Using cost-benefit analysis to appraise investments
An United Utilities case study

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Page 1: Introduction

United Utilities 17 Image 11Every morning millions of people in the UK have a bath or shower, make a cup of tea and wash the dishes before they start the day. Thousands of businesses use water in hundreds of different ways - from hairdressers and hospitals to factories and farms. Yet most people do not consider where water comes from or where it goes once they have finished using it.

It is the job of United Utilities to bring three million households and 200,000 businesses in North West England an incredible 2,000 million litres of clean water each day – and take it all away again. It then treats it to make it safe to go back into the environment through rivers and the sea.

United Utilities has a licence to provide water and sewerage services to around seven million people in North West England. Ofwat, the economic regulator, is responsible for overseeing companies like United Utilities to ensure they meet their obligations to customers. These obligations include meeting standards of service and charging fair prices. United Utilities also has to meet strict environmental standards set by the Environment Agency which manages discharges to the environment. These relate to the water quality of rivers, shellfish and bathing waters along the North West coastline.

To deliver these services, United Utilities employs over 5,000 skilled employees, from apprentices to graduates, with diverse skills. These range from engineers, scientists and project managers to operational colleagues running the treatment works. Equally important are the frontline customer-facing employees and those staff in support functions such as finance, HR and IT.

United Utilities has to consider how its decisions affect its various stakeholder groups including customers, shareholders, local councils, MPs, the media and the wider community. United Utilities recognises its responsibility to the community in many ways, including working with young people in schools from Year 9 upwards. United Utilities encourages the take-up of Science, Technology, Engineering and Maths subjects in schools. It also emphasises the importance of learning about the environment.

Increasing investment

United Utilities 17 Diagram 1In the period from 2010 to 2015 United Utilities will invest more than £3 billion to improve the water and wastewater infrastructure and the environment across the North West. As a commercially operated business which provides a public service, United Utilities seeks to carry out all its projects in the most cost-effective way. It embraces cost-saving innovations without compromising the service to customers.

This case study examines one major wastewater quality improvement investment made by United Utilities. This was for a bathing waters and shellfish waters project in Millom, a coastal area in Cumbria in North West England. It shows how important non-financial considerations, such as the impact on the environment, were in arriving at the best decision.

United Utilities | Using cost-benefit analysis to appraise investments