assetmanagement a guide for water and wastewater system

5/28/2018 AssetManagement a Guide for Water and Wastewater System

1/112

sset ManagementGuide For

Water and Wastewater Systems2009Edition

PreparedbyNewMexico

EnvironmentalFinanceCenter


2/112


3/112

2009 Edition i

Acknowledgements

The information presented in this document has been compiled from various sources.The overall basis for asset management presented in this document is the approachof Australia and New Zealand as presented in the International InfrastructureManagement Manual Version 2.0, 2002. This information was supplemented withinformation included in EPAs Advanced Asset Management Training program whichis conducted by EPA and GHD Asset Management Center. This training program isbased on the Australia/New Zealand methodology that has been tailored for the

United States.

Additional information for this manual was gained through site visits and interviewsthat the EFC Director held with many individuals involved with asset management in

Australia and New Zealand. These interviews were held with asset managementpersonnel connected with utilities, governmental entities, consulting firms,associations, users groups, and elected officials. The specific focus of the interviewswas how to tailor the asset management principles from larger systems to smallersystems. Information gathered from these interviews and discussions has beenincorporated into this document.

Lastly, the NM EFC provides asset management training to water and wastewaterutilities across the state and in several other states and works directly with watersystems in New Mexico to develop asset management plans. The experiencesgained from working directly with systems and from discussions at the trainingsessions have also been incorporated into this document.

Revision 1

This manual was originally prepared in 2006. It has been updated in 2009. This isthe first complete revision of the document.


4/112

2009 Edition ii

Purpose and Need for Guide

New Mexicos drinking water and wastewater systems will need to implement newadministrative systems and management tools to allow them to adapt to theincreased regulatory requirements and environmental complexities they face. These

new tools will allow the systems to operate on a business model for long termsustainability to help address the issues of new and stricter regulatory requirements,growing populations, increased service demands, limited water supplies, a highlyvariable climate, aging infrastructure, and limited state and federal funding.

Cost estimates for water and wastewater system needs in New Mexico are severalbillion dollars, while the existing state and federal funding sources can only meet afraction of this need. While there may be some increase in funding, similar to thestimulus funding of 2009, there will be insufficient funding to meet all the needs.Therefore, approaches to reducing the gap between what is needed and what fundsare available will need to be adopted. In addition, funding agencies want assurance

that the investments they make in water and wastewater infrastructure will beadequately managed and maintained to ensure long term sustainability and security.This assurance will require water and wastewater systems to present convincingevidence that they possess adequate financial, technical, and managerial capacity toprovide the service that their customers expect, to maintain the infrastructurenecessary to provide that service, and to manage the organization technically andfinancially throughout the life expectancy of the improvements being financed.

To address these significant challenges, the 2005 New Mexico Legislature passedHJM86, which called for the State Engineer, in collaboration with the New MexicoEnvironment Department and other agencies, to develop criteria for water system

planning, performance and conservation as a condition of funding. The results ofthe HJM86 efforts indicated that requiring specific standards related to water andwastewater system operation, management, and planning is the best way to ensurethat the millions of dollars in annual state and federal funding is invested in the mostappropriate and cost-effective projects and is provided to systems that haveadequate capacity to protect that investment. The report developed in response toHJM86 recommended that systems adopt a business model for managing thedelivery of services that includes:

a five-year financial plan with a fully allocated rate structure; an asset management plan;

a water accounting system with full metering; full compliance with the Safe Drinking Water Act (SDWA), the Clean Water

Act (CWA), and all of the regulations of the Office of the State Engineerand the New Mexico Environment Department;

a governance structure adequate for proper management and oversight;and

participation in regional efforts to collaborate on long term solutions.


5/112

2009 Edition iii

In 2006, three Technical Assistance Providers1and the State of New Mexico teamedto develop guidebooks to help water and wastewater systems better manage theirwater resources and plan for their future. The guidebooks are titled:

---Water Use Auditing;

---Financial Planning and Rate Setting Guidebook; and---Asset Management: A Guide for Water and Wastewater Systems.

These guidebooks address core issues regarding water system sustainability:auditing water use to reduce water losses and increase system efficiency, financialplanning and management to ensure sufficient revenues to sustain operations, andasset management to allow the system to provide a sustained level of service at thelowest life cycle cost. Water and wastewater system owners, operators, managers,and board members will find that these guidebooks are useful tools for assessing thecurrent status of their operations and for developing strategic plans for sustainablewater and wastewater service.

Once initial assessments are complete, findings can and should be used by keydecision makers to guide the future of the water or wastewater system. These arenot one time activities; it will be important to reevaluate and update this informationannually or whenever the systems needs change. Over time, the use of the toolscan be increased and enhanced to support more complex and sophisticatedoperations.

Providing safe and dependable supplies of drinking water and protecting waterquality through adequate wastewater treatment is critical to maintaining NewMexicos economic vitality and quality of life. These guidebooks should provide the

tools needed by water and wastewater systems to actively and consistently analyzecurrent operations and future needs in order to develop robust management systemsand well-designed infrastructure to meet these growing challenges.

1Three technical assistance providers contributed to this project. They are the Environmental FinanceCenter, New Mexico Rural Water Association, and Rural Community Assistance Corporation.


6/112

2009 Edition


7/112

2009 Edition iv

Table of Contents

Section 1: Introduction

1.1 What is Asset Management?

1.2 Benefits of Asset Management1.3 Intended Audience1.4 Core Components of Asset Management1.5 Updating the Manual Over Time

Section 2: Asset Management: The Way To Do Business

Section 3: Current State of the Assets

3.1 Introduction3.2 What Do I Own?

3.3 Where Are My Assets?3.4 What is the Condition of My Assets?3.5 What is the Remaining Life of My Assets?3.6 What is the Value of the Assets?3.7 Organizing the Asset Inventory3.8 Summary

Section 4: Level of Service

4.1 Introduction4.2 Why a Level of Service Agreement?

4.3 What is the Minimum Starting Point for a Level of Service Agreement?4.4 What Else Should be Included in the Level of Service Agreement?4.5 How Can the Public be Involved in the Level of Service Agreement?4.6 Can the Level of Service Agreement be Changed Over Time?

Section 5: Critical Assets

5.1 Introduction5.2 Determining Criticality5.3 Probability of Failure5.4 Consequence of Failure

5.5 Assessing CriticalityRisk Analysis5.6 Criticality Analysis Over Time


8/112

2009 Edition v

Section 6: Life-Cycle Costing

6.1 Introduction6.2 Options for Dealing With Assets Over Time6.3 Asset Operation and Maintenance

6.4 Operation and Maintenance of Critical Assets6.5 Repair of Assets6.6 Rehabilitation of Assets6.7 Replacement of Assets6.8 Replacement Schedule6.9 Capital Improvement Planning6.10 Annual Review of Asset Replacement Projects6.11 Impact on Other Portions of Asset Management

Section 7: Long-term funding Strategy

7.1 Introduction7.2 Funding Sources Available7.3 Rates and Asset Management7.4 Other Sources of Assistance/Information for Long-Term Funding

Section 8: Implementation

8.1 The Just Do It Philosophy8.2 The Sustainable Process8.3 The Asset Management Plan8.4 Asset Management Plan Review

Section 9: Resources/References

Section 10: Document References

Appendix A: Asset Inventory ResourcesAppendix B: Level of Service ResourcesAppendix C: Critical Assets ResourcesAppendix D: Life Cycle Costing ResourcesAppendix E: Long-term Funding Strategy

Appendix F: Checklist for Asset Management Reviews


9/112

2009 Edition


10/112

2009 Edition 1

Section 1Introduction

1.1 What is Asset Management?

All water and wastewater systems are made up of assets, some that areburied and some that are visible. These are the physical components of thesystem and can include pipe, valves, tanks, pumps, wells, hydrants, treatmentfacilities, and any other components that make up the system. The assets thatmake up a water or wastewater system generally lose value over time as thesystem ages and deteriorates. As a result of this deterioration, it may be moredifficult to deliver the type of service that the utilitys customers want. Costs ofoperation and maintenance will increase as the assets age. The utility may bethen faced with costs that it can no longer afford.

There is an approach to managing the assets of the system that can assist the

utility with making better decisions on managing these aging assets. Thisapproach is called asset management. The techniques involved in assetmanagement have been refined by the international community, particularly in

Australia and New Zealand.

The International Infrastructure Management Manual defines the goal of assetmanagement as meeting a required level of service in the most cost-effectiveway through the creation, acquisition, operation, maintenance, rehabilitation,and disposal of assets to provide for present and future customers. Acommunity water or wastewater utility should be concerned about managingits assets in a cost effective manner for several reasons: 1) these types of

assets represent a major public or private investment; 2) well-run infrastructureis important in economic development; 3) proper operation and maintenanceof a utility is essential for public health and safety; and 4) utility assets providean essential customer service. Asset management promotes efficiency andinnovation in the operation of the system.

The intent of asset management is to ensure the long-term sustainability of thewater or wastewater utility. By helping a utility manager make better decisionson when it is most appropriate to repair, replace, or rehabilitate particularassets and by developing a long-term funding strategy, asset managementcan assist the utility in ensuring its ability to deliver the required level of service

far into the future.

1.2 Benefits of Asset Management

There are many positive benefits of asset management. Systems that fullyembrace asset management principles may achieve many or all of thesebenefits. However, systems may receive some of these benefits just by


11/112

2009 Edition 2

starting asset management. The benefits of asset management include, butare not limited to, the following:

Better operational decisions Improved emergency response

Greater ability to plan and pay for future repairs and replacements Increased knowledge of the location of the assets Increased knowledge of which assets are critical to the utility More efficient operation Better communication with customers Rates based on sound operational information Increased acceptance of rates Capital improvement projects that meet the true needs of the system

Systems should strive to achieve as many benefits as they can with their assetmanagement program.

1.3 Intended Audience

This guide to asset management is intended for any water and wastewatersystem, but it is intended primarily for small systems. For systems that wish tohave a more robust asset management program, there are many guides andresources that can help achieve a higher-level program. In addition, systemswith greater economic resources may wish to seek out consultantsspecializing in asset management to aid them in developing a more detailedasset management program.

This manual contains all the basic elements of asset management, but doesnot go into extreme depth on any of the topic areas. The manual is structuredfor systems that will not be able to handle extremely sophisticated assetmanagement techniques at this time. Over time, however, systems will beable to improve their asset management programs and will be able to increasethe sophistication of the programs. Some systems may form cooperativearrangements with other systems that would allow them to eventually achievean even higher level of sophistication.

1.4 Core Components of Asset Management

There are five core components of asset management. This manual willdiscuss each of these components in greater depth. A general discussion ofeach component can be found in Sections 3 through 7. There is also anappendix for each of these components that provides resource informationand specific details regarding options for implementing each component.

Asset Inventory Level of Service


12/112

2009 Edition 3

Critical Assets Life Cycle Costing Long-term Funding Strategy

1.5 Updating this Manual Over Time

Asset management is a core business principle that will underlie everything awater or wastewater system does. As such, it is not a side activity that canbe completed and put aside. It becomes the way a system does business andtherefore is always ongoing to some extent. Systems should be continuouslyupdating and improving their asset management programs. Thus, this assetmanagement manual needs to be updated to keep pace with the systemsusing it. As utilities move forward with asset management, it may becomeapparent that portions of the document need to be revised or new sectionsneed to be added. This document will be revised over time to include newinformation, new techniques, or greater clarification.


13/112

2009 Edition 4

Section 2

Asset Management: The Way To Do Business

One of the most important aspects of asset management is that it cannot be

something the utility does on the side as one of its many activities, rather itmust be the way the utility does business. Asset management thinking mustunderlie every activity, every action, and every decision that the utilityundertakes.

Having asset management underlie all of the utilitys activities means thatthere must be buy in of the asset management concepts at all levels of theutility from the least senior employee all the way through the highest electedofficial or manager. Every level of employee must be convinced that assetmanagement is important to the overall function of the utility. If there isinsufficient acceptance of asset management, the plan will be much less

successful or may not succeed at all.

One way to obtain acceptance of asset management is to explain to eachemployee or volunteer working with the system the overall goal of the systemsasset management strategy and how that particular employee will participatein the process. When asset management is adopted as the way of doingbusiness, each employees input, knowledge and expertise is important to theprocess and all are critical to the successful implementation.

Each activity that is undertaken must have asset management thinking at itscore. For example, when working on the water system to fix a break, the

operator should have a map of the system and indicate on it the exact locationof the break. The operator should note all information pertinent to the assetmanagement program, such as: location of break, type of break, type of pipe,type of repair, length of time from report of leak to response to scene, length oftime to repair the pipe, materials used, and difficulties encountered. Thisinformation can then be used in many ways. Did the same pipe break multipletimes? Has the system experienced more breaks on one type of pipe thananother? Did the operator respond in a timely manner? Did the repair getfixed in a timely manner? By tracking this type of data a utility manager canbegin to develop a more comprehensive picture of the overall system and itsoperation.

Another example is a customer complaint. When the utility receives acustomer complaint, it should track various items such as: What routinemaintenance or operational activities were taking place in the time framebefore the complaint? Is there any unusual condition that would cause thistype of problem? Has this complaint been made before? Is there a pattern ofcomplaints of this type (same area, same source, etc.)? Has an operator been


14/112

2009 Edition 5

dispatched to check out this type of complaint? How long did it take torespond?

Throughout the entire utility whether it has 3 employees or 300 everyemployee or volunteer should be considering how theiractivities impact the

overall operation of the utility and how their activities fit within the broaderstructure of the asset management plan.

One of the best approaches to receiving buy-in or acceptability of the assetmanagement program at all levels of the water or wastewater system is todemonstrate successes using the asset management techniques. There aremany small successes that the program may demonstrate over time that canbe used to convince even reluctant employees or volunteers that the effortswill benefit the utility. As an example, producing a map showing the systemsassets in a visual format can be of great benefit to the system, especially ifthere has never been a good map showing these assets.


15/112

2009 Edition 6

Section 3

Current State of the Assets

3.1 Introduction

The first core component of asset management is assessing the current stateof the assets. This component is probably the most straightforward of all. It isalso, arguably, the most important as it underlies all other aspects of assetmanagement. Some asset managers of systems in Australia and NewZealand believe that this step is absolutely critical for a water or wastewaterutility and feel that completing this component alone can greatly improve asystems management.

The types of questions that the utility will ask themselves in this componentare: What do I own? Where is it? What condition is it in? What is its remaininguseful life? What is its value? Each of these facets is discussed in more detailbelow.

3.2 What Do I Own?

The most fundamental question a utility owner, manager, or operator can ask,is what assets do I have? It is absolutely critical for a utility to understandwhat it owns. It is pretty hard to manage something effectively if you dontknow what that something consists of.

Although what do I own is a seemingly straightforward question, it is not

always easy to answer. The difficulties arise from several factors. Some ofthe assets are underground and cant be seen; assets generally are put in atdifferent times over a long period of time; records regarding what assets havebeen installed may be old, incomplete, inaccurate, or missing; and staffturnover in operations and management may limit the historical knowledge ofsystem assets. Given these difficulties it will probably not be possible to createa complete asset inventory the first time the system attempts to do so. It isimportant to recognize that the system is only trying to create the bestinventory it can and develop an approach to adding to or improve the inventoryover time.

To develop the initial inventory, several approaches can be used and theseare listed below. However, the utility should be as creative as possible withother approaches to obtaining this information.

Determine who operated, managed and/or owned the system at thetime of the major construction periods (when a large number ofassets were put in). Interview these individuals and gather as muchinformation as possible regarding their recollections of what assets


16/112

2009 Edition 7

were installed and where they were installed. If there are maps ofthe system, these can be used during the discussions.

Examine any as-built or other engineering drawings of the system. Perform visual observations of above-ground or visible assets (e.g.,

hydrants, pumps, manholes, treatment works).

Interview community residents who may have lived in the areaduring construction and who are familiar with the constructionactivities (especially helpful in very small towns in which theresidents were actively involved in developing the utility).

Interview contractors or engineers that were involved withconstruction.

Estimate buried assets using above ground assets as a guide (e.g.,using manholes to estimate locations, size, and type of pipebetween the manholes; using isolation valve locations to estimateburied water pipe locations).

Examine photographs of the system taken during construction,

repair, etc. Consult USGS Topographic Maps and other non-system generated

maps. Examine aerial photographs both recent and historical. Use existing inventories or numbering systems (fire hydrants,

meters, valves, etc.). Use metal detector to locate buried assets. Consult system records: billing, repair, maintenance, inspection,

O&M manuals, sampling, operators log/notebook, etc. Consult state and/or federal records, databases, or employees for

information such as well depths, drill dates, discharge information,etc.

Several approaches may be necessary to get a good start on the assetinventory. A utility should use as many approaches as it deems necessary toget the best initial inventory of assets.

3.3 Where Are My Assets?

The next step in inventorying the assets is locating them? Once you knowwhat you have, it is important to know where they are. This componentinvolves two steps: 1) mapping the assets and 2) putting a location in the

inventory. In terms of mapping, the most important factor is to have a visualpicture of the asset locations, especially the buried assets. The map can beas simple (hand drawn) or as complex (Geographic Information System) asthe system is capable of. The most important factor is that it is useable totrack any changes to the asset inventory and can be used to track assetfailures. Several different approaches to mapping are discussed in Appendix

A.


17/112

2009 Edition 8

The second aspect of this question involves putting a location in the assetinventory indicating where the asset is located. Generally, this would be astreet name, street address, or building location such as pump house ortreatment building. The addresses should be as specific as possible so thatassets can be grouped together based on their location. It is important to be

able to group assets by their category (i.e., all valves, all hydrants) and by theirlocation (all assets on Main Street.) In this manner, the system can answervarious questions about their system, such as: If I replace the pipe on mainstreet, what other assets are associated with that pipe that will also have to bereplaced? If I replace a component in the treatment building, what otherassets might be impacted?

The location of the asset should be included along with the other inventorydata to allow the types of querying discussed above. Methods of includingdata in an inventory are discussed further in Section 3.7 below.

3.4 What is the Condit ion of My Assets?

After the assets are identified and located on a map, it is important to knowtheir condition. A condition assessment can be completed in many differentways, depending on the capability and resources of the system. The simplestapproach is to gather people who have current or historical knowledge of thesystem in a room. The group can then select a condition ranking approach (0through 5, A through F, Excellent through unacceptable, etc.) and ask thegroup to look at the list of assets and rate each asset using the selectedmethodology. This approach uses the best information available but does notrequire systems to gather additional data in order to rate the assets.

At a higher level or as a next step after the initial ratings of the assets, systemscan gather data on asset condition through more sophisticated means and re-rate the assets. For example, a sewer pipe can be examined with cameras todetermine the interior pipe condition. Water pipes can be evaluated using leakdetection technology. A ranking system as described above may still be usedwith this higher-level data, or a more sophisticated numbering system can beused. Examples of these types of ranking systems are included in Appendix

A.

3.5 What is the Remaining Life of My Assets?

All assets will eventually reach the end of their useful life. Some will reach thispoint sooner than others. In addition, depending on the type of asset, it willeither reach that point through amount of use or length of service. Forexample, a pump will wear out sooner if it is used more and will last longer if itis used less. The actual age of the pump is not as important as the amount ofwork the pump has done. On the other hand, the life expectancy of pipeassets is based more on the length of time in the ground. If a pipe is in the


18/112

2009 Edition 9

ground for decades, it has had considerable time to contact the soil around itand the water within it and may start to corrode.

There are many additional factors that will affect how much life a given assethas. Factors such as poor installation, defective materials, poor maintenance,

and corrosive environment will shorten an assets life, while factors such asgood installation practices, high quality materials, proper routine andpreventative maintenance, and non-corrosive environment will tend tolengthen an assets life. Because of these site-specific characteristics, assetlife must be viewed within the local context and the particular conditions of thatutility. Cast Iron pipe may last 100 years at one facility and 30 years atanother. It is best to make judgments on asset life based on past experience,system knowledge, existing and future conditions, prior and future operationand maintenance, and similar factors in determining useful life. In the absenceof any better information, a system can use standard default values as astarting point. These default values can be obtained from manufacturers and

industry guides. However, over time, the system should use its ownexperiences to refine the useful lives.

For example, if a given water utility routinely replaced its chlorinator every 5years because that was as long as that asset lasted, then 5 years should beused as chlorinator life, not a standard default value. However, if the systemonly had its pipe in the ground for 20 years and had no knowledge of how longit could be expected to last, it could use a standard default value of between50 to 75 years. However, as time goes on, if the system did not notice anyreduction in the integrity of the pipe after 40 years, the useful life could beincreased from 50 years to say 75 to 100 years. If the system started seeing a

reduction in the pipe integrity (numerous breaks due to corrosion) at 40 years,it would keep the useful life closer to 50.

Additional information regarding useful lives is contained in Appendix A.

3.6 What is the Value of the Assets?

Generally, when utilities consider the value of assets, they think about the costof initially installing the assets. This cost has importance as historicalinformation or it can be used by a system to depreciate the costs of assetsover time. However, the installation cost does not have a direct bearing on

what it will cost to replace that asset when it has reached the end of its usefullife. The asset may not be replaced by the same type of asset (e.g., cast ironpipe may be replaced by PVC pipe) or it may be replaced by a differenttechnology entirely (e.g., a chlorination system replaced by an ultravioletdisinfection facility). Furthermore, costs of various assets may changedrastically over time, so that the cost of installing pipe in 1965 in no wayreflects the cost of installing pipe 50 years later in 2015. Some prices mayincrease, while technological advances may decrease other costs.


19/112

2009 Edition 10

The real value of the assets is the cost to replace the assets using the currenttechnology to replace them. If the system has asbestos cement pipe now, butwould replace the system with PVC pipe, the real value of the assets is thecost of replacement using PVC and the installation costs associated with PVC.

Although the idea behind an asset value is relatively simple, obtaining costsfor the asset replacement may not be so easy. Small utilities may not havethe expertise to estimate replacement costs. In these cases, the utility shouldeither estimate in the best manner possible or leave this portion of theinventory blank for the initial stages of the asset management strategy. Thisinformation can be added later as the system gathers additional information orexpertise.

If estimation is done, the possible approaches include:

If the system has had recent improvements, such as pipereplacement, information regarding the cost per linear foot can beused.

If a similar neighboring system has had work done, costs incurred intheir project may be used.

Organizations that complete a large number of construction projectsper year may be able to provide estimates. Some of these are NewMexico Environment Departments Construction Programs Bureau,Rural Development or New Mexico Finance Authority.

Some organizations, such as the City of Albuquerque, periodicallypublish unit costs for construction. These costs can be used as a

starting point and revised as necessary to cover costs in otherareas. If costs are typically higher in a particular area than

Albuquerque, they can be increased. If costs are typically lower, theprices can be decreased.

Over time, as more systems begin completing asset management strategies, itmight be useful to form users groups that would allow water or wastewaterutilities to share information, such as unit costs/replacement costs, with eachother.

3.7 Organizing the Asset Inventory

There are many options regarding how to manage the asset inventory data.Specific options include:

Commercially available software for asset inventory Generic database software Spreadsheet software Hand written inventory


20/112

2009 Edition 11

These options are discussed in greater detail in Appendix A. The best optionis a specifically designed asset management software program. This type ofprogram provides the greatest level of flexibility in terms of use and is alreadyprogrammed to contain asset inventory data. However, this type of program is

expensive and may require a robust computer system to make it accessible toall operational and management personnel.

The next option, generic database software, is much less expensive but willrequire a time commitment on the part of someone within the utility to set upthe database and input the data. This option will, however, allow the systemto sort the information and will make the information more useable. Thisoption is recommended for smaller systems that cannot afford commercialsoftware. If the system cannot initially develop a database for their assetinventory, they should develop a plan for how they will get a database in thefuture. For example, if they need to purchase a computer or software, they

should begin setting aside funds for that purpose.

The other options available, spreadsheets and handwritten inventories, shouldonly be considered temporary solutions until the system can obtain a databaseof some type. Neither of these approaches allows the system to easilycategorize information and both are very cumbersome to use. Neitherapproach allows the type of querying that an asset management databaseneeds. For example, a database can answer the question, Provide me a listof all pipes installed in 1950 that are cast iron that have had at least 1 break inthe last 10 years. This list can be obtained in a matter of moments with adatabase. However, with a handwritten list or a spreadsheet, answering a

question like this would be an extremely tedious and time-consuming activity.The key to a useful asset inventory is to structure it to provide the informationthe system needs in an easy to retrieve fashion. If the data is not easilyaccessible, the system will not use it and the inventory ceases to have asmuch valueas it could be.

Regardless of the type of data management tool the system chooses, theasset management team will need to develop a scheme for assigningidentification codes to the assets. This scheme should be carefullyconsidered, so that the codes assigned to assets will convey as much

information as possible in the most succinct manner possible. For example, ifyour system has two tanks, it might work to just call them Tank 1 and Tank 2,because everybody probably knows where they are located. However, labelingvalves in this fashion wouldnt be very effective because a simple numberingsystem doesnt tell you where they are. Similarly, you might do your initialinventory by numbering the fire hydrants starting on the north end of town. Butsuppose you have 20 fire hydrants and then you add a fire hydrant betweennumbers 10 and 11. That new hydrant would be number 21 and you can no


21/112

2009 Edition 12

longer tell where they are just by their number. So, an asset identificationscheme that codes as much information as possible can make the differencebetween an inventory that is useful and one that is not. Consider the followingshort inventory.

Asset Inventory

Asset

Category

Asset

Type

Asset

Size

Asset

ID

Number

Asset

Location

Installation

Date

Asset

Condition

Comment

Pipe Ductile

Iron

10 DIP-7th

-

1

7th

St-100

block

1998 Good

Hydrants Fire

FRH-Main-23

Main St-#23

2000 Fair Schoolbus backs

into

Pumps Chlorine P-Cl-W2

Wellhouse#2

2003 Good Rehab in2008

Meters Master M-M-W1

Well #1 2008 Excellent

It is easy to see that the asset ID numbers in this simple scheme not onlyidentify the assets, but locatethem as well. This is a very importantcomponent of the asset identification scheme, and it should be consideredcarefully. A system can develop this scheme to meet its own needs, but onceput into place it should be strictly followed.The identification scheme should be written down and made available to all

personnel of the system. A blank table like the one above is included inAppendix A.

3.8 Summary

It is critical for systems to understand that they do not need to worry too muchabout the data quality initially. The most important step is to develop at least arudimentary asset inventory with all of the characteristics discussed above.The data quality can be increased over time as the system gathers moreinformation and becomes more comfortable with the concept of assetmanagement.

Systems should also be careful to not let themselves get bogged down in thisstep. This step is important but it should not be all-consuming. The systemshould complete this step to the extent possible and then move on to the othersteps.

In taking a long-term view of asset management, systems should considerways in which they can make the inventory more sophisticated. As an


22/112

2009 Edition 13

example, a system may want to develop a GIS map and database within 10years. The system could begin saving money for this approach now so that in10 years sufficient funds are available. Systems can also work withneighboring systems to share GIS equipment or GIS specialists to reduce thecosts for all participants. A group of systems could contract with a local

university, community college or consulting firm that has a GIS employee,student or professor and share the cost of managing the GIS software for allparticipants. This person could also provide updates or print-outs ofinformation to the systems.

Over time, the data quality will improve. Systems beginning assetmanagement should gather as much information as is readily available for theexisting assets, but should not spend a significant amount of time onperfecting that information in the initial phases.


23/112

2009 Edition 14

Section 4

Level of Service

4.1 Introduction

A Level of Service (LOS) Agreement defines the way in which the utilitycustomers, owners, managers, and operators want the system to perform overthe long term. The LOS Agreement can include any technical, managerial, orfinancial components the system wishes, as long as all regulatoryrequirements are met. The LOS Agreement will become a fundamental part ofhow the system is operated.

4.2 Why a Level of Service Agreement?

There are two key facets to asset management defining the level of servicethe system will strive to provide its customers over the long term anddetermining the most efficient and economical way to deliver that service (theleast cost approach). Therefore, determining and detailing the level of servicethat the system is going to provide is a key step in the overall process.

The Level of Service Agreement the document that will spell out the servicethe system agrees to provide is a multi-faceted tool that can fulfill a widearray of purposes as described below. Further explanation regarding each ofthese items follows.

Communicate the systems operation to the customers (residential,industrial, or commercial)

Assist in identifying critical assets Provide a means of assessing overall system performance Provide a direct link between costs and service Serve as an internal guide for system management and operations

staff Provide information for annual report or annual meeting presentation Reduce system costs through customer involvement

Customer Communication

It is important for a water or wastewater utility to communicate with itscustomers to avoid confusion, bad feelings, accusations of improper operation,and to make clear what the customers expectations should be. This need forcommunication is important for all systems, but can be particularly useful forsmall rural systems with limited water sources or limited resources forredundancy. As an example, consider a system that has periodic wateroutages. The system is fed by wells or springs that may periodically decline orstop producing altogether. However, perhaps not all sources are depleted at


24/112

2009 Edition 15

once, so the system can serve some customers but not others. The systemmay have a plan to deal with this situation by allocating water around thesystem so that all areas share the water shortages equally. It is critical thatthis plan be communicated with the customers so that they will understand theapproach the system is taking to address the situation. One way the system

can achieve this communication is incorporate their approach into the LOSAgreement. The Agreement could say, In the event of a water shortage, thesystem will distribute water so that no area is without water for more than 1day. The rotation of water movement will be posted in a public area so thatcustomers know when they can expect to be without water.

Identifying Critical AssetsThe LOS Agreement can be one factor in identifying critical assets. Furtherconsiderations in criticality are discussed in the next section. An example ofhow the LOS Agreement can impact criticality might be a case of including thefactor water will be delivered to customers 99% of the time. If the system

has only one water source, that source will be a critical asset for the system.Therefore, the system must keep the source operational at all times in order tomeet this criterion. This will likely have some financial impacts and may beimpossible.

Provide a Means for Assessing Overall System PerformanceIf at least some of the LOS Agreement factors include measurable items, thesystem can keep information regarding how well they are meeting thesecriteria and use that as one measure in assessing the overall operation. Forexample, consider a system that includes the following measures in its LOS

Agreement:

Breaks will be repaired within 6 hours of initiation of repair 95% ofthe time.

Customer complaints will be addressed within 24 hours, Mondaythrough Friday.

Losses will be kept to less than 15% as measured by gallonspumped each month minus gallons sold each month.

System will meet all state and federal regulations.

All of these items are measurable if the system collects the appropriate data.Assume the system has the following data from its past year of operation.

250 breaks occurred, 230 were fixed in less than 6 hours 30 complaints were received, all 30 were addressed within 24 hours Losses over the year as follows: January 12%, February 10%,

March 19%, April 14%, May 9%, June 13%, July 9%, August 10%,September 12%, October 9%, November 10%, December 12%

System met all regulations; no violations


25/112

2009 Edition 16

Based on this data, the system met some, but not all of its LOS Agreementfactors. The following items were met: customer complaints were addressedon time and the system met all the state and federal regulations. Thefollowing items were not met: 95% of breaks were not repaired within 6 hoursand the losses were not kept to less than 15% in all months. The system can

look at these results and determine the items that need work in order to meetthe level of service requirements.

Provide a Direct Link Between Costs and ServiceThere is a direct link between the level of service provided and the cost to thecustomer. When a higher level of service is provided, the costs to thecustomers will likely increase. This relationship provides an opportunity for thewater system to have an open dialogue with its customers regarding the levelof service desired and the amount the customers are willing to pay for thislevel of service. For example, customers may complain about aestheticcontaminants in the water those contaminants that cause taste, odor, or

color issues in the water, but are not health concerns. Customers may wish tohave these contaminants removed. The water system can install treatment toremove these contaminants but it will cost each customer more for their watereach month. The water system can have a dialogue with the customers toexplain what the treatment would entail, what the finished water quality wouldbe, and how much it would cost the customers. Following the discussions, thecustomers could decide whether or not they were willing to pay for theadditional treatment. In this way, the LOS Agreement sets desired servicesand provides information to the customers regarding what the costs of theirlevel of service will be.

Serve as an Internal Guide to System Operation and ManagementIt is much easier to operate or manage a system when both the operationsand maintenance staff and the management staff understand the goals of theoperation. Defining the level of service sets these goals for the system.These goals allow the operations staff to have a better understanding of whatis required of them and the management to have a better understanding ofhow to use staff and other resources more efficiently and effectively.Checking how well the system is meeting the required level of service alsoallows the management to shift resources from one task to another to meet allthe goals more effectively.

Provide Information for Annual Report or MeetingIf the system tracks information regarding the level of service criteria on aweekly or monthly basis, it can use this information to prepare an annualreport regarding how well the system met these criteria over the course of ayear. This information can be presented to the customers at an annualmeeting so that customers are aware of how well the system met the overallgoals for the operations of the system. Such a meeting would also be anopportunity to discuss any changes needed in the LOS Agreement, based on


26/112

2009 Edition 17

the operations data. Perhaps some of the LOS Agreement conditions are notpossible given the current staff or resources. If that is the case, the systemwill either have to reduce the level of service provided or increase staff orother resources in order to meet the current level of service. The decision toincrease staff or other resources or decrease level of service will directly

impact customers, so it is important to use the opportunity of the annualmeeting to discuss the potential options with them.

Alternatively, the system may decide that some criteria are very easily met andmay not be stringent enough. The system may find that it can increase thelevel of service for some criteria without impacting costs and may wish todiscuss the changes with the customers at the annual meeting.

Savings Due to Customer InvolvementMany water systems believe they have a good understanding of what theircustomers want, although they may never have directly asked their customers.

One system believed their customers wanted breaks fixed within 4 hours ofinitiation of repair. However, it was expensive to operate in this mode, and thesystem wished to determine if they could cut costs by increasing the amount oftime required to make a repair. The question was whether or not thecustomers would be amenable to a change in the amount of time to make arepair. They decided to hold a series of meetings with customers to ask fortheir input into a proposed change to a longer time to repair breaks. Thecustomers indicated that the amount of time was not their biggest concern.The biggest issue was receiving advanced notification that the water would beshut off for a period of time. They wished to receive a minimum of 15 minutesnotice that the water would be shut off, but once this notice was received, they

were not concerned if the repair took longer than 4 hours to complete. In thismanner, the system was able to save money and actually provide more of thetype of service the customers wanted.

4.3 What is the Minimum Starting Point for the LOS Agreement?

All systems must operate within the state and federal regulations andrequirements. These regulations are generally specified in the Safe DrinkingWater Act for water systems and the Clean Water Act for wastewater systems,but there are additional rules and regulations at the state and federal level. Allsystems should already be aware of these rules and should already be

following them. Because there are many elements to the regulations, it is notnecessary to spell out conformance with each and every regulation in the LOSAgreement. Instead, the Agreement could contain a basic statementindicating that the system will conform to all applicable state and federalregulations. Alternatively, the Agreement may include statements thatdescribe categories of compliance such as, will conform to all water qualityrequirements, will conform to all operator certification requirements, or willmeet all requirements of the open meetings act. In this case, the LOS


27/112

2009 Edition 18

Agreement may also need a summary statement to the effect that the systemwill conform to all other applicable federal and state regulations to ensure thatnothing has been left out.

Although the state and federal regulations set bare minimum standards of

operation in the LOS Agreement, these standards do not adequately addressall areas of operation and should not be the sole components of theAgreement. Without adding additional elements, the LOS Agreement will notfulfill the range of purposes described in the preceding section. Systemsshould include many other components to spell out important areas of thesystems operation.

4.4 What Else Should be Included in the LOS Agreement?

The maximumlevel of service is defined by the maximum capabilities of theassets. A system should not include something in a LOS Agreement that the

system is not capable of doing. For example, if the system wishes to includethe provision of fire flow in its LOS Agreement, but it has only 2 and 4 inchlines with no fire hydrants, there is no way the system can provide fire flow.The system may wish to include the provision of fire flow in its long-rangeCapital Improvement Plan and seek funding for a system upgrade to providethis, but until the assets for fire flow are in place, fire flow provision should notbe included in the LOS Agreement.

Within the range of the minimum (regulations) and maximum (capabilities ofassets) there are numerous items a system could include in its LOS

Agreement. Items may be included to help the system communicate its

intentions with its customers, measure its performance, and determine criticalassets.

Examples of items that can be included in the Level of Service include, but arenot limited to the following:

Number of pipe breaks per mile that are acceptable Length of time from report of a leak or break until repair Amount of notification (and method) prior to a scheduled shut down Amount of notification (and method) prior to a non-scheduled but

non-emergency shutdown

Quantity of unplanned interruptions in service versus plannedinterruptions

Number of hours to fix a pipe break once the crew is on site System losses maintained at less than X% overall Maximum system flow to be X gpd No detection of TC or EC at the source Water pressure to be maintained throughout the system at X psi


28/112

2009 Edition 19

Rates to be adjusted annually to reflect full cost recover and to avoidrate shock in the system

Rates to be reviewed annually Storage capacity to be maintained at X gallons total No water outage to be longer than X hours total

Customers to be notified of planned system outages at least X hoursor X days before the interruption

Customers to be notified at least X minutes prior to shut down for anemergency condition, unless life threatening conditions cause aneed for immediate shut down

Water conservation to be instituted to reduce average daily use by Xpercent in Y years

The LOS Agreement does not have to be lengthy; it can concentrate on a fewkey items the system really wishes to focus on. It can also start out with a fewitems and grow to include additional items as the system gains more

experience with asset management. Examples of a few LOS Agreements arepresented in Appendix B.

4.5 How Can the Public be Involved in the LOS Agreement?

Ideally, the public or customers of the utility should be actively involved in thedevelopment of the LOS Agreement. This involvement could include focusgroup meetings, surveys, public meetings, or other means. In a practicalsense, it is difficult to get customers to attend meetings or complete surveysand it can be difficult for them to understand certain components of the LOS

Agreement. For example, customers may not understand how many breaks

per mile may be acceptable prior to pipe replacement.Rather, the best-case scenario may be to ask for specific input on items thatdirectly affect the customers and for which they would have a reasonableunderstanding of the social and economic costs associated with the item. Anexample may be the length of notice prior to a scheduled or non-emergency,unscheduled shut down. In this case, it is important to understand how muchnotice the customers would want and in what way it would be best to notifythem. The customers are in the best position to indicate how and when to benotified. They may prefer door hangers, or mailings or postings in publicplaces. The utility can explain to the customers the financial impact of each ofthese options to inform the decision-making process.

4.6 Can the LOS Agreement be Changed Over Time?

Similar to the overall Asset Management Program that will change and adjustover time, the LOS Agreement may need to be adjusted from time to time.This adjustment may be required if the system discovers that it is too costly tooperate the system at the levels previously defined. Or the adjustment may benecessary due to new rules or regulations. Additionally, the customers may


29/112

2009 Edition 20

feel that they desire a different level of service. For example, the system maynot be providing fire flow to all customers. The customers may decide that theyare willing to pay for the upgrades to the system to provide fire protection. Inthis case, the LOS Agreement may need to be revised to reflect the fact thatall customers are to receive fire protection. Another example would be a

system that includes a statement in the LOS Agreement that repairs will becompleted within 4 hours from the start of the repair 90% of the time. If thesystem monitors its performance over time, it may find out that it cannotachieve this without additional staff or additional equipment. The choice thenbecomes whether the system wishes to add the staff or purchase theequipment and keep the level of service the same or whether it wishes toreduce the level of service to a more realistic requirement for the current staffand resources. The LOS Agreement might change to completing repairs in 6or 8 hours instead of 4. In any case, the additional costs (or savings) of eachalternative should be made clear to customers, so that they can provideinformed input.


30/112

2009 Edition 21

Section 5

Critical Assets

5.1 Introduction

Not all assets are equally important to the systems operation. Some assetsare highly critical to operations and others are not critical at all. Furthermore,the criticality of assets is completely system specific. Certain assets or typesof assets may be critical in one location but not critical in another. Forexample, one system may believe their chlorinator is a critical asset becausethey lack redundancy and have been known to have total coliform in theirsource water. Another system may feel their chlorinator is not a critical assetbecause they have a redundant system and adequate spare parts to fix thebroken chlorinator quickly. A system must examine its own assets very

carefully to determine which assets are critical and why.

5.2 Determining Criticality

In determining criticality, two questions are important:1) How likely is the asset to fail?2) What is the consequence if the asset does fail?

Criticality has several important functions, such as allowing a system tomanage its risk and aiding in determining the balance between expenditure foroperations and maintenance dollars and capital projects.

As a first step in determining criticality, a system needs to look at what itknows about the probability that a given asset is going to fail. The factors inthis determination are asset age, condition, failure history, historicalknowledge, experience with that type of asset in general, and knowledgeregarding how that type of asset is likely to fail. An asset may be highly likelyto fail if it is old, has a long history of failure, has a known failure record inother locations, and is in poor condition. An asset may be much less likely tofail if it is newer, is highly reliable, has little to no history of failure and is ingood to excellent condition.

5.3 Probabil ity of Failure

The following paragraphs describe each of the components that should go intoa determination of probability of failure. Any additional information orresources that a system can gather to supplement these components shouldalso be considered.


31/112

2009 Edition 22

Asset Age: The assets age can be a factor in determiningprobability of failure, but should not be the sole factor. Over time,assets deteriorate, either from use or from physical conditions suchas interaction with water or soil. There is no magic age at whichan asset can be expected to fail. An assets useful life is highly

related to the conditions of use, the amount of maintenance, theoriginal construction techniques, and the type of material used inconstruction. A piece of ductile iron or cast iron pipe may last 75 to100 years in one application, 150 years in another, and 50 years inyet another. Rather than being a sole predictor of probability offailure, age should be supplemental to other information. Forexample, consider the same set of factors (poor condition, 3 failuresin the past 5 years, poor construction techniques) for two differentsets pipe, one 5 years old and the other 50 years old. The assetthat is 50 years old would probably be given a higher probability offailure than the one that is 5 years old.

If there are no other issues with an asset than its age, the probabilityof failure can still be relatively low even if the asset is quite old. Forexample, if the system has a cast iron pipe in the ground that wasinstalled properly, using good materials and it has never had ahistory of failure, even though it is 75 years old, it does notnecessarily have a high probability of failure. To determine theprobability of failure based on asset age, some knowledge of lifeexpectancy is important.

Asset Condition: One of the most important factors in determining

an assets probability of failure is the condition of the asset. As theassets condition deteriorates, it will become much more likely to fail.It is important, therefore, to make the best attempt possible to givethe assets a reasonable condition assessment. The conditionassessment should also be updated over time, so that criticality canlikewise be updated.

Assets given a poor or fair condition rating are more likely to failthan those given an excellent or good rating. When the assetcondition is combined with other factors, the utility can begin tomake predictions regarding the probability of failure for a given

asset.

Failure History: It is important to monitor when assets fail andrecord the type of failure that occurred. This information should beas specific as possible to assist the system in understanding itsfailure modes. Systems should track when the asset failed (or atleast when the failure was discovered), how the failure wasdetermined (customer report, operator observation, lack of service in


32/112

2009 Edition 23

that part of the system, etc.), type of failure (e.g., rupture,mechanical failure, small leak), specific location of failure, and anyfield observations that may help explain the failure (e.g., lack ofbedding sand, subsidence of soil, overheating, etc.) Systemsshould track failure history on all asset categories.

Past failure is not a complete predictor of future failure, but it canprovide some indication of the probability of future failure, especiallyif detailed information on the failure is collected and reviewed. Ifthe asset failed because its construction or condition was poor, it islikely to fail again unless some action was taken to correct theproblem. If the asset failed because of some action or incident (e.g.,a construction crew ruptured a pipe), it is not likely to fail again afterthe condition is corrected. If a pipe has failed several times in thepast few years, it would be more likely to fail. If the pipe has neverfailed, it would be less likely to fail in the future.

Historical Knowledge:If the system has any additional knowledgeregarding the asset, it should be considered in the analysis ofprobability of failure. This type of information may includeknowledge of construction practices used in the system at the timethe system was constructed or knowledge of materials used in thesystem.

General Experience with the Asset: Although probability of failureis site specific, some guidance regarding probability of failure can begained by examining experience with that type of asset in general.

For example, if there is a history of a certain type of pump failingfrequently after 2 years of use, and a system has that type of pumpand it is currently 18 months of age, the asset should be given ahigher probability of failure than it would be if there was no generalexperience of this type.

Knowledge of How the Asset is Likely to Fail: John Moubraydefines failure as follows: Failure is defined as the inability of anasset to do what its users want it to do. According to this definition,asset failure would occur any time the asset is not able to meet thelevel of service the system wants. For example, a meter may be

reading, but reading 25% less than accurate. If the LOS Agreementstates, all meters will read within a 10% accuracy range then thismeter reading 25% less has failed, even though it is still operational.This is not a failure in the classical sense e.g., a meter leak or aplugged meter but it is failure in the sense that it is not meeting theoperational expectations.


33/112

2009 Edition 24

Failure in the more classical sense depends on the type of asset.Passive assets (such as pipes) decay over time and active assets(pumps, motors) decay with use. Passive and active assets do notfail in the same manner so they must be considered differently.

In the case of passive assets, the types of considerations in failureanalysis might include soil characteristics, groundwater level andcharacteristics, physical loads, bedding conditions, pipe attributes,internal corrosion, and temperature conditions. A system mustexamine its individual circumstances to see which of thesemechanisms may be likely to be at work in its particular case. If thesystem is subjected to severe weather extremes, pipes may breakdue to freezing. If the system was installed with poor constructiontechniques, the pipe may fail due to poor soil support beneath thepipe or due to inadequate bedding allowing rock to come intocontact with the pipe. If the soils are highly corrosive for the pipe,

the failures may be due to corrosion of the pipe wall.

In the case of active assets, failure mechanisms can be related tohours of use, amount or lack of preventative maintenance, climaticconditions, improper alignment, and the amount of lubrication orcooling of parts.

Once a system understands how its assets fail when they do fail, itcan determine the probability of failure of similar assets.

The factors discussed above can be taken together to predict how likely an

asset is to fail. The rating can be a simple rating on a scale from 1 to 5 or 1 to10 or may be more sophisticated. The ability to produce a more sophisticatedfailure rating is dependent on the amount and quality of data available. It maybe necessary to start with a more basic analysis and then increase thesophistication over time as the system managers and operators gain moreknowledge and experience regarding what information should be gatheredand evaluated.

It is possible to develop a formula to calculate a number for the potential forfailure, if a system wishes to use this approach. The factors that go intopredicting failures can each be given a separate ranking, the individual

rankings can be weighted based on importance in determining overallprobability of failure, and then the scores can be added together to get anumber for failure potential for each asset. This approach is just a moresophisticated way of determining probability of failure scores and its usedepends on the preferences of individual asset managers and howcomfortable they are with this type of approach.

5.4 Consequence of Failure


34/112

2009 Edition 25

In terms of the consequence of failure, it is important to consider all of thepossible costs of failure. The costs include cost of repair, social costassociated with the loss of the asset, repair/replacement costs related tocollateral damage caused by the failure, legal costs related to additional

damage caused by the failure, environmental costs created by the failure, andany other associated costs or asset losses. The consequence of failure canbe high if any of these costs are significant or if there are several of thesecosts that might occur with a failure. Further discussion of each of thesefactors is presented below.

Cost of Repair:When an asset fails, it will be necessary to repairthe asset in some way. Depending on the type of the asset and theextent of the failure, repair may be simple or extensive. A small leakin a pipe can be repaired with a clamp. A chlorine pump can bereplaced with a spare pump or perhaps the diaphragm can be

replaced inside the pump. The failure of a well may be much moreinvolved and may require much more extensive repair efforts. Thecost of the repair of the failed asset should be considered in theanalysis of the consequence of failure. If the asset can be repairedeasily and without a tremendous cost, then there is a lowerconsequence. If the cost of repair is higher, then the consequenceof the failure is also greater.

Social Costs Related to the Loss of the Asset: When an assetfails, there may be an inconvenience to the customer. In somecases, this inconvenience may be minor, while in other cases, the

social costs may be much higher. If a pipe must be repaired in aresidential area, there may be a few customers who are out of waterfor a short period of time. This outage would constitute aninconvenience, but would not be a severe situation. On the otherhand, if the system has very few isolation valves so that any repairon the system requires the whole system to be shut down, theinconvenience to the customers is much greater. In the firstexample (simple repair in residential area that shuts off a fewcustomers), the cost of the consequence of failure related to thesocial cost is low. In the second case where the whole system mustbe shut down to make any repair, the cost of consequences related

to social costs is much higher. When framed in terms ofinconvenience, social cost may look insignificant, but in some cases,the social costs may be extreme. Consider the social cost of abridge failure during rush hour.

Repair/Replacement Costs Related to Collateral DamageCaused by the Failure: When an asset fails, in some casesdamage may be caused to other assets unrelated to the water or


35/112

2009 Edition 26

wastewater system. Examples of this type of damage include thefollowing: a water line fails causing a sinkhole which then causesdamage to the foundation of a building or a house or causes majorsections of a road to collapse. In addition, cars may be damaged inthe sinkhole. The damage from the pipe failure without the sinkhole

would be fairly minimal. With the sinkhole, there is collateraldamage including the road, the building or house, or cars. Anotherexample would be a sewer pipe leak that leaks sewage into a homeor yard or onto a schoolyard or playground. In this case, asignificant amount of cleaning will be required to restore thebuilding, house or property. The utility will be held responsible forthis collateral damage, so the costs related to this type of failureneed to be considered in the assessment of costs of theconsequence of failure.

Legal Costs Related to Additional Damage Caused by Failure:

In some cases, individuals or businesses may sue the utility fordamages or injuries caused by an asset failure. These costs wouldbe in addition to the costs of repairing and replacing damagedproperty or other assets. For example, imagine a driver is drivingdown the road and a water line fails, causing a sinkhole. The carfalls into the sinkhole and the driver sustains an injury. The drivermay sue the utility to cover the costs associated with the injury andloss of work time.

Environmental Costs Related to the Failure: Some types ofasset failures can cause environmental impacts. The costs related

to these impacts may not always be easy to assess in monetaryterms. However, some attempt should be made to assign sometype of monetary value to the environmental consequences. Anexample of an environmental cost related to a failure would be asewer pipe that leaked sewage into a waterway or onto land. Avalue, either monetary or qualitative, would need to be placed onthis type of consequence. A failure that could result in raw sewagebeing discharged into a major waterway could be given a higherconsequence than a failure that would have the potential to cause amore limited environmental impact.

Public Health Costs Related to the Failure: Some types of assetfailures can negatively impact public health and safety. As withenvironmental costs, the costs related to these impacts may notalways be easy to assess in monetary terms. However, someattempt should be made to assign some type of monetary value tothe consequences.


36/112

2009 Edition 27

Reduction in Level of ServiceThe assets must be in workingorder to deliver the level of service desired by the water system andits customers. If the assets fail, the ability to deliver the desiredlevel of service may be compromised. An asset that has a majorimpact on the ability to meet the level of service would be

considered more critical to the system than an asset whose failurewould not have a significant impact on level of service.

Other Costs Associated with Failure or Loss of Asset: The costsin this category are any other costs that can be associated with anasset failure that are not adequately defined within the categoriesabove. An example of a cost that may be included in this category isloss of confidence in the water or wastewater system or loss of thesystems image. Certain types of failures may negatively impact thepublics confidence in the water or wastewater system and this mayhave a cost to the system. Other examples include loss of income

related to the inability to provide service for a period of time, loss ofthe service itself, or health impacts to workers or customers.

In assessing the consequence or cost associated with the asset failure, thesystem should consider all the costs associated with all of the categoriesabove. The assessment can be a simple ranking of the consequences from 1to 5 or 1 to 10. In this type of structure, the assets would be ranked againsteach other, but a specific monetary amount would not be calculated for thefailure of each asset. For example, a major distribution line that has thepotential to cause major failures and social, collateral damage, and legalconsequences might be ranked 5 while a small valve serving a residential

area that has low costs of repair, essentially little or no social or environmentalconsequence would be given a ranking of 1. In this way, there is aqualitative assessment of which assets have a greater consequence thanothers, but no specific quantitative assessment is performed.

A more robust analysis can be performed that would assign costs ofconsequences in each category to each asset (or at least to the major assets)and then compare the assets with actual costs of consequences. Some of thecosts would be known, such as the cost of a repair, while others would need tobe estimated using the best information available, such as the cost of legalaction. Past experience or experience from other utilities could be used to help

estimate costs. A system can start with the simpler estimate of consequenceof failure and move to a more robust analysis over time, if appropriate.

5.5 Assessing Criticality Risk Analysis

Assessing criticality requires an examination of the probability of failure andthe consequence of failure as discussed above. The assets that have thegreatest probability of failure and the greatest consequences associated with


37/112

2009 Edition 28

the failure will be the assets that are the highest risk and therefore mostcritical. The next most critical assets will fall into three main categories:

Assets that have a very high probability of failure with lowconsequence

Assets that have a low probability of failure with a very highconsequence Assets that have a medium probability and medium consequence of

failure

The assets that have low probability and low consequence will be the leastcritical assets.

A technique such as the ranking table presented below can be a good place tostart in assessing criticality. Appendix C contains copies of this table for use inthe criticality analysis.

5 5 10 15 20 25

4 4 8 12 16 20

3 3 6 9 12 15

2 2 4 6 8 10

Consequence(Cost)

of Failure1 1 2 3 4 5

1 2 3 4 5Multiplied

Probabili ty of Failure

1 Very Low2 Low3 Moderate4 High5 Very High

To use this table, estimate the probability of failure for a specific asset from 1to 5 with 5 being very high probability of failure and 1 being a very lowprobability of failure. Then assess the consequence of failure from 1 to 5 inthe same manner. Using the number for probability of failure, move across therow until the column associated with the number for consequence of failure isreached. Locate the number that is in the box where the row and columnintersect. That is the number for criticality for that asset.

For example, look at the following scenario.

Asset: 10 inch Cast Iron pipe; constructed in 1950, (56 years old)


38/112

2009 Edition 29

Service History: Numerous breaks in the past 5 years

Service Area: Serves 3 major subdivisions, but there are loop linesavailable and only residential customers

Probability of failure: 4 because pipe has broken many times, butwhen repaired it was still in reasonable condition

Consequence of failure: 2 because there are loop lines so not allcustomers will be out of water. Repair costs are moderate. Line isnt ina critical roadway so repair is relatively easy.

Using the chart, move across the row for 2, until the column for 4 isreached. The number in the box is 8. Therefore, 8 is the criticalityfactor for this asset. (See the table below.)

5 5 10 15 20 25

4 4 8 12 16 20

3 3 6 9 12 15

2 2 4 6 8 10

Consequence(Cost)


1 2 3 4 5Multiplied

Probability of Failure

As another example, look at the following scenario.

Asset: Chlorine pumpSystem uses hypochlorite so liquid chlorine solution is pumped into thesystem for disinfection. System has both spare parts and a sparepump. Chlorine pump has failed due to many factors several times inthe past 10 years. Chlorine is checked once per week

Probability of failure: 4 because pump has failed many times

Consequence of failure: 4 because a failure in a chlorine pump hasthe potential to be a major consequence. However, the consequence ismitigated by the presence of a spare pump and spare parts. Becausethe pump may fail for a significant period of time before the failure isknown (up to 1 week because the levels are only checked once perweek), the consequence is not substantially reduced by the spare partsand pump.


39/112

2009 Edition 30

Using the chart, move across the row for 4, until the column for 4 isreached. The number in the box is 16. Therefore, 16 is the criticalityfactor for this asset. (See the table below.)

5 5 10 15 20 25

4 4 8 12 16 20

3 3 6 9 12 15

2 2 4 6 8 10

Consequence(Cost)


1 2 3 4 5Multiplied


In looking at these two assets for this system, the chlorinator is much morecritical than the piece of pipe. If all assets are viewed in this way, an analysiscan be done to determine the criticality number for each one and then theresults can be compared to see which assets are more critical than others.

Once an analysis of this type is done, the results can be reviewed todetermine if they make sense to the utility. If the utility does not believe theresults for a particular asset make sense (i.e., the asset seems to have the

wrong relative ranking), a re-evaluation can be completed to achievereasonable results.

When the risk assessment for each asset has been completed, a graphshowing the risk for each asset is a useful tool to quickly see which of theassets is most critical. Plotting the risk number on a graph with probability offailure on one axis and consequence of failure on the second axis is theeasiest way to accomplish this. The graph can be divided into four categoriesof risk, 1) low probability, low consequence, 2) low probability, highconsequence, 3) high probability, low consequence, 4) high probability, highconsequence. The highest risk numbers will fall in the fourth box, making it

easy to compare assets and determine which of the assets are most critical.An example is shown below.


40/112

2009 Edition 31

Critical Assets - Risk Analysis

0

1

2

3

4

5

6

0 1 2 3 4 5

ConsequenceofFailure

High Probability x High Consequence = HighLow Probability x High Consequence = Moderate Risk

Low Probability x Low Consequence = Low Risk High Probability x Low Consequence = Moderate

Tank 2

Tank 1

Well 1

Well 2

FH-Main-23

BV-5th-3ACP-7th-2

Master Meter CL Pump

DIP-7th-1


5.6 Criticality Analys is Over Time

The condition of the asset will change over time as will the consequencesrelated to failure. Costs of repair may increase, the community may grow, newroads may be built, rehabilitation may be completed or similar factors mayoccur that cause the consequence of failure to change. Therefore, it isnecessary to periodically review the criticality analysis and make adjustmentsto account for changes in the probability of failure and the consequence offailure.

The criticality analysis must be reviewed and updated periodically to ensurethat the utility is spending its time and resources on the appropriate assets.This is discussed in the next section. Also, the analysis must incorporatereplacement of assets. If an asset that was critical primarily due to itsprobability of failure fails and is replaced with a new asset, the criticalitynumber will go down since the probability of failure is much less.


41/112

2009 Edition 32

Section 6Life Cycle Costing

6.1 Introduction

This component is the most complex of all of the components of assetmanagement. It is difficult for a small system to gather all of the datanecessary for a sophisticated analysis of life cycle costing. There are severalcomponents of developing a life cycle strategy for asset management plans.Most small communities can easily begin with one or two of thesecomponents.

Life Cycle Asset Management focuses on management options and strategiesconsidering all relevant economic and physical consequences, from initialplanning through disposal. The Life Cycle components include:

Asset Planning Asset Creation/Acquisition/Design Financial Management Asset Operation and Maintenance Asset Condition and Performance Monitoring Asset Rehabilitation/Renewal Asset Disposal Asset Audit and Review

As communities begin to develop their Asset Management plans, thesecomponents can seem overwhelming. It does not make sense to try to beginwith all eight components at once. Therefore, this manual will guidecommunities through the basics of the components that can be started withinformation and resources that are readily available to systems in thebeginning stages of asset management.

6.2 Options for Dealing with Assets Over Time

There are four basic options for dealing with actual assets over time:

Operate and maintain the existing assets Repair the assets as they fail Rehabilitate the assets Replace the assets

These options are intimately connected to each other. Choosing to do more orless of one impacts how much of the others must be done, whether or notothers are done at all, or the time frame in which one of the others is done.


42/112

2009 Edition 33

For example, choosing to spend more on operating and maintaining assets willdecrease the need to repair the asset and will increase the amount of timeuntil the asset is replaced. Choosing to rehabilitate an asset will eliminate theneed to replace the asset in the short term and may increase the amount oftime until the asset ultimately needs to be replaced. The rehabilitation may

also reduce the amount of operation and maintenance that needs to be doneand reduce the need for repairs.

Each of these options has its own costs and considerations. The expenditureof funds becomes a balance between monies spent in each of these fourcategories. The purpose of asset management is to try to determine theoptimal way to spread the money between each of these categories, whilemaintaining the level of service desired.

Generally, the most expensive option is replacement of the assets. Therefore,keeping the assets in service longer, while still meeting level of service

conditions, will usually be the most economical for the utility over the longterm. The three other options--maintenance of the asset, repair of the asset,and rehabilitation-- are options that can be used to keep the asset in servicelonger. Each of the options is discussed further in the sections below.

6.3 Asset Operation and Maintenance

Operation and maintenance (O&M) functions relate to the day-to-day runningand upkeep of assets and are particularly relevant to short-lived dynamicassets (such as pumps) where deterioration through lack of regularmaintenance may result in rapid failure.

Properly operating and maintaining assets is critical to the success of theoverall program. Operation and maintenance is directly linked to level ofservice and criticality. In an article by Eugene Nelms in the July 2006 AWWAJournal Current Issues, the importance and process of establishing O&Mprocedures is discussed in detail. Following are some key points from thearticle.

Establishing standardized O&M procedures achieves maximumasset life and reduces O&M costs.

Standardizing O&M procedures helps utility personnel to operate all

assets within acceptable operational levels and ensures that eachperson is following the same routines. By standardizing the operations of all assets, maximum asset life

can be obtained (assuming that periodic maintenance is performedas required).

O&M procedures can be categorized as operational, maintenance and (whereapplicable) laboratory.


43/112

2009 Edition 34

Operational procedures can be classified as:

Standard Operating Procedure: Most common; typically usedduring normal operations; day-to-day

Alternate Operating Procedure: Used when operational conditionsrequire that an asset or process be modified or taken off-line;scheduled; periodic

Emergency Operating Procedure: Used in emergency conditions;incorporated into overall emergency plan developed for facility

Maintenance procedures can be classified as:

Corrective Maintenance Procedures: Used by field technicians forthe repair of assets that are malfunctioning (e.g., replace brokenbearing); activitiesundertaken to detect, isolate, and rectify a fault

so that the failed equipment, machine, or systemcan be restored toits normal operable state

Routine Maintenance Procedures: Simple, small-scale activities(usually requiring only minimal skillsor training) associatedwithregular (daily, weekly, monthly, etc.) and general upkeep of abuilding, equipment, machine, plant, or systemagainst normal wearand tear; the process of performing regular maintenance tasks,such as lubrication; can often be performed without taking amachine out of service

Preventative Maintenance Procedures: Developed to prevent failureand prolong asset life (e.g., overhaul); systematicinspection,

detection, correction, and preventionof incipient failures, before theybecome actual or major failures

Reliability-Centered Maintenance Procedures: Developed to assistmaintenance managers in predicting asset failures and lesseningeffects on facilities (asset condition monitoring or failure modes andeffects analyses)

Laboratory procedures can be classified as:

Equipment-Related Procedures: Developed on the basis of how tooperate the e

assetmanagement a guide for water and wastewater system

Documents

asset management principles

asset management inaustralia

asset management plans

management tools

asset managementpersonnel

ghd asset management

limited water supplies

funding agencies