HomeMy WebLinkAboutFIN-10-026 - Asset Management Service Delivery StrategyREPORT
REPORT TO:
Councillor Berry Vrbanovic, Chair, and Members of the
Finance and Corporate Services Committee
DATE OF MEETING:
February 8, 2010
SUBMITTED BY:
Dan Chapman, General Manager of Financial Services
PREPARED BY:
Dan Chapman (x2347)
WARD(S) INVOLVED:
n/a
DATE OF REPORT: February 1, 2010
REPORT NO.: FIN-10-026
SUBJECT:
ASSET MANAGEMENT SERVICE DELIVERY STRATEGY
RECOMMENDATION:
THAT the Asset Management Service Delivery Strategy as outlined in staff report FIN-10-026
be supported as the direction for the City of Kitchener’s asset management program over the
next 3 to 5 years;
AND FURTHER THAT the City complete Phase 1 of the Strategy in 2010, being the Asset
Management Gap Analysis
BACKGROUND:
Capital asset management represents a core business function for the City of Kitchener given
the considerable number and value of assets that are owned and maintained by the municipal
government (almost 300,000 individual assets with a replacement cost of $3 billion). Despite a
sizeable asset base, the approach to asset management is often informal, lacking high-level
corporate oversight and coordination.
The introduction of new tangible capital asset accounting standards has provided the City of
Kitchener a platform from which to launch leading edge systems to support asset management.
These systems will maintain the corporate asset inventory and also provide a corporate tool for
decision support. These changes provide an opportunity to improve the coordination between
City departments to ensure that efficiencies resulting from new technology are maximized and
that decisions are made in the future to optimize the use of taxpayer/ratepayer funds for capital
investment.
With this vision in mind, the City retained Prior & Prior in 2009 to prepare an Asset Management
Service Delivery Strategy in consultation with asset managers from across the City. The
Strategy is complete and has been vetted thoroughly. Endorsement from the Finance and
Corporate Services Committee is being sought to move forward with the directions outlined in
the Strategy.
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REPORT:
General Context
The City’s asset management function has been evolving for some time. Within each
department, various programs exist with varying levels of sophistication to plan for asset
construction, maintenance and rehabilitation. However, no corporate program exists to
coordinate the asset management work of departments, prioritize asset investments across the
organization, and serve as a source of best practice information for the asset management
function.
Under the purview of the General Manager of Financial Services, the City developed an Asset
Management Strategy in 2003. The stated goal of the Asset Management Strategy was:
To establish effective capital asset management by critically evaluating existing
and future needs related to our investment in capital assets and enterprises (i.e.,
buy and sell decisions).
The Asset Management program focused on the following three areas:
Land – categorization for management and disposition strategies
Buildings – categorization based on use and assessment of surplus potential
Business Plans for Portfolios (Enterprises, Utilities, Cash, Employment Lands, Land and
Buildings, Capital Projects) – to prepare business plans for each portfolio focusing on
purpose for holding asset and return on investment
The City’s maturity with respect to capital asset management was assessed through a high level
external benchmarking exercise completed in 2007. A framework developed by Prior & Prior
(Appendix 1) was used as the basis for the benchmarking and illustrates how asset data serves
as a foundation upon which comprehensive asset management decisions may be made. The
key findings of that assessment are attached as Appendix 2 and identify several potential areas
of improvement.
The Asset Management Program Redefined
The introduction of the new accounting standard PSAB 3150 (Tangible Capital Assets) required
all municipalities to develop and value a corporate asset inventory. The City has capitalized on
this opportunity by implementing leading edge systems to support this work. These systems
provide a corporate inventory and a standard platform for decision support (RIVA). This change
also provided an opportunity for the City to consider the future direction for asset management
to encourage a high degree of coordination between City departments, to ensure that the
efficiencies created through new technology are maximized, and that decisions are made in the
future to optimize the use of taxpayer/ratepayer funds for capital investments.
In light of changes in the asset accounting and technology environments, the City retained Prior
& Prior in 2009 to prepare an Asset Management Service Delivery Strategy in consultation with
asset managers from across the City. As an outcome of that process, the goal of the asset
management program has been refined and broadened as follows:
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To establish advanced asset management by applying a management paradigm
and a body of management practices to the entire portfolio of infrastructure
assets at all levels (i.e., operations, maintenance and renewal) within an
environment of limited resources while continuously delivering the service levels
customers desire and regulators require at an acceptable level of business risk to
the organization in a cultural environment that encourages maximum
development and satisfaction of our human assets.
This definition places a greater focus on asset optimization which includes repair vs. replace
decisions using decision support tools that incorporate concepts of stakeholder value,
interdependent infrastructures, risk, etc. While the concept of “return on investment” (which was
a key feature of the original asset management strategy) remains important for the City, it is not
the focus of asset management under this definition and is therefore more appropriately
addressed through other initiatives such as long-term financial planning, core service review
and/or program review.
Recommended Work Packages
The Strategy proposed a number of phases in support of the objective outlined above. These
work packages are consistent with industry-wide implementation strategies and plans for asset
management. A brief description has been provided for each of the phases below. The
Strategy provides more detail for each phase and sets out a subsequent work program leading
to a culture of continuous improvement.
Phase 1 – Gap analysis
– To determine the gap between the City’s current asset
management practices and best practices for all of the City’s physical assets.
Phase 2 – Review of the GIS/asset inventory component of the Corporate
Database
– To assess the completeness, currency and accuracy of the inventories, and
to develop and implement policies and procedures to ensure the integrity of the asset
inventories critical to the ongoing support of the asset accounting process and to asset
management. A second component will identify the need for service level agreements
(SLA’s) for data management between the divisions and Corporate IT as the service
provider. This would include a review of the SLA’s currently in place and identification of
new ones and updates to the existing ones to ensure currency and completeness of
asset registers.
Phase 3 – Development of customer levels of service –
This will include asset
specific technical standards and will be an ongoing process for each asset type; major
assets would be addressed initially as part of this package with subtypes to be pursued
with internal staff over time.
Phase 4 – The development of long-term asset specific funding projections
– To
enhance the City’s financial sustainability planning using the RIVA modeling tool and
documentation of asset management plans.
The Strategy also identified the need to review and document the ongoing methods, procedures
and tools that will be used to support the PSAB 3150 project going forward. This forms part of
the work plan of the Accounting Division and is outside the scope of the corporate asset
management program.
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Next Steps
Upon receipt of the Asset Management Service Delivery Strategy, the General Manager of
Financial Services met with asset managers to validate the recommendations. The following
consensus emerged from those discussions:
There is strong support for the direction laid out in the strategy;
The work plan should move forward as a program using existing staff resources,
deferring a decision on a permanent new business unit or transformation of the Project
Administration Office to future date;
The program should not be advanced aggressively until the CMF project is much farther
along, as many of the key resources associated with the asset management project are
already working at capacity as a result of their current commitments to the CMF project;
The limited resource requirements of the Phase 1 - Gap Analysis justify proceeding with
this phase in 2010; and
The Director of Project Administration & Economic Investment should lead the first
phase of work, with sponsorship from the General Manager of Financial Services,
reporting to the Asset Management Committee comprised of the CAO and General
Managers.
It is appropriate that the Director of Project Administration & Economic Investment lead the
initial phase as the program is directly aligned with the original vision for the PAO, which
included the responsibility to collect and prioritize corporate and departmental projects, and
ensure that resources and budgets are proactively managed.
The decision to defer permanent organizational changes to a future date is a reflection of
current organizational constraints. As such, the recommendation is to move forward with a
project-based initiative rather than a formal organization. This would allow the City to undertake
the initial phases of an asset management program without the commitment of full time
resources. This option is premised on the fact that the City owns the RIVA Decision Support
software, and will require a senior IT resource over the longer term to use the system in-house,
and continue to refine the long term planning projections with iterations every three to five years,
or when changes in the administration of the asset warrant.
The consultant also recommended that the Corporate Information Technology Strategic Plan
project address the IT issues of asset register and staffing as part of the service delivery and
governance review components of the project.
Proposed Approach to Phase 1 – Gap Analysis
The purpose of the Gap Analysis will be to determine the gap between the City’s current asset
management practices and best practices for all of the City’s physical assets. The goal of this
phase is to identify opportunities for improvement that will move the City from where it is to the
best appropriate practice. This work is critical to defining a realistic work plan for the balance of
the phases. The analysis would cover all of the City’s major asset types as defined through the
PSAB 3150 implementation.
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The gap analysis is carried out through a series of workshops to identify the gap between where
the City is today and industry best practices. A model provided by an external consultant will be
used to guide the City in assessing various performance levels. This will outline the City’s
strengths and weaknesses in all asset management areas. When the initial assessment has
been completed, a second set of workshops will be held to review the findings, and based on
the City’s strategic objectives, develop and refine a list of recommended actions that will “close
the gap” between current and appropriate asset management practices.
The process will involve the owners/representatives of the asset types listed above, although
the time requirements are not significant due to the fact that most of the effort will be contributed
through work shops. Since many of the key resources required for Phase 1 are already at
capacity due to their commitments to the CMF, the work will be initiated in the second and third
quarters of 2010.
Terms of reference for the Asset Management Committee and the Gap Analysis will be
developed in advance of initiating the work.
FINANCIAL IMPLICATIONS:
The costs to undertake the gap analysis will be funded from the Asset Management Reserve
Fund, consistent with the stated purpose of the fund. Current projections include a provision of
up to $100,000 for strategy implementation in 2010 and forecast an ending balance in the
reserve in excess of $700,000.
ACKNOWLEDGED BY:
Dan Chapman, General Manager of Financial Services & City Treasurer
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Appendix 1:
Asset Management Framework
Business Drivers
Customer Expectations Corporate Strategic Goals Legislative Requirements
Service Delivery Standards
DemandAsset Lifecycle Management
Financial
Management
Management
Asset Portfolio
Report on
Future Demand Physical Asset Capacity, HistoricalAsset
Tangible
PSAB
Condition &
Parameters DataValuations
Capital Assets
Performance
(Phase 1)
Lifecycle Analysis
Demand Remaining RiskCost
Capacity LifeBenefit
Lifecycle Management Plans
Demand Addition & Replacement & Operations & Cash Flow
Management UpgradeMaintenance
Refurbishment PlanForecast
PlanPlanPlan
Business Planning
Funding Plan
Monitoring and Improvement
Performance Monitoring & Ongoing
MeasuresReportingDevelopment
Source: City of Kitchener Capital Asset Management Business Process Study, 2007, Prior & Prior Associates Ltd.
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Appendix 2:
Asset Management Maturity Assessment
Business Drivers
Information on customer perception of condition/performance is available through
o
recent surveys
Legislative requirements are known by City staff
o
The link between business drivers and asset management and program/service
o
delivery is not apparent
Demand Management
Not reviewed
o
Asset Portfolio
Data do not reflect the full range of assets under City responsibility
o
Collection of data on inventory, condition and performance is accomplished only
o
occasionally or incompletely
Lifecycle Analysis
Some use of risk assessment techniques
o
Some understanding of appropriate levels of maintenance versus capital
o
investment
Lack of systematic feedback loops
o
Lifecycle Management Plans
Implications of different investment levels and mixes are not completely and
o
systematically analyzed
Criteria for project selection not clearly aligned with stated performance
o
measures
In some cases, tradeoffs between programs are based on arbitrary formulas or
o
historical splits
Financial Management
Budgets are not clearly linked to business drivers
o
City does not know the full cost to deliver all programs and services
o
Peformance Management
Not reviewed
o
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