The partial indicators method consists of calculating different measures of the financial, operating, commercial, and quality of a utility’s performance. Performance indicators can be based on cross-sectional comparisons with competitors or comparable firms in other countries, while past performance can provide information on improvements over time. In general, these indicators account for the relationship of two simple measures, yielding indices of productivity, NRW, human capital development, or financial conditions, among others. Such performance indicators include, for example, the number of workers per one thousand connections, the percentage of water loss, training outlays as a percentage of labor costs, or the ratio of total debt to total assets.
When presenting the benchmarking results it is important to tailor the set of indicators to the purpose or to the intended audience. For instance, managers may view some of the indicators as not under their control. Hence, it is helpful to supplement the main indicators with summary measures to reinforce the effect of possible improvement actions. Within this group, we can identify Specific Core Indices, and Overall Performance Indicators (OPI):
Specific Core Indices:
A single index of utility performance has the same problems of any indicator: it will be neither comprehensive nor fully diagnostic. Nevertheless, Specific Core Indices (partial performance indicators) are widely used, and can serve as a starting point for evaluating performance.
- Advantages of Specific Core Indices: These partial measures provide the simplest way to perform comparisons: performance indicators are easy to calculate, they seem easy to interpret, and the data are often readily available from annual reports of companies. Focus can be given to trends over time to create targets for utilities.
- Disadvantages of Specific Core Indices: Such indicators fail to account for the relationships among the different factors. A firm that performs well on one measure may do poorly on another, while one company doing reasonably well on all measures may not be viewed as the “most efficient” company.
- Application: Uganda’s National Water and Sewerage Corporation has used a few Specific Core Indicators (unaccounted for water, collections, and network expansion) to create strong incentives for managers of local water utilities. Performance contracts based on achieving these targets involve managerial bonuses of 50% of salary. Using simple trend information and comparisons across a set of utilities has had very positive impacts on NWSC performance.
For more information, see Using Internal Incentive Contracts to Improve Water Utility Performance: The Case of Uganda’s NWSC, Silver Mugisha, Sanford V. Berg, William T. Muhairwe, May 2005 (forthcoming, Water Policy).
Overall Performance Indicator (OPI)
The specific core indices are often combined in some way to create an Overall Performance Indicator. The way this combination is usually performed is through a weighted average of core indices, where the weights reflect the importance the regulator assigns to each aspect of the firm performance.
- Advantages of Aggregating Partial Indices : The use of an OPI provides a summary index that can be used to communicate relative performance to a wide audience. Its components are easily understandable, providing some legitimacy to the resulting rankings.
- Disadvantages of Aggregating Partial Indices: The weights used to compute the OPI are generally not determined through a process that prioritizes different outcomes. Thus, when WSS are rated on the basis of a set of indicators, equal weight tends to be given to each component, even when the incremental costs of improving a particular ratio might be very high and the incremental benefits from the improved ratio minimal.
- Application: The regulator for the water sector in Peru, SUNASS, utilizes a set of specific core indices to assess the relative efficiency of the service companies.