Five Essential Steps to Successful Asset Management Plans
If you’re a homeowner, you know the risks of deferred repairs or maintenance. Over time, loose shingles can go from a weekend DIY project to a full-blown roof replacement – 10 times the cost and 20 times the effort.
Enter the U.S. infrastructure. The American Society of Civil Engineers recently gave our infrastructure—the pipes from which we draw water and the roads we take to work—a D+ grade, the result of years of deferred maintenance due to lack of funding, as well as plain old aging. With many assets in our largest cities averaging 80-100 years old, our infrastructure is nearing the end of its usable lifespan. An estimated $4.6 trillion is required over the next decade to upgrade the country’s systems.
Given the cost of repairs, renewal and replacement of our infrastructure must be an ongoing task. Proactive cities have identified long-term strategies to manage and extend the useful (and safe) life of their assets, while the regulatory environment at the state level has begun to provide more structure, and, in some cases, monetary support for proactive measures. For example, new legislation in Ohio (Senate Bill 2) requires water systems to complete asset management plans by as early as October 2018.
The intent of this post is to aid communities who are in the beginning phases of strategic asset management planning. It outlines asset management practices and provides a step-by-step process for making and implementing the most critical improvement projects to meet a community’s needs.
Infrastructure Asset Management Defined
So, at the most basic level, what is asset management planning? According to the International Infrastructure Manual, asset management is defined as a process, which aims to meet a required level of service in the most cost-effective way, through the creation, acquisition, operation, maintenance, rehabilitation, and disposal of assets to provide for present and future customers.
In other words, asset management is about optimizing current spending – not spending more. And practicing asset management involves continuously deciding where, how much, and how quickly to spend. These questions can best be answered by following the five-step process outlined here:
Step 1. Inventory
Before you can manage an asset, you must know what you have. Inventories include keeping records of the assets owned and maintained by a jurisdiction. This step involves cataloguing the total miles of sanitary sewer, water main, or road infrastructure in the community, for example, or the square footage of the facilities owned and operated by the community.
Asset inventories can range from simple spreadsheets that list assets, their basic attributes, and location, to sophisticated software applications to track information about the asset in a database. Mapping this information is increasingly done using free public domain or proprietary geographic information software (GIS) systems.
Step 2. Condition
Once you have an inventory of a community’s assets, the next step is to understand the state of those assets. Questions to ask during this step can include, “How many water main breaks per year has the community experienced?” or “What percentage of the annual sanitary sewer flow is rain water entering the sewer system?”
Most communities apply a rating system to the assets, such as the National Association of Sewer Service Companies (NASSCO) manhole and pipe condition assessment methodologies, referred to as the MACP and PACP assessment procedures respectively. These have become industry standards. This provides a way to track changes in condition and to prioritize the maintenance and replacement projects.
Step 3. Analysis and Forecasting
This step involves gauging the future infrastructure needs. You’ll ask questions like, “What percent of your infrastructure – water, sewer, or roads – has already used up half its useful life?”
As an example, the table below (Figure 1) is from an EPA presentation on asset management that shows the projected useful life of various asset types. Of course, the condition of the asset should be factored into the analysis, as this impacts its anticipated useful life.
Step 4. Level of Service, Risk, Prioritization
Nearly every community’s infrastructure improvement needs exceed its resources. That’s why it’s imperative to prioritize infrastructure improvements and engage community leaders in an honest and open conversation about expectations for their communities against a backdrop of financial realities.
Prioritizing projects usually begins by identifying the risk to a community – for example, what could happen if the leaking sewer pipes in a section are not repaired? Risk is evaluated by the probability of an asset failing and the consequence this failure might have on the community.
Many national institutions have developed tools and concepts for utilities to prioritize infrastructure improvement needs against competing interests. The American Water Works Association, for example, offers a multi-attribute utility analysis spreadsheet tool, which can be adapted to different community conditions and can help with prioritizing infrastructure improvement needs. You can find it here.
Figure 2 (below) gives an example of how a community adopted the tool in its planning and project prioritization process. The figure lists five criteria a community considers when prioritizing infrastructure needs: condition, performance, regulatory, public, and financial impacts.
In addition, the percentages or relative importance of these five criteria in the decision-making process are identified in the circular symbols. You can vary the values and then simulate the impact of these decisions using this tool.
Finally, each main category includes sub-categories, such as Physical and Operational. Assessing the infrastructure condition means assessing its physical and operational conditions and needs for the community. The result is a scored, prioritized list of infrastructure improvement needs. Such a prioritization process has a number of benefits:
- A defensible, transparent structure that justifies the reasons for the projects selected and prioritized for immediate action.
- The identification of criteria that went into the decision making process.
- The importance of each criteria in the collective decision making process.
Step 5. Funding and Rate Sufficiency
The final step is to assess the gap (if there is one) between the community’s infrastructure needs, based on the service levels expected by regulatory agencies and community residents, and the incoming revenue stream.
When creating your plan, you’re determining when your assets should be repaired or replaced and how much it’s going to cost to replace them. Questions to ask:
- Do we have enough funding to maintain our assets for our required level of service?
- What are our short-term and long-term repair/replacement costs for our various assets?
- Is our rate structure sustainable for our system’s long-term needs?
What can you do if the revenue stream doesn’t meet the infrastructure needs? This is a more difficult but necessary question to answer. Rate increases to recover the true cost of service delivery might be an option.
However, rate increase conversations are often politically sensitive. Another option might be to look into State incentivized infrastructure-financing options, such as Ohio’s Water Supply Revolving Loan Account (WSRLA) for water assets and Water Pollution Control Loan Fund (WPCLF) for sewer assets, and Michigan’s Drinking Water Revolving Fund (DWRF) and State Revolving Funds (SRF). An affordability-based financial assessment is another option for consideration. Finally, several utilities have successfully adopted millage-type financing mechanisms to assist in dedicated improvement projects.
Ultimately, Failing to Plan is Planning to Fail
It’s cliché. But it’s the truth. The state of the country’s infrastructure is putting the safety and economic health of our local communities and the competitiveness of our country at risk. The stakes couldn’t be much higher. Fortunately, asset management planning does not have to be an overly complicated undertaking.
By following the five steps outlined in this post, taking advantage of the tools that exist to help, and leveraging available sources of funding, communities can begin to the take the state of their infrastructure into their own hands. With proper asset management planning, they can develop roadmaps that help address their infrastructure issues and lead to a safer environment and overall better quality of life for all residents.
Our staff is here to help communities take the foundational first steps. To learn more, contact us at AssetManagement@ohm-advisors.com.