The challenge of reducing non-revenue water by implementing the change management index A first comparative assessment in four development countries

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1 The challenge of reducing non-revenue water by implementing the change management index A first comparative assessment in four development countries Monika Konatar*, Matthias Hitzel** * Human Resource Development Expert, MACS Energy & Water GmbH, Arnsburgerstr. 64, 60385, Frankfurt, Germany ( monika.konatar@macsonline.de) ** Managing Director, MACS Energy & Water GmbH, Arnsburgerstr. 64, 60385, Frankfurt, Germany ( matthias.hitzel@macsonline.de) Keywords: change management index, non-revenue water, performance assessment Abstract Assessing the non-revenue water (NRW) situation in utilities is a real challenge, due to the complexity of the matter. MACS developed the NRW Change Management Index (NRW CMI) in order to enable a holistic and separate assessment of all relevant dimensions technical (including commercial) and institutional in a utility based on the change management principles. Field work by MACS has proven that by singling out effective infrastructure optimization and institutional developments through high-impact change management plans and incorporating strong water loss management strategies, a lasting effectiveness of operational performance improvement programmes can be ensured. In order to test determined categories (actions undertaken regarding NRW; perception, attitude and skills of key staff concerning NRW), indicators and applicability, the NRW CMI was tested within utilities in four different countries (Georgia, Ukraine, Peru and Costa Rica). Results confirm that the NRW CMI can be applied in different social and political environments providing reliable results about the status of NRW in a utility considering the relevant parameters, hence providing a crucial basis for target setting and determination of optimization measures. Introduction The assessment and monitoring of the performance of water utilities is often carried out as a narrow and one-dimensional procedure, confined to the evaluation of operational indicators while completely neglecting the institutional dynamics of performanceimprovement programmes. While such values, like the infrastructure leakage index (ILI), the apparent loss index (ALI), etc. are certainly important variables with regard to the improvement of the overall performance of a utility, institutional development can be a critical element to improve the quality and to ensure long-term sustainability of water supply and sanitation services. Field work by MACS Energy & Water an international consulting company from Germany specializing in water as well as energy carried out during the design and implementation of non-revenue water (NRW) reduction programmes in different countries has proven that a holistic approach can contribute significantly to the achievement of continuous service provision and lower leakage-levels thus affecting both water services to end-users as well as the utility's financial sustainability. The main necessity for integrating institutional factors in performance-improvement programmes is that it opens up the possibility to initiate institutional processes, involve management and O&M staff actively. Such a holistic approach hence enables a more - 1 -

2 precise measurement of the progress and accomplishments of a programme while it provides water utilities with essential information that enables them to allocate resources and efforts more precisely and effectively. Background of the NRW Change Management Index Based on this insight, MACS has designed a Change Management Index (CMI) aiming at goal oriented management application, which helps to plan and manage performance assessments as well as to monitor the progress towards the reduction of non-revenue water (NRW). Additionally, it allows a more precise and reliable projection and prediction regarding the cost effectiveness of NRW programmes. A key feature of the NRW Change Management Index is a systematic evaluation of water utilities with respect to their readiness to make good use of NRW reduction programmes. It thus manages progress within a given water utility. Besides managing performance assessments and monitoring progress, the NRW Change Management Index can also be used as a powerful benchmarking tool that enables water utilities to gain knowledge about their own practice and comparing it to the practice of other utilities. Thus, by placing an organizational focus on change and providing the direction for the respective processes, quality management can be improved. This in turn helps to open minds to new ideas heralding the continuous adoption of new knowledge and helps the utility to become a learning organization. The NRW Change Management Index as such was initially developed within the Non- Revenue Water Programme implemented in the framework of the Rehabilitation of Municipal Infrastructure in Batumi, Georgia, which is financed on behalf of the German Government by KfW Development Bank. Even though radical changes in the physical infrastructure were realized, new facilities and supply networks were created and DMAs were established, key stakeholders and operational staff in the utility did neither exhibit the readiness nor the ability to adapt to those changes in terms of attitudes and behaviour (Konatar et al., 2011). This reluctance towards change was the major challenge for the realization of a sustainable management of the newly established supply network. Initially, relatively slow progress in regards to reducing NRW was observed despite considerable improvements in the technical and operational setup of the utility. This circumstance strengthened MACS position that a lasting effectiveness of operational performance improvement programmes can only be achieved when technical and institutional developments are successfully combined (Konatar, 2013). Formalising this holistic notion of sustainable change, the NRW Change Management Index specifically focuses on the combination of both technical (including commercial) and institutional dimensions in one effective application. This means on one hand consolidating technical performance indicators, which are important for the reduction of water losses and the efficiency of network maintenance and operation, as well as key employee performance indicators at all levels of the organization with particular focus on staff attitudes, performance and skills on the other. By combining these two dimensions the NRW Change Management Index gives a holistic picture of a utility s NRW management approach and thus overcomes existing shortcomings of the one-dimensional technical NRW audits. MACS defined scales for each of the indicators and assigned weight to each category and indicator with the intention of providing a reliable analysis that describes a utility s performance development and shows the level of sustainable operation and maintenance of the network based on a single consolidated value (measured from 0 to 100%). The index is established based on categories and indicators that are assessed within the utility

3 Figure 1.1 The main structural components of the NRW Change Management Index The higher the value of the Index the more likely it is that an NRW programme will lead to the desired results justifying the investment. Contrary, lower values of the Index should lead decision makers to be sceptical regarding achievable results. The categories of the Index can be evaluated over a selected period of time (and in specific intervals within this period) and thus provide a possibility to follow up and measure the efficiency of the water utility s strategy to reduce water losses (Konatar, 2013). Applying the NRW Change Management Index in Georgia, Ukraine, Peru and Costa Rica In order to test its general applicability, the NRW Change Management Index was used in order to structure the analysis of NRW management in different utilities in several developing countries. The NRW CMI was applied on a trial basis in order to test whether the structure of the different indicators and categories are both general enough to be applied in different social and cultural settings and specific enough to capture all relevant aspects of the holistic approach described above. Approaches, experiences and perceptions of four different water utilities in Georgia, Ukraine, Costa Rica and Peru were assessed regarding the way they deal with NRW management. During our assessment we focused on the collection of available quantitative and qualitative data, the monitoring of utility management decision making as well as O&M staff capacities and working procedures. The water utilities were visited and meetings were held with utility management, heads of the technical and commercial branches and the officer in charge of NRW water loss reduction activities. Furthermore the theoretical approach and physical work of the utilities was monitored and results of the analysis presented and discussed with key stakeholders of the utility. In Georgia the assessment is based on a long term assistance and monitoring process, which provided us with comparably better data basis. Different categories were examined: actions undertaken regarding NRW and the perception, attitude and skills of key staff concerning NRW from all organisational levels while also considering that all categories are interlinked to certain extent. The indicative research findings and a preliminary comparison and interpretation of the results are presented below

4 Technical Dimension The situations of assessed water utilities differ regarding technical conditions of networks, equipment and staff capacities as well as staff experiences. The social and cultural environments in which they operate are different. OECD classifies Ukraine and Georgia both of them post-soviet transition countries as lower middle income countries, while Peru and Costa Rica are upper middle income countries. Considering the different circumstances, the analysed utilities also differ with respect to the levels of NRW and the perception of the implications and challenges. In some of the analysed utilities NRW is considered a very significant, if not the predominant problem. High levels of NRW are not surprising in utilities in transition countries (Georgia, Ukraine) where during the last 20 years hardly any substantial investment in fixed assets was realized. The situation is different in Central and South American utilities, where replacement and extension investments were implemented recent decades, even though not always to the necessary extent and not sufficiently focusing on the problem of NRW. Regarding the findings, it needs to be mentioned that at this stage of the assessment and comparison, the most comprehensive data regarding NRW was gathered for the Georgian and the Costa Rican utilities. Pictures 1.1 Water treatment plant and leak repair activity in Peru Water production and water consumption are hardly anywhere consistently measured. Hence utility managers that need to calculate NRW are obliged to report NRW figures based on estimations and assumptions. Often the assumptions are to a high degree arbitrary. Put differently, NRW ratios are hardly ever calculated based on reliable data but rather on estimations and not always transparent assumptions which was the case in Ukraine and to some extent in Peru. One should have this in mind while evaluating the situation of NRW of a water utility. Very often the relevant and comprehensive data for production and consumption are not readily available in bulk and customer metering levels and meter accuracy is a serious problem. This has been identified as particularly serious problem in Ukraine and Peru as well as Costa Rica. The development of the water balance is only properly done in Georgia and Costa Rica, while this crucial task is underdeveloped in Peru and Ukraine. Target setting for NRW is applied in all utilities; however i.e. in Ukraine no budget is allocated to achieve the targets

5 Pictures 1.2 Metering chamber and a flow meter in Ukraine The lack of DMA strategies and physical introduction of DMAs are a limiting factor in technical NRW management. While this category has been cautiously taken care of in Georgia, it is non existent in Ukraine, only theoretically existing in Peru and part of future investment planning in Costa Rica. NRW monitoring by adequately integrating data collection, processing and interpretation is constantly taking place in Georgia. This is to some extent also the case in Costa Rica while the availability of data as well as the accuracy of available data is comparably limited. In Peru, NRW monitoring is implemented but following a rather nonstrategic manner, while in Ukraine there is no structured NRW monitoring in place at all. The magnitude of the implications of NRW is widely underestimated by utilities. Often this is based on a combination of ignorance, fear of losing reputation and having to justify the high NRW levels. Initially, the underestimation of NRW was largely the case in all analysed utilities with the exception of Costa Rica and Georgia. In Ukraine and Peru the management and key stakeholders understate NRW based on unrealistic assumptions. Those systems of assumptions and estimates were partially manipulated in a way to justify the status quo as acceptable. Pictures 1.3 Flow meter measuring the system input and SCADA of the reservoir in Costa Rica In the Peruvian case water scarcity in general and climate change in recent years have put water service security at risk while also increasing the sensitivity towards water sector development. In Ukraine the dependency on bulk supply of water is the biggest cost factor. These fundamentally different circumstances also define the different - 5 -

6 motivations (cost, water security) to tackle the issue of NRW reduction within the different utilities. Institutional dimension In regards to utility governance, the Ukrainian utility exhibits a strong top down decisionmaking structure. The situation in Georgia was initially comparable with Ukraine. However, due to the extensive levels of NRW (> 90%) and the learning processes through a large investments and incorporated institutional assistance, the perspective of the key stakeholders in Georgia has changed dramatically. This was mainly based on reliable and transparent procedures and comprehensive data collection methods which were introduced in the course of the programme. A comparable approach was developed in Costa Rica where key stakeholders realized pilot projects and proved by generating reliable data that technical and commercial losses signify priority problems for the utility and that fighting those problems requires a cultural change. NRW needs a new culture, new thinking and giving up of outdated ways of utility management. The approach of change management was only already in place in Costa Rica. It was not available in the utilities in Peru, Ukraine and Georgia. Nowadays in the Georgian utility this understanding also exists due to the institutionalization of a change management approach and based on a process allowing institutional learning, assisted in the framework of the Municipal Infrastructure Rehabilitation Programme. Concerning middle management and O&M staff the situation again differs significantly between the analysed utilities. General ignorance can be identified in Peruvian utilities. Middle managers of technical and commercial branches do not give NRW highest priority. In Ukraine middle managers are in weak position as general management not only guides the company policy but also manages detailed tasks. Moreover NRW teams are poorly equipped and even more poorly motivated as their work is not recognized. As a result, they have languished in a comfort zone for a long time. Introduction of modern approaches and equipment accompanied by training and the achievement of recognition were important drivers in Georgia and Costa Rica for middle managers and O&M staff to reinforce NRW activities. Nevertheless the real difference was made where utility governance, general management, middle management and O&M staff were able to learn and understand together about the interdependencies of adequate network management and availability of reliable data on water production and consumption. Pictures 1.4 NRW Steering Committee meeting and a NRW team installing a flow meter in Georgia - 6 -

7 Aside from the lack of awareness, another essential factor is the lack of relevant skills, knowledge and understanding of NRW and its importance for network management as well as unnecessarily high operating costs and inefficient service provision. Hence, the essential initial step towards effective tackling of NRW can only be realized when the reluctance as well as resistance towards change is overcome. This becomes most evident through the experiences in Georgia and Costa Rica. While in Georgia it took significant efforts to establish a realistic approach towards NRW, in Costa Rica utility management and key stakeholders had themselves established a careful and realistic approach of readiness and priority on NRW. This can be highlighted by the fact that there is no discrepancy between NRW estimated in the utility on all levels and the NRW levels documented and communicated. However, in Georgia it has only been able to overcome outdated procedures after the existing practice was discredited while new alternatives were introduced (Konatar et al., 2011); an open and honest culture of the utility stakeholders was developed and after estimations were replaced by calculations based on real measured data. The important synchronization and coordination of technical and commercial operations is often overlooked. The establishment of selected and isolated sectors of a water supply system according to commercial as well as technical requirements (District Metering Areas) is followed but hardly ever synchronized, which is crucial for utility management as well as reducing NRW. Very often due to lack of management understanding, technical and commercial branches work alongside each other while hardly coordinating activities. This was particularly the case in Ukraine and the utilities in Peru, while it was suboptimal in Costa Rica and only recently established in the Georgian case. Quantifying the results of the assessment preliminary results Quantitative results of applying the NRW CMI in the four countries show clear differences in the technical dimension. The utility in Georgia achieved a NRW CMI of over 92%, thus confirming that to a significant extent relevant NRW measures are underway. Costa Rica was assessed with 66%, non-surprising as despite a general understanding of the importance of NRW some basic technical conditions are not yet established. Peru (36%) and Ukraine (32%) follow at a large distance. This is due to a low rating on several technical indicators (e.g. lack of DMA, hydraulic model, etc.). When turned into quantitative values, the assessment of the institutional dimension showed only slightly different results. Costa Rica was assessed with 78%, confirming that the utility governance, senior and middle management as well as O&M level staff capacities and NRW practises are reasonably developed. Georgia has an institutional CMI of 66%, which is slightly lower, but confirming that on all utility levels NRW understanding is developed, but lacking a certain commitment by Senior Management. In Peru with 44% and Ukraine with 30% the assessment shows significantly lower indices, indicating a substantial room for development

8 Figure 1.2 The assessment in % of the Technical and Institutional dimension of the NRW CMI in Georgia, Ukraine, Peru and Costa Rica 100,00% 90,00% 80,00% 70,00% 60,00% 50,00% 40,00% 30,00% 20,00% 10,00% 0,00% 92,00% 78,00% 66,00% 66,00% 44,00% 36,00% 32,00% 30,00% Georgia Ukraine Peru Costa Rica Technical Dimension Institutional Dimension The total NRW CMI results (combining technical and institutional dimensions) in 79% for Georgia, 72% for Costa Rica, 40% for Peru and 32% for Ukraine. Georgia and Costa Rica have relatively well developed approaches to NRW reduction, however there is still space for further improvement. In Peru and Ukraine substantial capacity development, commitment, time and effort is required in order effectively reduce NRW. Figure 1.3 The assessment in % of the CMI in Georgia, Ukraine, Peru and Costa Rica 90,00% 80,00% 70,00% 60,00% 79% 72% 50,00% 40,00% 30,00% 20,00% 10,00% 31% 40% 0,00% Georgia Ukraine Peru Costa Rica Change Management Index in % Conclusions The index has a general structure that helps guide an assessment of utilities irrespective of cultural and social background as well as the general political and institutional framework. As could be seen from the analysis, in fact many of the technical conditions - 8 -

9 and general technical approaches to NRW are comparable across utilities; management structures show certain similar features. Therefore the application of the NRW CMI and the comparison of results is possible, moreover the different categories of sub-indicators allow for a flexible application and help guide interviews with staff from different countries. Based on the NRW CMI assessment results target setting and the determination of relevant measures to increase the NRW CMI of a given utility would be possible in a rather structured way. It could be proven that the NRW CMI can be applied in very different utilities in different countries. Nonetheless the definition of improvement and optimization measures based on NRW CMI assessment results needs to be tailored for the respective project and the respective utility. The index is at the same time specific in a way that it addresses the interconnections and interdependencies between institutional structure, management and staff capacities as well as attitudes towards NRW. The relation between underestimation of NRW and management s resistance to tackle the issue on all levels could be demonstrated in different utilities in different countries. The preliminary results therefore show that the NRW Change Management Index can be applied to a wide range of utilities in different cultural and social settings and is a useful tool for systematic and structured assessment. It captures many aspects that would have been missed while just looking at technical indicators, like the infrastructure leakage index (ILI), the apparent loss index (ALI), ALR (awareness/location/repair), etc. We believe that the CMI can provide a detailed and pragmatic basis for optimization for water utility optimisation through a comprehensive reflection of the NRW situation in a given utility in a comprehensive and holistic way. However, further research will be necessary in order to evaluate the causal relationship between the levels of NRW and different technical and institutional approaches on a comparative basis. References Farley, M. (2008) The Manager s Non Revenue Water Handbook A Guide to Understanding Water Losses. Ranhill Utilities Berhad and USAID. Retrieved from: Konatar, M. (2013) Supporting non-revenue water reduction with a Change Management Index. Water Utility Management International. 8 (2). ISSN Online: x. Konatar, M. and Hitzel, M. (2011) Management of change Coping with non-revenue water in a Georgian water utility. Water Utility Management International. 6 (4). ISSN Online: X. Vermersch M. and Rizzo A. (2009) Change management as an indispensable component when planning for NRW control. Water21, February, p World Bank list of economies (2013). Retrieved from: