Asset Management - Performance - Risk - Cost

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Asset management is a delicate balance between performance, cost and risk. Assets are acquired and used for the benefits they provide to the organisation. These benefits are normally tied to the manner in which the assets perform. The organisation’s success and strategic outcomes are dependent on the performance levels of the organisation’s assets. Optimised performance of the assets delivers the appropriate benefits and returns to the organisation.

There is an argument that the organisation's assets should deliver total efficiency. In most cases organisations have multiple assets and the manner in which they determine what is adequate performance is managed in this environment. The interaction between assets is important alongside external challenges from the macro environment.  There is a constant trade-off between performance and risk. What are the implications for the organisation if the asset does not perform at maximum efficiency? At one level, this performance may not be needed for the asset to provide the necessary benefits. At another level, the inability to perform at maximum capacity might have reliability or safety implications. This has far greater consequences as it might result in the organisation failing to deliver on services, products or operations. If an asset fails to perform there is the possibility of asset failure. This is where the asset is not providing the desired benefits, the denial of benefits or the level of benefits needed by the organisation. The organisation has to decide how it wishes to quantify and manage this risk. Various types of risk may arise ranging from loss of profit, accidents, inadequate service to damage to reputation. The organisation has to balance asset performance with acceptable risk. What is the acceptible risk to the organisation?

 The level of risk and its mitigation has a cost. The organisation has to determine what is the cost associated with keeping an asset performing, at the optimum level, against the cost of risk of non-performance. In this constant trade-off there are likely compromises made on asset performance, cost and risk. During the life cycle of the asset, managers will be seeking to extend the performance of the asset, while keeping costs associated with performance under control and ensuring the risk associated with the performance is acceptable. Over the operational life the performance, risk and cost interaction will be monitored and managed to deliver value for money.

The "iron triangle" for asset management is performance-risk- cost working together to deliver the goals and vision of the organisation.

Construction in a Recession

The UK economy is in a double dip recession according to the ONS. Construction output dropped by 5.2% in this quarter. The omens are not good as a further contraction will take place post Olympics. The sector can expect to continue to decline for the next 9 months, if it follows trends from Atlanta, Athens and Sydney.

Is there a case to look to construction to help overcome the recession.

• Investment in infrastructure has an economic multiplier impact of 1 to 3. This means for every pound spent it creates economic activity 3 times as much.
• Construction absorbs large scale labour. Construction offers opportunities for skilled and un-skilled labour.
• Infrastructure construction can improve our long term competitiveness. Our transport and communication infrastructure lags behind our competitors and we need to improve to keep pace. Other sectors are more likely to invest in regions with good infrastructure  skills bases.
• Infrastructure investment and development supports both manufacturing and service sectors. The multiplier works through the construction supply chain.
• The lack of investment in infrastructure simply build up problems for the future. The State of Nation reports hints at the infrastructure requirements that need to be dealt with. The ASCE state of infrastructure reports alludes to a similar situation in the US.
• We have a world class construction industry. We have moved from being a joke to contractors and consultants that have skills and expertise that are required globally. Time to leverage this skill base.

If this was easy we would use construction as way of getting out of a recession. In the past the Japanese and Koreans used this approach. So what are the barriers:

• Austerity . The obsession with driving down government debt stops projects that are traditionally government supported. The economy needs stimulation as well. Simply cutting and stopping projects will not work.
• Choosing the right areas to support. We need investment in road, rail, high speed broadband and power. The government has to be a cheerleader and player. There must be no political vanity projects.
• The private sector are afraid of construction. We have had two commercial property and residential booms and bust in the last two decades. This undermines confidence.
• Ideology - there is a need to move on from PFI. Many sub-standard project were commissioned in the last decade. The mantra was if its PFI, its good. The centralised emergency systems, duplication of hospital services, school, etc are all example of poor decision making. Geographically, the UK, is small , so we can have a plan that works. We either take regional or centralist view. Private is not always better nor is the public sector. A balanced view is needed.
• Lead times to develop large scale infrastructure project are a problem. There are enough projects on the design boards, they should be moved forward.
• Risk - the government does not want to take the risk of more spending and changing their political stance. The private sector does not want to take any risk following the economic downturn.

These barriers must be addressed. 

The danger is we keep falling behind our competitors in infrastructure. A crumbling infrastructure is not good for competitiveness. We start losing our skill base. The migration of skills has started. We also face the danger of not getting the future generations interested in our sector. As future challenges such as climate change, resource depletion, ageing populations, overcrowding, energy and water shortages start we need the best and the brightest on our side.

Investment in infrastructure is needed for the overall economy not just construction.

Leeds gets a Trolley Bus not a Tram

Leeds gets the second prize. It is to have a new electrified trolley bus scheme. It did not get a tram. It was politically convenient for the Leeds to have its tram scheme rejected. The cost benefit analysis for Leeds was not that different to the Edinburgh tram scheme. The latter was funded and continues to be a disaster. The Leeds scheme had substantial regional and local support, while the Edinburgh scheme did not have the same level of support. The devil is in the detail , Edinburgh had support in the corridors of power in Whitehall, while Leeds did not . It might be that Leeds got lucky as I feel sorry for Edinburgh. The centre of this beautiful city is being ripped apart and I can only hope the benefits of tram  will outweigh this upheaval. Back to the Leeds trolley bus.

The trolley bus scheme is going to be about £250 million. Infrastructure investment is welcomed and will help the construction industry. It will be interesting to see the split in spending between the infrastructure and vehicles. The level of fares will also be interesting.  Will this take cars and other vehicles off the road? The jury is still out.

These are interesting times in the transport sector in West Yorkshire. WYTPA has announced plans to regulate the bus services in the region. It is proposing to award franchises rather than have deregulated services. It will be similar to the TfL model. I suppose this ties in with the trolley bus. (More on this later)

If Justine Greening is serious about the importance of Leeds as a regional economic generator then we need to have improved transport links with other parts of the region. This would include improved rail links to Sheffield, Harrogate, Manchester, Hull and York.  Improvement on road networks. (more on this later)

Interesting times in Leeds.