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Federal Highway Administration Research and Technology
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|Publication Number: Date: July/August 1997|
Issue No: Vol. 61 No. 1
Date: July/August 1997
Asset management may not be a brand-new idea, but it's one that an increasing number of transportation leaders are taking seriously.
What is asset management? It's a systematic process of maintaining, upgrading, and operating physical assets, such as roadways and bridges, in a cost-effective way. The word "systematic" in this definition is the key to understanding why many private-sector companies have turned to asset management to ensure that their profits aren't jeopardized by the high cost of maintaining their facilities and why public-sector officials are looking to the concept as a way of keeping a closer watch on taxpayer dollars.
Asset management draws on the principles of engineering, business management, and economics and makes use of the latest computer-aided technology. It provides tools for decision-making and can create a framework for short- and long-term planning.
In an effort to explore the possibilities presented by asset management, the Federal Highway Administration (FWHA) and the American Association of State Highway and Transportation Officials (AASHTO) last year jointly sponsored a first-of-its-kind executive seminar that brought together representatives of some of the nation's most highly respected private companies, industry associations, state and federal agencies, and academic institutions.
This article tells the story of how that symposium came to be held, what we learned from it, and why asset management promises to be such an important tool for transportation professionals who believe that the way to make the best use of increasingly scarce resources is to learn to make smarter and better decisions about their physical assets.
Beyond Pavement Management
Transportation professionals have always known about the importance of management. It's entirely predictable that roadways will need resurfacing and bridges will need maintenance. Departments that are able to more accurately anticipate the amount of work that will be needed in a given period of time - the next fiscal year, for example - inevitably win more favor than those that seem to be surprised by replacement, repair, and maintenance needs that don't appear in the budget.
Federal transportation policy in recent years has strongly favored management of individual assets and classes of assets. The Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) required states to implement six management systems: highway pavement, bridge, highway safety, traffic congestion, public transportation facilities and equipment, and intermodal transportation facilities and systems. The management systems were made voluntary in the National Highway System Designation Act, but the U.S. Department of Transportation has continued to provide support for regional, state, and local planning efforts in all areas of transportation.
FHWA's interest in asset management was, in fact, an outgrowth of our pavement-management program. This was an effort to develop a system to assess the condition of existing pavement; apply factors relative to the remaining service life, repair costs, traffic volume, and detour links; and come up with a strategy to prioritize pavement repair and replacement. It was unquestionably a successful program, but after we had been involved with it for more than a decade, some of us began to wonder whether we were casting the net widely enough in our search for new and creative solutions to problems caused by increased traffic loads, decreased funding, and other realities of transportation planning in the 1990s. We also wondered whether - by thinking only of pavement management or bridge management - we were losing out on some of the efficiencies and synergies that often come from a more integrated approach to planning.
Frank Botelho, an FHWA senior pavement engineer, thought there might be lessons to be learned from the private sector. "It crossed my mind that large, private corporations that own vast physical assets must have developed very efficient ways of managing those assets," Botelho said. "If you're not doing it right, your competitors will drive you right out of business, because profit dictates. The less efficient you are at managing your assets, the more money comes out of your profit. In essence, it's the same thing in the public sector. We're driven by trying to spend taxpayers' money as cost-effectively as humanly possible. You don't want to waste money, and you want to do a good job in managing the pavement, the bridges, and all the other assets."
A Pioneering Effort
Botelho turned for help to Sue McNeil, professor of civil and environmental engineering at Carnegie-Mellon University in Pittsburgh. Dr. McNeil, an expert in infrastructure management, told Botelho that there was, indeed, a new but growing field of study - asset management - that tries to develop answers to the kinds of questions Botelho and others at FHWA were asking. The goal of asset management is to develop systems that allow decision-makers to have ready access to quantitative data on an organization's resources and its facilities' current and future performance.
Dr. Michael Meyer, chair of Georgia Tech's School of Civil and Environmental Engineering, related asset management to transportation in the following way: "Before, you developed a system that talked about pavements, and that's all you did. You had your pavement engineers focusing on pavements and your bridge division focusing on bridges and your public transit division focusing on public transit and everyone was doing his thing differently with different data. What asset management does is generalize that approach to a much broader perspective across the different divisions, saying it's not just pavement, it's not just bridges, it's not just public transit, it's all of your assets."
"The discipline is still evolving," McNeil explained. "It's certainly something there are a lot of people around the country teaching, mostly at the graduate level. And it goes beyond engineering. The people who work in public management and similar areas are also very interested in this concept."
Botelho didn't approach McNeil with the intention of becoming involved in organizing a conference on asset management. "I said I'd like to find out about conferences and seminars and go to them," Botelho said, "because I want to learn all I can from the private sector. And she [McNeil] said, 'It's funny you asked, because there is no such forum, at least for transportation people.'"
Botelho thought there was no reason FHWA couldn't play the role of pioneer and sponsor a groundbreaking public-private symposium on the new concept of asset management, and others at the agency agreed. This was a chance for FHWA to show leadership in a very important area of transportation management, and a list of possible participants was developed. One of the first steps was to ask AASHTO to help plan the symposium. The involvement of AASHTO ensured that the program would be of immediate, practical use to the engineers and managers who are in the front lines of the battle to manage the nation's complex transportation infrastructure. Another important decision was to ask Meyer to serve as facilitator of the conference.
The FHWA/AASHTO Executive Seminar on Asset Management, held Sept. 16 and 17, 1996, in Washington, D.C., had a total of 65 participants from 23 states. They represented private corporations such as Wal-Mart and the Chrysler Corporation; associations such as the American Concrete Pavement Association and the National Asphalt Pavement Association; state departments of transportation; federal entities such as FHWA and the Air Force; and many other companies, departments, and organizations.
Impressions and assessments of the seminar were as varied as the participants. Everyone had things to learn and things to teach. While private-sector companies may be ahead of the public sector in the ways in which the broader principles of asset management have been incorporated into their businesses, the public sector has plenty of reasons to be proud. Corporate participants in the seminar said they were impressed with the level of initiative and effort, especially in the area of data management, that has been done in the public sector to assess bridges and pavement. They were impressed - and even surprised - by the level of rigor that is being applied to management efforts by many public agencies.
Wal-Mart shared with the participants that they discovered that almost half of the total value of the corporation was in its physical assets. This revelation helped top management understand that not only must they take care of the movement of merchandise, which most people think is Wal-Mart's primary activity, but they also must manage carefully the real estate investments that represent the other half of Wal-Mart's business. As a result, the company is taking a far closer look at the quality of the work done to repave parking lots and upgrade store buildings.
The experience of the U.S. Air Force was also of great interest to conference participants. The Air Force found that the value of its physical assets - not weapons or airplanes, but runways, buildings, and base road systems - was in the neighborhood of $1 billion. Working in cooperation with Congress, the Air Force has established an amount, based on the value of its assets, that is set aside each year for very basic maintenance. Plugging that number into its budget each year automatically gives the Air Force a floor level for basic maintenance that's augmented by funding for specific needs such as runway expansions or new hangar facilities.
We learned about asset management in the telecommunications industry from GTE Laboratories. Industry deregulation means that the focus of asset management is shifting from meeting the requirements of the regulators to meeting the needs of customers. In telecommunications, asset management encompasses network managing and inventory; providing and configuring equipment to deliver services; planning and engineering, including provisions for growth and replacement; and financial recordkeeping. In its own organization, GTE found that top management could spend more of its time on the company's core mission if there were systems in place to manage facilities and infrastructure.
The experience of the Port Authority of New York and New Jersey also provoked great interest. The Port Authority has an annual budget of about $2.6 billion, a quarter of which goes for capital expenditures. Like many other agencies and organizations, the Port Authority is subject to fiscal constraints because of changes in state and local government and fluctuations in the economy. Nonetheless, it has had success in its asset management efforts, primarily because of its success in reinvesting revenues in facilities. The management challenges it faces include increased emphasis on cost control; trends toward divestiture, outsourcing, and privatization; increased emphasis on delivering immediately visible improvements in customer service with increased antipathy to long-term planning; and increased expectations on the part of elected officials and political appointees that financial, business, political, and environmental conflicts will be resolved. Authority officials believe the structured decision-making process offered by asset management will result in better service for users, more business opportunities, and a streamlined agency.
What were the impressions of some of the other participants in the asset management symposium? Darrel W. Rensink, president of AASHTO and director of the Iowa Department of Transportation, admitted he was skeptical at first about the symposium and the asset management idea. "I've got to say, in all honesty, I had some reluctance to go in. I wasn't exactly sure what [session] I was going to attend," Rensink said. "But as I listened, I became more aware and much more interested. This is really not an idle idea but something that's real and important.
"Given all the assets that we manage, we ought to have the ability to go to the computer and ask: If we make an investment in this new bridge, what does that mean in terms of other investments in other parts of the system? And if we have a section of road, is the best investment to overlay it or reconstruct it? We ought to have enough information on the management of our entire system to make decisions like that," Rensink said.
Jerry Eller, director of FWHA's Office of Engineering and an early supporter of the asset management concept, said the conference also helped him understand that "personnel are assets that are often overlooked. You tend to look at assets more in the sense of a tangible thing you build and maintain, but people are assets that need to be managed in terms of recruiting, training, and retention. Dollars aren't the only things that are shrinking. We've had shrinking numbers of people in our agencies, and with that comes a real need to manage and retain the expertise that we have left."
As befits a facilitator, Meyer offered a summary that puts the conference's conclusions into an intellectual framework. "The sense we got from the participants is that asset management is a very important area for the stewardship of the infrastructure investment that we have in this country. Everyone agreed that asset management is an important element of decision-making in both public and private agencies and that more research and resources should be devoted to developing better approaches to managing those assets in the context of computerized information systems.
"One of the key issues is how you characterize or identify measures of conditions that can be monitored and predicted over time, so you can say when your investment should go into play," Meyer said. "And the other element - and I think this is an important observation - is that asset management systems really are decision support systems, and you need to ask the obvious question of what types of decisions have to be made and what kind of information is necessary for those who have to make those decisions. You really have to ask yourself those questions rather than starting off on the data side. Everyone likes to collect data, but you have to ask how it's going to be used."
Similarly, Dick Weaver, deputy director of the California Department of Transportation, emphasized, "What we need is information, not just data."
The Next Steps
The report that was published on the symposium states that "ideally, in the future, transportation agencies will make full use of asset management in both their short- and long-term decision-making in the planning, budgeting, and operating functions." To do this, the report says, they will need an inventory, condition assessment, and an asset evaluation; performance prediction measures and trend indicators; cost estimates of asset management options and resulting impacts; and engineering/economic optimization tools.
The report says that to implement these asset management systems of the future, transportation agencies must:
How likely is it that any of this will come about? The first step is to make sure that transportation managers and planners know about asset management and the advantages it can have for their organizations.
"We've sent our report on the seminar to all of the states, and now we intend to encourage the states to have their own asset management seminars, to bring together legislators and people from private industry and talk about the concept and what it can do in terms of taking care of your assets at the same time that your budget is being reduced," said Eller.
It's clear that many of the seminar participants will take an active role in these communications efforts. "One of the challenges now is: How do we maintain the momentum and keep the communication going?" McNeil said.
"We should not let the results of the symposium lie idle and not be followed up on," stressed Rensink. "We need to continue on, and that's what I plan to do as president of AASHTO." In fact, asset management is on the agenda for AASHTO regional meetings this summer and for the annual meeting this fall. Frank Francois, AASHTO's executive director, said that the level and intensity of the organization's effort on asset management still must be determined by AASHTO's leaders, "but we clearly will be following up on it because there are a lot of principles here that we need to apply."
There is also a great deal that the Department of Transportation can do in its role as a national transportation resource to promote asset management. First of all, within the department, it's important that all the transportation modes share the responsibility for outreach and education. Asset management clearly has implications beyond pavement and bridges, and, in fact, it is most useful when it addresses a broad range of facilities, procedures, and outputs. The department has the ability to provide information and education more economically and efficiently than 50 individual states. Working with organizations, such as AASHTO, the department can ensure that its efforts are useful and relevant.
In the world beyond transportation, the principles of asset management continue to gain acceptance and adherents. The National Science Foundation has announced plans to establish an Institute for Civil Infrastructure Systems that would serve as a catalyst for research and educational programs in a discipline that is synonymous with asset management. McNeil, who continues to teach and speak widely about asset management, said the establishment of the institute could help "move this idea to the status of a science with an educational philosophy."
Asset management isn't a panacea for the nation's transportation problems, and it's not the kind of new invention that makes everything that has preceded it obsolete. In many ways, we learned that we may manage a lot of assets, but we do not really practice asset management. Asset management is a new way of thinking about our physical resources and how they are interrelated. Properly applied, it holds out the promise of enabling us to manage our national transportation infrastructure even in the face of dwindling resources and increasing stress on all parts of the system. Asset management includes managing existing assets and planning for future assets. FHWA is proud to be involved in promoting an understanding of asset management and its use in transportation investment decision-making, but it's a subject we've only just begun to explore.
Charles Nemmers is director of FHWA's Office of Engineering Research and Development at the Turner-Fairbank Highway Research Center in McLean, Va. In his 29-year career with FHWA, he has had a series of field and headquarters assignments, including serving as the top FHWA official in New Jersey, Georgia, and Delaware. It was in these positions that he experienced the tension between short-and long-term investments and the necessary tradeoffs among safety, level of service, environment, better technology, cost, etc. In his current position, he leads an initiative to "Make Roads Better" through the use of new and improved technologies. He has a bachelor's degree in civil engineering from Marquette University and a master's degree in public administration from Ohio State University. He is a registered professional engineer in Colorado.