Sometimes you ask a question and the answer is unexpected but once read, so completely obvious, you feel an idiot for not seeing it in the first place. Read this exchange on bushfires (and value) between Jeff Roorda and me – but mostly Jeff.
Jeff:
The devastating fires that have blighted Australia in 2020 have now burnt through 18.6 million hectares of land. The fires had a total perimeter of 19,235 kilometres. That’s the equivalent distance of Sydney to Perth four times over and further than Sydney Australia to Los Angeles USA.
An estimated 1 Billion animals were killed, and entire species or plants and animals may have been wiped out. 33 people died and 2,779 homes were lost.
The cost to fight large fires is very high and growing with questions about the effectiveness of reactive strategies. We have avoided putting a value on air, fire, water and earth because it doesn’t neatly fit into our built infrastructure silos.
A large fire shows not only the connections of our artificial silos, but is instructive in a better understanding of value, cost, benefit and risk. These are the inputs to asset management plans. Decisions can then be based on scenarios based on evidence, expertise and experience to come to a wisdom decision for future generations.
We understand cost and cost and value are connected. The cost to react to crisis is high and growing but cost should be based on an asset management plan that has benefit, cost, risk and value of decision scenario options.
Penny:
Fires do not confine themselves within council boundaries, or even State boundaries and this was amply demonstrated in our recent (indeed still current) fires. Asset management plans are necessary but they are, sadly, not sufficient. How do we go further?
Jeff:
If any future event is identified then there are options to mitigate that event. Examples are a large fire, reliable energy or water or infrastructure congestion or under utilisation. Not making a decision or not having an evidence based asset management plan with possible scenarios is actually a decision to run to fail.
This often happens because we think we can’t reliably measure value. But when we get to the point of run to fail we can measure cost. In 2017, the NSW Government invested $38 million over four years for three Large Air Tankers to be used in firefighting efforts. In December 2019, the Federal Government announced $11 million on top of the annual $15 million. Add to this State and Local Government Costs and the opportunity cost of over 72,000 members just in NSW.
So there is a connection between cost and the value we put on something. Concepts such as deprival value and service potential become useful. Cost is a proxy for the value of what we lost, human lives, houses, businesses, over 1 Billion animals died and some flora and fauna may be extinct. A better concept of value is essential to making long term decisions for future generations.
For your weekend reflection over a cold beer – or libation of choice.
In 1999 my friend and colleague, @KC Leong, organised the first AM conference in Malaysia. It was held in Kuching, Sarawak. Not only was asset management very new but even the concept of an asset was pretty new so that the Minister opening our conference felt that he needed to explain what an asset was. ‘An asset’, he said, ‘is anything of value’. Then he paused, thought for a moment, and added ‘ and also anything not of value’ for, he explained ‘ it could become of value later’!
But what does it mean to be ‘of value’ ? This is something that we started exploring last weekend. I learnt a lot from our discussion and sincerely thank @Adam.Lea-Bischinger, @Gosh Jacewicz, @Ruth Wallsgrove, @Gregory Punshon, @Christopher Silke for their contributions. What this showed, is that we cannot simply assume that all infrastructure is (a) ‘of value’ and (b) certainly not ‘of equal value’. So how do we decide what projects should get our attention?
Today I would like to take this further by considering some of the arguments presented by Mariana Mazzucato. Mariana is an Italian-American economist whose research into the eocnomics of innovation and the high technology industry revealed that far from the private sector being the wellspring of all innovation, nearly all of the significant innovations that are now in common use (and just about all of the features of the iPhone) were actually developed in the public sector. She does not detract from what the private sector has done with these innovations but she does bring out the importance of state investment, which has featured so heavily, especially in the early, high risk stage, so necessary to subsequent development. In her first book ‘The Entrepreneurial State’ she debunks the myth that the State is merely a dull and stodgy administrator and shows that much of the real innovative work is done in the public sector.
Consider Australia’s own CSIRO (Commonwealth Scientific and Industrial Research Organisation). From its development of wifi using complex mathematics known as ‘fast Fourier transforms’ as well as detailed knowledge about radio waves and their behaviour in different environments, to Aerogard developed way back in 1938 and now used by Mortein to protect us from disease producing insects. Its research beginning in 1968 resulted in the world’s first plastic banknote which protects against forgery. This basic research was carried out by the CSIRO as part of the public sector. Now required to finance itself, the CSIRO has less scope for basic research (which is expensive and so hard to fund in the market) and has instead to focus on applied research. Which is all well and good, but where are the next basic research breakthroughs to come from? Is this an example of short run gain at the expense of long term loss?
A similar problem arises if we focus on the infrastructure that ‘supports the market’ rather than infrastructure that ‘supports the community’. In her 2017 book ‘The Value of Everything’ Mariana argues that modern economies reward activities that extract value rather than create it and that this must change to ensure a capitalism that works for us all. For those of you who would like a quick insight into her work, I would recommend the article in ‘Wired’(with thanks to @Rohan Fernandez who introduced me to her work via this article). She also has some fascinating TED talks on Youtube.
I have selected just three questions today from Mariana’s 2019 Ted Talk ‘What is economic value and who creates it?’ (which is worth watching, she packs a lot into 18 minutes), but you may add (and answer) other questions that you think relevant to infrastructure decisionmaking. The important thing is that we thing about these things, because if we don’t the choice will not be ours, and may be to our dis-benefit.
- Who are the value creators? Who is not creating value? (e.g. who are just extracting value, or taking it from someone else; and who are actually destroying value?) Who are these people?
- What is the difference between productive and unproductive activity?
- When agriculture was the dominant output, land was considered to be the major ‘source of value’, when we reached the industrial revolution, capital became the dominant source. Now as Mariana shows when we focus on ‘preferences’ the source of value becomes rather vague. How does this impact our infrastructure decisions?
What other questions do you think we need to think about when considering value?
I look forward to hearing your ideas
Have a great weekend!
This is part 3 of the 5 part series by Ruth Wallsgrove and Lou Cripps on Building an Asset Management Team.
Three: What are the key activities required of an AM team?
Penny Burns identifies three phases (or ‘revolutions’) that it is worth considering when you look at building up AM capabilities.
First, there is ‘Asset Inventory’: ensuring we actually know what assets we manage, where they are, what condition they are in, cost, expected life and their type and model and age.
If you have poor asset information, you have little choice but to start here.
The next stage is what she calls ‘Strategic Asset Management’, in other words ‘Optimization’: using this data, along with our understanding of the assets and asset systems, to begin to optimize at every level. This is where it starts to get interesting.
What does this require from the Asset Management team?
- Co-ordinating the integrated Asset Management Plan
- Leading the implementation of Asset Management, including AM training
- The development and implementation of co-ordinated, whole life asset strategies both at class and system level
- Key role in defining the asset information strategy (but not doing the IT or entering data – which are a waste of AM skills)
- Focus for improved asset decision techniques and models to do the optimizing
Other potential responsibilities of an AM team include helping to define the top level KPIs or Levels of Service. If Asset Management is about aligning asset decisions and plans to the organizational objectives, the first issue for many North American organizations is that the latter aren’t well defined. Sometimes, that inevitably means AM practitioners have to be involved in helping to define them. (And that is explicit for levels of service in ON Reg 588/17.)
It seems inevitable that Asset Management also has to take an active role in developing an overall organizational risk management framework, even if the lead is taken by a specific corporate risk function. This is not just because this is a key requirement in ISO 55000 back to back with ISO 31000; good AM depends on a solid and consistent risk framework across the organization and across all risks. Physical assets can impact on just about every corporate objective, which means they can also contribute to just about every type of risk you have.
Penny believes skilled AM practitioners are key to the next revolution, too: better ‘Infrastructure Decision Making’, by which she means society making better decisions for new infrastructure, especially in a time of change and new technologies such as we face now. Technologists and traditional ‘Planning’ are not experienced in the practicalities of managing complex asset systems, and without this real expertise, we are unlikely to make best use of opportunities.
Note: Talking Infrastructure was specifically created
to explore and develop this third stage, or ‘next revolution’.
Next week we look at what kind of people an AM Team requires.
Photo by Tembela Bohle from Pexels
As we head into another hot January weekend in Australia, here is something to ponder while you drink that cold beer! (or something warmer if you are in the Northern Hemisphere!) Does Infrastructure HAVE value? Does it CREATE value?
What is value?
In 1981, at the height of the Michael Field’s Labor Government’s attempt to bring Tasmania back from the brink of financial catastrophe caused by excessive over borrowing, I was approached by a Minister with a request. He expressed it most diffidently. ‘If you are not too busy, could you tell me what is value?’ I gave him a mini economics tutorial on the subject which he clearly understood, but equally clearly, it did not get at his real problem. For the rest of the week I pondered on this question for it was particularly intriguing that he had prefaced his question by the statement ‘A number of us in the house have been wondering’. Now, one minister asking about value is interesting, but a whole group doing so struck me as quite unusual.
The Source of value?
After a few days, I figured the stimulus for the discussion of value at a time when major cuts were being made to all portfolios, could be that each Minister was simply trying to establish that his department was ‘too valuable’ to have its budget cut. So I wrote a small, humorous, playscript in which various Ministers (of invented portfolios to avoid angst) argued for being the major ‘source of value’ – calling on economic, historic and social support for their case. My Minister was delighted and distributed it to his cabinet colleagues. I had concluded that script by observing that ‘fragrance free soap’ could fetch a higher price than that with fragrance and looked at ways in which each minister could increase value without imposing a cost to the budget simply by removing elements that had ‘negative value’.
Relevant Again
I had not given more thought to this question in the almost 20 years that followed until recently reading Mariana Mazzucato’s work on ‘The Value of Everything’. Just as an understanding of value was critical to that financially strapped Tasmanian Cabinet, so it is also critical to those of us involved in deciding on the shape of future infrastructure and we will look at Mariana’s ideas from this viewpoint in future posts. But, just to get the ‘little grey cells’ working, here are some basic questions to consider.
- What do you understand by value? How do we measure value when considering infrastructure projects?
- Can something that has no price be ‘of value’? For example can private education (with a price) be valuable, yet public education (free) not be? (Some years ago the Head of a major accounting association declared that private schools were assets yet public schools liabilities – purely on the ability to make a cash return. What do you think of this?)
-
Maurizio Cattelan’s Comedian
Can something that has a high price not be ‘of value?’ E.g. recently a banana stuck to a wall with a piece of ducktape at Art Basel in Miami Beach was sold at a price of $120K -and not once but three times. It has created a firestorm of comment and brings to the forefront the idea of ‘value’.
- Can cost be a good proxy for value? And if we substitute a more costly (although not necessarily more effective) component, does this really represent an increase in value – as distinct from simply an increase in cost?
- Pharmaceutical companies like to price their products in terms of outcomes -such as the value of better health? Should they be allowed to appropriate all of the beneficial outcomes. Why or Why not?
Do add your comments and we will examine them further next Friday.
Enjoy your weekend!
Photo by Steve Johnson from Pexels
Ruth Wallsgrove and Lou Cripps continue their series on Building an Asset Management Team. Their book is to be published in February. More information to come.
Two: Why you need an AM team
Experience around the world over nearly 30 years strongly suggests the need for a specific, dedicated AM team to be accountable for the implementation and improvement of asset decision, asset risk and long-term optimized asset planning processes.
You can’t just think things better. To improve, there must be action,
and people with responsibility for those actions.
Specifically, ISO 55000 defines AM as the ‘coordinated’ activities of an organization to realize value from its assets. Co-ordination takes real effort, not just a general wish to co-ordinate.
This is no different than other functional teams within your organization where expertise and specialization deliver value. If it is your plan to deliver the AM capabilities, you need to be intentional in adding this competency to your organization.
The likelihood of hitting a target you haven’t specified
or aren’t aiming at is low.
Without a focal point, organizations struggle to do more than isolated improvements, and generally lack a framework or structure to bring together the different activities around assets.
What most will fail to achieve, without at least a small dedicated team, includes:
- The development of whole life strategies for the assets
- Integrated long term asset planning: someone has to do the co-ordination, develop the processes, and build the relationships across functions to bring them together
- Asset risk management beyond safety, general corporate risks, or a high level risk register
- Ownership of the Asset Management system and AM objectives
Take it seriously
It also looks fairly impossible to implement good Asset Management if you have no-one who knows much about it. Rule of thumb: you need at least two people who have been on an Asset Management course to begin.
We might go further and suggest that if there is no-one who is prepared to identify as an Asset Management professional, dedicated to getting themselves and their colleagues developed in Asset Management skills, a company doesn’t really know what to do or how to go about it.
It is easy in this area to be unconsciously incompetent – not even to know what you don’t know.
If no-one in the organization really knows what Asset Management means, they can be sold a line by, a consultant who doesn’t know either. Real examples include organizations who decided Asset Management is an implementation of work management IT, a.k.a. an ‘Enterprise Management System’; or that it equates to reliability-centered maintenance (RCM). Both are very useful tools, but they aren’t a transformation of the business in themselves, and can be expensive, painful and applied wrongly.
Asset Management is about people, relationships, assets and strategies. You need an AM leader that has some knowledge of each. Leadership is a skillset beyond technical knowledge or management proficiencies. So it is worth careful thought about who can deliver this to the organization.
AM is a better way to manage our asset base overall.
For an asset-intensive sector like Public Transit,
that means how we do business overall.
Photo by Steve Johnson from Pexels
Building an AM Team is like creating a piece of abstract art. What makes it work? The choice of colour, shape, positioning, the passion? All of this, and more! A practitioner’s eye and experience definitely counts. This month, Talking Infrastructure is running excerpts from a new USA guide to Building an Asset Management Team, co-written by one of TI’s long-time collaborators, Ruth Wallsgrove, together with Lou Cripps, who heads up the Asset Management Division at the Regional Transportation District in Denver. It will be available shortly – and we will let you know when and how to get hold of it.
One: Building an Asset Management Team
‘Building an Asset Management Team’ is intended as a practical guide for any infrastructure agency interested improving overall Asset Management. It is our response to common questions around staffing to perform the functions and competencies required to support an effective Asset Management system.
Asset Management carries the flag for good asset stewardship, the responsibility that comes with managing critical infrastructure assets. We owe this to current and future generations.
‘Planning brings the future into the present
so we can do something about it now.’
This includes understanding the intergenerational liabilities that are delivered with all longer life assets, and that once something is gone, it can’t always be replaced. We cannot take a better future for granted; we need to work hard each day to bring a better future into reality.
We have to stop making asset decisions in silos, and start to join up the dots. For example, a decision to electrify a bus fleet has to be made with the full understanding of the interdependencies between fleets and facilities. The type of propulsion system in buses isn’t a decision that can come from strategic planning or engineering alone.
A basic question for AM practitioners is: And then what? We build a shiny new rail line. What is it going to take to operate and maintain it successfully and sustainably for the next fifty years or more? We buy a new fleet: how will it interact both with the other assets and systems we already have, and with our existing skills and processes?
The Challenge
The challenge for US Transit Agencies, and other sectors wanting to implement Asset Management, is finding the right people and assigning committed resources to its delivery.
Asset Management is increasingly important – yet there are few
experienced AM practitioners, and even fewer useful resources
on how to develop an AM team.
The thirty years since Asset Management began to be established in Australia and New Zealand – and much less time in many places – is not long to establish a stream of trained and experienced people. AM is still not taught at undergraduate level, and only partially on a few post graduate courses up until now. It isn’t included in the standard curricula of business, finance, engineering, urban planning or other relevant disciplines.
The demand for Experienced AM teams is increasing
Add into these the now legislated requirements in North America for Asset Management, such as Ontario Regulation 588/17, or the US Federal Transportation Administration TAM rules, that require at least knowledge of it in those regulated organizations, and the demand wildly outstrips supply for anyone with any AM experience.
This guide is based on our personal experiences; it reflects the views of us as authors rather than representing our employers, any institution or the wider AM community. Neither of us could write this document alone.
If you are
- developing a business case for setting up an AM team,
- establishing a team,
- considering where to locate an AM team in the organizational structure, or
- wondering how to find and attract the staff you need.
this guide will be invaluable.
To come:
- Why you need an AM team
- What are the key activities of an AM team?
- What kind of people does an AM team need?
- What is required of an AM lead?
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