capital planning and asset...

33
Capital Planning and Asset Management Shadi Eskaf Environmental Finance Center at the University of North Carolina, Chapel Hill (School of Government) Environmental Finance Center Network 919.962.2785 [email protected]

Upload: others

Post on 26-Apr-2020

1 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

Capital Planning and Asset

Management

Shadi Eskaf

Environmental Finance Center at the University of North Carolina, Chapel Hill (School of Government)

Environmental Finance Center Network

919.962.2785

[email protected]

Page 2: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org www.efcnetwork.org

Uh oh! How Do You Pay for

This?

Emergency repair

vs.

Preventative

rehab./ replacement

(capital planning)

Page 3: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Session Objectives

• Capital Planning Process

• Prioritizing Your Needs

• How to Estimate Your Future Costs

Page 4: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

In the Old Days...

• Water systems took advantage of the

federal government’s ambitious

construction grants program of the 1970s

and 1980s

• Everybody loved their “free” money

Page 5: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Capital Finance Today

• The money never really was “free”—it

came from tax dollars

• Today, the financial burden has been

shifted away from federal and state tax

dollars (grants) to funds raised by the

water system itself (customer sales and

loans). For example...

Page 6: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Capital Finance Today

• In other words, you pay (no sense in sugar-coating this)

• The harsh reality is that water and wastewater infrastructure is expensive, regardless of the size of your system. Smaller or poorer systems will likely have a hard time paying for capital improvements

Page 7: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Capital Finance: Ways to Pay

• Pay as you go (current receipts)

• Save in advance and pay (fund balance,

capital reserve fund)

• Pay later (someone loans you money)

• Grants (let someone else pay)

Page 8: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Two Related Concepts: Asset

Management & Capital

Planning

Page 9: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

http://www.epa.gov/safewater/smallsystems/pdfs/guide_smallsystems_asset_mgmnt.pdf

Page 10: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

5 Things to Track for Each Asset

in an AM Inventory (EPA)

1. Name/Description/location

2. Age

3. Condition (and service history)

4. Criticality

5. Expected useful life remaining

Source: EPA’s “Asset Management: A Handbook for Small Systems”

Page 11: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Create an Asset Inventory

Source: EPA’s “Asset Management: A Handbook for Small Systems”

Page 13: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org 18

Some Rules of Thumb –

Expected Life

• Pipelines, valves: 40-50 years

• Mechanical equipment: 15 years

• Wells and springs: 25-35 years

• Storage tanks: 30-60 years

• Meters: 5-15 years

• Concrete will need refurbishing within 30 years

Page 14: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Create an Asset Inventory

Source: EPA’s “Asset Management: A Handbook for Small Systems”

Page 15: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Establishing Asset Condition

Page 16: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Like

liho

od

of

Failu

re

Consequence of Failure Low

High

Immediate Work

Sample Monitoring

Aggressive Monitoring

Program

Schedule for Rehab/ Replace

High

A

B

C

D

Risk of failure should

drive the work program

Source: Steve Allbee, USEPA

Page 17: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Prioritize Asset Rehab. / Replacement

Source: EPA’s “Asset Management: A Handbook for Small Systems”

Page 18: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Long Term Capital Planning

• This is strongly related to asset

management

• An official multi-year document that

identifies and prioritizes capital projects,

identifies funding sources, and sets

timelines

Page 19: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Capital Improvement Program

• Identify regulatory deficiencies (discuss with regulatory agencies, look at proposed regulations, talk to consultants), in a 10-20 year window

• Identify growth needs, expansion

Page 20: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Capital Improvement Program

• Identify deferred maintenance problems or where current service is inadequate

• Prioritize based on need realizing that “hidden” infrastructure tends to be ignored

Page 21: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Capital Improvement Program

- Timelines • Use Asset Management Plan to plan for

capital expenses in the long term (~20 years)

Page 22: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Capital Improvement Program

- Timelines • Create a Capital Improvement Plan with a

narrower timeline (~5 years) in more detail.

Specify the projects and accurate estimates of

cost. Plan where money will come from.

Page 23: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Capital Improvement Program

- Timelines • Create a Capital Improvement Budget with

an even narrower timeline (1 – 2 years)

committing funds for the planned capital

projects. Get it approved/adopted.

Page 24: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org www.efcnetwork.org

29

Example Capital Improvement Plan

(CIP)

Page 25: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Estimate Required Capital Reserves

Source: EPA’s “Asset Management: A Handbook for Small Systems”

Page 26: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Where Can You Find the Prices?

• Call a vendor. Actually, call a few.

• Ask other systems

• Look at past expenses but adjust for

increases in costs

Page 27: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

How Quickly are Costs Related

to Capital Rising?

• Instead of

looking at

Consumer Price

Index, look at

Construction

Cost Index

(CCI).

• ~3%/year.

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

%/y

ear

Annual Changes to CPI-U ("Inflation") and Construction Cost Index: 1984 - 2012

Inflation (Annual Change in the CPI-U)

Annual Change in the Construction Cost Index

Data Sources: Bureau of Labor Statistics, Engineering News-Record ENR.com, InflationData.com, USDA Natural Resources Conservation Services

http://efc.web.unc.edu/2012/09/26/using-an-index- to-help-project-capital-costs-into-the-future/

Page 28: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Drive Down the CIP Cost

• Is it possible to – Eliminate projects?

– Defer projects?

– Repair or refurbish instead of replace?

– Find a non-asset solution?

– Find collaboration/partnerships alternatives with neighboring systems?

– Improve balance of cash vs. debt-financed?

• Re-evaluate water demands of your customers. Many systems are now noticing that total demand is decreasing over time.

Page 29: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Last Concept: Life Cycle Costing

• Purchase Price ≠ Total Price

Page 30: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org www.efcnetwork.org

Capital Investments are Just the Tip of

the Iceberg…

Source: Steve Allbee, USEPA

Page 31: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

Resource Webpage for

Capital Planning

www.efc.unc.edu/projects/capitalplanning.html

Page 32: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

EFC C.I.P. Tool http://efc.sog.unc.edu/ Find it in Resources / Tools

Free, simplified CIP tool using only MS Excel (EFC @ UNC)

Page 33: Capital Planning and Asset Managementefcnetwork.org/wp-content/uploads/2014/10/4-Capital-Planning-for-L… · 5 Things to Track for Each Asset in an AM Inventory (EPA) 1. Name/Description/location

www.efcnetwork.org

http://www.epa.gov/cupss/

Software: CUPSS (EPA)