Portfolio Thinking: Why best for asset doesn’t cut it anymore

The way we approach asset management is changing. We are moving from a focus on what is best for each asset to considering what is best for the entire asset portfolio. While factors like climate change can impact our ability to afford the best solutions, asset managers can explore new ways of thinking to deliver better outcomes for their stakeholders.

The best for asset approach 

As asset managers, we manage a diverse network of individual assets. These assets can be categorised into families with similar features – like footpaths, culverts, structures, and continuous assets like roads or pipe networks. Each group has unique characteristics that influence our management approach, whether the assets are stand-alone, componentised, or segmented.

The ‘Best-for-Asset’ approach treats each asset as a discrete item and develops a maintenance and renewal strategy based on the best whole-of-life solution for that specific asset, section or component. Typically, an economic analysis is performed on a range of design options to determine the optimal whole-of-life solution for each asset. Renewal activities are ranked in a prioritised programme with a typically tight budget.

It seems logical to think that if each asset is managed optimally, the whole network would be as well. However, this isn’t necessarily true, as assets are interconnected, and treating two assets at the same time does not necessarily double the cost due to mobilisation and scale efficiencies for example. 

Best for asset vs best for portfolio 

From a renewal viewpoint, assets are not discrete, and there are cost efficiencies to be gained through combining activities, grouping by location, and lengthening treatment sections to minimise establishment and traffic management costs.  

If we were to look at treatment lengths for example, which are uniformly performing contiguous section of roads. These are scheduled for resurfacing or pavement renewal in the future and the best for asset approach assumes each treatment length will be programmed at the optimum time for that section to maximise life from that asset. The issue arises when the adjacent section of road may be scheduled for a similar treatment the following year. It is much more efficient to combine those sections of road into a single resurfacing, rather than optimising the lives separately, by considering the establishment and disestablishment costs of plant and traffic management. In simple terms, resurfacing four 200m sections is much less efficient and more expensive than resurfacing a single 800m section.

Adopting a ‘whole of corridor’ approach, rather than focusing on optimising each individual asset, enhances productivity and efficiency. The forward work programme is more likely to be completed within the construction season, reduce overall costs, minimises customer disruption, and improves performance across the board. While this concept is not new, it does serve to support the push towards a much more intentional approach to this whole of corridor approach, particularly given the current issues faced by asset managers. 

Impact of Climate Change 

It is fair to say that budgets are always constrained, but there has been a step change in demand on funding recently from the increase in significant weather events and increased rainfalls. Impacts include shortened asset lifecycles, increased funding needs, increased replacements needs for now under-capacity assets that are still in good condition, and the requirement to fund recovery to assets damaged by storm events e.g. Northland, Auckland, Hawkes Bay and Marlborough.

Previously reliable assets are now struggling to provide the same level of service to the community. Increased rainfall impacts culverts capacities, causing frequent flooding despite assets being in good condition. This results in not only renewing assets at the end of their lifecycle, but also repairs to extend the life of the asset.

What’s more, renewals now cost significantly more due to rising construction costs over the past five years. Inflation has surged, with extra pressure on available budgets and reduces the scope of work achievable with the same funds.

How should the asset manager respond? 

Fortunately, there are solutions. Understanding the budget environment and focusing on corridor efficiencies enables asset managers to make the best whole-of-life decisions for the network as a whole. However, tight budgets sometimes force managers to delay or make non-optimal decisions on major expenditure.  Certainly, this seems to be the environment we are in currently.  So, how can we achieve expenditure in the most efficient way possible given the funds available?  How can we close the gap as much as we can between what we need and what we can afford?


Reducing demand and increasing effectiveness 

Councils can challenge service levels rather than replacing assets like-for-like. For instance, a two-lane bridge on a rural road could be replaced with a single-lane bridge that offers the same service level. This approach can apply both at the asset and network levels.  

Consider how response times can save money through finding the right balance between efficiency and responsiveness. Responding to a pothole within two hours can be a great customer response but is an expensive approach to maintaining potholes. Contract response times, often based on complex scenarios involving fault, severity, location and asset hierarchy, can constrain efficient operations and are challenging to monitor and comply with. This can be simplified by empowering the contractor to determine a response time based on the situation and monitor whether that is met. Robust and honest contractual relationships can go a long way in managing expectations. 


Taking on Risk 

Lower-cost/higher-risk solutions can allow the spread of funding to be greater. For road renewals, there could be two options, a renewal that requires a $500K capital investment for a low-risk solution, or a $200K capital investment with higher risk, heavy maintenance with shorter lives and higher risk of future maintenance. The asset manager will often choose the solution with the best Net Present Value (NPV) but often these present high up-front costs to deliver a long-term saving, a luxury one may not be able to afford. In a constrained environment, there is an opportunity to consider what the benefit would be of keeping that $300K for other investment. A better solution may be to take the higher risk option with the added benefit of investing the “saving” into other areas.


Consider treating design standards as a guide 

In greenfield development, it is fair to say that design standards are a base minimum requirement. In maintenance, assets are already in existence and not necessarily in good condition. For example, with slip recovery works, often a retaining wall solution will have the seismic design requirements relaxed and incorporating these seismic requirements significantly increases the cost of the solution. This can tie up funding that could be used to repair other slips that would mean the road can open. Secondly, if such an earthquake event did occur, the wall would be safe, but the road could remain closed due to slips in other locations. A more optimal solution is for the client agency to take on the seismic risk to allow more sites to be repaired.

With culvert design, an asset manager may have several sites where culverts are flooding in a 2-year event. It is unaffordable to upgrade the culverts to the full 50-year design event but unacceptable for the community to have flooding in every rainfall event. A solution could be to repair to a 10-year design event. Whilst perhaps not the most efficient solution, but the inclusion of other mitigating treatments may improve an overall solution to the network problem. Designers particularly need to be open to a more pragmatic approach, as often some designs may not be financially possible nor acceptable. It’s important to focus on feasible solutions and engage in risk-based discussions with the client to explore options and make informed decisions.


Understand the criticality of assets 

Often communities with have several route options serving them. If structures on two routes are both requiring replacement, consider whether the community needs both structures, or can one become a ford or a have a reduced capacity such that freight takes the alternative route. Overlaying a criticality framework over the asset base means that some assets will become potentially redundant or allow a lower level of service, again creating budget saving opportunities.


Cost

Contract structures that allow for efficient procurement environments with flexible programming, innovative solutions and continuous improvements are effective, and are often based on the relationships between parties as much as any one contractual framework. Allowing for collaborative inputs and flexing of programming as various situations arise allow for efficient programmes that can respond to challenges quickly.  A single area-based rate for example does not allow for any productivity savings to be monetised. Consider how savings will be accessed when setting up the schedule of quantities to be priced.

Standardising solutions and design elements present a significant opportunity for cost saving and working at pace. For instance, using existing bridge beams for the construction of the bridge on SH25A coupled with an empowered team significantly reduced the timeline for the programme and the bridge was able to open three months ahead of schedule.
 

Summary

The current environment is pushing asset managers to move beyond best for asset approaches. The time of up-front capital expenditure to reap long-term savings is a luxury we often can’t afford. Hopefully this article has given some approaches to close the widening gap between what we need and what we can afford.