Under pressure

Munro discusses how utility companies could help meet service levels

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

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.

Tangible Benefits
Tangible benefits include direct links between investments and service levels, a unified investment approach for all assets and a reduction in operations and maintenance expenditures.

Improved stakeholder relations, tracked levels of performance and service and better customer perception and satisfaction are all intangible benefits of asset management.

Enhancing asset management practices involves change management, both at the organisation level and at the individual level, and experience has shown the individual transformations are the most challenging to sustain.

A better service and not just a better asset is the key indicator of successful asset management, and therefore the strategy needs to reflect this. The strategic intent should cover:
Vision – why are we doing this, what are our business drivers, where are we going and how will we know when we get there? The vision clarifies the organisation’s intent and commitment.

Guiding policies – how does asset management fit into the business, and what are the goals and objectives. How will they be achieved and most importantly, who is responsible?

Service levels – who are the customers and what level of service should be provided? Service levels can be either technical, functional, or regulatory.

So how do you assess asset capabilities? As with any journey, you need to know where you are before you can plan a route to your final destination.
Assessing the current state of the asset allows the utility company to assign a risk score to each asset based on the probability of failure, and the consequences of the asset failure.

Focus on failure
This approach allows companies to focus attention - and indeed budget - on the assets which fall into the high-risk zone.

This can be especially beneficial for companies such as ADSSC, ADDC and Transco with miles of buried pipeline; being able to identify high-risk portions of their networks allows them to focus their resources on surveying only what is needed to be surveyed. Furthermore, this approach can be used to justify budgets and also to show the benefits of their spending.

Asset management should not just be a project undertaken by your organisation. A key component to a successful system is the people, the processes and the technology employed in your organisation. The people must be engaged and the process must have the support of senior management.

Experience has shown that there are a number of key factors that support asset management within an organisation, including clear roles and responsibility, availability of the right tools, processes and information and consistent communications.

Clear direction is important, as is the understanding of the intersection of personal and business objectives and inter-departmental cooperation and alignment.

The road to implementing an asset management system in a utilities-based organisation is not an easy one, but it’s a journey well worth taking. As with all such journeys, the changes the company needs to go through will need to be managed, so establish a sense of urgency, create guiding coalitions as well as a clear vision and strategy, and where possible generate short-term wins.


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