Transcript No Slide Title

 2013 WASHINGTON STATE
PUBLIC TRANSPORTATION
SYMPOSIUM
 Darin Johnson, BIS Consulting
Key Services
 Decision-support for power
and water utilities, transit
agencies.
 Health Indexing, risk
assessment.
 Third-party business case.
Recent Clients
 Washington State Ferries
 Toronto Hydro
 Duke Energy
 Puget Sound Energy
 Tacoma Power
 Seattle City Light
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There is a gap between engineering and finance
Asset management
bridges this gap
?
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Customer focused.
Data driven.
What makes for a “successful” asset management utility?
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Depends how you define success.
But, what makes it good is business case culture.
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Spending must be justified in terms of customer costs and benefits.
Explicit, quantitative estimates – transparency.
“No exceptions” attitude from senior management.
Junkyard dogs.
Costs
Benefits
“…total benefits of a project
to whomsoever they accrue
exceed the costs of that project.”
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3. Personnel
2. Staff
1. People
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Starting with data is a mistake - data matters only if it matters.
First define the questions you must answer and your approach, then ask
what data you need.
If you start by collecting data and installing software, you are likely never
to get there.
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Return on investment is low.
Buy-in is nearly impossible.
No early gains – can’t show tangible results.
There is a time to pursue good data collection,
storage and access; analytical tools; and
integration. That time is not at the beginning.
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Conventional Approach (technical)

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Assess condition, consider calendar age
Replace when:
 Condition is poor
 Age reaches expected life
Technical approach fails to
consider risk quantitatively
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What, exactly, is expected useful life?
Median Life?

Mean Life?
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Knee of curve?
N% failure rate?
Other?
Survival Curve
100%
Percent
Surviving

KNEE OF CURVE
MEAN LIFE
75%
?
50%
25%
MEDIAN LIFE
N% FAILURE RATE
0%
0
2
4
Age
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8
10
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Condition, criticality, and risk assessment: a business case for aging
assets
Least life cycle cost

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Optimize replacement or rehab timing
Balance risk of failure against benefits of delaying capital expenditures
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Now all the pieces are in place…
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Each asset is evaluated individually to determine remaining life.
Forms the basis for long-range spending projection.
Example applied by Pierce Transit – extended coach service.
Service Life Optimization for Coaches
300000
Cost
250000
200000
150000
100000
50000
0
0
5
10
15
Service Life
Maintenance plus risk
Life-cycle cost
20 reduction
25 in capital
40%
15% reduction in life-cycle
Capital
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Washington State Ferries (WSF), largest ferry system in the US,
Seven timber trestles constructed before modern seismic codes.
Risk of damage or collapse.
Current plan is replacement – $121 million budget item.
What if we don’t? Could we reduce spending and improve return on
investment if we do something less than replace, or even leave some of
the trestles as-is?
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Terminal
Ground Shaking Intensity (g)
Small
Moderate
Large
Orcas
0.09
0.19
0.36
Shaw
0.09
0.17
0.34
Lopez
0.09
0.18
0.34
F. Harbor
0.09
0.18
0.34
Anacortes
0.12
0.24
0.45
Mukilteo
0.15
0.28
0.51
Edmonds
0.15
0.29
0.52
Fauntleroy
0.15
0.29
0.52
Vashon
0.16
0.32
0.61
Southworth
0.17
0.32
0.61
Tahlequah
0.16
0.31
0.56
Pt. Defiance
0.16
0.31
0.56
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Direct repair cost
Ridership consequence
Days of trips lost
Walk-ons
Vehicles
Hours of delay
Days affected by delay
Total ridership cost
Total consequence cost
72-year event
$8.2 million
224-year event
$10 million
330-year event
$10 million
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0.5
225
$30 million
$38 million
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23
0.5
315
$42 million
$52 million
30
30
0.5
720
$85 million
$95 million
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Expected consequence cost versus return period
$100
Calculating annual risk
$90
330-year event: $870
$80
$70
$60
$50
224-year event: $1,000
$40
$30
$20
$10
72-year event: $7,200
$0
10
100
1000
Total annual seismic risk at Vashon Island trestle = $1.5 million
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Cost of ownership, NPV
$50 million
$40 million
Minimum lifecycle cost
$30 million
$20 million
$10 million
$0 million
No action
Immediate
replacement
Refurbishment
Conclusions, all trestles
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Savings of $88 million NPV in cost of ownership.
Savings of $54 million in near-term capital spending.
Refurbishment preferred to replacement at three trestles.
No intervention is justified at four trestles.
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Why do we want to spend money?
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Must be based on costs/benefits from the customers’ perspective.
Defined in the same terms for every decision.
Common Drivers…
Big decisions are
usually about trading
dollars for service…
Environment
Safety
Level of Service
Financial
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How do we know if Benefit > Cost?
Level of service,
expressed in
customer
served
dollars
Capital costs,
expressed in
dollars
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Count up all the benefits to all the
stakeholders.
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Riders directly affected.
Businesses affected.
Other drivers.
The community as a whole.
I’d pay $100 for
this service.
We’d each
pay $5
Cut (or add) service based on “bang
for the buck.”
It can be difficult
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Hard to identify stakeholders.
Hard to quantify benefits.
As decision-makers, we must do
our best.
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What’s the catch?
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$ Reality!
It’s almost impossible to know how
customers’ value service.
Surveys are noisy and unreliable.
Wide mix of stakeholders.
In the end, we’re usually stuck with a
subjective estimate.
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Why not simply measure improvement in availability, for example?
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REASON 1: To justify spending – trading dollars for service.
REASON 2: To prioritize spending across a range of projects.
You will make spending decisions, implying a value for service.
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Therefore, “no answer” is not an option.
Explicit → Consistent → Reliable.
YES
…”dollarizing” is unavoidable.
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Spending decisions should be based on whether
benefits exceed costs.
Evaluate costs and benefits from the customers’
perspective.
Focus on estimating actual costs, risks, benefits, etc.
Avoid “high, medium, low” or worst-case scenarios.
Don’t be afraid of uncertainty – quantify it. If more
precision is needed, improve inputs.
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