Study Shows Positive Future for Asset Management in Water Sector?and Beyond

Asset ManagementAsset management strategies have been generating interest in the water infrastructure sector for the last decade. A recent study by McGraw-Hill Construction in collaboration with Denver-based engineering consultant CH2M HILL, published in the MHC SmartMarket Report, ?Water Infrastructure Asset Management: Adopting Best Practices to Enable Better Investments,? demonstrates that asset management practices have begun to take hold at water utilities, and more growth in those practices is expected in the next five years.

What Is Asset Management?
Asset management helps utilities deliver desired service levels to businesses and residents at the least cost. Utilities decide to invest in new and existing assets based on acceptable risk levels and a life-cycle perspective, including environmental and social costs. These decisions are becoming more urgent for utilities. In the 2013 Report Card on Infrastructure issued by the American Society of Civil Engineers, water and wastewater both earned a grade of D.

In addition, factors like regional droughts, increased system resiliency, energy-sector demands and regional population growth are putting increasing demands on water utilities at the same time that many are experiencing financial cutbacks. Customer rate increases can help fund investments, but double-digit rate increases over an extended period are not sustainable.

All these factors have led utilities to consider asset management. The risk-based approach helps utilities eliminate unnecessary expenditures and make wiser investments in both new capacity and maintenance and operations. In fact, the report includes a case study in which the Greater Cincinnati Water Works says that a risk-based approach allowed it to re-examine its policy to replace 30 miles of pipe every year at a cost of $40 million. The savings from replacing pipes based on risk rather than a set annual rate allowed the utility to make other more critical investments.

Asset Management Adoption
The MHC study asked 451 utilities ? 90 percent of them in the United States and 10 percent in Canada ? whether they currently use the 14 leading asset management practices (listed on p. 29). Based on their current usage, 65 percent of the utilities were deemed asset management practitioners because they use four or more of the 14 practices ? with the rest considered non-practitioners. Meanwhile, 18 percent of the utilities surveyed use 10 or more practices, suggesting a small but sizable percentage takes an advanced, holistic approach to asset management.

Larger utilities are at the vanguard of asset management adoption: 73 percent of the practitioners are from large utilities, those serving a population of 50,000 or more. The study also revealed that 84 percent of high-level practitioners using 10 or more asset management practices also serve populations of 50,000 or more. In addition, more than one-quarter of practitioners project their capital improvement spending more than $50 million, while only 14 percent of non-practitioners expect spending at the same level.

Investment Decisions
The main benefit, experienced by 80 percent of all practitioners, is ?the improved ability to explain and defend their budgets and investments to governing bodies.? This is critical because it allows them to make a solid case for funding and rate increases. In fact, the study reveals a trend for utilities practicing advanced asset management to gain higher rates.

Two other benefits experienced by high-level asset management practitioners include ?an increased ability to balance between capital and operating expenditures? and ?reduced costs without sacrificing service levels.? All of these contribute to the utility?s ability to fund and prioritize work.

A higher percentage of asset management practitioners, regardless of utility size, place greater emphasis on risk assessment, life-cycle cost assessment and business cases. This demonstrates that more analytic factors are called into play to optimize investments. Non-practitioners are influenced more by regulation and compliance, the obsolescence of existing infrastructure and future supply forecasts than practitioners. With the exception of future supply forecasts, these suggest a more reactive approach to investing by non-practitioners.

The importance of risk analysis to investment decisions is clearly driven by asset management adoption, especially among larger utilities. Among the respondents who indicated that they do risk assessments, 88 percent of practitioners at large utilities consider this a critical factor, compared with 48 percent of large utilities not practicing asset management. Since the practice is mostly taking hold in large utilities, this suggests that a major change is in the works and will emerge further in the next few years to alter the way large utilities prioritize work.

Such analyses often start with ?risk scoring? of an asset, estimating the likelihood that the asset will fail and the consequence, often expressed in monetary terms, if it does. By developing risk scores for assets within each class of critical assets (e.g. pumps or meters), utilities can more accurately allocate maintenance and capital investment resources based on data-driven decisions. The risk assessment data additionally drives tailored maintenance, repair and replacement strategies appropriate to each asset and asset class.
This process may seem enormously challenging to organizations that have not done it, and it can be. But, by implementing risk scoring one class of critical assets at a time, immediate benefits can be realized and make future implementations easier.

Begin with a Comprehensive Approach
One finding of the study, which has been confirmed time and again, is that a comprehensive approach to an asset management program often serves an agency well. This should include understanding the gap between current asset management practices and industry best practices, and developing measureable short-, medium- and long-term goals as well as measurable service levels to the customer. Other aspects to a comprehensive approach should involve development of an asset management policy for the agency, including how asset management fits into the overall strategic plan, and assessing the risk and consequence of failure of the agency?s critical assets.

From there, the agency should develop plans for each of its major assets to guide strategic and tactical decisions regarding the construction, operations, maintenance, repair, replacement and decommissioning of those assets, along with an asset register and associated technology systems to support that decision-making process.?

Next, the organization should implement leading maintenance practices that include condition assessments and reliability-centered maintenance, along with a rigorous business-case process for major investments in both operations and maintenance and capital improvements. And finally, it is crucial that there be ongoing staff training regarding the principles of asset management and how they should be applied in their work.

Building the Culture
Implementation of an asset management program and processes often requires a major shift in an organization?s way of doing business, which can create considerable discomfort and resistance. Because asset management stresses efficiency and minimizing life-cycle costs, staff are often concerned that asset management threatens their jobs. Engineers, operators and maintenance staff are often skeptical of the framework because application of good asset management strategies occasionally results in running some assets to failure. Many have been taught that asset reliability is the ultimate goal and should never be compromised. Another common reaction to the implementation of an asset management program is that it?s ?just another flavor of the day,? and will come and go.

All of these reactions are natural, but make implementation of an asset management program a challenge. Developing strategies to address these concerns, educating staff about the benefits of asset management to them, and getting them actively involved in implementation is critical to building a successful program.
The Cincinnati Metropolitan Sewer District?s treatment plant maintenance unit is one good example where planned, proactive team ?culture building? for its asset management program has led to positive benefits. The unit?s supervisor, with assistance from CH2M HILL and Brown and Caldwell, worked with his team to develop a mission and vision for the unit, goals and objectives, and specific measureable maintenance improvement goals and targets. The unit has implemented major changes to the way it plans and schedules work, how it uses asset performance data to improve and some of the methods it uses to assess condition and perform maintenance. The unit?s supervisor, with support from staff, has created a ?Positive Energy Team? which is used to identify innovative improvement ideas, recognize accomplishments and lead the implementation of the unit?s program at the staff level.

It?s important that all staff in the organization understand where they can contribute to program?s goals, including staff in support functions, like finance, human resources and procurement. Though challenging and sometimes painful to do, resistance needs to be addressed and not allowed to ?poison the well.?
While many organizations still considering adoption of asset management practices may be concerned about the level of effort involved, a program development plan can be scaled to almost any organization?s needs and appetite for change. Moreover, asset management is applicable to all types of business, including utilities, manufacturing companies, city and county governments and more.

Harvey Bernstein, F.ASCE, LEED AP, is vice president of industry insights and alliances at McGraw Hill Construction.

John Fortin is an asset management practitioner at CH2M HILL.

Donna Laquidara-Carr, Ph.D., LEED AP, is the manager of industry insights and communications at McGraw Hill Construction.

Nick Pealy is a senior consultant in CH2M HILL?s asset management and reliability services group.

14 Leading Asset Management Practices
Computerized maintenance management system (55%).
Asset-condition assessment for renewal/replacement planning (53%).
Business cases for O&M and Capital Improvement Plan (CIP) investments (45%).
Asset register to facilitate analysis and planning (44%).
Optimization of the balance between O&M and CIP (44%).
Staff training and development on asset management (41%).
Consideration of risks and consequences of alternative investment/budget decisions (39%).
Consideration of environmental, social and economic costs and benefits (38%).
Strategic asset management plans (38%).
Developing and monitoring customer service and asset service-level performance measures (36%).
Development of an asset management policy (32%).
Benchmarking and/or a needs assessment to establish an asset management implementation Plan (31%).
Customer and asset service-level development (23%).
Reliability-centered maintenance (20%).
*Figures indicate percentage of the 451 surveyed utilities that currently utilize them.

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