The Smart Utility Leader’s Guide to Technology ROI: Risk Reduction Math That Actually Works

Picking new technology or an approach to solve an issue can be a challenge. Any organization must balance the existing approach with the opportunity of new approaches and technology. There are so many factors that go into each decision it can be helpful to take a step back and evaluate the options from a Return on Investment (ROI) vs Risk Reduction perspective.

The Biggest ROI is Following the Rules (AKA Regulatory Drivers)

The largest driver is typically legal compliance. Each utility must follow rules set by the states or the countries to keep our water and energy safe. Utilities are asking, “Will this new tech help us comply or complicate our lives?”. Some of the ones I see a lot are:

PFAS detection and destruction – With EPA limits now established and states implementing their own standards, utilities must demonstrate they can detect and remove these “forever chemicals” before they reach consumers.

Non-revenue water limits – Most states mandate keeping NRW under 35%, but aging infrastructure and extreme weather events make this threshold harder to maintain every year.

Sanitary sewer overflows – The limit is typically zero before fines kick in, and a single overflow can trigger penalties reaching hundreds of thousands of dollars plus mandatory reporting.

For a new technology what is the ability for reducing that risk of failure? 10% reduction? 90% reduction? And what is the cost? Once you list out the options, the risk reductions, and the costs it makes it much easier to make good decisions.

A Real-World Framework: Tackling Non-Revenue Water

Let’s take an example for reducing non-revenue water (NRW). Imagine your current system has NRW of 34% which is getting worse every year. You could get lucky and it’s a wet year so little ground movement and not many more pipelines break. Or you could get unlucky and it’s a year with lots of extremes in rain and drought You figure there is an 80% chance of going over 35% NRW if no additional action is taken. You take a careful but wide ranging approach and determine the options are:

A – Status Quo: You decide to keep everything the same. This doesn’t cost any more but the risk stays the same.

B – Additional Pipeline Replacements: You decide to replace more pipelines than ever before by an additional 20%. This increases spending by $10,000,000 annually to reduce the risk by 20%.

C – Acoustic Leak Sensors: You decide to try something new and deploy several hundred acoustic sensors to pinpoint leaks. This increases spending by $1,000,000 annually to reduce the risk by 10%.

D – Revised Work Order Procedures: You decide to invest in better data capture and IT systems to get better field data of leak calls ins and a faster responses time from problem to leak fix. This increases spending by $250,000 annually and reduces the risk by 5%

E – New Leak Repair Task Force: You decided to pull some of your team from other duties and into a full-time leak detection and repair team and you add a specialized contractor to tackle hot spots and larger breaks. This increases spending by $2,000,000 a year and reduces the risk by 10%

The Cost-Effectiveness Analysis

All these options sound great and will produce results. The problem is that you only have $5,000,000 budgeted. Which one do you pick?

The Portfolio Approach: Don’t Pick One, Pick Smart

Trick question! Do not pick just one. Pick a combination!

Take the same table and start with the highest benefit options and then work your way backwards. That gives you all of options C, D, and E and some of B. All in your spending increased by $5,000,000 annually for a risk reduction of 27.5%

Now you have a solution! You can work within the budget and get the most effective spend to reduce your risk of going over 35% NRW.

Beyond the Basics

This is a simple approach and ignores many of the factors such as minimum effective spend, stacked or compound risk reduction, and others. What is does provide is a quick model for what options to move forward with vs what options are not worth the time and effort.

What About Traditional ROI?

Wait you may say…there is more to a ROI than just risk reduction? Yes, but that will be a future article.

Making Better Technology Decisions

The next time you face a technology investment decision, try this approach:

1. Clearly define the regulatory or operational risk you’re addressing
2. Quantify your current risk exposure
3. Identify all viable technology options
4. Estimate the cost and risk reduction for each option
5. Calculate the cost per unit of risk reduction
6. Build an optimized portfolio within your budget constraints

You’ll move from gut feeling to data-driven decision making, with clear documentation of why you chose certain technologies over others. When you present to your board, regulators, or community stakeholders, you’ll have compelling evidence that you’re maximizing value from every dollar invested.

Technology selection doesn’t have to be complicated. It just has to be systematic.