Using cost-benefit analysis to appraise investments An United Utilities case study
Page 2: Drivers for investment
Businesses invest for many reasons, such as:
to grow an existing business. United Utilities expanded by building new assets such as storage tanks and water treatment works
to replace and improve existing facilities. In United Utilities’ case, this has involved upgrading or replacing sewers and water mains
to meet legal or environmental requirements.
There were two main drivers for United Utilities to invest in the Millom project:
European legislation. The European Union sets out regulations known as directives. The Bathing Waters Directive sets the standards for water quality where people may want to swim or paddle. Similarly, the Shellfish Directive covers the quality of water where shellfish may be grown and harvested. Only shellfish that are cultivated in clean water can be sent to market.
Environmental factors relating to the quality of discharged water. The Millom project was designed to improve the quality of wastewater discharged back into the environment.
United Utilities identified a need to improve its management of water and waste water in the area around Millom and the Duddon Estuary. It aimed to combine engineering design with a consideration of environmental factors to generate the best solutions.
This required working with a range of stakeholders to determine the best possible investment decision. Stakeholders are groups with an interest in a business decision. The investment decision was ultimately based on a cost-benefit analysis. Cost-benefit analysis involves taking into account both financial factors and wider social issues (including environmental impact).
United Utilities | Using cost-benefit analysis to appraise investments