Asset Management and Its Importance to the Term Paper
- Length: 15 pages
- Subject: Economics
- Type: Term Paper
- Paper: #98805834
Excerpt from Term Paper :
Asset Management and Its Importance to the Transportation Sector
The Definition of Asset Management
In order to fully understand the rest of the discussion in this paper, one must first understand what asset management really is. Depending on the source that is asked the question, there are several different definitions of asset management. Several will be presented here for consideration. Asset management has been defined by some as "A systematic process of maintaining, upgrading, and operating physical assets cost- effectively. It combines engineering principles with sound business practices and economic theory, and it provides tools to facilitate a more organized, logical approach to decision-making" (Hamilton, 2001, p.2).
However, there are more specific ways to define asset management as well. The focus of this paper is on asset management in transportation, and The Federal Highway Administration Office of Asset Management defines asset management as: "A business process and decision-making framework that covers an extended time horizon, draws from economics as well as engineering, and considers a broad range of assets. The asset management approach incorporates the economic assessment of trade-offs between alternative investment options, both at the project level and at the network or system level, and uses this information to help make cost-effective investment decisions" (Hamilton, 2001, p.2).
As can be seen, the definition of asset management is taken very seriously in the field of transportation, and this is something that should be pointed out here, before the rest of the paper is discussed. In the following pages, emphasis will first be placed upon the historical perspective of asset management in transportation, and after this the current trends, shifts, and directions will be addressed. Following the discussion of these two issues, the role that asset management actually plays in reducing threats, vulnerabilities, and risks to the infrastructure will be dealt with before the concluding remarks are presented. In this way, all of the significant areas of asset management as it relates to transportation will be thoroughly covered and a clear understanding of the issue will be reached.
Also important to the issue are the following questions, reproduced here from Hamilton (2001, p.3):
Can asset management be used to help coordinate the allocation of resources between different sets of assets, such as roads and bridges, which are now often considered separately?
Can asset management be used to help allocate state transportation resources between state and local road systems, or between roads systems with different characteristics (rural or urban) or functions (commercial, agricultural, recreational)?
Can asset management be used to set statewide priorities between road systems of statewide, regional, and local importance?
Is it practical or desirable to develop an asset management process to determine the formula distribution of federal highway funds?
Asset Management in Transportation -- Historical Perspective
Overall, asset management has not been used as strongly in transportation as it has been in other areas, and private companies are still much more involved in asset management then are public utilities. "The focus of transportation asset management systems is the maintenance, preservation, and operation of the existing transportation system" (Hamilton, 2001, p.4). Hamilton (2001) goes on to stat that asset management systems, whether they are for transportation or other goals, have the same basic components, including:
Identification of performance goals -- such as pavement condition.
Inventory of assets -- such as roads or bridges.
Recording measurable condition assessment -- such as pavement condition -- in relation to goals.
Performance modeling -- such as forecasts of pavement deterioration.
Analysis of alternatives -- which is most cost effective, to repair or replace? (Hamilton, 2001, p.4).
The history of asset management in the transportation sector is important to a study such as this one, and therefore will be discussed here to provide a more thorough understanding of the next section involving where asset management in transportation is today and where it appears to be going in the future.
It is somewhat difficult to make a specific determination of exactly when asset management in transportation took hold and became popular (Peaslee, 2005). For example, by 1980 there were only five states that had some kind of systematic creations set up for the management of paved roadways (Finn, 1998). However, it is important to look at some of the chronological events that took place before 1980. As early as 1970, workshops were sponsored to discuss some of the issues when it came to paving roads and ensuring that they were structurally sound and safe (Finn, 1998). Ideas at these workshops involved issues such as how to make the pavement better quality and ensure that it lasted a long time.
Another issue was whether specific roads should be repaved or simply replaced. There are both costs and benefits associated with doing either one of these things and the condition of the roadway and the cost that would be undertaken to either repair or replace it must be taken into account when determining which one of these activities a particular road crew would be involved in. Washington State's Department of Transportation created a basic asset management paving project in 1974, but this did not compare with the more sound and thorough asset management ideas that were created in 1980 (Finn, 1998).
In 1977, books were published regarding the management of paved roadways and these dealt to some extent with asset management (Finn, 1998). In 1979, a "how-to" guide was developed in order to help states and municipalities that were interested in managing their paved road systems (Finn, 1998). As has been mentioned, 1980 first saw five specific states -- Arizona, California, Utah, Washington, and Idaho -- create asset management systems that involved transportation and paved roadways (Finn, 1998). At the present time, all 50 states either have asset management systems for their transportation departments or have begun taking steps to implement asset management systems where transportation is concerned. It is somewhat surprising that it has taken as long for many states to begin to implement this type of concept, since the idea of creating this has generally been assumed to have been around since approximately 1968 (Finn, 1998).
However, it is easy to see by looking at this particular historical perspective that asset management in transportation is a relatively new field and therefore not as much is known about it as asset management in some other areas of business. Early databases were created for some of these transportation systems in various states that looked at the condition of the roadways and ranked them so that the worst roadways could get corrected or replaced first (Finn, 1998). Naturally, as time went on more sophisticated methods were utilized in order to help obtain better information regarding roadways so that priority could be given to problem roadways more easily and so that the assets that the transportation company had, namely their paved roads and equipment, could be better managed and utilized. There was also a 13-step plan, reproduced here from Finn (1998), that was created for developing and implementing an asset management system for pavement. This plan included:
1. Decision to start.
2. Commitment from top management.
3. Develop preliminary work plan.
4. Establish steering committee of top management and division heads.
5. Develop detailed work plan.
6. Evaluate software and hardware requirements.
7. Develop preliminary system with procedures for data collection, processing, analysis, and optimization.
9. Demonstration to potential users and decision-makers.
10. Location of the pavement management system unit within the state highway agency.
11. Full-scale implementation and evaluation.
12. Routine operation of the pavement management system.
13. Maintain and improve.
Source: Finn, 1998.
As can be seen, this plan is rather general, but it gives those that are interested in creating an asset management plan for transportation a better idea of what it is they will need to accomplish and where they should start in order to obtain good results. Managing assets in this way is not always easy, but transportation departments across the country are finding that they must manage their assets very carefully if they are to have enough funding in their budgets in order to keep the roadways throughout the country in good repair (NCHRP, 2002). There are many roadways throughout the country that people believed to be in disrepair, and this particular opinion will not be disputed here.
However, it is important to understand that there are literally hundreds of thousands of miles of roadways throughout this country and there are only so many individuals that work in transportation departments and so much money for these individuals to utilize in order to fix the roadways. They do the best jobs that they can, but sometimes they cannot get to every road as quickly as those that live near it or drive on it would have hoped. There were several things that contribute to the problem of creating a pavement managing system (PMS) for many particular states and these are reproduced below:
* Natural resistance to change in the way decisions are made.
* Doubts about the reliability of prediction models.