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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)

2013 WASHINGTON STATE PUBLIC TRANSPORTATION SYMPOSIUM

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.

Costs

Benefits

“…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

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
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

background
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?
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

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

here is the biggest challenge

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
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.

YES

…”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.
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