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The Fundamentals of Asset ManagementWelcomeA Hands-On Approach

AGENDA Day 1Welcome, Introductions & Housekeeping Details“Storyline” Introduction, Background And ContextOverview Of Fundamental Concepts & Core PracticesThe Storyline: Tom’s Really Bad DayCore Question 1: What Is The Current State Of My Assets?Core Question 2: What Is My Required “Sustainable” Level Of Service?Review of Key Slides; Discussion / Q & ADay 2 Core Question 3: Which Assets Are Critical To Sustained Performance?Core Question 4: What Are My Minimum “Life-cycle-cost” CIP and O&M Strategies?Core Question 5: Given The Above, What Is My Best Long-term Funding Strategy?Focus Topic 1: Deploying An AAM ProgramFocus Topic 2: Meeting The IT Challenge – Toward An Enterprise Asset ManagementSystem (EAMS) Summary, Addressing Your Questions, CommentsFundamentals of Asset Management2

Drawing from the AM Knowledge BaseThis workshop is produced by GHD Inc.Fundamentals of Asset Management Australian-based international company with over100offices worldwide 6500 management consultants, engineers, scientists,planners, architects Recognized as a world leader in advanced assetmanagement – over 25 years Literally, “wrote the book” on Best Practices Hundreds of engagements over two decades3

Our ―Faculty‖Mr. Steve Allbee USEPA Project Director, Gap Analysis;Primary author, USEPA’s The Clean Water and Drinking WaterInfrastructure Gap Analysis;30 years EPA - development of financing programs;BA, MA, MPA.Mr. Duncan Rose Principal Consultant; AM Technical Director – GHD Inc;Former city/county manager;Co-author of WEF’s Managing the Water & Wastewater Utility;30 years state & local management;Adjunct Faculty, Florida State University, Askew School ofPublic Policy and Administration;BA, MSP, MAPA.Fundamentals of Asset Management4

By the end of this workshop you should be able toaddress these five questionsWhat isAM?Why doAM?Fundamentals of Asset ManagementWhat“deliverables”do I get?How todo it?How do Imoveforward?5

The Fundamentals of Asset ManagementExecutive OverviewA Hands-On Approach

Emerging utility business conditions Increasing demand for utility servicesDiminishing resourcesLeveling of production efficienciesIncreasing restrictions on outputAging infrastructureResult: increasingly expensive treatment optionsFundamentals of Asset Management7

Emerging utility business conditions Aging customer baseDiminishing technical labor poolLarger and more sophisticated facilitiesLoss of knowledge with personnel retirementsPublic resistance to rate increasesResult: increasingly complex management environmentFundamentals of Asset Management8

Changing utility business environment Demand to do more with existing resourcesNeed to make every dollar work – to better use capitaland operating budgetsMove from reactive to proactive work environmentFundamentals of Asset Management9

A paradigm shift Transition from building and operating to managingassets Extending asset lifeOptimizing maintenance and renewalDeveloping accurate long-term funding strategiesSustain long term performance!Fundamentals of Asset Management10

Infrastructure is the foundation to sustainedquality of lifeFundamentals of Asset Management11

Consequences of asset failure can be severeFundamentals of Asset Management12

Asset management improves Decision making throughout the life cycle of the asset Acquisition Operation Maintenance RenewalResulting in lowest total cost of ownershipFundamentals of Asset Management13

This training describes What is asset management?Why do it?What deliverables do I get from it?What are the steps?How do I move my organization forward?Fundamentals of Asset Management14

What, then, is asset management (AM)? Systematic integration of advanced and sustainablemanagement techniques into a management paradigmor way of thinking, withPrimary focus on the long-term life cycle of the assetand its sustained performance, rather than on shortterm, day-to-day aspects of the assetFundamentals of Asset Management15

Views on asset management – a framework Asset management canbe thought of as anobject - a box orframework Following is a briefcharacterization of 8different views on assetmanagement These views make upthe frameworkFundamentals of Asset Management16

View 1: Definition - asset management Management paradigm and body of managementpractices Applied to the entire portfolio of infrastructure assets atall levels of the organization Seeking to minimize total costs of acquiring, operating,maintaining, and renewing assets Within an environment of limited resources While continuously delivering the service levelscustomers desire and regulators require At an acceptable level of risk to the organizationFundamentals of Asset Management17

View 2: Life cycle business teSupport processes: Demand management Knowledge of assets CIP validation Accounting & economics Condition & performance MaintainFundamentals of Asset ManagementmonitoringBusiness risk exposureHuman resourcemanagementReview & continuousimprovement18

View 3: Core AM program elementsInformationSystemsLifecycleProcess &PracticesData &KnowledgeTotal sServiceDeliverySustainable, best value service deliveryFundamentals of Asset Management19

View 4: Management frameworkAsset ManagementBusiness ProcessesAsset ManagementPlansStrategic InitiativesAnnual BudgetsOperating BudgetFundamentals of Asset ManagementCapital Budget20

View 5: Five core questions1.What is the current state of my assets? 2.What is my required level of service (LOS)? 3. How does it fail? How can it fail?What is the likelihood of failure?What does it cost to repair?What are the consequences of failure?What are my best O&M and CIP investment strategies? 5.What is the demand for my services by my stakeholders?What do regulators require?What is my actual performance?Which assets are critical to sustained performance? 4.What do I own?Where is it?What condition is it in? What is its performance?What is its remaining useful life?What is its remaining economic value?What alternative management options exist?Which are the most feasible for my organization?What is my best long-term funding strategy?Fundamentals of Asset Management21

View 6: AM plan 10-step re ModesDetermineResidualLifeDetermineLife Cycle &ReplacementCostsSet TargetLevels ofService (LOS)DetermineBusiness zeCapitalInvestmentDetermineFundingStrategyBuild AMPlanFundamentals of Asset Management22

View 6: AM plan 10-step processSystem Layout;Data Hierarchy,Standards, andInventoryConditionAssessmentProtocol; RatingMethodologiesExpected LifeTables;Decay CurvesValuation; LifeCycle CostingDemand Anal.;BalancedScorecard;Perform. tion,Failure ModesDetermineResidualLifeDetermineLiveLife Cycle &ReplacementCostsSet TargetLevels ofService (LOS)DetermineBusiness zeCapitalInvestmentDetermineFundingStrategyBuild AMPlanFMECA;Business RiskExp.; DelphiTechniquesRoot Cause;RCM; PdM;ORDMB/C AnalysisConfidence LevelRating; StrategicValidation;ORDMRenewalAnnuityAsset Mgmt Plan;Policies andStrategy;Annual BudgetFundamentals of Asset Management23

View 7: Seven principles of asset management1.2.3.The ―Value Added/Level of Service‖ Principle—assets exist to deliver servicesand goods that are valued by the customer-stakeholder; for each consumerstakeholder there is a minimum level of service below which a given service isnot perceived as adding value.The ―Life Cycle‖ Principle—all assets pass through a discernable life cycle, theunderstanding of which enhances appropriate management.The ―Failure‖ Principle—usage and the operating environment work to breakdown all assets; failure occurs when an asset can not do what is required by theuser in its operating environment.4.The ―Failure Modes‖ Principle—not all assets fail in the same way.5.The ―Probability‖ Principle—not all assets of the same age fail at the same time.6.The ―Consequence‖ Principle—not all failures have the same consequences.7.The ―Total Cost of Ownership‖ Principle—there exists a minimum optimalinvestment over the life cycle of an asset that best balances performance andcost given a target level of service and a designated level of risk.Fundamentals of Asset Management24

View 8: Enterprise asset management planExecutiveSummaryState of the AssetsSection - 1Levels of ServiceSection - 2Growth & DemandSection - 3Lifecycle ManagementSection - 4RenewalO&MManagementStrategiesSection - 6Risk ProfileSection - 5AugmentationFinancial PlanningSection - 7Business Improvement PlanSection - 8Fundamentals of Asset Management25

The enterprise asset management planFundamentals of Asset Management26

Inside the AM frameworkLevel 3Level 2Level 1Condition AssessmentBusiness Risk Exposure27Fundamentals of Asset Management

Inside the AM frameworkLevel 3Level 2Level 1Condition AssessmentBusiness Risk Exposure28Fundamentals of Asset Management

Inside the AM frameworkLevel 3Level 2Level 1Condition AssessmentBusiness Risk Exposure29Fundamentals of Asset Management

Three fundamental management decisions1.2.3.What are my work crews doing, where are they doingit—and why?What CIP projects should be done—and when?When should I repair, when should I rehabilitate, andwhen should I replace?These decisions typically account for over 80% of autility’s annual expendituresFundamentals of Asset Management30

Understanding how our assets failYin-yang of asset failureStressFundamentals of Asset ManagementResistanceto Stress31

Understanding how our assets failPipe failureSoil characteristics, groundwaterGalvanic actionPhysical loadsPipe attributesInternal corrosionBedding conditionFundamentals of Asset Management32

Understanding how our assets failInitial design capabilityManaged assetdeterioration curveManagementzoneMinimal performance levelPoorPerformanceExcellentManaging asset deteriorationDecreasingTimeInherent assetdeteriorationcurveIncreasing―Failure is the inability of any asset to do what users want it do to.‖John MoubrayFundamentals of Asset Management33

Understanding how our assets failExcellentMonitoring performance is a key to reliabilityPerformanceDecay curveVibrationOil lossNoisePoorHeatFailureDecreasingFundamentals of Asset ManagementTimeIncreasing34

Understanding how our assets failExperience indicates Failure can be subjected to systematic study – ascience 30-70% of equipment maintenance activity is typicallymisdirected – it is not cost effectively deterring failureFundamentals of Asset Management35

Understanding how our assets failFrom the science of failure - tools for proactivemanagement Root cause analysis Failure mode, effects, and criticality analysis (FMECA) Condition-based monitoring, failure/survival curves Predictive maintenance (PdM) Proactive maintenance (zero breakdown, reliabilitycentered maintenance, total productive maintenance) Reliability centered management (design, O&M)AM is all about managing the potential to failFundamentals of Asset Management36

Our investment toolkit MaintenanceRenewal: Major Repair – repair beyond normal periodic maintenance, relativelyminor in nature, anticipated in the long-term operation of the asset;no enhancement of capabilities; typically funded by operating budget Refurbish/Rehabilitate– replacement of a component part or parts orequivalent intervention sufficient to return the asset to level ofperformance above minimum acceptable level; may include minorenhancement of capabilities; typically funded out of capital budgets Replace Without enhancement – substitution of an entire asset with a newor equivalent asset without enhancement of capabilities With enhancement - substitution of an entire asset with a new orequivalent asset with enhanced capabilities―Augmentation‖Fundamentals of Asset Management37