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International Deighton User Conference 2016 - Keynote Presentation

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In this presentation, Ross talks about the myths, realities, and financials of infrastructure asset management.

- Societal Myths and Impact on Infrastructure
- Realities of long-term infrastructure management
- Availability of Money and the willingness to pay for infrastructure

Ross delivered this keynote presentation during the July 2016 International Deighton User Conference in Toronto, Canada.

Published in: Government & Nonprofit
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International Deighton User Conference 2016 - Keynote Presentation

  1. 1. 2016 International Deighton User Conference Ross Waugh, July 2016 http://inframanage.com
  2. 2. Myths, Realities and Money • Societal Myths and Impact on Infrastructure • Realities of long term infrastructure management • Availability of Money and the willingness to pay for infrastructure
  3. 3. Societal Myths Examining the Societal Myths our Politicians and we tell ourselves and the impact this has on Infrastructure Management
  4. 4. Gap Minder Ignorance Study Hans Rosling Why so ignorant? 20-30 years out of date 1. Your own experience is not representative i.e. Personal bias 2. Outdated facts (taught at school) 3. News Bias = skewed information + intuition gives upside down view of the world http://www.gapminder.org/ignorance/
  5. 5. “Last one out turn off the lights” - NZ Recession 1987-1995 (8 years) • Unemployment 12% • House Interest 20.5% • NZ Govt. Debt 50% GDP • People moved to Australia during this period (2%pa) • No Training – gap now • Minimal Infrastructure investment • Infrastructure capital consumed • Took a decade + to recover
  6. 6. New Zealand Now – 30 years later • One of top 10 countries across a range of indicators • Generally a very good lifestyle • Prosperous and safe • Well governed • Infrastructure getting better (still a young country)
  7. 7. Societal Myths • USA and Canada going down the gurgler!!!!! • Long decline from now onwards for USA and Canada • The best is already past us • We have had it better than our children ever will • USA is becoming a 3rd World Country Is this in fact true??
  8. 8. USA is 3rd World – no that would be Haiti • US Presidential Candidates and Congressmen – “USA is becoming 3rd world country” • 10 signs the USA is becoming a third world country (Google fills in the search)
  9. 9. Not even close – USA 25% of World GDP • The United States, the world's largest economy, is approximately 25 percent of world GDP, while the seven largest economies, including the European Union, compose 75 percent of the total. • By Zach Vega - Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid =49064021
  10. 10. USA and Canada G7
  11. 11. UN Human Development Index - 2015 HDI - Life Expectancy, Education, Income per capita • 1 Norway (.944) • 2 Australia (.935) • 8 USA (.915) • 9=Canada (.913) • 9=NZ (.913) • 14 UK (.907) • 163 Haiti (.483)
  12. 12. WEF Global Competitiveness US 3, Canada 13
  13. 13. WEF Global Competitiveness - Infrastructure • 1 Hong Kong – 6.7 • 2 Singapore – 6.5 • 3 Netherlands – 6.3 • 5 Japan – 6.2 • 9 UK – 6.0 • 11 US – 5.9 • 14 Canada – 5.7 • 16 Australia – 5.7 • 28 NZ – 5.2
  14. 14. 2016 IMD World Competitiveness • USA 3rd overall • Canada 10th overall • NZ 16th overall • Australia 17th overall • USA 1st Economy • USA 1st Infrastructure
  15. 15. Prosperity – Legatum 2015 Prosperity Index Categories • Economy • Entrepreneurship and Opportunity • Governance (NZ=2) • Education (Australia=1) • Health (US=1) • Safety and Security (US=33) • Personal Freedom (Canada=1) • Social Capital (NZ=1) Rank 1 Norway 2 Switzerland 3 Denmark 4 New Zealand 5 Sweden 6 Canada 7 Australia 11 United States 15 United Kingdom
  16. 16. Legatum Prosperity Index 2015
  17. 17. Global Middle Class: Annual Disposable Income per household member, 2005 PPP • Canada #1 $16,394 • USA #2 $15,732 • Australia #3 $14,759 • UK $13,867 • Russia $7,641 • China $3,204 • India $859 http://www.economist.com/blogs/graphicde tail/2016/04/daily-chart-17
  18. 18. Social Progress Index – Canada 6, USA 16 • Blue dot, basic human needs • Brown dot, foundations of wellbeing • Green dot, opportunity • NZ 5 • Canada 6 • Australia 10 • UK 11 • USA 16 http://www.socialprogressimperat ive.org/data/spi#performance/cou ntries/spi/dim1,dim2,dim3
  19. 19. So if it is not true - US/Canada are doing great, Why does it feel like it is all going wrong? Why, when all the objective evidence points to USA and Canada being great economically and socially do we feel that it is all going wrong: • Megaphone effect of media and internet magnifying problems and extremes • High unemployment during the recession • Higher inequality during the recession (US, UK, Japan, NZ) • Diminished Expectation (but end of recession) • Geopolitical considerations
  20. 20. US Unemployment high, earnings flat (U6 part time due to purely economic reasons) • http://www.macrotrends.net/1377/u6-unemployment-rate • http://www.economist.com/news/briefing/21699910-arguments-state-stipend- payable-all-citizens-are-being-heard-more-widely-sighing
  21. 21. Equality – really big recessions don’t help • Society more unequal • Rich getting richer • Poor getting poorer • System unfair • Can’t get ahead • USA 0.06 Gini change 1985- 2013 • NZ, Sweden 0.07 Gini change 1985-2013 http://www.economist.com/news/briefing/21699910-arguments- state-stipend-payable-all-citizens-are-being-heard-more-widely- sighing
  22. 22. Expectation – the world is getting worse? I can’t get ahead • Safety and security – felt issues • Employment – felt issue • Pace of change – will I have a job? • Cost of college • Will there be jobs for my children? • On-going wars • Civil issues, inequality
  23. 23. Reaction - Technological Revolution, Recession and War • Industrial Revolution 1760 – 1840 • Luddites (skilled textile workers) rioted and broke machines 1811 • Technological Revolution 1980’s+ • Internet Age 1990’s+ • Massive ongoing structural shifts in society • 2008-2016 Massive recession - effects 8 years • Ongoing wars worldwide (megaphone) • Creates huge societal uncertainty
  24. 24. Niall Ferguson, US Recession Inflection Point – February 2016 Barron’s: The U.S. economy has been growing by only 2% to 3% a year. Why isn’t it firing on all cylinders? Ferguson: There are at least three theories. • The seven-year hangover theory – Feb 2016 inflection • The secular-stagnation theory -the economy is in a depressed state (low interest rates support this) • Geopolitical - growth in modern American history has tended to be high at times of national strength and low at times of national weakness. Because, US weakness affects whole world US growth isn’t low based on a pretty long-term average, but it is sluggish compared with the glory days of the Cold War
  25. 25. US Presidential Election 2016 Political Slogans • Bernie Sanders: “A future to believe in” • Donald Trump: “Make America Great Again” • Hillary Clinton: “Hillary for America” 2 out of 3 remaining candidates touch on this subject – tapping into popular sentiment
  26. 26. Last Word: Warren Buffett, BH 2015 Annual Report • Berkshire Hathaway serious money invested across the US economy • Energy, Rail, Housing, Consumer Goods, Insurance, Food, Beverage, Finance • Spent $5.8b capital on rail 2015 “For 240 years it’s been a terrible mistake to bet against America, and now is no time to start. America’s golden goose of commerce and innovation will continue to lay more and larger eggs. America’s social security promises will be honored and perhaps made more generous. And, yes, America’s kids will live far better than their parents did.”
  27. 27. Why does all this matter for Infrastructure? • If society believes it is all going to get worse then it won’t invest in infrastructure • If society believes the best is yet to come it will invest in infrastructure • Infrastructure professionals have to deal with the impact of these societal myths/directions with a 20 year fact lag
  28. 28. Realities of Infrastructure Management Levels of Service, Growth, Risk and Lifecycle Management
  29. 29. Service Levels, Growth, Risk, Lifecycle Management
  30. 30. Simple IAM Diagram – gap analysis
  31. 31. Simple IAM Diagram – Review as necessary
  32. 32. Unpacking Service Levels and Risk Some alternative ways to look at service levels and risk to stimulate your thinking Demand – would be a whole keynote on its own Lifecycle Management and Optimisation, others will cover this conference
  33. 33. Service Levels – Ross new 22LR, January 2016 • NZ, Firearms not political, big mass shooting in 1990, tight regulations on ownership and use, NZ = hunting • Firearms licence – 4 mths, seminar, checking interviews SERVICE LEVELS • Boys safe and accurate shooting (bolt action not semi- auto) • Teach my younger girls to shoot • Target shooting • Varmint shooting • Practice for hunting calibre rifle • NZD $1000 budget – rifle + accessories
  34. 34. Savage Model 30, Single shot 22LR, Used. $150
  35. 35. Norinco JW15S 22LR, 5 shot mag, new. $300
  36. 36. Marlin XT-22R, 22LR, 7 shot mag, new. $450
  37. 37. Ruger American Rimfire 22LR, 10 shot rotary mag new. $550
  38. 38. CZ452 American 22LR, 5 shot mag, new. $870
  39. 39. Service Level: Heirloom Quality • If I add one service level – Heirloom Quality • Heirloom quality, walnut stock, high quality components • Plan to hand down to children, grandchildren • Price and quality changes from previous
  40. 40. Ruger 77/22, 22LR, 10 shot rotary mag, Heirloom quality, new. $1,800
  41. 41. Service Level: AR Trainer • If I add one service level – AR trainer • 22LR AR configuration • Pick to match AR being used • Price and quality changes from previous Cpl Willie Apiata, VC, NZ SAS, Kabul
  42. 42. S&W M&P 15-22, 22LR, NZ configuration, 10 shot mag, new. $1,350
  43. 43. Service Level: Olympic Biathlon • If I add one service level – Olympic Biathlon rifle • 22LR match configuration • Price and quality changes from previous Jean Philippe Leguellec, Canada
  44. 44. Biathlon - Model 1827F ANSCHÜTZ Sprint nitrided, 22LR, new. $6,000 approx.
  45. 45. Service Level Spread, Cost $150 - $6,000
  46. 46. Actual Rifle Purchased – Ruger American Rimfire 22LR, Scope, Suppressor, Bipod, Bag • $1,080 (bare rifle $550) • Extra items doubled price
  47. 47. Operators = Ammo • Cheap bulk • Subsonic • High velocity • Match grade • Load your own • These decisions affect the result of hitting the target. What do you need? Do you understand the trade-offs ?
  48. 48. Service Level: Olympic Biathlon • Not going to use cheap bulk ammo • Match grade • Very carefully selected
  49. 49. Infrastructure Manager = Rifle operator • You need to know your system • You need practice • You need good technique • You need skills • You need to be able to see (scope or sights) • What you see needs to be properly calibrated • You need to know what you are aiming for “If you aim for nothing you will surely hit it”
  50. 50. NZ ONRC Service Levels
  51. 51. ONRC Service Level Categories • Value for money • Safety • Resilience • Amenity • Travel time reliability • Accessibility
  52. 52. NZ Utility Service Level Categories • Safeguard public health and safety • Management of environmental impacts • Response to system / network issues • Customer satisfaction • Financial Performance
  53. 53. Infrastructure Service Level DiagramDominimum Interstate ServiceLevel $$ Normal LoS variation Specialty-Bridge Do we ever model this?
  54. 54. Heritage – US Interstate
  55. 55. Speciality – Iconic Bridges • Boston’s new bridge • Te Rewa Rewa footbridge
  56. 56. LOS-Cost-Risk Diagram
  57. 57. What happened in Flint? (1) LoS $$ Risk (Hidden) ChangeAxis
  58. 58. What happened in Flint? (2) LoS ChangeAxis LoS $$ $$ THRESHOLD SAFETY AND TRUST Risk Cost 10x or more
  59. 59. Follow up effects for Flint & Industry Risk ChangeAxis LoS $$ $$ THRESHOLD SAFETY AND TRUST · Legislation · Regulations · Cost of alternative action · Litigation · Societal Cost · Inspect/Investigate TRUST LOST
  60. 60. Factors of Safety and how to model and communicate risk trade-offs • I-35W Mississippi River Bridge • Built 1967, 140,000 VPD • Collapse August 1st 2007, 13 died, 145 injured, cost $M 100’s • Multiple inspections over many years documented risks, issues
  61. 61. Walkerton, Canada 2000 WS Incident, 7 die, Half town ill. NZ Impact - $1bn • NZ Water Safety Plans • NZ Small WS Treatment and Source Protection upgrades (About NZD $1bn capital over a decade) • Increased long term operations and maintenance cost • Increased level of service (equals increased cost)
  62. 62. Money The impacts of money and finance on infrastructure acquisition and management
  63. 63. Problem – Infrastructure is taken for Granted • Transportation, Water Utility Infrastructure is ‘just there’ • Service Levels ‘generally’ ok - consumers • Users / Customers don’t see the hidden risk • More concerned about mobile phone plan, streaming data, unlimited wifi • So…..how to express the issues and risks to decision makers and communities • Current methods aren’t working as well as they need to – $ competition is fierce
  64. 64. The World needs more infrastructure 2013-30 • $57 trillion 2013-30 • 2013 2.7t/year spend 4% world GDP • 2013 estimate 3.7t/year needed • 1 trillion/year global shortfall for next 17 years • How to pay for it? • Existing financing stretched • New infrastructure also creates ongoing operations and maintenance costs http://www.economist.com/news/finance-and- economics/21599394-world-needs-more- infrastructure-how-will-it-pay-it-long-and-winding
  65. 65. 1 Trillion per Year Worldwide Infrastructure Funding Gap • 2013-30, 1 trillion per year infrastructure funding gap • Equal to South Korea GDP per year • Gap Growing fast • What to do, how to fund? • This is a worldwide problem, not just US, Canada, UK etc. http://www.economist.com/news/leaders/21599358-how- get-more-worlds-savings-pay-new-roads-airports-and- electricity
  66. 66. International Investment in Roads % GDP Economist, 2011 data • US well below comparison countries • Australia 1.25% • Canada 1.2% • Japan 0.85% • NZ 0.7% • Russia 0.6% • USA 0.5% • UK 0.3% http://www.economist.com/news/united-states/21605932- country-where-everyone-drives-america-has-shoddy-roads- bridging-gap
  67. 67. US Transportation and Water Infrastructure Spend – then and now Economist Diagram - • 1960 3% GDP Capital, 2% O&M • 2007 1% GDP Capital, 1.4% O&M • McKinsey rich country 2007-12 infrastructure spend 2.5% GDP, should be 3.5% GDP • 2014 US spending 416b infrastructure, 2.25% GDP • US 2015 GDP 18.5t 1%= 185b extra, +44% on current • Canada 2014 GDP 1.6t 1%= 16b extra http://www.economist.com/node/18620944
  68. 68. US Expenditure on Infrastructure 2014 (CBO) – total 416b
  69. 69. Impact of Recession on Infrastructure Spend NZ huge recession 1987-1995 (8 years) • NZIER Report Diagram
  70. 70. Observation of historical expenditure – Infrastructure Waves • NZIER Report Diagram
  71. 71. Long Term US Infrastructure Spend % of GDP (CBO)
  72. 72. Recession Impact on US Infrastructure Spend (CBO)
  73. 73. Long Term US Infrastructure Spend Category of Spend (CBO)
  74. 74. US Federal and State/Local Spending on Infrastructure (CBO)
  75. 75. Public Infrastructure Expenditure Issues US (CBO data) • Large capital spend 1960’s – will create a renewal echo now or soon • Long term average spend about 2.5% GDP – international research suggests 3.5% GDP required • 2014 spend 416b, 1% GDP 185b extra, +44% • 2003-2014 – 9% real decrease in expenditure • 2003-2014 – 23% decrease in capital expenditure • Federal spending (about 25%) has dropped more than State and Local spending It is easy to underinvest in infrastructure in recessions, as the results don’t show up for some time
  76. 76. How to engage governance and community? • Infrastructure taken for granted until it is broken • Risk and consequences are very poorly understood • Reluctance to invest – higher taxes, charges • More pressing societal needs – security, data plans • Infrastructure getting more sophisticated (more add- ons to system) = more expensive • Higher service levels expected (e.g. water treatment) • Capital investment down, renewals coming, risks increasing, factors of safety unknown • How to communicate this?
  77. 77. Yes – Good dTIMs model results • Network Return In Functional Condition (Condition Index) in 2034 – Various Budget Levels IIMM 2015 Manual, Case Study 4.15: Using Optimised Decision Tools on a Small Sealed Road Network
  78. 78. No – Engineer with too many parameters
  79. 79. All Blacks – France, Rugby World Cup 2015 • 62-13 full time result, All Blacks
  80. 80. Broncos-Panthers, Super Bowl 50, 2016 • 24-10 full time result – Broncos
  81. 81. Game 1, 2016 NBA Final Series • Warriors-Cavaliers • 104-89 Warriors
  82. 82. Sport – Consistent Scoring Wins the Game
  83. 83. Infrastructure – consistent investment wins, so why do we think we can do this?
  84. 84. Conclusion Some thoughts to take away
  85. 85. Conclusion • Dealing with societal myths is an issue for infrastructure managers – 20 year lag • Levels of service need to be modelled across the range from least provision to specialist assets • Risk, cost , level of service trade-off – how to model and how to communicate? • Risk Factors of safety and maintaining trust • Communicating the advantages of consistent investment at the ‘right’ level
  86. 86. Questions http://inframanage.com

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