Extracting value from uncertainty

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Perhaps climate change is not the only reason, but there is fresh attention being paid to the challenges of uncertainty in water management and supply.

Like its counterpart, risk, uncertainty can generate opportunity as well as downside. Intelligent networks help generate opportunity from uncertainty, as they give us the means to link distributed system awareness, or sensing, with centralised system planning to create new value by increasing levels of coordination and choice.

If water is viewed as a fixed resource, with fixed levels of demand, there is little finessing to be done. Typically, this has been the traditional approach to providing water infrastructure and services – aim to smooth supply so as to cater for supply variability and meet demand reliably.

Now, the quest for reliability has led to the diversification of supplies to deal with extreme weather events and include distributed sources, such as rainwater and greywater, and sources independent of rainfall, such as desalination, and the inter-connection of areas that were previously geographically separate.

Uncertainty extends further than availability of supply. Managers and suppliers of water are also impacted by uncertainties such as asset condition and renewal, input costs, such as energy, labour and carbon, new technologies and their performance and reliability, and wastewater and stormwater management where new knowledge drives new requirements. Water users are also impacted by uncertainty, and change their behaviours and preferences in response to signals from the supplier, such as price or restriction, as well as a raft of factors related to their own business or personal contexts.

The circumstances of both demand and supply will vary and change, responding to climate change, the sheer age and history of system designs, business conditions, and community development and preferences. Dealing with each component separately will only take us so far; untapped gains come from managing the middle. By this, we mean sharing opportunities to use water products and services, that is, maximising the performance of the whole system, in everyone’s interests, while at the same time promoting greater individual choice.

A recent research project[1] tackling contemporary water challenges explored the potential for a more cooperative regime in sharing water between agricultural users and the environment. In this example, the notion of water availability was quickly expanded beyond a commodity (volume, or product) approach to consider water services, for example, timing and flow rate of supply.

The major shift was from a wholly pre-planned approach to a planning-operations combination (see below for a comparison of the two approaches), which is more responsive to emerging information.

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Even with advanced sensing and networks (i.e. intelligent networks), not all the relevant emerging information is available to the central coordinator of the system, in this case, the water supplier. A water user holds critical information that is private and idiosyncratic. For example, as a farmer, I will know specifics about the variety and state of my plantings, whether I have already sold and am exposed to a penalty for non-supply, and so on. Even another farmer in the same position as me might have a different attitude to risk – they may be older and closer to retirement.

Using emerging information to generate new value requires a restructuring of the decision-making regime so that more, and more timely, information can be brought to bear on the choices being made. In this example, the water ordering system was revised to provide more choice points and create greater flexibility for all participants.

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The new ordering system can generate additional value for participants by incorporating much more relevant and timely information, about both supply and demand. For example, under climate change there was potential for average annual agricultural production to increase by up to 70%. The enhanced flow of information is illustrated below with a comparison of the old and new water ordering regimes. The new regime, on the right in the figure, draws in more contemporary and timely information from a wider range of participants, as shown by the larger number and spread of green arrows.

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Improved rural water sharing through better use of emerging information had an added benefit of raising the standard of water governance. As is often the case with innovation, one improvement leads on to another.

Advances in sensing and information technology, building intelligent networks, provide us with the opportunity to not only improve what we are doing already, but also to do different things. While uncertainty can be daunting, it can afford us ways to create new value.

  1. Goldsmith, S., Wallace, J., & Gan, H.? S. (2012). Why Adaptive Management is Essential to Good Water Governance. Practical Responses to Climate Change 2012, Canberra: Engineers Australia.