Effective Asset Management:

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COMMITMENT
&

INTEGRITY DRIVE RESULTS

Effective Asset Management:
Improving Your Infrastructure
Scorecard

March 1, 2013

Presentation Agenda


Why Care about Asset
Management?


Effective Asset Management


Key Asset Management Practices


Risk Management &
Consequences
of Failure


Level of Service


Business Case Evaluations


Maintenance Practices


The IIMM is an international guide to asset
management best practices

Why do Better Asset Management?


Municipalities Face Challenges


Deteriorating infrastructure


Tight budgets


Retiring staff (loss of knowledge)


Increasing
e
xpectations


Complex & expensive regulations


Political pressures


All Municipalities Do Asset
Management

A faulty culvert in central Maine

A new design provides a low
maintenance solution

Why do
Better Asset
Management?


AM Offers Solutions to Asset
-
Related Problems


Lowers lifecycle cost of assets


Provides information to make
better decisions


Creates a
d
efensible
,
sustainable
and
objective decision
-
making
framework


A water main break in the heart of the Boston’s
Financial District (Source: The Boston Globe)


You
Must
Manage Your Assets
!
-

Your Choice
is
How Well You Do It

Asset Management

Effective Asset Management
is a
“way
of doing
business”
that helps
effectively balance budgets, service levels and
risk

Effective
Asset Management is


An Integrated Approach


A Collection of Maintenance
Practices


A Rehabilitation and
Replacement Methodology


Risk Mitigation Techniques


A Way to Organize Critical Asset
Data Effectively

AM Addresses Important Questions

1.
What Level of Service (LOS) Do Stakeholders Want?

…and what
are they willing to pay for?

2.
Which
Assets are Critical to Sustained Performance
?

3.
What is the Current State of Our Assets?

…where
is it
located and what
condition is it in
?

4.
What are
the Best
Long
-
Term Funding Strategies
?

5.
What are the best O&M and capital planning
strategies?



Asset Management Produces Results


Airline Industry Adopted Better Asset Management
Practices in the
1960s


Before


60 crashes per million takeoffs


After


2 crashes per million takeoffs & 40% lower total
maintenance costs


Columbus, Ohio


Saved over $35 million through improved capital planning


Produced a benefit
-
cost
ratio
of 38/1


Maintenance
practice improvements saved $2.6 million


Produced a
benefit
-
cost
ratio of
3/1

Asset Management Produces Results


Maine Communities are Doing Better
Asset Management


Portland Water District has lowered its
water pipe failure rate


Ellsworth is implementing a system to
track assets as part of a wastewater
treatment plant upgrade


Many towns using condition
-
based
pavement management

Problems with Asset Management Efforts


Traditional Approach Requires a Huge Amount of Data


People Think it’s About a “Tool” or a Piece of Software


People Think it’s Too Complex


Must Be Done in Addition to Normal Work


Not Required
by
Regulation


Municipalities are Slow
to
Change


Take a Different Approach!


Asset Management
Can Be
Complex

…It Can Be Simplified

People

Data

Money

Practices

Effective Asset Management


Achieve “Quick Wins”


Set Short & Long
-
Term Goals


Prioritize on Risk and Best “Bang
-
for
-
the
-
Buck”


“People” and “Practice” Changes


Don’t Spend Money Without a
Plan to Save Money


Look for Opportunities to Solve
Multiple Problems at One Time

Steps to Successful Asset Management

Determine

Acceptable

Risk Levels

Optimize

O&M

Optimize

Capital

Investment

Determine

Funding
Strategies

Build
an AM

Plan

Develop an

Asset Registry

Assess
Condition,

Performance &

Failure Modes

Determine

Remaining
Useful

Life

Determine

Life
Cycle

Costs

Set Target

Levels of

Service (LOS)

Asset

Management

Primary
Activities

Secondary
Activities

Tertiary
Activities

Important Questions Align with Steps

Determine

Acceptable

Risk Levels

Optimize

O&M

Optimize

Capital

Investment

Determine

Funding Strategies

Build
an AM

Plan

Develop an

Asset Registry

Assess Condition

Performance &

Failure Modes

Determine

Remaining Useful

Life

Determine

Life
Cycle

Costs

Set Target

Levels of

Service (LOS)

What
is the current
state of our assets
?

What
are
the best
O&M
and
capital planning strategies
?

What level
of
service do
stakeholders want?

Which
assets are critical
to
sustained performance?

What
is
the
best long
-
term
funding strategy?

Levels of Service


Levels
of Service
(LOS) are…


Driven
by
customer/user demands


Determined
by the appropriate legislative
body


Related to funding levels


LOS describe
how much
,
of what nature
, and
how
frequently

about the service


Helps Determine When to Maintain, Replace and/or
Rehabilitate Assets


Set Target

Levels of

Service (LOS)

Levels of Service


LOS is
a Constant Balance Between:


Growth/Reduction of service


Funding


Regulatory
requirements


Demands of
stakeholders


Physical deterioration


Operational costs/efficiencies


Set Target

Levels of

Service (LOS)

Levels of Service


LOS
must
be…


Defined at the organizational level by
customers and regulators
through elected officials


Linked to
the cost of service and the level of acceptable
risk


Tracked through a defined range
of
measures that people
acknowledge and accept


LOS determines what assets are needed, performance
levels, and replacement and maintenance requirements

Set Target

Levels of

Service (LOS)

Risk and Asset Management


“Risk” is Defined as the Combination of the Consequence
of
Failure and the Probability
of
Failure


People Focus
on Probability of Failure


Asset Condition


Forget to look closely at the
Consequence of
Failure


Determining the Consequences of Failure is often easier than
trying to measure the condition of some assets


Determine

Acceptable

Risk Levels

Risk and Asset
Management
-

Example

Culvert 1


Large diameter culvert


Unknown age (over 30 years)


Located on a dead end road
with 10 houses


rural area


No inspection records


Difficult to access


ends
obstructed by dense brush


Residents report pavement
cracking on top

Culvert 2


Small diameter culvert


20 years old


Located on a main road that
serves the elementary school


Located near town center


No inspection records


Difficult
to access


ends
often
submerged


No reported problems

Determine

Acceptable

Risk Levels

Risk and Asset Management


Direct Costs


Repair and/or
replacement costs


Emergency response


Public safety costs


Admin & legal costs of
damages


Fines and regulatory
actions


Customer Costs


Property damage


Service outage


Access problems and
travel delays


Business losses


Health impacts


Community Costs


Environmental
pollution, erosion,
sedimentation, etc.


Destruction of habitat


Public image (tourism,
economic, etc.)


Emotional
strain/welfare


Political costs

Think About the Consequences of Failure

Determine

Acceptable

Risk Levels

Risk and Asset Management

Determine

Acceptable

Risk Levels

Score

Safety & Security

Environment & Regulation

Customer Needs

Financial

Reputation

5

High expectation of a
serious
injury
or
life
-
threatening potential

Compliance order or regulation that
requires immediate
action; non
-
compliance presently

Complete disruption of
services

>$1,000,000 over the
next 5 years

National
news

4

Medium risk of a
serious
injury

Regulation
requires
compliance in
near future
or
anticipated regulation
with major
implications; non
-
compliance
likely
in
next 1
-
5
years

Intermittent service to
customers

<$1,000,000 and
>$150,000 over the
next 5 years

State news

3

Low risk of a serious
injury

Anticipated
regulation; Non
-
compliance
possible in future.

Service is adequate, but
could use
improvement

Moderate financial
impact

Local news

2

Low risk of minor
injury

Potential regulation anticipated in
next 5
-
10 years. Non
-
compliance
likely in next 5
-
10 years.

Workarounds
making
workflow difficult and /or
expensive

Minor to moderate
financial impact

Town/City
issue

1

Risk can affect quality
of public
service or
employee
stress

Potential regulation anticipated in
>10
years; non
-
compliances
anticipated in next 10 years.

Little impact on
customer

Up to 50% and 100%
of asset cost
additionally spent

Little press

0

None

None

No impact

No cost

No
press

Risk and Asset Management

Probability of
Failure

Asset
Condition

Description

5

Very high

Very Poor

Likely to occur shortly

4

High

Poor

Estimated 50% chance of occurring in the short term

3

Moderate

Fair

Estimated 10
-
50% chance of occurring in the short to
mid terms

2

Low

Good

Unlikely to occur in the short to mid terms

1

Very low

Like new

Nearly full expected life

Determine

Acceptable

Risk Levels

Risk and Asset Management

Determine

Acceptable

Risk Levels

Consequence

Probability

High

High

Low

Low

B

High

probability
-

low consequence

A

Low probability
-

low consequence

D

High

probability
-

high

consequence

Low probability
-

high

consequence

C

Risk = Consequence
of Failure and
Probability
of Failure

Risk and Asset Management

A

C

Consequence

Probability

High

High

Immediate
Attention

Sample

Monitoring

Run to Failure &
Mitigation Activities

Regular
Monitoring

D

Low

Low

B

Determine

Acceptable

Risk Levels

Maintenance Approaches


Major Assets Should Have Maintenance Plans


Performance objective and reliability needs


Types of maintenance and when they are used


Consider Asset’s Functions
,
Potential Failures
Consequences, and Failure Modes


Balance Reactive, Preventative, Predictive, and Reliability
Centered
Maintenance (RCM)


Maintenance Balances Service, Money & Risk

Optimize

O&M

Maintenance Practice Issues


People Tend
to
Over
-
Maintain Mechanical Assets


Manufacturer’s
recommendations designed to
get through the
warranty period
, and ignore operating
context & cost


Most Failures
are
Not Traditional “Wear and Tear

Time
-
Bound Failures
;
they
are
Random (e.g
.
electrical)


Preventive
tasks
are
not effective at preventing
failures


People Do
the
“Wrong

Maintenance


Focus on reactive and/or preventative maintenance


Optimize

O&M

Maintenance Practice Issues


Fail
T
o Identify
or
Pick the Wrong
Critical Assets


Safety Preventive Maintenance
Often Overlooked


Testing
of protective devices
needs
to
be ramped
up


People Don’t Use the Tools and
Information They Have Available

Optimize

O&M

What is the right type of maintenance to do
on this boiler?

Value of Doing the “Right” Maintenance


One Municipality Experienced


60% reduction
in
Preventative Maintenance work orders


$
110,000 annual
savings


Decrease in failures (better reliability
and
availability of assets)


Increased
Safety


Increased
Staff
Knowledge of Assets


Massachusetts Water Resources Authority


Saved $65,000 on crank cases maintenance (switched to
runtime maintenance, oil monitoring, and in situ cleaning)

Optimize

O&M

Business Case Evaluation (BCE)


Business Case Evaluation (BCE)

-

A structured way to
make decisions using facts and objective methods


Clearly defines the projects


Examines alternative options


Looks at lifecycle costs (capital, O&M, financing, etc.)


Considers “cost
-
benefit” ratio and “bottom line” impacts


Often considers the Triple
-
Bottom
-
Line (TBL), Level
of
Service
to customers and risk reduction goals

Optimize

Capital

Investment

Components of BCE Analysis


A

Well
-
Defined Problem Statement


Defined Analysis Framework


Monetize Risk
and
Triple
-
Bottom Line Costs Consistent
with Lifecycle
C
osting Methodology


Financial Metrics:


Cost
-
Benefit ratio
,
Net Present Value (
NPV
), Return on
Investment (ROI),
p
ayback period, etc.


Requires Effort, But Standard
F
orms Help


Optimize

Capital

Investment

The Value of Using the BCE


BCE Analysis


Justify needed capital projects


Filter out
unneeded
or low return projects


Ensures projects
provide the
best value


Provides a defensible, objective prioritization
of projects


Provides
transparency in
decision making


BCE Process Helped One
U
tility Save Over
$
35 million
and Generated a Cost
-
Benefit Ratio of 30/1


Optimize

Capital

Investment

When does it make sense to replace
our old pumper truck?

Conclusions


Effective Asset Management involves defining needs
-

not blind
d
ata gathering or just buying software


Focus on service levels, practices and
approaches, rather than on assets


Cost savings is the ultimate goal


You
must manage your assets!

Your choice
is
how well you to do it.


Seth Garrison

sgarrison@woodardcurran.com