Why We Need Another Wave (or Two)

Ruth Wallsgrove, November 2021

I am going to start by assuming we know how to do strategic Asset Management: aligned, optimised, top to bottom better asset decisions. Focusing on replacement and maintenance, at least we can make good decisions about the assets we already have.

The next issue to come up for more sophisticated Asset Managers is how to get AM into decisions and projects for new assets. 

The lure of shiny new things means that even in those organisations where Asset Management is almost business as usual… thinking about the whole ‘lust to dust’, lifecycle management, even basic on-going costs, goes out the window as soon as opportunities to access money for new (such as Biden’s 2021 Infrastructure Plan) arise.

It’s long been known that the right place to start on managing an asset is – right at the start. You cannot maintain in better reliability than the reliability built into it, for example; or do much with an asset that was not needed in the first place (or has dire environmental impacts as soon as it is in construction).

However, it has proved too easy for AM to be seen as primarily about renewal of existing assets.  This comes partly from the original work from Penny herself, about facing up to possible ‘bow waves’ of replacements in a population of Post War infrastructure in Australia. This was reinforced by the focus on ‘capital maintenance’ and Asset Management in regulated UK utilities, and dealing with ‘backlog’ in infrastructure in the USA and elsewhere.  I believe it is also because this was a glaring gap needing to be filled by someone.

And it can be even more limited a view than that: that AM is basically maintenance, given the enthusiastic update of the term and some ideas in Asset Management from maintenance and reliability pioneers.

 In 2021 the UK government could republish guidance on infrastructure projects that defined Asset Managers as those responsible for what happens after the asset is built, a definition entirely resistant to any mild protests that that is not what the words mean in AM standards and practices around the world. (I was one of the people protesting.)

For anyone who still believes Asset Management is simply about implementing work management IT systems, that’s not even an interesting approach to maintenance – not, for example, even asking the interesting questions about how to optimise the maintenance we do.  Knowing what assets we have and being able to organise task orders against them (Penny’s Wave 1) doesn’t in itself constitute any better decisions about assets.

Even better decision-making can be limited.

In the early 2000s, the UK economic regulator for English water companies brought in what was called the ‘Common Framework’, the requirement that an Asset Management Plan submitted for price determination is based on “risk to serviceability”.  The AMP here, as in many places, is all about capital projects, and ignores maintenance, as it shouldn’t, and too short term, only five years.

This Common Framework requirement is definitely Wave 2 thinking: risk-based optimisation aligned to clearly defined targets, what were then called ‘DG measures’ of customer service (defined targets on service interruptions, pressure at customer tap, waste water final effluent quality, and more).

This propelled UK water companies, including the publicly owned Scottish Water, into considering risk, and risk defined against targets, as it should always be. It spawned sophisticated tools, such as SEAMS, for optimising short term capital programs.

But the idea didn’t include new, growth assets, or even necessary investment to bring water treatment up to European drinking water standards.  Water and waste water in the UK aren’t areas of growth – there’s no real equivalent of, say, building a new railway line – but investment for improved water quality was not in the same bucket as ‘capital maintenance’.

I don’t necessarily have a problem with different buckets, as investment in replacing non-compliant (i.e. illegal) assets can be dealt with in a yes/ no manner without having to get into sophisticated risk thinking.  But there was definitely a sense that some things are separated off from AM thinking.

To give some credit: as AM Director, Anglian Water’s Chris Newsome had his place at the top table and in developing the overall business strategy, including major changes in technologies (he was awarded an OBE for his work on carbon reduction). Until he retired, and I fear AM once again was more about the mechanics of prioritising capital maintenance.

More fundamental is tolerating Asset Management techniques – as long as those techniques do not impinge on our fun. 

I am going to use the example of a moderately large US transit agency (an amalgam of several that are well known to me) to illustrate why we need to build on Wave 2 to move upwards and outwards.

I am a fan of railways. But rail is one area of infrastructure that is particularly appealing to politicians and developers, and particularly politicians too friendly to developers. It shares with downtown buildings and airports a real risk: that we allow investment without asking hard questions about what it costs in terms of the environment and biodiversity, and even the basics of what it will cost to maintain after the initial capital has gone. 

Or even whether we can deliver it to the original business case.  Railways seem especially prone to embarrassing project overruns, although I think that is partly because they are built in public, so to speak.  Plenty of big infrastructure projects, private as well as publicly owned, massively overrun time and budget.

A new railway may get an easier ride than some infrastructure because it can be claimed for the environment (getting people out of cars) and equity (providing transport access for poorer areas), alongside the allure of growth (economic developments alongside new railways). Not that hard data about any of this is required, or necessary welcomed.

If there is ‘shovel-ready’ funding available, someone always has a plan for a new rail line in their top drawer – I saw this in Sydney, where ideas and even quite detailed plans for new north west/ west/ south west/ northern beaches lines had been hanging around for many years (and some have even now been built).

People tend to like railways, at least if they are not built in their backyards, and building them “provides jobs”.

Except – let us look at that last claim again.

New railways, like new airports, certainly provide work.  They require on-going labour to operate and maintain. But the claim for creating jobs… doesn’t really mean permanent jobs.  The appeal to those who provide funding is how many jobs there will be in their construction. Because if we say out loud that this investment will require on-going expenditure, the business case (and funding) suddenly seems less appealing to those who calculate return on investment.

My fictional US transit agency – again, an amalgam – includes at least one case where the business case to access federal funding to build a new railway actually stated there will be no net increase in operational and maintenance costs for the agency. Despite being nonsense (railways do not yet operate or maintain themselves), any statement of on-going liabilities would have scared the funders. 

As a society, we want capex without opex.  Pay upfront to avoid anything on-going – that’s what some mean by ‘investment’.  Access to public or private money is very much easier for capital investment, almost impossible if it’s a long term ‘liability’.

And so we build… long-term liabilities. because of what the institutions that make money from the upfront capital investment, including the construction firms, profit from.

We need Wave 3.

Wave 3 is ensuring that Asset Management, and Asset Managers, have their seat at the top table in decisions about growth and shiny new things.  And once we are there, to ask very hard questions about both of them.

I would like to explore how we get to be at that table, and that ‘future friendly assets’ start, but don’t end, with a healthy scepticism about building anything new.

  • What are they really going to cost, in $, over their whole life?
  • Who really benefits from them?
  • What do we rule out by investing in them, as opposed to something else?
  • And what might we actually destroy in the process?

When is it ever better for biodiversity and our environment to build new?

First, let’s make sure we are at the table.