Asset management strategies have been generating interest in the water infrastructure sector for the last decade. A recent study from McGraw-Hill Construction (MHC) in collaboration with engineering consultant CH2M Hill, Denver, published in the "Water Infrastructure Asset Management SmartMarket Report," demonstrates that asset management practices have begun to take hold at water utilities, and more growth in those practices is expected in the next five years.
For wet-infrastructure contractors, this shift to using asset management will have implications for future business opportunities. Asset management helps determine the types of projects water utilities will pursue and their ability to fund these projects. Therefore, understanding what asset management is, the expected growth in its adoption and the way it influences investments can allow water contractors to chart their business course and determine the best future opportunities.
What Is Asset Management?
Asset management helps utilities deliver desired service levels to businesses and residents at the least cost. Utilities decide to invest in new and existing assets based on acceptable risk levels and a life cycle perspective, including environmental and social costs. These decisions are becoming more urgent for utilities. In the "2013 Report Card on Infrastructure" issued by the American Society of Civil Engineers, water and wastewater both earned a grade of D.
Also, in ASCE's 2012 report, "Failure to Act: The Impact of Current Infrastructure Investment on America's Economic Future," the association estimates that if funding levels don't change significantly, by 2020 only 33% of water and wastewater needs will be funded, the lowest percentage of any infrastructure sector. Given the ongoing fiscal austerity at the federal and state levels, additional funding—at least in the short term—appears unlikely.
In addition, factors like regional droughts, increased system resiliency, energy-sector demands and regional population growth are putting increasing demands on water utilities at the same time that many are experiencing financial cutbacks. Customer rate increases can help fund investments, but double-digit rate increases over an extended period are not sustainable.
All these factors have led utilities to consider asset management. The risk-based approach helps utilities eliminate unnecessary expenditures and make wiser investments in both new capacity and maintenance and operations. In fact, the new MHC report includes a case study in which the Greater Cincinnati Water Works says that a risk-based approach allowed it to re-examine its policy to replace 30 miles of pipe every year at a cost of $40 million. The savings from replacing pipes based on risk rather than a set annual rate allowed the utility to make other more critical investments. Applying these kinds of savings at utilities that practice asset management can create new projects and more opportunities for contractors.
Asset Management Adoption
The MHC study asked 451 utilities—90% of them in the U.S. and 10% in Canada—whether they currently use the 14 leading asset management practices. Based on their current usage, 65% of the utilities were deemed asset management practitioners because they use four or more of the 14 practices—with the rest considered non-practitioners. Meanwhile 18% of the utilities surveyed use 10 or more practices, suggesting a small but sizable percentage takes an advanced, holistic approach to asset management.
Larger utilities are at the vanguard of asset management adoption: 73% of the practitioners are from large utilities, those serving a population of 50,000 or more. Eighty-four percent of high-level practitioners using 10 or more asset management practices also serve populations of 50,000 or more. In addition, more than one-quarter of practitioners project their capital improvement spending over $50 million, while only 14% of non-practitioners expect spending at the same level.