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Asset Management in the Asset Management in the Community Housing SectorCommunity Housing Sector

Sydney 5 December 2007Sydney 5 December 2007

WelcomeWelcome

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IntroductionsIntroductions

Name

From

Role / experience in asset management

Your expectations of the Day

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Course GoalsCourse Goals

Towards best practice in asset management through:-

Improved understanding

asset planning

planning and managing maintenance

planning and managing capital projects

A framework approach – key steps and checks

Networking

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Some Key ThemesSome Key Themes

• Applying strategic thinking

• Asset life cycles and planning cycles

• Asset planning frameworks and processes

• Applying appropriate methods

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Select work groups and project

Purpose:-To give a practical focus – “learn by doing”

Form groups of 3 / 4 From the projects below, choose a projecto DADHC Group home - 5 high needs tenants (mental illness) +

carerso Juvenile Justice detention facility, low security, 20 residents +

staffo ??o ??o ??

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Asset Strategic PlanningAsset Strategic PlanningAn OverviewAn Overview

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10%

20%

30%

50%

80%

100%

ConceptFormulation

ConceptValidation

Full

DevelopmentScale

Production

Use

Source : Internal company studies at:

Westinghouse, GM, Ford, Rolls Royce and others

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Cumulative % of Life Cycle CostsCumulative % of Life Cycle Costs

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Corporate Planning Resource & Business Planning

Corporate Corporate Plan Plan

sets strategic direction

Resource Plans Resource Plans • HR, IT and Physical Assets • identify strategies and resources needed to achieve service outcome targets

ServicesServices PlanPlan

converts corporate outcomes to service outcome targets. Specifies the preferred delivery methods, outputs and indicative resource allocations.

Business Plans Business Plans

identify the operational goals, strategies, budgets and programs of business units

Different plans have different rolesDifferent plans have different roles

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Strategic ThinkingStrategic Thinkingand Planningand Planning

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Analysis: (where are we now)?

• External environment / clients ? competitors

• Internal issues eg skills and resources

SWOT

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Direction SettingDirection Setting (where do we want to be)

• Formulate objectives

• Define Key Result Areas

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Choice (how will we get there)Choice (how will we get there)

• Identify strategic alternatives

• Evaluate the strategic alternatives

• Select the preferred alternative/s

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Strategic objectives

Where to in next 10 years? Eg:• Affordable, appropriate, long term housing

for low-income earners, many disabled………and

• Affordable, appropriate short term housing for people with immediate need.

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Strategic objectives

How do we get there and measure progress?How do we get there and measure progress?a.a. Houses aligned to priority needs.Houses aligned to priority needs.

b.b. Socially appropriate.Socially appropriate.

c.c. Affordable - rents based on ability to pay, not Affordable - rents based on ability to pay, not costs.costs.

d.d. Flexible - can be modified if circumstances Flexible - can be modified if circumstances change.change.

e.e. Cost-effective - low life-cost, market-competitive.Cost-effective - low life-cost, market-competitive.

f.f. Financially sustainable.Financially sustainable.

g.g. Risks can be managed pro-actively.Risks can be managed pro-actively.

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What are your organisation’s main goals over : 1 year ? 3 years ? 10 years ?

For your organisation’s future, what are the important: trends in demand? service delivery issues? social factors? financial factors?

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Developing an Asset Developing an Asset Planning ModelPlanning Model

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DefinitionsDefinitions

Assets are physical items of value with a life exceeding 12 months

Asset Management is a process to manage demand and guide acquisition, use and disposal of assets to make the most of their service delivery potential and manage risks and costs over their entire life

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The Function of Asset ManagementThe Function of Asset Management

To support cost effective service delivery To consider the level of investment in assets, the benefits and

costs that flow from the investment and how well the assets are maintained and operated

To establish a management framework which defines: the criteria for ownership and management of assets strategies and processes for procurement, maintenance,

disposal and risk management priorities for allocating resources

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Asset management (ctd)

understanding the need for assets and the service they deliver; selecting the right house and managing the acquisition; upgrading and / or redeveloping the house to meet tenant needs; repairing and maintaining the house throughout its life so that it is kept

in good condition and complies with appropriate regulations; disposing of the house at the end of its useful life.

If houses are to continue to meet tenant needs and be safe, and to be in good condition and keep their value, every step of the house’s life cycle must be carefully managed. “Asset management” is the term used to describe this whole-of-life process. It covers:

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Typical Asset Planning FrameworkTypical Asset Planning FrameworkCorporate Plan•Set corporate objectives in line with Government Policy

Service Delivery Plan•Set service outcome targets•Assess past delivery performance: •Forecast future demand and impact on performance•Determine service strategies eg.-Manage expectations/demand-Change delivery methods, -Improve output-to-input efficiency

Asset Strategic Plan•Set asset output targets•Assess performance of existing assets•Identify the gap between outputs needed and existing performance•Determine responses to the identified gap; investment, maintenance and disposal

HR Strategic Plan

IT Strategic Plan

Other Strategic Plans

Capital Investment Plan•Identify capital projects and performance outputs arising from ASP•Assess delivery methods and financing options•Apply appropriate decision tools (EA,VM,RM)•Prepare programs and budgets (1 year, 10 year)

Maintenance Plan•Set asset standards•Assess asset condition against required standards•Identify maintenance response (tasks and strategies)•Prepare programs and budgets (1 year, long term)•Review achievements

Disposal Plan•Identify surplus•Assess disposal options•Prepare programs and budgets (1 year, 3 year)

Other Operating Plans

…. sets outcomes and required outputs…. establishes the need for resources (asset, human, information etc)

…. provides strategic overview of resource use…. identifies, evaluates and selects courses of action…. links inputs and outputs

…. identifies and plans specific programs and projects…. leading to detailed budget inputs

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Typical strategy questions

What external factors will affect our business, e.g. Metro strategy, sector policies, building industry trends etc?

What no. and type houses are needed to meet demand, now / future? Where should they be, both from a service and financial perspective? What can we afford to provide and maintain What opportunities might exist to increase funding levels? What partnerships could we / should we seek with other agencies? What is our current portfolio (no., location, type, financial

performance, etc) and how does it match up with where would like to be)?

What risks has as a result of our asset situation? What action should we take to acquire additional dwellings, modify

current dwellings, improve condition, or dispose of properties?

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Group Work Task

Develop and document what your group perceives as the main asset strategies for your case study project.

Report your findings to the other groups.

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Capex Steps (1)

Stage 1 Prepare a Project Outline Identify what is required – e.g. new asset, alteration, upgrading,

extension, etc. Define the project – e.g. set performance levels for asset functionality,

asset capacity etc, identify stakeholders, identify environmental concerns and any other relevant factors.

Stage 2 Identify and Analyse Options Generate project options (e.g. buy, demolish and build, lease etc,

what locations are suitable, how can it be funded e.g. equity, debt, are partnerships appropriate etc).

Evaluate the options - conduct risk assessment, conduct a financial evaluation of the options (ensure that whole-of-life costs are included), assess cash flow requirements.

Compare the options / select preferred option / document the findings.

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Capex Steps (2)

Stage 3 Prepare Capital Investment Strategic Plan and Business Cases

Rank the potential capital projects in priority order and prepare a summary spreadsheet.

Prepare a Business Case (where appropriate) for projects to be submitted for funding approval. Include a risk assessment in appropriate detail.

Commit any maintenance works covering the life cycle of proposed new assets to the Maintenance Strategic Plan, and cross-reference. Ensure that these costs are allowed for in the agency’s asset maintenance budgeting.

Stage 4 Monitor and Review

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MaintenanceMaintenance

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Maintenance

What is maintenance? The work necessary to retain a house in, or

restore it to, an agreed condition.

Why? To keep houses safe and secure, to protect their

amenity and to allow them to continue in service. Without it, materials deteriorate & expensive

repairs and replacements become necessary. Statutory obligations must be observed.

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Maintenance:

Largest operating cost of community housing sector.If unmanaged - unacceptable risk, but if effectively managed – real benefits.Basic principles:- Always keep properties to standard.- Maintenance to be programmed / cycled

where feasible.- Coordinate workload for efficient delivery.- No deferred liabilities without OCH consent.

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Maintenance (ctd)

Reliable data on maintenance costs, trends is crucial.Develop a culture of sustainable maintenance by:- structured and systematic planning and delivery - delivery via planned rather than reactive

approach. Capital incentives exist Link to accreditation

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Maintenance ManagementMaintenance Management

Maintenance management is a process to:

evaluate maintenance needs

plan actions to meet these needs

implement the actions

monitor the performance

initiate improvements

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The process can be described in seven steps:

1. Understand the assets to be maintained

2. Determine asset performance standards

3. Select maintenance strategies

4. Identify where maintenance is needed

5. Prepare maintenance programs and budgets

6. Implement the maintenance

7. Review performance & initiate improvements

Maintenance Management -Seven Maintenance Management -Seven Key StepsKey Steps

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Step 1Step 1 - Understand the asset

Identify relevant asset policies and strategies

Identify any relevant capital procurement, refurbishment &

disposal linkages

Describe the functions the asset is intended to support

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Step 2Step 2 - Determine asset performance standards (aka service levels)

Specify the standards the asset should attain: Functional, eg:

accessibility appearance / image safety / security

Technical, eg: reliability maintainability statutory obligations to be observed

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Step 2Step 2 - Continued

Financial, eg economic life, life cycle cost targets

Some levels are mandated, eg the RT Act, DoH standards, Ccl regs

Service levels are standards against which performance may be measured.

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Step 3Step 3 - Select maintenance strategies The main options are either:

Responsive

Planned

cyclic/preventive

condition based/predictive

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Types of Maintenance

Maintenance

Planned Cyclic Condition based

Responsive

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Planned maintenance - work that can be anticipated in advance. It can be scheduled to be carried out when it is needed, e.g. painting, carpet replacement, inspecting smoke alarms.

Responsive maintenance - work that is attended

to as it arises. Eg fixing broken window panes or clearing blocked sewers. (Aka day-to–day, unplanned, urgent and emergency maintenance).

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Which is better?

Planned maintenance. items can be bundled with other work to gain savings the work can be scheduled to suit tenants & contractors the results can be specified and controlled effectively long-term budgets can be prepared.

Responsive maintenance emergencies / urgent work small items items that cannot be anticipated

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Step 4Step 4 - Identify where maintenance is needed

Information sources: Condition surveys Tenants / client reports Maintenance staff / contractor reports Logs and history records Staff experience Life cost plans Manufacturer’s specifications/warranties Statutory requirements

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Step 4Step 4 - Identify where maintenance is needed ctd

Issues:

Maintenance management information systems

The cost of data

The “shelf-life” of data

Accountability and audit trails

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Step 4 (ctd): Inspect Your Houses

Every property should be inspected: annually (at a minimum) to reveal maintenance

requirements and to determine priorities when a specific problem arises, or when

significant work has been done before a tenant moves in, to set a baseline for the

occupancy when a property becomes vacant, to assess the

work needed before it is re-tenanted.

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Step 4 (ctd): Inspect Your Houses

Who By? people who understand the standards specified

for community housing; for technical matters, should possess appropriate

qualifications. Use inspection pro-formas Encourage tenants to report problems Use inspections to ensure the safety of

properties

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Step 5Step 5 - Prepare maintenance programs and budgets

Determine actions to achieve the nominated standards

Develop schedules

Assemble cost estimates

Assign priorities

Prepare programs and budgets, eg:

statutory programs and budgets

preventive programs and budgets

predictive programs and budgets

backlog programs and budgets

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Step 6Step 6 - Organise & Arrange the Work

simple repairs / more complex work assign responsibilities written contracts (Dept of Fair Trading ) a standard financial Chart of Accounts tender, award and manage contracts standards letters and forms standard policies and procedures probity and conflict of interest

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Step 7Step 7 - Review performance / initiate improvements

Develop performance measures:

Do assets perform at their intended standard?

Are maintenance service providers satisfactory?

Are stakeholders satisfied (clients, tenants, staff)?

Is the organisation’s asset investment protected?

Is risk exposure managed?

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Step 7Step 7 - Review performance / initiate improvements

Evaluate the maintenance outcomes

were schedules achieved?

is the process effective?

was the maintenance delivered effectively?

Take corrective actions as necessary

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Maintenance Review ChecklistMaintenance Review Checklist

Is there a clear link between the delivery of services & the proposed maintenance?

Are reporting systems & control processes in place?

Are you measuring outcomes or performance?

Is the focus sufficiently long term to pick up major life cycle expenditures, including replacements & refurbishments?

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Group Work Task

Prepare a maintenance strategy, schedule and budget for your case study project.

Report your findings.

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DELIVERING PROJECTS AND PROGRAMS

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Initiate the Project / Prepare a Business Case

Assign responsibility - appoint a project officer or team. Engage the various stakeholders. Who needs to be

consulted? If appropriate, prepare a Business Case. Consider the

potential financial, environmental and social benefits and impacts. Undertake a risk assessment.

Identify potential service providers:o Who are the potential service providers in the market? o Can other organisations that use similar assets help? Do

they have lists of suitable pre-qualified service providers?

Seek funding approval.

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Select a Procurement Strategy

Select a procurement strategy / form of contracts.

Select the tender method e.g. open, selective, pre-registered, invited, direct negotiation. Consider pre-qualification of a limited number.

Prepare a Procurement Plan and determine the evaluation criteria / key weightings.

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Prepare a specification

Specifications should provide sufficient detail for a service provider to understand your needs. They should:

be clear, concise and unambiguous. The degree of detail should match the degree of

complexity, risk and value of the procurement. Identify and include other requirements such as

warranty, timeframes, quality standards, etc as appropriate.

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Prepare the tender documents

conditions of tendering – the content and submission of tenders and the conduct of the tender process;

general conditions of contract; special conditions of contract; specifications of the requirements; tender forms and schedules.

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Prepare a tender evaluation plan

This should cover: how tenders will be evaluated the role, composition and functions of the

evaluation team the governance of the evaluation process.

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Evaluate the tenders

Consider: the price and value for money; the contractor’s experience, expertise, capacity

and financial credentials; the contractor’s track record on other work; any other relevant factor.

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Prepare an evaluation report

Attach copies of the review to the Property File. Delegations to approve acceptance of tenders should be

listed in the Delegations File. Where the tender exceeds the estimate by more than 10%

and is recommended for approval, recommendations should include an explanation as to why the higher price should be accepted.

Where more than one quotation was received, the unsuccessful tenderers should be advised in writing that their quotation was not accepted.

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Manage Variations and Disputes

Require the Contractor to submit the Variation in writing, setting out the scope of work, reasons and price and/or time variation claimed;

Assess the claim – is it a valid variation to the contract, are the reasons, costs and time delays reasonable?

Negotiate any aspects of the claim where appropriate and seek additional substantiation if necessary;

Recommend approval or rejection of the negotiated variation;

Obtain approval of the recommendation within appropriate delegations;

Refer any matters that cannot be resolved to OCH.

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Progress Reports

The Project Manager should submit a monthly progress report for each project. Include:

A description of the work completed to date; Actual progress against the predicted progress; Expenditure to date against predicted

expenditure; Any variations or issues that may have arisen.

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Group Work Task

To be advised.

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Performance ManagementPerformance Management

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PLANNED OUTCOMES DEFINED SUCCESS PERFORMANCE INDICATORS BASIS FOR COMPARISON

Intended objective of service

or activity

Key Result Area of outcome,

which will reflect successful

achievement of objective

Measuring units for assessing

the level of achievement

Target value of Performance

Indicator which indicates

success or failure of service or

activity

Physical assets are available

and serviceable as required.

Assets are available within

appropriate levels of downtime

and/or service disruption

Downtime as a proportion of

total operating time (%)

Target

Assets comply with appropriate

health and safety requirements

OH&S defects reported/period Trend over time

Maintenance is conducted

both cost-efficiently and

time-efficiently

Cost of maintenance is

reasonable

Maintenance cost to facility

replacement cost (%)

Maintenance cost to total

operational cost (%)

Target

Target

Response time is adequate Proportion of services in excess of agreed standard

Target/trend

MONITORING PERFORMANCEMONITORING PERFORMANCE

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Developing a Performance Indicator

What is the issue or outcome?

How can we describe success?

What indicates that this is achieved?

How do we measure this indicator?

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Some Principles for Performance Measures

Measure only those things that matter Measures should be by-products of day-to-day

processes Measures should be ‘transparent’ to all managers

and staff Measures should lead decision making and not

just reflect historical activity

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Life Cycle CostsLife Cycle Costs

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Life Cycle CostsLife Cycle Costs

Whenever costs are considered, think in terms of life costs Acquisition costs Costs in use:

Operating costs Maintenance costs Cleaning costs Alteration and refurbishment costs Support services costs

Disposal costs

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Applications of Life Cycle CostingApplications of Life Cycle Costing

To choose between alternatives

To facilitate long term budgeting

To provide measures for future performance

monitoring

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Risk ManagementRisk Management

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Risk ManagementRisk Management

Risk Management is:-

the systematic process of identifying,

analysing, assessing and treating risks that

may impact on an organisation’s objectives

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Risk ManagementRisk Management

The process can be described in four phases

1. Establish the context

2. Identify, analyse and assess risks

3. Treat risk

4. Document, implement and monitor the Risk

Management Plan

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Likelihood

H M H H

M L M H

L L L M

L M H ConsequenceRapid Risk Ranking Matrix

Project Functional Brief Consequence Like’hd Cons’nce Risk

Base assumptions not valid Design of building seriouslywrong

L H M

Design of bldg moderatelywrong

M M M

Community expectations notknown

Damaged public image L L L

Emerging trends not accountedfor

Poor service/wasted money M H H

Political intervention Substantial change H M H

Integration of old and newunsuccessful

Seriously reduced functionality L H M

Moderately reduced functionality L M L

Risk ManagementRisk ManagementRisk RankingRisk Ranking

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Risk Management

Treat the risk There a always options -

accept the risk

reduce likelihood

reduce consequence

transfer in full or part

avoid

evaluate the options

document the analysis and outcomes

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Building Hazards

Lead Paint

Asbestos

Firewalls

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Policies and References

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POLICIES AND PROCEDURES

Administrative practices Financial practices Tenant responsibilities for maintenance and repairs Property inspections Managing the work (emergency, urgent, routine, cyclic) Managing contractors Insurances etc.

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SOME USEFUL REFERENCES

Housing NSW Asset Standards, NSW DoH. AS/NZS 4360 2007 risk management. AS 1428, Design rules for access by the disabled Simple Procurement” from NSW Commerce

OH&S Act 2000 and Regulation 2001.

Useful websites are: Dept of Fair Trading www.fairtrading.nsw.gov.au Workcover www.workcover.nsw.gov.au

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Review

1. Cover all housing assets.

2. The Plan should: Define the required service levels; and Provide the information needed to ensure effective

accounting and reporting for each separate program.

3. Set out: Levels of service and key performance indicators Long-term financial forecasts

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4. The Planning Timeframe: Cover the full life that the assets will be able to deliver the required

service. In practice, start with a 5 year plan and extend later to 10 years (or

longer).

5. The Asset Register Physical identification - identifier code, location, description,

construction materials, year built (or estimate); Financial Information - original cost (if known), replacement cost,

estimate of residual useful life; and The ability to aggregate and disaggregate both physical and financial

information (e.g. by location or by program).

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6. Strategies to Manage Risk Incorporate a strategy to manage all risks associated with

the assets involved.

7 . Financial Information

Estimated costs should:

• be based on known costs;

• be logically and clearly compiled and available as evidence;

• be updated annually;

• be easily assimilated into financial recording systems.

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8. State Assumptions. Eg:

• Indicate the degree of confidence of the reliability of the data (condition of assets, cost estimates, remaining useful lives of assets etc)

9. Outline an Improvement Program

State what needs to be done to improve processes, systems, data, commercial tactics, organisational / people issues.

• What are the weak areas?

• What are the improvement targets?

• The actions need to address the “gaps”;

• The timeframe over which the improvements will take place; and

• The resources (human and financial) needed.

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10. Have Clear Linkages to other Strategic Documents

• The management plan should be approved and adopted by the Board.

• The AM plan should link the business plan, the 3-year corporate plan and the budget.

• The AM plan should be internally consistent.

11. Regularly Review• The AMP should be reviewed and updated annually.

• Revise the plan in the light of the improvement program. Therefore, in the first few years’ reviews are likely to result in revisions.

• Changes in the Corporate plan that affect levels of service should be reflected in the asset management plan and long-term financial plan.

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Thank You