PART 1: Asset management: A key competitive strategy
This article is the first of a four-part series addressing the importance of asset management. Part 2 will explore the asset management implications of the new financial reporting standard, GASB 34, and analyze what it requires as well as the choices it offers utilities for compliance. Part 3 will preview the requirements of EPA's proposed CMOM regulations and discuss why they will raise the bar for asset management among wastewater agencies. Part 4 will describe simple asset management strategies that utilities can implement now to improve regulatory compliance and reduce costs.
By V. Kenneth Harlow, director of management services, Brown and Caldwell
Most water and wastewater 
utilities are moving forward with programs to increase their competitiveness. To many, this means tightening up and flattening their organizations, simplifying their organizational structures, adjusting staffing, reducing power and chemical costs, and involving employees more actively in decision making. These efforts are worthwhile and, in some cases, badly needed.
But asset management is rapidly becoming recognized as a critical key to competitiveness that potentially offers even greater savings. Consider:
- Debt service, pay-as-you-go capital investment, and other direct asset-related costs are often greater than all of a utility's other costs combined. Furthermore, almost all operating and maintenance costs are directly dedicated to assets.
- The EPA estimates that effective asset management can reduce these asset-related costs by at least 20%.
- Privatization or contracted operations have often taken place not because of perceived inefficiencies, but because a municipality found it could simply not afford the huge infrastructure investments resulting from years of failure to manage assets properly.
- The recent Water Infrastructure Network report "Clean and Safe Water in the 21st Century" (WIN Report) identifies the need for almost one trillion dollars in replacement investment among water and sewer utilities over the next 20 years, with no current way to fund half of this amount.
- The WIN Report recommends increased federal funding for local water and wastewater capital needs. It is becoming more and more apparent that federal funding will increase, and that the federal government will require good asset management as a qualification for receiving funds.
- The new financial reporting rules in Governmental Accounting Standards Board Statement 34 (GASB 34), along with the proposed EPA requirements for Capacity Management, Operating, and Maintenance (CMOM) plans, are clear signals that environmental and financial regulators will now require much higher standards of asset management than before.
What is Asset Management?
Most simply put, asset 
management is a structured program to optimize the life-cycle value of your physical assets. For infrastructure agencies, it usually applies to system assets and may be known as infrastructure management. Its main components are:
- Smart investment—Minimize initial investments, and invest in assets with the lowest life-cycle ownership costs that meet your service level objectives.
- Smart maintenance—Replace reactive maintenance with planned maintenance, and move fixed-interval planned maintenance toward predictive and on-condition maintenance.
- Smart refurbishment—Extend the life of your assets through cost-effective refurbishment programs.
- Smart replacement—Replace your assets based on known condition, neither too early nor too late.
- Smart financing—Put in place now the financial policies that will ensure the integrity of your infrastructure well into the future.
- Smart planning—Do all this proactively within a structured forward-looking framework, involving all parts of your organization.
Obviously, an organization that can honestly say "We practice good asset management" will be doing everything it can to minimize its long-term asset costs and to ensure the most basic and important element of good customer service: The reliable and uninterrupted delivery of quality service.
Part 2 of this series will explore the asset management implications of the new financial reporting standard, GASB 34, and analyze what it requires as well as the choices it offers utilities for compliance.
Part 3 will preview the requirements of EPA's proposed CMOM regulations and discuss why they will raise the bar for asset management among wastewater agencies.
Part 4 will describe simple asset management strategies that utilities can implement now to improve regulatory compliance and reduce costs.
About the author: Kenneth Harlow is director of management services for Brown and Caldwell, a leading design and consulting firm with offices nationwide. Source documents mentioned in this series and analyses of GASB 34 and CMOM are available from Harlow by e-mail at kharlow@brwncald.com. For more information on Brown and Caldwell, call (800) 727-2224.
Edited by Tracy Fabre
Managing Editor, Water Online