Solid financial position of water and wastewater utilities builds the basis for their sustainable services in the future, because it allows adequate investments into infrastructure renewal, technical innovations and ecological measures. The Financial Sustainability Rating Tool (FSRT) offers water supply and/or wastewater removal companies an opportunity to rate the utility’s financial sustainability. Business Mathematician Nicole Annett Müller was part of the team that developed the tool and she explains the benefits of it.
Why was there a need to create a tool like the Financial Sustainability Rating Tool?
On one hand, if financial performance is evaluated internally, subjective influences cannot be totally avoided. On the other hand, most external measurements are either binding, e.g. in the context of evaluating a utility’s creditworthiness, or they are chargeable and linked to a certain certificate or official rating result, which hinders especially water utilities with poor financial performance and missing budgets from participating.
The Financial Sustainability Rating Tool is freely available and has a non-binding nature, which shall prevent participation barriers and create incentives to prove if the current financing strategies and related economic measurements ensure a sustainable operation of urban water systems in the future. Especially, water utilities that expect a poor financial sustainability rating result shall not hesitate to make use of the rating tool.
What does the tool do?
Main purpose of the tool is rather a good public image than a self-rating. Accordingly, it has set itself the goal to uncover economic deficits and/or best practises to show the user where potentials for development are and which financial strategies are already viable for the future. The tool considers 37 input variables, 14 inner calculations and 21 indicators with an actual scoring result and thereby gives the user an indication, which area from financial situation over asset management to business operations and forecasts needs optimization.
Whom is the tool made for?
The tool is directed at water and/or wastewater utilities, which provide either only one of the two services or are able to split up the information and costs related to each service. Otherwise, meaningful results cannot be achieved.
Why using a tool like this? If I look at my numbers, I can see how I am doing financially so what does the tool offers me additionally?
The internal assessment of quantitative values is always characterised by an element of subjectivity. The use of external scoring intervals and weights, as developed within the FSRT offers the inclusion of an objective component, which can be used for internal or external debates and may support a rethink of certain historically evolved concepts.
What happens after the financial assessment? Does the tool suggest improvement actions or best practices?
The FSRT encompasses 21 selected performance indicators, which help to analyse a utility’s financial position. If the tool detects deficits in one of the evaluated areas, specific recommendations help to take the first step to improve financial stability. Moreover, the recommendations come together with advice on further reading to support the implementation of certain improvement measurements.
Is the tool suitable for every utility from Norway to Africa?
Since the Financial Sustainability Rating Tool is a standardised online tool, it cannot reflect every specific national regulatory framework, e.g. in the context of prices and tariffs. However, the tool can also be used by regulated utilities, so results can be the basis for discussions and debates with the economic regulator on potential system adaptations.
You can find the tool and additional information at http://fsrt-trust.ing.unibo.it/fsrt/ and at www.trust-i.net
