More than a third (34%) of water utility executives in England and Wales face “challenging” cost pressures, while almost a fifth (18%) describe budget constraints as “unpredictable” as the next asset management deadline approaches.

In a survey of 50 water utility executives in England and Wales, SAP highlighted some of the key challenges the industry is facing as it prepares for Eighth Asset Management Plan Cycle (AMP8)The investigation found that, faced with increasing economic pressures, water utilities are struggling to comply with upcoming regulatory requirements and transform their services to meet customer demand.

Over 41% of managers believe that this pressure is caused by a Lack of digital infrastructureAlmost a third (31%) of respondents said that the challenges were the result of costly and time-consuming attempts to modernize 200-year-old water networks. As public opinion towards the industry wanes, water utilities must accelerate digitalization to understand the national water network, operate efficiently and optimize the delivery of their services.

Preparing for AMP8

Amid rising inflation, supply chain issues and rising living costs, water companies are preparing to submit their AMP8 spending plans to the Water Services Regulation Authority (OFWAT) or risk reputational damage and significant fines. SAP research shows that leaders are aware that progress must be made if they are to meet the regulator’s requirements and improve customer satisfaction.

For example, Increasing cost pressure is a major obstacle 94% of executives believe that investments must be increased significantly or they will not be able to adapt their infrastructure to customer needs. This pressure is particularly acute for smaller companies, rising to 96% for water utilities with 500 to 1,999 employees.

This is reflected in a greater demand for external support: almost a quarter (22%) of executives say they will rely “to a large extent” on third-party partners to keep their services on track and maintain efficient business operations.

This means that almost a tenth (8%) of managers believe that their company will have difficulty achieving the KPIs and targets set by OFWAT. Mitigating these cost pressures will therefore not only help businesses to comply with the regulations, but will also enable those responsible to avoid significant financial losses that the majority can ill afford in the current economic climate.

“The water industry is currently facing significant challenges in meeting the regulatory targets set for AMP8. Maintaining a high quality of service is critical and there is an urgent need to reassess and improve the operational strategies of the UK water network,” said Greg Moyle, Energy and Manufacturing Industry Lead at SAP UK&I.

Fighting the outdated digital infrastructure

SAP’s survey also shows that in addition to macroeconomic pressures, the lack of digital infrastructure is hampering the industry’s ability to implement decisive improvements in service delivery.

Only 1 in 5 (20%) executives strongly agree that their organization currently uses data effectively to manage and gain insights from water infrastructure. There is a digital divide between smaller and larger companies: almost half (42%) of employees at larger companies agree, compared to just 8% of employees at smaller operators.

The common denominator for leaders’ inability to bring about change is the lack of digital tools:

• 55% say they do not have the monitoring capabilities needed to understand water needs and consumption.
• 45% do not have a complete overview of their pipeline infrastructure.
• 43% do not have complete data on the environmental emissions of their water network.
• 30% do not have a complete overview of their sewage network.

“The lack of transparency in the water network is hindering the industry’s ability to understand and address key infrastructure issues. Adopting digital tools and real-time information is key to business transformation to drive long-term improvements in service delivery,” said Hamendra Gupta, Business

Water utility architect at SAP UK&I.

Even in the absence of a digital backbone, leaders remain optimistic about the impact that existing and new technologies such as artificial intelligence (AI) will have on service delivery. 84% believe AI will shape the future of water supply and help fix leaks and spills and optimize usage, while 40% say initial AI implementation is already delivering positive results and demonstrating a return on investment.

However, the industry continues to face significant barriers to adopting digital technologies, and as a result, there is a significant gap between intent and execution. More than half (52%) of executives believe ERP transformation must come first to avoid silos impacting AI decision-making, while 48% need help understanding how AI can improve their aging infrastructure. The inability to find and attract talent also remains a barrier: two-thirds (66%) lack the skills and talent needed to effectively implement AI across the network.