Water Journal : Water Journal May 2015
MAY 2015 WATER 29 Opinion heavily influenced by commercial issues and trading conditions can have a longer-term impact on organisational risk, sustainability and cost profiles. Such decision-making is inevitably deeply challenging and decision makers should be offered every available decision support tool/protocol in assisting them to arrive at sustainable outcomes and avoid premature asset failure as a result of asset ‘sweating’ or ‘flogging’. cOnsequences Of getting it wrOng Too often asset decisions are made in ignorance of the longer-term implications, especially where long-lived assets are involved, such as in water and wastewater infrastructure. Potential long-term failure modes are seldom acknowledged in the short term, so impact on the organisational risk profile is all too frequently underestimated, until asset failure risk grows to the point of potential catastrophic failure, with devastating outcomes. How often have we known an executive or board to cut maintenance budgets in any given year, only to do the same in following years because “we did it last year and nothing fell over” with little or no cognisance that, by the time such uninformed decision-making comes home to roost, the consequences can be appalling, even tragic. One only needs to look at some of the issues currently facing the Australian electricity sector and some of the devastating consequences of failure (Victoria’s Black Saturday12 and lawsuits in WA pertaining to many homes lost to fire started by alleged failure of electricity distribution assets – i .e. wooden power poles). Inevitably the decisions on acquisition and maintenance of such infrastructure were made decades ago, driven by then immediate cost-saving measures and, in all likelihood, without foresight of the future risks that may result from such short-term thinking. Gold-plated assets are equally wasteful, so the objective must be to arrive at the best balance of CAPEX v OPEX and operational performance off an informed decision-making base and with due cognisance of future risk and cost profiles. The Victorian Bushfire Royal Commission investigated a plethora of AM issues, the final report including that: “Victoria’s electricity assets are ageing, and the age of the assets contributed to three of the electricity-caused fires on 7 February 2009 – the Kilmore East, Coleraine and Horsham fires”. The Royal Commission also addressed AM, querying whether organisations could demonstrate: • Application of optimal asset design? • Diligent and appropriate asset maintenance? • The age of equipment in service being within its effective operating life? • An appropriate risk analysis and management regime in place? • Appropriate numbers, skills, supervision and training of their workforce? • Funding provision for asset renewal, replacement and upgrading is sufficient or ‘reasonable’? • That customers are willing to pay to meet their funding needs? Concluding, in some detail that issues organisations needed to address included: • Asset design • Asset maintenance, operations and management • Asset renewal/replacement decision making: • Aging assets cOnclusiOns AM is a serious business, gaining in prominence at an accelerating rate, and should be addressed with due diligence, not superficial box ticking to minimally satisfy regulation. A final reiteration: Users of services and products, as well as other stakeholders, have every right to expect exemplary stewardship of, and performance from, the asset base. After all, they have funded the asset base through service payments and continue to do so. While there has been a great deal of progress over the last three decades, this has arguably been compliance driven and, even then, while boxes have been regularly ticked, value may not have been added to the process. The future focus should be on ‘optimising asset performance and contribution to the business’ from well-managed, durable, dependable, safe assets that deliver services, processes or products effectively and efficiently in alignment with corporate objectives, customer charters and stakeholder expectations. Remember: When the crocodiles are snapping at your ears it may be hard to remember that the initial objective was to drain the swamp13 ... so e arly involvement of the AM professional in the lifecycle can render substantial return. 12 http://www.royalcommission.vic.gov.au/finaldocuments/summary/PF/ VBRC_Summary_PF.pdf 13 Adapted from quote attributed to Robert DeBard. Figure 4. Graphical representation of optioneering in example: Minimising ‘value leakage’ and gaining business advantage. Decision Support Example (1 of 6): Net Outcome across all 6: $3m additional D&C spend rendered NPC Savings of >$500m and improved revenue of $4.3Bn at base case assumptions across a 50 year asset life-Cycle Discounted Cash Flow - CUMULATIVE Cable Tray Lifecycle Cost Base Design Recommended Material Option Mat Option-2 Upgrade Material @ 1st Change Out Mat Option-1 Doran, John A. – 2014 Asset Lifecycle Costing and Optimisation Conference, Melbourne, 24 November 2014 250 100 150 100 50 0 $Million Year 1234567891011121314151617181920212223242526272829303132333435363738394041424344454647484950 tHe autHOr John Doran (email: johnd@go4gr8ams. com) comes from a mechanical engineering background and has led activities across primary value chain operations and maintenance in asset intensive businesses for over 35 years, 20 of those in the water sector. John has provided executive leadership across Operations- Production, Maintenance, Risk, Projects, Finance and Administration, and Human Resources portfolios concurrently and has provided leadership advice across a wide range of management sectors in Australia, the Middle East and Africa.
Water and CSG
Water Journal June 2015