Asset Management Overview
What Is Transportation Asset Management?
Asset management in the transportation industry is a relatively new concept. It means many things to many organizations, but its practices provide a solid foundation for programs that optimize the performance and cost-effectiveness of transportation facilities. At its core, asset management is a business process. The application of asset management principles often means a change in thinking at every level in an organization: to base decisions on information and on getting results.
The roots of today's asset management programs originated in private industry, integrating many of the ideas of W. Edwards Demming, Malcolm Baldridge, and others. Because of its focus, asset management has been highly successful in companies that require a substantial asset base for their operations, such as electrical power companies, telephone companies, large trucking companies, and railroads. In these companies, the goal was clear-maintain a prescribed level of service at the lowest cost possible. Assets that did not meet these criteria were taken out of service and sold. This focus on guaranteeing an acceptable level of service to the customer has had positive results and has made substantial profits for these companies.
Elected officials and public agency managers noted these advancements in the private sector and began to identify ways that government could be run as a business. Although profit is not a motive in the public sector, the basic concepts of performance and cost-effectiveness apply to virtually all government activities. In addition, the sheer investment in transportation assets owned and operated by public agencies is enormous-over $1.75 trillion. In 1993, the U.S. Congress passed the Government Performance and Results Act,1 legislation that identified accountability at all levels in the Federal Government as a priority. Many States have enacted similar legislation, typically calling for State agencies to report what is bought with public funds, how spending decisions are made, and what is accomplished. For transportation agencies, this means a full and updated accounting of the public assets-roads, bridges, and other facilities-that form the basis of Transportation Asset Management.
Defining Transportation Asset Management
Although defining asset management in the private sector was a straightforward process, for the transportation community, it has been somewhat of a struggle. Early definitions identified strategic management as the goal and were often all-inclusive in their descriptions, but they were not always sufficiently focused to be useful working definitions.
An asset management decisionmaking framework needs to be guided by performance goals, cover an extended time horizon, draw from economics as well as engineering, and consider a broad range of assets. At its most basic level, Transportation Asset Management links user expectations for system condition, performance, and availability with system management and investment strategies. Regardless of the definition, the focus is on performance of assets. The underlying goal of asset management is to take a broad approach to resource allocation and programming decisions that will provide greater value to the system and overall satisfaction for end usersthrough improvements in program effectiveness and system performance. The core principles of asset management are listed in the box at right.
Transportation Asset Management provides for a fact-based dialogue among system users and other stakeholders, State government officials, and managers concerned with day-to-day operations. This dialogue results when relevant, objective, and credible information is made accessible to all participants in the decisionmaking process. As such, decisions can be based on detailed input regarding available resources, current system condition and performance, and estimates of future performance. The information underlying asset management-sometimes raw data and at other times data generated from the analytical process-is fundamental to an improved understanding of the economic tradeoffs, return on investment, and potential value of the end product.
The Core Principles of Asset Management
Adapted from NCHRP Report 551, Performance Measures and Targets for Transportation Asset Management, Vol. I, Research Report, 2006, p. ii.
The Federal Highway Association (FHWA), with leadership from the Office of Asset Management, partners with the American Association of State Highway and Transportation Officials (AASHTO), State and local departments of transportation (DOTs) along with FHWA field offices, the Transportation Research Board, and industry in encouraging the application of asset management. As defined by the AASHTO Standing Committee on Highways, Planning Subcommittee on Asset Management,
Transportation Asset Management is a strategic and systematic process of operating, maintaining, upgrading, and expanding physical assets effectively throughout their lifecycle. It focuses on business and engineering practices for resource allocation and utilization, with the objective of better decision making based upon quality information and well defined objectives.2
Over the years, a number of management systems derived from the private sector have been adopted by transportation agencies with varying degrees of success. Some of these include management by objectives, goal-oriented management, risk-based management, and, more recently, enterprise resource planning (ERP). Asset management has many similarities to these methods and incorporates some of the same concepts. The distinguishing feature of asset management, however, is its central focus on assets, their condition, and their performance. Systems such as ERP are based on costs and, in particular, on manpower costs versus manpower performance and progress toward selected goals. Asset management optimizes, rather, on asset performance versus cost and is more suited to transportation organizations with substantial investments in physical assets.
There has been some confusion about the relationship between management systems and asset management. Management systems provide key information and analysis capabilities to agencies implementing asset management principles, but they do not constitute the whole of asset management. Decisions rendered in an asset management environment are much broader in scope, require substantially more economic analysis, and normally involve more than one kind of asset. Transportation Asset Management focuses on the whole transportation infrastructure, and makes possible decisions that reflect the optimal performance of that infrastructure compared to the resources required to operate and maintain it. Additionally, asset management examines investment timing, tools, and economic analyses to assure the effective use of available funds. For example, if borrowing rates are high, an economic analysis might look at tradeoffs between increased costs of repairs due to delaying the work and additional costs incurred by borrowing funds at the current, higher interest rate. Another example is evaluating the overall benefit-cost advantages of conducting regular pavement preservation efforts as compared to resurfacing and replacement. Yet another example is examining tradeoffs between construction costs and maintenance costs over the life of the asset (such as cost savings from installing median guardrail over turf versus maintenance costs for the turf over many years).
What Transportation Asset Management Means to the Public Agency
Those who work in transportation have in common three primary goals:
- Keeping the infrastructure in as good or better condition than it is now.
- Developing and implementing a logical capital improvement plan.
- Containing the costs of planning, building, operating, and maintaining the facilities.
Transportation Asset Management is focused on the transportation infrastructure, and its use directly impacts these three goals. The emphasis on "more information on which to base decisions" leads to higher accountability for officials charged with making those decisions and, to some extent, a new way of looking at managing transportation infrastructure. Programs have to be directed toward defined performance goals and either show solid return on investment or face changes-similar to the way in which private industry focuses on market share and rate of return.
Transportation systems continue to grow rapidly and become increasingly complex. Asset management provides new insights and tools to help transportation professionals make wise investments that result in improved service and greater cost-effectiveness. Because information is central to effective implementation of asset management, each agency has to determine how much information is enough, and that will depend on its goals and its willingness to take risks. It is not cost-effective-or even possible-to have 100 percent assurance for every decision; determining the balance between assurance and cost is one of the key considerations for any asset management program.