Professional Engineers of North Carolina will hold its Annual December Seminars on Monday, December 5 to Wednesday, December 7, 2022. The event will be at the McKimmon Center in Raleigh, NC.
Topics cover the range of civil, mechanical, electrical, transportation, and environmental sectors. Licensed professional engineers can receive up to 18 professional development hours for their participation.
Solomon's keynote will address how engineers can be better business communicators of their work.
JD Solomon Inc is a niche consulting firm providing program development, asset management, and facilitation for the built and natural environments. Completely in its third year in business, the firm has provided services in ten US states in the government and private sectors.
JD Solomon was a member of the US Water Alliance task force on "Utility Strengthening Through Consolidation: Guiding Principles for the Water Sector"
The main benefit of regionalization is that it better leverages the resources of two or more water systems. Water utilities can use five major structures to pool their resources, and five major considerations must be addressed. The result is a matrix of projects that must be planned and executed to gain the desired economies of scale.
Regionalization and Consolidation Are The Same
Merriman-Websters Dictionary defines regionalization as “to divide into regions or administrative districts.” Consolidation means “the process of uniting.” By definition, regionalization (decentralization) and consolidation (centralization) have different meanings. In the water utility space, the words mean the same thing.
Since 1983, the USEPA has defined regionalization as “involving the cooperation of system owners and, perhaps, the consolidation of financial resources, physical plants, and/or personnel.” The perspective is from the small utility (less than 10,000 connections) and the ‘region’ is a subdivision of the state or federal government.
Benefits and Challenges
According to USEPA, “the main benefit of regionalization is that it pools individual resources of two or more water systems to obtain services or facilities that one or both systems may not have been capable of obtaining by themselves.”
Infrastructure is the most obvious thing that can be leveraged in a regionalization structure. Less obvious things include people (certified operators or licensed engineers), billing systems, geographic information systems, equipment, and maintenance resources.
The primary challenge is regionalization is often viewed as a means to create a larger entity that results in a loss of local policy control. In some cases, one entity is financially distressed and seeking a larger customer base to spread the pain – either in the long-term or short-term. In other cases, one community simply does not like the other.
Six Aspects That Must Be Considered
1. Infrastructure. The primary issues are related to the practicality of connections, the condition of existing infrastructure, and long-term needs/expansions.
2. Financial. The current debt amount, cost of deferred needs, current rates, and current rate structure are primary considerations.
3. Human Resources. Every employee contemplates whether they will lose their job, lose power and respect in the new organization, and lose pay or benefits.
4. Organizational (governance). The primary consideration usually relates to decision-making based on proportional size or equal governance based on the number of entities (regardless of size).
5. Legal. All regionalization and consolidation agreements should be in writing. Most require approval by the state legislature.
6. Political (social). Some communities do not see eye-to-eye, whether related to Friday night football or something that has nothing to do with water and sewer. More commonly, their elected officials do not like each other. Trust is an essential part of regionalization and consolidation.
Five Structures Are Available
1. Basic service contracts are the most widely used method of regional cooperation. Specific functions such as wholesale (or retail) water supply and wastewater treatment volumes, emergency services, operations and maintenance (O&M), or billing services may be contracted. While a form of regional cooperation, basic service contracts are a very low form of getting economies of scale from one system or the other.
2. Joint service (partnering) agreements establish the participating systems as partners in the provision of a particular activity. This commonly includes a shared partnership for building a new water supply source, a water treatment plant, or a wastewater treatment plant. These agreements are long-term in nature, detailed and legal in nature, and usually require some form of special legislation from the state-elected assembly.
3. Merger occurs when one system agrees to become part of another system legally. In most cases, a smaller system is absorbed by a larger one. In some cases, the smaller system may continue to provide monthly bills to its customers to maintain its local brand.
4. Local Special-Purpose Districts are generally units of local government that provide a specific service to a defined geographic (service) area. This structure was more common in the 1970s when federal dollars were available to create utilities in low and moderate-population areas. Over the past 30 years, many smaller special-purpose districts have merged into larger ones or regional authorities.
5. Regional Authorities are distinguished from the local special districts by the size of the area affected, a larger scope of services provided (e.g., water and wastewater), and independent autonomy. However, most US states do not allow taxation authority or issuing general obligation bonds to authorities. Regional authorities usually require legislative approval and governmental restrictions; however, regional authorities are considered the most similar structure to a private entity.
Moving Forward
Regionalization and consolidation of water utilities involve many interrelated parts. The main benefit is regionalization provides better leverage for the resources of two or more water systems. A matrix of projects must be planned and executed to gain the desired economies of scale. Regionalization and consolidation require time, money, and political capital to achieve a result that improves a community for many generations.
JD Solomon Inc provides program development, asset management, and facilitation at the nexus of facilities, infrastructure, and the natural environment. Over his career, JD Solomon has led water utility regionalization assessments and implementations in fourteen US states.
An organization's risk appetite varies just like our food appetites. There are some rules (like no beer at lunch) but we cannot describe it as one ever-present mathematical function,
New project managers and young professionals often struggle with the concept of risk appetite and how it impacts decision making. The long answer is that risk appetite is real and has been included in the works of decision analysis academics and gurus over the past fifty years.
The shorter and more practical answer is that risk appetite exists in every organization, but it is more implicit than explicitly expressed. Context (timing and where you sit) greatly impacts risk appetite.
My appetite is often driven by what I ate recently, who else is sharing the meal, and who is doing the cooking. But then, some days I want chicken and some days I want steak.
Risk Defined
Colloquially and according to most dictionaries, risk is defined as “the possibility of loss or injury; peril” (Merriam-Webster).
Risk management professionals and project managers more elegantly define risk as “the effect of uncertainty on objectives” (ISO 31000 and the Project Management Institute). The notes to the definition go on to expand that an effect is a deviation from the expected and that objectives can have different aspects and categories. Plus, objectives can be applied at different levels. Oh yeah, risk can be positive, negative, or both.
Getting back to plain talk, risk is a surprise that depends on where you sit. "Deviation" and "where you sit" have practical implications for risk appetite.
Dictionaries define appetite as “a taste or preference.”
ISO 31010 defines risk appetite as “criteria for deciding whether risk can be accepted” (Section 6.1.6.2). Criteria for defining the nature and extent of risk that can be accepted in pursuit of objectives, sometimes referred to as risk appetite, can be defined by specifying a technique to determine the magnitude of risk, or a parameter related to risk, together with a limit beyond which risk becomes unacceptable. The limit set for unacceptable adverse risk can depend on potential rewards.
The standard says risk acceptability can also be defined by specifying the acceptable variation in specific performance measures linked to objectives. Different criteria might be specified according to the type of consequence. For example, an organization's criteria for accepting financial risk may differ from those defined for risk to human life.
Risk appetite boils down to a criterion someone chooses based on circumstances and where you sit in the organization.
Risk Appetite is Out of Style
The whole risk appetite definition is gone from ISO 31001-2018, probably because risk appetite is a little out of style these days in the risk management community. ISO 31001-2009 included the topic. Its definition of risk attitude, "an organization's approach to assess and eventually pursue, retain, take or turn away from risk," is similar to PMI's current definition of risk appetite.
The Project Management Institute defines risk appetite as “the degree of uncertainty an entity is willing to take on, in anticipation of a reward (PMBOK Guide— Fifth Edition).
Risk is Missing a Time Element
The fact that the definition of risk lacks a time element (that we must consider and define) is typically overlooked.
Those who believe there should be a singular risk appetite for any organization are confounded like those who seek to reduce risk into a single, quantitative, calculus-based function. Functions do exist to describe behavior over any period of time; however, in human behavior, the freedom of choice provides many functions that we can choose to enable given the context.
Decision makers do not use a single function over time. Instead, decision makers use one function in the morning, maybe a different one in the afternoon, and perhaps a different function tomorrow. It depends on the context, and the choice of function is not independent but rather highly dependent on other simultaneously-occurring events.
In other words, context matters as multiple options and uncertainties crisscross before us at any one point in time. The portfolio of projects impacts how we evaluate a single project at any point in time, just as the organizational culture is often impacted by the business climate of the day, month, or year.
Once again, it matters where you sit.
Risk Appetite Exists
Risk appetite does exist. The better question is whether we can explicitly express risk appetite in a formal, written statement (i.e., is there a singular mathematical function?). We can, but it will not mean much daily or monthly to project managers working on singular projects.
Yet few people, if any, are risk-averse or risk seeking. Most turn out to practice both, but in different domains, like the carefree chain smoker who is concerned about getting cancer from genetically modified corn. Risk aversion is not a general trait, but domain-specific. The social limitation of fear explains that there is a specific pattern of socially acquired risk that individuals are willing to take or anxious to avoid. – Gerd Gigerenzer, Risk Savvy (2014)
The reality is that an organization’s risk appetite is implicitly expressed all around us in the form of documented processes, procedures, standards, contracts, performance measures, and communications. When it comes to risk appetite, the elements that are not in place are as indicative as the elements that are in place.
How Does This Help Me?
For young professionals and new project managers, realize that risk appetite does exist in every organization. Avoid being confused by risk management and project management expert that engage in mental masturbation on the theories.
The implicit elements of an organization’s risk appetite are more important than the explicit ones. Decisions concerning one project or aspect of a project may be frustrating, but no decision is independent of its context and the other projects within the portfolio. Risk appetite is a social and personal construction.
Effective communication is the single most important aspect. It always is.
Can understanding risk appetite help a project manager's career? You bet it can! And by the way, what are we eating for lunch today?
JD Solomon, Inc provides services at the nexus of facilities, infrastructure, and the environment. Contact us for more information on making reliability, risk, resilience, and asset management more operational for your organization.
