 2013 WASHINGTON STATE PUBLIC TRANSPORTATION SYMPOSIUM  Darin Johnson, BIS Consulting

Key Services  Decision-support for power and water utilities, transit agencies.  Health Indexing, risk assessment.  Third-party business case. Recent Clients  Washington State Ferries  Toronto Hydro  Duke Energy  Puget Sound Energy  Tacoma Power  Seattle City Light

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There is a gap between engineering and finance ? Asset management bridges this gap 4

Customer focused.Data driven.

What makes for a “successful” asset management utility?  Depends how you define success.  But, what makes it good is business case culture. 6

 Spending must be justified in terms of customer costs and benefits.  Explicit, quantitative estimates – transparency.  “No exceptions” attitude from senior management.  Junkyard dogs. Costs Benefits “…total benefits of a project to whomsoever they accrue exceed the costs of that project.” 7

3. Personnel 2. Staff 1. People 8

Starting with data is a mistake - data matters only if it matters. First define the questions you must answer and your approach, then ask what data you need. If you start by collecting data and installing software, you are likely never to get there.  Return on investment is low.  Buy-in is nearly impossible.  No early gains – can’t show tangible results. There is a time to pursue good data collection, storage and access; analytical tools; and integration. That time is not at the beginning. 9

Conventional Approach (technical)  Assess condition, consider calendar age  Replace when:  Condition is poor  Age reaches expected life Technical approach fails to consider risk quantitatively 11

 Mean Life? MEAN LIFE  Knee of curve?  N% failure rate?  Other?  Median Life? MEDIAN LIFE What, exactly, is expected useful life? N% FAILURE RATE KNEE OF CURVE ? 12

Condition, criticality, and risk assessment: a business case for aging assets Least life cycle cost  Optimize replacement or rehab timing  Balance risk of failure against benefits of delaying capital expenditures 13

Now all the pieces are in place…  Each asset is evaluated individually to determine remaining life.  Forms the basis for long-range spending projection. Example applied by Pierce Transit – extended coach service. 40% reduction in capital 15% reduction in life-cycle 14

 Washington State Ferries (WSF), largest ferry system in the US,  Seven timber trestles constructed before modern seismic codes.  Risk of damage or collapse.  Current plan is replacement – $121 million budget item.  What if we don’t? Could we reduce spending and improve return on investment if we do something less than replace, or even leave some of the trestles as-is? 16

Terminal Ground Shaking Intensity (g) Small Moderate Large Orcas Shaw Lopez F. Harbor Anacortes Mukilteo Edmonds Fauntleroy Vashon Southworth Tahlequah Pt. Defiance

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Calculating annual risk 330-year event: $ year event: $1, year event: $7,200 Total annual seismic risk at Vashon Island trestle = $1.5 million 20

Conclusions, all trestles  Savings of $88 million NPV in cost of ownership.  Savings of $54 million in near-term capital spending.  Refurbishment preferred to replacement at three trestles.  No intervention is justified at four trestles. Minimum life- cycle cost 21

Why do we want to spend money?  Must be based on costs/benefits from the customers’ perspective.  Defined in the same terms for every decision. Common Drivers… Environment Safety Financial Level of Service Big decisions are usually about trading dollars for service… 23

Level of service, expressed in customer served How do we know if Benefit > Cost? Capital costs, expressed in dollars dollars 24

Count up all the benefits to all the stakeholders.  Riders directly affected.  Businesses affected.  Other drivers.  The community as a whole. Cut (or add) service based on “bang for the buck.” It can be difficult  Hard to identify stakeholders.  Hard to quantify benefits. As decision-makers, we must do our best. 25 I’d pay $100 for this service. We’d each pay $5

What’s the catch?  It’s almost impossible to know how customers’ value service.  Surveys are noisy and unreliable.  Wide mix of stakeholders. In the end, we’re usually stuck with a subjective estimate. 26

Why not simply measure improvement in availability, for example?  REASON 1: To justify spending – trading dollars for service.  REASON 2: To prioritize spending across a range of projects. You will make spending decisions, implying a value for service.  Therefore, “no answer” is not an option.  Explicit → Consistent → Reliable. YES …”dollarizing” is unavoidable. 27

Spending decisions should be based on whether benefits exceed costs. Evaluate costs and benefits from the customers’ perspective. Focus on estimating actual costs, risks, benefits, etc. Avoid “high, medium, low” or worst-case scenarios. Don’t be afraid of uncertainty – quantify it. If more precision is needed, improve inputs. 28

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