Knowledge-Based Asset Management: A decade of progress

Andrew C. Lemer, Ph.D.
President, The MATRIX Group, LLC
Baltimore, Maryland
Member, APWA Transportation Committee

It has been about ten years since the term "asset management" began to appear in U.S. public works forums. Long a concern in industry and financial services, managing assets to achieve high returns was—and for some, still is—a new idea for many people in the public sector. The idea was not unprecedented, however, and in hindsight we can see the trend of its growth.

Responding to government directives in New Zealand and Australia, the Institute of Municipal Engineering Australia published the first edition of its National Asset Management Manual in October 1994. APWA's Presidential Task Force on Asset Management was appointed in 1997 to explore the concept, and in October of the following year the association presented a televised educational program on the topic for local chapters, the first of a continuing series of products designed to inform and assist APWA members. In 2001, the Canadian government's Infrastructure Canada Program and National Research Council joined forces with the Federation of Canadian Municipalities to create a National Guide to Sustainable Municipal Infrastructure to help municipalities get the maximum return on the money they spend on infrastructure; to date, 31 best practices have been published. APWA's Leadership and Management Committee oversaw the 2002 publication of Getting the Most out of your Infrastructure Assets: A Guide to Using Infrastructure Asset Management Systems, and in 2003 reasserted the organization's position statement endorsing the principle that public works assets should be managed to provide the highest possible return on the public's investment.

Other activities accelerated the trend. President Clinton in 1996 signed an executive order on "lifecycle cost analysis," requiring that federal agencies make their decisions about major investments with an eye on the trade-offs between initial expenditures for construction and the potential long-term expenses for facilities' operation and maintenance. The Federal Highway Administration (FHWA) and the American Association of State Highway and Transportation Officials (AASHTO) in 1996 jointly sponsored an Executive Seminar on Asset Management, and in 1999 FHWA established its Office of Asset Management. The Government Accounting Standards Board (GASB) in 1997 exposed its draft of what was to become Statement 34 and—with advice from APWA and other organizations—in June 1999 published the final version of Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Government, requiring for the first time that public agencies show their constructed facilities—their built assets—on the books.

So, after a decade or more, where are we? Has the trend been one of progress toward better public works management? Or has all the activity been, to echo Macbeth's judgment, just so much "sound and fury, signifying nothing?" What is the state of play with public works asset management, and where are we headed?

Principles and Practices
The principles underlying public works asset management are essentially the same as those embodied in benefit-cost analysis and lifecycle cost analysis. (While the two types of analysis differ in principle, a survey I conducted some years ago, of overseas highway agencies and U.S. federal-government agencies managing infrastructure other than highways, found that the terms are now often used interchangeably.) These principles and methods for their application have been developed and refined over the past several decades. Two major problems have continued to plague decision makers, however.

First, these analysis methods have been applied primarily to making investment decisions only. There has been little or no linking of the assumptions and conclusions on which the investment decision was based to the rules and budgets used in subsequent operations and maintenance. Changes in administration, budget cuts, and other events occurring after facilities are built then can easily subvert managers' ability to stick to the most beneficial management strategy. As the old saying goes, for want of a nail the kingdom is lost.

Second, users of these analysis methods have been frequently criticized, often with good reason, for limiting their scope of analysis in ways that favor the decisions they want to make. Applications in transportation, for example, have taken ample credit for the time commuters would save if a new, uncongested highway is built, while neglecting the disruptions the new road will cause in the communities it severs or displaces. It has taken years of experience for us to develop ways to deal in our decision making with public health, environmental quality, and other factors that we value but cannot easily assign prices. We have learned (to paraphrase another old saying) that we will miss our water if the well runs dry.

We have come to understand that asset management includes operations and maintenance as well as design and construction. In other words, managing public works assets is about services provided as well as the costs of those services. Bringing that understanding to the broader community is still a challenge, getting the public and their elected leaders to understand that when resources are constrained services may be reduced.

Measuring the full value of the services public works provides also remains a challenge. While economists have made substantial progress in developing tools to measure people's "willingness to pay" for environmental amenities and safety, the techniques remain abstract and tend to arouse skepticism in or worse among a less technically inclined audience. On the other hand, in the past decade we have seen substantial growth in the public's willingness to invest tax dollars and contributions in the preservation of wilderness lands, historic properties, and similar resources to be set aside and managed by government agencies or private trusts. In many communities, private firms and organizations have joined "Adopt a Highway" programs.

These latter developments demonstrate a realization by the public that the value of public works assets may be higher than budgetary allocations suggest. More broadly, procedures for reflecting public values more effectively in public works decision making are becoming a means for building consensus about how we invest for the future and could become increasingly valuable in operations and maintenance.

Practical Tools
The most dramatic advances arguably are being made in the spread of computer-based asset inventory systems. More than a dozen commercial software packages have been put on the market to assist agencies to keep track of their infrastructure facilities and their condition. These packages typically are tied in with the Geographic Information Systems (GIS) that have been widely adopted to keep track of property data and tax rolls. Together, the software enables users to quickly find out what above-ground and subsurface infrastructure is located in an area and to "drill down" to get details about design, inspection and maintenance records.

What agencies have learned is that these tools are only as good as the data they contain. Many agencies have spent a good bit of time and money to create their initial inventory by putting old paper documents into electronic form and going into the field to observe what is really there. The real problem then is to keep that initial data up to date. Anecdotal evidence suggests that the most successful agencies are those that start with a consensus among their jurisdiction's leaders—including particularly the financial managers—that the data is going to be made useful for everyone. Otherwise, the recurring costs of facility inspection and managing the database become an easy target if budgets get tight.

More recently, the declining costs of electronics and telecommunications have started to give rise to systems of sensors that can monitor facility condition and periodically report in to the central data repository. For example, university researchers are experimenting with devices to monitor the motion of San Francisco's Golden Gate Bridge, and several entrepreneurs are developing new kinds of sensors that can be mounted on structures or embedded in the concrete to measure vibration, temperature, moisture content, and other factors that can indicate service conditions. Such systems will save money by reducing the amount of time agency staff spends on inspection and data entry, and will increase facility and system reliability and safety. The people managing the asset management systems in the future are as likely to have professional education in information technology or electronics as in civil engineering or public administration.

The data being accumulated in these management systems will also prove valuable for dealing with another of the challenges to effective public works management: projecting the future condition and service capability of public works facilities. While pavement management software tools have been available for some time (the PAVER package, for example, was developed with APWA's support and participation), they rely in most applications on data gathered years earlier and from different regions. Few users make the effort to collect enough of their own data on traffic loading and pavement behavior to allow their deterioration models to be tailored to their unique situation. And for other elements of public works such as storm drains, sanitary sewers, and public buildings, the models are even less reliable or are not available at all.

Good data, collected over an extended time period, will allow researchers and entrepreneurs to develop better tools for estimating the consequences of various public works asset management strategies. These new tools will in turn help us to make well-informed management decisions, decisions based on real knowledge rather than rules of thumb and other beliefs that we rely on when we do not know any better.

Payoffs
Now you might be thinking, "Suppose we accept that there may be benefits in the future, but what payoffs have we seen from the past decade of experience? Where's the beef?"

The evidence so far is anecdotal. Two conferences on transportation asset management, sponsored last fall by the FHWA, APWA, and others, included panels of local-government speakers. These speakers, from both large and small jurisdictions and several parts of the country, cited enhanced support by both citizens and elected officials for preventive maintenance activities, net reductions of agency costs, and improved asset conditions as benefits from their adoption of asset management practices. While setting up an asset management information system is not easy and requires commitment from the agency's top management, they warned, there's more than one way to skin a cat; each agency presents unique challenges that can be met through creative problem solving. For example, building and maintaining the asset inventory, a necessary first step, may be accomplished progressively, drawing on available information while conducting in-field surveys for condition assessment and asset valuation. The "system" itself may be based on simple spreadsheets as well as sophisticated database management packages, to match the needs and resources of the agency.

Speakers at several past APWA Congress technical sessions in 2004, 2003, and before have been similarly positive in their assessments of their experience. Bernardo Garcia, Assistant County Administrator for Hillsborough County, Florida (Tampa), is unusual among Congress attendees in that the portfolio of community services for which he is responsible include police and fire as well as public works. He asserts that his asset management system helps him with the difficult task of establishing budget priorities among these different operations. Lisa Parker—as Director of Finance for the City of Saco, Maine, another rarity among Congress attendees—gives her city's asset management system credit for convincing bond rating agencies of the city's fiscal responsibility and securing an interest-rate reduction on a sizable bond issue. The savings in interest payments have more than offset the costs of setting up and maintaining the asset management system.

Over the longer term—and when it comes to public works, ten years is not a long time for learning lessons about managing systems—the payoffs are likely to be much greater and more pervasive. Management guru Peter Drucker famously observed, "You can't manage what you can't measure," and a large part of the innovation that public works asset management principles and practices represent has to do with better measurement infrastructure of costs and returns. As our measurements improve, so will our management.

Where Do We Go from Here?
If we are being honest with ourselves, many of us would likely admit that management is often a matter of simply muddling through. However, some people in public works—I am one—believe that there is a lot of innovation coming to the public works business, and that applying asset management principles and practices is an important aspect of that innovation. But innovation means change, change means uncertainty, and the common response to change and uncertainty is either to keep your head down and hope it blows over or to panic and try too hard to get ahead of the curve, to do too much, too fast. In either case, we're a lot like Lewis Carroll's Alice in Wonderland:

 "Would you tell me, please, which way I ought to go from here?"
 "That depends a good deal on where you want to get to," said the Cat.
 "I don't much care where..." said Alice.
 "Then it doesn't matter which way you go," said the Cat.
 "...so long as I get somewhere," Alice added as an explanation.
 "Oh, you're sure to do that," said the Cat, "if you only walk long enough."

Where we want to get to in public works management, I suggest, is a better understanding of the value of our investment in the facilities and people that deliver vital services to our population. We need to do better at helping the public—the owners and users of public works—to define the services they want, now and in the future, and to understand what the costs of those services will be, now and in the future. By focusing our attention on our investment and the returns we could and should be getting, asset management principles and practices will help to point the way toward protecting our investment and getting better returns. Where we ought to go from here is wider adoption of those principles and practices.

Andrew Lemer can be reached at (410) 235-3307 or at alemer@ecostructure.com.

Getting the Most out of Your Infrastructure Assets by Dr. Lemer will help prepare you with the goals, philosophy, principles and practical methods and tools available for asset management. Infrastructure Asset Management assists government agencies of all sizes in making more informed, cost-effective decisions about the infrastructure components for which they are responsible. The GASB 34 Statement & Implementation Guide will help you be proactive in working with your finance department in collection of data necessary to comply with GASB Statement 34. With the CD-ROM Implementing GASB 34: What it Could Mean for You, learn why the GASB 34 accounting standards may be your best ally in proving the value of infrastructure assets like roads, water facilities, traffic systems, bridges, and buildings to elected officials and citizens. All can be ordered online at www.apwa.net/bookstore or call the Member Services Hotline at (800) 848-APWA, ext. 5254.