1. AWWA Leadership Forum Learning Session: What is Asset Management? November 10, 2015

2. Outline of Presentation What is Asset Management? Why Asset Management? Element 1: A Structured Program Element 2: Specified Service Levels Element 3: Minimizing Costs of Asset Ownership Element 4: Aligning Costs and Service Levels 2

4. What is Asset Management? Computer system? Tools & Techniques? Planning Procedures? Decision Methodology? New Business Process? 4 Well, maybe all of the above, but mostly…

5. Definition of Asset Management 5 “Asset management is a structured program to deliver the service levels your customers require while minimizing the whole-life costs of asset ownership.” Let’s look at this definition closely…

6. Element 1: A Structured Program AM is highly structured Asset decisions are made in repeatable and supportable ways, based on good data! AM’s structure always includes continuous improvement cycles 6 “Asset management is a structured program to deliver the service levels your customers require while minimizing the whole-life costs of asset ownership.”

7. Element 2: Specified Service Levels AM doesn’t want to deliver the optimum service—it wants to deliver specified levels of service These levels are selected based on service level/cost tradeoffs Ideally, service levels are “agreed” with customers in full knowledge of those tradeoffs 7 “Asset management is a structured program to deliver the service levels your customers require while minimizing the whole-life costs of asset ownership.”

8. Element 3: Minimizing the Costs of Asset Ownership All asset decisions (acquire, maintain, refurbish, replace) are made on a life cycle basis Each decision minimizes the present value of all future ownership costs Costs must include economic, environmental, and social costs (“triple bottom line”) Decisions must consider risk costs 8 “Asset management is a structured program to deliver the service levels your customers require while minimizing the whole-life costs of asset ownership.”

9. Asset Management: A Summary AM is intensely customer-focused What levels of service do our customers need? How can we deliver these services at the lowest cost? In a mature AM organization, this is an automatic way of thinking! 9

11. Why Asset Management? Better Service and Lower Costs Sustainable Infrastructure Good Business! 11

12. Why? Better Service, Lower Costs Know the condition of your system and its value Optimize asset lives Optimize Operation & Maintenance (O&M) Optimize Removal & Replacement (R&R) Balance O&M versus capital expenditures for lowest life-cycle cost Allocate resources to where they’re needed—and away from where they’re not 12

13. Why? Sustainable Infrastructure Much infrastructure was “free,” contributed by developers or grant funds This “hidden treasure,” usually not reflected in utility rates, is getting old and is enormously expensive to replace Lack of AM means that huge bills are coming due without the means to pay 13

14. Why? Good Business! Service levels tied to expenditures Unnecessary capital investment minimized Life-cycle cost approach means costs and benefits better balanced Better allocation of day-to-day and long-term resources Overall, improved delivery of value and not just delivery of service 14

16. Programmatic Foundation is Essential to Successful AM 16 Procedures Practices Systems Objectives Targets Action Plan Programmatic Foundation

17. The Continuous Improvement Cycle 17 Act Plan Check Do

18. Getting Started in a Structured Way Two components Where are we now, and Where do we want to be? Evaluate both, then do a “gap analysis” The overall AM Plan and the individual action plans must support closing the gaps 18

20. AM Concepts Are Simple! 20 Getting Buy-In Understanding Risk Understanding Financial Impacts Understanding Tools and Decision Frameworks Understanding the Organization’s Culture Life-CycleCostsServiceLevels

21. Sample Service Levels Clean, safe drinking water (all regulatory guidelines met, sampling done, zero IPS Points) Zero air vac failures Zero pumping system failures during peak season Zero PRV station failures Unnacounted for water losses < 15% 21

22. What Service Levels Provide Lowest Overall Costs? 22 Unplanned R&R Planned R&R Total cost Low High Low High Level of Service Life of asset NPV of Community cost

24. Asset Ownership Costs: Each Sees Part of the Elephant O&M sees: Trucks, crews, pumps, etc. Engineering sees: Studies, capital costs (concrete and steel) Finance sees: Interest, other financial costs IT sees: Cost of IT systems (CMMS, other O&M support, GIS, productivity, etc.) Few see: Internal and external overhead 24

25. These Costs Add Up... USEPA estimates that good AM will result in at least a 20 percent reduction in asset ownership costs How significant are asset ownership costs? Question: What would our annual budget be if we had no infrastructure to manage? The difference between this and our budget now can be attributed to ownership of assets 25

26. Asset Life Cycle Cost Example Asset: 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 26

27. Just about everything we do is intended to address risk

28. 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  Ditto maintenance? Increase system capacity?  Reduce risk of capacity- related delivery constraints 28

29. Risk Assessment 29 Consequences ($) Likelihood of Failure L M H HMLHML Concentrating Your Efforts We can Reduce Likelihood of Failure… …or Consequences of Failure

30. Risk Cost: A Rational Approach Risk cost is an inherent cost of asset ownership It is measured in dollars per year 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 We’re now managing risk! 30

31. Risk Quantification 31 Risk Cost = Measured in Dollars/Year Frequency of Failure (Projected events per year) Consequence of Failure (Dollar cost of each event) X

32. 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 a year 32

33. 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 33

34. AM principles apply to all aspects of the asset life-cycle 34 Plan/CreateAcquireMaintainRefurbish IT OPERATIONS Strategy development Re-rating SCADA Energy Management On-line O&M linked to CMMS Trouble Shooting MAINTENANCE: Develop Failure Codes Reliability Centered Maintenance (RCM) Failure Modes Analysis Replacement planning model (RPM) Condition Assessment Asset Plans SCADA GIS CMMS Financial Laboratory Data Interpretation for decision makers Apply BCE process Populate CMMS, Financial data, As-builts, Asset Information Risk based: Master Planning Facility Planning Regulatory Mgmt Public Relations Service levels Succession planning

35. Realistic Expectations for AM Takes years of detailed work to fully deploy Requires commitment of the whole organization Needs upfront investment to get started, with hidden returns for initial years 35

36. 36 Questions?