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Asset Assessment From a Bird’s Eye View
"Eureka! I have found it!" —Archimedes
We’re all looking for solutions—asset managers included. Discover how the right combination of timely and relevant asset assessments can help you understand how your assets are performing.
Have you heard the one about the thirsty crow who came upon a pitcher with some water at the bottom? The water was beyond the reach of its short beak and the crow feared pushing over the pitcher lest all the water should spill out.
The bird; however, was resourceful and looked about for a solution. Spotting some pebbles, the crow exclaimed, “Eureka, I have found it!” and proceeded to drop pebbles into the pitcher, one-by-one, until the water rose high enough in the pitcher for it to drink. The crow quenched its thirst and happily continued on its way.
Just like the crow, asset managers periodically need to quench their thirst for knowledge about their assets, and they need to do so efficiently, without blowing their tight budgets—they too are looking for solutions.
In the world of asset management, there are many “pebbles” laying around, and these pebbles come in a variety of shapes and colors. Depending on their size, and how they are grouped together, they can displace more or less water. These “pebbles” are necessary tools to help assess the performance of assets and identify the needs for responsible stewardship. They can be grouped into three categories:
- Physical Needs Assessments (PNA)
- Capital Needs Assessments (CNA)
- Functional Needs Assessments (FNA)
Let’s take a look at how each of these pebbles can be grouped to displace water in an asset management pitcher and bring us closer to hydrating ourselves with deep insight into what’s buried in our assets.
1. Physical Needs Assessment (PNA)
A PNA indicates the current state of physical degradation of an asset, typically quantified as the backlog of deferred maintenance and/or outstanding repairs, which is then prioritized based on asset criticality.
Example: a PNA identifies that a buried storm water pipe (linear asset) is plugged with sediment and needs to be power-augered and hydro-flushed to ensure proper storm runoff.
There are many types of PNAs such as code reviews, technical audits, warranty reviews, and maintenance reviews. PNAs look backwards in time to understand how the asset arrived at its current physical condition. PNAs also raise awareness of the condition of the asset by providing the asset manager with insight on the “catch-up” costs – in other words, what remediation is needed to fix something.
While an understanding of physical needs can provide some guidance, it does not suffice to help the asset manager with all needs, particularly as an asset gets older.
A PNA is usually the first pebble to go into the pitcher followed by….
2. Capital Needs Assessment (CNA)
A CNA is a financial planning tool that provides a realistic and defensible forecast of the remaining useful life and normal lifecycle replacement of the major components of an asset.
Example: a CNA forecasts that the roof on a building (vertical asset) has 15 years of remaining useful service life, at which time it will cost $280,000 to replace (based on current market pricing and 2% inflation compounded annually).
The different types of CNAs include: capital plans, depreciation reports, and reserve studies. But regardless of what they are called, they are all about looking forward in time. A CNA raises awareness by giving the asset manager insight into the “keep-up” costs—that is, what will be required over the desired planning horizon. A CNA may sometimes require an earlier PNA to help provide a strong empirical foundation for the forecasts.
A combination of PNA and CNA provides tremendous insight and will hydrate the asset manager for many years, particularly during the earlier stages in the life of an asset.
However, sometimes another pebble is needed…
3. Functional Needs Assessment (FNA)
An FNA is used to identify the opportunities for adaptation and/or upgrades of an asset to address different forms of obsolescence, such as:
- Legal obsolescence (changing codes and standard)
- Economic obsolescence (energy efficiency measures)
- Technological obsolescence (new products on the market)
- Style obsolescence (evolving aesthetic tastes)
- Functional obsolescence (changing needs of the space users)
Example: an FNA determines the financial payback on replacing a low-efficiency boiler with a high-efficiency boiler even though the existing boiler has 10 years of remaining useful life.
FNAs are highly varied and include: seismic reviews, hazardous materials studies, energy audits, and barrier free access. Regardless of what they are called, they are all about looking laterally rather than just forwards and/or backwards.
An FNA raises awareness by providing the asset manager with insight into the potential “get-ahead” costs – that is, opportunities to adapt, to modernize, and/or to upgrade. Where the PNA and CNA are focused on physical degradation, or wearing of assets, and fall within the knowledge of engineering disciplines, the FNA is geared more towards the fading of assets. Depending on the type of fading, the FNA may require the additional expertise of professionals such as architects and urban planners.
An FNA is usually dropped into the pitcher after the other two pebbles have already been submerged. And this usually occurs after an asset has reached a certain age. It is rare for an FNA to be the first pebble cast.
A Game of Asset Assessment Mix and Match
This is where it starts to get complicated. It is not just a matter of three types of assessments, but also the need to match these assessments to the right assets, for the right reasons, at the right time, for the right cost and then repeat this “mix and match” on the right cycle.
What needs to be considered when determining the proper combination of assessments?
1. Assessment Value
To start, the asset manager needs to know what kinds of data will be returned by each type of assessment when applied at the right level of detail. The figure below illustrates the different types of information that are returned for each of the three classes of assessment.
Clearly, no single assessment can answer all the questions that arise over the life of an asset, but they each offer pieces of the bigger picture.
2. Assessment Match
Second, the asset manager needs to align the assessments to the different types of assets: linear assets (infrastructure), vertical assets (buildings) or portable assets (such as plant machinery and IT).
The selected combination of assessments will vary not only by asset but also at different stages in the life of each asset. For example, is it not necessary to commission an FNA on a young asset.
3. Assessment Mix
Third, the asset manager needs to track all assessments that have been completed across all of the assets, and record their statuses.
It can be a challenge to ensure the continuity of corporate memory over the long life of certain assets, particularly since asset management teams will change. This is why it’s important to keep complete and detailed records of all the assessments that have been completed.
4. Assessment Cycle
Finally, the asset manager needs to know when an assessment becomes stale dated and needs to be re-commissioned. The figure below illustrates the cycle of assessments completed over the many decades of the life of an asset.
A Bird’s Eye View
The crow we discussed earlier demonstrated resourcefulness when placing pebbles into the pitcher, and it was the cumulative effect of this incremental approach that allowed it to achieve its goal of reaching the water. Similarly, asset managers can increase their effectiveness by knowing how to leverage the “pebbles” of asset assessment.
Question: How do you know when to add another pebble into your asset management pitcher?
This blog is loosely based on the Aesop’s Fable of the Crow and the Pitcher.
David is a certified professional reserve analyst, and a specialist in building maintenance and planning.