Chris Jenkins recently posted a response to a discussion on IPWEA’S Ask Your Mates forum about the remaining useful lives of municipal assets. Chris is SPM Assets Technical Director and has had over 20 years of experience with these types of infrastructure assets. Rather than keeping this discussion within this closed forum, we are sharing it more widely with this post. It highlights the importance of better understanding the real physical (rather than financial) lives of assets and how statistical analysis techniques can provide great insights to just how long infrastructure assets can last. This evidence based approach can significantly lower long term renewal forecasts and significantly lower the funding projections to maintain a level of service (commonly referred to as lowering depreciation).
Has anyone worked with reviewing remaining useful lives of municipal assets? According to GRAP, we are required to review all municipal infrastructure assets in South Africa on a yearly basis and adjust their remaining useful life according to their current condition in that financial year. (Impairments as-well if it is required) We have done this for a few clients however the exercise is quite expensive and time consuming.
Does anyone have an easier and less time consuming method that can be used to do the remaining useful life review? A more statistical method that does not require the physical review of each asset, maybe more a small sample or subset of each asset class and extrapolate the results through all the infrastructure assets on the asset register. Is there a technique that has gone through an audit and the auditors agreed with the method and accepted it?
Response posted by Chris Jenkins: This is a subject that is taxing all asset managers. There are many opinions about how a realistic life assessment can be achieved. At one extreme there is a view that each asset can be measured and its life projected based on measures like degradation of wall structure for pipes, or degradation of insulation for electrical equipment. At the other end as an industry we talk to each other and make a decision based on common opinion.
There is discussion that examining the metadata we accumulate in our asset systems will provide the answer. The reality is that the processes and influences on asset life are complex. We may have undertaken a detailed (and expensive) investigation for a specific asset where we know the consequences of failure represent a high risk, however extrapolation of that knowledge to the rest of the asset class is conjecture.
We are quite good at assessing typical and realistic asset replacement costs. We have not been good at assessing remaining lives. We are generally pessimistic and that pessimism has created high expectations of depreciation requirements with a lack of corresponding actual expenditure on renewal. This has eroded confidence at the finance end of the organisation. Thus we need to get better at understanding asset lives.
There is merit in the approach put forward by other comments within this forum. Taking known facts relating to assets (asset metadata) and developing a logical approach to assigning that knowledge to the remainder of the assets in that class will provide the basis for a sound assessment of asset lives. Using these approaches it rapidly becomes clear that assets tend to last a lot longer than our conservative assessments. Our conservative assessments are usually based on what we see – those assets that fail. We don’t see assets that have remained in service and are of great age. It is these assets, usually in the majority, that should be considered in our assessment of typical asset lives.