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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

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


Darin Johnson, BIS Consulting

introduction to bis
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
what is asset management really about
What is asset management really about?
  • There is a gap between engineering and finance

Asset management bridges this gap


what makes for successful asset management
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
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.



“…total benefits of a project

to whomsoever they accrue

exceed the costs of that project.”

a word about data and it
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.

when should i replace aging assets
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

expected useful life





Expected Useful Life
  • What, exactly, is expected useful life?
  • Median Life?
  • Mean Life?
  • Knee of curve?


  • N% failure rate?
  • Other?
economic life
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
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

  • 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?
quantifying seismic risk consequence cost versus return period vashon
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
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

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




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

here is the biggest challenge


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
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
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
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.


…”dollarizing” is unavoidable.

here are the key points
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.