Copyright © ACEAM Pty Ltd 2009 Australian Centre for Excellence in Asset Management Residual Value
Copyright © ACEAM Pty Ltd 2009 Australian Centre for Excellence in Asset Management Concept of Residual Value Similar to a Salvage Value Concept. Most infrastructure will have residual value. Reason for applying residual and method of residuality is a function of Asset Management and Renewal Practice
Copyright © ACEAM Pty Ltd 2009 Australian Centre for Excellence in Asset Management Snapshot View AASB 116 Depreciation reflects pattern of Consumption. Must only depreciate depreciable amount $60,000 2 $100,000 Cost to renew back to original = 60K Therefore Residual = 40k or 40%
Copyright © ACEAM Pty Ltd 2009 Australian Centre for Excellence in Asset Management What is the Residual? –Million $ Question Residual depends on renewal practice. When we replace the component: –Do we renew it back to original LoS? –Do we renew it to a ‘just acceptable’ threshold? –Has the new component got the same expected life as original, less life or more life?
Copyright © ACEAM Pty Ltd 2009 Australian Centre for Excellence in Asset Management Computing Residual isn’t Rocket Science Let us look at some scenarios. Reezeedool Council - Pavement Component Baseline Case: Typical Structure - 300mm pavement base and 30mm Asphalt. Typical Renewal point: pavement defect rating 6 and/or crocodile cracking and ravelling at condition 5 and beyond. Optimal Treatment at this point: Mill 100mm off the top and mix. Stabilise. Roll, Compact and Resurface.
Copyright © ACEAM Pty Ltd 2009 Australian Centre for Excellence in Asset Management Computing Residual isn’t Rocket Science CriteriaMost Common situation Outlier 1 – CBDOutlier 2 – Rural North TreatmentMill and Resheet Pavement Digout and Patch Extent of existing practice100mm in a typical 300mm depth mm in typical 300mm depth 200mm in typical 300mm depth ReasonTraffic management and volume High commercial vehicle % Cost to replace asset if wiped off overnight $120/sqm $80/sqm Cost to renew using existing practice $60/sqm$80/sqm$60/sqm Residual50%33%25%
Copyright © ACEAM Pty Ltd 2009 Australian Centre for Excellence in Asset Management Residual Errors – Common ones Computing residuals in isolation to AM practice. Assumption that there is no residual. Assumption that we can look for a state- wide figure to apply for residual. Assumption that residual is depreciable. Assumption that residual is an accounting figure, unrelated to asset management.
Copyright © ACEAM Pty Ltd 2009 Australian Centre for Excellence in Asset Management Suggestions Understand your context. Look in the AM plan – what is our standard practice? Do I have pockets of practice that are statistically valid samples (CBD, outer rural, inner rural). If my our practice of renewal is fairly consistent, one residual figure across the lot makes sense. Do not use a sledge hammer to kill a fly !