AWWA Leadership Forum ASSET MANAGEMENT November 14, 2017

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

What is Asset Management?

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 www.efcnetwork.org

Element 1: A Structured Program

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

Each Part of the Organization Has an Interest

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

Element 2: Customer Service Expectations

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

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

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

Element 3: Planned Maintenance

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 www.efcnetwork.org

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

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

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

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

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

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

Element 4: Setting Aside Reserves

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

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

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

Element 5: Minimizing Whole-Life Costs of Asset Ownership

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

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

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

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

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

Questions?