Developing an Optimized Asset Management Strategy for Buried ...
DEVELOPING AN OPTIMIZED ASSET MANAGEMENT
STRATEGY FOR BURIED INFRASTRUCTURE
Blair Troutman1, P.E.
This paper reviews current trends in asset management initiatives and discusses
the general framework for a process to support the development of an asset
management program. This process begins with establishing a baseline of
critical asset information, including asset inventory, condition assessment,
effectiveness of past maintenance and renewal/replacement practices, and
historic funding levels. Based on this information, general asset management
goals and a strategy for meeting those goals is developed. This process
necessarily considers the financial impact of re-aligning asset management
strategy for long-term optimization. In addition, this paper reviews recent
changes in accounting standards and proposed EPA CMOM regulations as they
potentially affect the design of an asset management program. The re-alignment
of an asset management strategy around long-term optimization as well as
changes in accounting standards and EPA regulations provide substantial
opportunities to leverage trenchless rehabilitation techniques in a long-term asset
Keywords: asset management program, capital investment, GASB 34, EPA
CMOM regulation, trenchless rehabilitation
Senior Associate, Malcolm Pirnie, Inc., White Plains, NY 10608. Phone: (914) 641-2697. Email:
Sustainable economic development requires a strong and well-developed
infrastructure. To support this development, countries have spent trillions of
dollars in developing complex transportation and communication networks, water
and sewer systems, and other public infrastructure. These systems are not only
capital intensive to construct, but also require substantial annual spending for
maintenance. Due to the nature of these systems, there is a tendency to under-
fund on-going maintenance and renewal/replacement activities. Recent studies
on the condition of infrastructure in the United States confirm that much of the
infrastructure placed in service in the 20th century has not been adequately
maintained. As these systems continue to age, system performance will
continue to decline and failures will be more likely to occur. With the projected
price tag of public infrastructure rehabilitation skyrocketing, there is a significant
impetus to develop effective asset management programs and implement
appropriate rehabilitation techniques to cost effectively meet the future challenge
of infrastructure management.
WATER AND WASTEWATER INFRASTRUCTURE
Water and wastewater infrastructure is a particularly critical element of public
infrastructure as public health and safety is directly dependent on the vitality of
these systems. To address health and safety concerns throughout the 20th
century, the federal government funded the majority of the construction of these
infrastructure assets. In contrast, local entities have generally been responsible
for operating water and wastewater utilities, including funding the maintenance
and renewal/replacement of system assets. Several fundamental characteristics
of the water and wastewater utility industry make establishing and maintaining
appropriate funding levels for these systems difficult, including the following:
• With the long service lives of assets, impacts of improper maintenance
and renewal/replacement policies are not immediately apparent.
• A high percentage of assets are below ground or in locations where asset
condition cannot be readily established and easily monitored.
• The concept of depreciation accounting does not inherently support total
asset cost management.
• Increased costs resulting from degraded asset conditions are difficult to
quantify and assign to specific assets.
• The current competitive environment results in substantial pressures to
reduce operating and maintenance (O&M) costs.
There is growing concern in the United States that this has resulted in a
substantial under-funding of asset maintenance and renewal/replacement. This
concern, combined with the fact that a high percentage of water and wastewater
assets are approaching or are beyond their average service life, suggests that
substantial investments will soon be required for water and wastewater systems.
The Water Infrastructure Network (WIN), a coalition of water and wastewater
governmental authorities, engineering groups, and environmental groups, has
conducted detailed analyses of capital and O&M expenditures in the water and
wastewater utility industry. In the report Clean & Safe Water for the 21st
Century, the WIN documents two trends critically impacting water and
wastewater utilities. First, while O&M funding has more than doubled from 1980
to 1994, capital expenditures have remained largely unchanged, as shown in
Figure 1. This suggests that capital funding levels for major rehabilitation and
replacement projects at water and wastewater utilities have not increased as
assets continue to age. To appropriately support capital requirements, the WIN
has projected that roughly $1 trillion in capital investment will be required over
the next 20 years for water and wastewater plants, water distribution systems,
and wastewater collection systems.1
1980 1982 1984 1986 1988 1990 1992 1994
Figure 1: Historic water and wastewater funding requirements1
Secondly, federal support of capital projects has declined substantially over this
period, as shown in Figure 2. As a result, local entities have had to substantially
increase their spending levels. This shift in funding sources has increasingly
placed pressure on local entities’ abilities to maintain historic capital expenditure
levels. Further, the WIN recognizes three trends that will place additional
pressure on local entities: increasing federal regulations, increasing unit costs of
regulatory compliance, and historic under-recognition of infrastructure
DEVELOPING AN ASSET MANAGEMENT PROGRAM
Water and wastewater utilities beginning to evaluate their operations in light of
these projections are realizing that comprehensive changes will be required to
utility operations, management, and funding. To effectively address asset
management issues, utilities will need to address a wide range of policies and
procedures, including capital
B i l li o n $ 1 0 F ede ra l
L oc al
19 80 198 2 198 4 198 6 1988 1 990 19 92 19 94
Ye a r
Figure 2: Shifts In capital funding sources for water and wastewater systems1
planning, maintenance, renewal/replacement, accounting and finance, and
general management. To support this comprehensive and fundamental change
in operating philosophy, many utilities are developing or strengthening formal
asset management programs, designed to be an integral element of the utility’s
broader strategic management plan.
The development of a formal asset management program has several distinct
benefits. First, it communicates the utility’s up-front commitment to optimizing
asset management. This communication is critical for creating the ownership of
affected stakeholders, including employees, customers, politicians, and the
financial community, and for developing support of a long-term management
strategy. Secondly, it provides a framework for the development of optimal long-
term asset management practices and policies. This framework supports, for
example, asset preservation policies that may increase short-term cost but that
result in substantial long-term cost benefits. Under the current competitive
pressures, these policies are critical for the long-term viability of the utility.
Thirdly, it creates an opportunity to examine alternative technologies that may
result in a lower long-term asset management cost. Increased funding
commitments for annual renewal and replacement activities, for example, would
provide sufficient funding to support a programmatic rehabilitation of lines using
The process of developing and implementing an effective asset management
program can be illustrated as an iterative process, as shown in Figure 3.
Figure 3: Process for the development of an asset management program.
The goal of establishing an asset management baseline is to develop the critical
information required to support future asset management decision-making. This
generally entails evaluating the effectiveness of historic and current maintenance
and renewal/replacement policies and practices, funding levels, and
management practices as reflected by the condition of the assets. The
evaluation typically requires developing or refining an existing asset inventory,
characterizing the condition of those assets, and collecting asset-specific data
concerning the effectiveness of past maintenance and renewal/replacement
policies if available.
Once the baseline has been established, general asset management goals can
be developed. These goals are typically established on a short, medium, and
long-term and necessarily reflect the increased commitment of the utility to asset
management. The goals are focused on increasingly supporting the objective of
providing sufficient maintenance and renewal and replacement activities to
manage system assets in the most cost-effective manner. An example of
representative asset management goals for a large wastewater utility in the
Northeastern United States is presented in Table 1.
A critical first step in developing a strategy to support these goals is analyzing the
impacts of re-aligning asset management practices around this objective. A
number of different tools are available to estimate the future costs and cash flow
requirements for system assets. These tools vary widely in their approach and
amount of data required to support capital cost estimations. “Bottom up”
approaches are based on a detailed consideration of asset inventory, average
service life, and actual condition assessment to project future capital
requirements. In contrast, “top down” approaches, such as the Nessie ModelTM,
consider the effects of asset preservation efforts upfront on the economic life of
system assets. Projected capital requirements are based on the year place in
service, the replacement cost, and the observed economic life of assets.
Table 1: Representative Asset Management Goals
Element Short-Term Medium-Term Long-Term
Optimize life cycle Increase Increase Evaluate life cycle
cost of general preventative preventative cost data to
assets. maintenance maintenance optimize
funding by 10 funding by 20 preventative
percent. percent. maintenance
Preserve asset Discretionary Committed annual Committed annual
value through annual funding of funding based on funding based on
renewal and $ 5 million. original asset cost. asset replacement
Rehabilitate Rehabilitate 10 Committed annual Evaluate
collection system. miles of pipe funding of $ 7.5 cost/benefit of
annually. million. system
Once required capital investments are projected, the asset management strategy
must address modifications to asset management procedures, policies, and
funding levels to reflect the revised asset management support needs. In
addition, the asset management strategy must address changes required in
accounting and finance policies as they affect future asset management policies.
This review is particularly important now because of recent changes in public
accounting standards discussed below.
The development of asset management strategy, goals, and objectives into a
supporting plan is critical for reasons previously discussed. The plan should be
flexible and dynamic, to fully support the asset management program as it
develops. It should also includes provisions for monitoring the development of
the program, so that the development process remains dynamic and incorporates
critical feedback. Further, it should integrate into the utility’s other management
plans including facility plans, business plans, and the strategic utility
CHANGES IN ACCOUNTING STANDARDS AND REGULATORY
In June 2000, the Government Accounting Standards Board issued GASB
Statement No. 34 (GASB 34) in June 2000 to fundamentally change the financial
reporting model for governments. GASB's general intent is to require disclosure
of more comprehensive information about the cost of providing public services.
This change is designed to allow stakeholders, including citizen and taxpayer
groups, government managers, and the financial community, to better assess the
performance of responsible entities. Most governmental entities are in the
process of actively modifying accounting procedures and reporting practices to
comply with the tiered GASB 34 compliance requirements.
In addition to mandatory requirements, GASB 34 features an alternative reporting
approach, termed the modified approach for reporting infrastructure assets
(Modified Approach). The Modified Approach recognizes that some utilities
conduct sufficient preventative maintenance so that the condition of the asset
does not appreciably deteriorate on an annual basis. To reward asset
management on this “preservation basis”, the Modified Approach allows annual
reporting of maintenance expense in lieu of depreciation expense.
The difference between conventional management and Modified Approach
management of system assets is illustrated in Figures 4 and 5 respectively.
Under the conventional management approach, the condition index of the $10
million of assets placed in service in Year 1 degrades rapidly until rehabilitated in
Year 13. This rehabilitation re-establishes the condition index at 82, which then
degrades through Year 19, when the assets must be entirely replaced. From an
accounting standpoint, depreciation expense is reported for the assets on an
annual basis. In contrast, preventative maintenance activities are used to
preserve asset condition under the Modified Approach. Through appropriate
preventative maintenance, the condition index is maintained above the minimum
through Year 19, when rehabilitation is used to re-establish the condition index
above the minimum. From an accounting standpoint, preventative maintenance
expense is reported for the assets on an annual basis.
Figure 5: Modified approach management of system assets
To qualify for reporting under the Modified Approach, minimum requirements,
summarized in Figure 5, must be met. These requirements include the following:
• Initial data collection
o An asset inventory and valuation must be established.
• System characterization and monitoring development.
o An initial condition assessment must be conducted.
o Minimum asset conditions and performance measures must be
o System maintenance requirements must be developed.
o An asset management system must be deployed.
o Preventative maintenance must be conducted.
• Asset Management Assessment
o The effectiveness of maintenance activities must be evaluated.
o Asset condition must be disclosed.
o The budgeted versus actual maintenance must be reported.
o If assets were maintained at or above the minimal condition level,
preventative maintenance expense can be reported in lieu of
Although these requirements appear to be lengthy, many utilities consider the
Modified Approach requirements to be industry best practices and appropriate for
implementation. In addition, the Modified Approach provides utilities with
significant choices in
Initial Data System Characterization
and Monitoring Maintenance Asset Management Reporting
Inventory and Expense
Initial Preventative Revised Asset
Inventory and Condition
Valuation. Condition Asset Condition
Assessment Maintenance Assessment Maintenance
Requirements Effectiveness Budget vs.
and Program Evaluation Actual
Performance Measures and Minimum Conditions
Asset Management System
Figure 5: Summary of requirements- conventional reporting and GASB 34 modified approach reporting
developing an asset management strategy. For example, an entity can report
any or all of its assets under the Modified Approach and there are no
implementation deadlines. Because of these factors, utilities should carefully
consider incorporating the Modified Approach in the overall development of their
asset management strategy.
In addition to GASB 34, utilities will be required to comply with EPA’s proposed
Capacity, Management, Operation, and Maintenance (CMOM) regulations in
several years. These regulations require the development of a CMOM Plan,
comprised of general wastewater collection system management plans. Specific
to asset management considerations, CMOM will require the following
information for the collection system:
• An inventory of system assets.
• Procedures for determining the condition of assets and the documentation
• Procedures for identifying repair and upgrade needs and the
documentation of planned work compared to completed work.
• Summary of asset rehabilitation and replacement needs and a plan for
Although CMOM regulations are not expected to take effect for several years,
this asset management information is closely related to the information required
by GASB 34’s Modified Approach. These requirements should be carefully
considered during the general development of an asset management program
and specifically when considering reporting under the Modified Approach.
Trenchless technologies have been used for many years by progressive utilities
as a cost-effective approach to repairing and rehabilitating system infrastructure.
While the benefits of these technologies are readily apparent, the general lack of
urgency to develop proactive asset management programs has limited the extent
to which proactive repair and rehabilitation have been conducted. With
impending changes in management, accounting, and regulatory policies, most
water and wastewater utilities in the United States will begin to develop and
implement more proactive asset management policies and procedures. Because
standards and proposed regulations do not specify asset management process,
procedures, or policies, utilities will have considerable discretion in developing
and implementing asset management programs as they see appropriate.
Trenchless rehabilitation technologies, particularly those recognized as reliable
and cost-effective, will be increasingly utilized in support of optimizing asset
management of buried infrastructure.
 The Water Infrastructure Network. (2000). “Clean and Safe Water for the
21st Century”, April 2000.