What is Asset Management

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What is Asset Management?
County Road Association of Michigan March 22,
2000

• Sue McNeil
• Professor Carnegie Mellon University
• Visiting Professor
• University of Minnesota

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Questions?

• How much should you spend on signs versus
  equipment?
• How much should you spend on maintenance versus
  expansion?
• What resources will you need 10 years from now?

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Outline

• Overview and status
• Performance and asset value
• Where to next?

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Asset Management A Tool for Managing Highway
Assets

• Overview

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Overview and Status

• Asset management definitions/goals/attributes
• Asset management components
• History
• Status of asset management in the US
• So why do agencies need asset management?
• Examples

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Overview and Status Asset Management Definitions

• . . . is a systematic process of maintaining,
  upgrading, and operating physical assets
  cost-effectively
• . . . Combines the use of sound engineering
  principles, accepted business practices, and
  economic theory to improve the decision-making
  process

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Goals

• To provide ready access to quantitative and
  qualitative data
• To facilitate decision-making based on data
• To utilize principles drawn from economics,
  accounting, risk management, and customer service
  models
• To ensure efficient resource allocation and asset
  optimization

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Attributes Required to Realize Benefits

• Common performance measures and criteria
• User-friendly environment
• Customer focus
• Accessibility within agency
• Flexibility
• Link to technical, management, and budgetary
  processes
• Exchange of information

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Quantifiable Objectives

• Enhance knowledge of inventory and asset value
• Develop links that tie resource allocations to
  savings from replacement
• Establish standardized processes and protocols
• Consider life-cycle costing

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Benefits of AMS

• Improve program quality
• Improve information and access to information
• Facilitate economic assessment of various
  tradeoffs
• Improve documentation of decisions
• Improve information on return on investment and
  value of investments
• Reduce short-and long-term costs

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Asset Management Concept
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Components of an AMS

• Asset inventory
• Location/Asset Referencing System
• A centralized database
• Analysis tools
• Reporting tools

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Components(FHWA)
Goals and Policies
Asset Inventory
Condition Assessment and Performance Modeling
Budget/Allocations
Alternatives Evaluation and Program Optimization
Short and Long- Range Plans
Program Implementation
Performance Monitoring
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Framework for AMS
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Asset Inventory System

• Identification of assets included
• Inventory of basic characteristics
• Assessment of asset conditions
• Estimate of asset age

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Location/Asset Referencing System

• Geographic location
• Reference system
• Identifiers for equipment

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Central Database

• Contains inventory information
• Facilitates exchange of information

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Analysis Modules

• Forecast of Future Conditions
• Impact Analysis of Various Scenarios

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Reporting Modules

• Presentation of Inventory Information
• Presentation of Analysis Results
• Formats
• Graphics
• Tables
• Maps

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Asset Management versus Managing Assets

• History
• Survey - Status of Asset Management in the United
  States.

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History

• 1970s - pavement management
• 1980s - bridge management
• 1990s - asset management

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Background

• Recognition of common characteristics
• Projects/ components are parts of networks
• Long time horizons
• Presence of trade-offs
• Indivisibility
• Variability in space and time

• Subject to design standards
• Subject to deterioration
• Subject to uncertainty
• Exhibit many modes of failure
• Hierarchical decision process

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History

• 1991 - ISTEA
• 1994- Road Asset Management Guideline - Austroads
• 1995 - Report on Current Practice - Australia
• 1996 - AASHTO/FHWA Workshop - Public Private
  Perspectives

• 1997 -
• AASHTO/FHWA Workshop - The Future
• AASHTO Task Force formed

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History

• 1998
• New York State - Concept Plan
• AASHTO Task Force Strategic Plan
• TAC - Primer on Highway Asset Management
• APWA - Asset Management for the Public Works
  Manager
• 1999
• FHWA - Office of Asset Management formed
• OECD Asset Management Systems Working group
• FHWA/AASHTO Workshop (December)
• FHWA Primer on Asset Management

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Status of Asset Management in the United States

• Survey Questions
• Inventory of Assets
• Investment Decisions
• Workshop Agenda
• Responses

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Survey Responses
Received responses from states in grey
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Survey Responses (CONTINUED)

• Number of Responses -- 33
• Points of Contact for Asset Management
• none -- 12, one -- 13, more than one -- 8
• States with Inventories -- 33
• average per state -- 9
• inventories with conditions -- 66
• States with Management Systems -- 32
• average per state -- 7
• inventories with performance indicators -- 70

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Survey Responses (CONTINUED)

• States Attempting Asset Valuation -- 13
• replacement cost -- 10
• historic expenditures -- 6
• equivalent value -- 5
• other -- 2
• Other includes HPMS Financial Analysis package
  and investment/fair market basis.

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Survey Responses (CONTINUED)

• States Using Decision Making Tools -- 32
• cost-benefit analysis -- 29
• life-cycle costing -- 28
• trade-off analysis -- 9
• quantitative investment analysis -- 4
• other -- 9
• Other includes citizen and political input,
  value engineering, grade crossing hazard ratings,
  first cost, threshold levels, and highway needs
  analysis.

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Survey Responses (CONTINUED)

• Apply tools across modes -- 7
• Analysis to allocate capital vs. maintenance --
  10
• CBA of major maintenance expenditures -- 11
• CBA for operational improvements -- 11
• Evaluate how expenditure improves system -- 17
• Relate budget expenditures to system performance
  -- 22
• Automatic updating of systems based on
  expenditures -- 13

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Survey Responses -Conclusion

• Many states have elements of asset management
• for specific types of assets
• for specific activities
• Examples include
• Performance based programming
• Integrated maintenance management
• Integrated management systems
• Preservation and improvement tradeoffs

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Why do agencies need asset management?

• Aging infrastructure
• Preservation, and good business practices provide
  a foundation
• Customer focus means a shift in emphasis from
  outputs to performance
• Demand for better accountability
• Magnitude of the investment
• Asset management is a vehicle for delivering

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Premises

• One size does not fit all
• Champions are needed
• Dependent on a corporate database
• Builds on content, concepts and substance of
  other management systems
• Recognize that organizations have frequent
  leadership changes, and need to develop a means
  for continuity in asset management

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Examples - how asset management is used

• New York State
• Washington State
• Montana

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NYSDOTs Program Update Process

• Tradeoff analysis
• Using forecasts to set program goals and
  allocations
• Examples

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NYSDOTs Program Update Process

• Executive Level Review
• Looking across programs and regions
• Direct result of asset management.

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Washington State DOT

• Use asset management for 20-year forecasting of
  revenues and costs
• Example

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Highway System Plan
1999-2018 (1997 Billion )
20 Year Revenue Scenarios
0.0
41.0
11.4
18.3
PPSC 6/17/97
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Montana DOT

• Similar budget to some counties
• Asset management is part of the performance
  planning process
• Examples

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Performance Programming Annual Cycle
Updated 5 years
POLICY DIRECTION FROM STATEWIDE PLAN
Policy Module

DEC.
PERFORMANCE OBJECTIVES
RESOURCE CONSTRAINTS
INVESTMENT ANALYSIS
Funding Plan Module
FUNDING PLAN APPROVAL

APRIL
SYSTEMS PERFORMANCE QUERY TOOL
PROJECT NOMINATION
Program Development Module
TECHNICAL REVIEW
PUBLIC COMMENT
STIP APPROVALS
AUG.
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Funding Plan Module
Investment Analysis
Performance Objectives
Resource Constraints
Funding Plan
GOAL A matrix with sufficient detail to allow
various roll-ups with funding either Directly or
Proportionately based on Performance
Example
Recon to address Capacity
Recon to Geom Design stand.
Rehab /Recon Bridge
NHS STRATEGY Financial District
Rehab
Pav Pres.
Safety
Misc.
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Asset Management A Tool for Managing Highway
Assets

• Performance and Asset Valuation

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Performance

• What is it?
• Why is it important?
• What have we learned?

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Performance What is it?
Operational indicators e.g miles of
road accidents, roughness
Mission smooth, safe, economic and efficient
road systems

• Link between the user and the physical asset

Stakeholders service providers private and
commercial road users, policy makers
regulators
Modified from Paterson and Humplick
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Performance Why is it important?

• Fundamental concept
• Provides link to decision making
• Critical to identifying the true value of assets
• Foundation for performance based planning

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Performance What have we learned?

• For example, Minnesota
• Three areas
• System performance
• Public values/issues
• Organizational Performance

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Performance Minnesota -

• System Performance
• Time/ Directness
• Safety
• Condition of infrastructure
• Access/ Basic service levels
• Public values/issues
• Environment
• Socioeconomics

• Organizational Performance
• Performance/ Productivity
• Progress towards targeted focus areas

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Performance What are the issues?

• Good data
• Consistent and continued application
• Customer input
• Benchmarking
• Not the answer

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Asset Valuation

• Driving forces
• Mechanisms
• Governmental Accounting Standards Board (GASB) 34
• Mechanics

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Asset Valuation Driving forces

• Public skepticism of government
• Focus on the use of private sector management
  practices in the public sector
• Interest in privatization

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Asset Valuation Mechanisms

• Government Performance and Results Act and
  similar state legislation
• Self reporting of economic value
• GASB 34

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Asset Valuation GASB 34

• Requirements
• state and local agencies to include the value of
  physical assets in their financial statements
• value based on depreciated historical cost, or
  historical cost without depreciation if the
  agency can demonstrate that they
• have an inventory of assets
• perform condition assessment at least every 3
  years
• have spent funds sufficient to maintain the
  infrastructure assets at an established level of
  condition.

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Asset Valuation GASB 34

• Issues
• Confusion between economic and financial value
• Implications for policy making, funding etc
• Cost to implement

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Illustration

• Replacement cost highway - 1m/mile
• Historical cost
• 15 year old highway
• CCI 1993 / CCI 1998 0.6903
• gt 0.69 m/mile
• Book value
• Expected life 25 years
• Depreciation 60 (straight line)
• gt 0.27m/mile

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Issues

• Role of performance versus value in decision
  making
• Role of performance versus value in
  accountability
• Relationship to life cycle cost analysis

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Asset Management A Tool for Managing Highway
Assets

• Where to next?

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Accomplishments

• Defining the concept
• Synthesis of approaches
• Defining the issues

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Resources

• APWA
• FHWA Office of Asset Management

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Coming soon.

• Synthesis of current practice (NCHRP project)
• Asset Management guide
• Training

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Still needed...

• Tools to support asset management
• Educational programs
• Good examples of successful efforts

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Asset management is what you make it!