Under pressure

Companies should focus attention and budget on assets that fall into the high-risk zone.

Bryan Munro, senior project manager at MWH UAE, discusses how utility companies could help meet service levels, optimise investment and proactively manage risk by adopting an asset-management system.

Deriving from the Latin ‘as satis’, meaning sufficiency, the word asset was adopted long ago by the accounting profession. The term ‘asset management’ first appeared in the banking industry to describe an investment practice that built wealth through investments in different types of financial vehicles.

An early adoption of the term ‘asset management’ in the engineering profession was during privatisation of water utilities in Great Britain in the 1980s.

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In order to establish equitable pricing, privatisers had to develop detailed asset management plans, identifying how they would ensure the maximum return on the public investment already made in the infrastructure of the utilities they were to acquire.

In 1993, asset management made its way into the public works lexicon when the Australian Accounting Standards Board issued the Australian Accounting Standard 27 (AAS27), which required municipalities to capitalise and depreciate infrastructure assets rather than expense them against earnings.

Thus, infrastructure – roads, sewers, fire hydrants and the like – the domain of the engineer, became a complex set of problems for accountants to manage.

Many U.S. utilities had adopted this type of accounting convention, either to comply with revenue bond funding covenants or because they were subject to public utility commission regulations or guidance.

However, the work of the New Zealand National Asset Management Steering Group and the Institute of Public Works Engineering of Australia was to advance this concept beyond solely a paper accounting transaction.

Those groups developed a framework that acknowledges that
current actions can and do affect the useful life and cost effectiveness of asset investments.

Municipalities manage the world’s largest portfolio of infrastructure assets; improving the management of this infrastructure maximises the potential that scarce financial resources will enhance economic growth, improve living standards and improve environmental sustainability.

Business drivers for adopting an asset-management strategy could include regulatory requirements, increased demand, a world event, reducing systemic risks associated with ageing infrastructure or the drive to achieve more with less.

The majority of the assets of utility companies are invisible, and as such we take them for granted. We turn the tap and water comes out, we flick a switch and the lights come on and we flush our toilets and the waste disappears – until something goes wrong.

As such, utility companies have historically been reactive as opposed to proactive in the management of their assets.

Asset management enables decisions about how and when to acquire, maintain, operate, rehabilitate and dispose of assets. Beware however; it is not a system you can buy – it’s a business discipline and culture that is enabled by people, processes, data and technology.

The objectives of asset management are to meet service levels, optimise investment and proactively manage risk, and the benefits can be both tangible and intangible.