Investment decision framework for infrastructure asset management: a probability-based approach

Australia’s civil infrastructure assets of roads, bridges, railways, buildings and other structures are worth billions of dollars. Road assets alone are valued at around A$ 140 billion. As the condition of assets deteriorate over time, close to A$10 billion is spent annually in asset maintenance on Australia's roads, or the equivalent of A$27 million per day. To effectively manage road infrastructures, firstly, road agencies need to optimise the expenditure for asset data collection, but at the same time, not jeopardise the reliability in using the optimised data to predict maintenance and rehabilitation costs. Secondly, road agencies need to accurately predict the deterioration rates of infrastructures to reflect local conditions so that the budget estimates could be accurately estimated. And finally, the prediction of budgets for maintenance and rehabilitation must provide a certain degree of reliability. A procedure for assessing investment decision for road asset management has been developed. The procedure includes: • A methodology for optimising asset data collection; • A methodology for calibrating deterioration prediction models; • A methodology for assessing risk-adjusted estimates for life-cycle cost estimates. • A decision framework in the form of risk map

Investment decision-making under risk (reliability) and uncertainty for infrastructure asset management

Risks and uncertainties are inevitable in engineering projects and infrastructure investments. Decisions about investment in infrastructure such as for maintenance, rehabilitation and construction works can pose risks, and may generate significant impacts on social, cultural, environmental and other related issues. This report presents the results of a literature review of current practice in identifying, quantifying and managing risks and predicting impacts as part of the planning and assessment process for infrastructure investment proposals. In assessing proposals for investment in infrastructure, it is necessary to consider social, cultural and environmental risks and impacts to the overall community, as well as financial risks to the investor. The report defines and explains the concept of risk and uncertainty, and describes the three main methodology approaches to the analysis of risk and uncertainty in investment planning for infrastructure, viz examining a range of scenarios or options, sensitivity analysis, and a statistical probability approach, listed here in order of increasing merit and complexity. Forecasts of costs, benefits and community impacts of infrastructure are recognised as central aspects of developing and assessing investment proposals. Increasingly complex modelling techniques are being used for investment evaluation. The literature review identified forecasting errors as the major cause of risk. The report contains a summary of the broad nature of decision-making tools used by governments and other organisations in Australia, New Zealand, Europe and North America, and shows their overall approach to risk assessment in assessing public infrastructure proposals. While there are established techniques to quantify financial and economic risks, quantification is far less developed for political, social and environmental risks and impacts. The report contains a summary of the broad nature of decision-making tools used by governments and other organisations in Australia, New Zealand, Europe and North America, and shows their overall approach to risk assessment in assessing public infrastructure proposals. While there are established techniques to quantify financial and economic risks, quantification is far less developed for political, social and environmental risks and impacts. For risks that cannot be readily quantified, assessment techniques commonly include classification or rating systems for likelihood and consequence. The report outlines the system used by the Australian Defence Organisation and in the Australian Standard on risk management. After each risk is identified and quantified or rated, consideration can be given to reducing the risk, and managing any remaining risk as part of the scope of the project. The literature review identified use of risk mapping techniques by a North American chemical company and by the Australian Defence Organisation. This literature review has enabled a risk assessment strategy to be developed, and will underpin an examination of the feasibility of developing a risk assessment capability using a probability approach.

Building infrastructure asset management : Australian practices

Generally, major public funding is invested in civil infrastructure assets. The efficiency and comfort level of expected and actual living standards is largely dependant on the management strategies of these assets. Buildings are one of the major & vital assets, which need to be maintained primarily to ensure their functionality by effective & efficient delivery of services and to optimise economic benefits. In Australia, billions of dollars are spent annually managing and maintaining built assets. These assets make up the social and economic infrastructure, which facilitate the essential services to public and business. Buildings are one of the prime & fundamental assets, which need to be managed effectively and efficiently to ensure that related services are delivered economically and sustainably

Risk assessment in life-cycle costing for road asset management

Queensland Department of Main Roads, Australia, spends approximately A$ 1 billion annually for road infrastructure asset management. To effectively manage road infrastructure, firstly road agencies not only need to optimise the expenditure for data collection, but at the same time, not jeopardise the reliability in using the optimised data to predict maintenance and rehabilitation costs. Secondly, road agencies need to accurately predict the deterioration rates of infrastructures to reflect local conditions so that the budget estimates could be accurately estimated. And finally, the prediction of budgets for maintenance and rehabilitation must provide a certain degree of reliability. This paper presents the results of case studies in using the probability-based method for an integrated approach (i.e. assessing optimal costs of pavement strength data collection; calibrating deterioration prediction models that suit local condition and assessing risk-adjusted budget estimates for road maintenance and rehabilitation for assessing life-cycle budget estimates). The probability concept is opening the path to having the means to predict life-cycle maintenance and rehabilitation budget estimates that have a known probability of success (e.g. produce budget estimates for a project life-cycle cost with 5% probability of exceeding). The paper also presents a conceptual decision-making framework in the form of risk mapping in which the life-cycle budget/cost investment could be considered in conjunction with social, environmental and political issues.

Framework for investment decision-making under risk and uncertainty for infrastructure asset management

A study has been conducted to investigate current practices on decision-making under risk and uncertainty for infrastructure project investments. It was found that many European countries such as the UK, France, Germany including Australia use scenarios for the investigation of the effects of risk and uncertainty of project investments. Different alternative scenarios are mostly considered during the engineering economic cost-benefit analysis stage. For instance, the World Bank requires an analysis of risks in all project appraisals. Risk in economic evaluation needs to be addressed by calculating sensitivity of the rate of return for a number of events. Risks and uncertainties of project developments arise from various sources of errors including data, model and forecasting errors. It was found that the most influential factors affecting risk and uncertainty resulted from forecasting errors. Data errors and model errors have trivial effects. It was argued by many analysts that scenarios do not forecast what will happen but scenarios indicate only what can happen from given alternatives. It was suggested that the probability distributions of end-products of the project appraisal, such as cost-benefit ratios that take forecasting errors into account, are feasible decision tools for economic evaluation. Political, social, environmental as well as economic and other related risk issues have been addressed and included in decision-making frameworks, such as in a multi-criteria decisionmaking framework. But no suggestion has been made on how to incorporate risk into the investment decision-making process.

Comparative study of guidelines and practices for building infrastructure asset management

This paper presents a comparative study of primarily Australian (and limited international) practices and guidelines on Buildings Asset Management (BAM). The objective of this study was to identify potential gaps in current practices and potential areas of research for further improvement. The paper starts with an overview of BAM. Later sections cover current BAM practices and guidelines across different states of Australia; give a limited overview of international practices and concludes with the authors’ observations.

Service driven asset management

Local governments are service driven rather than asset driven. Understanding this distinction is critical to ensuring that community needs are appropriately addressed. Translating community needs and desires into infrastructure is a complex yet little understood process. In this paper, we look at two case studies that explore the interface between service outcomes and the specification of performance requirements for the assets. The two case studies we look at are: a public health issue resulting from inadequate public amenities in a beach resort and the prioritisation of maintenance work in a world of increasing service demands and declining funding. The case studies all use the same investment logic mapping framework to establish clear drivers as to the problem that councils are responding to in delivering their services. The key to the framework is the separation of concern between service management and asset management.

Public asset management framework for local governments : opportunities and challenges for public asset managers

The aim of the study is to identify the opportunities and challenges a local government public asset manager is most likely to deal with when adopting the appropriate Public Asset Management Framework especially in developing countries. In order to achieve its aim, this study employs a Case Study in Indonesia for collecting all data i.e. interviews, document analysis and observations at South Sulawesi Province, Indonesia. The study concludes that there are significant opportunities and challenges that local governments in developing countries, especially Indonesia, might be required to manage if apply public asset management framework appropriately. The opportunities are more effective and efficient local government, accountable and auditable local government organization, increase local government portfolio, reflect up to date information for decision makers in local government, and improve the quality of public services. On the other hand, there are also challenges. Those challenges are local governments has no clear legal and institutional framework to support the asset management application, non-profit principle of public assets, cross jurisdictions and applications in public asset management, the complexity of public organization objectives, and data availability required for managing public property. The study only covers the condition of developing countries where Indonesia as an example, which could not represent exactly the whole local governments’ condition in the world. Further study to develop an asset management system applicable for all local governments in developing countries is urgently needed. Findings from this study will provide useful input for the policy maker, scholars and asset management practitioners to develop an asset management framework for more efficient and effective local governments.

The significant of public asset management framework application for Indonesian local governments : Opportunities and challenges

The purpose of this paper is to emphasis the significance of public asset management in Indonesia that is by identifying opportunities and challenges of Indonesian local governments in adopting current practice of Public Asset Management System. A Case Study, in South Sulawesi Provincial government was used as the approach to achieve the research objective. The case study involved two data collection techniques i.e. interviews followed by study on documents. The result of the study indicates there are some significant opportunities and challenges that Indonesian local government might deal with in adopting current practice of public asset management. There are opportunities that can lead to more effective and efficient local government, accountable and auditable local government organization, increase local government portfolio, and improve the quality of public services. The challenges include no clear institutional and legal framework to support the asset management application, non-profit principle of public assets, cross jurisdictions in public asset management, complexity of local government objectives, and unavailability of data for managing public property. The study only covers condition of South Sulawesi Province, which could not represent exactly the whole local governments’ condition in Indonesia. Findings from this study provide useful input for the policy makers, scholars and asset management practitioners in Indonesia to establish a public asset management framework that suitable for Indonesia.