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 Asset Management (WOAM) process 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:
What can be done? What are the basics of a work order asset management system? 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 such as reliable service at low cost?
Here’s an overview.
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 its core, a WOAM:
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. A WOAM also 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.
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 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:
In short, a fully functioning WOAM will provide your utility with another foundational element you need in managing your business.
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. Baker Tilly’s Energy and Utilities Group has developed a multi-layered approach to this process.
The approach centers on the following steps:
The following tool can be helpful in this process:
Allowance for funds used during construction
Definition of assembly units
Work order close process
Management of political process
Field to office communication process
Office to field communication process
Work order close mechanics and analysis process
Office and crew training
Retirement accounting process
Condition and detail of continuing property records
Correlation of balances on property records to financial statements
Correlation of units in property records to units actually in service
While the process may seem daunting at first glance, these steps can be implemented gradually, so as to not overwhelm your current systems, processes, and time available for implementing change.
For more information on work order asset management systems, and how Baker Tilly can help you triage and improve your current WOAM system, connect with us or post your comments to our Utility Accounting Issues Forum on LinkedIn.