Asset Management Strategies Asset Management Strategies to Optimize Transportation to Optimize Transportation

InvestmentInvestment

By By Prof S KhasnabisProf S Khasnabis

Wayne State University, Detroit, USA.Wayne State University, Detroit, USA.Fulbright Research Scholar 2004Fulbright Research Scholar 2004

Visiting Faculty, Indian Institute Of Technology Bombay, Visiting Faculty, Indian Institute Of Technology Bombay, IndiaIndia

Presentation AtPresentation AtBengal Engineering and Science University, ShibporeBengal Engineering and Science University, Shibpore

2929thth November 2004 November 2004

United States Educational United States Educational Foundation In India (USEFI)Foundation In India (USEFI)

Educational Information Center Affiliated with the Educational Information Center Affiliated with the Bureau of Educational and Bureau of Educational and Cultural Affairs of the Cultural Affairs of the US US Dept. of State.Dept. of State.Promote Mutual Understanding Between People of Promote Mutual Understanding Between People of

India and USA.India and USA.Educational / Cultural Exchange of Scholars Educational / Cultural Exchange of Scholars Professionals and Students.Professionals and Students.

USEFI …Cont..USEFI …Cont.. Also known as Fulbright Commission.Also known as Fulbright Commission. Enables Research, Lectures and Studies Enables Research, Lectures and Studies Administration of Fullbright fellowship for Indian Administration of Fullbright fellowship for Indian

and American Citizensand American Citizens Promotion of Educational exchange among Promotion of Educational exchange among

Fulbrighters and their CommunitiesFulbrighters and their Communities Educational advising for students interested in Educational advising for students interested in

higher education in US, the most preferred higher education in US, the most preferred destination of Indian students going abroad.destination of Indian students going abroad. (approximately (approximately 7500075000 currently enrolled in US currently enrolled in US

Universities)Universities)

USEFI (Location)USEFI (Location)

Headquarter: New DelhiHeadquarter: New Delhi Regional: Chennai, Kolkata, MumbaiRegional: Chennai, Kolkata, Mumbai Website: Website: www.fulbright_india.comwww.fulbright_india.com Satellite Locations: Satellite Locations:

Ahmedabad, Bangalore, Hyderabad and Ahmedabad, Bangalore, Hyderabad and Manipal.Manipal.

USEFI Cont…….USEFI Cont…….

Autonomous body formed by the US Congress.Autonomous body formed by the US Congress. 1950 Bilateral Agreement: Board of Directors1950 Bilateral Agreement: Board of Directors

5 from US nominated by US ambassador5 from US nominated by US ambassador 5 from INDIA nominated by Govt. of India5 from INDIA nominated by Govt. of India

Over 7350 Fulbright Fellowships to Indians and Over 7350 Fulbright Fellowships to Indians and Americans since 1950 (Sponsored by Dept. of State).Americans since 1950 (Sponsored by Dept. of State).

An Additional 8000 Fellowships by other US Govt. An Additional 8000 Fellowships by other US Govt. Agencies.Agencies.

Fulbright ProgramFulbright Program

Established in 1946Established in 1946

Legislation introduced by Senator J W FulbrightLegislation introduced by Senator J W Fulbright

Created a large Cultural and Academic network Created a large Cultural and Academic network world wideworld wide

Operates in 140 countriesOperates in 140 countries

Fulbright Program Cont..Fulbright Program Cont..

Collaborates withCollaborates with

Fulbright Foreign Scholarship BoardFulbright Foreign Scholarship Board

US Dept. of StateUS Dept. of State

Institute of International Education Institute of International Education

Council for International Exchange of ScholarsCouncil for International Exchange of Scholars

US Dept. of EducationUS Dept. of Education

Asset Management (AM)Asset Management (AM)a)a) A Systematic Process Of Infrastructure A Systematic Process Of Infrastructure

Management Management ConstructingConstructing MaintainingMaintaining

UpgradingUpgradingb) Organized Approach Of Investment Decisionb) Organized Approach Of Investment Decision Sound Engineering TechniquesSound Engineering Techniques Robust Economic PrinciplesRobust Economic Principles Uncertainty and Risk of InvestmentUncertainty and Risk of Investment

Asset ManagementAsset Management

a)a) Private IndustryPrivate Industryb)b) Public SectorPublic Sectorc)c) Public Private PartnershipPublic Private Partnershipd)d) A Broad Emerging FieldA Broad Emerging Fielde)e) Forerunners:Forerunners: AustraliaAustralia FranceFrance

New ZealandNew Zealand UKUK USAUSA

SingaporeSingapore Hong KongHong Kong IndiaIndia

ObjectivesObjectives

Develop an Analytic Framework to test AM Develop an Analytic Framework to test AM StrategiesStrategies

Identify Transportation (Infrastructure) ProgressIdentify Transportation (Infrastructure) Progress Identify data needsIdentify data needs Collect DataCollect Data Conduct Preliminary AnalysisConduct Preliminary Analysis

Past and Current AM Projects Past and Current AM Projects at Wayne State Universityat Wayne State University

Transit Fleet Management ( Project-1)Transit Fleet Management ( Project-1)

Nationwide Need:$1.5 billion/yearNationwide Need:$1.5 billion/year

Michigan’s RoleMichigan’s Role

85 Agencies85 Agencies

80:20 Federal : Local Funds80:20 Federal : Local Funds

Question: Purchase Vs Rehabilitation Question: Purchase Vs Rehabilitation

Vs Remanufacturing(?)Vs Remanufacturing(?)

Project 1:Cont……Project 1:Cont……

Two Sequential ModelsTwo Sequential Models

Model1: Distribute Resources Among Three Model1: Distribute Resources Among Three ProgramsPrograms

1.To Minimize Total Cost Subject to fleet life 1.To Minimize Total Cost Subject to fleet life and other constraintsand other constraints

OrOr 2.To maximize fleet life subject to budgetary 2.To maximize fleet life subject to budgetary

and other constraints and other constraints

Model2: Allocate Resources(Model1 Model2: Allocate Resources(Model1 Output) Output)

Among Agencies to Maximize Remaining Life, Among Agencies to Maximize Remaining Life, Subject to different Constraints Subject to different Constraints

Funded ByFunded By

US Dept. Of TransportationUS Dept. Of Transportation

&&

University Of WisconsinUniversity Of Wisconsin

Model 1Model 1Objective function:Objective function:

Maximize Weighted Fleet LifeMaximize Weighted Fleet Life

= (X= (X11ll11))ΣX + …… + ΣX + …… + (X(X44ll44))ΣXΣX

Subject to:Subject to:

CC11XX11 + ….. + C + ….. + C44XX4 4 << Budget Budget

ΣX = Demand (for new buses)ΣX = Demand (for new buses)

XXii >> 0 (non-negative) 0 (non-negative)

Model 2Model 2Uses Model 1 results and the current age distribution Uses Model 1 results and the current age distribution

of the fleet in terms of remaining life (RL)of the fleet in terms of remaining life (RL)

RL = amount of life left until MNSLRL = amount of life left until MNSL

Concept:Concept:

As REPL/REHAB/REMANF buses are added to As REPL/REHAB/REMANF buses are added to the fleet the distribution changes, increasing the the fleet the distribution changes, increasing the weighted average remaining (WARL) life of a bus in the weighted average remaining (WARL) life of a bus in the peer grouppeer group

Model 2Model 2

WARLWARL

““Health Index” for peer groupHealth Index” for peer group

Medium sized range:Medium sized range:

0 < WARL < 70 < WARL < 7

Taken as the weighted average of the entire Taken as the weighted average of the entire distribution matrixdistribution matrix

Model 2Model 2Existing Weighted Average Remaining Life Existing Weighted Average Remaining Life

(EWARL), similar to WARL but at the (EWARL), similar to WARL but at the agency levelagency level

Optimization: Based on premise that the Optimization: Based on premise that the EWARL will increase as EWARL will increase as REPL/REHAB/REMANF are added to REPL/REHAB/REMANF are added to agencies fleetsagencies fleets

Model 2Model 2

Addition will result in a New WARL Addition will result in a New WARL (NWARL) for the agency(NWARL) for the agency

Therefore, objective function will be to Therefore, objective function will be to maximize the sum of the NWARL for all maximize the sum of the NWARL for all the the agenciesagencies

Constraints will be from Model 1 results Constraints will be from Model 1 results and additional user constraints and additional user constraints

ApplicationApplication

Peer Group of 93 agencies (1, 2…..93) (similar to Peer Group of 93 agencies (1, 2…..93) (similar to actual data in Michigan)actual data in Michigan)

Total fleet size of 720 medium busesTotal fleet size of 720 medium buses

Has 235 buses with RL of 0 years, at $81,540/bus = Has 235 buses with RL of 0 years, at $81,540/bus = $19.16 M$19.16 M

Budget projections from MDOT.Budget projections from MDOT.

ApplicationApplication

Only have funds for 71 buses, $5.79 MOnly have funds for 71 buses, $5.79 M

Same four programs described earlierSame four programs described earlier

7 year planning horizon7 year planning horizon

Must first allocate funds among four Must first allocate funds among four programs programs for first year.for first year.

Model 1 ResultsModel 1 ResultsFor $5.79 M, the 235 bus demand can be For $5.79 M, the 235 bus demand can be satisfied by:satisfied by:

Replacement (REHAB 1)(2 yrs) =107 busesReplacement (REHAB 1)(2 yrs) =107 buses

Remanufacture (REMANF)(4yrs)=128 busesRemanufacture (REMANF)(4yrs)=128 buses

Now must allocate program funds among remaining Now must allocate program funds among remaining 6 years while accounting for maturation.6 years while accounting for maturation.

Model 1 ResultsModel 1 ResultsFor 7 year projection must adopt policy For 7 year projection must adopt policy directives to address limited additional life:directives to address limited additional life:

A vehicle can only be rehabilitated two consecutive A vehicle can only be rehabilitated two consecutive timestimes

A vehicle can only be remanufactured one timeA vehicle can only be remanufactured one time

Can rehabilitate then remanufactureCan rehabilitate then remanufacture

Model 1 ResultsModel 1 Results

YearNo of Buses

Unit cost $

No of Buses

Unit cost $

No of Buses

Unit cost $

No of Buses

Unit cost $

Surplus/ Deficit $

2002 0 81,540 106.725 17,800 0 24,500 128.275 30,320 235 235 3.092 5,789,000 5,789,000 02003 106.032 81,540 0 17,800 0 24,500 15.968 30,320 122 122 6.607 9,130,000 9,130,000 02004 31.543 88,063 0 19,220 0 26,400 119.457 32,750 151 151 4.627 6,690,000 6,690,000 02005 23 88,063 0 19,220 0 26,400 0 32,750 23 23 7.000 5,200,000 2,025,449 3,174,5512006* 128 95,108 0 20,740 63 28,500 0 35,370 191 191 5.681 6,750,000** 13,969,324 (7,219,324)2007 55.418 95,108 0 20,740 0 28,500 37.582 35,370 93 93 5.788 6,600,000 6,600,000 02008* 119 102,720 78 22,400 0 30,780 0 38,200 197 197 5.020 5,850,000 13,970,880 (8,120,880)2009 23.1525 102,720 0 22,400 0 30,780 117.847 38,200 141 141 4.493 6,880,000 6,880,000 0Total 486.146 184.725 63 419.129 1153 1153 42.307 52,889,000 65,054,653 (12,165,653)***

Amount Committed $

REPL (X1) (7 years)

REHAB 1 (X2) (2 years)

Total No. of Buses

Demand N

REHAB 2 (X3) (3 years)

REMANF (X4) (4 years)

Max Weighted Fleet Life

(years)Available Budget $

Model 2Model 2EWARL for each agency is shownEWARL for each agency is shown

TEWARL = 225.23 years, before any allocationTEWARL = 225.23 years, before any allocation

Can only give 107 REHAB 1 and 128 REMANFCan only give 107 REHAB 1 and 128 REMANF

Can not have any expansion busesCan not have any expansion buses

WARL for the peer group = 2.68 years (entire matrix)WARL for the peer group = 2.68 years (entire matrix)

Distribution of RL Before AllocationDistribution of RL Before Allocation

Agency 0 1 2 3 4 5 6 7 Fleet Size EWARLi (years)

1 1 0 0 0 0 0 0 2 3 4.672 1 0 0 0 0 0 0 0 1 0.003 1 0 0 0 0 0 0 0 1 0.004 0 0 0 0 3 3 0 1 7 4.865 4 0 0 2 4 2 0 1 13 3.006 1 0 0 0 1 6 1 1 10 4.707 1 0 0 0 2 1 1 0 5 3.808 2 0 0 0 0 0 0 0 2 0.009 2 0 0 0 0 0 0 0 2 0.00

10 18 4 0 0 0 0 0 0 22 0.1811 3 0 0 0 0 0 0 0 3 0.00

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90 0 4 2 0 1 0 6 6 19 4.7491 0 1 0 0 0 0 1 0 2 3.5092 2 1 0 0 1 1 0 3 8 3.8893 2 0 0 0 1 3 1 0 7 3.57

235 122 44 23 63 77 78 78 720 225.23

TEWARL = 225.23 years/busWARL = 2.68 years/bus

Distribution of Remaining Life

Model 2 resultsModel 2 resultsWARL for peer group = 3.69 yearsWARL for peer group = 3.69 years

TNWARL = 376.72 yearsTNWARL = 376.72 years

Each agency has a new individual EWARL Each agency has a new individual EWARL (termed NWARL)(termed NWARL)

All buses with RL 0 years are “replaced”All buses with RL 0 years are “replaced”

Distribution of RL After AllocationDistribution of RL After Allocation

Agency 0 1 2 3 4 5 6 7 Fleet SizeNWARL (years)

Additional New

REHAB1 Buses

Additional New

REMANF Buses

1 0 0 0 0 1 0 0 2 3 6.00 0 12 0 0 0 0 1 0 0 0 1 4.00 0 13 0 0 0 0 1 0 0 0 1 4.00 0 14 0 0 0 0 3 3 0 1 7 4.86 0 05 0 0 0 2 8 2 0 1 13 4.23 0 46 0 0 0 0 2 6 1 1 10 5.10 0 17 0 0 0 0 3 1 1 0 5 4.60 0 18 0 0 0 0 2 0 0 0 2 4.00 0 29 0 0 0 0 2 0 0 0 2 4.00 0 2

10 0 4 18 0 0 0 0 0 22 1.82 18 011 0 0 0 0 3 0 0 0 3 4.00 0 3

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90 0 4 2 0 1 0 6 6 19 4.74 0 091 0 1 0 0 0 0 1 0 2 3.50 0 092 0 1 0 0 3 1 0 3 8 4.87 0 293 0 0 0 0 3 3 1 0 7 4.71 0 2

0 122 151 23 191 77 78 78 720 376.72 107 128

TNWARL = 376.72 years/busWARL = 3.69 years/bus

Distribution of Remaining Life

Evaluation of Proposed StrategyEvaluation of Proposed Strategy

Based on improvement proposed strategy brings to Based on improvement proposed strategy brings to fleet compared to current practicefleet compared to current practice

Measured fleet quality by WARL (Health Index)Measured fleet quality by WARL (Health Index)

Method: Convert WARL into dollar value and compute Method: Convert WARL into dollar value and compute Net Present WorthNet Present Worth

Current Practice ProjectionCurrent Practice Projection

7 YEAR BUS REPLACEMENT PROJECTION

Fiscal Year FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY09Funding % 0.30 0.39 0.35 0.36 0.42 0.40 0.31 0.33Vehicles Becoming Eligible 122 44 23 63 77 78 78Total Vehicles Eligible 235 286 218 165 169 175 183 204Total Vehicles Funded 71 112 76 59 71 70 57 67Total Vehicles Unfunded 164 174 142 106 98 105 126 137

BUDGET DETERMINATION

REPL Bus Cost $81,540 $81,540 $88,063 $88,063 $95,108 $95,108 $102,720 $102,720REHAB1 Cmax $17,800 $17,800 $19,220 $19,220 $20,740 $20,740 $22,400 $22,400

REHAB2 Cmax $24,500 $24,500 $26,460 $26,460 $28,500 $28,500 $30,780 $30,780

REMANF Cmax $30,320 $30,320 $32,750 $32,750 $35,370 $35,370 $38,200 $38,200Available Budget (Millions) $5.79 $9.13 $6.69 $5.20 $6.75 $6.66 $5.85 $6.88

Comparative Analysis WARL Current Comparative Analysis WARL Current Practice Practice

vs. vs. Proposed ProcedureProposed Procedure

SourceWARL

(yrs/bus)New Bus Cost ($)

2002 Before(Proposed) 2.682002 After(Proposed) 3.692002 Before (Current) 2.682002 After(Current) 3.37

2003 Before(Proposed) 2.692003 After(Proposed) 3.812003 Before(Current) 2.602003 After(Current) 3.69

2004 Before(Proposed) 2.812004 After(Proposed) 3.782004 Before(Current) 2.932004 After(Current) 3.67

0.32

Net Improvement ( WARL )

(yrs/bus)

Improvement in years for whole

fleet

229 $14,091.74 $3,227,009.10

$310,018.34$14,091.74

$2,556,800.01$15,219.05

81,540

81,540

88,063

0.69

Change in WARL(Proposed)

(yrs/bus)

Change in WARL(Current)

(yrs/bus)

1.12 1.09

1.01

0.03 22

0.97 0.74 0.23 168

Worth of one Bus/Year ($)

(@ 5%)

Total Improvement

($)

Comparative Analysis: Net Present Worth Comparative Analysis: Net Present Worth CalculationCalculation

Present Worth of Savings: $ 20,969,440Present Worth of Savings: $ 20,969,440 Present Worth of Deficit: $ 9,257,095Present Worth of Deficit: $ 9,257,095

Net Present Worth = $ 11,712,345Net Present Worth = $ 11,712,345

Positive value implies initial deficits are compensated by Positive value implies initial deficits are compensated by higher quality of fleethigher quality of fleet

ObservationsObservations

Able to satisfy bus replacement needs through means Able to satisfy bus replacement needs through means other than new buses (can be used for any size bus)other than new buses (can be used for any size bus)

Able to distribute funds among agenciesAble to distribute funds among agencies

Able stay within budgetAble stay within budget

Able to provide “higher quality” of fleet compared to Able to provide “higher quality” of fleet compared to current practicecurrent practice

Project 2:Safety Improvement for Project 2:Safety Improvement for Urban Arterials in SE MichiganUrban Arterials in SE Michigan

Nationwide over 40,000 fatalities/yr (US)Nationwide over 40,000 fatalities/yr (US) Estimated Loss: $250 billion plus/yrEstimated Loss: $250 billion plus/yr Michigan (11 million population) has its own shareMichigan (11 million population) has its own share Focus Area : Urban intersections in SE Michigan (Over Focus Area : Urban intersections in SE Michigan (Over

50% of states population)50% of states population)

Project 2: Cont…Project 2: Cont… Questions to be investigated:Questions to be investigated:

How should safety investments be made(?)How should safety investments be made(?)

What type of improvements(?)What type of improvements(?)

What analytic technique(?)What analytic technique(?)

Development of GuidelinesDevelopment of Guidelines

Funded by Funded by

Michigan Department of TransportationMichigan Department of Transportation

Map of Detroit Metro AreaMap of Detroit Metro Area

Project 3: Public Private Project 3: Public Private Partnership on A Complex Partnership on A Complex

Multidirectional ProjectMultidirectional Project Project DescriptionProject Description

1.1. A third river crossing between DetroitA third river crossing between Detroit(MI,USA) and Windsor (Ontario, CA)(MI,USA) and Windsor (Ontario, CA)

2.A large number of agencies involved2.A large number of agencies involved 3.Largest Trade Corridor, between USA and 3.Largest Trade Corridor, between USA and CANADA CANADA 4.4. NAFTA ConsequencesNAFTA Consequences 5.Need for 35.Need for 3rdrd Crossing Crossing 6.Capacity Vs Customs Problem6.Capacity Vs Customs Problem

7.High Truck Percentage and High Truck Traffic7.High Truck Percentage and High Truck Traffic 8. Border Security8. Border Security

Project 3: Cont…Project 3: Cont…

Location(?)Location(?) Bridge Vs Tunnel(?)Bridge Vs Tunnel(?) Who will Build Own and Prepare(?)Who will Build Own and Prepare(?) Private Industry: Very Little PrecedencePrivate Industry: Very Little Precedence State Reluctant to Invest ($250m)State Reluctant to Invest ($250m) BOOT Approach is suggestedBOOT Approach is suggested Long Term RevenueLong Term Revenue

Funded ByFunded By Wayne State Univ. Center of Legal StudiesWayne State Univ. Center of Legal Studies

Typical BOOT Corporate StructureTypical BOOT Corporate Structure

SourceSource : : Financing and Managing Infrastructure Projects by Merna and Nirju,Financing and Managing Infrastructure Projects by Merna and Nirju,

Asia Law and PracticeAsia Law and Practice

Typical Project Cashflow for BOOT ProjectsTypical Project Cashflow for BOOT Projects

SourceSource : : Financing and Managing Infrastructure Projects by Merna Financing and Managing Infrastructure Projects by Merna and Nirju, and Nirju, Asia Law and Practice Asia Law and Practice

Michigan Transportation State Michigan Transportation State AM CouncilAM Council

11 member Council established by the state 11 member Council established by the state LegislatureLegislature

Members: Those who own Roadway InfrastructureMembers: Those who own Roadway Infrastructure Michigan: State DOTMichigan: State DOT

83 Road Commissions83 Road Commissions

535 Cities/ Townships535 Cities/ Townships

A total of 619 separate agenciesA total of 619 separate agencies

62% of agencies own less than 25miles62% of agencies own less than 25miles

225 agencies own less than 10miles225 agencies own less than 10miles

Michigan Transportation AM Michigan Transportation AM CouncilCouncil

Council to make Necessary Recommendations on Council to make Necessary Recommendations on Future Pavement and Bridge Investment DecisionsFuture Pavement and Bridge Investment Decisions

Legality may Need to be Tested in CourtLegality may Need to be Tested in Court

Potential Projects In IndiaPotential Projects In India

Mumbai-Pune Toll ExpresswayMumbai-Pune Toll Expressway Bandra-Worli Sea LinkBandra-Worli Sea Link MUTP/World Bank ProjectsMUTP/World Bank Projects Frame work to encourage Private participationFrame work to encourage Private participation DMRC ProgramDMRC Program

AcknowledgementAcknowledgement

Wayne State University GroupWayne State University GroupProf. R.D.EllisProf. R.D.EllisProf. P.A.BrinkmanProf. P.A.BrinkmanJoe Bartus, M.S StudentJoe Bartus, M.S StudentLori Goe Prez. StudentLori Goe Prez. StudentDr. K.Kar, Post Graduate FellowDr. K.Kar, Post Graduate Fellow

Transportation Systems Engineering (TSE) Transportation Systems Engineering (TSE) Group, Group, Indian Institute of Technology, BombayIndian Institute of Technology, Bombay

Prof. S.L.DhingraProf. S.L.DhingraProf. K.V.K. RaoProf. K.V.K. RaoProf. V.M.TomProf. V.M.TomSabyasachee Mishra, M.Tech StudentSabyasachee Mishra, M.Tech Student

THANK YOUTHANK YOU