Asset management what it is and isn t
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Asset Management – what it is (and isn’t). 2013 WASHINGTON STATE PUBLIC TRANSPORTATION SYMPOSIUM Darin Johnson, BIS Consulting. Introduction to BIS. Key Services Decision-support for power and water utilities, transit agencies. Health Indexing, risk assessment. Third-party business case.

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Asset Management – what it is (and isn’t)

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Asset Management – what it is (and isn’t)

2013 WASHINGTON STATE PUBLIC TRANSPORTATION SYMPOSIUM

Darin Johnson, BIS Consulting


Introduction to BIS

  • Key Services

    • Decision-support for power and water utilities, transit agencies.

    • Health Indexing, risk assessment.

    • Third-party business case.

  • Recent Clients

    • Washington State Ferries

    • Toronto Hydro

    • Duke Energy

    • Puget Sound Energy

    • Tacoma Power

    • Seattle City Light


“Asset management” is a broad topic…


What is asset management really about?

  • There is a gap between engineering and finance

Asset management bridges this gap

?


Asset management (n): an approach to decision making that is…

  • Customer focused.

  • Data driven.


What makes for successful asset management?

  • What makes for a “successful” asset management utility?

    • Depends how you define success.

    • But, what makes it good is business case culture.


What is a “business-case culture”?

  • Spending must be justified in terms of customer costs and benefits.

  • Explicit, quantitative estimates – transparency.

  • “No exceptions” attitude from senior management.

  • Junkyard dogs.

Costs

Benefits

“…total benefits of a project

to whomsoever they accrue

exceed the costs of that project.”


What factors create a good business-case culture?

  • 3. Personnel

  • 2. Staff

  • 1. People


A word about data and IT

  • Starting with data is a mistake - data matters only if it matters.

  • First define the questions you must answer and your approach, then ask what data you need.

  • If you start by collecting data and installing software, you are likely never to get there.

    • Return on investment is low.

    • Buy-in is nearly impossible.

    • No early gains – can’t show tangible results.

There is a time to pursue good data collection, storage and access; analytical tools; and integration. That time is not at the beginning.


First example – managing aging infrastructure


When should I replace aging assets?

  • Conventional Approach (technical)

    • Assess condition, consider calendar age

    • Replace when:

      • Condition is poor

      • Age reaches expected life

Technical approach fails to consider risk quantitatively


KNEE OF CURVE

MEAN LIFE

MEDIAN LIFE

N% FAILURE RATE

Expected Useful Life

  • What, exactly, is expected useful life?

  • Median Life?

  • Mean Life?

  • Knee of curve?

?

  • N% failure rate?

  • Other?


Economic life

  • Condition, criticality, and risk assessment: a business case for aging assets

  • Least life cycle cost

    • Optimize replacement or rehab timing

    • Balance risk of failure against benefits of delaying capital expenditures


Calculating economic life, creating a long-range plan

  • Now all the pieces are in place…

    • Each asset is evaluated individually to determine remaining life.

    • Forms the basis for long-range spending projection.

  • Example applied by Pierce Transit – extended coach service.

40% reduction in capital

15% reduction in life-cycle


Second example – WSF seismic upgrade business case


Background

  • Washington State Ferries (WSF), largest ferry system in the US,

  • Seven timber trestles constructed before modern seismic codes.

  • Risk of damage or collapse. 

  • Current plan is replacement – $121 million budget item.

  •  What if we don’t? Could we reduce spending and improve return on investment if we do something less than replace, or even leave some of the trestles as-is?


Ground-shaking intensities


Summary of damage in 72-year event, Vashon Island


Quantifying seismic riskSummary of failure scenarios for Vashon Island


Quantifying seismic riskConsequence cost versus return period, Vashon

Calculating annual risk

330-year event: $870

224-year event: $1,000

72-year event: $7,200

Total annual seismic risk at Vashon Island trestle = $1.5 million


Summary of alternatives analysis, Vashon Island

  • Conclusions, all trestles

    • Savings of $88 million NPV in cost of ownership.

    • Savings of $54 million in near-term capital spending.

    • Refurbishment preferred to replacement at three trestles.

    • No intervention is justified at four trestles.

Minimum life-cycle cost


Final example - Prioritizing service in the face of shrinking budgets


Safety

Environment

Financial

Benefits should be defined in terms of the things that matter to your stakeholders

  • Why do we want to spend money?

    • Must be based on costs/benefits from the customers’ perspective.

    • Defined in the same terms for every decision.

  • Common Drivers…

Big decisions are usually about trading dollars for service…

Level of Service


dollars

Here is the biggest challenge

  • How do we know if Benefit > Cost?

Level of service, expressed in customer served

Capital costs, expressed in dollars


Conceptually, counting benefits

I’d pay $100 for this service.

  • Count up all the benefits to all the stakeholders.

    • Riders directly affected.

    • Businesses affected.

    • Other drivers.

    • The community as a whole.

  • Cut (or add) service based on “bang for the buck.”

  • It can be difficult

    • Hard to identify stakeholders.

    • Hard to quantify benefits.

  • As decision-makers, we must do our best.

We’d each pay $5


Reality check

  • What’s the catch?

    • It’s almost impossible to know how customers’ value service.

    • Surveys are noisy and unreliable.

    • Wide mix of stakeholders.

  • In the end, we’re usually stuck with a subjective estimate.


Is this really necessary?

  • Why not simply measure improvement in availability, for example?

    • REASON 1: To justify spending – trading dollars for service.

    • REASON 2: To prioritize spending across a range of projects.

  • You will make spending decisions, implying a value for service.

    • Therefore, “no answer” is not an option.

    • Explicit →Consistent→Reliable.

YES

…”dollarizing” is unavoidable.


Here are the key points

  • Spending decisions should be based on whether benefits exceed costs.

  • Evaluate costs and benefits from the customers’ perspective.

  • Focus on estimating actual costs, risks, benefits, etc. Avoid “high, medium, low” or worst-case scenarios.

  • Don’t be afraid of uncertainty – quantify it. If more precision is needed, improve inputs.


Thank you


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