PARSONS / GHD

Q5 What Is My Best Long-Term Funding Strategy?

AMPLEAsset Management Program

Learning Environment

2PARSONS / GHD

Core AAM Program Process Tools

Confidence LevelRating;

Strategic Validation;ORDM

FMECA;Business Risk Exp;Delphi Technique

Expected Life Tables;

Decay Curves

Valuation;Life Cycle Costing

Root Cause; RCM;PdM;

ORDM

Asset Mgt Plan, Polices & Strategy;

Annual Budget;Renewal Annuity

Condition Assessment

RatingMethodologies

System Layout;Data Hierarchy;Data Standards;Data Inventory

InventoryAssets

AssessCondition

DetermineResidual

Life

DetermineReplacement

$ & Date

Set TargetLOS

AssignBRE Rating(Criticality)

DetermineAppropriateMaintenance

DetermineAppropriate

CIP

FundYour Strategy

Demand Analysis;Balanced Scorecard;Performance Metrics

Build the AMP

Asset Mgt Plan, Polices & Strategy,

Annual Budget

3PARSONS / GHD

The Financial Model

Scenario VariablesRates (by component); Changes in rate base; Financing

Revenue ProjectionsExpenditure Projections

Operating Capital

Financial condition Budgets RatesVolume

ConnectionFinancialStatements

Operating

Capital (Expansion + Renewal) Field Services

4PARSONS / GHD

NOI/Cash Generation Projections

5PARSONS / GHD

Renewal Programs

VALUE$ Millions

2

4

6

8

10

2000 2005 2010 2015 2020 2025

EXISTING ASSETS

NEW WORK

TIME

Renewal CashRequirements

Average AnnualAnnuity – Existing Assets

Average Annual

Annuity –New Assets or

services (new LoS)

PARSONS / GHD

Annuity Requirement Increases as Funding is Deferred

Straight Line Constant

Effective Life?Time

Renewal Annuity Increases

Rep

lace

men

t Val

ue?

2G.66

7PARSONS / GHD

Rolling Annuities

TIME (YRS)1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

RENEWALVALUE $

PARSONS / GHD

Understanding Asset Renewals19

97

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

2041

2043

2045

2047

2049

2051

2053

2055

2057

Year

Annu

ities

($)

0

400,000

800,000

1,200,000

$ 320,000

$ 165,000

ENVELOPE OF POSSIBLE30 YEAR ROLLING ANNUITIES

RENEWALS ANNUITY PESSIMISTIC AND OPTIMISTIC VIEW

9PARSONS / GHD

Funding Annuity Exercise

Tom needs to determine a renewal funding level for his

“problem” pump station.

PARSONS / GHD

Philosophy of Confidence Levels

Best Appropriate

Process+ Quality of

Data UsedConfidence

Level Rating CLR

=*

80 % 70 % 75 %* Note : 1. Best Appropriate Practice varies from

Basic AM to Sophisticated AM

2. The numbers are averaged

10a.57

11PARSONS / GHD

Renewal Profile

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,00020

04

2006

2008

2010

2012

2014

2016

2018

2020

2022

Year

Cas

h Fl

ow Cash Flow

Deprec

AARA

AARA – ORDM

Existing Depreciation

How Much Money Does Tom Need ?

12PARSONS / GHD

Renewal Profile

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,00020

04

2006

2008

2010

2012

2014

2016

2018

2020

2022

Year

Cas

h Fl

ow Cash Flow

Deprec

AARA

AARA – ORDM

Existing Depreciation

How Much Money Does Tom Need ?

Funding Glide Path5 – 7 Years

13PARSONS / GHD

Core AAM Program Process Tools

Confidence LevelRating;

Strategic Validation;ORDM

FMECA;Business Risk Exp;Delphi Technique

Expected Life Tables;

Decay Curves

Valuation;Life Cycle Costing

Root Cause; RCM;PdM;

ORDM

Asset Mgt Plan, Polices & Strategy;

Annual Budget;Renewal Annuity

Condition Assessment

RatingMethodologies

System Layout;Data Hierarchy;Data Standards;Data Inventory

InventoryAssets

AssessCondition

DetermineResidual

Life

DetermineReplacement

$ & Date

Set TargetLOS

AssignBRE Rating(Criticality)

DetermineAppropriateMaintenance

DetermineAppropriate

CIP

FundYour Strategy

Demand Analysis;Balanced Scorecard;Performance Metrics

Build the AMP

Asset Mgt Plan, Polices & Strategy,

Annual Budget

PARSONS / GHD

Asset Management Plans

15PARSONS / GHD

The Asset Decision FrameworkRepair? Renew? Replace?Augment?

The Big Picture• “Whole portfolio”

perspective– Annual Report

• Policy framework– AM “Charter”– AM Program Initiatives

• Budget arena– Annual budgets

The Micro View• Specific asset focus• Event-based• Case-by-case decision

points– Individual AM plans– AAM techniques

• FMECA/Root cause• Remaining useful life• Valuation• Risk consequence• Etc.

16PARSONS / GHD

Asset Management Plans

Predicted Levels of Service

Predicted Levels of ServiceAsset Management

PlansAsset Management

Plans

Predicted Cost of Service

Predicted Cost of Service

-

17PARSONS / GHD

The Government Management ModelCorporate

Results

$$

• Mission• Vision

• Strategic themes• Perspectives• Objectives• Measures

• Targets

• Initiatives

• Capital plan• Operating budget• Special projects

• Analysis

Feed

back

18PARSONS / GHD

Mapping Strategic Action

Strategy Map Metrics Targets Strategic Initiatives

% strategicskills available

Each Strategic Initiative Plan contains:• Sponsor• Schedule• Resources• Budget

Cycle time reduction

Customerapproval rating

19PARSONS / GHD

The Nine Fundamental “Building Blocks” of AAM

1. Definition2. The asset life-cycle3. How assets fail4. Risk-consequence 5. Cost/valuation6. Asset demand7. Level of service8. Business risk9. Confidence in decision-

making

Asset Mgt Plans

Strategic Initiatives

Budgets

CIP

O&M

20PARSONS / GHD

Asset Management Plans

Predicted Levels of Service

Predicted Levels of ServiceAsset Management

PlansAsset Management

Plans

Predicted Cost of Service

Predicted Cost of Service

-

PARSONS / GHD

Steps In Developing Your AMPExisting Levels of Service:• Regulatory • Customer related • Internal operations

1

Assess Existing Assets:• Physical Details• Condition/Remaining Life• Performance• Capacity (Current / Ultimate)

2

Predict Demand / Levels of Service: • Capacity / Demands• Levels of Service • Performance / Risk

3

Predict Mode of Failure• Capacity (Due to Growth)• Performance / Reliability• Condition (Age) Integrity• Cost of Service

4

PARSONS / GHD

Steps In Developing Your AMP

Predict Capital Program :• Growth / augmentation • Renewal / Reliability • New levels of service • Business Efficiency

5

Predict Operations & Maintenance • Growth (additional flows)• New assets Levels of Service • Age of overall portfolio

6

Predict Future Expenditure Model• Capital• Operations • Maintenance • Administration

7

Predict Future Income Model• Rates • Charges • Other sources • Total

8

PARSONS / GHD

Ask: Are Customers Willing to Pay?

YesNo

Review program options (reduce cost)• Reduce levels of service• Dispose of under-utilized and under-performing assets• Manage demand for service (pricing, regulation)• Alter maintenance or operations• Increase other income sources (grant funds, etc)• Accept higher residual risk• Rationalize project work in order of risk

9

11

10

Steps In Developing your AMP

Return to 1 Revise AMP

Items as necessary

12

13

Execute

PARSONS / GHD

Role of the AM Plan

Overall Business PlanOverall Business Plan

Customer Service Plan

Marketing Plan

Resource Management Plan

Long Term Financial Plan

Pricing Plan / Regulation ?

Asset Management PlanAsset Management Plan Key Outputs:• Costs

• Performance

16c.4

25PARSONS / GHD

Example –AMP

Table of Contents

26PARSONS / GHD

Telling the AM Story

Opt

ion

1

Opt

ion

2

Opt

ion

3

Opt

ion

4

Opt

ion

5

2002

Tod

ay

2005

2015

2025

2030

2035

Treatment options M M RH RP RPDirect Cost 270 72 360 610 630

Indirect Cost 0 10 20 40 130Benefit 200 75 480 780 320

Option Ranking 4 3 1 2 5

Decay Curve

Catastrophic Failure

100% Level of Service

Minimum Level of Service

Benefit/Cost Ratio 0.7 0.9 1.3 1.2 0.42

Confidence in decision

makingPoor

Fair

Good

Poor

Fair

Good

Backlog Funding Model

-20

-10

0

10

20

30

40

50

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Renewal Year

Bac

klog

in M

illio

ns

Base Funding- $550,000 Funding Level 1- 1,050,000Funding Level 2- 1,250,000 Funding Level 3- 1,500,000Funding @ 2% of Construction Cost- 2,516,000

FCI = 10%

FCI = 5%

FCI = 10%FCI = 10%

FCI = 5%FCI = 5%Effective presentation

27PARSONS / GHD

The AM “Charter”

28PARSONS / GHD

The AM Charter

• Asset Inventory. We will know the assets that we own, or for which we have legal responsibility, and will maintain an accurate computerized asset register developed around an asset hierarchy that supports advanced asset management functions.

29PARSONS / GHD

The AM Charter

• Condition Assessment. We will gather, record, and analyze condition assessment data; store and analyze it using user friendly computerized systems; design these systems to support high confidence level asset related decision making; and create a comprehensive and dynamic condition index.

30PARSONS / GHD

The AM Charter

• Maintenance. We will retain a detailed maintenance policy, and operate a user friendly, accurate, and comprehensive enterprise asset management system (that includes a Computerized Maintenance Management System) to ensure that the assets, facilities, and systems perform to their design criteria and meet their design lives.

31PARSONS / GHD

The AM Charter

• Information Technologies and Analysis and Evaluation. We will store and analyze our data and knowledge in integrated or interconnected, user friendly, efficient, and effective computerized business information systems that support our total organization and our TEAM Program responsibilities, vision, and goals.

32PARSONS / GHD

Telling the Story - Institutionalization

• Annual Budget Process• Annual Report