The greatest single component of rates charged to your ratepayers is to fund the infrastructure your utility has put in place to serve your customers. The Work Order and Asset Management process (WOAM) is the foundation to the valuation of your utility’s infrastructure. The quality of your WOAM system has a great impact over your utility's strategic and operational planning process and enterprise risk management process.
With our work in the utility industry, we hear the same lament and frustration from $1 billion utilities and $1 million utilities:
- Our records are incomplete
- We can’t get the construction detail from the field to the office or from the office to the field
- There are utility plant dollars on the books that are not out there serving our customers
What can be done? What are the basics of a work order asset management system (WOAM) and how can we implement it in our utility or change our processes to meet our finance and business needs and use it to meet our strategic objectives (a.k.a. reliable service at low cost)?
Here’s an overview.
What is a Work Order Asset Management (WOAM) system?
The WOAM is a fundamental process and record-keeping tool in the utility business. Its foundations go back to the roots of the utility industry in the 1800s.
At it’s core, a WOAM:
- Accumulates costs of utility construction and maintenance projects
- Provides information to be used in transferring costs of construction and maintenance to final FERC accounts
- Provides the support for calculating depreciation expense
- Provides historical basis for plant retirement accounting
- Provides data that becomes the final cost record of utility units of property throughout their useful life until taken out of service and retired or salvaged for future use
By definition a WOAM is:
A system to summarize all direct and indirect costs of a construction project including direct costs (labor, materials, contractors), overhead costs (labor overheads, minor materials and materials handling, equipment) and indirect overheads (administrative and general, interest during construction).
The theoretical foundation of a WOAM lies in its ability to accumulate all of the costs involved with the long-lived useful life of fixed assets that are installed to provide utility service and a WOAM moves costs from the income statement of your utility to the balance sheet to recognize those utility infrastructure activities that benefit future periods and therefore require long-term funding from your ratepayers through their rates.
How can a WOAM that fully costs utility infrastructure benefit your utility?
A properly functioning WOAM is a vital tool in managing your utility’s business and providing effective, reliable service to your customers. The benefits and effort that are needed to establish, upgrade, or maintain your utility’s WOAM system far outweigh the time and cost involved. A properly functioning WOAM provides these benefits:
- Provides the foundation for strategic planning and enterprise risk management of utility financial reporting, compliance with laws and regulations, regulatory requirements, and operational planning
- Provides accurate and defensible information to be used in cost of service studies and design of equitable rates
- Facilitates and improves capital improvement planning and budgeting
- Provides consistent data for benchmarking utility operations with your peer group
- Provides support for issuing long-term debt to finance projects
- Provides defensible support for cost allocations among various departments and entities
- Provides defensible support for cost estimates and project reimbursements
- Provides information for more accurate recording of depreciation
- Reduces work in record keeping, cost accumulation, and reporting
- Ensures compliance with generally accepted accounting principals and regulatory accounting requirements
- Provides foundation for job training, position turnover needs, and succession planning in operations and finance areas
In short, a fully functioning WOAM will provide your utility with another foundational element you need in managing your business.
How can we improve our WOAM process and systems?
Implementing or upgrading a WOAM is a multi-year project, best done as a phased process and potentially with the aid and assistance of external specialists, analysts, and facilitators. The Baker Tilly energy and utilities team has developed a multi-layered approach to this process.
The approach centers on the following steps:
- Define desired element for evaluation
- Define the current state of that element
- Develop an improvement plan if needed
- Triage the importance of the overall improvements needed
- Develop and implement an improvement plan for each element
While the process may seem daunting at first glance, these steps can be implemented piecemeal, so as to not overwhelm your current systems, processes, and time available for implementing change.
For more information on Work Order Asset Management systems, our recommended approach, and how we can help you triage and improve your current WOAM system, contact your Baker Tilly advisor.