This is the fourth in a series of posts from the AWA’s Asset Management Specialist Network. Read part one, part two and part three.
Imagine if you received your water bill from your utility with, just under the total amount due, the following detailed cost breakdown:
- Water Variable Usage Charges
- Water Fixed Access Charges
- Sub-Optimal Asset Management Decision Charges
Part four: Understanding silo incentives
Silo incentives drive sub optimal decisions for Bill. It is important to note that the behaviour driven by bad incentives is not necessarily related a lack of honesty or integrity; the effects of incentives can act at an unconscious level.
A silo can be a manager, a team, a division or an entire organisation. Silo incentives exist when what is best for a silo is not best for Bill. Typical examples include:
- CapEx vs OpEx: For example, choosing a cheaper and less energy efficient blower to make savings on the capex budget, even if the extra energy cost for the O&M during the life of the aeration blower represents 10 times the capex savings.
- Short term vs long term (visible immediate cost vs less visible future risk): E.g. making short-term savings by not addressing the corrosion on a clarifier’s bridge and letting its coating deteriorate, leading to a significantly shorter lifetime of the bridge structure, incurring in the long term capex costs that are disproportionately higher than the short-term maintenance savings.
- Technical vs financial: E.g. a maintenance manager role with a scope of responsibility mainly focused on the technical side with a limited financial accountability would have an incentive to be highly risk averse, potentially leading to over maintaining assets and prematurely renewing them.
- Operation vs maintenance: E.g. operators resisting to make equipment available for preventative maintenance to be undertaken in order to meet their KPIs and because of the inconvenience it represents to them, leading eventually to more failures and higher maintenance costs.
- Communication value (buying a good story) vs value for Bill (meet demand and compliance with tolerable risk at lowest total cost): E.g. Recommending a project for its communication potential despite its poor value to Bill. The main benefit being increased visibility and a positive image for the decision-makers silo, at the expense of Bill.
- Interested advice (don’t ask the barber if you need a haircut): E.g. the UV units service provider recommending a major overhaul of an ageing UV system despite the lack of performance issues and despite the low risk with a stand by unit, while having an obvious business incentive in the recommendation.
A simple checklist using some of the items listed above when applicable and completed by other relevant parties can be an effective way to guide decision-makers in analysing the potential biases at work before making an important decision.
This article was written on behalf of the AWA’s Asset Management Specialist Network.