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Vera van der Grift interviewed Eric Stowe from Splash on how his organisation is using the life-cycle costs approach for cost modelling of their programmes in Asia. Eric explains how he and colleagues have slightly tweaked the language to make 'capital maintenance expenditures' understandable for everyone.
Splash organisation is strategically using the life-cycle costs approach (LCCA) for future predictions
Splash works a lot with institutions, schools, hospitals etc. In the beginning of their partnerships, they provide ten years of spare parts, maintenance, service guarantee and water testing every year for the ten years. This has been the design for the past few years internally at their organisation, but they have not been able to conceptualise how to take it past year ten. They want to figure out how to take this project further not necessarily by them, but how can communities support that financially to take this on. They approached IRC International Water and Sanitation Centre to enquire how to get a better understanding of the life-cycle costs approach, because their projections take them right to year ten, but their financing is insufficient. They enquired with IRC how they could better project how the years to 2020 would look like and even thereafter. They are still at the aviation phase and are figuring out what that would look like.
Examples of how the life-cycle costs approach has affected their work
In Cambodia, Splash organisation is trying to initiate a tariff structure to pay for years 11-20 so that between year 1-10 our partners are actively funding years 11-20 of the system and maintenance cost. They are calling it a sustainable savings fund where partners every 3 months pay an X amount towards this fund. It is an interest bearing account and that pays again for years 11-20.
In doing the cost modeling, they have used the LCCA to predict what this would look like taking into account all the different variations; this has been a huge learning curve.Since previously they have been covering only hard equipment costs, and when they started fracturing in LCCA, their costs increased by 25% which is great to know otherwise we would be fundraising in 10years from now to find that balance.We have been strategically using LCCA for future predictions.
In terms of staff uptake, the philosophy around LCCA of how people have gravitated towards it or not, internally, this has happened verbally –‘capex, capmanex, opex…’. When we try to explain what this is to our staff especially our international staff; instead of ‘capmanex’ (capital maintenance) we started calling it‘OSM ‘(Oh Shit Moment!)and everybody got it. What are those moments that when it happens you say “Oh Shit” how does one predict for those moments. This is a much easier and visual way for the ‘capmanex’. Many of our staff in Cambodia, Nepal and China did not get the ‘capmanex’ but they do get ‘OSM’.
China is the Splash's biggest project currently; unlike the other projects with a small geographical coverage where Splash is trying to do 100% coverage. In china they work in 31 provinces and municipalities and by February 2013, they will be in 670 orphanages, which represent all of them, so by first quarter of 2013 they will be able to say that all orphanages in China have water.
Originally they provided five years of support for those sites which was actually near sighted. They were not projecting 10 years at that time we are now pursuing separate funding for additional 10 years to take us from 2013-2023, but a belief that the Chinese government will take over those projects indefinitely from 2023 on and all this is based on Life–Cycle Costs projections.
Internally we are using that for the new funder for the next decade of work and for Chinese government 2023 and beyond.
Splash heard about the LCCA from the Water for People. Water for People (WfP) is a huge proponent of discussing what it would take or look like to take projects on indefinitely – this was a catalyst for us to be able to start internally analyzing where we are financially, what our predictions were and how far off we were. Water for People was a huge catalyst for us to start thinking of LCCA.
Watch the video interview:
Vera van der Grift (IRC) Interview with Eric Stowe of Splash organisation (USA)