Tag Archives: asset management

Our roads, our legacy

Posted on 2011/05/30 | Leave a comment

The nation’s network of roads, taken together, is the legacy of investments made over the course of many decades. The legacy includes land committed to enabling people and goods to be moved from place to place, and with that land forests and grasslands cleared, streams diverted, and flora and fauna displaced. Added to these natural resources are concrete, steel, and other materials, and the human labor of planning and construction to produce the pavement and bridges, signs and signals, guardrail and rest areas that daily carry millions of vehicles.

Despite the efforts of clever analysts, there is no authoritative appraisal of this legacy’s current value. That the legacy has any value at all is a proposition based on our society’s desire for access and mobility and our adoption of  economics as a way of understanding and directing our behavior.  The protracted discussions in the U. S. Congress and many state legislatures concerning how we pay for roads and government’s role in their management is a reflection of our lack of consensus on the value of the legacy and what we should do with it in the future.

It’s as though we are beneficiaries gathered for the reading of the will following the demise of a wealthy relative. We’ve inherited a family estate and now must decide what’s to be done with the property.  Is there a substantial bank account, stocks and bonds?  Do any of us want to live in the mansion; can we afford it?  What’s to be done with the art collection?  Is the land still to be farmed or subdivided for development?  Can the gardens and fen be conserved?

Our legacy is a diverse collection of assets.  The fundamental questions facing us are whether to use these assets to realize the greatest return to the beneficiaries or to keep the legacy intact at the lowest cost.  We may seek advice from the financial advisers, groundskeepers, curators, and other staff who have cared for these assets in the past.  The answers will depend, however, on what we judge to be important, what we think we can afford to do, and how well we can agree among ourselves.  It’s all very complicated.

These are the issues facing the people who take responsibility for managing our roads  For more than a century the network was growing as the nation moved across the continent and trucks and cars began to compete with trains, wagons, and trams as primary means for moving from place to place.  Today we have more than 4 million miles of public roads in the 50 states, District of Columbia, and Puerto Rico, according to the U. S. Department of Transportation; about 2.7 million miles of these roads are paved. The strategic core of the network is the National Highway System (NHS), about 160,000 miles of paved roads judged to be important to the nation’s economy, defense, and mobility. Within the NHS, the Interstate Highway System, inaugurated by President Eisenhower in 1956, accounts for just over one-quarter of that, about 47,000 miles.  While the Interstates represent just over 1% of the nation’s road mileage, they carry about 25% of the nation’s traffic, measured by vehicle-miles of travel. (1)

We have reached a point where the demand for new roads nationwide has been largely satisfied. Additional capacity would be welcome in some places where population and jobs are growing, and this means adding lanes and upgrading standards on some routes. Substantial revisions of facilities will be wanted in other areas to enhance livability and improve safety, for example replacement of Seattle’s Alaska Way Viaduct with a tunnel. It may be that we will choose in coming years to make substantial new investments in rail transit and other forms of mass transportation, and this may necessitate alterations in communities’ roads.  But in much of the nation the primary task facing the people responsible for our roads will be managing our legacy assets.

When it comes to roads and other public works, the job of “asset management” has come to mean primarily looking after the facilities’ condition and maintenance to ensure they can provide the services for which they were constructed.  Other than re-purposing a freeway lane for use by high-occupancy vehicles only, dedicating road right-of-way for transit use or installation of fiber-optic cable, or converting abandoned rail lines to bicycle trails, road assets are not particularly fungible, that is, easily converted into other forms of assets. (Stock markets, for example, make it possible for owners to easily exchange shares for cash and vice versa.)  The nascent market in private-sector leasing and operation of toll roads (the Chicago Skyway, for example) and other facilities are a step toward encouraging infrastructure asset managers to think about how the value of  might be redeployed to increase public benefit, but we are still a long way from managing a road system as though it were a mutual fund.   In the meantime, asset preservation seems to be the primary objective, simply making sure that everything is still presentable and in working order when the family finally decides what to do.

(1) See http://www.bts.gov/publications/national_transportation_statistics/html/table_01_04.html,
http://www.fhwa.dot.gov/policy/2008cpr/es.htm

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Infrastructure asset management advancing in Canada

Posted on 2011/05/19 | Leave a comment

I spent part of last week at the annual gathering of the Canadian Network of Asset Managers (CNAM) in Burnaby, British Columbia, a part of the Vancouver metro area.  CNAM is a 2-year old association of government and private sector professionals dedicated to advancing asset management principles and practices for municipal infrastructure. As someone accustomed to the ways we have been doing infrastructure asset management—or more accurately, not doing it—in the United States, the meeting was an eye-opener! 

For a start, there seems to be a high level of Canadian interest in infrastructure and its management.  Some 250 people were there, coming from across that nation and many municipalities, large and small.  A glossy print periodical, ReNew Canada: The Infrastructure Renewal Magazine offers news and commentary, not simply vendors’ views of how the world should work.  Canada’s Public Sector Accounting Board’s standard 3150 on Tangible Capital Assets (requiring municipalities to report such assets on their financial statements) is the counterpart of the U. S. Government Accounting Standards Board’s Statement 34, but my conversations with other meeting attendees suggested there is a much broader interest in Canada in integrating asset management into financial planning and management rather than simply meeting minimum requirements with minimum effort.

Most exciting to me was hearing about examples of how specific communities are developing and using their asset management systems. The city of Vancouver, for example, has integrated their enterprise accounting system (they use SAP) with their infrastructure inventory and condition monitoring software (they use Hansen).  The city’s mayor Gregor Robertson, famously a campaigner for making Vancouver “the greenest city in the world by 2020,” is said to be firmly in favor of the asset-management program.  Calgary staff reported that their efforts are not far behind Vancouver’s.

Such efforts are not restricted to the larger cities.  The District of Lake Country, a 10,000 person municipality in British Columbia’s wine country, presented their 7-year history of developing and applying asset management principles. The responsible staff and consultants described how elected officials “got it” when maps of aging, at-risk facilities were shown and how they sorted through the issues of deciding public priorities for maintaining performance in delivery of infrastructure services. 

There is work to do, of course. Vancouver has had to add additional staff members to deal with the large volume of data being produced by their infrastructure management systems.  Smaller municipalities in mineral-rich areas of Saskatchewan and Alberta are just starting to develop management systems to keep up with growing demands for infrastructure services. I expect there will be lessons learned as more of these Canadian communities develop and apply asset management principles to their infrastructure.

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Measuring Infrastructure Performance Is Complex

Posted on 2011/04/10 | Leave a comment

Performance is the execution of a task or fulfillment of a promise or claim. Musicians give a good performance when they play well, provide listeners with insights to the meaning and emotion behind the music, and entertain their audiences. Employees of large companies have annual performance reviews to reflect on how well they and their immediate supervisors think they are doing their jobs.
For civil infrastructure, performance has something to do with moving people and goods, supplying water, removing wastes, and keeping us comfortable. However, just as we might disagree about whether a singer has given a good performance, individual infrastructure users, companies that depend on infrastructure, government agencies that build it, people who live near the facilities, and others may have their own ideas about both what is the task or promise the infrastructure should fulfill and how well the job is being done. Because these several groups all play a role in shaping our infrastructure, determining how it is used, and taking advantage of the services (or disservices, as some might say) delivered, we often refer to them as stakeholders.
These stakeholders are a wonderfully diverse bunch and their ideas are dynamic. Trying to understanding what might be meant by “good performance” for infrastructure gets complicated. The U. S. Army Corps of Engineers in the 1950s and ‘60s built the Buford Dam and others along the Chattahoochee River for power generation, flood control, and navigation purposes. Lake Lanier, a large reservoirs created near Atlanta, Georgia, became an important part of that growing region’s water supply as well as a popular recreation area. Downstream, where the river joins with others rolling south toward the Gulf of Mexico, oyster harvests in Apalachicola Bay depend on the freshwater flows. The states of Alabama, Florida, and Georgia have feuded for decades over the water management in the river basins. Since construction of the Buford Dam and Lake Lanier was completed in 1957, the tasks they are expected to perform have certainly shifted.
Sometimes stakeholders are very direct in stating the broader objectives they have in mind. Public works investments during Franklin Roosevelt’s “New Deal” era, for example, were planned to give jobs to some of the legions of people left unemployed by the Great Depression as well as to provide the services of municipal buildings and libraries. Huge water projects built in the vast and largely empty southwestern areas of the United States were intended to enable settlement and consolidate the nation’s hold on land which (to quote Robert Frost’s famous poem, The Gift Outright) “was ours before we were the land’s.” The spending of public funds on new roads and water mains is routinely justified by expected gains in property values and subsequent tax revenues expected when newly accessible and serviced land is developed.
Sometimes our objectives are less overt. Some highways built in urban centers during the 1950s and ‘60s were viewed by their planners as instruments of slum clearance as well as transportation arteries. Public backlash gave rise to more general resistance to new construction and the term NIMBY—“Not in my back yard!”—that has since come to be recognized in many languages. A recent Saint Index© survey of U.S. attitudes about real estate projects and development found that our extended economic downturn may be softening opposition to new development in general, 74 percent of American adults still do not want it in their own community.
Sometimes we simply have too narrow a perspective. Vitruvius, the 1st Century BC Roman who gave us the 10-book De Architectura, wrote famously that our infrastructure should not only ward off hostile attack, glorify the gods, and enhance public convenience, but should do so with “strength, utility, grace.” A panel of experts convened by the National Academy of Sciences to consider principles for improving the nation’s infrastructure (full disclosure: I served as the staff support and a primary report author-editor) asserted that we must manage our infrastructure to “… incorporate effective recognition of infrastructure as a multimodal and multipurpose system—a stream of services—as well as an armature of community development.” In other words, no infrastructure should be conceived of as doing only one thing.
In any case, whether the objectives, promises, or claims are narrowly or broadly conceived, explicitly or implicitly stated, the performance of infrastructure as a public investment must be judged by how well it serves the community. Measuring the return on investment will always be complicated.

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Infrastructure Service Life as a Matter of Sustainability

Posted on 2011/03/26 | Leave a comment

The word is everywhere.  People are talking about sustainability, but what does it really mean?  We want sustainable growth, sustainable development, sustainable communities.  In a recent blog posting, the Director of Sustainable Communities at the Natural Resources Defense Council admitted with remarkable candor about the latter topic, “even a lot of environmentalists don’t quite know what to make of the phrase.” 

Most people would probably agree that not using up all available resources needed for life has something to do with what “sustainability” signifies.  Physicists, chemists, and biologists can define with some precision the oxygen, water, and food, required by a group of organisms for a particular period of time, and the quantity of waste products they will produce.  For humans, their communities and their civilizations, there is certainly a lot more to it.  Our population, our history, and our ideas continue to grow, increasing our demands on an expanding range of resources. 

The American Society of Civil Engineers (ASCE) tried to cover everything by defining sustainability as “a set of environmental, economic, and social conditions in which all of society has the capacity and opportunity to maintain and improve its quality of life indefinitely without degrading the quantity, quality, or availability of natural, economic, and social resources.”  Improving quality of life “indefinitely” with no degradation of resources sets the bar quite high.

The Brundtland Commission took a more modest perspective, defining sustainable development as “…development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”  If one considers that our concept of “needs” has evolved over time, along with our technology and other capabilities to meet our needs, then the Brundtland criterion is considerably less stringent than ASCE’s.   As we look to more distant generations, we necessarily have less confidence that their concept of their own needs will be similar to ours.  Although some people will judge it to be technological hubris, we also are inclined to presume that these future generations will find new ways to meet whatever those needs are. 

The idea of discounting the significance of the more distant future is fundamental to the benefit-cost and cost-effectiveness analysis practices.  The practices, developed primarily in the middle decades of the 20th Century, are now widely used to assess the wisdom of decisions involving expending resources to obtain services or other benefits over a period of years.  These capital investment decisions—for example, to build infrastructure facilities—certainly have the capacity to foreclose future options.

A crucial assumption in any such analysis is the discount rate, usually expressed on an annual basis, representing the decline in value of resources that are made available or used at some future time, as compared to their value today.   For a simple example, many people would readily accept the idea that being given $98 today is preferable to the promise of $100 to be received one year hence.  If the proposition is $90 today versus $100 next year, more people may be willing to wait.  These examples represent discount rates of 2% and 10% respectively.  The discount rate used in any particular analysis reflects economic conditions and analyst’s and investors’ expectations about the future.  Higher discount rates imply less confidence and a requirement that the initial investment should more quickly become profitable.  (An interesting footnote: Comparisons of the value of the goods traded by the Dutch to purchase Manhattan from the Native Americans in 1626 to the current assessed value of the real estate suggests an annual increase of 5 to 6%.  It seems unlikely that Peter Minuet could have imagined what would become of the island.)

What can this tell us about understanding sustainability?  If we imagine that life will carry on more or less smoothly for some time, we might apply a low discount rate, perhaps 2% annually, in deciding whether or not to invest in infrastructure.  The discounting calculations would tell us that benefits accruing to a new investment more than 160 years from now would have a present worth less than 5% of their future amount.  If a human generation is about 20 years, we might then conclude that any long-term benefits that will not be realized until the 9th generation after we make the investment and building the facility are not worth much.  If the discount rate is 5%, fewer than 4 generations (perhaps 50 years) are needed.  With a discount rate of 10%, it takes about 30 years to reach the point that returns promised further in the future may not be influential on our decisions today. 

In other words, it may not make much sense to try to think beyond our grandchildren when it comes to sustainability.  Consider this: the initial demonstrations of transistor technology occurred in the mid-1940s, when I was a toddler.  Only a few years earlier, ENIAC I was developed as the first modern computer, using some 17,000 vacuum tubes.  Who then would or could have imagined the microchip and digital computers—not to mention cell phones—my grandchildren today take for granted. 

Perhaps it is only coincidence, but designers of bridge typically assume their structures will last about 50 to 70 years; for highway pavements, the numbers are 30 to 35 years.  Regardless of such assumptions, most of the people responsible for managing the nation’s infrastructure strive to get as many years of service as possible before a facility must be substantially refurbished or replaced.  Only seldom do public-sector owners of infrastructures make provisions at the beginning of the service life to ensure that funds are available to do the right thing at the end.

If we want our infrastructure systems to be sustainable and to serve as a basis for sustainable communities, such a management strategy may be counterproductive.  Long service lives discourage adoption of new technology and responsiveness to changes in users’ demands and society’s values.  Long-lived infrastructures fix the patterns of land development, social and economic activity, and perceptions of spatial relationships on the regions they serve.  Anecdotal evidence suggests we might be better of planning that infrastructures should be replaced, substantially renovated, repurposed, or retired no more than 3 generations after they are initially constructed.  Where rapid changes are occurring in economic conditions (for example, population growth in Phoenix or shrinkage in Detroit) or the technology (electricity generation and control, for example, as compared to municipal waste disposal), the lifetimes should be much shorter.

Seattle’s Alaskan Way Viaduct, for example, an elevated highway constructed to carry traffic past the city’s downtown core, was completed in 1953.  Over the years since it was built, traffic levels and truck sizes and weights had grown to levels that exceeded what the original designers had in mind; the structure was effectively obsolete.  Replacement would have been costly and very disruptive for the region’s highway users and the Viaduct’s neighbors. 

It was the 2001 Nisqually earthquake that moved Seattle finally to declare an end to the structure’s useful life.  The Viaduct was seriously damaged; sections had to be closed for a time. Repairs were made, but much of the public understood that more would need to be done.  It nevertheless took strong political leadership to effect the Viaduct’s replacement—with a tunnel—initiated in 2011.

The now-infamous The Fukushima I Nuclear Power Plant in Japan, first commissioned in 1971, uses “Generation II” technology.  Newer “Generation II” plants have better safety features.  Because nuclear plants are very expensive to build, reducing their allowable service would significantly raise the hurdle for establishing feasibility of a new plant but might also reduce the risk such infrastructures can pose for their neighbors.

There are many more examples that might be given of infrastructures destroyed or removed before the time envisioned by their builders and operators.  Certainly many elements of any particular piece of infrastructure are likely to remain useful beyond the 3- to 5-decade life implied by sustainability considerations.  However, viewing these elements as evidence of overinvestment and designing to ensure that infrastructures can be salvaged, recycled, or put to other uses would be important steps to improved sustainability.

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Infrastructure Maintenance and Sustainability

Posted on 2011/03/16 | Leave a comment

Infrastructure needs maintenance; there’s no escaping it.  Storm-water drains get clogged with trash and debris; they must be cleaned out.  Steel bridges must be repainted from time to time to keep corrosion at bay.  If the joints and cracks in pavement are not kept sealed, water seeps into the soils underneath the slab and erodes the road’s load-carrying capacity.  Water purification filters must periodically be cleaned to keep doing their job.  Burned-out lights must be replaced. When a meter breaks, a guardrail is destroyed, or a pipe cracks, it must be fixed, patched, or replaced.  Failure to perform needed maintenance diminishes infrastructure’s performance or reduces its service life or both.

While maintenance is important—indeed crucial—it is often neglected.  Day-to-day maintenance activities have not the scale and scope to attract and hold people’s attention the way new construction does.  Politicians do not get to cut ribbons and shake hands when maintenance is successfully completed.  When budgets are tight or workloads are heavy, it too often seems easy to put off maintenance without immediately serious consequences.  It is often easier for infrastructure managers to find resources for repairs and replacements than for normal maintenance and preservation efforts.  This problem of maintenance is ubiquitous and seemingly unavoidable.

We should know better. We have those old sayings: “A stitch in time saves nine.”  “For want of a nail” to shoe the king’s horse, the war and kingdom are lost. Deferring and neglecting maintenance increase the rate of wear and tear on infrastructures, increase the chances of an early breakdown.  The costs of premature repairs and replacements exceed what it would have cost to do the maintenance.  Infrastructure professionals speak of the “life cycle cost” of infrastructure, the total of all spending required to build and operate facilities to provide the services we want for an expected number of years; neglecting maintenance almost inevitably is more costly.  “Pay me now or pay me later.”

Knowing that our tendency is toward neglect, we try to design and construct facilities that need as little maintenance as possible.  It may be argued that this strategy increases life-cycle costs, for example when labor is abundant or capital is scarce, but human nature makes it a wise one.  This then is the first step toward sustainable infrastructure: it should not require much care.

While maintenance requirements may be minimized, it is unlikely they can be altogether eliminated for most infrastructures.  The second step toward sustainability is to ensure that required maintenance is carried out.  This is a matter of social and institutional relationships.  Roman roads and aqueducts were kept up through military supervision under strong central government control. A monastic clergy served the function very well for the Roman Catholic Church’s network of European cathedrals and shrines during the Middle Ages and Renaissance. The Balinese water temples have successfully maintained the structures and operating rules safeguarding rice production on the Indonesian island.  The demands many universities make of major donors, that anyone wishing to support construction of a new building must also be willing to donate funds to endow maintenance of that building and its grounds is a modern adaptation of such practices.

But even with proper maintenance, infrastructures age and components wear with usage.  Earthquakes, storms, and evolving patterns of use, while possibly anticipated in general, may cause unpredictable specific damage at unpredicted times.  The third step toward truly sustainable infrastructure then is this: it must be possible to fix it quickly and with relative ease when it fails.  The designers of San Francisco’s Bay Area Rapid Transit, for example, recognizing the risk that seismic activity might shift the soil and rock through which tunnels were built, arranged for excavation of larger chambers where a tunnel crossed a fault line, to allow tacks to be quickly realigned following an earthquake. 

In short, sustainable civilization requires the support of sustainable infrastructure. Sustainable infrastructure (1) needs little care, (2) is well cared for, and (3) is fixable.

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