Practical asset management

October 2006 » Feature Articles
To move toward a more practical approach to asset management, agencies need to implement a few key programs based on their specific needs.
Eric Wessels, P.E.
Public agencies in the United States can take steps to address challenges posed by aging infrastructure.

Asset management is a hot topic in the United States, particularly for public agencies. The focus on this subject will continue as the average age of our public infrastructure increases, as well as the cost to maintain it. Many other countries, including England, Australia and New Zealand, have also struggled with the issue of aging infrastructure, increasing costs, and declining levels of service. In some cases, the issues became so pronounced that the decision was made to privatize (or "corporatize") some public works infrastructure.

Promulgated asset management program standards became an important part of the privatization effort to ensure that essential infrastructure was maintained, rehabilitated, and replaced to meet a minimum level of service. One well-known summary of this approach to asset management programs can be found in the Australia/New Zealand International Infrastructure Management Manual. In general, the asset management programs mandated for these overseas utilities are quite complex with a focus on the theory of asset management. The focus is not on the implementation of specific work practices tailored for each organization, but more on the implementation of general activities, committees, and systems mandated by governmental organizations for all utilities.

Some overseas agencies have reported a reduction in overall costs after privatization and implementation of the mandated asset management programs. However, many of these agencies still maintain a level of service that is far below their counterparts in the United States, and many have rate structures that are far higher than their counterparts in the United States, even after substantial cost reductions have been realized. Therefore, it is not clear whether the reported cost reductions can truly be attributed to this prescribed approach to asset management or whether the cost reductions are simply a result of eliminating some unnecessary or redundant positions from overstaffed organizations.

Driving forces in the United States
Solutions adopted in other countries, however, may not be the best alternative for many U.S. public agencies. Following are several factors that influence asset management programs in the United States.

Population growth—Many regions of the United States are experiencing rapid population growth and rapid installation of new infrastructure to accommodate this growth. In these areas, asset management initiatives are more focused on adopting new design guidelines and material standards that will minimize the life-cycle cost of new assets rather than just minimize the initial capital cost of assets.
In areas with population growth, the focus is also on implementation of quality assurance and quality control programs for new construction to ensure that new infrastructure is installed and inspected properly prior to acceptance by the public agencies.

The need to protect existing assets—Every agency that has existing assets should have an ongoing maintenance program. Otherwise, equipment, roadway surfaces, and other assets deteriorate rapidly and will require major rehabilitation or replacement before they have reached their expected useful life. This not only drives up the long-term cost of owning these assets, but also may result in unexpected asset failures and unplanned service disruptions for customers. This is probably the area of asset management that public agencies are most familiar with, and in general, most utilities in the United States are able to maintain their newer assets well.

Development patterns and aging infrastructure—Many communities in the United States were developed during the post-World War II building boom. The materials and construction technologies used during the 1940s and 1950s—for example, for water mains and concrete pavements—had an expected useful life of approximately 50 years or less. This means that all infrastructure installed prior to 1960 will exceed its expected useful life by 2010. This has already become a major issue for many public agencies.

Past regulatory initiatives and aging infrastructure—Past regulatory initiatives have created large infrastructure construction programs across the United States. For example, clean water legislation passed by the federal government during the 1970s and accompanying grant programs were primary drivers for construction of water and wastewater treatment facilities and pump stations.

In general, many of the mechanical assets in these facilities have an expected useful life of 30 years or less. Consequently, a large portion of this infrastructure installed prior to 1980 will exceed its expected useful life by the year 2010. While some of this infrastructure has already been replaced, some agencies have developed a large backlog of failing assets.

Regulatory initiatives
Some limited efforts have been undertaken to address these pending infrastructure failures. Following is a summary of a few key regulatory initiatives that are often discussed by civil engineering professionals.

CMOM—The U.S. Environmental Protection Agency (EPA) recently considered implementing a new regulation designed to ensure that public agencies had adequate capacity, management (including asset management), operations, and maintenance (CMOM) practices in place for wastewater collection systems. The EPA has withdrawn its Notice of Proposed Rule Making, and CMOM is no longer a pending regulatory initiative. However, in some regions, the general intent of CMOM is being implemented on a case-by-case basis by the EPA and state regulatory authorities via administrative orders and consent decrees.

GASB 34—The General Accounting Standards Board Statement 34 (GASB 34) requires that agencies must calculate and report the original cost of infrastructure constructed for 20 years prior to the issuance of Statement 34 in the agency's annual financial report. New infrastructure must also be included on future financial statements. Agencies then either choose to show the amount their assets have depreciated or to report the cost to preserve assets. Most agencies choose the traditional, straight-line depreciation approach.

SAFETEA-LU—The Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) was signed into law in 2005. This legislation includes funding for asset management research, but does not include any provision that requires an asset management program in order to obtain federal funding for highway projects.

All of these regulatory initiatives have been discussed at length and have received extensive coverage in professional journals and at professional conferences. Nevertheless, they have not resulted in major paradigm shifts in the way most public agencies manage their infrastructure assets.

Asset management challenges
Public agencies in the United States face several challenges related to asset management. The civil engineering community and public agencies need to take a step back and create a practical, structured approach that applies to the infrastructure and issues we face in the United States, rather than relying on programs that have been developed for entirely different reasons in other countries. A few of the highest priority issues we need to address include the following.

Lack of consensus regarding the scope of a practical asset management program—Many consulting engineers and utility managers state that the goal of an asset management program is to control life-cycle costs and to maintain a certain level of service. However, my experience has been that if you asked 10 utility managers or consulting engineers to define the specific practices and systems that would be included in a practical and effective asset management program, you will receive 10 completely different answers. This indicates that there is a strong need to educate infrastructure managers about the basic building blocks before diving into implementation of fully integrated, comprehensive asset management programs.

Lack of the organizational structure required to support large-scale rehabilitation and replacement programs—Most capital-intensive private corporations have an entire division or department dedicated to planning the inspection, condition assessment, rehabilitation, and replacement of aging assets to ensure that their facilities operate reliably and economically. However, most public agencies do not have such a formal group that is focused on identifying, planning, and implementing long-term asset rehabilitation and replacement projects.

Public agencies lack rehabilitation and replacement resources primarily because they never required large-scale asset rehabilitation and replacement projects since most of their infrastructure was relatively new. This trend must change, particularly for many agencies that have distributed assets installed prior to 1960 and mechanical assets installed prior to 1980.

Lack of business practices, procedures, and information systems required for large-scale rehabilitation and replacement programs—Not only do most agencies lack the staffing required to manage large-scale aging infrastructure issues, most agencies do not have structured business practices, procedures, or information systems required to plan and implement successful inspection, condition assessment, rehabilitation, and replacement programs.

Regarding information systems, public agency managers may believe that they already have an asset management software program because many computerized maintenance management software vendors sell their products as an asset management software package. However, most of these systems are really just computerized maintenance management systems that are designed to control day-to-day maintenance work orders and to collect some basic crew feedback related to routine work orders. Some systems can be customized to add additional functions, but these additional functions are often lost when a new version of the software is released.

Lack of funding for large-scale rehabilitation and replacement programs—Most original public facilities are funded by grants, donated by developers, or are funded by impact fees. Most monthly rate structures are designed to fund day-to-day operation and maintenance of these existing facilities and to fund the debt service associated with new projects that are required to meet new regulatory requirements and population growth. However, the rate/revenue program for many agencies is not adequate to fund the large-scale rehabilitation or replacement of these assets.

Practical solutions
The "one-size-fits-all" comprehensive approach to asset management that has been promulgated in other countries will misdirect the limited resources of most agencies in the United States. What is needed is a more tailored approach that focuses agencies' resources on the topics that are relevant to each organization.

To move toward this more practical approach to asset management, agencies need to implement a few key programs based on their specific needs. Depending on the key issues each agency is facing, they should focus on the practical asset management practices and system shown in Table 1.

Table 1: A practical approach to asset management
 Description Practical Asset Management Programs to Consider
Minimum asset management requirements for public agencies that own infrastructure • Asset database with a focus on installation date, material, size/capacity, and physical location
• Preventive maintenance program designed to protect existing assets
• Information systems to store, analyze, and retrieve asset attributes and maintenance/failure data
• Funding plan for ongoing operations, maintenance, and upgrades mandated by regulatory agencies
   
Agencies with population growth • Capacity modeling and upgrade plan
• Design guidelines and material standards for new construction
• Quality assurance and quality control (inspection) program during the installation of new infrastructure
• Funding plan for new infrastructure required to accommodate new population growth
   
Agencies with aging infrastructure • Risk analysis process to plan and prioritize an asset inspection program
• Structured asset inspection program for selected assets
• Objective condition-assessment process
• Process to identify asset repair, rehabilitation, and replacement projects
• Funding plan for rehabilitation and replacement projects









































While Table 1 does not present a comprehensive list of asset management initiatives that agencies should consider, these are the "results-oriented" programs that will ensure that agencies can provide service to their customers successfully at a reasonable cost. Once all of these practical programs are in place, then agencies can look to more complex guidelines to benefit their asset management programs.

Eric Wessels, P.E., is a vice president and the national technical director for Asset Management and Operations for HDR in San Diego. He has experience in utility management, master planning, capital improvement program management, and developing and implementing asset management strategies and systems for public agencies and private corporations. He can be reached at 858-712-8400 or via e-mail at eric.wessels@hdrinc.com .

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