What is Asset Management?

Asset Management

Water systems are made up of assets; some are buried assets and “invisible,” while the rest are visible. These are the physical components of the system and can include: pipe, valves, tanks, pumps, wells, hydrants, treatment facilities, and any other components that make up the system. The assets that make up a water system lose value over time as the system ages and deteriorates. As the assets deteriorate, the level of service the utility’s customers desire may become compromised, operation and maintenance (O&M) costs can increase, and the utility may be faced with excessive costs it can no longer afford.

There is an approach to managing the assets of the system that can assist the utility with making better decisions on caring for these aging assets. This approach is called “Asset Management”.  Pegasus Utility Locating Services is leading the industry in new and innovative approaches to asset management.

The intent of asset management performed by Pegasus Utility Locating is to ensure the long-term sustainability of the water utility. By helping a utility manager make better decisions on when it is most appropriate to repair, replace, or rehabilitate particular assets and by developing a long-term funding strategy, the utility can ensure its ability to deliver the required level of service perpetually.

Pegasus Utility’s Approach to Identifying Deteriorating Assets

The International Infrastructure Management Manual defines the goal of asset management as meeting a required level of service in the most cost-effective way through the creation, acquisition, operation, maintenance, rehabilitation, and disposal of assets to provide for present and future customers. A water utility has a responsibility to manage its assets in a cost-effective manner for several reasons:

  • These assets represent a major public investment.
  • Well-run utilities are important to economic development.
  • Proper operation and maintenance of a utility is essential for public health and safety.
  • Utility assets provide an essential customer service.
  • Asset management promotes efficiency in the operation of the system.
  • Properly managing the assets is the basis of self-sufficiency.

Asset management is a set of procedures to manage assets through their life cycles, based on principles of life cycle costing. These procedures, to be effective, must be implemented in a programmatic way. Properly practiced, it involves all parts of the organization and entails a living set of asset performance goals to implement asset management. An Asset Management Plan is a tool to help the utility implement its Asset Management Program.

Core Components of an Asset Management Plan

Typically there are five core components in an Asset Management Plan:

  1. Asset Inventory
  2. Level of Service
  3. Critical Assets
  4. Revenue Structure
  5. Capital Improvement Project Plan

Asset Inventory

The first core component of asset management is the asset inventory. This component is probably the most straightforward of all. It is also, arguably, the most important and time consuming. Questions that the utility will ask itself in this component are:

  • What do I own?
  • Where is it?
  • What condition is it in?
  • What is its remaining useful life?
  • What is its value?

Where are my assets?

Once you know what you have, it is important to know where the assets are located. This involves two steps:

  1. Connecting the asset in the inventory to a specific location.
  2. Mapping the assets.

The first step is to connect the asset with a location. The location could be a street name, street address, or building location such as pump house or treatment building. The addresses should be as specific as possible; that way, assets can be grouped together based on their asset type, such as all hydrants on Main Street.

Mapping will provide a visual picture of the asset locations, especially buried assets. The map can be as simple as a hand drawn map or as complex as a Geographic Information System (GIS) map.

What is the condition of my assets?

After the assets have been identified and located, it is important to know the condition of the assets. A condition assessment can be completed in many different ways, depending on the capability and resources of the utility. The simplest way is to assign a numerical ranking to each asset. This approach uses the best information available. Below is an example of a ranking system.

Condition Assessment

CondiciónDescripción
5Unserviceable
4Significant Deterioration
3Moderate Deterioration
2Minor Deterioration
1New or Excellent Condition

All utilities must operate within the state and federal regulations and requirements. These regulations are generally specified in the Safe Drinking Water Act for water systems but there are additional rules and regulations at the state and federal level. Although the state and federal regulations set bare minimum standards of operation in the LOS, these standards will not adequately address all areas of operation and should not be the sole factor of the LOS. Utilities should include many other factors to delineate important areas of the utility’s operation.

Determining Criticality

In determining criticality, two questions are important.

  1. The first is how likely is it that the asset will fail;
  2. and second, what is the consequence of failure?

Determining an asset’s criticality will allow a utility to manage its risk and aid in determining where to spend operation and maintenance dollars and plan capital expenditures.

To determine the probability of failure a utility needs to look at a number of factors: asset age, condition of asset, failure history, historical knowledge, experiences with that type of asset in general, maintenance records, and knowledge regarding how that type of asset is likely to fail. Below is an example of a ranking system for probability of failure.

To determine the consequence of failure, it is important to consider all of the possible costs of failure. These costs include: cost of repair; social cost associated with the loss of the asset; repair/replacement costs related to collateral damage caused by the failure; legal costs related to additional damage caused by the failure; environmental costs created by the failure; loss of business revenue to the community; and any other associated costs or asset losses. The consequence of failure can be high if any one of these costs is significant or the accumulation of several costs occur with a failure. Below is an example of a ranking system for the consequence of failure.

Consequence of FailureLevelsDescription
Catastrophic disruption5Massive system failure, severe health affect, persistent and extensive damage
Major disruption 4Major effect, major loss of system capacity, major health effects, major costs, important LOS compromised
Moderate disruption 3Moderate effect, moderate loss of system capacity, moderate health effects, moderate costs, important LOS still achieved
Minor disruption 2 Minor effect, minor loss of system capacity, minor health effects, minor costs
Insignificant disruption1Slight effect, slight loss of system capacity, slight health effects

Replacement

The rate methodology should also include a replacement breakdown. This breakdown will identify items owned by the utility. These operating pieces of equipment generally have a useful life of 20 years or less with values of more than $500, contain moving parts, and would include such things as vehicles, generators, pumps, meters, and computers. Replacement items will also appear in the asset inventory, but usually have a dedicated funding source due to their limited useful life and importance to the operation of the system. On an annual basis, replacement funds are set aside in a dedicated “Replacement Fund” and build up until needed. The purpose of the Replacement Fund is to set aside money on an annual basis for items that will need to be replaced during the normal course of operating the system. Once a particular item fails, money is drawn from the Replacement Fund to replace the item in question without disrupting the existing budget.

Conclusion

Asset management is a systematic process of operating, maintaining, and upgrading assets cost-effectively. It is an active, on-going process that provides information to managers in order to make sound decisions about their capital assets and allows decision makers to better identify and manage needed investments in their utility’s infrastructure.

Drinking water rules now require a detailed inventory of assets and capital improvement plans for publicly-owned water systems beginning in 2016. With more and more focus on asset management, it is important for your community to begin asset management planning and seek out the resources that will provide for current and long-term sustainability of your water systems.

Teaming with Pegasus to accomplish The goals of Asset Management, Inventory, Maintenance, and Quality control will be beneficial