PART 4: Asset management: Getting serious

This article is the fourth installment of a series addressing the importance of asset management. Part 1 was a general introduction to asset management, emphasizing this "new direction" in competitiveness and describing the key elements of an effective asset management program. Part 2 explored the asset management requirements of the new financial reporting standard, GASB 34, and analyzed the choices it offers utilities for compliance. Part 3 analyzed the asset management implications of the proposed Capacity, Management, Operations, and Maintenance (CMOM) regulations for sewer collection systems.

By V. Kenneth Harlow, director of management services, Brown and Caldwell

Table of Contents
Our starting point
The asset plan
Maintaining the asset plan
Organizational implications

With this article, we begin to get down to the brass tacks of asset management. What, precisely, is asset management? What is an asset management program? How do we implement it?

One of the best sources for public asset management information is the International Infrastructure Management Manual, Australia/New Zealand Edition. The manual costs $300 in New Zealand dollars (about $150 U.S.) and is well worth it. Ordering information can be found at http://www.ingenium.org.nz/. Most of the concepts in this series of articles are derived from the Australia/New Zealand approach.

Our starting point
Remember from previous articles—the purpose of asset management is to minimize the life-cycle costs of asset ownership consistent with a required level of service. Because most costs of water or wastewater agencies are usually directly asset related, a strong asset management program can mean big savings. And because our goal is to minimize costs, we can be sure that an asset management program will have a very strong financial emphasis.

We probably have a pretty good idea what an asset is, but ... what is management? Management is often defined in terms of a four-step process—plan, direct, measure, and control. This is exactly the way we will manage our assets. The difference from our usual practices, though, lies in the last two steps—measure and control. Let's use preventive maintenance (PM) as an example.

Traditionally, we practice most PM according to fixed schedules. We continue with these schedules, perhaps with some adjustments, until it is apparent that the asset needs major repair, refurbishment, or replacement. Then we take whatever action is indicated and go back to our fixed PM schedules.

It looks like we don't do much in the "measure and control" categories of management! Under a strong asset management approach, we will do things a bit differently. Let's take a look. (Back to top)

The asset plan
When we place an asset in service, we define its "asset plan." If we're playing catch-up (as we will be), we also prepare asset plans for all existing assets. This isn't as scary as it sounds because similar assets may have identical asset plans—for instance, clay or ductile iron pipe segments, similar pumps, and so forth.

Here are the most basic elements of an asset plan:

• Original cost of asset (for historical record purposes only)
• Condition assessment plan (interval, procedures, standard cost of assessment)
• PM plan (intervals, procedures, standard costs of maintenance)
• Reactive maintenance annual costs (estimated, based on experience)
• Estimated years and costs of refurbishments until replacement
• Estimated year and cost of replacement.

If we look carefully at this list, we will see that we have defined all the elements of a financial plan for each asset. In other words, we have estimated all asset-related costs for every asset well into the future. If we add up the financial plans for all our assets, year-by-year, we will have the total asset-related costs for our agency for the next, say, 20 years.

Our collection of asset plans is the centerpiece of a strong asset management program. We now know our asset-related costs. But we really haven't accomplished much yet in terms of reducing our costs. (Back to top)

Maintaining the asset plan
We won't file these asset plans away—we will use our condition assessment program to monitor our assets and to update the asset plans. Based on our assessments, we will regularly update the maintenance plans, the PM plans, estimated annual reactive maintenance costs, refurbishment plans, and estimated timing of replacements. We will probably even update the assessment plans themselves!

Maintaining the asset plans is where the real value of a strong asset management approach is found. We will always know the condition of our assets. At the same time, we will be continually optimizing our maintenance plans and adjusting our capital plans based on best available knowledge. As a bonus, we will probably be in compliance with asset management requirements of GASB 34, CMOM, and so forth.

Finally, we will have the information we need prepare budgets easily and to measure and report on a broad series of productivity and service level measures such as:

• Balance of PM versus reactive maintenance
• PM costs versus standard costs
• Percent of PM's attended to within 24 hours
• Maintenance staff utilization in aggregate, by asset class, etc.
• Asset condition in aggregate, by asset class, etc.
• Top-10 (or Top-100) items requiring immediate replacement or refurbishment.

The adjustments to our plans, combined with a strong system of performance measurements, will help us find the proper levels of effort for each asset on an asset-by-asset basis. At the same time, we will be able to control our resources against our known asset management needs, which are being continually redefined as our asset knowledge improves. Over time we will be saving money and improving the reliability of our infrastructure.

If our asset plans are combined with a capable geographic information system (highly recommended!), their value will be multiplied in maintaining the integrity of our most expensive sub-system, our pipes. (Back to top)

Organizational implications
To do all this effectively requires a great deal of discipline as well as cooperation among disparate functional areas such as engineering, O&M, and finance. It also requires broad management buy-in and the acceptance of a new way of doing business. Sometimes, organizations being what they are, such basic changes are difficult to implement.

The next installment of this series will discuss the institutional framework for asset management and some options to consider in implementation.

PART 1: Asset management: A key competitive strategy of this series was a general introduction to asset management, emphasizing this "new direction" in competitiveness and describing the key elements of an effective asset management program.

PART 2: Asset management: Complying with GASB 34 explored the asset management requirements of the new financial reporting standard, GASB 34, and the choices it offers utilities for compliance.

PART 3: Asset management: Watch out for CMOM! analyzed the asset management implications of the proposed Capacity, Management, Operations, and Maintenance (CMOM) regulations for sewer collection systems.

Part 5 will discuss the organizational implications of a strong asset management program.

About the author: V. 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 1-800-727-2224 or visit www.brownandcaldwell.com/. (Back)