
Benchmarking provides regulators and utility managers with a way to make performance comparisons over time, across water utilities, and across countries. It can promote conflict resolution between these two groups by allowing participants to focus on performance, and can help bridge the gap between technical researchers and those practitioners currently conducting studies for government agencies and water utilities (Berg, 2007). In order to address the wide range of issues that might be encountered when evaluating water utility performance, analysts have developed five benchmarking methodologies, each of which addresses specific issues.
However, more sophisticated quantitative benchmarking tools may be necessary (but not sufficient) for promoting policies that can improve company (and sector) performance. The introduction of greater rigor allows stakeholders to quantify utility progress towards meeting policy objectives, helps specialists identify high performing utilities (whose processes might be adopted by others), and enables regulators to develop targets and incentives for utilities (Mugisha et al., 2007).
Although there are several methodologies available for benchmarking, it is important to keep in mind that a single index of utility performance has the same problems of any indicator: it will be neither comprehensive nor fully diagnostic. This problem can be liked to the information a physician can collect from a patient. Knowing a patient’s temperature, pulse, height and weight help the physician determine whether the person has a dangerous fever and/or is overweight. The indicators point to potential or existing health problems. However, a set of blood tests will provide more detailed information that can aid in diagnosing the physical problems that are only partly reflected in the two health indicators. Therefore, when conducting benchmarking analyses, water professionals must understand the strengths and limitations of different metric methodologies.
BENCHMARKING METHODOLOGIES
Core Overall Performance Indicators include a number of Specific Core Indices, such as volume billed per worker, quality of service (continuity, water quality, complaints), unaccounted for water, coverage, and financial data. These partial measures are generally available, and provide the simplest way to perform comparisons, as well as a summary index
that can be used to communicate relative performance to a wide audience. However, an OPI may fail to account for the relationships among the different factors.
Performance Scores based on Production or Cost Estimates are used to identify the best performers and the weakest performers in a group of utilities. The metric approach allows quantitative measurement of relative performance (cost efficiency, technical/engineering efficiency, scale efficiency, allocative efficiency, and efficiency change). Performance can be compared with other utilities and rankings can be based on the analysis of production patterns and/or cost structures. Estimated parameters can give an indication of economies of scale and/or economies derived from the joint supply of water and wastewater services.
Engineering/Model Company approach has been used to establish baseline performance. This methodology requires the development of an optimized economic and engineering model based on creating an idealized benchmark specific to each utility— incorporating the topology, demand patterns, and population density of the service territory. As with any methodology, this approach also has its limitations. The engineering models that support it can be very complicated, and the structure of the underlying production relationships can be obscured through a set of assumed coefficients used in the optimization process.
Process Benchmarking focuses on individual production processes in the vertical production chain. This approach allows one to identify specific stages of the production process that warrant attention. Many water associations focus on process benchmarking as a mechanism for identifying potential benchmarking partners, preparing for and undertaking benchmarking visits, and implementing best practices. Thus, water utility managers recognize that information sharing and coordination is a significant performance driver across companies.
One drawback to this particular method of benchmarking is that the big picture gets lost: engineers focus on the trees and miss out on the forest.
Customer Survey Benchmarking focuses on the perceptions of customers as a key element for performance evaluation. Customer perceptions regarding service quality are central to evaluating water utility performance and surveys can reveal performance gaps and identify areas of concern. In addition, trends over time can be used by regulators and policy-makers to evaluate utility performance. Nevertheless, many other factors are relevant for evaluating the efficient provision of water services.
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