**5.3. Cost assessment**

able) risks that are faced by urban utilities, and is based on a thorough analysis of risk conse‐

Probability classes can be defined by different probability intervals that may be derived, typically, from linear, exponential or logarithmic functions. The selection of probability classes is done by the decision maker; the criteria are not only depending on the type of problem but also on the range of possibilities acceptable to the decision maker, thus related to her perception of risk. Probability and probability classes are assigned to each individual component of the system when dealing with a component-based analysis or to an area/

Independently of the type of failures that may take place, they can result in a range of poten‐ tial consequences not only to the water infrastructure and services but also to other infra‐ structures. Moreover, consequences can also include socio-economic disruptions and environmental impacts. Therefore, when assessing the risk associated with a specific event,

number and severity of people affected by disease

Financial monetary value; should be a function of the size of utility e.g. annual operating

Reputation and image number of complaints; number of times the name of the utility appears in the

Business continuity damage to materials, service capacity, available human resources to maintain

Project development effect on deviation of objectives (e.g. scope, schedule, budget)

number of people affected permanently (mortality and disability)

Duration of service interruption (availability and compliance with minimum standards); differentiation of type of client affected can be used (residential,

Severity e.g. expressed as expected time for recovery (long-term "> y years"; midterm "x to y years"; short-term "w to v months"; rapid recovery "less than w

Extent (e.g. dimension of area, water quality index, volume or duration of event) Vulnerability (e.g. protected areas, abstraction areas of influence for water supply)

Various performance measures (e.g. population/clients not supplied for a T >Dinterruption; client.hours without supply); thresholds can be associated with legal

system function and recovery time (e.g. % capacity affected.hours)

quences and on the categorization into both probability and consequence classes.

sector when the analysis is focused on an area with specific and known risk features.

several consequence dimensions should be taken into consideration (Table 1).

number and severity of injuries

**Dimension Type of variables to express relative value in each class**

budget (AOB)

months")

requirements

media, …

**Table 1.** Dimensions of consequence (adapted from Almeida *et al*., 2011)

hospital, firefighting)

Health and safety

56 Water Supply System Analysis - Selected Topics

Service continuity

Environmental impacts

Functional impact on the system

Cost assessment is the other fundamental axis of analysis for comparing and selecting inter‐ vention alternatives in an IAM framework. All relevant costs and revenues items that take place during the analysis horizon and which differ from the *status quo*, should be accounted for, for any of the intervention alternatives considered.

The inclusion in the analysis of cost items that are common in nature and value to all alter‐ natives is optional, as they will not have an effect on the comparison but may be useful in informing it. However, if quantifying the actual net present value or internal rate of return of a financial project is important to the exercise, then all the relevant costs and revenues must be included. In practice, it is often the case that rehabilitation interventions do not af‐ fect revenues, and mainly have an effect on system performance, on system risk(by affecting system reliability) and on capital and operational costs (e.g., repair costs, complaint manage‐ ment, regulatory or contractual service compliance failure).

In general and simplified terms, the main cost items include:

**•** Investment costs, expressed as a given amount at a given point in time, and with a given depreciation period (if not linear, a depreciation function must be known as well).

**•** Operational costs, normally organized in three classes: (i) Cost of goods sold; (ii) Supplies & external services; (iii) personnel; operational costs are expressed as annual values, over the analysis period.

tegic plan, a document that should be synthetic, clear, and effectively disseminated to all

Infrastructure Asset Management of Urban Water Systems

http://dx.doi.org/10.5772/52377

59

The implementation of the strategic plan is ensured by a suitable chain of management, where the tactical and operational planners and decision makers play key roles. Implemen‐ tation should be monitored periodically (in general, annually). Strategic plans should be kept up to date, so that global and long-term directions are known and clear to the entire organization at all times. This may require reviewing and updating every 1/3 to 1/5 of the

Tactical planning and decision-making should be founded on the strategies and on the strategic objectives and targets. The aim of tactical planning is to define what are the in‐ tervention alternatives to implement in the medium term (typically 3 to 5 years). IAM tac‐ tical planning is not restricted to infrastructural solutions, as it should also consider the interventions related to operations and maintenance and to other non-infrastructural solu‐ tions. Managing the infrastructure has close interdependencies with the management of other assets: human resources, information assets, financial assets, intangible assets. The IAM plan needs to address the non-infrastructural solutions that are critical for meeting the targets and are related to these other types on assets, e.g., investing in a better work

The key stages of tactical planning are similar to those described for strategic planning. The objectives, metrics and targets need to be coherent and aligned with the strategic level. Met‐

The diagnosis should be carried out based on the metrics selected, for the present situa‐ tion and for the planning horizon. Due to the system behavior of the water infrastruc‐ tures, there is the need to adopt a progressive system-based screening progress, aimed at identifying the most problematic areas. In general, the water systems under analysis should be divided into sub-systems, and the metrics assessed for each of them. The most problematic are captured and analyzed in more detail. For those that do not display sig‐ nificant overall problems, there is the need to confirm that they do not have relevant lo‐ calized problems. If they do, these localized areas need to be retained as well for detailed analysis. This screening process leads to the identification of priority areas of interven‐ tion. For these, the diagnosis needs to be more detailed in order for the causes of the problems to be properly understood. The screening process may not apply to non-infra‐ structural interventions affecting the entire organization (e.g. organizational changes, IT

The next stage is actually producing the plan, and is one of the most work-intensive as it encompasses the demanding engineering processes involved in identifying and developing feasible intervention alternatives for each of the subsystems, and the assessment of their re‐ sponses over the analysis horizon for the metrics selected. For each subsystem, the interven‐ tion alternatives need to be compared, and that alternative which best balances the set of metrics for the chosen objectives, over the long-term, will be selected. The set of best inter‐ ventions alternatives, compatible with the financial resources that can be mobilized and

rics should address all three dimensions of performance, risk and cost.

relevant internal and external stakeholders.

plan's horizon.

orders data system.

and information system upgrades).

**•** Revenues, either through lump sums occurring at specific points in time (e.g. public sub‐ sidies), or distributed over the analysis period (e.g. revenues from tariffs). Revenues are also expressed by their annual value over the analysis period.

Whenever relevant, the costs of planning and designing new assets, as well as disposal costs of assets that reach the end of their service lives, should be included.

Since the end of the analysis horizon does not coincide in general with the end of the service life of most assets, the residual value of all assets at the end of the analysis period must be considered.

Cost-benefit analysis may include not only direct costs and revenues, as described above, but also indirect (i.e., those that are direct costs for a third party) and intangible costs and benefits. However, practice shows that utilities often do not feel comfortable in expressing certain such costs in monetary terms (e.g., increasing public health risk because the water quality does not meet the targets). An option that is recommended by some approaches (Alegre *et al*., 2011) and successfully implemented in a good number of utilities is to express indirect and costs as performance or risk metrics, and include only direct costs in the cost axis of the analysis.
