Lecture 4 Asset Management -...

O & M o f W a t e r , S e w e r a g e a n d S t o r m w a t e r N e t w o r k s

Lecture 4Asset Management

Dr. Sari AbushararThe Islamic University of Gaza

Faculty of EngineeringCivil Engineering Department

Graduate ProgramInfrastructure Engineering

1ST Semester 2012/2013

Asset Management

Outline of Presentation

� Introduction

� Asset management as a concept

� Definitions of asset management

� Asset management activities� Asset management activities

� Asset management for organizational integration

� Organization of an asset management system

� Applications of asset management

� Information systems for asset management

� Case Study

Asset management = infrastructure management

Infrastructure management = Capital management= Asset management

The differencesbetweentheseterms are only slight.

INTRODUCTION

The differencesbetweentheseterms are only slight.

� The engineer might favor “ infrastructuremanagement”

� The budget officer might favor “ capitalmanagement”

� The accountantmight favor “ asset management”

The term “asset management” offers a useful framework toorganize management activities for capital assets. This chapterdescribesasset management systemsand provides a framework tohelp utilities organize their systems or hire firms to developsystems for them.

From the many usesof the term, it is easyto get confusedabout

INTRODUCTION

From the many usesof the term, it is easyto get confusedaboutasset management, which has only recently been applied toinfrastructure.

In the past, asset management meantcontrol of money andinvestments in the financial world, whereas currently, forinfrastructure, it includeseverything that is done, from cradle tograve, to derive the most value froma physical or fixed asset.

ASSET MANAGEMENT AS A CONCEPT

Acquisition

Construction

Activities include the full life cycle of management:

5

Maintenance

Renewal

Final disposal or replacement

Operationsshould be part of asset management as well,because the way a facility is operated affects its life-cyclevalue.

In infrastructure management systems, however, theemphasis is on capital, though some operational


emphasis is on capital, though some operationalapplications are nowbeing reported.

The focus in asset management onfinance occursbecausethe main obstacle toinfrastructure integrity is havingenough money to invest in it and manage it.

The application of asset management to infrastructureplaces the focus onreturn-on-investment.

It does not introduce newtools as much as itorganizesexisting ones and links uses of information for differentfunctions.


functions.

Infrastructure assetshave always been there, but the publicnature of financial accounting for themhas inhibited the useof the term“asset management” until recently.

Although we have adopted the termfor use ininfrastructuremanagement, it will still be used in other fields in differentways.

For water, sewer, and stormwater systems, “assets” arephysical components that are planned, organized, andcontrolled in the infrastructure life cycle.

They are the“fixed assets” or “plants” of the systems.Treatment plants, dams, buildings, pipelines, and long-termequipmentarecommoncategories.

DEFINITIONS OF ASSET MANAGEMENT

equipmentarecommoncategories.

Alternative definitions of asset management are offered, someclear and some confusing as we will see in next slides.

Harlow and Armstrong wrote that asset management is “astructured programto optimize the life-cycle value of yourphysical assets” and that for infrastructure, it “may be knownas infrastructure management.”

CartéGraph Systems wrote: “Public works asset


CartéGraph Systems wrote: “Public works assetmanagement is acombination of tools and procedurestoenhance the inventory, management and maintenanceresponsibilitiesof a public works organization,” and “publicworks asset management can most commonly be described asthe daily practice of collecting, maintaining and analyzing thisasset data.” This definition emphasizes the data andsoftware aspects of asset management.

Brown and Caldwell wrote that asset management “is astructured programto minimize the costsof asset ownershipwhile maintaining required service levelsand sustaininginfrastructure.” They went on to explain:

• Minimizing costs of assetownership meansa life-cycle


• Minimizing costs of assetownership meansa life-cycleapproach to managing infrastructure.

• Maintaining required service levels increases reliability bygiving close attention to asset condition.

• Sustaining infrastructure refers to maintenance-orientedprograms (short-term) and refurbishment and replacementprograms (long-term).

Champion, he wrote that asset management has the goal to“meet a required level of service in the most cost-effectiveway through the management of assets to provide for presentand future customers.” He listed its elements as these:


• A life-cycleapproach• A life-cycleapproach

• Cost-effective, long-termmanagement strategies

• A defined level of service and performance monitoring

• Managing risk of asset failures

• Sustainable use of physical resources

• Continuous improvement in asset management practices

UNISCO-IHE Institute for Water Education , defined assetmanagement asmanaging infrastructure capital assetstominimize the total cost of owning and operating them, whiledelivering the service levels customer's desire.


What is UNESCO-IHE ?What is UNESCO-IHE ?IHE was founded in 1957. IHE stands for “International Institute for Infrastructural,Hydraulic and Environmental Engineering”. After turning into a UNESCOCategory I Institute in 2002, “UNESCO-IHE Institute for Water Education” becamethe official name.UNESCO-IHE conducts education, research and networking activities in the fieldsof water, environment and infrastructure. Education at UNESCO-IHE is atpostgraduate level. All programs are taught in English by qualified professionalsfrom all over the world. UNESCO-IHE is located in Delft closeto the Central TrainStation. On average, there are around 400 students from over70 countries. They areaccommodated close to UNESCO-IHE.

After considering the alternatives, the author offers thisdefinition of asset management:

“Asset management for infrastructure is an information-basedprocess used for life-cycle facility management acrossorganizations.”


Important features of this definition include the following:

• Viewing infrastructure components and systems as “assets”

• Life-cycle management

• Management across organizations, or enterprisewide use of

asset management

• Use of information-based process and tools

Asset management involvesfive main activities, as shown inTable below. Each activity would normally focus on a separatearea, but the information used in it would be shared by othermanagement areas. Each organization will be different, ofcourse, but one way to organize these activities would be asshownonFigure3.1.

ASSET MANAGEMENT ACTIVITIES

shownonFigure3.1.

The word inventory simply means the goods and services that businesses hold in stock

Budget: an estimate of income andexpenditure for a set period of time

Finance: the management of largeamounts of money, especially bygovernments or large companies

In addition to functional areas (see Table 3.1), assetmanagement should integrate organizational efforts to managecapital on an organization-wide basis. Asset management linksdifferent activities of organizations tominimize costs ofownership,maintainservicelevels,andsustaininfrastructure.

ASSET MANAGEMENT FOR ORGANIZATIONAL INTEGRATION

ownership,maintainservicelevels,andsustaininfrastructure.

A data-centered infrastructure management system(the sameas an asset management system) links functional areas of theorganization to work on these goals — planning, engineeringand construction, budget and finance, O&M, and informationsystems.

APPLICATIONS OF ASSET MANAGEMENT

Financial section

Planning section

Engineering and construction

O&M

IT

As shown in Figure 3.1, the financial section maintains thecapital budget and the accounts; thus the AMS (assetmanagement system) should be linked to themthrough thefixed assetdatabase,updatedfor condition in the spirit of


Financial section

fixed assetdatabase,updatedfor condition in the spirit ofGASB 34*. In an ideal world, there would be a continuuminwhich the plans, programs, budgets, and current value ofassets were linked through the database.

*GASB 34, refers to a standard of the Government Accounting Standards Board (GASB), whichsets new standards for government reporting of financial accounts, including requirements forasset reporting based on accrual accounting.

The planning section would normally be a user, rather than acustodian, of asset management information, althoughinformation management, especially GIS, might be part ofplanning. In any case,the assetmanagementsystemshould


Planning section

planning. In any case,the assetmanagementsystemshouldyield facility information for needs assessments linked tothestages of planning, frommaster planning to detailed facilitiesplanning.

• Studies,investigations,andreports



List of engineering functions and several provide assetmanagement information:

• Studies,investigations,andreports

• Planning documents

• Surveys

• Maps and geo-database

• Capital improvement programs

• Consultant and contractor data

• Design drawings

• Costestimates



• Costestimates

• Construction contracts

• Construction and inspection reports

• As-built drawings

• Standards

In an automated world, these information products will beaccessible to the asset management system. For example,accurate as-built drawings fromthe engineering section couldbe accessedon–line by maintenanceforces, and planners



be accessedon–line by maintenanceforces, and plannerscould pull up older studies and investigations to provide datafor needs estimates. In this sense, the asset managementsystem could begin to integrate the planning–engineering–maintenance cycles of infrastructure, as well as the planning–financing–renewing cycles.

The goal ofmaintenance managementis to care for assets toensure maximumperformance and longevity, obtaining thehighest yield from investment in the asset. Maintenancemanagementnormally relies on inventory and condition


O&M

managementnormally relies on inventory and conditionassessment functions, which are core activities of assetmanagement.

Ideally, inventory and condition assessment would be updatedby maintenance forces, which would provide the data to IT,which could then provide the data to other sections, such asfinance.

As an example of use of asset management in operations, anumber of utilities have found that contract operations canprolong the life of assets.

The key to getting results is contract language,because


O&M

The key to getting results is contract language,becauseprolonging the life of assets requires incentives for operators.

In this example, an “asset register” is recommended, toinclude operational procedures and maintenance requirements.This could be part of inventory information and be the basisfor scheduling maintenance and tracking condition, whichdetermines serviceability of the asset.

The asset register can rate condition and performance from1(best) to 5 (worst). A rating of 1/1 would be the best, and 5/5the worst, indicating high priority for replacement. A criticalitytest is then appliedto ensurethat nonessentialassetsare not


O&M

test is then appliedto ensurethat nonessentialassetsare notbeing replaced, but are shut down or scrapped.

The ranking systemis used to maintain a capital investmentprogram. The writers also caution that PMcan be excessiveand must be planned with an eye to the bottomline.

Information systems are, of course, the key to assetmanagement. In fact, without modern, integrated approachesto data management, the concept of asset management wouldlack much significance, because data could not be interrelated.

The point is that there is a close relationship between

INFORMATION SYSTEMS FOR ASSET MANAGEMENT

The point is that there is a close relationship betweenorganizational form, function, and use of managementinformation. Before computers, organizations had many layersso that information could be passed smoothly down the chainto small sections of workers.

Before computers, organizations were fragmented becauseinformation could only be shared among a fewpeople at atime. Now, information can pass over networks and be morewidely available. This has tended to “flatten” organizationsand eliminate middle management positions, which weremainly to processinformation.


mainly to processinformation.

In the same way, computers enable workers to shareinformation among functional departments in organizations.For example, engineering and maintenance departments needsome of the same information as the finance department. Thisintroduces the possibility for different departments to worktogether on shared, crosscutting objectives, such as assetmanagement.

In a practical sense, however, sharing information is harderthan it seems. Obtaining “enterprisewide” databases and GISsystems requires managers and workers to share informationand authority, and might generate resistance.

Nevertheless,it is thewaveof thefutureandwill arrive. When


Nevertheless,it is thewaveof thefutureandwill arrive. Whenit does, we would expect the information products to supportenterprisewide asset management systems to include:

• GIS

• Inventory and facility information

• Maintenance schedules

• Work management systems

CASE STUDY: THE CALGARY, ALBERTA, CALGARY, ALBERTA,

CANADA EXPERIENCE

THE CALGARY, ALBERTA, CANADA EXPERIENCE

City of Calgary

The City of Calgary (City) is the largest city in theprovince of Alberta, Canada. It is in the south of theprovince in an area of foothills and high plains,


Location

province in an area of foothills and high plains,approximately 50 miles east of the front ranges of theCanadian Rocky Mountains.

As of the 2007 civic census, Calgary’s population was1,019,942. Between 2001 and 2006, Calgary’spopulation grewby 12.4 percent. In the past fewyears,growthis actuallydownfrom 55,000personsperyearto


Population

growthis actuallydownfrom 55,000personsperyearto35,000.

Largely centered on the petroleumindustry, withagriculture, tourism, construction, and the high-techindustries contributing to the city’s rapid economicgrowth.

Main industries

Steve Wyton, Manager,Corporate Asset ManagementMichael LyzaniwskiAsset Management ProgramCoordinator


CLIENT IDENTIFICATION

CoordinatorBrian McKibbin, SeniorAsset Management EngineerKaren Wichuk, SeniorAsset Management EngineerCity of CalgaryCorporate Asset ManagementInfrastructure Services

When Steve Wytonof the City of Calgary’s CorporateAsset Management Department, Infrastructure Servicesand his teambegan developing the City’s first corporateasset management program, they had a valuable tool attheir disposal: the InfraGuide best practice,Managing


Summary

their disposal: the InfraGuide best practice,ManagingInfrastructure Assets.

In 2004, the Corporate Asset Management Programwasinitiated under the direction of Infrastructure Services tocover the assets of the entire municipality. The City’skey assetmanagingDepartments(ProtectiveServices,


Summary

key assetmanagingDepartments(ProtectiveServices,Community Services, Corporate Properties/Fleet,Utilities, and Transportation) were each running theirown asset management initiatives.

The Corporate Asset Management Programconsolidatedthe asset management efforts of all departments into onecomprehensive strategy, tooptimize spending on thebuilding, operation,maintenance,and replacementof


Summary

building, operation,maintenance,and replacementofinfrastructure. The Programprovides mediumrange (10-year) plans to assist City business units as they balancethe use of their assets for effective and sustainableservice delivery.

Much of the City’s infrastructure was constructed duringthe economic growth period between the 1960s and themid-1980s.


Background

Population growth and economic activity, combinedwith aging infrastructurenow challenge the capacity ofinfrastructure to meet the increased demand. In addition,more stringent environmental regulations and volatileconstruction costs put pressure on the already limitedfunds for infrastructure investment.

In the early 1990s, the first corporate InfrastructureStatus Report laid the groundwork for incorporating lifecycle costing into infrastructure management. Since


Background

cycle costing into infrastructure management. Sincethen, the City updates the Infrastructure Status Reportannually for Council to provide a reference againstwhich to benchmark infrastructure needs. The Reportidentifies investment shortfalls and provides futuredirection for managing corporate assets.

Asset management promotes the efficient operation andreplacement of infrastructure, thereby allowing amunicipality to optimize its infrastructure resources


Background

municipality to optimize its infrastructure resources(such as existing infrastructure and infrastructurefunding), and realize economic, environmental, andsocial benefits.

The City of Calgary first considered developing its ownasset management best practices at the corporate level inthemid-1990s whenassetmanagementwasfirst applied


Background

themid-1990s whenassetmanagementwasfirst appliedin the water and wastewater departments and thenincorporated into the roads department. Between 1997and 2000, the City underwent a major restructuring of itsdepartments, and asset management was deemed apriority at the corporate level.

According to the City’s latest Infrastructure StatusReport, Calgary manages over $28 billion ininfrastructure assets and will spend over $10 Billionover thenext10 yearson both infrastructuregrowthand


CHALLENGE/ISSUE/NEED

over thenext10 yearson both infrastructuregrowthandmaintenance. Much of this money relates toinfrastructure that supports development on new—orgreenfield—sites. To help Council understand theadvantages of infill development, the Corporate AssetManagement has promoted a business case fordevelopment within the existing urban boundary.

Benefits of doing so includemaximizeduse of existinginfrastructure and preventing the need to build, operate,and maintain costly newinfrastructure and othercommunity services. The InfrastructureStatusReport



community services. The InfrastructureStatusReportalso underscores the fact that the City has aninfrastructure gap. Over the next 10 years (the timeframe of the Asset Management Program), an additionalinvestment of $5.4 billion is needed to fund both themaintenance and growth of the City’s infrastructure. Ofthis gap, $2.7 billion relates to maintenance, and $2.7billion is for growth.

Around the same time that asset management became apriority in the new millennium, Alberta’s economysurged, and the province made infrastructure investmentapriority. Giventhisnewlyavailablefunding,combined



apriority. Giventhisnewlyavailablefunding,combinedwith a growing infrastructure maintenance burden andCalgary’s record-setting growth, the City needed tooptimize decisions on its infrastructure priorities. Forexample, the City wanted to knowwhere and what thismoney would be spent on and howto optimize spendingon infrastructure assets.

Another key challenge in the development of the AssetManagement Programwas the need to evolve the existingcapital budget process into newtotal asset managementprocess. The newCorporate Asset Management teamfaced thechallengeof creating an integratedprocesswhich spanned



challengeof creating an integratedprocesswhich spannedacross the corporate “silos” in order to create their own assetmanagement priorities and 10-year capital programs. Councilassigned Corporate Asset Management the mandate to developa framework so different assets, roads and sewers for example,can be compared as “apples to apples”. The process changewas most challenged by the fact that the budget process wasoperational while changes were occurring: analogous tochanging the engine on an airplane in mid-flight.

The last major challenge the Corporate AssetManagement teamfaced was change management:getting people in operations on board and demonstratingthe benefits of a corporate asset management strategy.Newly developed processesthreaten the way that



Newly developed processesthreaten the way thatmunicipal employees traditionally managed theirbusiness and assets. Furthermore, many of the newbusiness processes were based on cutting edge practice,including the use of the Triple BottomLine and riskbased decision making. These concepts were oftenforeign to asset managing staff.

As noted above, an accurate inventory of the City’sassets is one of the keys to the development of the AssetManagement Program. Corporate Asset Managementproducedthe first InfrastructureStatusReportfor all of


ADOPTED SOLUTION

producedthe first InfrastructureStatusReportfor all ofthe City’s assets in 2004. These annual reports act as themain capital or financing planning tool for thecorporation, detail the health of the City’s infrastructureand provide the City with a reference point tobenchmark infrastructure needs.

In the last 18 months, the Corporate Asset ManagementDepartment worked substantially on the business casefor asset management. A lot of this work was based onthe InfrastructureStatusReport,asit containsharddata


ADOPTED SOLUTION

the InfrastructureStatusReport,asit containsharddatathat show where the City’s problems are. TheDepartment is also working on obtaining missing datathrough an inventory of assets.

Steve and his teamtook the business case for assetmanagement to their senior administration and the City’sAsset Management Network was established. Thisnetwork consists of one representativefrom each


ADOPTED SOLUTION

network consists of one representativefrom eachdepartment that had been carrying out asset managementindependently. The framework was presented to theCity’s senior administration team, and the CorporateAsset Management Programwas ratified.

To address the tension with operations staff, a grass-roots approach is being used:

The Corporate Asset Managementteam works with


ADOPTED SOLUTION

The Corporate Asset Managementteam works withoperations personnel to showhow asset managementcan optimize the use of operations resources, such asmoney, people, and time.

Steve and his teamused the InfraGuide ManagingInfrastructure Assets best practice as a valuable resourcefor the development of Calgary’s Asset ManagementProgram. The best practice outlines requirements thatarekey to anassetmanagementstrategy:


HOW INFRAGUIDE WAS USED IN THE SOLUTION

arekey to anassetmanagementstrategy:

� asset value;� life cycle management;� sustainability;� integration of technical and financial�plans;� risk assessment;� performance measurement; and� high-level and detailed plans.

As Calgary’s Asset Management Programunfolds andthe City develops its own best practices, the CorporateAsset Management Teamwill integrate the aboverequirementsinto thedocument.



requirementsinto thedocument.

The Managing Infrastructure Assets best practice alsoprovides essential elements for the framework of anasset management plan. These elements are beingincorporated into Calgary’s Asset Management Programand are already a cornerstone of the Infrastructure StatusReport. The essential elements are phrased as sevenbasic, but vital questions.

�What do you have and where is it?(Inventory)

� What is it worth?(Costs/replacement rates)

� What is its condition and expected remaining service life?(Conditionandcapabilityanalysis)



(Conditionandcapabilityanalysis)

� What is the level of service expectation and what needs tobe done?(Capital and operating plans)

� When do you need to do it?(Capital and operating plans)

� How much will it cost and what is the acceptable level ofrisk(s)?(Short- and long-termfinancial plan)

� How do you ensure long-termaffordability? (Short- andlong-termfinancial plan)

Council found these elements very valuable as thequestions helped identify the $5.4 billion infrastructurefunding gap in the 10-year time frame of the AssetManagementProgram.



ManagementProgram.

The InfraGuide best practice is helping shape the City ofCalgary’s Asset Management Program. It provided valuableinformation to the asset management team.Economic benefits apply to a diversity of stakeholdersincluding the municipality, residents, and business and


VALUE AND BENEFITS TO THE CLIENT

including the municipality, residents, and business andindustry. The City will save money through the bettermanagement of municipal infrastructure, such as water androad systems. Asset management promotes the co-ordinationof infrastructure upgrade and repair activities, thus allowingthe municipality to make informed, and cost effectivedecisions. Sustainable infrastructure also promotes economicdevelopment by creating a place where people want to liveand do business.

The Asset Management Department champions infilldevelopment to Council as a way to avoid theconstruction of more costly roads, and use existinginfrastructure assets. As the population continues togrow, single occupancyvehicle travel will becomeless



grow, single occupancyvehicle travel will becomelessfeasible due to congestion fromthe increased number ofcars. Public transit use can be encouraged through infilldevelopment (on existing transit routes), and building inproximity to the C-Train, Calgary’s light rail transit.This will decrease congestion, thereby reducing airpollution and greenhouse gas emissions.

Social benefits of asset management include decreasedinconveniences to residents and business caused by theinterruption to services. The InfraGuide concept of the“culture of sustainability,” an enhanced social andenvironmentalconsciousnessthat can havewidespread



environmentalconsciousnessthat can havewidespreadand long-termbenefits for a municipality, is also avision shared by the City’s triple bottomline policy.This policy, which is the foundation of the AssetManagement Program, ensures that social,environmental, and economic factors are considered inall decision-making processes.

Developing asset management strategies forinfrastructure is a newchallenge increasingly facingCanadianmunicipalities. All municipalitiescan look to


CONCLUSION

Canadianmunicipalities. All municipalitiescan look tothe City of Calgary’s InfraGuide-supported strategy fordeveloping an asset management program.

A solid asset inventory and engaging all municipaldepartments are key factors to the success of an assetmanagement strategy. Supported by InfraGuide’s bestpracticepublicationsand InfraGuide’snationalnetwork


LESSONS LEARNED

practicepublicationsand InfraGuide’snationalnetworkof infrastructure professionals, local practitioners havethe tools at their disposal to ensure sustainablemunicipal infrastructure is delivered. Measures, such asthe creation of an asset management network will beintegral for creating a vision and corporate frameworkfor asset management.

HW # 3 (due to Monday, 15/10/2012)

Answer the following questions:

1) What are the benefits of asset management?

2) What are the elements of asset managementpractice?

3) Who should do asset management?

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