Asset Management

practices within rural local

government

Des Martin – Asset Officer

Naracoorte Lucindale Council

• Located in the limestone coast region of South Australia – 350km east of Adelaide

• Total area of 4500sq km servicing a population of approximately 8000

• Main service centres located in the townships of Naracoorte and Lucindale

• Notable for world heritage listed Naracoorte Caves and profitable agricultural industry

Infrastructure Custodianship

In accordance with the South Australian Local Government Act 1999, Council is responsible authority for approximately $380 million worth of assets including;• Transportation – Roads, Kerb and Watertable• Stormwater Structures and Conduits• Buildings• Wastewater Systems – CWMS

Service Provision

Assets exist to provide a service to the community. Council aims to ensure assets continue to provide their intended service to the public in line with changing community expectations and financial constraints whilst managing risk an aging infrastructure base.

Transportation Network

Naracoorte Lucindale Council is the responsible authority for $280 million worth of transportation assets including;

• Sealed Roads- 522km• Unsealed Roads – 1183km• Kerb and Watertable – 105km

Transportation Network

Transportation assets exist to provide a service to the community that allows for safe, effective and connected passages throughout the Naracoorte Lucindale Council district.Council places high importance on the management of it’s transportation base, with “a safe and integrated transport network” a goal in it’s strategic plan

Transportation Network Constraints

Effective and sustainable management of transportation assets throughout their useful life is an ongoing challenge for many local government authorities, in particular those in rural areas with limited resources, both financial and organization wise. In many cases asset services are being consumed faster than they are being replaced, leading to unsustainablity

Transportation Network Constraints

• Aging Infrastructure base in need of systematic maintenance and renewals

• Limited revenue from rates and state and federal grants

• Raising community expectations of Council – Expected to manage more with less

• Tendency to only look at the present – Sustainable now but in 5-10-20 years?

Capital/Maintenance Prioritisation

With limited resources to draw upon in order to manage it’s transportation base, Effective identification, intervention, cost estimations and prioritizations of maintenance and capital works are needed in order to ensure asset services are not compromised, and that unacceptable risks are not exposed to the community.

Capital/Maintenance Prioritisation

• Visual condition inspections • 1-5 condition ratings• 1-5 serviceability ratings• Asset age vs. Useful life• Hierarchy classifications• Risk of failure• Impact of failure• Available funding • Maintain-Renew-Replace-Dispose

Asset ComponentisationFor asset management purposes, componentization should be used to define complex transportation assets. A road should not be seen as simply a road but –Sealed Road-Road Earthworks-Road Pavement-Road Seal

Asset ComponentisationEach component has a varying useful life, depreciation rate, unit rate m² and replacement cost.

Asset Componentisation• Service Replacement Cost – Cost to replace the service

provided by asset at beginning of it’s useful life• Current Service Replacement Cost – Current market cost if an

equivalent asset was to be constructed • Accumulated Depreciation – Total cost asset has depreciated

at a given point in time• Depreciable Amount – Total amount of service replacement

which incurs depreciation over it’s useful life• Total Service Useful Life – Intended timeframe in which asset

can continue to provide it’s intended service to the community

Asset Depreciation• Often expressed as a percentage, x% of an assets

Service Replacement Cost p.a• Rates of depreciation determined through

consultation between finance and infrastructure departments – rates of depreciation to be consistent with assets useful life and/or service consumption

• Not a physical monetary figure as such that Council must pay, but to be accounted for in financial reporting

Depreciation Methods• In accordance with Councils accounting policy

straight line depreciation is used – whereby a consistent amount is deducted from the assets Service replacement cost over it’s useful life

• Straight line is applicable where the services provided by the asset are consistent with that of the rate they are being consumed over a long i.e 10yr period of time

• In the case of transportation assets this method of “constant consumption” is applicable

Depreciation Methods• In addition to straight line, another commonly

used method of depreciation is diminishing balance

• This method assumes that the service provided at the beginning of an assets useful life will be greater than that as it nears the end of it’s intended lifespan

• This method is often intended for use with plant/fleet as the asset ages it begins to offer less service potential as when it was first acquired

Depreciation Methods• In addition to straight line, another commonly

used method of depreciation is diminishing balance

• This method assumes that the service provided at the beginning of an assets useful life will be greater than that as it nears the end of it’s intended lifespan

• This method is often intended for use with plant/fleet as the asset ages it begins to offer less service potential as when it was first acquired

Depreciation Methods• Straight Line;

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Straight Line Depreciation

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Diminishing Balance Depreciation

Depreciation Methods• Diminishing Balance;

Consistent depreciation rate applied to carrying values of service replacement costs.

Larger depreciation in early years, less as the service of the asset is limited.

Residual Value• Undergone recent review in relation to it’s

use/purpose within local government• Amount gained from the sale of an asset at the

end of it’s useful life• What is assets are never sold?• Only recognized if cost to renew service is less

than cost to replace• “Optimal Renewals using componentization” is

now preferred method of asset management.

Optimal Renewals- Componentisation

• Tasmanian Audit Office performed review of residuals in relation to infrastructure assets

• Determined that componentization of complex assets with different useful lives/depreciation rates be used, rather than a set residual for a given asset class

• Improved management of asset base – Conditions, remaining lives, intervention levels

Residuals vs. Componentisation

Remaining Life vs. Condition• Straight line depreciation method – Often assumes a

direct relationship between remaining life, current service replacement value, and an assets condition rating

• Useful for determining constant/consistent asset consumption – Not necessary condition

• Multiple variables define an assets condition, which in many instances cannot be determined by a straight line approach

Condition Rating vs. Serviceability Rating

• How an assets condition varies over the extent of it’s useful life vs. The degree to which it performs the service it is intended to provide

• Often variables are similar, However in some instances there is a considerable difference

• Assets physical condition may be poor but the service provided is still adequate i.e kerb and watertable, unsealed limited access track

• Necessary to prioritize works – Carry over/Carry forward dependent on multiple scenarios – Not a single “number”

Condition Rating vs. Serviceability Rating

• Condition Inspections – Schedules• Mobile Capabilities – The Cloud• Service Levels – Response Times• Defect Identification • Maintenance Planning – Prioritization – Improve

Efficiencies• Constantly changing variables in need of monitoring• Imperative to an organizations sustainability is the

management of it’s asset base

AM Policy vs. AM Strategy vs.AM Plan

• Policy – Councils commitment to the sustainable management of it’s asset base

• Strategy – How Council will implement plans and actions associated with it’s asset base

• Plans – Documents specific to the management of individual asset classes

• Dynamic working documents – Updated in accordance with changing asset maturity levels at Council

AM Plans• How Council intends to sustainably manage a

given asset class over a planning period• Outline available funding vs. planned projects • How shortfalls will be managed• Outlining of Goals/Objectives for improved

management • Link to service levels• More complex than they need to be – Keep simple

– Not 100’s pages

AM Plans• Working document – If managed

appropriately can be updated yearly• Council approved document – No need for

hundreds of pages and unnecessary figures• Stick to the basics – “How can we effectively

manage our current infrastructure in line with changing socio-economic variables” – Do not get sidetracked

AM Plans• 21 Pages• Link to key Council documents• Outline assets/services covered• Commitment to levels of service• Outline demand drivers• Asset condition ratings – Ages –

Remaining useful lives• Highlight intended funding levels

vs. funding required for planned capital works/renewals

• “Why we have a shortfall and how are we managing it”

• Do not duplicate data – Refer to external documents where applicable.

• Not a service level document

Service Levels• Outlines Councils commitment in

regards to asset defect identification and response timeframes

• Assignment of hierarchies• Construction dimensions• Be open and transparent but do

not make yourself liable to maintain assets to a level you cannot manage or afford

• Chances/Likelihood of failure vs. Consequence of Failure

AM Plan Financials• Scary thought for most• Again keep it simple and direct-Operational Expenditure-Capital Expenditure-Grant Income-Depreciation-Replacement Values-Disposals-Unit Rates-%Renewals vs. %Upgrade/New-Planned Expenditure vs. Predicted Expenditure

AM Plan Reference Documents

• Long term financial plan• Council strategic plan• Annual budgets• Rolling capital works programs• Capital work quotes and invoices• Rawlinsons• IIMM-AIFMM• AASB Standards• Council accounting-financial policies

AM Plan Stakeholders• AM Plan is a commitment by an organization –

Should not be the responsibility of 1-2 individuals but standards, procedures and attitudes adopted throughout

• Development of an asset steering commitment to drive the change – Comprise of staff from infrastructure, finance, IT and executive

• Changing ideas, processes, beliefs and attitudes ingrained for years is a massive challenge

AM Plan Advice• Councilors often concerned with funds left in reserve

– “Less spent the better”• Surplus often means a massive renewal backlog –

Assets are not being optimally renewed – Services are being consumed at a rate greater than they are being replaced

• Aim for 90%-110% average when combating service depreciation vs. replacement

• Debt is a better option than a massive backlog of works

Asset Register and System• A centralized system for the management of council

infrastructure and their associated attributes;-Replacement cost-Written down value-Condition ratings-Depreciation-Acquisition/Replacement/Disposal dates

-Works orders

Asset Register and System• Can assist in the development of multi-year work

programs • Identify funds required for future programs in order

to meet assets reaching end of useful life periods• Aim to link to GIS for a spatial representation of asset

base• Report generation for annual auditing purposes

Asset Register and System• Don’t get caught up in the “magic” of a corporate

system to save all of your problems• Is only as reliable as the data entered – Without it

the program will have nothing to stand on• Hundreds of variables centered around sustainable

management of asset base/services provided – Can you really pinpoint everything with a single program?

• Take initiative – Back instinct – Get away from your desk, Don’t rely on your desktop to help you 100%

Final words of advice• Asset management is a constantly developing field –

Optimal methods of handling service delivery changing yearly

• Guidance available from IPWEA – “Ask your mates”• Seek advice from other LGA’s – A lot in the same boat –

Grass isn’t always as green as made out to be • Build strong relationships between finance –

infrastructure departments – AM is the key link between the two

• Seek constant improvement