Prioritizing capital improvement projects to mitigate risk

Abstract

Faced by the need to repair and replace aging infrastructure and at the same time build new systems to meet population growth, US water utilities must make increasingly complex decisions about where, when, and how to invest their capital improvement dollars. What's more, their decisions must involve a range of stakeholders and win their “buy in” in order for projects to receive necessary financial and community support. A decision‐making process has been developed to help utilities systematically and objectively prioritize capital improvement projects on the basis of financial risk and other defensible planning criteria. In addition, the methodology described in this article enhances both internal and external communication, can help stabilize rate increases, and potentially lower bond interest rates by providing rating agencies with evidence of comprehensive planning. Water suppliers can use this information to begin transforming the way they establish and prioritize their capital improvement programs. By following the step‐by‐ step approach described here, utilities can turn the daunting challenge of capital improvement choices into a process that leads to sound financial policies and fosters collaborative partnering with their customers and communities.