Hein Aucamp, Perth City Chapter, submitted this as a comment to the last post but I think it contains ideas that are important enough to warrant a post of its own. Hope you all agree.  Penny

Silo!  We use this word to indicate a situation in which efficiency and conclusions are impaired because cloistering prevents us from including all the required factors.

If you stand at the top of a silo and look down inside, you see a tiny horizon, much smaller than the surrounding landscape.

Our manner of talking – our language and choice of vocabulary – can be revealing about our perspective. It can show how much we can see and how many relevant factors we are taking into account.

I remember being at an AIFMG training course in 2012. There was a discussion about whether a road is really an asset. From a Local Government’s point of view, why isn’t a road considered a liability? After all, it requires effort and expenditure, it must be maintained, and it must be replaced. Should it really be called an asset?

But from a wider perspective a useful road is definitely an asset. We can easily see this, because when it is consumed, the community wants another one. Of course an asset has associated costs; that in itself does not make it a liability. What makes it an asset is that its benefits outweigh the costs.

Now look at the dangers of the silo effect in the discussion about the road. From the limited perspective of the asset custodian it would be much easier to entertain the notion that a road is a liability. The custodian bears the burden of the effort and records the expenditure. But when we extend our horizon to include all the relevant factors and actors, we see that it is an asset.

The comparison between road and rail in the last post is an interesting case study. May I venture to say that it is always possible, by drawing a small enough perimeter, to decide that any piece of infrastructure is a liability? The perspective just needs to be small enough to exclude the funding mechanism and the benefits to the end users.

In the road vs rail example mentioned, the economist unconsciously placed a circle of reasoning around both road and rail. In the road circle, he discovered a satisfactory funding mechanism; in the rail circle, he did not. So he reached his conclusion because he was looking for local net benefits. If on the other hand he had used a horizon instead of a silo, he would have been looking for system-wide benefits.

(Admittedly, it is much harder to comprehend funding mechanisms and benefits that are outside your silo even if inside your horizon.)

Hein Aucamp  hein.aucamp@waiam.com.au

A senior economist in a State Treasury once claimed that Rail was a net cost since costs exceeded revenues. Roads, on the other hand, he said, were profit producing.  I smiled and thought he was joking, but he wasn’t.

The motor vehicle licensing board was embedded within the highways department and the sum total of licence revenues, he said, exceeded road costs.  Ergo, roads were profit producing. (I suspect that capital costs didn’t figure in his equation)

On this reasoning, he resisted extending the capacity of rail, despite the fact that the city roadways were excessively congested with little scope to increase road capacity and that road users benefitted when traffic was diverted to rail.

I was reminded of this when I read Milos’ comment on my earlier post “Infrastructure – damned by the language we use”.   He referred to language supporting silos.   And indeed it does.  However, if our infrastructure decisions are to be used to support community wellbeing do we not need to move beyond silos,  to take a wider, more holistic, viewpoint?

Thoughts?

The only way to get perspective is to stand back and see the big picture, to see individual problems in context, and our own problems in relation to others, as well as  to history. Two states that chose to see the infrastructure challenges of their councils in such a context were Victoria and South Australia and they have led Australia in asset management activity and improvement.

Victoria

In 1997 the State department responsible for local government was faced with a problem. Three years earlier, rates had been cut by 20% and rate capping introduced. Many councils were petitioning to have the cap lifted to cope with growth and, especially, to renew ageing infrastructure. State Government officers were in a dilemma. Whilst they could recognise the need for renewal, they suspected some councils were ‘gaming’ the system – using the excuse of renewal to avoid reducing costs. They decided to go out to tender for a simple model that could tell them which councils really needed an increase, and if so, how much. Three of the largest consulting companies in Australia at the time said that they could produce such a model, but the State chose to go with a smaller concern that pointed out that the information needed for such a model to work – namely a knowledge of the age, economic life distribution, and estimated replacement cost of council asset portfolios – was simply not available. They proposed to fill this gap. Councils also needed this information to manage their assets more effectively. The result was the report ‘Facing the Renewal Challenge’ (1998, published 2000) which led and underpinned council asset management activities and State Government monitoring for over ten years.

South Australia 

In the meantime, a group of large councils in South Australia who were trying to benchmark were frustrated by the lack of uniformity of data systems for asset information, accounting, valuation and condition assessment among the group. They chose to do a separate study under a common set of standards along the lines of the Victorian study and to widen their study to include all councils, small and large, urban and rural, and isolated. This study differed from the Victorian in two major ways – first, participation was voluntary (but, with a bit of persuasion, all took part!) and second, it used online information collection.  With the information on the web, it then became possible for councils to do ‘what if’ analysis.  (‘What if we extended the life of this set of assets, or increased the service levels of that set?’)  The resulting report was ‘A Wealth of Opportunities’.   The design and computer modelling undertaken then led to the development of IPWEA’s famous NAMS Plus asset management training, which is now a world wide program.