 

A 5
. ”hat:
. u“ . .‘rcuwtcy
1.9 .V ,
, 9

.

I;
er.
. .4

 

x:

117:... 55;.
(2.1.5... .a olﬂJJIJ...‘ '
.55.... .n‘muntﬁisf m.» "

Enpfwrz

 

 

:
. . . :3.
n a... ‘1
5.1.9.}.
.1

‘ Jawﬁ¥31¢
a. Ana-$5.»?
(.4
.‘IbA
3-?
I ,-

um."

_.
7:! a
.

hid; 9.4.me
1 ”$3 .2: n.

"was

.1...- {I

#Mﬁhhvﬁ? V .

‘ ‘

m. p§zﬁtﬁn;
.hnﬂaz....«§4dﬁi!nzd
mahowtlAwtﬁnuﬁuu‘) 3.... I.“

‘ giavruﬁ 1?}.ny . ..
.3... .. is. & énm‘

15.230151. Han...

‘I‘\9\§.A)A‘V .lr‘

3.143%. x .

 

 

ﬁn Lu...’ W“ Mel: .Yrva

. . , . ‘ ‘ . .3. S A. . . . .sbht‘wtl‘.
3.: 3.}, 3:???“ A 4 3,1

l.‘ \r'u
a . .
i r.-. as

T 3... :5...‘

 

“m8 LIBRARY
1? Michigan State
’0 University

 

This is to certify that the
thesis entitled

EVALUATION OF GASB-34 MODIFIED APPROACH
REQUIREMENTS TO IDENTIFY STRENGTHS AND
WEAKNESSES IN CURRENT MUNICIPAL ASSET
MANAGEMENT SYSTEMS FOR SEWER AND WATER
INFRASTRUCTURE

presented by

Amanda Rae Simpson

has been accepted towards fulfillment
of the requirements for the

MS. degree in Construction Management

 

 

Méwx 4%

Major Professor’s Sigiaturelf

Date

MSU is an Affirmative Action/Equal Opportunity Institution

 

--—.—-.-—--u—n—.-u-----o---n--:--n-o-—.-.-o-------o-o-—-.-.-.—.-a—~—-—-—iv

PLACE IN RETURN BOX to remove this checkout from your record.
TO AVOID FINES return on or before date due.
MAY BE RECALLED with earlier due date if requested.

 

DATE DUE DATE DUE DATE DUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2/05 p:/ClRC/DateDue.indd-p.1

 

EVALUATION OF GASB-34 MODIFIED APPROACH REQUIREMENTS TO
IDENTIFY STRENGTHS AND WEAKNESSES IN CURRENT
MUNICIPAL ASSET MANAGEMENT SYSTEMS FOR
SEWER AND WATER INFRASTRUCTURE

By

Amanda Rae Simpson

A THESIS

Submitted to
Michigan State University
In partial fulﬁllment of the requirements
For the degree of

MASTER OF SCIENCE

CONSTRUCTION MANAGEMENT PROGRAM
SCHOOL OF PLANNING, DESIGN AND CONSTRUCTION

2006

ABSTRACT
EVALUATION OF GASB-34 MODIFIED APPROACH REQUIREMENTS TO
IDENTIFY STRENGTHS AND WEAKNESSES IN CURRENT
MUNICIPAL ASSET MANAGEMENT SYSTEMS FOR
SEWER AND WATER INFRASTRUCTURE
By

Amanda Rae Simpson

Asset management is becoming a necessary means of conducting business. With rising
costs and decreasing funds, making the most out of the available funds is essential, and
asset management is an important tool for achieving this. The Government Accounting
Standards Board statement number 34 (GASB-34) recognizes this problem, and allows
for a ﬁnancial reporting method which takes asset management practices into account.
This method is called the modiﬁed approach. The Association of Metropolitan Sewerage
Agencies (AMSA) suggests that using the modiﬁed approach will eventually be required
by lending agencies and other monitors. This research surveyed several cities in the state
of Michigan to determine what asset management practices were currently being used.
Recommendations were then made on the essential steps needed to achieve compliance
with the GASB-34 modiﬁed approach requirements. These recommendations can be used
to help municipalities and other agencies wishing to use the modiﬁed approach for

GASB-34 reporting.

Dedicated to My Loving Parents

iii

Acknowledgements

First and foremost, I thank my parents for all their love and support during this process.
Without them, this truly would not have been possible, and I cannot thank them enough

for always standing by me and my dreams.

I would like to thank my advisor, Dr. Mohammad Najaﬁ, for his help in completing this
thesis. I would also like to thank my committee members, Prof. Timothy Mrozowski and
Dr. Parviz Soroushian for their suggestions and guidance. Additionally I would like to
thank faculty members Dr. Tariq Abdelhamid, Mr. Doug Cron, Mr. Paul Streng, Dr. Matt
Syal, Dr. Robert von Bernuth, and Dr. Dennis Welch for their support through my
education here at Michigan State. And, of course, a big thank-you to Cathy Morrison and

Valerie Geyer for always assisting me with whatever I needed, even if it was just lunch.

To all the city ofﬁcials who participated in this study, my sincerest thank you. This
research could not have taken place without your assistance and cooperation, and I

appreciate the time you spent to help me out.

Additionally, I would like to thank all my fellow graduate students Christine Johnson,
Mike Bethuy, Kenneth (Alan) Reed, Adam Kedich, Alhad Panwalker, Suzie von Bernuth,
Deepak Bhattachar, Oleh Kinash, and Niti Khosla for all the great times we had in and

out of class. and for always being an understanding shoulder to lean on.

And ﬁnally, thank you to all my other friends outside of MSU, because without you, I
would not have found the time or energy to laugh. I especially want to say thank you to
my best friend Jessica Mumaw for her support, friendship, and ice-cream-consuming

therapy.

iv

TABLE OF CONTENTS

LIST OF FIGURES ..................................................................................................... vii
LIST OF TABLES ..................................................................................................... viii
1. INTRODUCTION ..................................................................................................... 2
1.1Motivation........................................., .................................................................. 2
1.2 Problem Statement .............................................................................................. 4
1.3 Goals and Objectives ........................................................................................... 5
1.4 Scope and Limitations ......................................................................................... 6
1.5 Organization of the Thesis ................................................................................... 7
2. LITERATURE REVIEW ......................................................................................... 9
2.1 Asset Management Deﬁnitions ............................................................................ 9
2.2 Beneﬁts of Asset Management (AM) ................................................................. 11
2.3 Asset Management Framework ........................................................................ 13
2.3.] National Asset Management Steering (NAMS) Group’s ........................... 13
International Infrastructure Management Manual 2002 (IIMM) ..................... 13
2.3.2 Association of Metropolitan Sewerage Agencies (AMSA) ......................... 25
2.3.3 American Water Works Association (AWWA) ......................................... 36
2.3.4 Comparison of Asset Management Strategies ........................................... 40
2.4 Government Accounting Standards Board Statement 34 ................................ 40
2.4.1 Historical Cost/Depreciation ....................................................................... 42
2.4.2 Modified Approach ..................................................................................... 42
2.4.2.1 Asset Management Requirements of the GASB-34 Modiﬁed
Approach .......................................................................................................... 44
2.5 Additional Research in Asset Management and GASB-34 .............................. 46
2.5.1 Current Research in Asset Management Tools ......................................... 47
2.5.2 Current Research in Decision Support Systems ........................................ 48
2.5.3 Condition Assessment Tools and Methods ................................................. 49
2.5.4 Asset Management and GASB-34 Research .............................................. 52
2.6 Chapter Summary ............................................................................................. 54
3. METHODOLOGY .................................................................................................. 56
3.1 Methodology for Activity One ........................................................................... 56
3.2 Methodology for Activity Two .......................................................................... 56
3.3 Methodology for Activity Three ........................................................................ 57
3.3.1 Questionnaire Development ........................................................................ 57
3.3.2 City Selection and Data Collection ............................................................. 58
3.4 Methodology for Activity Four .......................................................................... 58
3.5 Methodology for Objective Five ........................................................................ 59
3.6 Chapter Summary ............................................................................................. 6O
4. DATA ANALYSIS ................................................................................................... 62
4.1 Data Acquisition ................................................................................................ 62
4.2 GASB-34 Questions ........................................................................................... 63

4.3 Individual City Data .......................................................................................... 64

4.4 GASB-34 Requirement Data ............................................................................. 67
4.5 Chapter Summary ............................................................................................. 72
5. CONCLUSIONS AND RECOMMENDATIONS .................................................. 74
5.1 Analysis of Results ............................................................................................. 74
5.1.1 Implementing Suggestion One.... ................................................................ 76
5.1.2 Implementing Suggestion Two ................................................................... 76
5.1.3 Implementing Suggestion Three ................................................................. 79
5.1.4 Implementing Suggestion Four ................................................................... 79
5.1.5 Implementing Suggestion Five .................................................................... 79
5.1.6 Implementing Suggestion Six ...................................................................... 80
5.2 Beneﬁts of Implementing GASB-34 Modiﬁed Approach Strategies ................ 80
5.3 Validation and Veriﬁcation of Suggestions to
Raise Compliance with GASB-34 ............................................................................ 80
5.4 Recommendations for Cities and Municipalities .............................................. 85
5.5 Research Contributions ..................................................................................... 88
5.6 Recommendations for Future Research ............................................................ 89
5.7 Conclusions ........................................................................................................ 91
APPENDICES ............................................................................................................. 93
Appendix A: GASB-34 Compliance Survey ............................................................. 94
Appendix B: Second Survey ..................................................................................... 99
Appendix C: Results Matrix ................................................................................... 106
Appendix D: Second Survey Matrix ....................................................................... 108
REFERENCES .......................................................................................................... 110

vi

LIST OF FIGURES

Figure 2. 1 Steps for Preparing AM Plans, Modiﬁed from IIMM 2002 .................... 14
Figure 2. 2 Lifecycle Management Plan Components Identiﬁed in IIMM 2002 ....... 21
Figure 2. 3 Components of the Written Asset Management Plan Identiﬁed in the
IIMM 2002 ........................................................................................................... 24
Figure 2. 4 Elements of Asset Management, Modiﬁed from AMSA 2002 ................. 26
Figure 2. 5 Asset Deterioration and Renewal, Modiﬁed from AMSA 2002. ............. 30
Figure 2. 6 Business Redesign Process, adapted from AMSA 2002 ........................... 35
Figure 4. 1 Survey Populations and Participation Rates ........................................... 63

Figure 4. 2 Percentage of Requirements for Modiﬁed Approach
Met by Each City ................................................................................................. 65

Figure 4. 3 Number of Requirements Met for Modiﬁed Approach by Each City ....66

Figure 4. 4 Correlation Between City Population and

GASB-34 Modiﬁed Approach Requirements Met .............................................. 67
Figure 4. 5 Percentage of Cities Meeting Each GASB-34 Requirement .................... 70
Figure 4. 6 Star Diagram Illustrating Number

of Cities Meeting Each GASB-34 Requirement .................................................. 71
Figure 5. 1 Number of Cities Desiring to Use the GASB-34 Modiﬁed Approach ..... 81

Figure 5. 2 Number of Suggestions Each City has
Previously Considered Implementing ................................................................. 82

Figure 5. 3 Number of Cities that Currently Have the Resources to
Implement the Suggested Changes ...................................................................... 83

Figure 5. 4 Resources Needed to Implement Suggestions .......................................... 84

vii

LIST OF TABLES

Table 2.1 Comparison of Asset Management Methodologies .................................... 40
Table 2.2 Choosing a Reporting Method (Modiﬁed from AMSA 2002) ................... 43
Table 2. 3 Comparing the Depreciation and Modiﬁed Approaches .......................... 45
Table 2. 4 Current Sewer Inspection Techniques: A Comparison ............................ 51
Table 5. 1 Example Rating System for Culverts ........................................................ 78

viii

Chapter 1

INTRODUCTION

1. INTRODUCTION

“Out of Sight, Out of Mind. ” It is one of the most famous and favorite idioms in today’s
American culture. The saying suggests the idea that when something is not in sight, it is
simply forgotten about. This idiom has been, used to refer to everything from a forgetful
husband to homeless children to the future of Afghanistan. It is used here, however, on a
subject the majority of the public depends on every day: the nation’s crumbling
infrastructure. The “out of sight, out of mind” approach has been taken with regards to
sewer and water infrastructure for far too long. With most of the nation’s underground
infrastructure being laid in the 1950’s, it is now at the end of its useful life, and requires
serious maintenance or replacement. With continuous rising costs, tightening budgets,
and an ASCE Infrastructure Report Card grade of D- for the nation (ASCE, 2005),
keeping the infrastructure in working condition that allows for the comforts of everyday

life is a challenge faced nation-wide.

1.1 Motivation

On December 21, 2005, a sinkhole approximately ten feet wide and ten feet deep opened
up near a bank building in Newport, OR. A sewer line that was installed in 1950 and runs
25 to 30 feet below the building failed, causing the sinkhole that now blocks entry to the
business and threatens the foundation of the building. A state of emergency was declared

so that the city could forego its normal bidding process of soliciting bids for the project.

(Card, 2005)

Outside Pittsburgh, Pennsylvania, an overpass bridge collapsed dropping onto an
interstate, injuring ﬁve motorists on December 27, 2005. While the possibility of truck
impacts is being investigated as to the cause of the collapse, state ofﬁcials say the
overpass had reached the end of its service life. State ofﬁcials closed a 3-mile section of
the highway to clean up debris, effecting around 33,000 motorists per day. The overpass,
for which speciﬁcations for emergency repair are being prepared, services approximately

500 motorists per day. (Barnes, 2005)

Infrastructure failures like the two mentioned above happen all too often and cost the tax
payers millions of dollars. The cost of emergency repairs is signiﬁcantly higher than
scheduled maintenance, not to mention additional costs of emergencies such as the
potential foundation damage to the building and the social costs of trafﬁc disruptions and

the ﬁve injured people.

The primary question here is why these infrastructure disasters were allowed to happen.
In both cases, local governments and utility owners stated that the infrastructure had
reached the end of its service life, yet action was not taken to remedy the problem until an
emergency status had been reached. As the water and wastewater infrastructure enters its
“replacement era,” it becomes more important to implement asset management concepts,
where assets are regularly monitored and maintained to a certain performance level.
Additionally, while emergencies and accidents are inevitable, their frequencies can be

signiﬁcantly reduced by proper management techniques.

1.2 Problem Statement

In June of 1999, the Government Accounting Standards Board (GASB) issued Statement
34 (GASB-34) creating one of the largest changes in state and local government ﬁnancial
reporting (Maze, 2001). This statement requires that government agencies report their
major infrastructure assets on an accrual basis, and can do so either by using depreciation
or the “modiﬁed approach.” As a result of short notice and lack of asset management
practices, most government agencies, both state and local, use the depreciation method of
reporting. This method, however, carries little information for infrastructure asset
management and maintenance, and therefore, provides no service to the end user: the tax

payers and consumers who are faced with disruptions.

The “modiﬁed approach,” on the other hand, takes on an asset management strategy to
accounting reporting, and requires the integration of several departments and detailed
asset information. However, it may seem time consuming and costly initially to set up,
which explains why most governments have elected to use the depreciation method. As
outlined in this research, the main advantage of the modiﬁed approach is that it provides
useful information with regards to assets, their conditions, and their current value. It also
takes steps to ensure effective long-term management of major infrastructure assets,
which is not only cost-effective, but also increases public safety. The modiﬁed approach
requires accountability to both the government and the public, and this method is
recognized and supported by agencies such as the Environmental Protection Agency
(EPA) as the preferred reporting method. The Association of Metropolitan Sewerage

Agencies (AMSA) predicts that reporting using the modiﬁed approach will eventually be

required by lending institutions andother monitors. Other professional organizations such
as American Society of Civil Engineers (ASCE) have started similar initiatives that
promote an asset management approach to managing infrastructure. One of these efforts,
entitled Practice, Education and Research for Sustainable Infrastructure (PERSI) seeks to
advance and incorporate concepts and knowledge of sustainability into the standards and

practices used throughout the life cycle of infrastructure systems. (ASCE, 2005 a)

One aspect of the problem, therefore, lies in the conversion of GASB-34 compliance
reporting from the depreciation method to the modiﬁed approach. This research identiﬁes
speciﬁc areas of asset management that are currently being practiced by the majority of
local governments and municipalities, and determines if these practices are acceptable for
the GASB-34 modiﬁed approach reporting method. It also identiﬁes and makes
recommendations on asset management practices that can be implemented to bring a

local government and municipality up to GASB-34 compatibility.

1.3 Goals and Objectives

By evaluating GASB-34 requirements, the overall goal of this research was to assist local
governments and communities in effectively managing their underground infrastructure.
The main objective of this research was to use the GASB-34 modiﬁed approach
requirements to identify areas of strength and weakness in current asset management
practices in sewer and water municipalities. The following activities were used to realize

this objective.

Reviewed the deﬁnitions and methodologies of asset management;

Reviewed the GASB-34 requirements and parameters;

Surveyed a minimum of four to six cities in Michigan with populations greater
than 20,000 on their current asset management practices that are speciﬁc to
GASB-34 modiﬁed approach compliance;

Identiﬁed areas of asset management that need to be improved or changed to meet
the GASB-34 modiﬁed approach requirements; and

Prepared recommendations for municipalities and local governments to bring
their asset management program up to GASB-34 modiﬁed approach reporting

requirements.

1.4 Scope and Limitations

This research was conducted based on the following parameters:

The research was limited to known asset management practices and the
requirements of the GASB-34 modiﬁed approach reporting method;

Due to limited resources and nature of this research, only a select number of local
governments and municipalities were surveyed;

Only sewer and water infrastructure was considered for this research;

Only cities in Michigan with populations over 20,000 were considered for this
research. It was assumed that these cities will represent asset management
practices currently utilized in Michigan, as smaller cities are unlikely to have any

asset management practices currently in place (Brown, 2006).

1.5 Organization of the Thesis

This thesis is comprised of ﬁve chapters. The ﬁrst chapter offers a brief introduction to
the problem area, as well as the motivation, goals, objectives, and limitations of the
research. The second chapter gives background information on asset management,
GASB-34 requirements, and previous research in this area. Chapter Three presents the
methods used to achieve the goals and objectives presented in Chapter One. Chapter Four
presents the data gathered from the survey along with the analysis of the data. Chapter
Five outlines the suggestions made as a result of the data gathered in Chapter Four, along
with a validation of these suggestions by city ofﬁcials. Chapter Five also includes the

conclusions, recommendations, and areas for future research.

Chapter 2

LITERATURE REVIEW

2. LITERATURE REVIEW

The previous chapter outlined the background, goal, and need for this research. This
chapter provides a detailed literature review that covers asset management
methodologies, the GASB-34 requirements, and previous research in the ﬁeld of asset

management.

2.1 Asset Management Deﬁnitions
Asset management is a very broad term that can encompass several meanings. This
section aims to identify recognized deﬁnitions and methodologies of asset management

in the infrastructure industry.

The Association of Metropolitan Sewerage Agencies (AMSA) deﬁnes asset management
for water and wastewater agencies as “managing infrastructure capital assets...to
minimize the total cost of owning and operating them while delivering the service levels
customers desire,” (AMSA, 2002). The AMSA also recognizes asset management as a
means of ensuring “the best decision at all levels of the asset’s life-cycle to optimize

performance, reduce risk and minimize cost,” (AMSA, 2002).

An essay by Paralez and Muto, published by the American Water Works Association
(AWWA), deﬁnes asset management as “a philosophy of business that is reﬂected in a
strategy of operating, maintaining, refurbishing and replacing infrastructure and system
assets based on customer service standards (such as pressure, quality, reliability,

response) and economic standards (such as life-cycle costing, debt service) and capital

management,” (Paralez and Muto, 2002). Paralez and Muto also cite the Seattle Public
Utilities working deﬁnition in their essay as “a way of doing business that maximizes the
public’s return on their investment in utility infrastructure by implementing utility-wide
strategies that emphasize reliability in the assets and processes so that the desired levels
of service are provided to our customers in the most cost-effective manner,” (Paralez and

Muto. 2002).

The International Infrastructure Management Manual (IIMM) states that the goal of asset
management is to “meet a required level of service in the most cost-effective way through
the creation, acquisition, maintenance, operation, rehabilitation and disposal of assets to

provide for present and future customers,” (IIMM, 2002).

The American Society for Civil Engineers & Civil Engineering Research Foundation
(ASCE & CERF) is developing concepts and frameworks for asset management of
infrastructure, but has not recognized one single deﬁnition of asset management,
although several publications on asset management have been published through the
ASCE (Baik, 2003). One deﬁnition presented at an ASCE conference states simply that
asset management is “the application of good business practices which enable the utility

to consistently provide a desired level of service for the minimum long term cost,” (Derr,

2004).

While there is no universally accepted deﬁnition of asset management (Baik, 2003), all

the deﬁnitions previously described have the same key points: to meet a level of service

10

that is satisfactory to the customers, and to provide that service in the most cost-effective

manner.

2.2 Beneﬁts of Asset Management (AM)

Future funding considerations is one of the main reasons why asset management practices
are so crucial. The Water Infrastructure Network estimates that the US. will have to
invest $23 billion per year more than current investments for the next 20 years in order to
replace infrastructure and meet regulatory requirements (WINow, 2001). Having the
funding for the future sewer and water infrastructure needs is problematic. Private
citizens currently pay 90% of the total cost to build, operate, and maintain water and
wastewater systems (WINow, 2001). Increased taxes and fees will help pay a portion of
the future funding requirements, but if local governments were to close the funding gap
alone, it would result in the doubling of user rates and result in economic hardship for at
least one-third of the population (WINow, 2001). Federal funding will be imperative to
the future water and wastewater rehabilitation and replacement programs. Because waters
are shared across state and local boundaries, federal help to local governments will
beneﬁt the entire nation (WINow, 2001). Having an AM system will allocate funding to
the most crucial parts of the infrastructure, maintaining service level in a cost effective

manner.

The beneﬁts of AM are numerous, but the main reason for having AM is because it is a

good business practice that provides both short- and long-term beneﬁts to the utility and

11

its customers (AMSA, 2002). Additional beneﬁts as outlined by the AMSA are as
follows:

0 Deﬁnes an orderly and logical program of repair and replacement of capital
facilities and equipment;

0 Develops a comprehensive inventory of capital assets;

0 Creates a valuable ﬁnancial planning tool intended to smooth ﬁnancial
programming and maintain realistic replacement spending;

0 Creates logical justiﬁcations to help elected ofﬁcials understand utility’s need to
maintain reserves;

0 Provides necessary funds for operating personnel to maintain equipment and
perform major cyclic repairs without having to compete for scarce public
resources;

0 Provides lower overall rates for the public;

0 Reduces rate shock;

o Creates better equipment managing and results in longer equipment lives; and

o Creates a better matching of resources and ﬁnancial needs. (AMSA, 2002)

According to Water Infrastructure Network, investing in water and wastewater systems
will pay substantial dividends to the public health, environment, and the economy
(WINow, 2001). By preventing pollutants from reaching the rivers, lakes, and coastlines,
water treatment plants prevent water-bome disease, make America’s waters safe for
swimming and ﬁshing, and preserve natural treasures such as the Great Lakes (WINow,

2001). Having an AM system in place will assure that scarce funding is allocated to the

12

assets that need it the most, and will maintain a standard of service that is acceptable to

CUSIOIIICI'S.

2.3 Asset Management Framework

All owners practice some form of asset management (AM). However, a formal AM
system indicates a dedication to a cost-effective, systematic, and sustainable
infrastructure. This section outlines the asset management methodologies for three
separate organizations: the National Asset Management Steering (NAMS) Group that
published the International Infrastructure Management Manual, the Association of
Metropolitan Sewerage Agencies (AMSA), and the American Water Works Association.
All three agencies have a slightly different approach to implementing a sophisticated

asset management program (AMP) and to identify the components and needs of an AMP.

2.3.1 National Asset Management Steering (NAMS) Group’s

International Infrastructure Management Manual 2002 (IIMM)

The IIMM was published in 2002 and was developed jointly by the New Zealand
National Asset Management Steering (NAMS) Group and the Institute of Public Works
Engineering of Australia. The manual has become a staple to asset managers, and is
referenced in most asset management research. The following information has been

modiﬁed or taken directly from the IIMM.

The IIMM identiﬁes the following elements as a key portion to any AMP:

1. Taking a lifecycle approach;

13

2. Developing cost-effective management strategies for the long-term;
3. Providing a deﬁned level of service and monitoring performance;
4. Managing risks associated with asset failures;
5. Sustainable use of physical resources; and
6. Continuous improvement in asset management practices. (IIMM, 2002)
The steps for preparing an asset management plan outlined by the IIMM, as illustrated in
Figure 2.1. include:
0 Step One: Identify Objectives;
0 Step Two: Outline the AM Plan Structure and Content;
0 Step Three: Write the Plan;
0 Step Four: Have the Plan Reviewed; and
0 Step Five: Update the Plan. (IIMM, 2002)

The following sections further explain above steps.

 

 

 

 

 

 

 

 

 

 

 

 

,r-va‘“. .ﬂ.._~.‘_\\ ‘.,d"———‘\\‘ . ,fw—ﬁ\ $
RE. __,_,./I ‘R_ , _._,_.-’J ~\_,_.——P"J Pkg/l
UO’EIFI the A Outltne AI'.’ Plan A A Rcwew the * U date the
. V. _ - . C Wnte the Plan p
Objectives Stzucture 8. Content Plan Plan
' r/___—c_‘\ j/F‘d “x \ xﬂ k ,f—“ﬁw
\_ ___,_./' ‘~~,__ W____....-' x“. __,_,_/’ RM

 

Figure 2. 1 Steps for Preparing AM Plans, Modiﬁed from IIMM 2002

Identify Objectives. The ﬁrst step, to identify objectives, determines who the target
audience of the plan is, what that audience already knows about the organization, what
the desired information from the plan is, and how the information is intended to be used.

This step also identiﬁes the level of detail and extent of information to which the target

14

audience will have access. Determining this lays the boundaries the asset management

program will have.

Outline AM Plan Structure and Content. The outline of the AMP structure and content
can be either very detailed or very general, depending on the set objectives of the AMP.
This step requires the AM team to deﬁne how assets will be grouped for reporting
purposes. For example, sewer lines can be categorized by type or by location. Other
factors inﬂuencing the decision on how to categorize assets include: the number and the
value of assets, if the assets are managed in similar ways, the scale of maintenance and
operational costs, where the assets are in their lifecycle, the depth of asset information

available, and the structure of management and service delivery contracts. (IIMM, 2002)

Write the Plan. There is no ideal structure to an AMP, however the IIMM outlines nine
sections that can be included in an AMP to serve as a guideline for developing one. There
are nine steps that include:

0 Executive Summary;

0 Introduction;

0 Levels of Service;

0 Future Demand;

0 Lifecycle Management Plan;

0 Financial Summary;

0 Asset Management Practices;

0 Plan for Improvement and Monitoring; and

15

0 References and Appendices. (IIMM, 2002)

These steps are discussed in more detail below.

Executive Summary. The executive summary should be a separate document that gives
an overview of the entire AM plan, and include general information emphasizing the key

issues of asset management. (IIMM, 2002)

Introduction. The introduction to the AMP should provide the reasons for preparing the
AMP and a justiﬁcation for owning and operating the assets covered in the AMP. It

should include:

Background: which covers the purpose of the plan, relationship with
other planning documents, infrastructure assets included in the plan, key
stakeholders in the plan, and the organization structure;

0 Goals and Objectives of Asset Ownership: which cover the reasons and
justiﬁcation for asset ownership and links to organization vision, mission,
goals, and objectives;

0 Plan Framework: including the key elements of the plan; and

0 Basic and Advanced AM: outlining a basic to advanced approach of AM,
and deﬁning the sophistication and limitations of the particular AMP.

Having a basic understanding of the AMP and the reasons why it is being implemented is

the purpose of the introduction. (IIMM, 2002)

16

Levels of Service. This section should clearly deﬁne the levels of service that are
proposed for the AM plan, and should include the following information:

0 Customer Research and Expectations;

0 Strategic and Corporate Goals;

0 Legislative Requirements;

0 Current Level of Service; and

- Desired Level of Service.
Details within each of these categories should be provided so that the desired outcome of

the AMP is speciﬁc and quantiﬁable. (IIMM, 2002)

Future Demand. Predicting the growth needs of the assets will be beneﬁcial for planning
purposes and asset allocation. This section addresses those needs with the following
categories:

0 Demand Forecast: factors inﬂuencing demand should be mentioned in
this section, along with a detailed projection of growth or decline of
demands on services, anticipated changes in customer expectations, and
the impact of changes in demand on asset utilization;

0 Changes in Technology: use of new technology and its effects on
providing future services should be outlined in this section, along with the
obsolescence of current practices; and

0 Demand Management Plan: this section should describe non-asset

solutions available as alternatives to asset-based solutions (i.e., demand

17

management, insurance, and managed failures) and also summarize new
works programs and costs.
Understanding the future demand of an asset system will allow for good planning and

resource allocation. (IIMM, 2002)

Lifecycle Management Plan. This section aims to outline exactly what is planned in
order to manage and operate the assets at the agreed level of service while optimizing
lifecycle costs. There are ﬁve subsections to the lifecycle management plan, and they are
as follows:

0 Background data;

0 Routine maintenance plan;

0 Renewal/replacement plan;

0 Creation/acquisition/augmentation plan; and

o Disposal plan. (IIMM, 2002)
The backgrozmd data should include the physical parameters of the assets, such as age,
size, mix, material, location and current issues. Also this section should include a
summary of total asset parameters in table or graph formats, an overall plan of asset
system or network, and how to obtain part-by-part asset information. The capacity and
performance of the asset, condition of the asset, valuations of the asset, and historical

data should also be included in the background data of the lifecycle management plan.

(IIMM, 2002)

18

The routine maintenance plan includes the regular day-to-day work that is necessary to
keep the assets operating, including emergency repair for portions of assets. The
maintenance plan should include the current trends and issues of the assets (i.e., spending
and complaints), current and past levels of service, and the maintenance decision-making
process, both planned and unplanned. Also included in this section should be standards
and speciﬁcations deﬁning the materials, methods, and service standards that have been
set in order to meet the level of service, and the risks associated with alternative
standards. A summary of future costs should also be included, such as forecasting
planned and unplanned maintenance work and costs, noting deferred maintenance as an

associated risk, and outlining how maintenance will be funded. (IIMM, 2002)

Renewal/replacement consists of major work that restores, rehabilitates, replaces, or
renews an existing asset to its original capacity. It does not increase the asset’s design
capacity. Work that increases design capacity is considered new works expenditure, and
does not apply in this section. The renewal/replacement plan should follow the similar
format of the maintenance plan, and include a renewal plan that shows how
replacements/renewals are identiﬁed and to what standards they are replaced, the end of
life projections, and the renewal decision-making process. The renewal standards need to
be set deﬁning the materials, methods, and service standards to meet required levels of
service, and the risks associated with alternative standards. This section also includes a
summary of future costs, including a forecast program of replacements and costs, cash
ﬂow forecast of costs, deferred renewals, risk analysis, and identiﬁcation of how

replacements will be funded. (IIMM, 2002)

19

The creation/acquisition/augmentation plan is for new works, which include any upgrade
or improvement which exceeds the previous asset’s capacity. Upgrades and
improvements are a result of growth and/or social and environmental needs. This process
should begin with selection criteria that outline a formal procedure for ranking asset
creation/acquisition projects. have standards and speciﬁcations that deﬁne the materials,
methods, design standards, and risks associated with alternatives, and have a summary of

future costs. (IIMM. 2002)

Disposal plan is the ﬁnal step in an asset’s lifecycle and includes any activity related to
disposing of a decommissioned asset, including the sale, demolition, or relocation of the
asset. For the disposal plan, future disposal needs should be forecasted and include the

time and cost of the disposal, and a cash ﬂow forecast of income/expenditure from asset

disposal should also be formulated. (IIMM, 2002)

Figure 2.2 shows the components of the lifecycle management plan that is described

above.

20

 

Lifecycle
Management Plan

 

 

 

 

Augmentation Pl

I
Background Data Routine Renewal/ Creattion/ Disposal Plan
Maintenance Plan Replacement Plan Acquisition/
an

 

 

 

Figure 2. 2 Lifecycle Management Plan Components Identiﬁed in IIMM 2002

Financial Summary. The ﬁnancial summary should contain the ﬁnancial requirements

from all the information previously presented. The ﬁnancial summary should include the

following:

Financial statements and projections: should be prepared for a
minimum of 10 years, and include cash ﬂow forecasts by year, breakdown
of expenditure by service groups, breakdown of expenditure into routine
maintenance, renewal and new works expenditures, and trends from the
previous two to three years;

Funding strategy: should provide details of how expenditure will be
funded and determine whether any planning is needed to smooth out
variations in cash ﬂow;

Valuation forecasts: forecast of future value of asset and valuation
methodology and forecast of depreciation; and

Key assumptions made in ﬁnancial forecasts: essential for the reader to
understand the accuracy of the ﬁnancial forecasts and how they can be

improved.

21

The ﬁnancial summary provides detailed information on the current and future value of

assets, and outlines how future expenditures will be funded. (IIMM, 2002)

Asset Management Practices. This section will outline the information available on the
assets, the information systems used, and the processes used to make decisions on how
the asset will be managed. The accounting and ﬁnancial systems portion must detail: the
accounting system and any changes that have been made as a result of the AMP, deﬁne
the differences between maintenance, renewal, and new works expenditure, and provide
details of accounting standards and guidelines that must be complied with. The asset
management systems portion must detail the types of data available for AM decision
making, state the quality, reliability, and adequacy of the data, deﬁne the software (if
any) used to store and analyze data, state where the information is stored and how often
data is collected. Information ﬂow requirements and processes must also be deﬁned,
stating the key information ﬂows to and from the AMP, the processes used to make
decision on AM for replacements, renewals and acquisitions. Additionally, state the
formal project ranking system (if any), deﬁne the process to make the best decision, and
state if the process takes into account risk cost, lifecycle costs, performance prediction,
and optimized decision making. Also, key standards and guidelines inﬂuencing AM

attributes should be stated in this section. (IIMM, 2002)

Plan Improvement and Monitoring. A key portion of an AMP is to have a means for

monitoring and improving it. This section of the plan details the performance measures,

22

improvement program, and the monitor and review procedures that will be used to

continuously monitor and improve the asset management plan. (IIMM, 2002)

References and Appendices. The plan will undoubtedly have been created using outside
documents and resources. This section of the asset management plan should include any
references used along with any necessary appendices, such as asset data, capital
expenditure programs, etc. that would be important references for others who are being

introduced to the AMP. (IIMM, 2002)

Figure 2.3 shows the nine sections discussed above that outline a written asset

management plan as laid forth by the 2002 IIMM.

23

 
   
   

Executive
Summary

 
     
   
 
  

References
and
Appendix

Intro-
duction

 
     

 

  
       
 
 
      

Plan for Levels of

Improving Service
and Written
Monitoring AM Plan

Asset Mgt.
Practices

Future
Demand

 
  

 
    

Financial
Summary

Lifecycle
Mgt. Plan

Figure 2. 3 Components of the Written Asset Management Plan Identiﬁed in the
IIMM 2002

The nine sections discussed above outline the sections within an asset management plan.
The AMP is probably the most time- and resource-consuming step in the asset
management process, but it entails the majority of the “work” that needs to be put forth to

implement an asset management system. The AMP should be a working document within

24

the asset management process, and is not expected to be complete at the beginning. The

following two steps are the last in the asset management planning process:

Review of the Plan. Once the plan has been compiled, a person with expertise in asset
management should look over the plan and identify its strengths and weaknesses as well

as its ability to meet any disclosure or other criteria. (IIMM, 2002)

Update the Plan. The plan should be a working document that is constantly updated as
customer expectations change, AM systems improve, assets are added to the network,

and if any other changes occur that would affect the AMP. (IIMM, 2002)

2.3.2 Association of Metropolitan Sewerage Agencies (AMSA)
According to AMSA, the primary reason to implement asset management is because it is
a good business practice that provides short- and long-term beneﬁts to the utility and its
customers. AMSA deﬁnes ﬁve major elements of asset management:

I. strategy;

2. asset retention;

3. tool integration;

4. business process redesign; and

5. outreach and reporting. (AMSA, 2002)
Figure 2.4 illustrates the basic building elements for a quality asset management program

as outlined by the AMSA.

25

 

Stakeholders
r and Elected s
Ofﬁcials ‘

  
    
  

 

 

Strategic
Approach

 

 

   

 

*Knowing What you have
. *Maintaining YourAssets

/‘ ./ *Asset Preservation. Renewal.

/ I
I r

7/ & Replacement

*Meeting Future Needs

 

 

 

, / *Complying with GASB-34
// Asset Retention
/ /
/ / Asset ManagementSystems Integration \
/ Tool Integration

 

 

 

 

 

Outreach 8. Reporting Business Process Redesign

 

 

Figure 2. 4 Elements of Asset Management, Modiﬁed from AMSA 2002

Strategy. The development of a strategy integrates the policies and performance
standards with the selection of asset management tools. The strategy is always in the
development stage as it should be revisited periodically to ensure a continuous
improvement cycle. The strategy outlined guides the asset management process, as it
provides the formula that deﬁnes how the relationships between human resources/labor

relations policies, information management policies, continuous improvement policies,

26

and ﬁnancial policies will be resolved in order to provide optimal service delivery. The
steps recommended by the AMSA to develop an asset strategy are as follows:
0 Develop appropriate asset management objectives and integrate them
with other agency goals;
0 Charter and empower a cross-disciplinary asset management team;
0 Develop appropriate targets and measurements to meet identiﬁed
objectives; and
0 Adopt related asset management policies to ensure a successful

program. (AMSA, 2002)

Asset Retention. Asset retention occurs after the strategy has been developed, and
includes an inventory of assets and their maintenance, preservation of value and function,
and replacement strategies. This step also includes the integration of needs to meet
growth and regulatory demands into the asset retention model and determine the ﬁnancial
requirements to meet those needs, and to plan for attaining the necessary resources.
Asset retention includes steps such as inventory of the assets, maintaining the assets,
asset preservation, renewal, and replacement, meeting of future needs, and complying

with the GASB-34. (AMSA, 2002)

Inventory. Having a complete inventory of assets is the ﬁrst step for managing assets.
Before a complete inventory of assets is done, the level of asset inventory should be
deﬁned. For example, an entire pump system can be considered as a single asset, or the

pump, motor, and frame can all be accounted for individually. Regardless of the level of

27

inventory to be completed, an inventory database should be readily accessible and
include the following information:

0 Size and/or capacity;

0 Construction materials;

0 Location;

0 Installation date;

0 Original cost;

0 Replacement cost;

0 Condition assessment;

0 Performance assessment;

0 Original service life; and

Estimate of remaining useful life.
An information audit within the company can be very useful to determine the type of
information available and the format it is in for the multiple inventories often held by

each utility or organization. (AMSA, 2002)

Maintenance. Performing systematic maintenance on assets allows for the optimal
performance at minimal cost. There are two types of maintenance: planned or proactive
maintenance, and unplanned or reactive maintenance. Proactive maintenance includes
preventative maintenance and predictive maintenance. Preventative maintenance includes
routine activities such as cleaning and adjusting, and is performed at predetermined ﬁxed
intervals, such as calendar days or number of uses. Predictive maintenance includes

activities that are not regularly performed by preventative maintenance, but will delay or

28

prevent total failure of the asset which would result in an unplanned maintenance activity.
An example of predictive maintenance would include vibration analysis or ultrasonic
monitoring, and is usually used on critical or costly assets where the beneﬁt of predictive
maintenance outweighs the cost. For example, ultrasonic monitoring would be beneﬁcial
on a large water main running under a busy highway because the cost of monitoring it is
far less than the costs incurred from an emergency repair, which would include closing
the highway, emergency maintenance, and the loss of water to numerous communities
and any other unforeseen costs. Corrective maintenance is a type of unplanned or reactive
maintenance, and usually follows a failure or shutdown of an asset so that it can be
repaired or restored. If corrective maintenance is not suitable for bringing the asset back

to its design life, then the asset should be scheduled for renewal or replacement.

The maintenance of assets needs to be balanced between planned and unplanned
maintenance schedules so that the cost of maintenance activities is minimized. Figure 2.5
illustrates the deterioration and renewal strategies for an asset which results in the
effective management and operation of the asset. This ﬁgure demonstrates several
maintenance activities during the life of the asset with continued deterioration process
until the point that a major renewal/rehabilitation/replacement is required. After the
renewal process, asset starts a new life with a new cycle of maintenance activities and

deterioration process. (AMSA, 2002)

29

\‘ K \. ‘ '\\
t \ ‘.\
.\ .\ , X __ .
‘1‘ \x \i\ i \ \
't \j i \
‘ \\ \‘\ \ \
4| ‘ ‘\ \\

 

 

 

 

Asset Condition

Maintenance Rehabilitation/Renewal Activity

Activity

 

 

Time

Figure 2. 5 Asset Deterioration and Renewal, Modiﬁed from AMSA 2002.

Preservation, Renewal, and Replacement. All assets will deteriorate with use and/or
time regardless of the quality and quantity of preventative maintenance done. Therefore,
it is essential to have a renewal and replacement strategy in place so that when an asset
deteriorates beyond its useful life, the proper means are in place to renew it. A proper
renewal and replacement program integrates other aspects of an asset management
system. The AMSA identiﬁes the following as basic elements of an asset rehabilitation
program:

0 Asset inventory;

0 Asset condition assessment;

- Renewal and replacement;

0 Analysis programs;

30

0 Evaluation of management alternatives; and

0 Risk evaluation . (AMSA, 2002)

Meeting Future Needs. Financial planning is essential to an asset management program
because it determines the resources available throughout the life-cycle of the assets.
Knowing the future needs of the assets help set ﬁnancial requirements for the future that
will keep the utility running smoothly. The capital improvement requirements as
identiﬁed by the AMSA include the following:

o Correcting deﬁciencies: inventory and condition assessment of
previously neglected assets;

0 “Normal” renewal and replacement: commit to ongoing renewal and
replacement of assets to avoid emergency intervention;

0 System growth requirements: plan for growing communities and
customers and balance new capital investment needs with renewal and
replacement needs; and

0 Addressing regulatory mandates: balance renewal and replacement
requirements with new treatment process mandates and regulatory

requirements. (AMSA, 2002)

Tool Integration. Tool integration is the process of implementing software or other
management tools that help to mainstream the ﬂow of information. The tool integration
process is where signiﬁcant efﬁciency gains can be made within the organization. The

main tools that can be helpful are the ones that integrate the asset retention process, such

31

as software that consolidates multiple databases for asset inventory and purchasing
systems. Integrating asset management tools gives the municipality control of the
information, and is often most effective when integration tools are phased into the
company culture. The AMSA outlines the following primary components of an integrated
asset management system:

0 Maintenance Management Systems (MMS): contains asset inventory,
work order management and history, condition assessment, and
rehabilitation prioritization;

0 Customer Information System/Relationship Management (CIS or CRM):
payment history, work order history by customer location, customer
correspondence, service billing, contact management and credit
management;

0 Purchasing and supply chain management: inventory management and
asset allocation to work orders, procurement, order management,
warehouse management, forecasting and pricing;

0 Finance and human resources: billing, accounts receivable and accounts
payable, general ledger, tax accounting and reporting, budgeting and
forecasting, activity-based costing, job/project based costing, valuation,
and cash and debt management;

0 Mapping and asset inventory management: CADD or GIS-based mapping

system;

32

0 Capital asset management: applications for inventory analyzing and
condition assessment to support decision making for capital improvement
plans;

0 Application database(s): central database storing information from the
above-mentioned applications; and

0 Business processes: formally deﬁned standardized business processes
employed by the organization to enter, maintain, and retrieve data in the
above-mentioned applications and to exchange data between those
applications.

Information management is crucial to asset management. The ability to retrieve
information and use it in a meaningful way is essential to a successful asset management
process, and using existing technology and tools to do so can streamline efficiency. A
database management system can store information on all aspects of an asset. For
example, database management system for a sewer main will contain information such as
the sewer main’s physical properties (size, type, location, etc.), its maintenance log, the
costs related to the sewer main, future maintenance plans, and inventory associated with
the sewer main. When this information is cataloged into the database management
system, it is readily accessible and the information can be used to make decisions

regarding the management of the asset. (AMSA, 2002)

Business Process Redesign. The business process redesign aspect of asset management

allows for feedback from within the municipality in order to continuously align and

reﬁne management practices. This process optimizes communication and decision-

33

making by integrating all divisions within the organization. By having company-wide
awareness of asset conditions and strategies, and allowing for feedback by the company
and its stakeholders, the business process can be reﬁned to its optimal efﬁciency for the
assets it maintains. The success of business process redesign depends on leadership,
stakeholder involvement, having a common goal, a positive atmosphere, communication,
training, resources, and setting performance measures. The process for redesigning as
identiﬁed by the AMSA includes the following steps:

0 Setting the stage;

0 Assessing the existing process;

0 Comparing to best-practices;

0 Designing the improvements; and

0 Implementing the new process. (AMSA, 2002)

Figure 2.6 shows the continuous process for business redevelopment.

34

5. Implement
*Develop plan
‘Implement as a
pilot and adjust

I. Set the Stage:
‘Establish mission
and objective
‘Charter AM team

"Roll-out ‘Communicate

‘Measure and track through the

performance organization

4. Design 2. Assess

‘Redesign and adapt ‘Map current
the process with process
“best practices" ‘Screen existing
*Det’ine AM policies
performance ‘Estimate current

measures performance
*Map new process

3. Compare
’ldcntify best
practices
*Compare with
“assess" and
identify gaps

Figure 2. 6 Business Redesign Process, adapted from AMSA 2002

Outreach and Reporting. The outreach and reporting step is crucial to communicate
asset condition. investment alternatives, and potential risks to internal decision makers
and external stakeholders. Asset management programs can be costly to implement, but
the beneﬁts are realized over the long term. Educating the governing board and

stakeholders on asset management practices and investments will ensure their

35

understanding of the long-term beneﬁts of asset management and see the money spent on

asset management programs as money well spent.

AMSA has outlined a thorough process for implementing an asset management program,
and the basics have been discussed above. Because there are many steps and processes
involved in an asset management program, it is beneﬁcial to set up an asset management
team which encompasses leaders from each division in the organization to promote and
communicate the goals and objectives of the asset management program within the
organization as well as to facilitate implementation. Long term beneﬁts will be obtained
by taking the time and resources to implement a thorough asset management system that

is appropriate for the organization. (AMSA, 2002)

2.3.3 American Water Works Association (AWWA)
In 2002, the AWWA published a paper entitled “Creating an Asset Management
Strategy: An Asset Management Template,” by Paralez and Muto in the AWWA Trends
in Water Series book entitled Assessing the Future: Water Utility Infrastructure
Management. A summary of the asset management strategy as outlined by AWWA
follows:
0 Clear strategic drivers: asset management is about arriving at both a
technical and a strategic solution, requiring decisions about levels of
service, predictions of demand, tolerance for risk, and other political and

social trade-offs;

36

Asset knowledge: an asset management strategy requires knowledge
about the key infrastructure assets of the utility including condition
information, historic failure information, performance data, maintenance
history, and other asset-related information because it is critical for
developing predictive models, optimum maintenance plans, and building
plans for replacement or expansion of the infrastructure;

Integration of knowledge: a cohesive asset management plan requires the
integration of customer, ﬁnancial, engineering, operations, and
maintenance data from ntunerous input sources; and

Subject-matter expertise/competencies: the appropriate use of the data
requires subject matter expertise, and the competencies needed to develop,
evaluate and apply this understanding need to be part of the overall

strategic investment of the utility. (Paralez and Muto, 2002)

The above steps have been identiﬁed as crucial elements for successful implementation

of an asset management strategy. The following questions as identiﬁed by Paralez and

Muto (2002) are the ingredients of an asset management strategy:

What do you own? This includes asset identiﬁcation and geographic location.
Typically this involves a complete inventory of all assets, cataloged by type and
providing a level of detail about the component to be maintained;

What is it worth? This includes asset ﬁnancial data, including replacement cost;
What is its condition? This includes physical description data, including all
subsystems (equipment hierarchy). Operational performance data and condition

monitoring, including maintenance backlog. For each component, historical

37

performance data, maintenance history, failure incidents, materials, installation,
cost, age, material type manufacturer, and other information would also be
included;

What is the remaining service life? Estimations of useful physical and economic
life ofthis asset;

What is the maintenance strategy? This includes operational procedures,
preventive/predictive/condition-based maintenance schedules, criticality of the
asset to the system performance in order to meet business objectives, target and/or
designed level of service, etc.;

What are other current practices? Relevant decision support methods in use for
repair-versus-replace decisions for assets; for selection of asset quality; for
maintenance program for maintenance strategy; for data management, etc.;

What is the replacement strategy? Estimated replacement or refurbishment that is
ahead of useful physical or economic life of the asset, ahead of decline in
unacceptable level of service, ahead of unacceptable maintenance/repair costs,
etc.;

What levels of service do you want to provide? This includes minimum
performance and/or service standards such as pressure and ﬂow, response time,
system reliability, etc.; and

What are the existing and future performance demands? Estimations of projected

population growth, business expansion, consumer usage trends, etc.

38

The above questions can be used to gather and organize the data that will be needed to
create an asset management strategy. Paralez and Muto cite the IIMM 2000 in their
version of an asset management framework. The asset management activities are
components of either a basic or advanced asset management cycle. These activities may
include:
Basic Cycle

0 Collecting data and measure performance;

0 Existing asset knowledge;

0 Identifying levels of service (prompted by strategic drivers: customer, regulatory,

ﬁnancial, political, legislative, environmental, etc.);
o Predicting demand (prompted by strategic drivers: population and business
growth, customer use trends, demand management tools, etc.);

0 Assessing ﬁnancial cash ﬂows (yields a product: ﬁnancial plan, business plan);

0 Preparing a basic asset management plan;
Advanced Cycle

0 Assess condition and measure performance;

0 Conduct failure mode analysis (historic failure data, predictive modeling, etc.);

0 Assess risks of failures;

0 Evaluate/select treatment options; and

0 Identify optimal solutions (yields a product: operation and maintenance plan,

demand-management techniques, asset creation and disposal tactics). (Paralez and

Muto, 2002)

39

2.3.4 Comparison of Asset Management Strategies
The three strategies outlined above summarized three different strategies to implement an
asset management program. Table 2.1 shows the summary of each asset management

methodology used.

Table 2.1 Comparison of Asset Management Methodologies

 

 

 

 

 

 

 

 

 

IIMM AMSA AWWA
Step I: Identify Objectives Element [2 Strategy Step I: Have Clear Strategic
Drivers
Step 2: Outline the AM Plan Element 2: Asset Retention Step 2: Have Knowledge of
Structure and Content Assets
Step 3: Write the Plan Element 3: Tool Integration Step 3: Integration of Knowledge—
Step 4: Have the Plan Reviewed Element 4: Business Process Step 4: Subject-matter
Redesign Expertise/Competencies
Step 5: Update the Plan Element 5: Research and
Reporting

 

While each program is unique, they all have similar underlying practices. Every asset
management system must have an outlined strategy to work from. Additionally,
knowledge of the physical properties of all assets (size, type, location, function) and their
condition is essential. An operation, maintenance, repair and replacement program is also
necessary to have, along with a short- and long-term outlook for ﬁnancial planning. In all
three cases, the AMP is a working document, and is constantly being updated and
revisited to meet the needs of the utility. These are the key components of an asset

management system as identiﬁed from the above implementation methods.

2.4 Government Accounting Standards Board Statement 34
The previous section identiﬁed strategies for implementing an asset management plan.
This section addresses the requirements and importance of the GASB-34 as it relates to

asset management.

40

 

The Government Accounting Standards Board is an independent agency responsible for
developing standards of state and local governmental accounting and ﬁnancial reporting
that result in useful information for users of ﬁnancial reports and guide and educate the

public (GASS, I999).

The Government Accounting Standards Board statement number 34 (GASB-34) was
issued in June of 1999. While there are many reporting standards required within the
GASB-34, this research is only concerned with the speciﬁc aspect of it redeﬁning the
requirements for reporting major capitol infrastructure assets in government ﬁnancial
statements. For the ﬁrst time, infrastructure assets must be reported in the agency’s
ﬁnancial statements (AMSA, 2002). The GASB-34 does not have the power of law,
however, the GASB deﬁnes the Generally Accepted Accounting Principles, or GAAP.
Financial statements must comply with GAAP to receive an unqualiﬁed opinion from
auditors, which is extremely important to agencies, especially if bonds have been or are
intended to be issued (Harlow, 2000). Before the GASB-34, most cities and counties used
cash accounting to account for their assets, in which physical assets appear on the books
only during the year in which they are constructed (Maze, 2000). GASB 34 requires that
major capital assets be accounted for using accrual accounting, meaning that their costs
must be charged over the life of the asset (Maze, 2000). GASB 34 allows the accrual
accounting to be calculated one of two ways, either by depreciation or by the modiﬁed

approach.

41

2.4.1 Historical Cost/Depreciation
The ﬁrst method of GASB-34 is straight-line depreciation, where:
Annual depreciation = (historical cost - salvage value) / useful life in years

This method depreciates the asset over its useful life and is reported in the statement of
activities portion of the ﬁnancial report (AMSA, 2002). In determining the assets service
life, the agency should consider its present condition and how long the asset is expected
to meet service demands, along with the general guidelines from professional or industry
organizations, information on comparable assets of other governments, internal

information, and manufacturer recommendations (AMSA, 2002).

2.4.2 Modiﬁed Approach

The second method of the GASB-34 is the “modiﬁed approach,” which incorporates the
beneﬁts, or values, of maintenance activities into the asset value reporting process (Maze,
2000). This requires that the agency have an asset management system that maintains an
up-to-date inventory of all eligible assets, performs condition assessments and
summarizes the results using a measurement scale, and estimates each year the annual
amount required to maintain and preserve the eligible assets at the condition level to be
self-set by the governing agency (AMSA, 2002). Additionally, the agency must
document that the eligible infrastructure is being preserved at or above the condition level
which was self-established (AMSA, 2002). This method allows a more realistic asset
value to be recorded, because infrastructure assets are not depreciated, they are
maintained and preserved to meet or exceed standards for condition, and while parts of

the asset may be renewed, it is still fundamentally the same asset (Maze, 2001).

42

The method used is at the discretion of the reporting agency, and because most local

governments do not have an asset management system in place, the depreciation method

is chosen because it is easiest to implement (Maze, 2003). GASB 34 is ﬂexible, however,

and will allow an agency to switch from one reporting method to another. Since the

modiﬁed approach supplies more detailed and accurate information about the condition

and funding requirements for assets, it is more beneﬁcial if this method is used. However,

the modiﬁed approach implies that the agency has a working asset management system in

place. Table 2.2 is modiﬁed from Figure 8.2 of the AMSA and shows the pros and cons

of both reporting methods.

Table 2.2 Choosing a Reporting Method (Modiﬁed from AMSA 2002)

 

 

 

Choosing a Re sorting Method
Depreciation Modiﬁed Approach (Asset Preservation)
Pros Cons Pros Cons

 

Easier to implement:
requires less data and
deliberation

Does not address actual
asset condition

Provides information on
asset condition (if
condition is good. Some
managers/boards may
consider this a con if
condition is bad

Initial investment setting
up the process is more
costly, especially if no
databases exist from
other sources

 

Finance personnel and
auditors are more
familiar and comfortable
with this approach

Gives perception that
assets are being allowed
to deteriorate

Sets quantiﬁed targets
for asset condition (if
met. Some
managers/boards may
consider this a con if
targets are not met)

More of an intellectual
chaﬂenge

 

Relatively simple
ﬁnancial reporting

Does not account for
investments in
maintenance and
rehabilitation

Provides documented
explicit costs of
preserving assets

If condition level falls to
below targets, must
revert to depreciation
method

 

Lower risk of negative
audit report

Does not represent real
value of the asset.
Represents unreasonable
low cost of service in
older systems

Real value of asset is
documented

If condition levels fall
below targets, may be
seen as failure of
management

 

 

Not a measure of
management
eﬁ‘ectiveness

 

Depreciation factors
bear little relationship to
actual changes in asset
condition

Quantiﬁed performance
measures allow trends to
be checked and
projections to be made

 

 

Provides information on
asset condition (Pro if
condition is good. Some
mags/boards may

 

43

 

 

 

 

 

 

Choosing a Re sorting Method
Depreciation Modiﬁed Approach (Asset Preservation)
Pros Cons Pros Cons

consider this a con if
condition is poor)

Does not address Sets quantiﬁed targets

.. ,. . . . . . . for asset condition (Pro

overhang liabilities Variable future funding .

if met. Some

arising from deferred
maintenance and
rehabilitation

needs can be easily
translated into rates

managers/boards may
see this as a con if
targets are not met)

 

Meaningless to
customers and public.
Viewed as unreliable or
incomplete way to
report costs

Involves policy makers
and all utility managers,
not just ﬁnance
personnel

Failure to maintain
stated condition level
could result in the need
to secure funding for
reinstating the level,
political issues, or where
infrastructure failure
occur, liability situations

 

Provides meaningful
information for
customers and public

 

Satisﬁes asset
management
expectations of CMOM

 

Probably will be
required under any new
federal ﬁnancing
program

 

 

 

Eventually, will be
expected by lending
institutions and other
monitors

 

 

 

2.4.2.1 Asset Management Requirements of the GASB-34 Modiﬁed Approach

The GASB-34 modiﬁed approach requires the government to manage infrastructure

assets using an asset management system that has the following characteristics:

1. Have an up-to-date inventory of eligible infrastructure assets;

2. Perform condition assessments of the eligible infrastructure assets and

summarize the results using a measurement scale; and

44

 

3. Estimate each year the annual amount to maintain and preserve the eligible

infrastructure assets at the condition level established and disclosed by the

government.

The government must also document thatthe eligible infrastructure assets are being

preserved approximately at or above a condition level established and disclosed by the

government in accordance with the following documentation:

1. Complete condition assessments of eligible infrastructure assets are performed

in a consistent manner at least every three years;

2. The results of the three most recent condition assessments provide reasonable

assurance that the eligible infrastructure assets are being preserved

approximately at or above the condition level established and disclosed by the

government

(GASB-34, 1999).

The above are the requirements that must be met in order to use the GASB-34 modiﬁed

approach of reporting for infrastructure assets. Table 2.3 compares the requirements for

meeting the depreciation method of reporting versus the modiﬁed approach of reporting

under the GASB-34.

Table 2. 3 Comparing the Depreciation and Modiﬁed Approaches
(Modiﬁed from AMSA 2002)

 

Reporting Requirements Comparison

 

Depreciation

Modiﬁed Approach

 

Summary

Infrastructure assets will be reported in the
statement of net assets based on historical costs and
will be depreciated over their useful lives

Summary

Infrastructure assets will be reported in the
statement of net assets based on historical costs.
Report all preservation costs as expense and no
report of depreciation

Demonstrate that assets are being preserved and an
asset management system is in place

-Require condition information and required versus
actual maintenance/preservation

 

 

Requirements

 

Requirements

 

45

 

 

Reporting Requirements Comparison

 

Depreciation

Modiﬁed Approach

 

Historical cost includes:

-Estimated historical cost

-Replacement cost or current cost, which is then
deﬂated back to the acquisition date. is an
acceptable method for estimating

-Original cost

An asset management system must:
a. Have an up-to-date inventory of eligible
infrastructure assets
b. Perform condition assessments of the

eligible infrastructure assets and
summarize the results using a measurement
scale

c. Each year estimate the annual amount to
maintain and preserve the eligible
infrastructure asses at the condition level
established and disclosed by the
organization

 

 

Procedures

Depreciation expense should be reported in the
statement of activities. Depreciation expense should
be measured by allocating the net cost of
depreciable assets (historical cost less estimated
salvage value) over their estimated useful lives in a
systematic and rational manner. It may be calculated
for:

-a class of assets

-a network of assets

-a subsystem ofa network

-individual assets

 

Procedures

The organization must document that assets are
being preserved through normal expenditures at an
acceptable level established by that government
entity.

3. Complete condition assessments of eligible
infrastructure assets are performed in a
consistent manner at least every three years

b. The results of the three most recent
condition assessments provide reasonable
assurance that the eligible infrastructure
assets are being preserved approximately at
or above the condition level established
and disclosed by the organization

If eligible infrastructure assets meet the
requirements of GASB-34 paragraphs 23 and 24
and are not depreciated, all expenditures made for
those assets (except for additions and
improvements) should be expensed in the period
incurred. Additions and improvements to eligible
infrastructure assets should be capitalized.
Additions or improvements increase the capacity,
efﬁciency, or extend the life of infrastructure assets
rather than preserve the useful life of the assets.

 

2.5 Additional Research in Asset Management and GASB-34

Asset management is an extensive topic and applies to all owned assets, including but not

limited to buildings, roads, bridges, parks, and sewer and water infrastructure. The

research being done in all areas of asset management is extensive. Several research

projects involve asset management software and decision-making support systems.

Condition assessment is also widely researched. This section is divided into three

46

 

sections: management tools, decision-support systems, and condition assessment, and
will give an overview of the current research that has been completed in the general topic

of asset management.

2.5.1 Current Research in Asset Management Tools

Managing an entire city’s assets is a very complicated and tedious process that requires
numerous people. The mass of information that needs to be catalogued and accessible to
city ofﬁcials is enormous. The information then needs to be used for planning and
maintenance purposes. For that reason, numerous research studies have been conducted
to develop solutions for storing and processing all the information necessary for planning

and maintaining public resources.

Geographic Information Systems (GIS) are very versatile which makes them ideal for
municipalities that need to catalogue numerous types of information. The GIS is an
excellent base for information for an asset management system, and several researchers
have expanded the GIS capabilities to further the usefulness of GIS for implementing an
asset management program. For example, Zhang (1996) developed an infrastructure
management system (IMS) that was GIS based and multi-media integrated for a visual
IMS. The visual IMS has the capability of handling a wide variety of data and
information visually, analyze them spatially, and present the results graphically (Zhang,
1996). Additionally, Jia (1996) researched a client/server-based intelligent GIS shell for a
transportation agency. The intelligent GIS shell integrates the spatial analysis capabilities

of a GIS with the knowledge reasoning procedures of a knowledge-based expert system

47

using client/server technology, creating an operational environment in which to perform

spatial queries, searches, and other operations (Jia, 1996).

Modeling and optimization techniques have also been researched as a means to assist in
managing infrastructure. Watkins (1997) evaluated optimization models and applied them
to water resource problems, concluding that when optimization models are used in the
proper context, they can promote the understanding of complex systems and help in
evaluating the tradeoffs involving risk (Watkins, 1997). Jiang (2001) also researched
modeling and optimization techniques, speciﬁcally for maintenance systems, addressing
preventative replacement at optimal times for the system’s health. Jiang uses two types of
models, age-based and condition-based models, and the results apply to a range of

systems. including infrastructure and manufacturing.

2.5.2 Current Research in Decision Support Systems

The decisions that need to be made regarding the operation and maintenance of assets are
extensive and involve numerous variables. Simplifying these decisions by creating
decision support systems (D88) and knowledge-based systems for asset management is a

popular research topic.

A DSS was developed by Kim (1998) to assist in achieving a sustainable development
plan for transportation systems for the Commonwealth of Virginia. The research aimed at
developing a transportation planning model for state highway management, and focused

on managing the physical condition of the state highway system at an acceptable level

48

through a state-dependent prioritization strategy to achieve sustainable development
(Kim, 1998). Another DSS research for the transportation industry involved developing a
D88 for evaluating pavement maintenance alternatives and ﬁnding the optimum
pavement maintenance strategy to minimize costs over the life-cycle of the pavement

(Hammad. 1999).

Several researchers have developed DSS for sewer and water infrastructure as well. A
DSS was developed for water distribution network rehabilitation that selects for each pipe
in a network the rehabilitation alternative that minimizes the cost of not only the
rehabilitation, but all maintenance costs for that pipe over a predetermined time period
(Kleiner, 1997). Another DSS was developed for large combined sewer systems to assist
asset managers in decision-making regarding sewer maintenance and rehabilitation plans
with limited access to sewer condition data (Wirahadikusumah, 1999). Other research in
sewer DSS created a demand forecasting model that uses artiﬁcial neural networks,
where the forecasted demand identiﬁes critical areas that need to be expanded (Chung,

2001).

2.5.3 Condition Assessment Tools and Methods

One of the key aspects of asset management is to know what condition the assets are in,
and to know when they will need to be serviced or replaced. Condition assessment
techniques for all types of materials and assets have been created through previous

research studies.

49

AbdelRazig (1999) proposes a D88 model using image processing and neural networks
for defect recognition and measurement, in which digital images of the asset are taken
and analyzed for defects. Neural networks “learn” by example and are designed to mimic
human expertise. Box (1997) uses neural network algorithms to detect electrical arcing
faults in an underground electric distribution network. Neural networks are also used in
the research of Heiler (1996) as a means of sorting through the massive amount of data
produced by ground penetrating radar, a condition assessment tool used to conduct

infrastructure condition assessments.

Inspection of underground infrastructure is difﬁcult and often neglected until the
circumstances are crisis-based. There are several inspection methods for underground
infrastructure that can be used to monitor the condition of the asset to assure it is

maintained before it fails. These methods are reviewed below.

Closed Circuit Television System (CCTV). For the CCTV method, a camera is placed in
the pipe and is controlled above ground by a skilled technician using a control panel in a
television studio. The camera picks up images of the pipe and still photos can be taken at
any time for record keeping. CCTV accuracy depends on the skill of the operators and the
quality of the images taken. The CCTV method is cost effective and can locate any object

or defect in the pipe. (Sinha, 2004)

Laser—Based Scanning Systems. A laser-based scanning system is still a relatively new

technology, but is extremely accurate and, because it downloads data directly to a

50

computer, it reduces operator error. The laser can evaluate the shape of the pipe and its
defects by using a laser diode to create a proﬁle of the pipe. These systems are limited to
the part of the pipe that is above the waterline, but the technology is still developing.

(Sinha, 2004)

Ultrasonic Inspection (Sonar). The sonar inspection uses a high frequency sound wave
that travels through the pipe and reﬂects back whenever there is a change in the density
of the material. This technology can detect voids, pits, and cracks in the pipe. Evaluation

using this method can be difﬁcult. (Sinha, 2004)

Other Methods. Other, less popular methods of pipe inspection include eddy current
testing, which is an electromagnetic technique that can detect discontinuities in tube
walls, and acoustic emission monitoring which monitors sounds (usually undetectable to
the human ear) made by a material in use or under load (Sinha, 2004). Table 2.4

compares current sewer inspection techniques including those listed above along with

 

 

 

 

 

 

 

 

others.
Table 2. 4 Current Sewer Inspection Techniques: A Comparison
(Najaﬁ and Gokhale, 2005)
Technique l Where to Use I What Will be Found
Inspection of the Inner Surface
Conventional CCTV Empty pipes, partially ﬁlled pipes Surface cracks, visible
above the water surface deformation, missing bricks,
some erosion, visual indications
of exﬁltration/inﬁltration
Stationary CCTV Pipes with less than 160 m As CCTV
distance between manholes
Light Line CCTV Pipes where deformation is an Better deformation measurements
issue and CCTV results
Computer—Assisted CCTV As CCTV, currently small As CCTV but with quantitative
diameter pipes only measurements of damagg
SSET Pipes of diameter ranging from 8 As CCTV, but with higher

 

 

 

51

 

 

 

 

 

 

 

 

 

 

Technique Where to Use What Will be Found
to 24 inches sophistication and accuracy; can
measure deformation of pipes
Laser Scanning Partially ﬁlled pipes, empty pipes Surface cracks, deformations,
missing bricks, erosion losses
Ultrasound Flooded pipes, partially ﬁlled Deformation measurements;
pipes, empty pipes erosion losses; brick damage
Inspection of Pipe Structure and Bedding Condition
Microdeﬂections Rigid sewer pipes Overall mechanical strength
Natural Vibrations Empty sewer pipes Combined pipe and soil

condition, regions of cracking,
regions of exﬁltration

 

Impact Echo Larger diameter, rigid sewers Combined pipe and soild
condition, regions of wall
crackiniregions of exﬁltration

 

 

 

Inspection of Bedding

 

 

Ground Penetrating Radar Inside empty or partially ﬁlled Voids and objects behind pipe
pipes walls, wall delaminations,
changes in water content in
bedding material

 

 

 

2.5.4 Asset Management and GASB-34 Research

Previous research in asset management often cites the GASB-34 as a recent trend in
ﬁnancial reporting and the GASB-34 is often listed as a motivation for research in asset
management. The valuation of assets is pertinent to an asset management system, and the
GASB-34 provides for two valuation methods: depreciation and modiﬁed approach. Baik
(2003) states that “asset valuation has received special attention since the GASB issued
Statement 34.” and presents his research on a valuation method that incorporates the
changes in the asset condition due to deterioration (Baik, 2003). Asset valuation with
regards to the GASB-34 is also mentioned by Zongzhi (2003) as both an essential portion
of an asset management system as well as a means of ensuring justiﬁcations for budget

requests and fostering strategic investment decisions.

Infrastructure-orientated magazines and associations have written articles regarding the

importance of complying with GASB-34 and on ways to implement its requirements.

52

 

Water Online printed an article in October of 2000 on complying with GASB-34, and
Technology News published a series of articles on GASB-34 implications on
infrastructure and the importance of implementing them. The US. Department of
Transportation held a meeting and a peer exchange to discuss the status of implementing

the GASB-34 and whether the modiﬁed approach or depreciation method would be used.

In Pipelines 2005, published by ASCE, a paper entitled “The Modiﬁed Approach to
GASB 34 and the Effect on Pipeline Materials Selection,” by Dennis Dechant was
published. In this paper, the author uses the modiﬁed approach requirements to suggest
methodologies for selecting pipeline material and management and maintenance
strategies. Dechant proposes that distribution systems and transmission mains be
evaluated as separate subsets due to the extent of the consequences yielded when one
fails over the other. The failure of a distribution system is often less eventful than the
failure of a transmission main due to the size of failure, lack of service to numbers of
people, and time to repair. Separating the piping into two subsets is due to the cost of
corrosion protection, evaluation of risk, and cost and consequence of failure. Failure due
to corrosion can be controlled and predicted to some degree of certainty, and this ability
to document the method of controlling corrosion on pipe with metallic components is

critical to the use of the modiﬁed approach (Dechant, 2005).

Due to the smaller size of distribution systems, a qualiﬁed corrosion professional can

predict the frequency of failures in a system to some degree of accuracy, and with this

information a maintenance repair and replacement schedule can be implemented that will

53

keep the subset at a condition established as acceptable. This would be considered as
maintenance costs for GASB 34. and meets the requirements of the modiﬁed approach

(Dechant, 2005).

Transmission mains are larger and are not part of a periodic replacement program, and
because its failure would yield much larger consequences than a distribution system, a
corrosion protection system would be a beneﬁcial investment. The lifecycle cost-beneﬁt
of a corrosion protection system ranges from 7 to 42 times beneﬁt to cost ratio, making it
a good investment for large diameter pipes. The corrosion protection system can be
installed either during initial construction or at the ﬁrst sign of unacceptable corrosion,
and a maintenance schedule can be implemented to maintain the pipeline at an acceptable
condition. This maintenance and periodic replacement of the protection system can be
identiﬁed. scheduled. and quantiﬁed, making the GASB 34 modiﬁed approach a feasible
reporting method when this strategy is used (Dechant, 2005). Dechant’s suggestions on
separating distribution systems from transmission mains when managing and reporting on
assets is economical and efﬁcient, and also meets the GASB 34 modiﬁed approach

requirements.

2.6 Chapter Summary

This chapter presented an overview of the previous research done in asset management.
AM methodologies, GASB-34 requirements, and AM tools were reviewed. The next
chapter presents the methodologies used to achieve the goals and objectives of this

research as outlined in Chapter One.

54

Chapter 3

METHODOLOGY

55

3. METHODOLOGY

The previous chapter presented an introduction and literature review which provided the
crucial background for this research. This chapter presents the methodology that was
used in this thesis for the development (of recommendations for sewer and water
municipalities to bring their asset management practices into compliance with the GASB-

34 requirements.

3.1 Methodology for Activity One

The ﬁrst activity of this research was to review the deﬁnitions and methodologies of asset
management. This activity was completed in Chapter Two by completing a literature
review. Deﬁnitions were obtained from the IIMM, AMSA, AWWA, and several previous
research efforts were identiﬁed. Methodologies for implementing an asset management
program were outlined as laid forth by the IIMM, AMSA, and AWWA to give an

overview of different types of asset management practices.

3.2 Methodology for Activity Two

The second activity of this research was to review the GASB-34 modiﬁed approach
requirements and parameters. This activity was also completed in Chapter Two. An
overview of the GASB-34 was presented, along with a description of the two methods for
meeting the standard: the modiﬁed approach and the depreciation approach. A table

outlining the requirements of each method was also presented.

56

3.3 Methodology for Activity Three

The third activity of this research was to survey a minimum of six cities in Michigan with
populations greater than 20,000 on their current asset management practices that would
be essential to meet the GASB-34 requirements. Small water and sewer systems,
identiﬁed as those serving populations of 10,000 or less, are at the beginning of the
advanced asset management journey, with few cities having even heard of asset
management (Brown, 2006). Because asset management is a key portion of this study,
this population was doubled and cities in Michigan with populations over 20,000 were
considered for this research. It is assumed for this research that a city with population of
20,000 will have a basic knowledge of asset management and would have vested interest
in implementing an asset management program, if one is not already in place. The survey
is used to identify the trends of asset management practices in Michigan and their

correlation to the GASB-34 modiﬁed approach requirements.

3.3.] Questionnaire Development

A questionnaire was developed that was comprised of sixteen questions. These questions
were developed from the GASB-34 modiﬁed approach requirements. Each component of
the GASB-34 requirement was asked in the form of a yes or no question. Nine questions
were directly related to the GASB-34 requirements. The remaining seven questions were
for additional information that assisted in data analysis and the creation of
recommendations. Of the total, thirteen questions were yes/no or multiple choice, and
three questions were short answer. The questionnaire was written so that it would take a

knowledgeable municipal manager less than twenty minutes to complete. The survey was

57

submitted to the University Committee on Research Involving Human Subjects
(UCHRIS) and was given an exempt status due to its nature of strictly public material. A

complete copy of the questionnaire is included in Appendix A.

3.3.2 City Selection and Data Collection

Census data was used to determine eligible cities in Michigan with populations over
20,000. Cities were randomly selected and were contacted by phone or email to
determine their willingness to participate. Cities that agreed to participate in the research
were sent the questionnaire via email, unless another method was preferred and speciﬁed
(i.e. fax, postal service, etc.). It was requested that surveys be returned via email, fax, or
postal service within three business days. Water and wastewater superintendents and/or
the city engineers were contacted to complete the survey. Due to resource limitations and
the nature of this research, it was assumed that the cities who returned the survey would
provide representative data of the asset management practices in Michigan as they relate
to the GASB-34. While the number of surveys returned lack signiﬁcant statistical value,
they do act as case studies to represent current practices and needs for improvements. The
results of the survey were used to develop a set of recommendations which provide

practical ways for implementations of asset management and GASB-34 concepts.

3.4 Methodology for Activity Four
The fourth activity of this research was to identify areas of asset management that need to
be improved or modiﬁed to meet the requirements of the GASB-34 modiﬁed approach.

The data collected in this research is qualitative, and detailed statistical analysis was not

58

used for the majority of the analysis. Instead the method of qualitative analysis of coding
was used. Thirteen questions in the questionnaire are closed-ended questions, and were
analyzed using a coding matrix where variables are in columns and each city has a row
with its respective responses coded by number and entered in it. Analysis of the matrix
yielded the GASB-34 compliant and non-compliant cities, along with the number of
cities meeting each speciﬁc requirement needed for compliance with the GASB-34. The

coding matrix used can be seen in Appendix C results matrix.

Three questions from the questionnaire yielded open-ended questions. These questions
were only answered by two cities participating, and the responses to these questions have

been integrated into the text of the analysis.

3.5 Methodology for Objective Five

The ﬁfth activity of this research was to prepare recommendations for municipalities and
local governments to bring their asset management program up to GASB-34 modiﬁed
approach reporting requirements. Areas of strength and weakness with regards to the
compliance of the GASB-34 were identiﬁed based on the number of cities using the
modiﬁed approach requirements. Each requirement must be met and is equally important
for complying with the GASB-34, and therefore they all have an equal weight. The
strengths and weaknesses for this research were made on the basis of a simple majority-
rule. This method has been proven as an efﬁcient means of decision making by research
done at the University of Florida (Vecellio, 1998). Any requirement that received a

negative response for 50% or more of the cities yielded a weakness, whereas those

59

requirements that were met by the majority of the cities (at least 50% plus one) were
considered strengths. The recommendations made included a combination approach to
the GASB-34 modiﬁed approach using asset management practices as identiﬁed in the

literature review. These recommendations are discussed in depth in Chapter Five.

Each city that participated in the original questionnaire was asked to respond to the list of
recommendations. The questions asked were yes/no format with a comment section for
each question, and addressed issues such as feasibility, ﬁnancial and managerial strain on
the government, and potential problems the implementation of these techniques would
bring. The responses were entered into a coding matrix with variables in columns and the
cities in rows. Analysis of the responses yielded the feasibility of the recommendations
and potential issues that will have to be addressed before implementing them. The
questionnaire sent can be seen in its entirety in Appendix B, and the coding matrix used

to evaluate the questionnaire can be seen in Appendix D.

3.6 Chapter Summary

This chapter presented the methodologies that were used to conduct this research. The

next chapter details the data analysis for this research.

60

Chapter Four

DATA ANALYSIS

6]

4. DATA ANALYSIS
The previous chapter outlined the methodologies used in this research. This chapter

analyzes the data collected from the survey using the methodologies set forth in Chapter

Three.

4.1 Data Acquisition

All cities chosen were contacted by telephone to determine their interest in participating.
If no one was available. a message containing the nature of the research was left. Cities
were contacted twice to participate, after which the unresponsive city was deemed
uninterested. Of the 22 cities contacted, 17 were reached. All 17 agreed to participate in
the survey. The survey was emailed to 15 participants and faxed to two. Participants were
given three business days to complete the survey and return it. Of the 17 that agreed to
take the survey, nine were returned on time. Once the surveys were returned, the results
were entered into a coding matrix from which the data can be analyzed. One of the
surveys was eliminated from analysis due to conﬂicting answers, resulting in eight usable
surveys for data analysis. Figure 4.1 below illustrates the population of the survey and

participation breakdown.

62

 

Activity

 

Eligible Survey Populations

Survey Populations and Participation Rates
67
Selected Cities
Agreed to Participate TUpS’eties—lm

Actually Participated

 

Useable Surveys

 

 

..._..._ ..____,__.

0 10 20 30 40 50 60 70 80
Number of Cities

 

Figure 4. 1 Survey Populations and Participation Rates

4.2 GASB-34 Questions

The survey contained thirteen yes/no questions with three questions which had a second

portion for a total of sixteen questions. The survey in its entirety can be seen in Appendix

A. Nine of the questions related directly to the requirements of the GASB-34. The

questions are as follows:

Do you have a formal asset management system for sewer and/or water
infrastructure?

Do you have an up-to-date inventory of your sewer and/or water assets?
Do you have a consistent and documented process for conducting condition
assessments?
Do you perform condition assessments of all your major sewer and/or water assets

at least every three years?

63

 

0 Have you deﬁned and documented an acceptable condition level for your sewer
and/or water assets?

0 Are the results of your condition assessments summarized using a measurement
scale?

0 Do you document the results of the condition assessment?

0 Do you annually estimate the funding amount needed to maintain and preserve
sewer and/or water infrastructure at a certain condition level?

0 Do the results of the last three condition assessments provide reasonable
assurance that the sewer and water infrastructure assets are being preserved at (or

above) the condition level you have established and documented?

The above questions are aimed directly at the GASB-34 modiﬁed approach requirements.
In order to use the modiﬁed approach, the city must have answered “yes” to all the above
questions, of which none did. All cities were asked as a part of the survey which
reporting method they currently use, and all cities being used in this study reported that

they currently use the depreciation method.

4.3 Individual City Data

The eight cities being evaluated in this study vary in population from 20,000 to 138,000.
The GASB-34 identiﬁes ﬁve speciﬁc requirements that a reporting agency needs to meet
to use the modiﬁed approach method. This survey broke those ﬁve requirements down
into speciﬁc pieces. resulting in nine asset management tasks that need to be performed

to use the modiﬁed approach. None of the cities surveyed yielded a positive response to

64

all of the requirements. and therefore, none of the respondents qualify for using the

modiﬁed approach under the GASB-34. The lowest number of requirements met by a

respondent city was one out of nine, or 11.1%, and the highest number of requirements

met by a respondent city was eight of nine, or 88.9%. The average number of

requirements met by the responding cities was 4.5 out of nine, or 50%. Figure 4.2 shows

the percentage of requirements met by each city, and Figure 4.3 shows the number of
requirements met by each city.

. i 7 w T l

Percentage of Modiﬁed Approach Requirements Met by Each j

City (Identiﬁed by Population)
100.00%

90.00%

80. 00%
70 00% 67% 67%

60.00% . 0, __ ,,‘
50.00% a ”/0 of Requirements ll
40.00% 33% 33%

30.00% 22%

20.00% D 11%
10.00%
0.00% , , ,, 0. EL

0 ’L Q Q Q ’\ l
99 Q, 9° 69“ 99° 09° 09° .9“ -
‘L “a SP 0 '\ e ‘0 .{b l

‘ 89%
‘ 78%

l
I

Percentage of Requirements Met

City Population ‘

Figure 4. 2 Percentage of Requirements for Modiﬁed Approach Met by Each City

65

 

Number of Modiﬁed Approach Requirements Met by Each City
(Identiﬁed by Population)

I Number of Req0iiements Met

Number of Requirements

 

City Population

 

 

 

Figure 4. 3 Number of Requirements Met for Modiﬁed Approach by Each City

As can be seen from Figures 4.2 and 4.3, one city meets one, or 11% or the requirements,
one city meets two, or 22%, two cities meet three, or 33%, two cities meet six, or 66%,
one city meets seven. or 77%, and one city meets eight, or 88% of the GASB-34

modiﬁed approach requirements.

Additionally, the population of the city seems to have a small correlation with the number

of GASB-34 modiﬁed approach requirements met. Figure 4.4 shows a correlation

between the city population and the percentage of GASB-34 requirements met.

66

 

 

 

 

Percentage of Modiﬁed Approach Requirements Met
Correlation Chart
100.00% .
O

80.00% 00*- ~~——.—~ —-—~—---—«~ ,_,,,0__0_000, , __s, , _ __ __
9 ~ . ’ o % of Requirements Met
5’ 60.00% _______,0 ‘ e. . f, > ’ » . I
C ' ‘ . . ‘
g 40.00% I . ,_-i.._°...-..,,.0.. _ - - - .Linear(°/0 of Requirements;
0 ’ ’ ’ ~ . ° Met) i
a. - - . _ ﬂ , Hmnv, H_ ”-l

20000/0 l _ , . t . ., .__.._.,._ .______ Y = -4E-06X + 0.7676

000% " f , _ 0 _ _ R2 = 0.2663
0 50.000 100,000 150,000
City Population

 

 

 

Figure 4. 4 Correlation Between City Population and GASB-34 Modiﬁed Approach
Requirements Met

As can be seen from Figure 4.4, there is a small correlation between population and met
requirements. Although the R2 value of 0.2663 is very small, there is a downward trend
as can be seen by the trend line. where as population goes up, the number of requirements
met goes down. This might be due to bigger cities being behind the smaller cities in their
asset management practices. since big cities are currently facing more problems which do

not give them the opportunity to plan an effective asset management scheme.

4.4 GASB-34 Requirement Data
Each requirement was formulated into a yes or no question that each city responded to. A
positive, or “yes” response means they met the requirement, and a negative or “no”

response means they did not.

67

The ﬁrst requirement is that the city or organization has a formal asset management
system. Of the eight respondents, four had positive responses and four had negative

responses, resulting in 50% of the respondents having a formal asset management system.

The second requirement is that there is an up-to-date inventory of all major assets. Seven
of the eight cities responded positively to this requirement, meaning that 87.5% of the
participating cities meet the requirement of having an up-to-date inventory. Of the seven
cities that have an up-to-date inventory, four of them are contained in a computerized
database, where the other three are contained in both a computerized database and paper

ﬁles.

The third requirement is that there is a consistent and documented process for condition
assessment. Only three of eight cities have this, yielding a 37.5% positive response rate

for this requirement.

The fourth and ﬁfth requirements also yielded a 37.5% positive response, which include
conducting condition assessments for at least once every three years, and having a
deﬁned and documented acceptable condition level from which to rate assets. Three cities
or 37.5% reported not conducting condition assessments at all, and ﬁve cities conduct

them less frequently than every three years.

68

The sixth requirement, stating that the condition assessments are summarized by using a
measurement scale yielded a 0% positive response. None of the cities that participated in

this study currently do this.

The seventh requirement of the GASB-34 modiﬁed approach is that the condition
assessment results are documented. Five of the eight cities responded positively to this,

resulting in 62.5% compliance for this requirement.

The eighth requirement is that the funding needs for maintaining assets are estimated
each year. Seven of the eight participating cities answered “yes” to this requirement,

yielding 87.5% compliance for this requirement.

The ninth and ﬁnal requirement is that the last three condition assessments performed
provide reasonable assurance that the assets are being maintained at an acceptable
condition level. Half, or 50% of the eight participating cities responded positively to this
question. Figure 4.5 shows the breakdown of the percentages of cities meeting each

requirement.

69

100% ,
90% 5
80% 5

70%
60%
50%
40%
30%

Percentage

‘ 50%

20% ' ,

10% ‘

0% ~

Formal AM System?

Percentage of Cities Meeting GASB-34 Requirement

87%

 

 

Up-to—Date Inventory? [

37% 37% 37%

Consistent Process for Condition Assessment?

81%

 

 

 

 

 

Deﬁned Acceptable Condition Level?
Summarize with Measurement Scale? 1 02° 3

Condition Assessment Every 3 Years?

GASB-34 Requirement

Annual Funding Needs Estimated?

Condition Assessment Results Dowmented?

C.A. Provide Assurance of Acceptable Condition Level?

 

Figure 4. 5 Percentage of Cities Meeting Each GASB-34 Requirement

Figure 4.6 shows the GASB—34 requirements met by each city, but the star illustrates

more graphically where Michigan cities currently are with regards to meeting all GASB-

34 requirements. If all Michigan cities met every requirement of the GASB-34, then the

circle would be completely ﬁlled.

70

   
 
   

Number of
Cities Meeting
,_ ....... , . _ Requirement

KEY

11 Formal Asset Management System

2: Up-lo-date inventory

3: Consistent Process for Condition Assessment

4: Perform Condition Assessment Every Three Years

5: Defined Acceptable Condition Level

6: Summarize Condition Level Results with Measurement Scale

7: Document the Condition Level Results

8: Estimate Annual Funding Needs to Maintain Infrastructure

9: Condition Assessments Provide Assurance of Acceptable Condition Level

Figure 4. 6 Star Diagram Illustrating Number of Cities Meeting Each GASB-34
‘ Requirement

71

As illustrated in Figures 4.5 and 4.6, there are several requirements that require attention

by Michigan cities.

4.5 Chapter Summary

This chapter focused on evaluating the survey conducted to determine the asset
management practices being used in Michigan cities that are compliant with the GASB-
34 modiﬁed approach. The next chapter will present the recommendations made as a

result of this analysis and the feasibility of implementing those recommendations.

72

Chapter Five

CONCLUSIONS AND RECOMMENDATIONS

73

5. CONCLUSIONS AND RECOMMENDATIONS

The previous chapter analyzed the data collected from the surveys. This chapter uses this
data analysis to identify strengths and weaknesses and then to make recommendations.
Strengths and weaknesses were identiﬁed according to the methodology set forth in
Chapter Three. The weaknesses identiﬁed were used to make suggestions for
municipalities that if implemented, would bring their asset management practices up to
meet the GASB-34 modiﬁed approach requirements. This chapter also validates the
feasibility of implementing the suggestions with a second survey. Finally, this chapter

provides conclusions of this study as well as ideas for future research.

5.1 Analysis of Results

As determined by the methodology set forth in chapter three, all asset management
strengths and weaknesses as they relate to the GASB-34 requirements for surveyed cities
were identiﬁed by using a majority-rule. That is, requirements that had a 50% or less
positive feedback response were considered a weakness within the GASB-34
requirements. As can be seen in Figure 4.5, there are six weaknesses that resulted from

this study that should be addressed by the individual cities.

More than half of the responding cities have an up-to-date inventory of their assets,
document their condition results, and annually estimate the amount of funding needed to
maintain their assets at an appropriate condition level. These are the asset management
strengths within the GASB-34 requirements, and the suggestion to implement them will

not be made for these requirements since they are already performed by more than half of

74

the respondents. However, it should be noted that these three requirements are essential
for fulﬁlling not only the GASB-34 requirements, but also in sustaining an efﬁcient asset
management program. The fact that the majority of cities already have these practices in
place suggests that they are currently an everyday means of business and essential for the
management of the municipality. For the few cities that do not have these asset
management practices in place, implementing these three requirements would be a
starting point. and then addressing suggestions that coincide with the weaknesses below

would be applicable as a second phase.

The following suggestions would, if implemented, bring the majority of cities into
compliance with GASB-34 modiﬁed approach requirements. These suggestions were
created based on a result of 50% or more of city participants responding negatively to the
requirements in the survey:
1. Implement a formal asset management program;
2. Implement a consistent and documented process for conducting condition
assessments of the assets:
3. Increase the number of condition assessments to once at least every three years;
4. Deﬁne and document an acceptable condition level from which to rate assets;
5. Summarize the results of the condition assessment by using a measurement scale;
and
6. Use the last three condition assessment results to verify that the set condition level

is being maintained.

75

5.1.1 Implementing Suggestion One

The ﬁrst recommendation is to implement a formal asset management plan. Three
methodologies were laid out in Chapter Two of this research as a means of implementing
asset management program; however they all have a similar ﬁrst step. Before an asset
management program can be implemented, there needs to be a plan or strategy. The
strategy, while always in the development stage, is the ﬁrst step because the strategy
outlines the consecutive steps for implementing a formal asset management program. The
goals and objectives of the asset management program should be outlined and
documented, and appropriate personnel should be given the authority and means to meet
those goals. It is also important to develop a means of measuring the progress of the
objectives, and implement policies company-wide that support the objectives of the asset
management program. Once the strategy is written, the formal asset management process

begins as each step of the strategy is implemented.

5.1.2 Implementing Suggestion Two

The second recommendation is to implement a consistent and documented process for
conducting condition assessments of the assets. This is important to assure that the assets
are being evaluated on the same quality scale every year. Cities can make their own
condition assessment scale, or can use one that has been previously published. To
implement a condition rating system, a measurement scale should be determined. The
measurement scale can be numeric (one through ﬁve, for example) or qualitative
(excellent, good, fair, poor) in nature, but each level of the scale should be deﬁned with

both words and photos describing the quality the asset should be in. All employees

76

conducting inspections should be trained on the condition assessment rating system and
should be given a copy while conducting the inspections so that all assets are properly
and consistently rated. Table 5.1 shows a rating system example for culverts that is
outlined in the National Cooperative Highway Research Program (NCHRP)’s Synthesis
303, Assessment and Rehabilitation of Existing Culverts. Similar rating systems can be

created for sewer and water pipe condition assessments.

77

Table 5. 1 Example Rating System for Culverts

 

FHWA Culvert Inspection Rating Guidelines for Corrugated Metal Culvert Barrels (Arnoult I986)

 

Rating

Condition

 

9

New Condition

 

8

Shape: good, smooth curvature in barrel
-Horizontal: within IO percent ofdesign
Seams and Joints: tight, no openings
Metal:
- Aluminum: superﬁcial corrosion, slight pitting
- Steel: superﬁcial rust, nopitting

 

Shape: generally good. top halfofpipe smooth but minor ﬂattening of bottom
- Horizontal Diameter: within IO percent of design
Seams and Joints: minor cracking at a few bolt holes, minor joint or seam openings potential for
backﬁll inﬁltration
Metal:
- Aluminum: moderate corrosion, no attack of core alloy
- Steel: moderate rust, slight pitting

 

Shape: fair, top half has smooth curvature but bottom half has ﬂattened significantly
- Horizontal Diameter: within 10 percent of design
Seams and Joints: minor cracking at bolts is prevalent in one seam in lower half of pipe.
Evidence of backﬁll inﬁltration through seams orjoints
tilelul.‘
- Aluminum: signiﬁcant corrosion, minor of core alloy
- Steel: fairly heavy rust. moderate pitting

 

Shape: generally fair, signiﬁcant distortion at isolated locations in top half & extreme ﬂattening
of invert
- Horizontal Diameter: within 10 percent to 15 percent greater than design
Seams and Joints: moderate cracking at bolts is prevalent in one seam in lower half of pipe.
Deﬂection of pipe caused by backﬁll inﬁltration through scams or joints
Metal:
- Aluminum: signiﬁcant corrosion, moderate of core alloy
- Steel: scattered heavy rust, deep pitting

 

Shape: marginal signiﬁcant distortion throughout length of pipe, lower third may be kinked
- Horizontal Diameter: within 10 percent to 15 percent greater than design
Seams and Joints: moderate cracking at bolts is prevalent in one seam in lower half of pipe.
Deﬂection caused by loss of backﬁll through open joints
Metal:
- Aluminum: extensive corrosion, signiﬁcant of core alloy, scattered perforations
- Steel: extensive heavy rust, deep pitting

 

Shape: poor with extreme deﬂection at isolated locations, ﬂattening of crown, crown radius 20 to
30 feet
- Horizontal Diameter: in excess of 15 percent greater than design
Seams and Joints: 3 inch long cracks at bolt holes in one seam
dicta/I
- Aluminum: extensive corrosion, attack of core alloy, scattered perforations
- Steel: extensive heavy rust, deep pitting, scattered perforations

 

Shape: critical, extreme distortion and deﬂection throughout pipe, ﬂattening of crown, crown
radius over 30 feet.
- Horizontal Diameter: in excess of 20 percent greater than design
Seams and Joints: plate cracked from bolt to bolt on one seam
Metal: -Aluminum: extensive perforations due to corrosion
- Steel: extensive perforations due to rust

 

Shape: partially collapsed with crown in reverse curve; Seams: failed; Road: closed to trafﬁc

 

 

 

Pipe: totally failed; Road: closed to trafﬁc

 

78

 

5.1.3 Implementing Suggestion Three

The third recommendation is to conduct a condition assessment of every asset at least
once every three years. For most cities, this means conducting assessments more often;
however a few cities are not doing it at all. Knowing and keeping an accurate record of

asset condition will allow for proper planning of maintenance and renewal strategies.

5.1.4 Implementing Suggestion Four

The fourth recommendation is to deﬁne and document an acceptable condition rating
from which to rate and maintain assets. This means, for example, when using a numeric
condition rating system from one through ﬁve, where one is failing and ﬁve is like new,
the city decides that an acceptable condition for the assets to be in is a three. The
acceptable rating should be a condition in which asset failure is highly unlikely and the
asset is in acceptable working condition. All assets, when being rated, should meet the
acceptable rating, and those that do not should be restored to a level of condition equal to

or greater than the acceptable rating.

5.1.5 Implementing Suggestion Five

The ﬁfth recommendation is to summarize the results of the condition assessment for all
assets using a measurement scale. The measurement scale, like the condition assessment
scale, is arbitrary and can be any scale the municipality is comfortable with. The idea is

that there is a consistent method by which to rate assets and to summarize them.

79

5.1.6 Implementing Suggestion Six

The sixth suggestion is to use the last three condition assessments to verify that the assets
are being maintained at the acceptable condition level set in recommendation four. This is
the last requirement in the GASB—34 modiﬁed approach requirements because it relies on

all the other requirements to be fulﬁlled ﬁrst.

5.2 Beneﬁts of Implementing GASB-34 Modified Approach Strategies

Implementing changes to the entire management practice of any business can be difficult
and sometimes costly; however, there are numerous beneﬁts to implementing these
changes. Some of the beneﬁts as outlined by the AMSA were included in Table 2.1.
Proper asset management practices can save thousands of dollars in emergency repair
costs by conducting routine maintenance. It is also very beneﬁcial for proper ﬁnancial

planning and budget forecasting.

5.3 Validation and Verification of Suggestions to Raise Compliance with GASB-34
The above suggestions were sent to the eight participants whose surveys were used in this
study. They were asked to answer seven questions regarding the suggestions that were
made. Below are the questions each participant was asked. Appendix B provides the
entire second survey and the accompanying instructions that were sent out.
0 Does your organization ever desire to use the GASB-34 modiﬁed approach for
ﬁnancial reporting for the sewer and/or water infrastructure? Why or Why Not?
0 Has your organization considered the above suggestions before? If so, which ones

and why?

80

0 Do you currently have the resources to implement the above changes?

0 What additional resources would you need to implement the above suggestions?

0 What problems/beneﬁts do you see arising if you were to implement the above
changes?

0 Are these recommendations feasible to implement in the next ﬁve years?

0 Has participating in this study made you aware of information you previously did
not know?

There was also a section left open for additional comments. Six of the participants

responded to this survey with their feedback and comments.

Figure 5.1 shows the breakdown of cities that desire to use the modiﬁed approach.

Number of Cities Desiring to Use the GASB-34

Modiﬁed Approach
3.5 ‘
e 3
a: 3 l
1:, 25 l
a ' * 2 ﬂ--.
8 2‘ tDNumberof .,
E 1.5 : Respondentsl
o 1 '— WV”
:5 1 l
D 1
l D »
Yes No Maybe
Response

.4

Figure 5. 1 Number of Cities Desiring to Use the GASB-34 Modified Approach

81

As can be seen in Figure 5.1, one city answered yes to wanting to use the modiﬁed
approach, and two cities said no. One city that responded “no” stated that this gives a
higher priority than they could afford. suggesting that if proper funding were in place,
this would be considered as an option. The other three cities replied “maybe,” one city
stating that more time. staff. and funding would be needed to use this method, and
another city reporting that they “will need to discuss the pros versus cons with city
ofﬁcials.” Some of the pros and cons of implementing each method are outlined in Table

2.1.

Of the six suggestions made as a result of the ﬁrst survey, Figure 5.2 shows the
breakdown of the number of suggestions each city has currently considered
implementing.

Number of Suggestions Each City has
Considered Previously Implementing

(D

DNumberVCFSuggestionsl;
2 Considering ‘

NW$UICD

Number of Suggestions

 

 

Q Q Q Q Q Q l
9° .,9° 9° «9° \9° 9°
'19 '5 {3' i» <2: 95°

City Population 1

Figure 5. 2 Number of Suggestions Each City has Previously Considered
Implementing

82

As can be seen in Figure 5.2, all of the suggestions have been considered by one city, and
none have been considered by three cities. One city has considered the ﬁrst suggestion of
implementing a formal asset management system as well as the fourth suggestion of
implementing establishing a deﬁned acceptable condition rating from which to rate
assets. Another city is also considering implementing a deﬁned acceptable condition

rating system from which to rate assets.

As with any public agency, funding and resources are extremely limited. Only two cities
reported having the resources needed to implement these changes, but noted that it would
strain the current resources. All other cities reported not currently having the resources
necessary to implement these suggestions. Figure 5.3 illustrates this.

Number of Cities That Currently Have the
Resources to Implement the Suggested

 

 

 

 

 

 

 

 

 

 

Changes

3 5 4
:33 4
0 . .
“a 3 2 : w "ll
_ ; ,t:JNumberofCitIes.I
o 2 --____.-.
n .
E 1 ;
3
z 0 . - z“ _

Yes No i

Response

Figure 5. 3 Number of Cities that Currently Have the Resources to Implement the
Suggested Changes

83

Additional resources needed to implement the suggestions as mentioned by these cities
included funding, personnel, and time. Figure 5.4 shows the breakdown of the number of

cities identifying these resources as necessary to implement these suggestions.

Resources Needed to Implement Suggestions
6

F”
o
o

5.00 ‘
4.00 -

3’00 Dﬁéreféitjesﬂ
2.00 l
1.00 l i

0.00 l
Funding Time Personnel

Number of Cities Reporting

Resources

Figure 5. 4 Resources Needed to Implement Suggestions

All cities identiﬁed funding as a main resource that would need to be increased to
implement the suggestions. One city stated that it would need “funding, and with that
time and personnel would be available.“ It is clear that funding is a scarce resource, and
implementing an asset management system that incorporates the suggestions made in this
research may be costly at the onset. However, as one participant stated, implementing
these suggestions “takes resources away from other priorities, but helps with
programming and budgeting.” Another participant stated that a “change in any facet of
life or work is difﬁcult to make as most municipalities are working with less and less

each year, and new programs take a great deal of time and resources to implement and

84

maintain.” While the initial cost may seem high, the long term beneﬁts of an asset

management program are exponential.

Implementing these changes in the next ﬁve years is not feasible under current situations
for four of the six respondents. and the other two would strain their resources to do so.
One respondent commented “excellent suggestions, but since there is consistently a
funding issue and there are available alternatives to doing actual condition assessments,
do not expect a major buy-in until forced.” Funding is always a main concern when
implementing any new program, and before the GASB-34 modiﬁed approach is used as a
means of determining bonding or monetary stature, the resources need to be made

available to implement the above suggestions.

Awareness of asset management practices and the GASB-34 is also a problem. Five of
the six cities giving their feedback reported that participating in this study made them

aware of issues they previously did not know.

5.4 Recommendations for Cities and Municipalities

The research has shown that there are several weaknesses in current city asset
management programs within the GASB-34 modiﬁed approach requirements. It was
clear from the second survey that most cities identiﬁed a lack of resources, primarily
funding, as one of the main reasons the modiﬁed approach requirements will not be
feasible to be readily implemented. The primary reason for conducting this research was

the prediction by the AMSA that using the modiﬁed approach will soon be required by

85

lending agencies and other government monitors. Due to the current status of the cities as
shown in this research, most cities would not be able to comply with this requirement in
the event their funding depended on it. While there is no immediate threat of such
requirements being put into place. implementing the modiﬁed approach to receive
funding is a very possible obstacle several cities will have to overcome in the future. For
this reason, the following recommendations are being made to assist cities and
municipalities improve their asset management system within the parameters of the
GASB-34:

1. Continue using the depreciation method of financial reporting. The
depreciation method is simple to use and there is no current need to deviate from
it. It is important, however, that each municipality look to the future and have a
plan for implementing the modiﬁed approach in the event it becomes a
requirement to get funding.

2. Use a combination approach to asset management within the GASB-34
modiﬁed approach requirements. As shown in this research, it is not feasible
for most cities to currently implement all the GASB-34 modiﬁed approach
requirements. It is possible, however, to evaluate current practices and look at
integrating some of the requirements into the everyday workings of the
municipality. As shown in Figure 4.5, most cities currently have an up-to-date
inventory of their assets and estimate the funding needed to operate yearly, so no
attention would be needed to be focused on this issue. Therefore, taking steps to
implement a formal condition assessment rating program would be a logical next

step. This would for the most part be a one-time cost to create a document that

86

could be used throughout the lifetime of the assets. Once the document is created
establishing the acceptable condition level within the condition assessment rating
system would be very simple. Since the majority of cities are doing condition
assessments anyways (see Appendix A and Appendix C), using the condition
rating system would beneﬁt the knowledgebase and accuracy of the
municipality‘s condition assessments and increase the number of requirements
met within the GASB-34 modiﬁed approach. Implementing a formal AM system
would also be a logical next step, which would also be for the most part a one-
time cost but will beneﬁt the organization throughout its service lifetime.
Implementing these steps slowly and as funding becomes available will improve
management practices and decrease the pressure in the event using the modiﬁed
approach becomes necessary for funding.

Phase in the modified approach. It may not be cost effective to implement the
modiﬁed approach requirements to all assets; however, implementing the
modiﬁed approach‘s asset management requirements may be appropriate for large
assets that would have a costly impact if they fail. For example, referring back to
Dechant’s research (2005), the transmission main serving an entire community
would have a much more expensive and drastic impact if it failed than a
distribution main serving only a neighborhood. Therefore, taking the resources to
inspect that transmission main every three years and report in compliance with the
modiﬁed approach may be appropriate considering the consequences of their
failure. Separating assets and prioritizing their value to determine which assets

will become modiﬁed approach compliant will allow for a slow phase-in of

87

modified approach compliance. It should be noted, however, that the modiﬁed
approach method of reporting does not need to be implemented to make the assets
GASB-34 modiﬁed approach compliant. The assets can still be reported using the
depreciation method, unless there is ﬁnancial or other regulatory needs that would
require the modiﬁed approach. However, as mentioned previously, having assets
managed according to modiﬁed approach is beneﬁcial in the event that lending
agencies or other government monitors determine it will be required to receive

funding.

5.5 Research Contributions

The contributions of this research include the following:

1.

Established current GASB-34 modified approach compliance areas. This
research surveyed and evaluated eight cities on their asset management practices
as they relate to the GASB-34 modiﬁed approach. The current status of
compliance is fully outlined in Chapter Four.

Identiﬁed strengths and weaknesses within the GASB-34 modified approach.
Each requirement under the GASB-34 modiﬁed approach was determined to be
either a strength or weakness within the state of Michigan. Each weakness was
identiﬁed and the methodology needed to implement that requirement was
outlined in sections 5.1.] through 5.1.6 of this chapter. Implementing these
suggestions would bring most cities into GASB-34 compliance.

Identiﬁed obstacles preventing implementation of GASB-34 modified

approach requirements. The obstacles preventing the modiﬁed approach’s full

88

implementation were discussed in Chapter Four. While debatable, surveyed cities
identiﬁed lack of resources as the main obstacle preventing its full
implementation.

Made recommendations that are currently feasible to begin implementation
of the GASB-34 modiﬁed approach requirements. The recommendations listed
in section 5.10 of this chapter will assist governmental agencies to start
implementing GASB-34 modiﬁed approach requirements now.

Created awareness. Five out of six cities stated that they learned something new
from participating in this study. Creating awareness of the need for asset
management systems and the policies that revolve around it is essential, and

involving Michigan city ofﬁcials in this study assisted with this issue.

5.6 Recommendations for Future Research

This research was based on a literature search and on the availability and willingness of

city ofﬁcials to participate in the survey. Due to time constraints, the sample size was

limited and smaller cities and cities outside of Michigan were not considered for this

research. The limitations of this research, however, did not impede on the expected

deliverables. Based on the results of this research, the following are some suggestions for

future research:

Analysis of current asset management practices in small communities. As shown
in Figure 4.4, there is a slight trend of asset management strategies as they relate

to the GASB-34 and the population. Determining what asset management

89

practices are currently being done in small communities will help gain a
knowledge base and starting point for asset management within all communities;
Analysis of the GASB-34 modiﬁed approach as an efﬁcient means of asset
management practices. This study assumed that the GASB-34 modiﬁed approach
included asset management practices that were effective for both management and
life-cycle cost. However. the actual beneﬁts of the GASB-34 modiﬁed approach
requirements in the long run are unknown:

Comparative analysis of yearly operation and maintenance costs for cities with
and without asset management programs, both short- and long-term;

Analysis of return on investment for implemented asset management programs;
Life cycle cost analysis for assets involved in an asset management program;
Assessment of funding sources for implementing asset management programs.
Funding was identiﬁed as a key component of the obstacles preventing the
implementation of these asset management practices. The compilation of
resources available for cities wishing to improve their management practices
would be a beneﬁcial contribution to the public in general;

Analysis of asset management practices needed for different sized municipalities.
Because not all cities have the same needs for asset management, it would most
likely not be cost effective to implement an asset management system as thorough
as those outlined in Chapter Two for smaller cities. However, some asset
management practices would be beneﬁcial. A study analyzing the most cost-
effective asset management practices that serve communities of different sizes

would assist with identifying asset management strategy priorities;

9O

8. Educating local governments and decision makers on beneﬁts of asset
management and how to implement it;

9. Improvement of management practices and implementation of asset management
strategies utilizing current funding;

10. Analysis of new technologies such as using smart pipes, which monitors itself, as
a cost-effective and feasible option for new capital projects; and

11. Using latest techniques in condition assessment, geographic information systems
((318). computer aided design (CAD). etc.. in a comprehensive asset management

scheme.

5.7 Conclusions

This research identiﬁed strengths and weaknesses of current asset management programs
with regards to the GASB-34 modiﬁed approach requirements. Asset management
strategies and previous research were discussed in Chapter Two of this research, and the
methodology for attaining the goal of this research was laid out in Chapter Three.
Chapter Four of this research presented the data collected and its analysis. The
recommendations and validation that this research resulted in was laid out in Chapter

Five.

The suggestions made in this research will be initial steps for municipalities wishing to
implement a comprehensive asset management program and to use the GASB-34
modiﬁed approach; however it is clear that without substantial funding, additional

resources, informing, training and educating of current staff and political leaders, using

91

this method of reporting and resulting asset management programs will not be feasible

for many cities.

92

APPENDICES

93

Appendix A: GASB-34 Compliance Survey

Principle Investigator: Mohammad Najaﬁ, Ph.D.
Research Assistant: Amanda Simpson

The Construction Management program at Michigan State University is conducting a
research project to assess the current compatibility of government asset management
practices with the GASB-34 modiﬁed approach means of reporting. The research will
help identify areas of asset management practices that need improvement in order to meet
the modiﬁed approach reporting standards. You are being asked to participate as a city or
municipal manager.

As a participant in this research, you will be asked to complete a 13 question survey on
the current asset management practices in your governmental agency. Additionally, your
comments will be sought regarding the recommendations that are made as a result of this
survey in a few weeks.

Your assistance is voluntary and you may choose to terminate your involvement in this
study at any time during the project. If you are uncomfortable answering any part of the
survey, you may leave those sections unanswered. Your privacy will be protected to the
maximum extent allowable by law. You will not be identiﬁed by name. The estimated
time for the survey is 10 to 15 minutes. As a participant, you may request a copy of this
consent letter for your records.

If you have any questions about this project, you may contact Dr. Mohammad Najaﬁ,
Construction Management Program, Michigan State University at (517) 432-4937. If you
have questions about your rights as a research participant, please feel free to contact Peter
Vasilenko, Ph.D.. Director of the Human Subject Protection Programs at Michigan State
University: (517) 355—2180. fax: (517) 432-4503, email: irh‘a msuedu, or regular mail:
202 Olds Hall, East Lansing. MI 48824.

I voluntarily agree to participate in this study.

 

Subject Name Occupation Signature Date

 

Witness Name Occupation Signature Date

94

INTRODUCTION

In June of 1999. the Government Accounting Standards Board (GASB) issued Statement
34 (GASB-34) creating one of the largest changes in state and local government ﬁnancial
reporting. The statement requires that governments report their major infrastructure assets
on an accrual basis, and can do so either by using depreciation or the “modiﬁed method.”
As a result of short notice and a lack of asset management practices, most governments,
both state and local, use the depreciation method of reporting. This method, however,
carries little value of information to the end user, whoever it may be.

The “modiﬁed approach” takes on an asset management strategy to accounting
reporting, and requires the integration of several departments and detailed asset
information. It is time consuming and costly to set up, which explains why most
governments have elected to use the depreciation method. However, the modiﬁed
approach provides useful information with regards to assets, their condition, and
their current value. It also takes steps to ensure effective long-term management of
major infrastructure assets, which is not only cost-effective, but also increases
public safety. The modiﬁed approach requires accountability to both the
government and the public, and the approach is recognized and supported by
agencies such as the Environmental Protection Agency (EPA) as the preferred
reporting method. The Association of Metropolitan Sewerage Agencies (AMSA)
predicts that reporting using the modiﬁed approach will eventually be required by
lending institutions and other monitors.

The problem, therefore, lies in the conversion of GASB-34 compliance reporting from
the depreciation method to the modiﬁed approach. This research aims to identify areas of
asset management that are currently being practiced by municipalities, determine if these
practices are acceptable for the GASB-34 modiﬁed approach reporting method, and if
not. make suggestions on asset management practices that can be implemented to bring
the municipality up to GASB-34 compatibility.

95

Survey Instructions:

Please read the following questions and answer them to the best of your knowledge.
PLEASE ONLY CONSIDER SEWER AND WATER INFRASTRUCTURE
ASSETS WHEN ANSWERING THESE QUESTIONS. This study is speciﬁc to sewer
and water infrastructure only. The questions below are speciﬁc to the asset management
requirements of the GASB-34 modiﬁed approach, and do not reﬂect a holistic asset
management program alone.

City: (Do you prefer your city to
remain anonymous in the results portion of this research? Yes No )

 

City Population:__

 

Your Position:_____

 

1. What GASB-34 compliance method do you currently use for reporting sewer and/or
water infrastructure?

Modiﬁed

Depreciation

2. Do you have a formal asset management system for sewer and/or water infrastructure?

Yes
No

2A. Do you have an asset management coordinator?

Yes
No

3. Do you have an up-to-date inventory of your sewer and/or water assets?

Yes
No

4. What format is your sewer and/or water asset inventory in?

Computerized database
Paper/ﬁles

Both

Other

 

96

5 Do you have a consistent and documented process for conducting condition
assessments? (i.e. is the condition assessment repeatable?) (For example, using the
NASSCO Pipeline Inspection Guidelines would be considered having a consistent and
documented method)

Yes

No.

6. Do you perform condition assessments of all your major sewer and/or water assets?

Yes

No
6a. Do you perform condition assessments of all your major sewer and/or water assets at
least every three years?

Yes

No

7. How often do you perform condition assessments?

8. Have you deﬁned and documented an acceptable condition level1 for your sewer
and/or water assets?

Yes
No

. . . . 2 .
9. What 18 your condition rating system ? Please explain.

 

' The acceptable condition level is an established point in the condition rating system that marks the asset
in acceptable condition. The acceptable condition level should be established and documented by
administrative or executive policy. or by legislative action.

2 How are your assets rated? Do you use the NASSCO Pipeline inspection guidelines, or have you
developed your own or adapted from another method. You may attach a copy of your guidelines to answer
this question ifyou like.

97

10. Are the results of the condition assessments summarized using a measurement scale?

Yes
No
10b. If so, how?

11. Do you document the results of the condition assessment?

Yes

No
12. Do you annually estimate the funding amount needed to maintain and preserve sewer
and/or water infrastructure at a certain condition level?

Yes

No
13. Do the results of the last three condition assessments provide reasonable assurance
that the sewer and water infrastructure assets are being preserved at (or above) the
condition level you have established and documented?

Yes

No

Not Applicable

If you have any questions regarding the content of this survey, please contact Amanda

Simpson at 517.353.3885 or at 517.749.6322.

Thank you for taking the time to complete this survey. Please return to Amanda Simpson
by email at sintgfsl -' whim. ili by fax at 517.355.7711 or by postal service at

7 F arrall Hall

Michigan State University

East Lansing. MI 48824

98

Appendix B: Second Survey

June 29, 2006

RE: GASB-34 Asset Management Study

Thank you for participating in the survey that I conducted as a part of my research to
fulﬁll my master’s thesis requirements. As a result of the survey, 1 have made
recommendations to be included in the reSults portion of my thesis. To validate the
recommendations, I would appreciate it if you would respond to the attached questions.
Feel free to write as little or as much as you would like, but the more feedback you give
the more useful it will be.

BACKGROUND
As you know, the survey revolved around the asset management requirements needed to
use the modiﬁed approach reporting technique for the GASB-34.

The GASB-34 requirements are as follows:

1. Have an up to date inventory of eligible infrastructure assets

2. Perform condition assessments of the eligible infrastructure assets and
summarize the results using a measurement scale

3. Estimate each year the annual amount to maintain and preserve the
eligible infrastructure assets at the condition level established and
disclosed by the government.

4. Complete condition assessments of eligible infrastructure assets are
performed in a consistent manner at least every three years

5. The results of the three most recent condition assessments provide
reasonable assurance that the eligible infrastructure assets are being
preserved approximately at or above the condition level established and
disclosed by the government.

The original survey had nine questions that addressed each issue in the above ﬁve
requirements. All original survey questions that yielded more than 50% of a positive
response were not considered for recommendations. Three of the nine requirements
yielded this response. The other six resulted in recommendations, as listed below.

Recommendations:

1.
2.

3.

5"?

Implement a formal asset management program

Implement a consistent and documented process for conducting condition
assessments of the assets

Increase the number of condition assessments to once at least every three
years

Deﬁne and document an acceptable condition level from which to rate assets
Summarize the results of the condition assessment by using a measurement
scale

Use the last three condition assessment results to verify that the set condition
level is being maintained

99

SECOND SURVEY QUESTIONS
Please take a moment to answer the below questions. Thank you!!

1. Does your organization ever desire to use the GASB-34 modiﬁed approach
for ﬁnancial reporting for the sewer and/or water infrastructure? Why or
Why not?
Answer: Yes No Maybe
Comments: '

2. Has your organization considered the above suggestions before? If so, which
ones, and why?
Answer: Yes No
Which Ones? Recommendations 1 2 3 4 5 6

Comments: Why?

3. Do you currently have the resources to implement the above changes?
Answer: Yes No
Comments:

4. What additional resources would you need to implement the above

 

suggestions?
Answer: People Funding Time Other?
Comments:

5. What problems/beneﬁts do you see arising if you were to implement the
above changes?
Answer: Funding Issues Communication Issues Agreement Issues
Comments:

6. Are these recommendations feasible to implement in the next ﬁve years?
Answer: Yes No
Comments:

100

7. Has participating in this study made you aware of information you
previously did not know?
Answer: Yes No
Comments:

8. Additional Comments:

Thank you again for your participation. It IS greatly appreciated. Please email this back to
Amanda Simpson at . 1:22.21 .-._i11. or fax it to 517 432 8108, attn: Amanda
Simpson.

I will be sure to email you a copy of my ﬁnal report when it is complete. You can expect
it around the ﬁrst of August. Thank you again for your cooperation, this would not have

been possible without it.

Sincerely,
Amanda Simpson

101

APPENDIX (For the Second Survey)
The following are more speciﬁc means of implementing the above recommendations.

Implementing Recommendation One

The ﬁrst recommendation is to implement a formal asset management plan. Three
methodologies were laid out in Chapter Two of this research as a means of implementing
asset management program; however they all have a similar ﬁrst step. Before an asset
management program can be implemented, there needs to be a plan or strategy. The
strategy, while always in the development stage, is the ﬁrst step as the strategy outlines
the steps to implementing a formal asset management program. The goals and objectives
of the asset management program should be outlined and documented, and appropriate
personnel should be given the authority and means to meet those goals. It is also
important to develop a means of measuring the progress of the objectives, and implement
policies company-wide that support the objectives of the asset management program.

Implementing Recommendation Two

The second recommendation is to implement a consistent and documented process for
conducting condition assessments of the assets. This is important to assure that the assets
are being evaluated on the same quality scale every year. Cities can make their own
condition assessment scale. or can use one that has been previously published. To
implement a condition rating system, a measurement scale should be determined. The
measurement scale can be numeric (one through ﬁve) or qualitative (excellent, good, fair,
poor) in nature. but each level of the scale should be deﬁned with both words and photos
describing the quality the asset should be in. All employees conducting inspections
should be trained on the condition assessment rating system and should be given a copy
to keep with them while conducting the inspections so that all assets are properly and
consistently rated. Figure 1 below shows an example rating system for culverts that is
outlined in the National Cooperative Highway Research Program (NCHRP)’s Synthesis
303, Assessment and Rehabilitation of Existing Culverts.

 

 

FHWA Culvei-i Inspection Rating Guidelines for Corrugated Metal Culvert Barrels (Arnoult I986)

 

 

 

 

 

Rating __ Condition
9 New Condition
8 Shape: good, smooth curvature in barrel

-Horizontal: within 10 percent of design
Scams and Joints: tight. no openings
Metal:
- .‘l/llmlllltllli superﬁcial corrosion, slight pitting
- Steel: superligial rust, no pitting

 

 

7 Shape: generally good. top halfof pipe smooth but minor ﬂattening of bottom

- Horizontal Diameter: within 10 percent of design
Seams and Joints: minor crackin g at a few bolt holes, minor joint or seam openings potential for
backﬁll inﬁltration

 

 

 

 

Metal:
- Aluminum: moderate corrosion, no attack of core alloy
- Steel: 1_n_oderat_e_r_ust. slight pitting
6 Shape: faii‘_._t_o_p_hall‘ has_s_mooth curvature but bottom half has ﬂattened signiﬁcantly

 

 

 

102

 

 

- Horizontal Diameter: within 10 percent of design
Seams and Joints: minor cracking at bolts is prevalent in one seam in lower half of pipe.
Evidence of backﬁll inﬁltration through seams orjoints
Metal:
- Aluminum: signiﬁcant corrosion, minor of core alloy
- Steel: fairly l__i_cavy rust, moderate pitting

 

 

5 Shape: generally fair. signiﬁcant distortion at isolated locations in top half & extreme ﬂattening
of invert
- Horizontal Diameter: within 10 percent to 15 percent greater than design
Seams aml Joints: moderate cracking at bolts is prevalent in one scam in lower half of pipe.
Deﬂection ofpipe caused by backﬁll inﬁltration through seams orjoints
Metal:
— Aluminum: signiﬁcant corrosion, moderate of core alloy
- Steel: scattered heavy rust, deep pitting

 

4 Shape: marginal signiﬁcant distortion throughout length of pipe, lower third may be kinked
- Horizontal Diameter: within 10 percent to 15 percent greater than design

Seams and Joints: moderate cracking at bolts is prevalent in one scam in lower half of pipe.

Deﬂection caused by loss of backﬁll through openjoints

 

 

 

Metal.“
- Aluminum: extensive corrosion, signiﬁcant of core alloy, scattered perforations
- Steel: e_xtc_ns_‘i_ve heavy rust. deep pitting
3 Shape: poor with extreme deﬂection at isolated locations, ﬂattening of crown, crown radius 20 to
30 feet

- Horizontal Diameter: in excess of 15 percent greater than design
Seams and Joints: 3 inch long cracks at bolt holes in one seam
Metal:
- Aluminum: extensive corrosion, attack of core alloy, scattered perforations
- _Stee/: extensive heavy rust. deep pitting, scattered perforations

 

 

Shape: critical. extreme distortion and deﬂection throughout pipe, ﬂattening of crown, crown
radius over 30 feet.
- Horizontal Diameter: in excess of 20 percent greater than design
Seams and Joints: plate cracked from bolt to bolt on one seam
Metal: -Aluminum: extensive perforations due to corrosion
- Steel: extensive perforations due to rust

 

h)

 

l Shtpeﬂgartially collapsed with crown in reverse curve; Seams: failed; Road: closed to trafﬁc

 

 

 

0 Pipe: totally failgd; Road: closed to trafﬁc

 

 

 

Figure 1: Example Rating System for Culverts

Implementing Recommendation Three

The third recommendation is to conduct a condition assessment of every asset at least
once every three years. For most cities, this means conducting assessments more often;
however a few cities are not doing it at all. Knowing and keeping an accurate record of
asset condition will allow for proper planning of maintenance and renewal strategies.

Implementing Recommendation Four

The fourth recommendatitm is to deﬁne and document an acceptable condition rating
from which to rate and maintain assets. This means, for example, when using a numeric
condition rating system from one through ﬁve, where one is failing and ﬁve is like new,
the city decides that an acceptable condition for the assets to be in is a three. The
acceptable rating should be a condition in which asset failure is highly unlikely and the
asset is in acceptable working condition. All assets, when being rated, should meet the

103

acceptable rating. and those that do not should be restored to a level of condition equal to
or greater than the acceptable rating.

Implementing Recommendation Five

The ﬁfth recommendation is to summarize the results of the condition assessment for all
assets using a measurement scale. The measurement scale, like the condition assessment
scale, is arbitrary and can be any scale the municipality is comfortable with. The idea is

that there is a consistent method by which to rate assets and to summarize them.

Implementing Recommendation Six

The sixth recommendation is to use the last three condition assessments to verify that the
assets are being maintained at the acceptable condition level set in recommendation four.
This is the last requirement in the GASB-34 modiﬁed approach requirements because it
relies on all the other requirements to be fulﬁlled ﬁrst.

Beneﬁts of Implementing GASB-34 Modiﬁed Approach Strategies
Implementing changes to the entire management practice of any business can be difﬁcult
and costly. however. there are numerous beneﬁts to implementing these changes. Some
of the beneﬁts. as outlined by the AMSA, are below:
Provides information on asset condition
Sets quantiﬁed targets for asset condition
Provides documented explicit costs of preserving assets
Real value of assets are documented
Quantified performance measures allow trends to be checked and projections to
be made
Variable future funding needs can easily be translated into rates
Involves policy makers and all utility managers, not just ﬁnance personnel
Provides meaningful information for the customers and public
Satisﬁes asset management expectations of CMOM
10. Probably will be required under any new federal ﬁnancing program
11. Eventually, w ill be expected by lending institutions and other monitors.
(AMSA 2002)

V‘FP’NI‘

owsg

104

FAX COVER SHEET
DATE: _
TO: AMANDA SIMPSON
7 FARRALL HALL
EAST LANSING. Ml 48824
PHONE: 517.749.6322
FAX #: 517.432.8108

FROM:

 

PHONE:

 

 

RE: GASB-34 Asset Management Survey #2.

Thank you!

105

Results Matrix

Appendix C

Ali... 11 i ......i. .. y . .. 1.2.... .1111» it]...;.;li1.:. .1.... ..i. i .. ,,.c. 1,. .. ... ...Ic...lfltll....11t \. l .... .. . . 1 . .1 ... . ...i,|.,..:.1«it

.. 1.. .I... . .. ...Ii....l.1l...tL......Ii........... . 1 ...l.i....i .....n: ...t.... ..«....i!..nl.....ci. .1. ......... . .... . .. .. . .. .. . ..... ...1..lin:1iri... .131
. . p _ 1mm .
w 2 2 . . - h
..1 . .1... .. .1.ri.......1iiliifii... 1.11. ......3711...:..1..!............i.+i... .......t:lo11.1..!.
2

:2 w 2.2. -..-«me; a? a2 2. . ”..--.132...
22.2 - 22.... .222, -22... _ .2222 22.2 22.2 ,. 22.2v_..22.2. .
2. 2 m . o n e n .- 2 ... o
a so
a m
.2 8,
22.. . .m
0 .

o
m.

2.. 82 V, 32 a2 .2222...

$8.9 rims-n . $8.8 , - .

s n s s .
o8 mm
.222:
:23? ,
80.2 .

. «83
80.8
89?.
89mm
80.2%
2.2223222

02
02
oz

.02
oz
0...
oz
9.. . .
o... o o a w 22 8
2 “.252. 2 N2 22 2 2. 5 2. 2 N

cumoaa< 602 cozmwac 2.25030 cacao—20 cozmwzc cozmwsc cocwmna 2.0.2.30 :o: ~50 cosmmuo 5.2.330 c.H-...H.....,O cocmozc ..

222.222.. 22:5

s: 25

2.: =3

hov—

Do
Do
00
m

Noommr“!
Ov—v-v-Ocv-
V—F'V-I—FC—‘F
Ov-v-v-Oiv-‘u—
OOOO'OOO

COFFFO O O
OOOv-v-OOI—om
OF?FIFFFFQ"P~
C) v— v— V'- COO CDC)
OFw—FOOO-I—OQ

Y—(V‘I
Y—QDQDODDQEOO

«r.
(\l

2.
2
2
O .
2

2 2
2 2
o

o 2
...

o 1

2.;

K-
«-
I!

. i )O
can.

106

Appendix C cont.

22.2.2.2“
22222.22
22223..
2222mm~m
22222 ....
22.22.22
...... .2.?
2.2222222.
222.2
2.2222.
.222...
22 .22

oz
222232322.
2.2.2.25:
3: Eu

2 .Illxlql1ii: 1.11.134: .11.

 

- 222 9. o2.
_, - 22222222222 .. .,.2..22.22
2.2 .2. .2 . i2
2 2 , 2 2
2 2 2 2
2 2 1.2 2
2 2 2 2
2 2 2 2
2 2 ..2 2
2 2 2 2
2.228. 22223 Seneca 2.222222222222822.
.222. 22.22222 22222. 22.2222.
22.25 23222282 92:22:: 22.22.3232
222 82.22.22.222 .2225 2322222225

mi 2.5

2222.222. .3-

 

 
 

2.2-2 222 222 22.2, 2... 222
2222 222.22 22.222:- ..222.22 222222 .. 22.222
2 221,12 2 2
2 o .2 2 a
2 2 2 2 2
2 2 2 2 2 .
2. 2 : .2 2 2
2 2 c 2 2
c 2 2 2 2
2 2 . 2 2 2
o 2 2 2 2 2 222-8
«2QO 2923 mac“; EcwEmmwmmd «62252: wEBgm 222.2223;
22.22.222.28: 8.2.2.225 new: 2.2.2.2228 2.8.2.25 2.222
5.22 2238228222 2222222282232 228822. 322.222
222.222.5222.... 2222223 2222.22.25 2.32.2225

107

Appendix D: Second Survey Matrix

Cities are identified by population. The three tables list how they answered each question

for the second survey. Questions are in the first row, each answer is in the respective row

to the city and question it is in response to.

Population

20,000

81,000

35,000

42,000

47,000

85,000

Ever desire to use Modified
Approach?

Maybe

Maybe; would need more time,

staff, and funding
No; may give a higher priority
than we can afford

Maybe; will need to discuss
pros versus cons with city
officials

Yes

No

Considered before at all?

Yes: All

#1 and #4; currently ﬁnalizing a

pavement management system

which incorporates ﬁeld data to

rate/evaluate existing pavement

in the city and develps
proposed ﬁxes to bring the
pavement to condition level
desued

#4

No

No

No

108

Currently have
resources?

Yes

No

No

No

Yes

No

Population

20,000

81,000

35,000

42,000
47,000

Population
20,000

81 ,000
35,000

42,000
47,000

Appendix D cont.

Additional Resources

Needed? Problems/Beneﬁts?
Takes resources away from
other priorities, but helps
with programming and

P/F ~ budgeting

Funding; change in any
facet of life or work is
difficult to make as most
municipalities are working
with less and less each
year, and new programs
take a great deal of time
and resources to implement
P/F/T and maintain.

Funding and Agreement

P/F/T issues

Once specific needs were
Funding, with that time and found, regulatory agencies

personnel would be may force changes without
available funding in place
People/Funding/Time Funding
Feasible in next 5 Participation Additional
years? made aware? Comments Made
Yes No None
No Yes None
No Yes None
Excellent
suggesﬁons,

Doubtful, funding

would be approved

since the other

method is allowed Yes
Yes Yes

109

since there is
consistently a
funding issue and
there are
available
alernatives to
doing actual
condition
assessments, I
would not expect
major buy in to
until forced.
None

REFERENCES

110

References

AbdelRazig, Y. (1999). “Construction Quality Assessment: A Hybrid Decision Support
Model Using Image Processing and Neural Learning for Intelligent Defects
Recognition.” Ph.D. Thesis. Purdue University, May 1999.

Allbee, S. (2005). “Finding a Pathway for Sustainable Water and Wastewater Services.”
Underground Infrastructure Management. Nov/Dec 2005.

 

American Society of Civil lingineers 2005 Infrastructure Report Card (2005).

American Society of Civil lingineers (2005 a). “PERSI Report of Forum on Technical
Opportunities for Sustainable Infrastructure.” June 2005.
http://wwwasceorg/lilesx’pdf/instfound/j uncOSreportpdf.

Association of Metropolitan Sewerage Agencies (2002). “Managing Public Infrastructure
Assets to Minimize Cost and Maximize Performance.” 2002.

Baik, H. (2003). “Development of an Asset Valuation Model for Wastewater
Infrastructure Assets.” Ph.D. Thesis, Purdue University, December 2003.

Barnes, J. (2005). “l lighway Officials Eye Truck Impact as Possible Cause of Collapse.”
Engineering News Record. Dec. 30, 2005.

Box, E. (1997). “Using Neural Networks to Analyze System Conditions in Underground
Electric Distribution Networks." Ph.D. Thesis, University of Texas at Arlington, August
1997.

Brown, C. (2006). "Asset Management Goes Country.” Underground Infrastructure
Management. May/June 2006.

 

Card, S. (2005). “Newport Council Approves Emergency Sewer Line Repair.” Newcrt
News Times January 1, 2006. < htlpzfx‘u rm .nexx pormcwslimes.com>

Chung, S. (2001). “Demand Modeling and Analysis for the Management of Underground
Infrastructure Systems.” Ph.D. Thesis, Purdue University, May 2001.

Dechant, D. (2005). “The Modified Approach to GASB 34 and the Effect on Pipeline
Materials Selection.” gipeliiies 2005: Optimizing Pipeline DCSIgIL Operations, and
Maintenance in Today’s Economy. Edited by C. Vipulanandan and R. Ortega, ASCE,
2005.

Derr, HR. (2004). “Asset Management is Much More than an Annoying Buzzword.”

Pipeline Engineering and Construction: What’s on the Horizon Conference Proceeding,
ASCE, 2004.

111

 

 

Dornan, D. (2001 ). "Asset Management and GASB-34 — Challenge or Opportunity?”
GASB Welcome Page. May 19. 2006 <:.:2:.r»' .g:gzsituorg:rcprnodchintlcx.htnil>
GASB Statement 34 Compliance Peer Exchange: What, Why, and How Breakout
Sessions Report (2001 ).

Government Accounting Standards Series (GASS) (1999). “Statement No. 34 of the
Governmental Accounting Standards BOard.” No. 17l-A, June 1999.

Hammad, A. (1999). “Decision Support System for Prioritizing Pavement Maintenance
Alternatives.” Master‘s Thesis. University of Alberta, 1999.

Harlow, K (2000). "Asset Management: Complying with GASB-34.”
V‘, u, xx : :_ ' 11 '- i' V " . hill} 21. 2006.

Heiler, M. (1996). “Artificial Neural Networks for the Interpretation of Ground
Penetrating Radar Data for Infrastructure Condition Assessment.” Ph.D. Thesis, Carnegie
Mellon University, August 1996.

Hughes, D (2002). “Assessing the Future: Water Utility Infrastructure Management.”
American Water Works Association, Denver, CO. 2002.

Jia, X. (1996). “A C llent/Scrvcr-Based Intelligent GIS Shell for Transportation.” Ph.D.
Thesis, Georgia Institute of Technology. August 1996.

Jiang, X. (2001). "IVIodcling and Optimization of Maintenance Systems.” Ph.D. Thesis,
University of Toronto. 2001.

Kim, K. (1998). “A Transportation Planning Model for State Highway Management: A
Decision Support System lylethodology to Achieve Sustainable Development.” Ph.D.
Dissertation, Virginia Polytechnic Institute and State University, February 1998.

Kleiner, Y. (1997). “Water Distribution Network Rehabilitation: Selection and

Scheduling of Pipe Rehabilitation Alternatives.” Ph.D. Thesis, University of Toronto,
1997.

Kulandaivel, G. (2004). “Sewer Pipeline Condition Prediction Using Neural Network
Models.” Master‘s Thesis. Michigan State University, 2004.

Lerner, AC. (1998). "Progress Toward Integrated Infrastructure-Assets-Management
Systems: GIS and Beyond." AI’WA International Public Works Seminar Series.

Maze, T.(2000). “Complying with GASB-34: How to Value Major Capital Assets.”
Technology News. l\»1arch-/~\pril 2000.

112

Maze, T. (2001). “GASB—34: Look Before You Leap.” Technology News, May-June
2001.

Maze, T. (2003). "GASB-34: On-Ramp to Transportation Asset Management or Detour
to Business as Usual?” Technology N’ws, March-April 2003.

Najaﬁ, M. and Gokhale. S. (2005). Trenchless Technology: Pipeline and Utility Design,
Construction, and Renewal. McGraw-Hill, 2004.

 

 

Paralez, L. and Muto. D. (2002). “Creating an Asset Management Strategy: An Asset
Management Template.” Assessing the Future: Water Utility Infrastructure Management.
AWWA Trends in \\*'ater Series, 2002.

National Asset lV’ltllillgcmcnl Steering Group (NAMS) (2002). “International
Infrastructure Management Manual Version 2.0.” New Zealand. October, 2002.

Sinha, S. (2004). “A Multi—Sensory Approach to Structural Health Monitoring of Buried
Sewer Pipelines Infrastructure System.” Lipeline Engineering and Construction: What’s
on the Horizon Conference Proceeding, ASCE, 2004.

 

Vanier, D. (2001). "Why Industry Needs Asset Management Tools.” Journal of
Computing in Civil litigignccring January 2001.

 

Watkins, D. (1997). "Optimization Techniques for the Planning and Management of
Robust Water Resources S } stems.” Ph.D. Dissertation, University of Texas at Austin,
August 1997.

Vecellio, K. (1998). "U 1 Researchers: For the Best Decisions, UseaSimple Majority
Vote. ”1: . , . - . . f‘ l , ,; University of Florida, 1998.

Wirahadikusumah. R. (1990). “Optimization Modeling for Management of Large
Combined Sewer Networks." Ph.D. Thesis, Purdue University, December 1999.

Zhang, Z. (1996). “A GIS Based and Multimedia Integrated Infrastructure Management
System.” Ph.D. Dissertation. University of Texas at Austin, 1996.

113

HHHHHHHHHHHHHH

llllllllllllllllllllllllllllllillllllllllﬂllllllll

3 1293 02845