Application of benchmarking to improve financial strength – John Njalam’mano

John Njalam’mano

Mr. Njalam’mano is an experienced and highly educated and extensively published water engineer. He’s been a manager with the Lilongwe Water Board (one of ROCKBlue’s partners). He’s done a significant amount of practical work in operations and maintenance (O&M), customer relations, planning, metering and non-revenue water (NRW) reduction. He’s also been a researcher in the area of sanitation and hygiene. John has worked with water utility associations. We are pleased to present his interview on application of benchmarking to improve financial strength of water service providers.

How do you benchmark effective revenue collection for services rendered?

Revenue collection is a key factor in sustaining the utility financial performance.  Revenue collection efficiency is a key performance indicator that shows the utility’s ability to collect revenue from the billed revenue. It is calculated as:

The achievement of more than 100 percent revenue collection efficiency implies that the utility is completely recovering its customers’ arrears.

Another performance indicator related to revenue collection efficiency is the Overall Efficiency Indicator (OEI). This indicator measures the volume of water produced versus the utility’s ability to recover revenue. This usually depends on the utility’s tariff structure. It is expressed as:Of course, it is a “best practice” to have all customer connections with functional meters. Metering is a key component of management and non-revenue water. Metering ensures that accurate bills are sent to customers and water losses are easily identified. The metering performance indicator is the ratio of the total number of connections with installed and functioning meters to the total number of connections. It is calculated as:

 

How do you benchmark the management of debt collection?

Non-payment or late payment of the amount invoiced to customers significantly (and negatively) affects the operation of the utility. Therefore, collection period (a.k.a., debtor days) is used as another important performance indicator. Debtor days is the average numbers of days required for a utility to receive payment from its customers for the bills invoiced.  This is calculated as:

 

Naturally, the smaller the number of debtor days the better as it suggests that the utility will have a smaller investment in accounts receivable and more cash available for other uses.

Can you benchmark timely meter reading and liaising with IT on billing?

Yes.  This is important as it can help to enhance billing accuracy, meter reading technology and minimise customers’ bill-related complaints. Water utility managers know that timely customer metering is a key component of revenue generation for operations. Meter reading should be done in a consistent manner. For instance, if the meter reading is done after 30 days, that level of frequency has to be maintained.  This will help managers to check for accuracy before billing and that all metered connections are read. Unexplained high-water consumptions, low water consumption and zero water consumption can be checked before billing. This will also ensure that billing and bill delivery are also done on time. Therefore, the performance indicator should be accurate meter reading; and bill accuracy measures the number of error-driven bill adjustments per 10,000 bills issued during the reporting period which is expressed as:

Can you benchmark water bill delivery to all customers?

Yes. This is because there is an obvious relationship between bill delivery and revenue collection. Thus, this is important to benchmark – it will not make sense for the utility to have bill invoices not delivered to the customer. We look at how many metered customers have received their bill. Bill delivery efficiency is calculated as:

The higher the efficiency the better. It is also important to look at the date of delivery of the bill invoices (i.e., within reasonable time) so that the customers are given ample time to prepare for bill payment as well as to reduce customers’ complaints related to services interruption due to non-payment or late payment. For instance, in Malawi, most people have salaried income of which majority receive on the 27th day of the month. So, bill delivery should be planned immediately before they get paid.

 

How do you benchmark replacement of faulty meters?

Water metering is an important component in billing for revenue collection and non-revenue water reduction (i.e. commercial losses). So having a faulty meter is the same as having customer connections without metering, hence faulty meters need to be replaced and benchmarked. The key performance indicators include; meter replacement rate and response time to faulty meter replacement.

Obviously, the smaller the percentage the better.

For this ratio, the smaller the number of days the better.

 

How do you benchmark that new customer connections are made urgently and effectively?

This also affects revenue collection. A utility wants to increase its customer base while sustaining good quality of its service delivery. It must look at how long it takes to respond once an application for a new water connection has been received. Also, they should check how long it takes from when the customer has paid for the new connection versus when the connection is installed. The key performance indicators used are; connectivity rate, new water connection service and response time to new water connection application. The indicators are calculated as follows:

The higher the rate the better.

Utilities should aim at lower number of days.

The smaller the number of days the better.