Planning Your Asset Management Journey

Transcription

1 Planning Your Asset Management Journey Dale Jutila, CH2M HILL Pacific Northwest Section AWWA May 7,

2 Why Asset Management? Friday, December 5, 2008 The House Transportation and Infrastructure Committee will prepare a U.S. Loses 533,000 Jobs in November targeted infrastructure spending package to stimulate the economy, By LOUIS UCHITELLE including spending on municipal drinking water and wastewater With the economy deteriorating rapidly, the nation s employers shed 533,000 jobs in systems, within two weeks of Congress's return from the election, the November, the 11th consecutive monthly decline, the government reported Friday morning, chairman of the committee said at an Oct. 29 hearing. and the unemployment rate rose to 6.7 percent. The decline, the largest one-month loss since December 1974, was fresh evidence that the economic contraction accelerated in November, promising to make the current recession, already 12 months old, the longest since the Great Depression. The previous record was 16 months, in the severe recessions of the mid-1970s and early 1980s. As investors seeking shelter have poured money into federal government debt, munis have The alarming job decline suggests that become unprecedentedly cheap relative to Treasuries. consumers and businesses have pulled back sharply on spending in response to the worsening credit crisis. That has put pressure on Congress and the For White most of House their history, come municipals up and Treasuries have maintained a stable correlation with a stimulus package that would substitute for the missing private reflecting sector pristine outlays. credit quality for Treasuries and tax-exempt interest for munis. Depending on the maturity, yields on munis have historically ranged between 70% and Over all, the losses since the recession began now total about 1.9 million, with most coming 100% of the yields on Treasuries. The financial crisis has disentangled this relationship. in the last three months. John Derrick, who manages Treasury-based money market funds and two tax-exempt We have gone from recession into something that looks more like funds collapse, for U.S. said Global Ian Investors, said he has traditionally looked for top-quality 10-year Shepherdson, chief domestic economist at High Frequency Economics, referring to the munis to yield 80% of a 10-year Treasury and for 30-year munis to yield 90% of a 30-year accelerating job losses in recent months. Treasury. The losses in November far exceeded the 350,000 figure that was On the Wednesday, consensus a expectation 10-year triple-a rated municipal bond yielded % of a 10-year of economists. Treasury note, the highest ratio ever for that maturity, according to Municipal Market Business shut down in November, said Mark Zandi, chief economist Data. Clean Water Infrastructure Investment Urged As Part of House Economic Stimulus Package Crisis Upends Muni-Treasury Relationship Tuesday, December 2, 2008 By Dan Seymour It used to be that a good stretch for Treasuries probably also meant a good stretch for municipal bonds. No longer. A scorching-hot two months for Treasuries did munis little good in October and November. That ratio remained at less than 100% for all of 2007 and did not breach 120% until October The disparity on longer-dated maturities was starker. A 30-year triple-a rated muni on Wednesday yielded 154.6% of a 30-year Treasury, according to MMD. In 2007, that ratio topped 100% only three times. The ratio spent most of the 1980s and U.S. Government Should Insure Municipal Bonds, Bloomberg Says Nineteen witnesses at the hearing, from various levels of state and local government, highway and transit groups, manufacturing, By Henry Goldman engineering, and Michael McDonald and economics all advocated a massive investment Dec. in 2 infrastructure (Bloomberg) as the -- The U.S. government should insure municipal bonds to promote job growth and help repair the nation s tax-free credit market, New York Mayor Michael Bloomberg said today. Bloomberg, who with governors Ed Rendell of Pennsylvania and Arnold Schwarzenegger of California has called upon the government to aid cities and states in financing infrastructure improvements, said he discussed the proposal last month with John Podesta, head of President-elect Barack Obama s transition team. Obama met with the governors of 48 states today to discuss a stimulus package aimed at jumpstarting the U.S. economy. At the moment the bond markets aren t really open to that much municipal debt, Bloomberg said during a news conference today. One of the things the federal government could do is to help replace the insurance companies that used to insure municipal debt. Investors began demanding higher yields on insured municipal bonds earlier this year after guarantors of about 50 percent of the securities began getting stripped of their AAA credit ratings because of losses on debt tied to subprime mortgages. Moody s Investors Service in a Nov. 20 report said the insurance companies probably don t deserve top credit ratings because even a moderate weakening of financial strength might destroy t 2

3 Why Asset Management? 3

4 Many Images of Why Asset Management is Important The basis prioritizing capital investments for Repair & Renovation The basis for optimizing Operation & Maintenance The basis for investing in condition assessments A uniform and rigorous manner that results in defensible decisions 4

5 Many Images of Why Asset Management is Important Extremely Valuable Communication Tool 5

6 Reasons for Structured Asset Management Ten Attributes of Effectively Managed Utilities*: 1. Product Quality 2. Customer Satisfaction 3. Employee and Leadership Development 4. Operational Optimization 5. Financial Viability *From Primer for Effective Water and Wastewater Utility Management 6

7 Reasons for Structured Asset Management Ten Attributes of Effectively Managed Utilities: 6. Infrastructure Stability 7. Operational Resiliency 8. Community Sustainability 9. Water Resource Adequacy 10.Stakeholder Understanding and Support Defines What we should be best at 7

8 Benefits of Asset Management* Rigorous and Defensible Decision Making Better Managed Risk Lower Costs Improved Public Confidence Improved Bond Rating *From Implementing Asset Management A Practical Guide 8

9 Benefits of Asset Management* Potential Higher Priority for Low-Interest Loans Effective Information Transfer and Knowledge Retention Improved Coordination and Communication Improved Regulatory Compliance *From Implementing Asset Management A Practical Guide 9

10 Reactions to Asset Management 10

11 One Community s Experience Water plus, Wastewater Stormwater Facilities Streets Fleet All of Public Works 11

12 Universal Definition is Useful Effective Asset Management is: An integrated set of processes to minimize the lifecycle costs of owning, operating and maintaining assets, at an acceptable level of risk, while continuously delivering established levels of service. Implementing Asset Management A Practical Guide AMWA, NACWA, WEF 2007 Managing Public Infrastructure Assets to Minimize Costs and Maximize Performance AMSA, AMWA, AWWA, WEF

13 Balance Conflicting Goals by Managing Risk Minimize the life-cycle costs of assets Continuously deliver established levels of service At an acceptable level of risk Service Levels Low Costs RISK 13

14 Risk is Quantified Using the Classic Risk Equation Risk = ƒ (consequence x likelihood) How severe are the consequences of asset failure? How likely is it for the asset to fail? 14

15 Asset Management Best Practices Knowledge of: Ability to: Levels of service Assets and their characteristics Physical condition of assets Performance of assets Total cost of asset ownership Optimize O&M activities Assess asset risk Identify and evaluate risk mitigation options Prioritize options and fund within available budget Predict future demands Effectively manage information and employ decision support tools Obtain and sustain organizational coordination and commitment 15

16 Where Do We Start? Common understanding of concepts For asset management best practices Which are important? How are we doing on them? Conduct exercise to consider both, separately Compare them 16

17 Asset Management Best Practice Knowledge of Asset Ownership & Characteristics Ability to Assess Asset Risk Ability to Obtain & Sustain Org Coord and Commitment Ability to Prioritize Options & Fund within Available Budget Ability to Effectively Manage Info & Employ Decision Support Tools Ability to Optimize O&M Activities Knowledge of Total Cost of Asset Ownership Knowledge of Physical Condition of Assets Relative Importance Relative Importance Knowledge of Levels of Service Ability to Identify and Evaluate Risk Mitigation Options Knowledge of Asset Performance Ability to Predict Future Demands 17

18 Asset Management Best Practice Knowledge of Asset Ownership & Characteristics Ability to Effectively Manage Info & Employ Decision Support Tools Knowledge of Physical Condition of Assets Ability to Predict Future Demands Ability to Optimize O&M Activities Ability to Obtain & Sustain Org Coord and Commitment Ability to Prioritize Options & Fund within Available Budget Knowledge of Asset Performance Relative Performance Relative Performance Ability to Identify and Evaluate Risk Mitigation Options Knowledge of Levels of Service Knowledge of Total Cost of Asset Ownership Ability to Assess Asset Risk 18

19 Knowledge of Levels of Service Knowledge of Asset Ownership and Asset Characteristics Knowledge of Physical Condition of Assets Knowledge of Asset Performance Knowledge of Total Cost of Asset Ownership Ability to Optimize O&M Activities Ability to Assess Asset Risk Ability to Identify and Evaluate Risk Mitigation Options Ability to Prioritize Options & Fund within Available Budget Ability to Predict Future Demands Ability to Effectively Manage Info & Employ Decision Tools Ability to Obtain and Sustain Org Coord and Commitment Importance Performance Importance and Performance Together 19

20 Importance-Performance Grid 5.0 Highest Priority Maintain Focus LEGEND 1 Knowledge of Levels of Service 2 Knowledge of Asset Ownership and Asset Characteristics 2 3 Knowledge of Physical Condition of Assets 4 Knowledge of Asset Performance Importance Knowledge of Total Cost of Asset Ownership 6 Ability to Optimize O&M Activities 7 Ability to Assess Asset Risk 8 9 Ability to Identify and Evaluate Risk Mitigation Options Ability to Prioritize Options and Fund within Available Budget Ability to Predict Future Demands Ability to Effectively Manage Information and Employ Decision Support Tools Ability to Obtain and Sustain Organizational Coordination and Commitment Lower Priority Lowest Priority Performance 20

21 Highest Priority Areas Ability to assess the risk posed by asset failure Ability to prioritize risk reduction options and fund them Ability to obtain and sustain organizational coordination and commitment Knowledge of total cost of asset ownership 21

22 Recommended First Phase Work Plan Charter Asset Management Team Develop Mission and Objectives Establish Levels of Service Create Risk Matrices Design Asset Hierarchies Conduct High Level Risk Evaluation Redesign Highest Priority Practices 22

23 Role Change Over Time 100% Expert Leads City of Milwaukie Staff Leads Involvement Knowledge Transfer 0% Phase 1 Development & Design Phase 2 Implementation, Pilot & Rollout Time Phase 3 Continuous Improvement & Sustainability 23

24 What Will Work for You? Take the first step, make the commitment Set it up so it works for you Your community Your organization Stay the course, make adjustments Just get started on a Structured Asset Management Program and Enjoy the Journey! 24

25 The Flywheel Effect Consistent Focus on What Matters Give the initial push Visible Community Successes The Community and Staff are energized by results 25

26 Thank you! Dale Jutila

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28 Performance Measures and Levels of Service have to be SMART Specific Measurable Attainable Realistic Timely 28