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Conditions and Performance Report. Appendix D.

Conditions and Performance Report
Appendix D—Asset Management and
Investment Strategies: An Update

Conditions and Performance Chapter Listing

Conditions and Performance Home Page


Current Practice

Assessment of Current Practices

Improving the Process

Strategies for Implementation



Improving the Process
(What Do We Need?)


"Asset Management" is a still-emerging concept in the highway industry. But at its heart, it provides a solid foundation from which to monitor the transportation system and optimize the preservation, upgrading, and timely replacement of highway assets through cost-effective management.

Although the transportation community continues to refine the definition of Asset Management as it gains more experience with it, the following "working definition" may be offered:

Asset Management is a systematic process of maintaining, upgrading, and operating physical assets cost-effectively. It combines engineering principles with sound business practices and economic theory, and it provides tools to facilitate a more organized, logical approach to decision-making. Thus, asset management provides a framework for handling both short- and long-range planning. [Source: Asset Management: Advancing the State of the Art into the 21st Century Through Public-Private Dialogue, Federal Highway Administration (FHWA) / American Association of State Highway and Transportation Officials (AASHTO) Sponsored Workshop, September 1996.]

An Asset Management decision-making framework is guided by performance goals, covers an extended time horizon, draws from economics as well as engineering, and considers a broad range of assets that include physical as well as human resources. Asset Management provides for the economic assessment of trade-offs between alternative improvements and investment strategies from the network- or system-level perspective—that is, between modes and/or asset classes within modes. At the same time, it allows for the more complete comparative analysis of options for individual projects.

Asset Management links user expectations for system condition, performance, and availability with system management and investment strategies. An Asset Management system will report on progress made in achieving goals and will also evaluate the process relative to the goals. Furthermore, the impact of alternative management and investment strategies on realizing the expressed goals may be readily determined and communicated.

The focus is on assets (dollars, people and physical resources) and system performance and includes return on investment, maximizing economic efficiency, accountability, opportunity costs and future requirements. This broad approach to resource allocation and programming decisions can provide greater value to the system and overall satisfaction for end-users. Program quality and system performance will improve.

Asset Management not only aides in the decision-making process, but also provides for a fact-based dialogue between system users and other stakeholders, State government officials, and managers concerned with day-to-day operations. This results from relevant, objective and credible information being accessible to all participants in the decision-making 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 other times data generated from the analytical process—results in an improved under-standing of the economic trade-offs, return on investment and potential value of the end product.

Asset Management provides easy access to quantitative and qualitative data and allows decision-makers to more readily identify and focus on key issues. Further, the ability to weigh and articulate the impact of choosing one alternative over another through "what if" analyses is enhanced. And, importantly, the documentation explaining the selection of a particular strategy is improved. A fact-based, reproducible, systematic approach can enhance the dialogue among decision-making bodies regarding capital investment levels.

Distilled to its essence, Asset Management is a strategic, as opposed to tactical, approach to managing assets. The process works as follows: First, performance expectations, consistent with goals, available budgets and organizational policies, are established and used to guide the analytical process, as well as the decision-making framework. Second, inventory and performance information is collected and analyzed. This information provides input on future system requirements (also called "needs"). Third, the use of analytical tools and reproducible procedures produces viable cost-effective strategies for allocating budgets to satisfy agency needs and user requirements, using performance expectations as critical inputs. Alternative choices are then evaluated, consistent with long-range plans, policies and goals. The entire process is reevaluated annually through performance monitoring and systematic processes.

Exhibit D-2 illustrates a generic Asset Management system and lists key questions that inform the analytical process. The components are indicated as well as the relationships among them. Various issues, tools and/or activities are associated with each component. For example, "trade-off analysis" would include the application of an array of engineering economic analysis (EEA) tools including benefit/cost analysis, life-cycle cost analysis, and risk analysis.

Exhibit D-2. A Generic Asset Management System

The components indicated would typically be included in any Asset Management approach, although the specifics of any given system would differ to suit a particular highway agency. States will define the parameters of their own systems based on State decision variables, such as policies, goals, asset types and characteristics, budgets and State operating procedures and business practices. Furthermore, any Asset Management system should be flexible enough to respond to changes in any of these variables or factors.

The assets likely to be included in a State's initial Asset Management implementation efforts will depend on the organization's existing capabilities, particularly in the area of technical, financial, and human resources.

What is needed to support the Asset Management approach is a logical sequence of decision steps constituting a decision framework. The framework is supported by (1) information regarding organizational goals, policies, and budgets; (2) horizontal and vertical organizational integration to implement the decision steps in practice; and (3) technical information to support the decision-making process. The critical inputs to the Asset Management decision-making framework are depicted in Exhibit D-3.

Exhibit D-3
Strategic Asset Management
Framework Requirements

Technology enables an Asset Management system to function. Asset Management relies on technology in two key areas. First is the collection, storage and analysis of data. Data can be gathered more quickly with higher quality and spacial accuracy than ever before. These data can then be stored, retrieved and analyzed with powerful data servers and software. For example, with the advances in geographic information systems (GIS) and global positioning systems (GPS), the important spatial component of analysis can be more fully explored. With the development of faster and more capable computers, the application of more robust and sophisticated modeling software is possible.

The second important aspect of technology relates to the presentation and communication of the analytical results to decision-makers inside and outside the agency. Most DOTs have their computers on networks which allow for greater levels of communication than ever before. Again, advances in software, including GIS, allow for the presentation of these results graphically. Through advanced multimedia capabilities, today's software can effectively paint a picture of what the analysis predicts, markedly improving the communication of ideas.

The critical inputs to the Asset Management decision-making framework are addressed in the following sections.

Organizational Goals, Policies, and Budgets

Asset Management is a customer-focused, goal-driven management and decision-making process. Organizational goals, policies, and budgets establish a consistent evaluative philosophy. Goals and performance indicators are literally the levers that drive the Asset Management decision framework, establishing investment levels that reflect service levels and resource commitments consistent with the perceived needs of the public. Analysis procedures regarding alternative options are implemented within this framework.

Decisions regarding program investments are optimized according to goals established by elected officials and policy makers. Performance goals provide a way to convey to the public how DOT officials are managing the public's assets. Asset Management provides a logical, fact-based approach to dealing with and explaining the impact of the practical realities discussed earlier.

The success of program strategies and practices is measured by changes in performance and remaining structural life. Performance criteria and measures also help decision-makers identify and target critical system requirements.

Organizational policies may be thought of as a broad overlay to the process. Nonengineering/ noneconomic factors that reflect an agency's values, perceptions and predispositions may modify performance-based decisions. For example, established policies, or "rules of thumb," may direct an agency to select an investment alternative based on historic practice or other reasons. Also, management may assign noneconomic resource constraints to some asset components.

The key to establishing performance goals is determining user priorities, values and standards related to areas such as ride smoothness and overall level of service; travel time; overall system mobility; accessibility to the system; and availability of facilities. Goals may be defined in terms of the percentage of assets that meet agency performance levels, as one example.


Key to an Asset Management decision-making framework (see the triangle at Exhibit D-3) is organizational integration. The strategic orientation of Asset Management demands a system that (1) includes channels of communication which will transmit the overarching information required by legislators, the public and other stakeholders, agency executives, and front-line practitioners; and (2) will supply information and coordinating mechanisms across functions and asset classes within the organization.

The prevalent "stovepipe" approach to managing assets (discussed earlier), in which decisions are primarily driven by the objectives of individual organizational units, will be coordinated and integrated in an Asset Management approach so that communication occurs horizontally as well as vertically. A comprehensive, fully integrated Asset Management system weaves together information on all asset inventories, condition and performance databases, and alternative investment options.

Vertical communication channels start at the traditional asset management systems and continue to the highest executive-level decisionmakers. Vertical communication is essential to the success of Asset Management in two ways. First, effective communication between the various organizational levels will assist in overcoming implementation challenges by helping senior managers to understand the factors that drive decisions at the operational, or working level. Those workers on the frontline will be supplied the information necessary to appreciate the connection between the agency's strategic goals and tactical decisions resulting in particular actions. In this way, buy-in and support for incorporating Asset Management principles, concepts, and techniques into an agency's organizational culture and decision-making are facilitated.

Second, vertical communication is important in facilitating the flow of information from one level of the organization to another and beyond. Effective information flow within the DOT and from the DOT to the customer—the traveling public—is critical. Performance goals and measures, discussed in the preceding section, facilitate the education and involvement of users and decisionmakers.

Legislators and political appointees need information regarding the importance of long-term time horizons. An example of where this is important is in the need to communicate the merits of system preservation, needed upgrades, and continued operating reliability which customers expect of all the facilities and assets a highway agency manages. The relationship between preservation, upgrading, operation, and return on investment and customer satisfaction must be effectively articulated and clearly demonstrated to decision-makers.

Horizontal communication implies organizational integration and is important to the Asset Management decision-making framework because input from functions ranging from finance to planning to information management to human resources is required. To make Asset Management a viable process, managers in these various disciplines will need to be comfortable with Asset Management analyses and will need to incorporate the findings of an Asset Management process into their work. In addition, horizontal communication between those responsible for the various asset classes is crucial.

There are both opportunities and constraints facing organizations embarking on Asset Management systems. In particular, the component "stovepipe" structure provides a foundation from which to build more sophisticated data collection procedures and advanced analytical approaches. However, the stovepipe structure also fosters a sense of ownership and may discourage communication and cooperation.

State DOTs, however, have already begun to lay the groundwork in varying degrees for new formal or informal organizational structures. Many have recognized the value of communication as essential to a productive work environment and are engaged in reengineering their organizations consistent with these principles.

Technical Information

Since much data is already available, the goal is to take that data and convert it to information. This requires (1) the ability to collect, process and evaluate the data; (2) the analytical tools to evaluate and select the most cost-effective alternative investment strategies, both within and among program areas; and (3) the tools and expertise to effectively communicate this information to other groups who may not be familiar with the programs or situation. As indicated earlier, DOTs will build on current capabilities. Agencies will integrate the new with the old. They will also work to improve current approaches and tools.

Information Management

The technological strides made in information management—gathering, processing, analyzing, storing, retrieving and communicating enormous quantities of data—has made comprehensive Asset Management a feasible goal.

Asset Management is a data-intensive process and information management is at the center. It requires, for example, inventory-based information on all the assets in the portfolio of interest. This includes descriptions, types and numbers, functional responsibilities, and past, current and anticipated future condition and performance.

Many State DOTs have established databases and collection procedures that support existing component asset management systems such as for pavements, bridges and maintenance. States have made significant strides forward in deploying these systems, yet much remains to be done in terms of establishing mechanisms for bringing the data from these disparate systems to a common decision-making platform.

New Asset Management structures will build upon the existing systems and capabilities. The new tools will need to be compatible with the established systems. It is interesting to note that component management systems are not expected to be replaced, as they will continue to be appropriate for consideration of asset-specific issues such as those related to project design.

Asset Management requires much more than co-locating a collection of pavement, bridge and maintenance management capabilities under one umbrella. Improved information systems (including hardware and software), analytical tools, and interfaces between functions and asset classes need to be linked so the required information is communicated to the relevant decision-makers in a universally comprehensible form. This does not necessarily imply a single database; separate databases that include compatible referencing systems for information exchange may be appropriate. In addition to relational databases, key technologies in this area are likely to include GIS and GPS.

Questions about what data to collect, at what frequency, with what level of quality, and at what cost, need to be addressed in the context of what is required for the "bottom line" decisions. Data collection is not an end in itself. As indicated earlier, data collection procedures should be consistent with an agency's goals as expressed in their performance measures.

Analytical Tools

Engineering, economic and behavioral models are an integral part of an Asset Management-based decision-making process. Analytical tools used in the course of Asset Management relate investment to performance of the system. The fundamental objective is to maximize benefits for users while minimizing agency costs. Asset Management recognizes the impact that the condition and performance of the transportation system has on the user as well as the more traditional perspective which focuses on the impact that the user has on the system.

The analytical tools facilitate the discussion underlying the decision-making process by providing the ability to articulate the impact of choosing one alternative over another through engineering and economic-based "what if" analyses. Increasingly sophisticated analytical applications, greater understanding of key relationships and concepts, and improved procedures contribute to the ability to credibly calculate and report the results of alternative investment scenario evaluations. These tools provide a means of quantifying and communicating the importance of transportation investments to the public and decision-makers.

Engineering Economic Analysis (EEA) provides a broad collection of tools which collectively allow competing investment options to be prioritized according to relative economic efficiency levels. These tools include life-cycle cost analysis, benefit/cost analysis, optimization and prioritization, and risk analysis. These analytical procedures consider initial and discounted future agency, user and other costs (such as external costs) over the life of each alternative investment option. They attempt to identify the option that will achieve established performance objectives at the most viable long-term cost, or provide maximum benefit for a given investment/funding level.

EEA can also quantify the risk of not realizing, in practice, the level of benefits and costs predicted by the economic/engineering modes for the strategy implemented. There is inherent uncertainty in many of the assumptions—such as resource availability, costs, weather, and travel demand—that drive the engineering/economic models. The risk is important to decision-makers and should be provided for consideration. Risk analysis models can assist with this.

Forecasting Tools. Forecasting tools are critical to Asset Management, particularly those that relate future investment levels to future condition and performance. These tools help to assess the impact of say, inadequate routine maintenance and deferred capital maintenance. Examples include probabilistic and deterministic performance prediction models and traffic forecasting models.

Group Decision-Making Analytical Methods. As a cautionary note, implementing an integrated systems approach to investment analysis presents the potential of creating adversarial situations as a result of the competition between assets within and among modes or assets. This is most probable in the case of setting performance standards where higher or lower standards imply changes in funding levels. Objective tools are available to assist in conflict resolution by helping the parties to find "win-win" solutions where all participants gain.

It should be noted that while many of the above tools appear promising to Asset Management, some have not been tested in actual practice. Therefore, future research may be called for to ascertain their applicability.

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Page last modified on November 7, 2014
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