Workshop Number 9 Introduction to Asset Management Planning John Champion

1. Workshop Number 9Introduction toAsset Management PlanningJohn Champion 27th August 2008

2. John Champion - Background Over 20 years experience of asset management Extensive experience of capital maintenance planning worldwide including Europe, Asia and the Middle East Last 9 months preparing business plans for two UK water companies 2

3. Structure of the Presentation TWO PRESENTATIONS: • ASPECTS OF ASSET MANAGEMENT • ASSET MANAGEMENT AND BUSINESS PLANS 3

4. Aspects of Asset Management Contents: • Introduction • What is asset management? • The importance of measurement • The concept of “serviceability” 4

5. The Purpose of Our Business To provide water and remove effluent for customers: • in the correct amounts; • in the correct places; • at the correct times and • of the right quality; • with minimum impacts and • in a financially sustainable manner 5

6. How Are These Objectives Achieved? By effective management of: • Water resources • Physical assets • Human assets (workforce) • Financial assets • Customers • The environment 6

7. What is an asset management plan? “The part of the Business Plan that deals with a Company’s physical assets” Includes: Capital maintenance Capital investment for growth Capital investment for new obligations Capital investment for improvement 7

8. What is Asset Management Planning? Having knowledge about: • The asset inventory (what the company has) • Condition and performance • Risk • Costs at asset level • Future requirements and obligations So that: • Shortfalls in present service can be determined • Future risks and challenges can be identified • Options for mitigation can be tested To: • Make rational choices between practical investment options to produce a robust business plan 8

9. The Asset Inventory Aboveground and belowground assets treated differently Aboveground asset data normally held within a maintenance management system. Present inventories held by company not adequate without modification Belowground assets normally held within a GIS 9

10. AMP as Part of the Business Process Asset management planning need not be complicated It’s not rocket science Simple, “common sense” and pragmatic Systematic Integrated into day-to-day activity No need to be computerised 10

11. Strategy & Plan WISDOM Analysis & Conclusions KNOWLEDGE Issues & Risks INFORMATION Inventory & Performance DATA The Importance of Measurement 11

12. Measurement As measurement is the foundation of all business processes it must be: Relevant Accurate Up to date Transparent to auditing 12

13. Examples ofPerformance Measurement Customers: • Numbers in each zone (survey) Customer service: • Poor pressure (connections per year) • Interruptions to supply > 3hrs (unplanned) Asset performance: • “Serviceability” of above ground assets (graded 1 to 25) • Numbers of water mains failures/km/yr 13

14. Performance: • Capability • Reliability • Condition: • Integrity • Safety • Durability X Asset “Serviceability” 1 “Serviceability”: “The capability of a system of assets to deliver a reference level of service to customers and to the environment now and into the future”. (UK Regulator’s official definition) Not the same as written down value “Serviceability” 14

15. Condition Grading – General Approach • No faults and negligible deterioration • Minor faults &/or observed deterioration, neither affecting performance • Faults and deterioration observed but not significantly affecting performance currently or in the short-term • Significant faults observed or developing that are likely to affect performance in the short-term (requires refurbishment/replacement ) • Critical condition preventing required performance or unserviceable (requires immediate replacement) 15

16. Performance Grading – General Approach Specified and designed to modern standards, fully capable of delivering the required service with no reliability issues Designed to outdated standards &/or exhibits minor reliability issues but provides the required service Faults with design and efficiency of operation that do not hamper normal operations Exhibits reliability or capability problems that impact on normal operations Fails to meet capability or reliability requirements rendering the asset incapable of delivering the necessary service 16

17. “Serviceability” Grading – General Approach Condition 1 2 3 4 5 1 1 2 3 4 5 Performance 2 2 4 6 8 10 3 3 6 9 12 15 4 4 8 12 16 20 5 5 10 15 20 25 17

18. Serviceability Grade 1 18

19. Serviceability Grade 3 19

20. Serviceability Grade 5 20

21. Serviceability Grade 5 - Structures 21

22. Management Information Measurement • Of asset “serviceability”; • of customer service and • measurement of costs Analysis • Of trends and • performance against internal targets Management • Action based on measurement and analysis 22

23. Management information GIS WORKS MANAGEMENT Operations and maintenance data Asset data, performance and analysis Locations, Pressure, interruptions Asset Management Planning Operations and maintenance data Contacts & complaints Unit costs CUSTOMER SERVICE ACCOUNTING 23

24. Examples 1 “Whole Life Costs” • Used to when comparing investment options • Ensures that OPEX implications of CAPEX solutions are properly accounted for • Example: Skenderaj treatment plant 24

25. “Whole-Life Costs” The full cost of ownership over the life of the asset (normally expressed as net present values): Capital Disposal Operating Maintenance Downtime + + + + Including: Residual value less disposal cost Including: Specification Design Installation Commissioning Acquisition Including: Labour Materials Energy Services Including: Labour Materials Refurbishment Including: Losses Cost of temporary replacement 25

26. Examples 2 - Justification Water main renewal schemes Practical application of AMP principles Produces transparent justification for projects Facilitates ranking by importance 26

27. Application of a Water Mains Renewal Policy G I S Accounting Collect failure data Collect customer data Collect Cost Data Calculate Unit Rates (€/m) Allocate failures to mains Allocate customers to mains Calculate impact (Failures * Customers/year) Calculate Remedial Cost for Each Main Calculate failure rates per main A M P Business Plan Schemes Justified by Service Improvement And Value For Money Rank Mains by €/(Failures*Customers/year) 27

28. Aspects of Asset Management Summary Customer service is the primary objective Why we need to manage assets in a formal way to achieve this Why measurement is so important “Serviceability” as a means of selecting assets for replacement Examples of how AMP principles can be applied in practice 28

29. Break 29

30. Asset Management and Business Plans Contents: AMP within the business process Business plans Regulatory reporting 30

31. AMP as part of the business process Asset management planning need not be complicated It’s not rocket science Simple “common sense” pragmatic Systematic Integrated into day-to-day activity No need to be computerised 31

32. Key Elements of AMP Risks Strategic Planning Risk Assessment Climate Change Obligations Requirements & Standards Customer Service Standards Reiterative Process of Consultation and Review Asset Management Planning Assets Inventory Asset Value (RCV) Activity & Cost Data “Serviceability” Financial Support Government Subsidies Donor Funding Commercial Loans Business Plans 32

33. Key elements of AMP Risks Strategic Planning Risk Assessment Climate Change Obligations Requirements & Standards Customer Service Standards Reiterative Process of Consultation and Review Asset Management Planning Assets Inventory Asset Value (RCV) Activity & Cost Data “Serviceability” Financial Support Government Subsidies Donor Funding Commercial Loans Business Plans 33

34. Assets Inventory: Foundation for everything Underground via GIS Aboveground via Works Management System The existing financial inventories do not suit this purpose Value, activity and cost data tagged to inventory items “Serviceability” at component level is key concept for AMP (not written down value) 34

35. Key elements of AMP Risks Strategic Planning Risk Assessment Climate Change Obligations Requirements & Standards Customer Service Standards Reiterative Process of Consultation and Review Asset Management Planning Assets Inventory Asset Value (RCV) Activity & Cost Data “Serviceability” Financial Support Government Subsidies Donor Funding Commercial Loans Business Plans 35

36. Obligations Government Policy & Directives WWRO Requirements: • Interpret Govt. policy and directives Customer Service Targets: • Crucial to the process • Demonstrate improvement Operational Targets: • Closely linked to obligations 36

37. Key elements of AMP Risks Strategic Planning Risk Assessment Climate Change Obligations Requirements & Standards Customer Service Standards Reiterative Process of Consultation and Review Asset Management Planning Assets Inventory Asset Value (RCV) Activity & Cost Data “Serviceability” Financial Support Government Subsidies Donor Funding Commercial Loans Business Plans 37

38. Risks Strategic Planning • Accounts for present and future risks • Forecasts performance and service over the planning period • Looks forward at least 5 years • Includes: • Climate change; • Supply / demand balance etc. 38

39. Key elements of AMP Risks Strategic Planning Risk Assessment Climate Change Obligations Requirements & Standards Customer Service Standards Reiterative Process of Consultation and Review Asset Management Planning Assets Inventory Asset Value (RCV) Activity & Cost Data “Serviceability” Financial Support Government Subsidies Donor Funding Commercial Loans Business Plans 39

40. Financial Support • Rational project justification is increasingly required by government, donors and banks to secure funding. • Performance measurement linked to demonstrable improvements in customer service will be key drivers for successful proposals • Links between investment and improvements in service will enhance applications for grants and loans • Future loan requests to banks such as the present EBRD application will require project justification which AMP can provide 40

41. Key elements of AMP Risks Strategic Planning Risk Assessment Climate Change Obligations Requirements & Standards Customer Service Standards Reiterative Process of Consultation and Review Asset Management Planning Assets Inventory Asset Value (RCV) Activity & Cost Data “Serviceability” Financial Support Government Subsidies Donor Funding Commercial Loans Business Plans 41

42. Business Plans Required by each company’s Board of Directors to authorise strategy and expenditure over the planning period Show how companies propose to meet their obligations and mitigate risks in a financially sustainable way Provide forecasts of measurable performance and benefit over the planning period Used by the Regulator (WWRO) to enable tariffs to be set In the future WWRO will be issuing guidelines on format and content to ensure consistency across companies Clarity and transparency are important Provide a basis for annual reporting and performance monitoring 42

43. Overview of Business Plans Statement of strategy Service commitments Key drivers for tariff change Summary of Expenditure needs Impact on average bills 43

44. “Monitoring Plans” Once tariffs are set: Companies can produce “monitoring plans” that state the service improvements that will be derived from investment Statements of investments (what and when) Statements of service improvements This allows customers and WWRO to monitor progress against business plan commitments If these are not met then the Regulator can ensure that customers get their money back through the tariff review process 44

45. Example of Monitoring Plan Service forecasts Sales & Supply/demand forecasts Asset serviceability Defined outputs 45

46. Regulatory Reporting Asset Performance Measures performance against obligations Identifies trends over time Supports tariff submissions Demonstrates benefit to customers Increases willingness to pay Provides a means of demonstrating an adequate level of capital maintenance investment Companies produce annual reports to the Regulator on performance 46

47. WWRO performance Reports WWRO produces a report each year This has been made public in last 2 years Suggested additions: Underground asset “serviceability” (failures) Aboveground asset “serviceability” (% by grade) Numbers of customers subject to poor pressure or less than continuous supply Introduction of confidence grading for data 47

48. Example – Company Annual Report Table Pressure below standard Interruptions 48

49. Reporting Water Main “Serviceability” DETERIORATING UPPER STABLE BAND IMPROVING LOWER STABLE BAND REPORTED FAILURE RATE 49

50. Public Information CUSTOMER SERVICE PERFORMANCE WATER QUALITY PERFORMANCE ASSET PERFORMANCE 50