Life-Cycle Costs Play Important Role in Asset Management
“Asset management” is certainly a hot button in the water and wastewater utility industry today.
By Chuck Miller
“Asset management” is certainly a hot button in the water and wastewater utility industry today. Unlike trends and buzz words that come and go, this critical concept is not a fad, but instead, an emerging mindset - philosophy even - of how end-users select, maintain and evaluate the capital equipment crucial to the successful operation of the utility. With infrastructure funding issues signaling major concern and federal subsidies nearly a thing of the past, becoming wiser stewards of both limited funds and capital equipment becomes imperative.
Instituting sound asset management practices provides a framework for acquiring and analyzing data in order to make improved decisions in the future. Beyond that, getting all segments within the industry - utilities, engineers, manufacturers, contractors, and government and funding agencies - to embrace an asset management way of thinking will benefit us all.
The United States Environmental Protection Agency (EPA) defines asset management as “managing infrastructure capital assets to minimize the total cost of owning and operating them, while delivering the service levels customers desire”. (www.epa.gov/owm/assetmanage)
The EPA further declares that the most effective asset management programs that ensure a utility’s good working order include long-range planning, life-cycle costing, proactive operations and maintenance, and capital replacement plans based on cost-to-benefit analysis, regardless of the age of components or the availability of additional funds.
Today’s utility managers as well as elected and non-elected public officials are faced with the challenge of keeping their system operating efficiently with only service rate revenues due to dwindling federal and state funds. Therefore, it becomes critical that dollars are spent most effectively, particularly with a long-term viewpoint that looks beyond capital expenditures and focuses on life-cycle costing.
I recently heard an excellent example of a local government utilizing asset management concepts. The Unified Government of Wyandotte County/Kansas City, KS (UG), operates one of the most progressive local governments in America. As such, the Water Pollution Control Division within the Public Works Department began to track all expenditures on labor and materials for each of its nearly 40 wastewater lift stations operating within their collection system. These totals were based on all issued work orders and then logged into a spreadsheet. The spreadsheet delineates UG labor hours, UG labor rates, materials, and outside contractor expenses.
From this compilation of data, the UG can now realize not only the total financial impact of maintaining all of its lift stations, but identify which individual stations cost the most to operate and maintain. Beyond that, they can compare different types of pump stations to see which have the lowest life-cycle costs. For example, a three-year sample of the data type demonstrates that one brand of pump station generated 57% savings over all other brands with similar flow conditions - a difference that translates to over $120,000 in that three-year period. The UG can use this data to make better-informed capital decisions by reviewing the resulting life-cycle costs and understanding the long-term implications of those decisions. The numbers don’t lie: real data eliminates the dangers of “gut feel” or hearsay often generated by industry copycats and less-reputable suppliers.
When looking at life-cycle costs, other important measurables include energy consumption, equipment life, and capital costs. Preventative maintenance programs are also essential.
We all would agree these aspects are key in making proper decisions when selecting equipment, and yet, rarely are they utilized. This reflects a lack of qualified data available. Local governments need to implement procedures similar to the ones described above.
The availability of life-cycle cost data begs the important yet rhetorical question: “Why would anyone ever purchase a product based solely on its initial cost?”
The Water & Wastewater Equipment Manufacturers Association (WWEMA) comprises leading quality manufacturers in the industry. Virtually none of the products our companies manufacture and supply boast the lowest capital cost, but almost all of them deliver the lowest life-cycle cost. We challenge the industry to put our claim to the test. Next time, don’t just evaluate capital cost, but seek the differences of life-cycle costs generated by the differences in equipment quality. It pays off in the long-run.
WWEMA applauds the EPA’s on-going promotion of asset management practices as well as its CMOM (Capacity, Management, Operations and Maintenance) initiative, which also encourages better management, operations, and maintenance of collection systems. At the same time, other government agencies such as the Rural Utility Service indirectly discourage and many times prevent the use of asset management principles when its funds are involved in a project. They often cite lowest capital price as the ultimate criterion without any regard for the long-term life-cycle cost implication upon the utility. One wonders how this disconnect can occur when agencies such as this and restrictive laws in several states can have such a short-sighted perspective.
I encourage you to join EPA’s and WWEMA’s efforts to promote asset management programs. It is incumbent upon all in the public’s trust to use the information available to make decisions that reflect the best long-term value for their constituents and support good asset management concepts to sustain our nation’s water and wastewater infrastructure.
About the author:
Chuck Miller serves as the Immediate-Past Chairman of WWEMA and is Vice President of Municipal Sales and Marketing for Smith & Loveless Inc., a Lenexa, KS-based manufacturer of engineered water and wastewater treatment and pumping equipment.