Workshop Number 9 Introduction to Asset Management Planning John Champion

Leaders in the design, implementation and operation of markets for electricity, gas and water.

Workshop Number 9

Introduction toAsset Management Planning

John Champion

27th August 2008

2

John Champion - Background

• Over 20 years experience of asset management

• Extensive experience of capital maintenance planning worldwide including Europe, Asia and the Middle East

• Last 9 months preparing business plans for two UK water companies

3

Structure of the Presentation

TWO PRESENTATIONS:

1. ASPECTS OF ASSET MANAGEMENT

2. ASSET MANAGEMENT AND BUSINESS PLANS

4

Aspects of Asset Management

Contents:

1. Introduction2. What is asset management?3. The importance of measurement4. The concept of “serviceability”

5

The Purpose of Our Business

To provide water and remove effluent for customers:

• in the correct amounts;• in the correct places; • at the correct times and• of the right quality;• with minimum impacts and• in a financially sustainable manner

6

How Are These Objectives Achieved?

By effective management of:− Water resources− Physical assets− Human assets (workforce)− Financial assets− Customers− The environment

7

What is an asset management plan?

“The part of the Business Plan that deals with a Company’s physical assets”

Includes:• Capital maintenance• Capital investment for growth• Capital investment for new obligations• Capital investment for improvement

8

What is Asset Management Planning?

Having knowledge about:− The asset inventory (what the company has)− Condition and performance− Risk− Costs at asset level− Future requirements and obligations

So that:− Shortfalls in present service can be determined− Future risks and challenges can be identified − Options for mitigation can be tested

To:− Make rational choices between practical investment options

to produce a robust business plan

9

The Asset Inventory

Aboveground and belowground assets treated differently

• Aboveground asset data normally held within a maintenance management system.− Present inventories held by company not

adequate without modification

• Belowground assets normally held within a GIS

10

AMP as Part of the Business Process

Asset management planning need not be complicated

− It’s not rocket science

− Simple, “common sense” and pragmatic

− Systematic

− Integrated into day-to-day activity

− No need to be computerised

11

The Importance of Measurement

Inventory & Performance

Issues & Risks

Analysis & Conclusions

Strategy & Plan

DATA

INFORMATION

KNOWLEDGE

WISDOM

12

Measurement

As measurement is the foundation of all business processes it must be:

− Relevant

− Accurate

− Up to date

− Transparent to auditing


Issues & Risks


Strategy & Plan

DATA

INFORMATION

KNOWLEDGE

WISDOM


Issues & Risks


Strategy & Plan

DATA

INFORMATION

KNOWLEDGE

WISDOM

DATA

INFORMATION

KNOWLEDGE

WISDOM

13

Examples of Performance MeasurementCustomers:• Numbers in each zone (survey)Customer service:• Poor pressure (connections per year)• Interruptions to supply > 3hrs (unplanned)Asset performance:• “Serviceability” of above ground assets

(graded 1 to 25)• Numbers of water mains failures/km/yr

14

Asset “Serviceability” 1

“Serviceability”:

“The capability of a system of assets to deliver a reference level of service to customers and to the environment now and into the future”.

(UK Regulator’s official definition)

Condition:•Integrity•Safety•Durability

Performance:•Capability•ReliabilityX

“Serviceability”

Not the same as written down value

15

Condition Grading – General Approach1. No faults and negligible deterioration

2. Minor faults &/or observed deterioration, neither affecting performance

3. Faults and deterioration observed but not significantly affecting performance currently or in the short-term

4. Significant faults observed or developing that are likely to affect performance in the short-term (requires refurbishment/replacement )

5. Critical condition preventing required performance or unserviceable (requires immediate replacement)

16

Performance Grading – General Approach1. Specified and designed to modern standards, fully

capable of delivering the required service with no reliability issues

2. Designed to outdated standards &/or exhibits minor reliability issues but provides the required service

3. Faults with design and efficiency of operation that do not hamper normal operations

4. Exhibits reliability or capability problems that impact on normal operations

5. Fails to meet capability or reliability requirements rendering the asset incapable of delivering the necessary service

17

“Serviceability” Grading – General Approach

2520151055

201612844

15129633

1086422

543211

54321

Condition

Pe

rform

ance

18

Serviceability Grade 1

19


20


21

Serviceability Grade 5 - Structures

22

Management Information

Measurement• Of asset “serviceability”;• of customer service and• measurement of costsAnalysis• Of trends and• performance against internal targetsManagement• Action based on measurement and analysis

23

Management information

GISWORKS

MANAGEMENT

CUSTOMER SERVICE

ACCOUNTING

Asset ManagementPlanning

Contacts &

complaints

Asset data,

performance and

analysis

Loca

tions

,P

ress

ure,

inte

rrup

tions

Operations and maintenance data

Ope

ratio

ns a

nd

mai

nten

ance

dat

a

Unit costs

24

Examples 1 “Whole Life Costs”

• Used to when comparing investment options

• Ensures that OPEX implications of CAPEX solutions are properly accounted for− Example: Skenderaj treatment plant

25

“Whole-Life Costs”

The full cost of ownership over the life of the asset (normally expressed as net present values):

Capital Operating DowntimeMaintenance Disposal

Including:

SpecificationDesignInstallationCommissioningAcquisition

Including:

LabourMaterialsEnergyServices

Including:

LabourMaterialsRefurbishment

Including:

LossesCost oftemporaryreplacement

Including:

Residual valuelessdisposal cost

+ + + +

26

Examples 2 - Justification

Water main renewal schemes• Practical application of AMP

principles• Produces transparent justification

for projects• Facilitates ranking by importance

Application of a Water Mains Renewal Policy

Collect failure data

Allocate failures to mains

Calculate failure rates per main

Allocate customersto mains

Collect customerdata

Collect Cost Data

Calculate UnitRates (€/m)

Calculate impact

(Failures * Customers/year)

Calculate Remedial Cost for Each Main

Rank Mains by €/(Failures*Customers/year)

Schemes Justified by Service ImprovementAnd Value For Money

G I S Accounting

Business

Plan

A M P

27

28

Aspects of Asset Management

Summary

1. Customer service is the primary objective

2. Why we need to manage assets in a formal way to achieve this

3. Why measurement is so important4. “Serviceability” as a means of selecting

assets for replacement5. Examples of how AMP principles can be

applied in practice

29

Break

30

Asset Management and Business Plans

Contents:

1. AMP within the business process2. Business plans3. Regulatory reporting

31

AMP as part of the business process

Asset management planning need not be complicated

− It’s not rocket science

− Simple “common sense” pragmatic

− Systematic

− Integrated into day-to-day activity

− No need to be computerised

32

Key Elements of AMP

Asset Management Planning

Business Plans

Obligations

Requirements & Standards

Customer Service Standards

Risks

Strategic Planning

Risk Assessment

Climate Change

Assets

Inventory

Asset Value (RCV)

Activity & Cost Data


Financial Support

Government Subsidies

Donor Funding

Commercial Loans

33

Key elements of AMP


Business Plans

Obligations



Risks

Strategic Planning

Risk Assessment

Climate Change

Assets

Inventory

Asset Value (RCV)



Financial Support


Donor Funding

Commercial Loans

34

Assets

• Inventory: Foundation for everything− Underground via GIS

− Aboveground via Works Management System − The existing financial inventories do not suit this

purpose

• Value, activity and cost data tagged to inventory items

• “Serviceability” at component level is key concept for AMP (not written down value)

35

Key elements of AMP


Business Plans

Obligations



Risks

Strategic Planning

Risk Assessment

Climate Change

Assets

Inventory

Asset Value (RCV)



Financial Support


Donor Funding

Commercial Loans

36

Obligations

Government Policy & Directives

WWRO Requirements:• Interpret Govt. policy and directives

Customer Service Targets:• Crucial to the process• Demonstrate improvement

Operational Targets:• Closely linked to obligations

37

Key elements of AMP


Business Plans

Obligations



Risks

Strategic Planning

Risk Assessment

Climate Change

Assets

Inventory

Asset Value (RCV)



Financial Support


Donor Funding

Commercial Loans

38

Risks

Strategic Planning• Accounts for present and future risks• Forecasts performance and service over

the planning period• Looks forward at least 5 years• Includes:

− Climate change;− Supply / demand balance etc.

39

Key elements of AMP


Business Plans

Obligations



Risks

Strategic Planning

Risk Assessment

Climate Change

Assets

Inventory

Asset Value (RCV)



Financial Support


Donor Funding

Commercial Loans

40

Financial Support

• Rational project justification is increasingly required by government, donors and banks to secure funding.

• Performance measurement linked to demonstrable improvements in customer service will be key drivers for successful proposals

− Links between investment and improvements in service will enhance applications for grants and loans

− Future loan requests to banks such as the present EBRD application will require project justification which AMP can provide

41

Key elements of AMP


Business Plans

Obligations



Risks

Strategic Planning

Risk Assessment

Climate Change

Assets

Inventory

Asset Value (RCV)



Financial Support


Donor Funding

Commercial Loans

42

Business Plans

• Required by each company’s Board of Directors to authorise strategy and expenditure over the planning period

• Show how companies propose to meet their obligations and mitigate risks in a financially sustainable way

• Provide forecasts of measurable performance and benefit over the planning period

• Used by the Regulator (WWRO) to enable tariffs to be set

− In the future WWRO will be issuing guidelines on format and content to ensure consistency across companies

− Clarity and transparency are important

• Provide a basis for annual reporting and performance monitoring

43

Overview of Business PlansStatement of strategy

Impact on averagebills

Service commitments

Key drivers fortariff change

Summary ofExpenditureneeds

44

“Monitoring Plans”

Once tariffs are set:

• Companies can produce “monitoring plans” that state the service improvements that will be derived from investment

− Statements of investments (what and when)

− Statements of service improvements

• This allows customers and WWRO to monitor progress against business plan commitments

• If these are not met then the Regulator can ensure that customers get their money back through the tariff review process

45

Example of Monitoring Plan

Service forecasts

Sales &Supply/demand forecasts

Asset serviceability

Definedoutputs

46

Regulatory Reporting

Asset Performance• Measures performance against obligations

• Identifies trends over time

• Supports tariff submissions

• Demonstrates benefit to customers− Increases willingness to pay

Provides a means of demonstrating an adequate level of capital maintenance investment

• Companies produce annual reports to the Regulator on performance

47

WWRO performance Reports

• WWRO produces a report each year

• This has been made public in last 2 years

• Suggested additions:− Underground asset “serviceability” (failures)

− Aboveground asset “serviceability” (% by grade)

− Numbers of customers subject to poor pressure or less than continuous supply

− Introduction of confidence grading for data

48

Example – Company Annual Report Table

Pressure belowstandard

Interruptions

49

Reporting Water Main “Serviceability”

Tendring Hundred Water Services - Water Main Serviceability

0

20

40

60

80

100

120

140

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Reporting Year

Bu

rsts

/1,0

00

km

/yr

DETERIORATING

IMPROVING

REPORTEDFAILURE RATE

UPPER STABLE BAND

LOWER STABLE BAND

50

Public InformationJune Return 2007 Public Domain Folkestone Boards Overview, Table A Water Service - Key Outputs and Service Delivery

Description Units 2002-03 2003-04 2004-05 2005-06 2006-07

SERVICE AND PERFORMANCE

1 DG2 Percentage of properties receiving low water pressure % 0.02 0.01 0.01 0.01 0.00 2 DG3 Overall performance score nr 0.00 0.00 0.14 0.00 0.11 3 DG4 % population - hosepipe restrictions % 0.0 0.0 0.0 0.0 100.0 4 DG4 % population - drought orders % 0.0 0.0 0.0 0.0 0.0 5 DG6 Percentage dealt with within 5 working days % 100.0 100.0 100.0 98.8 96.0 6 DG7 Percentage dealt with within 10 working days % 100.0 100.0 100.0 98.5 100.0 7 DG8 bills for metered customers - performance % 100.0 100.0 100.0 100.0 100.0 8 DG9 percentage of calls abandoned % 1.6 1.9 1.9 1.8 1.8 9 DG9 percentage of calls receiving the engaged tone % 0.5 0.6 0.5 0.9 0.0 10 Text 0.00 11 Text 0.00 DRINKING WATER QUALITY OUTPUTS

12 Percentage mean zonal compliance with drinking water regulations % 99.95 99.95 13 Percentage mean zonal compliance with PCV for iron at the tap % 100.00 97.92 14 Water treatment works improvements nr 0.00 0.00 15 Distribution mains renovated for quality km 0.70 0.00 16 Distribution mains cleaned for quality km 0.00 0.00 ENVIRONMENTAL WATER OUTPUTS

17 Environmental impact - number of investigations nr 0 0 18 Environmental impact - number of options appraisals nr 0 0 19 Other environmental improvements nr 0 0 SERVICEABILITY

20 Mains bursts per 1000km nr 110 126 103 80 70 21 Water treatment work coliform non-compliance % 0.00 0.06 0.00 0.06 0.06 22 Water infrastructure band STABLE STABLE STABLE IMPROV'G IMPROV'G 23 Water non-infrastructure band STABLE STABLE STABLE STABLE STABLE DEFINED OUTPUTS FOR MAINTAINING BASE SERVICES

24 Water infrastructure (1) Text None 25 Water infrastructure (2) Text None 26 Water non infrastructure (1) Text None 27 Water non infrastructure (2) Text None

CUSTOMER SERVICEPERFORMANCE

WATER QUALITYPERFORMANCE

ASSETPERFORMANCE

51

AMP and Business Plans

Summary:

• Asset Management Planning is simple• We have examined elements of AMP within the

business planning process• Business plans are required equally by

companies and WWRO• Business plans provide basis for reporting and

demonstrating benefits to customers• Annual reporting should identify asset

performance as well as customer service trends

52

Next Steps for Companies

• Create useable Asset Inventories (based on Incorporation documents), update all details from 2006 to now (2008) and keep up to date via annual reviews.

• Complete customer “survey” exercise and include all new customers on billing registers and in monthly OFCR reports

• Undertake more accurate and detailed measurements of performance

• Report actual capital spend and actual implementation achievements compared with tariff submission assumptions

• Prioritise capital maintenance plans in future using a serviceability/risk based approach.

• Prioritise capital enhancement plans in future based on policy/ development objectives

53

Next Steps for WWRO

• Update OFCR to be more responsive to new tariff regime by including further indicators e.g. monthly reporting of mains burst rate (bursts/km/yr)

• Increase customer focus by expressing measures as numbers of customers affected where possible (e.g. continuity of supply)

• Develop Annual Reporting guidelines for companies including:− Monitoring actual compared to tariff submission for capital spend

and operating costs via annual reports by companies

• Prepare regulatory accounting system guidelines for companies

• Prepare revised Business Plan contents requirements for

water companies to support future tariff applications

54

The End

THANK YOU FOR LISTENING

55

Annual Asset Report

56

Annual Water Balance Report

Workshop Number 9 Introduction to Asset Management Planning John Champion

Documents

Transcript of Workshop Number 9 Introduction to Asset Management Planning John Champion