Overview

Renewal Decision making and management is a key ingredient of the advanced asset management life cycle.

Well-managed organizations are those that are able to optimize the renewal decisions for their service delivery.

The future perspective for all public (or privately owned) service authorities could be generally described in the following terms:

“Service authorities will be expected to show that they are providing an acceptable level of service for an acceptable cost in the most efficient and effective manner for present and future customers, and depending on ownership objectives, will be required to make a profit”.

The organization's and the manager’s performance will ultimately be judged by benchmark comparisons against other similar authorities on a target of "world best" practice.

Deviations from such target benchmarks may need to be justified to government regulators, shareholders and customers.

The critical issues will be Level of Service and Cost of Service.

The cost of service is relatively easy to determine, however the level of service is more difficult to assess. How authorities handle the ageing asset problem and the associated risk will be extremely important.

From a business point of view, this will amount to reducing the organization's costs and level of service to a point just above the level where there would be significant increases in customer complaints. However the problem with long-lived passive assets, for example, is the ability to predict, with a high degree of confidence, the time at which failure or a sharp decline in level of service is likely to occur.

In the area of recurrent expenditure, the efficiency and effectiveness of the organization's operations and maintenance activities will be paramount. The key strategy involves developing an economically justifiable level of maintenance and renewal to suit the needs of the assets, balanced against the needs of the organization's customers.

Organizations need to be aware that reduced or delayed maintenance and renewal will not only reduce immediate costs, but may also:

• Decrease levels of service
• Increase the risk of failures
• Shorten the effective life of the asset.

In the area of capital investment, effectiveness should be based on an acceptable cost/benefit or return on capital, with new investment being made as late as possible (just in time), which requires accurate risk assessment.

A key ingredient for cost effectiveness will be the ability of managers to select the most cost effective renewal strategy for each asset e.g.

• Better preventive (planned) maintenance
• Rehabilitation just prior to failure
• Replacement after failure
• Regular rehabilitation program.

This requires a renewal decision-making process that enables investment to be made in the area of greatest return to the organization.

It requires a process that is valid across different infrastructure services and assets.

This process is known as Optimized Renewal Decision Making or ORDM.

If the organization delays investment in the area of infrastructure renewal, then they can expect greater numbers of failures. This constitutes a risk cost (or a loss) to the organization through the consequences of these failures. This will mostly relate to loss of service or system failure, however in some cases it could result in litigation or even loss of life. Risk management (loss reduction) will become a critical activity for all business units in these organizations.

The current commercial environment will require more flexible operations, faster rectification of failures, and other cost effective post failure strategies. Being able to predict problems, develop strategies in conjunction with their customers to address these problems, and take the necessary action are critical to the organization's future.

The critical issues in the expenditure reduction battle will be:

• Staff endeavor (productivity)
• Effectiveness
• Efficiency.

The key here is effectiveness. What should the organization be doing? What is the best economically justified action? This is where ORDM will play a key role.

There will also be competition between old and new services i.e. maintaining acceptable levels of service for existing services against the demands for new services and increased (future) customer expectations e.g. environmental protection. The demand for resources needs to be judged on a level playing field.

Deriving the potential benefits will require the analysis of detailed information on assets and matching the key objectives of the organization. Substantial information systems are required to achieve this.

Works programs generally fall into one of the following categories:

• New services that were not previously available.
• Sustaining existing levels of service by maintenance, operations, rehabilitation and replacement.
• Meeting increased demand for existing services such as growth in capacity demands, and increased levels of service required by customers e.g. environment.

It is sometimes possible to have a single works program that meets more than one objective. For example, growth in the demand for a service may also coincide with the need to replace an existing asset due to physical decay, and the new asset can be designed to accommodate the growth expected. Benefits for investment in new works are generally relatively easy to determine, e.g. projected new income, political and social benefits of providing new services.

It is also relatively easy where the works will improve the level of service only. The benefit primarily will be equal to what the customers are prepared to pay for the increased level of service. This can be determined by customer surveys. In some instances additional social and political benefits may be applicable.

The critical issue is whether or not there is likely to be a total failure of the service. Total failure occurs when the asset suffers structural collapse and requires substantial repair. Some failures have minor impact. Some have catastrophic outcomes.

All decisions for investment or resources, either recurrent or a capital nature should be ranked based on a cost/benefit analysis, with risk reduction to the business being assessed as a benefit. The investment opportunities may involve:

• Maintenance practices including condition monitoring
• Rehabilitation works
• Replacement works
• New works/augmentation for new services.

In the case of maintenance, rehabilitation and replacement works, the overall benefits include:

• Reduced maintenance, operations and management costs
• Extension of asset life
• Improved level or quality of service
• Improve production and therefore income
• Reduced risk cost.

It is only when all these benefits are identified that management can judge the relative merits of resource requirements between the various competing interests (e.g. roads, buildings, water, sewerage, drainage and open space).

Likewise within each asset or service group, management will need to allocate resources in the most logical manner. For example, which of the following should be given priority: capacity failures, performance (levels of service) failures or physical (structural integrity) failures?

The main functions of optimized renewal decision making are:

• Identify the options which are available
• Determine the relative benefits and costs associated with these options
• Carry out a cost/benefit analysis of all options
• Adopting the most cost effective option in terms of the total business picture.

These activities should be carried out as a normal part of asset management. The situations will change for individual assets, and for the service delivery systems which they form part of, throughout their lives, and as demands for the service they provide change.

This must be a dynamic process, starting with the identification of the current critical assets within infrastructure systems, risk assessment, and the development of options strategy to circumvent these risks or improve the effectiveness and efficiency to suit the current business situation of the organization concerned.

In all cases the application of optimized renewal decision-making techniques should be carried out to derive the greatest benefit for the organization.