Optimized Renewal Decision Making
This topic has a brief overview and covers:
The essence of responsible asset management is choosing the right option, which requires sound processes, appropriate information systems, and adequate data.
Once the appropriate information systems are in place, then the data needs to be analyzed and decisions made. The key result area is to derive the greatest benefit for the resources invested in meeting the objectives of the organization.
Renewal Decision making and management is a key ingredient of advanced life cycle asset management.
Well managed organizations are those that are able to optimize the renewal decisions involved in 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.
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 manager's ability to select the most cost effective renewal strategy for each asset:
- 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 concerned.
It requires a process that is valid across different infrastructure services and assets eg.
- Water storages
- Sewerage treatment
- Graveled country roads.
This process is known as Optimized Renewal Decision Making or O.R.D.M.
The main functions of optimized renewal decision making involve:
- Identify the options which are available
- Determine the relative benefits and costs associated with these options
- Carry out a benefits-costs analysis of all options
- Adopting the most cost effective option in terms of the total business picture.
This process is the first step in the whole decision making process. The basic question to ask is "Why is the decision necessary?"
The main activities during the strategic planning process are to:
- Predict the decay pattern of an asset
- Identify the likely failure modes
- Establish the range of possible rehabilitation or renewal options before total failure.
An asset ages at different rates throughout its life cycle. Different treatment options are available depending on the condition of the asset. Most passive assets will pass through a series of treatment/cost segments:
- Do Nothing
- Maintenance
- Renewal/Rehabilitation
- Replacement.
The costs associated with any treatment strategy are relatively easy to identify as they are mainly associated with the:
- Upfront capital costs
- Annual costs for maintenance and generation.
Capital
The capital costs should include all costs up to the time that the renewal strategy is completed,eg.all costs likely to be expended on the project:
- Planning
- Strategy assessment and development
- Final design reports
- Survey
- Design and documentation
- Construction/acquisition
- Project management/contract administration
- Commissioning
- Asset handover.
Recurrent
The annual operating costs generally include operation (regular and cyclic between the scheduled renewal) labor, fuel and power. These can be estimated generally to a reasonable degree of accuracy.
Maintenance costs are more difficult to estimate, but past records and similar maintenance activities should provide realistic order of estimates.
Any maintenance management system needs to be able to call up the total maintenance costs history for the previous 5 years. It should be capable of graphing these costs and then adopt a curve of "best fit" to this data, projecting it forward as per the examples below.
This ability allows maintenance staff and O.R.D.M. analysts to predict the time at which maintenance costs may reach the level to justify a renewal option. This relates to high cost maintenance failures.
The benefits that can be derived depend on the nature of the asset management program, but in general they can be derived through advanced asset management systems.
For each treatment option, the types of benefits derived are usually similar, the difference being magnitude. Before the analysis is carried out, management should ascertain the extent of the various benefits.
Any treatment option usually would have at least one or a combination of benefits as its objective:
- Extension of Asset Life - the effectiveness of the treatment option, i.e. the time period before the same treatment is required again in order to provide the level of service
- Reduced O&M Cost - with assets in a better condition after renewal/rehabilitation the O&M cost can be optimized and reduced with less likelihood of failure
- Improved Level of Service - in the world of the customer, fast service delivery needs to be balanced against the level of service for the cost
- Improved Production Capacity/Income - in some cases the renewal works will allow the organization to derive greater income through the sale of a product in demand. Examples of this are:
- More water available during peak hour due to improved pump efficiency or water main coefficient of friction
- Improved quality of service, which allows the organization to charge a higher unit rate for its service
- Risk Cost Reduction, for critical assets with catastrophic failure modes the greatest benefit is the avoidance of risk cost. It is not easy to quantify the risk cost, but based on local knowledge and past records about failure, the consequence of failure and the probability of failure may be estimated with relatively high degree of confidence.
The economic point at which the renewal strategy can be employed may be easily determined for some assets, but it can be more difficult for others.
For example similar roads will have a similar consequence of failure and renewal (treatment) cost. Whereas a drain, water main or sewer may have radically different maintenance costs and the consequences of failures will vary significantly along the length of the asset.
The key impact on the timing of such intervention is determining when the economic savings or benefits overcome the expenditure and costs resulting from the renewal activity.
Although the benefits vary for different assets the key benefits generally relate to the:
- Extension of life
- Reduction in actual maintenance costs
- Reduction in risk cost exposure.
The first benefit is relatively constant for all similar assets. However the latter two items are likely to vary significantly even with similar assets and therefore become the key driver for determining the actual time at which the intervention is justified. i.e. when the renewal should take place.
The next step required is to determine when the treatment option should be undertaken. e.g. the optimal intervention point. This is shown below:
It is only when an ORDM analysis is completed that we can identify the actual time at which the renewal should be carried out, i.e. when the renewal treatment is economically justified within the organization's economic/investment evaluation guidelines/ process.
To complete a detailed ORDM analysis a complex series of tasks is involved.
The process starts with a "generic" task list that is then expanded or retracted to suit the degree of sophistication warranted. This approach is shown below:
This generic approach is shown in the following detailed task list.
- List all assets involved in analysis.
- Break individual assets down to key components with:
- For each component/asset:
- Identify failure modes
- Identify causes of failure
- Identify consequences of failure
- Identify possible treatment options or activities to overcome or reduce failure.
- Quantify cost (economical) of the consequences of failure (risk cost).
- Costs after failure
- Costs before failure (i.e. in a planned environment).
- Identify potential benefits likely to be derived for each treatment option.
- Reduced operational costs
- Reduced maintenance costs
- Increased asset life - replacement deferred
- Improved productive output or income.
Some of the largest benefits from advanced asset management are intervention strategies for multiple like assets.
The detailed analysis of generic models of the multiple like assets owned by any organization often identifies benefits that can be multiplied hundreds or even thousands of times across an entire system or asset portfolio.
For example, reticulation sewer systems involve many multiple like assets. The development of the most cost effective treatment option for sewers in different locations, showing different distress modes, can result in the identification of considerable life cycle cost savings.
Most infrastructure service authorities have many groups of like assets. A filtering system will help prioritize them for detailed analysis and the development of optimized generic models. Using the standard benefits based techniques, the key drivers for such a filtering or prioritization system become:
- Those assets with a high consequence of failure
- Those assets with high utilization
- Those assets whose life extension is justified within the overall strategy
- Those assets whose total value represents the greatest net value to the organization
- Those asset groups that have the highest average age
- Those asset groups that are identified in the total asset management plan as key cost factors in the 15-year business plan.