1. AWWA Leadership Forum
ASSET MANAGEMENT
November 14, 2017

2. Outline of Presentation
What is Asset Management?
Structured Program
Customer Service Expectations
Planned Maintenance
Setting Aside Reserves
Minimizing Whole Life Costs

3. What is Asset Management?

4. Asset Management Simplified
Initial Purchase
Selected Performance
Expectation
Dependability
150,000 Mile
Repairs
100,000 Mile
Repairs
Planned
Maintenance
Costs
Expenditures
Sale or
Trade In
Automobile Lifespan
Source: Adapted from

5. Element 1: A Structured Program

6. Each Part of the Organization Sees Part of the Elephant
O&M sees: Trucks, crews, pumps, etc.
Engineering sees: Studies, capital costs
Finance sees: Interest, other financial costs
IT sees: Cost of IT systems (SCADA, GIS, Network, Computers)
Few see: Internal and external overhead

7. Each Part of the Organization Has an Interest

8. Each Part of the Organization Needs to Participate in the AM Program

9. Element 2: Customer Service Expectations

10. Getting Started in a Structured Way
Two Components
Where are we now, and
Where do we want to be?
“Gap Analysis”
AM Plan Supports Closing the Gaps

11. Gap Analysis
Where are we now ? Source of Water Supply = 110 % of Peak Demand
Where do we want to be ?
Source of Water Supply = 150 % of Peak Demand

12. Gap Analysis
How to we increase Supply to 150 % of Peak Day Demand ?

13. Element 3: Planned Maintenance

14. Planned Maintenance Initial Purchase Selected Performance
Expectation
Dependability
150,000 Mile
Repairs
100,000 Mile
Repairs
Planned
Maintenance
Costs
Expenditures
Sale or
Trade In
Automobile Lifespan
Source: Adapted from

15. Planned Maintenance
What Is Likely To Fail Eventually Without Maintenance?
How Often Should That Asset Be Maintained to Prevent Failure?

16. Examples: Why do we…
Replace pipes? Reduce risk of water main breaks and outages
Monitor pumping Reduce risk of water
stations? outages
Have redundant pumps? Reduce risk of asset failure and water outages
Do preventive Same
maintenance?
Increase system capacity? Reduce risk of capacity related delivery constraints

17. Likelihood of Failure… …or Consequences of Failure
Focus Your Efforts Here H M L
Likelihood of Failure
L M H
Consequences ($)

18. Risk Cost: A Rational Approach
Risk cost is an inherent cost of asset ownership
It is the product of the likelihood of an event and the dollar consequence of that event
Once we know the risk cost, we can make rational decisions on reducing risk

19. Example: Risk Cost of Having Your Car Towed
Average towing bill: $240
Average frequency of needing a tow for your make/model of car: 8 years
Annualized risk cost: $240 x 1/8 = $30
Add overhead and profit: $10
Insurance company assumes your risk cost of towing: $40 per year

20. Consequences of Failure Include Both Direct and Indirect Costs
Direct repair costs
Loss of production/revenue
Social costs (traffic, cleanup, health, etc.)
Image repair costs
Legal costs
Fines, penalties

21. Element 4: Setting Aside Reserves

22. Setting Aside Reserves
Bond Reserve Fund Typically = 25% of Annual Bond Payment
How Much Can Your Organization Afford to Set Aside For Repair and Replacement?
Option = Annual Depreciation Amount

23. Depreciation
$ X = Original Cost of Asset Y = Life Expectancy, Years $X/Y = Annual Depreciation

24. Example: Pump Station
$ 500,000 = Original Cost of Asset 40 = Life Expectancy, Years Depreciation = $500,000/40 = $12,500/year

25. Element 5: Minimizing Whole-Life Costs of Asset Ownership

26. Asset Life Cycle Cost Example: Deep Well Pump Station
Consider Capital Costs
Consider Annual Operating Costs
Consider Annual Maintenance Costs
Consider Annual Repair & Replacement Costs
Add Costs and Prepare NPV Cost

27. Asset Life Cycle Cost Example: Deep Well Pump Station
Capital Costs…………………………………..$213,743/yr
Annual Operating Costs………………….$80,000/yr
Annual Maintenance Costs……………..$25,000/yr
Annual Repair & Replacement………...$25,000/yr
Net Present Worth Cost………………..$5,563,331

28. What Service Levels Provide Lowest Overall Costs?
Total Cost
Cost
Unplanned R&R
Planned R&R
Low
Level of Service
High

29. AM Benefits Add Up. . .
USEPA estimates that good AM will result in at least a 20 percent reduction in asset ownership costs

30. Summary Asset Management is:
Structured Program
Customer Service Expectations
Planned Maintenance
Setting Aside Reserves
Minimizing Whole Life Costs

31. Questions?