Ntiyiso Consulting has successfully completed a cost analysis and tariff determination study for Ekurhuleni Metro. The project was aimed at measuring the actual cost of rendering the waste management service with the view to use the cost to determine a cost-based tariff to be implemented by the municipality. The scope of the project also included comparing the cost of rendering the service between the municipality and the private contractors rendering the same service on behalf of the Metro in selected areas. Finally, the study also analysed areas of inefficiencies and make recommendations of on the improvement of the operations.
Ntiyiso Consulting’s role in the project was conceptualization and development a solution to calculate a cost based Waste Management Tariff.
The challenge here was that there are many and complex factors which determine the cost of rendering the waste management service. Also, implicit in the brief of the study, i.e. ‘cost based tariff’, was that we needed to determine the actual cost components which makes up the service, and not all of them were easy to measure. For example transport, which in itself has a number of complex sub components (e.g. fuel, wear and tear, labour etc.). Also implied was that we needed to measure the outcome of the cost being outlaid so that we could arrive at rand per ton. This measurement was not easy either.
As part of a solution, Ntiyiso Consulting developed a computerized model which, based in key inputs and processing rules, calculated the costs and the tariff as well as provide a reporting platform. But this was only an outcome. In developing such model, we analysed the service itself in terms of the processes (i.e. collection of waste, compacting, landfilling etc.) and the drivers of each process (e,g. labour, transport and supplies). This was done for various service types, e.g. residential, bulk containers, small business etc.). We also performed an analysis of the organisational structure, responsibilities (to determine who in the organisation is part of the waste management service), budget votes, cost allocation and salary scales amongst other things.
From the above analysis we were able to formulate a costing structure. But then there was measurement of the cost, with transport and productivity being the most complex. To resolve this we installed GPS units in 30 percent of the fleet using a representative sample of new, medium and old fleet. The units also took data from bin sensors to measure productivity. From this data we were able to determine the exact desistance travelled, and number of bins picked. Using standard fuel and wear and tear rates, personal per vehicle and related supplies, and a complex modeling of the routes, locations, and instances of driving, and landfill costs we were able to arrive at operational cost which, combined with the office costs, gave us the rand per ton. From the cost (rand per ton) we applied further rules approved by the client to arrive at a tariff for various services within waste management. Accompanying the calculation was a computerized model which, when fed with the figures driving the cost, would calculate the various tariffs.
The outcome of the study was quite interesting in that it showed that for some services the metro was losing money while in others they were overcharging. However, the overall position was loss making. Since the study was done, we were told by the client, the waste management department because the ‘star’ of the budgeting process in that they knew exactly what they were budgeting for. This after they had been a ‘laughing stock’ in the previous years during budgeting.