STAFF REPORT
March 9, 2000
To: Works Committee
From: Barry H. Gutteridge, Commissioner, Works and Emergency Services
Subject: Proposal to Implement a Business Plan Review and Business Process Reengineering of the District of the Water
and Wastewater Services Division - District Operations and Service Improvements.
Purpose:
To address the need for a continuous process to be introduced into the Water and wastewater Services Division that would
commence in the year 2000 and for which the funding is identified in the Division's Capital Budget and
Financial Implications and Impact Statement:
The funding for the proposed program is included in our submission for the 2000 Capital Budget and the 2000-2004
Capital Program for the Division. The breakdown is as follows:
(a)the total program cost is estimated at $52.348 million, inflated to year of expenditure and net after Municipal Goods
and Services Tax Rebate;
(b)the projected return on investment is savings of $15 million per year when fully implemented, a 3½ year payback;
(c)the budget request for the calendar year 2000 is $982 thousand, and will allow for the competitiveness assessment,
simulated competition, business, service and customer definition, and business case development activities; and
(d)future year financial impacts will be revisited once the above program development activities have been completed in
2000 and we have refined the estimates. These will be reflected in the 2001 capital budget request.
The Chief Financial Officer and Treasurer has reviewed this report and in conjunction with our capital and operating
budget requests for the year 2000 concurs with the financial impact statement arising from this proposed project.
Recommendations :
It is recommended that:
(a) the proposed program of District Operations and Service Improvements be approved for the development of the
business case in 2000;
(b) staff report back to the Works Committee on the findings and progress of the program on a six month basis;
(c) the funding for the 2000 work be considered as part of the W&WW Division's Capital Budget; and
(d) the appropriate City Officials be authorized and directed to take the necessary action to give effect thereto.
Background:
The former Metro Council implemented the Works Best Practices Program and its continuance was authorized by the
current City Council at several meetings in 1998 and 1999. The program only applied to the plants and services provided
by the previous Metro Works functions. As a result of amalgamation we have now incorporated the previous six area
municipalities, plus Scarborough PUC water distribution function, into one Division with the result that there are
duplicated and replicated District activities. The Division has prepared a Business Plan that clearly articulates the need to
address the non-plant operations through a process that will provide the best solution for our customers. This report
provides the details of the direction in which we wish to proceed and the cost benefit overview completed to date.
Comments:
Council has, over the past two years, taken several initiatives to reduce costs and effect savings as a result of the
amalgamation of seven municipalities and one utility. These have achieved budget reductions through targeted areas of
corporate support to the operating divisions in activities such as fleet reductions, fleet garage closings, and office and yard
consolidations. To take full advantage of those quick wins and to leverage them while managing the impact of reduced
corporate support will require a fundamental look at how we do business. Re-designing the way we do business will allow
us to sustain amalgamation-generated budget reductions while at the same time focusing on overall efficiency,
effectiveness and quality to achieve significant additional water and wastewater operating cost reductions and service
improvements.
The Works Best Practices Program, underway at the time of amalgamation in the former Metro areas of Water Supply and
Water Pollution Control and now in the process of full-scale implementation, offers significant opportunities to this second
stage of water and wastewater services amalgamation in the form of business improvement strategies, major enabling
technologies, and a range of methods and standards designed to put those strategies and technologies to beneficial use.
In the longer term, strategic development is needed to identify and implement innovative and transformational change
through the leveraging of modernized tools and technologies, training and multi-skilling, advanced methods and work
management practices, and modern, team-based operations and organization.
In 1999, City Council created the Single City Savings Committee to look at ways to identify expenditure reductions or
revenue generation opportunities as a result of the merger of the seven entities (eight in the case of water). Recently, the
Committee identified that business process reengineering would be the best approach to achieve further expenditure
reductions. The Committee also recognized that a comprehensive approach to business process reengineering would entail
considerable further planning, resources, and funding to successfully implement.
The CAOs from the GTA Regions have recently embarked on a Regional benchmarking exercise in the water and sewer
functions which is in line with the current National Research Council (NRC) benchmarking exercise well underway. Over
the past few years the same group had concentrated on the transportation departments of the regional governments. While
still in the formative stages, the process is designed to see if the water and sewer utility functions can compare costs and
benefits through defining appropriate performance measures for as many activities as possible. Staff from the Water and
Wastewater Services Division are participating in this exercise.
Benchmarking may best be described as the search for industry best practices that lead to superior performance. Process
benchmarking is a specific form that takes full advantage of techniques available to evaluate internal as well as external
performance. Care has to be taken when using the term benchmarking, as a simplistic comparison of unit prices with other
utilities can be very misleading. Process benchmarking studies, which focus on business processes as well as outcomes,
can lead to significant improvements in operating, maintenance, administrative and management practices and the
leveraging of strategic technologies. This approach is more costly and complex but leads to dramatic increases in benefits -
as in the case of the Works Best Practices Program, the return on investment can be substantial. An important outcome of
this method is the availability of accurate data that can be easily gathered and used in performance measurement of all our
activities. The process recommended herein is based on process benchmarking and will enable more accurate overall
benchmarking of our business processes.
The private sector have made many presentations to senior staff and members of Council over the past two years with the
goal of obtaining the opportunity to bid on some or all of the Water and Wastewater activities. Their suggestions have
included privatization (buying all the assets), delegated management (they bid to run the whole division), managed
competition (they bid against the staff to run some or all of the division) and simple contracting out (they bid to provide an
activity or service).
Within North America in the past few years private sector operators have taken over the management of nearly 2000 water
utilities. There are a few major international companies that have bought, or partnered with, local firms to expedite their
entry into the municipal water and wastewater market. Primarily these firms are French, British or American. The key
element is always the "competitive gap" that exists between the private sector and the public operations in terms of
expenditures for given levels of service. In many cases the municipality lacks the finances to upgrade or modernize its
facilities, whereas, for long duration operation and maintenance contracts the private sector will offer to invest in new
infrastructure, replace or repair current assets, or upgrade treatment plants. In order to independently assess the competitive
gap, the private sector suggests that we hire an international consultant to review our operations and identify the annual
savings that could be achieved if we changed our business processes and upgraded our assets.
The water and wastewater industry in North America has identified a competitiveness process model for modernizing and
reengineering operations to maximize efficiency and effectiveness. This is contained in the 1999 report issued by AMSA,
the Association of Metropolitan Sewerage Agencies, and AMWA, the Association of Metropolitan Water Agencies.
Briefly the steps are as follows:
(1)Cross training staff and other workforce flexibility reforms;
(2)Creating performance-based and gain-sharing incentive programs;
(3)Rightsizing, unattended operations, and human resource reforms;
(4)Automating processes with enhanced instrumentation;
(5)Switching from reactive to predictive and preventative maintenance;
(6)Contracting out non-core competency functions;
(7)Reducing costs of materials and chemicals through new technologies or purchasing agreements;
(8)Reducing energy consumption, through conservation techniques, new technologies, etc.;
(9)Reforming cumbersome procurement restrictions; and
(10)Reducing parts and supplies inventories.
In August of 1999 we held a two-day "think tank" session with staff from the non-plant areas of the Water and Wastewater
Services Division. In a workshop format, approximately 120 staff examined major business functions and activities to
identify symptoms and causes of inefficiency; considered potential solutions to problems (opportunities); and quantified
the possible impact on operating costs of implementing those solutions (in some cases, by eliminating unnecessary
processes, in others, by leveraging new technologies and methods). The staff at the workshop noted that critical success
factors like union/management co-operation and senior management/Council support for the process were considered very
important. Based on these very preliminary findings, it was determined that, for an expenditure roughly estimated at $50
million, we could generate important operational and service performance improvements as well as annual savings
conservatively projected at $15 million, a three and one half year payback. The capital expenditure would address program
development; business, work and management practices re-design; organization re-design; staff training and development;
and information and operations technologies.
Given all the foregoing activities, and our current position in amalgamation, we believe that the timing is right to
implement the review of the District operations and at the very least identify our competitive gap and the estimated cost
benefit to change our operations. In these times of limited resources we have to work smarter to become competitive with
the private sector and to ensure we provide the best service to our customers.
The amalgamation process to-date has involved creating an organization from the top down. The management has been
hired down to the front line supervisors and now we have to address the unionized staff, work methods and operations. The
Division now has a full time Amalgamation Team Lead and Business Planning Co-ordinator to work with the General
Manager to effect changes. The program development steps for this "District Operations and Service Improvement"
program are as follows:
(1)Competitiveness Assessment (CA) - to define competitive gap, strengths and weaknesses
(2)Simulated Competition - to confirm the CA, foster staff involvement and buy-in, identify areas of opportunity, and
refine targets
(3)Business, Service and Customer Definitions - to ensure alignment
(4)Opportunity Definitions - to refine solutions and contribute to the basis for costing
(5)Technology Assessment/Plan - to refine technical solutions and associated costing
(6)Business Case
(7)Report to committee and recommend implementation as appropriate.
The total cost of the program development work proposed to be performed in the year 2000, comprising the first four
activities above as well as preliminary Business Case development, is estimated at $982,000. Over the next four years the
initial estimate is $50 million for full implementation of all the work and management practices re-design and
implementation, staff training and development, automation equipment, and computer hardware and software. The
expected savings are conservatively estimated at $15 million per annum once fully implemented. The proposed approach is
to carry out the work suggested for 2000 and then report to Works Committee on the outcome and revised cost benefit
analysis before proceeding any further.
In order to address these steps and ensure we have the best possible advice it will be necessary to hire consultants through
an RFP process and preferably find a company with international experience.
Conclusions:
Council has, over the past two years, taken several initiatives to reduce costs and effect savings as a result of the
amalgamation of seven municipalities and one utility. These have achieved budget reductions through targeted areas of
corporate support to the operating divisions in activities such as fleet reductions, fleet garage closings, and office and yard
consolidations. To take full advantage of those quick wins and to leverage them while managing the impact of reduced
corporate support will require a fundamental look at how we do business. Re-designing the way we do business will allow
us to sustain amalgamation-generated budget reductions while at the same time focusing on overall efficiency,
effectiveness and quality to achieve significant additional water and wastewater operating cost reductions and service
improvements.
The Capital Budget for the Water and Wastewater Services Division contains a new project with funding in the year 2000
and the next three years that amount to $52.348 million, inflated to year of expenditure and net after Municipal Goods and
Services Tax Rebate. The amount indicated in 2000 is $982,000, and is to cover the cost of engaging consultants to address
the following phases of the project:
(1)Competitiveness Assessment (CA)
(2)Simulated Competition
(3)Business, Service and Customer Definitions
(4)Opportunity Definitions
(5)Initial Business Case (pending Technology Plan)
Given the magnitude of the proposed project, it has been discussed with the Finance Department and the staff are in
agreement with including this work as part of the 2000 Capital Budget which is covered from the water rates.
Contact:
Michael A. Price, P.Eng., FICE
General Manager, Water and Wastewater Services
Tel:392-8200Fax:392-4540
Email: mprice@toronto.ca
Michael A. Price, P.Eng., FICE
General Manager, Water and Wastewater Services
Barry H. Gutteridge
Commissioner, Works and Emergency Services
MAP/ji
