Chapter Two: Life Cycle Cost and Service Delivery Approach

From Ministry of Water DCOM Manual

1 Chapter Two: Life Cycle Cost and Service Delivery Approach

1.1 Life Cycle Cost Approach

Life Cycle Cost (LCC) represents the aggregate costs of ensuring the equitable and sustainable delivery of adequate, drinking water, sanitation and hygiene services to a population in a specified geographical area. These costs include not only the cost of constructing a system but also what it costs to maintain them in the short and long-term, to replace, extend and enhance them as well as the indirect support costs of the enabling environment, viz. capacity building, planning and monitoring at village, district and regional level, not just for a few years, but at least for the project design period or more.

The delivery of sustainable services requires that financial support systems are in place to ensure that infrastructure can be renewed and replaced at the end of its useful life, and to deliver timely breakdown repairs, along with the capacity to extend and improve the delivery system and improve service delivery in response to changes in demand. Thus the ‘life cycle approach’ is flexible enough to build, sustain, repair and renew the water and sanitation systems through the whole of their cycle of use.

The Life Cycle Cost Approach (LCCA) seeks to raise awareness on the importance of LCC in achieving adequate, equitable and sustainable drinking water and sanitation services; to make reliable cost information readily available and to mainstream the use of LCC in drinking water and sanitation governance process at every level.

LCCA is a step towards increasing the efficiency and effectiveness of investment in the WASH sector, to find a balance between the allocation of money for new infrastructure to increase coverage, and allocation for major repairs and rehabilitation of drinking water and sanitation infrastructure such as to maintain the basic level of service. The LCCA can be useful for monitoring and costing sustainable WASH services by assessing pertinent costs and comparing them against the levels of service provided, how the same can be achieved maximally with least spending.

1.1.1 Cost Components

The following cost components should generally be considered:

(a) Capital expenditure (CapEx) - hardware and software: includes the concrete structures, pumps, pipes, treatment units, etc. to develop and extend water supply and sanitation service coverage. On software, costs should include community mobilisation, awareness raising and capacity development programme.

(b) Operating and Minor Maintenance Expenditure (OpEx): are the requirements for recurring regular, ongoing expenditure viz. labour, fuel, chemicals, material and purchases of bulk water meters as well as sewage collection/disposal facilities (5% to 20 % of capital investments),

(c) Capital Maintenance Expenditure (CapManEx): focus on asset renewal, replacement and rehabilitation; works other than routine repair and maintenance and replacements that keep the system running smoothly,

(d) Cost of Capital (CoC): refer to the cost of financing a programme/project and include . the cost of accessing the funds needed to construct a system,

(e) Expenditure on direct support (ExDs) includes expenditure on both pre-and post-construction support activities,

(f) Expenditure on indirect support (ExIDS) include the macro-level support, capacity building, policy, planning and monitoring that contribute to the sector working capacity and regulation but are not particular to any programme or project,

(g) Total Expenditure (TotEx) is determined on the basis of fixed assets and aggregates of the costs of all the components indicated above.

1.2 Service Delivery Approach

A service delivery approach is a concept for ensuring the sustainability of drinking water and sanitation services. It seeks to improve the record of the project– and implementation- focused approaches, in which users initially enjoy good services after construction of drinking water supply and sanitation systems. But without support and proper asset management, the system quickly starts to deteriorate until it collapses completely. Sometime in the future, a new system is by necessity, built by another agency. In a service delivery approach, a water and sanitation system is maintained indefinitely through a planned process of low intensity administration and management, with occasional capital-intensive intervention to upgrade the service level and to replace specific infrastructure at the end of its useful life

A service delivery approach aims to provide long term services. Thus it goes hand in hand with life cycle costing, which accounts for costs over the entire life cycle of a service – both the initial engineering and construction of infrastructure and the software (capacity building, institutional support, financial planning) and maintenance required to sustain a certain level of drinking water and sanitation services delivery into the indefinite future. A service delivery approach requires defining the roles and responsibilities for multiple actors working at different levels for improved coordination and harmonization of all pertaining activities.

1.2.1 Why Does Service Delivery Approach Matter

In the early 1990s, an estimated 30% to 40% of water supply systems in developing countries including Tanzania were not functional. This non-functionality rate has not changed much to-date, and studies indicate that a similar proportion of the system, particularly hand pumps, either do not function at all or are working at sub-optimal levels. Because of the existent and emerging failures of service delivery in the water sector, the following problems have emerged: (a) Throughout the World, approximately one in three water supply and sanitation systems are not working. Hundreds of millions of shillings have been wasted on infrastructure investment, and millions of people have returned to fetching water from distant and unsafe sources to the detriment of their health, education and livelihoods,

(b) True infrastructural life-cycle costs are poorly understood and are not planned for, resulting in extended down time or complete abandonment of systems, while funding for major repairs or replacements are sought,

(c) Community management as the predominant service delivery model has had limitations and is inherently unsuited to scaling up efficient service delivery.

Development partners and NGOs have often taken their own approaches to implement water supply projects, building systems without ensuring the needed institutional structures to sustain long term services. The rural water sector remains weak, despite significant investment to develop and sustain it.

1.3 System Management

1.3.1 Need for Effective Management

The lack of effective management or poor management is the single biggest factor which leads to the low or non- performance of water supply and sanitation systems/facilities. This is clearly evident when there are no well-defined objectives, no long term planning, no short term programming or budgeting. Hence, there is a need for guidance to all managers in-charge and supervisors of the O&M of drinking water supply systems to formulate and implement activities aimed at improving the efficiency and effectiveness of O&M. The ultimate objective of the managers’ roles shall be to provide to the consumers the best quality service at the lowest cost.

1.3.2 Systems Approach to Management Approach

In a systems approach, each water supply and sanitation organisation is considered as an overall agency within which is a range of organizational systems. Each organizational system is known by its area of specific action and represents specific functions. These systems can be implementation, operational, planning, administrative support (transport, supplies, etc.), financial, human resources and management information. These main systems can be further classified according to the differences in decision making and information processes, inputs, outputs, interactions and interconnections. The processing of information linked to the needed management activities is the basis for determining targets, fixing priorities, schedules, responsibilities, distribution of resources and management of the entire decision-making process. Advantages of the Systems Approach

The following are the advantages of systems approach in project management:

• It enables managers to describe and organize the service framework of a water supply and sanitation agency and to allocate due resources so that targets can be achieved.

• It forms the basis for management to control and measure results, take corrective actions, formulate new parameters and effectively distribute new resources.

• It enables managers to study the functioning of the concerned agency, and discern the relationships between various wings of the agency. Operational System

The objectives of an agency’s operational system are:

• To establish standards for the delivery of water and sanitation services that are satisfactory in respect of quality, quantity, continuity, coverage and cost,

• To maintain installations and/or fixing of equipment in such a manner as will ensure that they can be operated satisfactorily, function efficiently and continuously, and last as long as possible at lowest cost, and

• To produce and disseminate information on existing water supply and sanitation services, and their component units with specific reference to their functioning and adequacy to meet the needs of users, thus enabling the agency to evaluate the performance of installations in place and the effectiveness of the services provided. Component Elements

The component elements of a water supply and sanitation operational system are collection, treatment, storage and distribution of water including customer support. The main functions of O&M are to:

• Ensure that the installations and equipment are operated efficiently to produce and distribute quality drinking water,

• Monitor and ensure the smooth operations and functioning of installed facilities,

• Monitor the agency’s services focusing on quality, continuity and coverage of water supply,

• Carry out needed maintenance efficiently and economically,

• Monitor the performance of all equipment and evaluate their effectiveness and regular maintenance,

• ensure the timely gathering of information on needed maintenance pointing out potential problems such as weakness of structures, unreliability of equipment and with particular focus on identifying obsolete equipment and determining how long the facilities can function usefully before their full replacement,

• Ensure that the maintenance objectives and standards are set-forth so that due repair and replacements can yield maximum benefit at minimum cost. Management Information Systems

Management Information System (MIS) is defined as a formal system of making available, to the management, accurate, timely, sufficient, and relevant information to facilitate decision making such as to enable the organisation to carry out the specified functions effectively and efficiently in tune with the organisation’s objectives. Organisations have many information systems serving at different levels and functions. Each agency is expected to decide which information is relevant and evolve its own procedures for the collection, measurement, recording, storage and retrieval of accurate data. The MIS can be developed through the use of available software.

The efficient and effective performance of an agency depends on having a clear relationship between management activities such as planning, organisation, selection and training of staff, coordination, direction and control of the functions of the agency. The interaction between individuals at different management levels, together with the use of relevant information in the decision making process which is important for the agency’s performance. Each of the management levels has different focal centres of decision making and each of these is and should always be supported by a management information system. Database of Water Supply and Sanitation Projects

To achieve efficient and effective performance of water supply and sanitation projects, a database for the projects is required for analysis and use as fit. This helps in determining the life of the schemes, time schedule for augmentation of each component, sustainability of sources, and the system. Moreover, in order to provide safe drinking water and efficient sanitation services in adequate and desired quantity and quality, at adequate pressure and convenient locations and time and as economical as possible on a sustainable basis. The data can be collected with the help of manual or automatic systems or software with some remote measurements as explained in Chapter Sixteen.

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