Asset Management 101 (Part 2): Asset Management Planning

In Part 1 of this article, we provided a broad overview of the new discipline of Asset Management for local, state and federal agencies and covered what Asset Management is and why we need it. In Part 2 we will take a look at industry best practices and the steps asset managers need to take to build their own asset management plan.

Asset Management Planning will provide your agency with best practices for operation and maintenance of assets and help you allocate your dollars wisely.  When building your asset management plan, focus on creating a high level analysis that sets out where you are now, what your options are for the future, and what you want to achieve in that future. Be careful not to get too technical and detailed in your Asset Management plan. This can bog you down and derail your plan.

Step 1: Completing an Asset Inventory

An asset inventory or register is your starting point and will become the basis of your Asset Management plan. You need to know what assets you have, where they are, what their value is, when they were built and how long their predicted lifespan is. An asset registry can be kept in Microsoft Excel, or within an Asset Management software system or other tool.

You’ll also want to consider breaking down your asset register into segments and components for easier management. Segments group portions of an asset that would be replaced at the same time. Segments could be anything relevant to that asset, such as block-by-block for roads or manhole-to-manhole for a sewer. For example, a road might be separated into one block segments. Within that segment there could be different components such as road surface, curb, gutter and sidewalk. Because a road surface and a sidewalk have different lifespans, it’s helpful to consider them as separate components when planning renewal and repair options for the future.

Step 2: Understanding Capital Costs vs Life Cycle Costs

The capital cost of an asset is how much it costs to purchase or build it. In the past, the capital cost of an item may have been the only cost that was reflected in a budget. However, the initial cost of an asset typically only makes up 20% of its full life cycle cost, with the other 80% comprised of maintenance, operating and disposal costs.

Using a life cycle cost approach will give you a significantly different and more accurate budget than just considering the capital cost of an asset. This in turn leads to greater sustainability for the assets you are building as there are no surprise maintenance costs down the road that don’t have funding allocated to them. The life cycle cost of an asset can be calculated from the time an asset is being considered until that asset is disposed of.

Life cycle costs can also be thought about as what it costs to provide or maintain a service. For example, what are the long-term costs of a bridge that allows commuters to cross from one side of a river to the other? You would need to consider things like how often is that bridge going to need to be inspected for safety, how often will it need preventive maintenance and at what intervals over its life span, and if it will need to be expanded in the future due to increased traffic from projected population growth.

When calculating life cycle costs make sure to think about the following possible costs for each asset:

  • Planning and design costs
  • Capital costs
  • Operating and maintenance costs
  • Rehabilitation and renewal costs
  • Disposal costs
  • Financial management costs
  • Condition and performance modeling costs
  • Audit costs
  • Review costs

Step 3: Setting Levels of Service

Life cycle costs are directly tied to the levels of service that are provided by an agency. In other words, how often something is used will have an impact on how long it lasts before needing renewal or replacement. Infrastructure only exists to provide services, so the idea is to determine what you (or your users) want and then make sure the infrastructure supports those goals.

Determining a level of service for an asset is always a balancing act between the benefits that a higher level of services would provide and what that higher level of service costs versus what an acceptable lower level of service would cost. Simply put, what are you prepared to pay for the service?

In order to assess levels of service you need to consider:

  • The level of service you are currently providing
  • The annual cost of that service
  • If the current level of service is expected to change
  • If there is funding to support changes in expected levels of service
  • If the current level of service is meeting the expectations of your users or community

You can use the levels of service to outline the overall quality, function, capacity and safety of the service being provided. The technical requirements of maintaining that service will dictate the operating, maintenance, and renewal activities that need to occur going forward.

Risk Management and Levels of Service

Levels of service can assume a different light when thought about in conjunction with risk management. In general, lower levels of service may generate higher levels of risk. In the case of a gravel road whose low level of service means that it develops the occasional pothole, the risk might be deemed acceptable. Conversely, a bridge collapse or water treatment system failure due to low levels of service could be catastrophic. In this type of situation, a higher level of service is likely the more cost-effective alternative when compared against the enormous costs—both in terms of money and human life—generated when infrastructure fails.

Considering risk management can help with providing clear priorities when an agency is deciding how to allocate its budget and future spending.

Step 4: Applying Cost Effective Management Strategies

“In managing existing infrastructure, a great outcome is attained when the desired level of service in terms of the level of safety, physical condition, and capacity are provided reliably at the minimum life cycle cost,” explains Gordon Sparks, professor of civil engineering at the University of Saskatchewan. “

[D]oing the right thing, at the right time, involves knowing and actually doing the most cost-effective maintenance, repair, rehabilitation or replacement activity at the right time throughout the entire life cycle of the asset”.

Taking this approach is to practice cost-effective management strategies. Applying cost-effective management strategies can provide very significant benefits, such as 20% to 40% reductions in life cycle costs.

Maintenance, renewal and replacement efforts can be approached in two ways. The first way is a reactive approach or waiting until something is broken to fix it. This can be a common approach to asset management particularly when budgets are tight and funding is difficult to get. However, taking this approach may actually lead to more costs in the end.

For example, it costs twice as much to fix a 30 year old road that requires a full overlay than it costs to apply two surface treatments to that same road at the right intervals over its lifetime. Both result in the same end—an older road that is still safe and usable—but the latter option is a much better use of funds. This approach of applying maintenance at the right time is a preventive or proactive approach and, to be effective, your Asset Management plan will need to be based on these cost-effective management principles.

Step 5: Executing Long Term Financial Planning

As you build out your Asset Management plan, it will naturally translate into long term financial planning which will help you identify what your priorities are, what you can afford or not afford and any challenges or obstacles that you need to surmount in order to realize your desired levels of service.  Since your plan already includes the full cost of your assets over their lifetimes, taking this approach to financial planning can, to some extent, remove the annual budgeting process and replace it with a long term management plan. It gives organizations a tool to ensure that their goals can be met, and that they themselves can remain viable and sustainable for the long term good of the community.

With budget constraints likely to remain tight for the foreseeable future, a long term financial plan will help you to determine which of your objectives are feasible, which are the most important and if you are going to be able to maintain your priority assets over the long term.

Once you have an Asset Management plan it will become your primary decision-making tool. You’ll probably even wonder how you functioned without one. As agencies begin moving towards an Asset Management approach, they need tools to help them store, measure, manage and interpret assets and their data. AssetWorks EAM solution is a powerful Asset Management system that will help you achieve the objectives determined in your Asset Management plan.


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