The main benefit, experienced by 80% of all practitioners, is "the improved ability to explain and defend their budgets and investments to governing bodies." This is critical because it allows them to make a solid case for funding and rate increases. In fact, the study reveals a trend for utilities practicing advanced asset management to gain higher rates.
Two other benefits experienced by high-level asset management practitioners include "an increased ability to balance between capital and operating expenditures" and "reduced costs without sacrificing service levels." All of these contribute to the utility's ability to fund and prioritize work, which should create the potential for new work and help local contractors.
Understanding how utilities decide to invest in new assets allows contractors to anticipate the level and type of work they can expect for the near future. Adoption of asset management has a strong influence on investment decisions by utilities, but as the charts reveal, the size of the utility is also an important factor.
A higher percentage of asset management practitioners, regardless of utility size, place greater emphasis on risk assessment, life cycle cost assessment and business cases. This demonstrates that more analytic factors are called into play to optimize investments. Non-practitioners are influenced more by regulation and compliance, the obsolescence of existing infrastructure and future supply forecasts than practitioners. With the exception of future supply forecasts, these suggest a more reactive approach to investing by non-practitioners.
The importance of risk analysis to investment decisions is clearly driven by asset management adoption, especially among larger utilities. Among the respondents who indicated that they do risk assessments, 88% of practitioners at large utilities consider this a critical factor, compared with 48% of large utilities not practicing asset management. Since the practice is mostly taking hold in large utilities, this suggests that a major change is in the works and will emerge further in the next few years to alter the way large utilities prioritize work.
The emphasis on risk may ultimately yield more new work in the infrastructure sector. After all, asset management practitioners devote 32% of their budget to capital improvements and 68% to operations and maintenance (O&M), while non-practitioners devote only 22% of budgets to capital improvements. While the higher levels of adoption currently are among large water utilities, the growth expected in the next five years suggests that more small utilities will begin to see those benefits.
This may allow for new opportunities for contractors in smaller markets. Contractors can help smaller utilities by working with them to implement asset management strategies. Successful larger utilities have dedicated asset management staff, whereas smaller utilities will need to rely on outside expertise to achieve the full benefits of asset management. The shift to an asset management approach demonstrated in the survey has strong implications for contractors in the water sector, especially with smaller utilities.
Contractors can help utilities prioritize capital investments as utilities switch from a reactive to proactive O&M approach. Wider adoption can therefore help create more work for contractors that specialize in water infrastructure and understand asset management practices. Asset management will help utilities find the money they need for investments by providing clear, understandable data to support funding requests and rate increases.
The SmartMarket Report is available for free download at www.construction.com/market_research.