Ofwat has flagged up a number of areas where the water companies will need to strengthen their existing approach to asset management maturity.
Ofwat has flagged up a number of areas where the water companies will need to strengthen their existing approach to asset management maturity.
The recommendations come in a new report published today in the water sector regulator’s Asset Management Maturity Assessment (AMMA) insights and recommendations report.
The report is a collaborative piece of work between the regulator and companies – Ofwat describes the report as providing a unique window into the sector’s asset management capabilities and identifies a number of strengths and areas for improvement.
The report says:
“Understanding the areas of strength and areas in need of improvement will help us to consider any changes we may need to make to our regulatory regime and implications for different areas of our broader work.”
The aims of the AMMA were:
- to develop a shared understanding of the sector’s current maturity in asset management practices and where improvement is planned;
- to help Ofwat to understand how companies manage the risk of asset failure in the short and long term;
- to help Ofwat identify sector strengths and weaknesses and consider any implications for its regulatory regime and broader work;
- to highlight good practice approaches and where further improvement may be needed, based on the evidence provided; and
- to encourage collaboration and explore how companies can progress improvements across the sector.
In its strategy ‘Time to act, together’, Ofwat committed to strengthen the industry’s approach to achieving long-term operational resilience in its assets.
According to the regulator, while water and wastewater strategic planning frameworks offer some insight into planning for future resilience challenges, they do not cover all aspects needed to deliver long-term resilience, including asset health and the role of asset management planning.
Ofwat signalled a focus on improving the sector’s approach to asset resilience in its forward programme for 2021-22 - including through an asset management maturity assessment and highlighting areas of good practice.
Ofwat says assessing companies' asset management maturity or capability will help it to understand the extent to which companies can effectively manage the risk of asset failure in the short and long term.
The report identifies areas where companies were able to show more mature capabilities such as the use of a clear auditing regime and the integration and embedding of price control outcomes and reporting in how companies run their businesses.
Across the board companies were also able to show they were improving their asset management capability through organisational wide transformation programmes and focused initiatives.
However, the report also identified a number of cross sector areas for improvement, including the need for increased board oversight and engagement on asset health and operational resilience risks and mitigations, linking short, medium and long-term asset management planning. Many companies also recognised the need for better quality data and information to support decision-making.
Companies submitted a self-assessment with accompanying evidence in response to the AMMA questions and scoring criteria. Ofwat commented:
“Since our evaluation was based on self-reported capability, our results may not be fully comparable to the exact quality of asset management in each company and they do not provide any insight into the current state of their assets.”
According to the report, the areas where companies demonstrated more mature capability tended to be more heavily prescribed areas, influenced by regulation and compliance. These included:
- Improving asset management capability
- Contingency planning and emergency response
- Established strategic planning frameworks (such as water resource management plans)
- Audit, compliance and need for continuous improvement
- Reporting of performance commitments and outcome delivery incentives (ODIs)
Reporting/ engaging with board on asset health limited to performance commitments and outcome delivery incentives
Areas that companies found harder to evidence are highlighted for improvement in the report.
Commenting on board oversight and engagement on risk, the report says that for most companies, reporting to and engaging with board on asset health seems to be limited to performance commitments and outcome delivery incentives. Only a minority of companies engaged with their boards specifically on asset health and operational resilience risks and mitigations.
Few companies were able to demonstrate that they looked at longer term asset health trends outside of the established performance commitment framework, the report says.
With regard to data and information strategy, in some cases, companies were not able to clearly articulate, as part of their asset information strategy and asset information standards, how they use asset information in decision-making.
In addition, few companies provided evidence of a systematic focus on specific skills related to asset management, asset health and/or operational resilience.
In terms of wider value and benefits realisation, most companies provided limited evidence that their value frameworks used for decision-making included wider social and environmental aspects e.g. biodiversity and human wellbeing.
Ofwat – “the hard work starts now ‘
Ofwat now expects companies to work together to reflect on the AMMA findings and recommendations and share good practice to improve asset management maturity across the sector. Alongside this Ofwat is considering how its regulatory regime could change to reflect these findings. Ofwat will report further on progress in implementing these findings early next year.
John Russell, Senior Director at Ofwat said:
‘To increase their resilience, protect the environment and ensure customers continue to have access to high quality, reliable water services, water companies need to get better at planning with both the short and long term in mind.
Asset management is an important part of overall resilience so I’m pleased that we’ve been able to work collaboratively with the sector and develop this assessment
It has given us a shared understanding of where the sector needs to target improvements to ensure it is resilient now and in the future. The hard work starts now. ‘
Click here to download Asset Management Maturity Assessment (AMMA) insights and recommendations in full
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