Total Asset Management Manual

Transcription

1 Total Asset Management Manual This document is a snapshot of the NSW Government Total Asset Management Manual dated August 2003 see the TAM Manual Web Site for current documents. The Total Asset Management Manual is the latest update of the TAM Manual that was first released by Government in The Manual explains the five asset plans, which comprise a Total Asset Management Strategy and provides a series of guidelines on implementing various aspects of asset planning. Introduction TAM An Overview Assessment & Decision Tools Copyright - NSW Government Asset Management Committee (GAMC) Level 25, Governor Macquarie Tower, 1 Farrer Place, Sydney NSW 2000 AUSTRALIA Phone (02) Fax (02) [email protected]

2 Introduction to the Total Asset Management Manual The TAM Manual consists of three sections: This Introduction section of the Manual explains how Total Asset Management fits within whole-of-government planning. The TAM Overview includes strategies and how to guidelines to develop the five asset plans which comprise the Total Asset Management Strategy. NSW Government agencies are required to prepare these plans each year as part of their business planning and budget processes. The Assessment & Decision Tools provides a set of tools to assist agencies to develop and implement their Total Asset Management strategies. Each guideline in the Manual has an introductory page which gives access to the full guideline in Adobe Acrobat PDF format. Internet links are provided to those asset related guidelines that reside outside of the TAM Manual.

3 TAM within the Government Strategic Management Framework Introduction to the Total Asset Management Manual The NSW Government Strategic Management Framework summarises and defines the various processes which NSW Government agencies should use to plan activities and services, to allocate resources and to report on performance. The Framework shows how the various processes fit together and relate to each other. Total Asset Management planning is an integral part of the Framework at the Implementation and Service Delivery level. Before planning at this level, each agency should have in place a Service Delivery Strategy that defines what services they will deliver to achieve the outcomes defined by Government and desired by the community. The Strategy should identify and measure the outcomes to allow an agency to balance the requirements for services against available resources. Service Delivery Strategy guidelines are available from the Corporate Planning page of the Government Strategic Management Framework site. Agencies should also be familiar with Treasury s Service and Resource Allocation Agreement guidelines which can be found on the Treasury Policy & Guidelines Papers index page Link to: Strategic Management Framework

4 TAM - An Overview Total Asset Management is the strategic management of physical assets to best support the delivery of agency services. With constant reference to whole-of-government planning, the agency s Corporate Plan, and its Service Delivery Strategy, the TAM approach requires asset managers to assess what assets are needed to support successful service delivery. It then calls for detailed plans for the management of those assets which are to be acquired, maintained or disposed of. Agencies are required to submit an Asset Strategy to Treasury in support of submissions for funding. This section contains guidelines for: The Asset Strategy which determines whether assets should be acquired, upgraded, maintained or disposed of. The Office Accommodation Strategy that is an Asset Strategy restricted to Office Accommodation assets only. Its purpose is to capture the benefits of a whole-of-government approach to the management of office accommodation. The Capital Investment Strategic Plan which explains how new assets will be acquired or existing assets upgraded. The Asset Maintenance Strategic Plan which gives a structured process for planning the maintenance of existing assets. The Asset Disposal Strategic Plan which identifies assets that are surplus to requirements and how the disposal process will be managed.

5 The Asset Strategy TAM - An Overview Agencies are required to submit an Asset Strategy to Treasury in support of their funding submissions. The Asset Strategy is the top level strategy in Total Asset Management planning and determines whether assets should be enhanced by capital investment, maintained or disposed of to continue their role in supporting service delivery. It determines the basic relationships between Service Delivery Strategy and the Capital Investment, Asset Maintenance, Asset Disposal and Office Accommodation Strategies. The Asset Strategy sequentially poses the following questions at five decision "gates": Can service delivery be made less asset-dependent? Are existing assets fully used in service delivery? Are existing assets appropriately located for effective service delivery? Is the capacity of existing assets sufficient to provide the required services? Are assets suitable for the effective delivery of the services they are intended to support? The Asset Strategy guideline is available in the Publications section below. The draft Service Delivery Strategy guideline is available in the Premier's Department's Strategic Management Framework. The Asset Strategy

6 Office Accommodation Strategic Plan TAM - An Overview Agencies are required to submit an annual Office Accommodation Strategic Plan to NSW Treasury as part of their Asset Strategy. Investment in the office accommodation segment of the government's property portfolio represents a major recurrent cost. The integration of office accommodation strategic planning into each agency's TAM process provides a whole of government strategic approach to the management of this important resource. This will: Directly link accommodation assets with required service delivery outcomes Maximise the benefits to be gained from the government's purchasing power Improve the standard of accommodation and enhance the capital value of stock Achieve cost savings whilst maximising the benefits of decentralisation The Office Accommodation Strategic Plan determines whether accommodation assets should be enhanced (by capital investment), maintained or disposed of. To do so it uses a process which sequentially poses the following five questions: 1. Can service delivery be made less dependent on accommodation assets? 2. Are accommodation assets fully used in service delivery? 3. Are accommodation assets appropriately located for effective service delivery? 4. Have the accommodation assets sufficient capacity to provide the required services? 5. Are accommodation assets suitable for the optimal delivery of the services they are intended to support? Agencies must annually submit a Capital Investment Strategic plan to Treasury in support of their funding submissions. Office Accommodation Strategic Planning

7 Capital Investment Strategic Plan TAM - An Overview A Capital Investment Strategic plan aims to provide efficient and effective planning of limited government capital resources by ensuring that there are clear and detailed links between assets and the service delivery outcomes they support. It applies where the Asset Strategy indicates the need for investment in new assets or significant improvement or upgrading of existing assets. It involves assessment of all investment options to meet service delivery requirements (purchase, lease, service contracts, private sector involvement and non-asset solutions) and resources required (assets, financial, HR, IM&T, etc) using the following processes: Directly linking asset investment with required service delivery outcomes Maximising the benefits to be gained from the government's purchasing power Improving the standard of assets and enhance the capital value of stock Achieving cost savings whilst maximising the benefits of whole-of-government planning Capital Investment Strategic Planning

8 Asset Maintenance Strategic Plan TAM - An Overview Agencies must annually submit an Asset Maintenance Strategic Plan to Treasury in support of their funding submissions. The Asset Maintenance Strategic Plan aims to proactively manage the risk of the inability of assets to support service delivery strategies. The outcome is a more productive and reliable asset portfolio within the constraints of available resources. Maintenance planning involves an analysis of maintenance needs against agency service delivery objectives and government priorities. It can be achieved by the following seven step planning process which has been developed to link service strategies with asset maintenance: 6. Define and segment assets to meet service strategy 7. Determine required asset performance 8. Define maintenance resources and overall strategies 9. Assess condition of assets and recommend maintenance 10. Prepare Maintenance Cost Plan 11. Implement Maintenance Plan and programs 12. Monitor and review Maintenance Plan Asset Maintenance Strategic Planning

9 Asset Disposal Strategic Plan TAM - An Overview Agencies are required each year to submit Asset Disposal Strategic Plan to Treasury in support of their funding submissions. An Asset Disposal Strategic Plan involves a detailed assessment of those assets that the Asset Strategy indicates are no longer effectively meeting their service delivery required at the lowest long-term cost to Government. This assists agencies to identify for disposal, those redundant assets that might otherwise reduce efficient and effective service delivery. Asset Disposal planning involves two separate and distinct elements: the detailed assessment of assets identified as surplus by the Asset Strategy followed by an analysis of the physical disposal of the assets. Disposal Planning links via the Asset Strategy with service delivery by the following five stage process. 1. Assets identified by the Asset Strategy as surplus to service delivery requirements are assessed in detail 2. The advantages to Government, agency and the community in divesting assets is assessed 3. Opportunities for increasing asset value are identified 4. Disposal requirements including probity considerations are identified 5. Implementation of the Disposal Plan and performance monitoring are in place Following the release of the Premier's Memorandum on 26 February 2003, agencies are now required to submit their Property Disposal Plans to the GAMC for review by 31 December each year. More...

10 Asset Disposal Strategic Plan - Continued All proposed property disposals will be reviewed by the GAMC to determine their strategic value in terms of wider government policies and objectives, other agency requirements, community interest, environmental outcomes and other areas of interest. The GAMC will nominate the appropriate means of disposal and allocate responsibility for management of the disposal to the appropriate agency. Asset Disposal: Strategic Planning Copyright - NSW Government Asset Management Committee (GAMC) Level 25, Governor Macquarie Tower, 1 Farrer Place, Sydney NSW 2000 AUSTRALIA Phone (02) Fax (02) [email protected]

11 Assessment and Decision Tools In developing the Total Asset Management strategies listed above, Asset Managers will be required to critically assess their agency s operating environment and its competency to respond to that environment. They will need to make difficult decisions that have long-term and often critical consequences for their agency and/or its stakeholders. The following planning guidelines and decision tools will improve the accuracy of their assessments and the soundness of their decisions. The following guidelines are included in the Assessment and Decision Tools section: Sustainable Development Heritage Assets Demand Management Life Cycle Costing Economic Appraisal - external link to Treasury Documents Value Management Risk Management Post Implementation Review Performance Evaluation - document under review - not yet available Asset Information Private Sector Participation - external link to Treasury Documents

12 Sustainable Development Assessment and Decision Tools Sustainable Development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs There are four primary Objectives of Sustainable Development : minimised risk of environmental damage arising from incomplete knowledge ecological sustainability and environmental protection socio/cultural sustainability recognising the needs of all economic sustainability maintaining high and stable levels of economic growth and employment The NSW Government is committed to: ensuring environmental protection in all its activities greater social justice for the whole community economic development to reduce public debt and unfunded liabilities by more financially responsible delivery of programs Agencies need to integrate the objectives of sustainable development across all their business practices from Corporate Planning to Service delivery and Resource planning This guideline considers the application of sustainable development objectives to each stage of the Total Asset Management process. Sustainable Development Guideline

13 Heritage Assets Assessment and Decision Tools Total Asset management focuses assets on the delivery of an agency s primary service responsibilities. Organizations that have control of heritage assets also have a second service obligation. While they use the assets in delivering their primary service, they are also responsible for the stewardship of the assets and protection of their significance for future generations. Agencies must ensure both that the purposes of the Government s Total Asset Management policies, procedures and performance standards are met and that relevant heritage legislation is complied with. The management of heritage issues should be viewed as an essential part of the management of the assets, rather than another problem and cost impost. Sustainable management of heritage values should be treated by an agency as part of its core business. Heritage Assets Guideline

14 Demand Management Assessment and Decision Tools The NSW community progressively demands more or better government services in order to raise their standard of living. In the past governments have responded to these demands by improving their capacity to supply, but this in no longer sustainable. The demand for service must now also be managed. While Demand Management should be applied at each stage of the Asset Management process, it is an essential part of the development of the Service Delivery Strategy. The Demand Management process requires asset managers to first understand both their clients and the true cost of providing services. They then identify demand as the needs of services, rather than wants of assets. Decisions as to which needs are satisfied are then made from a whole of government perspective. Demand Management Guideline

15 Life Cycle Costing Assessment and Decision Tools In the past, comparisons of asset alternatives, whether at the concept or detailed design level, have been based mainly on initial capital costs. However, with growing pressure to achieve better outcomes from assets, ongoing operating and maintenance costs must be considered as they consume most resources over the asset s service life. Life Cycle Costing is a process to determine the sum of all the costs associated with an asset or part thereof, including acquisition, installation, operation, maintenance, refurbishment and disposal costs. It is therefore pivotal to the asset management process. Life Cycle Costing incorporates both Life Cost Planning which occurs during development or manufacture and implementation of that plan by Life Cost Analysis as the asset is used or occupied. Life Cycle Costing forms an input to evaluation processes such as Value Management, Economic Appraisal and Financial Appraisal. Life Cycle Costing Guideline

16 Economic Appraisal - external link to Treasury Documents Assessment and Decision Tools The New South Wales public sector is a major component of the State economy. The efficiency with which it uses assets can have a significant impact on the overall performance of the State economy and the welfare of its residents. Economic Appraisal and Financial Appraisal are effective tools that have application at every stage of Total Asset Management. They can be used for assessing the integrity of capital investment decisions and the effective and efficient management of existing physical assets. Application of those tools ensures that the 'best value for money' is achieved and that scarce resources are allocated in a manner that reflects the Government's priorities. Financial Appraisal reviews the purely financial aspects of a product or project Economic Appraisal reviews the financial and other factors that affect the economic aspects of a product or project Areas where economic appraisal and financial appraisal techniques should be used: Assessment of New or Replacement Capital Expenditure, or major Maintenance Assessment of Appropriateness of Design, Operating or other Standards Other Areas of Application such as Program Evaluation and Regulation, Proposals and Review The Guidelines for applying Economic/Financial Appraisal are available on the Treasury web site Link to: Economic Appraisal Guidelines - Summary document Link to: NSW Government - Guidelines for Economic Appraisal Link to: NSW Government - Financial Appraisal Guidelines

17 Value Management Assessment and Decision Tools Value Management is a powerful management tool for use in an overall strategic management framework including the development of all Total Asset Management Strategies. In general terms, it may be described as a structured, analytical process for developing innovative, holistic solutions to complex problems. It involves representatives of key stakeholders in a facilitated workshop. It is the team based creative approach to problem solving that sets Value Management apart from other management tools. The process seeks improved value-for-money outcomes that maximise the standards of quality or performance within the resource limits available. Value Management Guideline

18 Risk Management Assessment and Decision Tools This Guideline applies to the management of risks associated with the planning, control and operation of the physical assets of the NSW Public Sector. Risk management is a systematic process to identify risks that may impact on the organization s objectives, analyse their consequences and develop ongoing measures to treat them. Risk management is essential at all stages of the asset life cycle, whenever a significant decision has to be taken. The risks associated with the decision and their implications should be weighed with other factors when determining a course of action. Risk management should be formally applied and documented during the Total Asset Management process when: Setting strategic directions, Developing and evaluating programs and projects, and, Entering into contracts with the private sector Risk Management Guideline

19 Post Implementation Review Assessment and Decision Tools Post Implementation Review is an evaluation process that grew out of the review of asset performance. These asset reviews determined the suitability of the asset to the required task and whether they could be improved to provide better value and performance. The same generic process can be used to review any project to ensure improvement in future outcomes. The process can be used to review the development of an asset strategy, a maintenance plan, a construction project or an asset procurement. The Post Implementation Review process has two components: the Post Completion Review (PCR) A PCR asks whether the process achieved what was asked for. the Post Implementation Review (PIR) A PIR asks whether the process achieved what was needed. The PCR is intended to systematically and rigorously compare the actual performance of a project output with the stated objectives of the original project brief. The PCR process aims to identify ways in which future project concept, design, development and implementation can be improved. The PIR process is designed to collect and utilise knowledge learned from project concept through to design, development and implementation. The review focuses on how well the project outcomes match the required performance. In the case of an asset review, the required performance would be the optimum support of an agency s service outcomes. Post Implementation Review Guideline

20 Performance Evaluation - document under review - not yet available Assessment and Decision Tools This document is currently under development. Please check the GAMC Web Site for current status

21 Asset Information Assessment and Decision Tools This guideline provides a systematic approach to the development of asset registers. Asset registers are listings of information relating to various aspects of an asset portfolio, in a form that allows data to be cross-referenced and retrieved as required. They provide most of the information needed for Total Asset Management strategic decision-making during the TAM process. Agencies are required to maintain appropriate records of their non-current assets to ensure they are: Efficiently and effectively used to support the delivery of service Properly managed throughout their life cycle Responsibly accounted for on their balance sheets and allowance made for their depreciation Asset Information Guideline

22 Private Sector Participation - external link to Treasury Documents Assessment and Decision Tools The NSW Government has reviewed its policy and guidelines on how the private sector can finance and deliver facilities and associated non-core services. The Working with Government (WWG) Policy and Guidelines were released on 5 November 2001 by the Premier, Bob Carr. The WWG Guidelines are now available to view or download in Acrobat PDF format from the Working with Government web site. Link to: Working with Government Copyright - NSW Government Asset Management Committee (GAMC) Level 25, Governor Macquarie Tower, 1 Farrer Place, Sydney NSW 2000 AUSTRALIA Phone (02) Fax (02) [email protected]

23 Asset Strategy

24 Asset strategy January 2001 DPWS Report Number NSW Department of Public Works and Services Cataloguing-in-Publication data New South Wales. Government Asset Management Committee. Asset strategy ISBN (set) ISBN Asset management New South Wales. 2. Capital investment. 3. Public administration New South Wales I. Title. (Series : TAM) This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission from the NSW Government Asset Management Committee. Requests and inquiries concerning reproduction and rights should be addressed to: Secretariat Government Asset Management Committee Level 23 McKell Building 2-24 Rawson Place SYDNEY NSW 2000 Website E:mail [email protected] Set consists of : ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN X Asset strategy Office accommodation strategy Capital investment : strategic planning Asset maintenance : strategic planning Asset disposal : strategic planning Sustainable development guideline Heritage asset management guideline Demand management guideline Life cycle costing guideline Value management guideline Risk management guideline Post implementation review guideline Asset information guideline

25 Contents 1 INTRODUCTION Background Inputs required for the development of an Asset Strategy Segmenting the Asset Portfolio ASSET STRATEGY DEVELOPMENT The Framework...4 Gate 1 Asset/Service Dependency...5 Gate 2 Asset Utilisation...6 Gate 3 Gate 4 Asset Location...7 Asset Capacity...8 Gate 5 Asset Functionality Reporting the Asset Strategy Applying the Asset Strategy...10 APPENDIX A ASSESSMENT CRITERIA FOR AGENCY 11 January 2001 TAM Asset Strategy 1

26 1 Introduction 1.1 Background Since its inception in 1993, the application of the Total Asset Management (TAM) process has taken agencies from simply acquiring and maintaining assets to a more strategic planning approach through the development of their annual Asset Strategy followed by the Capital Investment, Asset Maintenance and Asset Disposal strategic plans. These strategic plans have enabled agencies to focus on the service delivery requirements of the assets rather than on the assets themselves. The higher level strategic perspective that links the asset portfolio as a whole to an agency s Service Delivery Strategy is developed in the Asset Strategy. The individual plans are Direction Community needs and expectations Legislation Government policies, priorities and strategies Fiscal strategy concerned with detailed aspects of asset management. The Asset Strategy enables agencies to establish the asset portfolio that most appropriately, effectively and efficiently meets their service delivery requirements. The development of an Asset Strategy is a critical stage in agency strategic planning. It provides the foundation for development of the three detailed asset strategic plans. This document provides a planning process for the development of an Asset Strategy. The process is not intended to be prescriptive, but is rather a generic structure to guide agencies in their planning process. Monitoring, reporting, and modification 1 Inter-agency strategic planning 2 Agency corporate plan 3 CEO performance agreement Service and resource planning 4 Service delivery strategy Implementation planning 7 Inter-agency plans 5 Budget proposals and allocations 8 Business plans 6 Service and resource allocation agreement 9 TAM strategy HR plans IT plans Procurement plans Social responsibility plans Total Asset Management Strategy Asset Strategy Office Accommodation Strategic Plan Capital Investment Strategic Plan Asset Maintenance Strategic Plan Asset Disposal Strategic Plan Service delivery Asset Maintenance Strategic Plan Figure 1 Total Asset Management Asset Disposal Strategic Plan 2 TAM Asset Strategy January 2001

27 1.2 Inputs required for the development of an Asset Strategy An Asset Strategy is the vehicle by which an agency matches its asset portfolio to its service delivery requirements. It defines the basic relationships between the Service Delivery Strategy and the Capital Investment, Asset Maintenance, Asset Disposal and Office Accommodation strategic plans along with how these plans interlink. A well-defined and comprehensive Service Delivery Strategy (refer to Premiers Department Service Delivery Strategy guideline) is essential to the development of an effective Asset Strategy. It must specify the services that will be provided within the resource limits available to the agency, in sufficient detail to identify potential asset options for each service delivery component. While an Asset Strategy may be developed from a zero asset portfolio base (ie for new or reorganised agency structures), it will most commonly be concerned with an existing asset portfolio. Changes to an asset portfolio can become necessary either due to changes required in the form of the assets (utilisation, location, capacity or functionality) or as a result of changes to service delivery requirements or budget allocations. An Asset Strategy defines the actions required to respond to these changes and directs the detailed development of agency capital investment, asset maintenance and asset disposal strategic planning. The Asset Strategy is prepared for a minimum 3-year time frame and is to be reviewed and updated annually. This will ensure that: Sufficient time is allowed for the planning and implementation of changes to service requirements Government assets are utilised to their full potential Ongoing evaluation of asset performance against current and future market trends to achieve the best long term financial performance 1.3 Segmenting the Asset Portfolio To determine the effectiveness and efficiency of assets in supporting the delivery of specified service outcomes, an Asset Portfolio should be segmented into the largest groupings that allow worthwhile analysis. For Example, assets could be effectively grouped by the service outputs they support: Provision of neonatal transport services Mitigation flood damage on the Hunter River or by asset characteristics or attributes: Type of asset technology Size of designed capacity Geographic location Age Condition Segmentation may change at different stages of the planning process. Typical asset groupings are similar to the service delivery characteristics (ie, utilisation, location, capacity, functionality). For example: Health buildings in the Casey Valley Area Health Service have been grouped by the spaces and rooms servicing each medical speciality as well as by building age. This has identified particular facilities with either surplus capacity or those requiring upgrading. Geriatric facilities have been further grouped into those able to provide: Semi-dependent care Highly-dependent care Rehabilitation services January 2001 TAM Asset Strategy 3

28 2 Asset Strategy development Gate 1 Gate 2 Gate 3 Gate 4 Gate 5 Asset Service Dependency Asset Utilisation Asset Location Asset Capacity Asset Functionality 2.1 The Framework Matching asset performance to service delivery objectives involves an analysis of the five fundamental service delivery characteristics of an asset portfolio: Asset/Service Dependency Can service delivery be made less asset dependant? Asset Utilisation Are assets fully used in service delivery? Asset Location Are assets appropriately located for effective service delivery? Asset Capacity Have the assets sufficient capacity to provide required services? Asset Functionality Are assets suitable for optimal delivery of the services they are intended to support? These five characteristics form the basis of the framework for development of an Asset Strategy. The framework considers each characteristic as a gate through which assets are analysed. The Framework is shown in the diagram above and described in the following sections. An asset segment satisfies a service delivery characteristic when it passes successfully through the corresponding gate. If the segment fails a gate, its inability to meet the corresponding service delivery characteristic must be analysed and action proposed to correct the problem. If all asset segments comply with service requirements (specified in Service Delivery Strategy) imposed at each of the gates then assets should be maintained to the level determined by service delivery strategy. This condition will continue for as long as the service and asset environment remains unchanged. If asset segments do not comply with service requirements imposed at each of the gates there is the need to examine whether services can be more cost effectively provided by: Adjustments to the asset portfolio Changing the way in which services are delivered to make better use of the assets already available Cost benefit analysis and value management studies can be used to: Clearly define service delivery strategies and service levels related to an asset or a group of assets Help assess options at each of the gates 4 TAM Asset Strategy January 2001

29 Gate 1 Asset/Service Dependency Gate 1 Asset Service Dependency The first gate in the process encourages agencies to make their services less assetdependent. Opportunities for reducing asset-dependency may exist through utilisation of non-asset or less asset-intensive solutions, cross-agency asset sharing and/or cross-agency service offsetting. Joint use of IT systems, administrative functions or accommodation spaces (such as conference and educational facilities) are examples of cross-agency asset sharing strategies. Cross-agency service offsetting involves reducing an agency s need for assets by enhancing services provided by another agency. Examples of offsetting would include: Increasing the efficiency and effectiveness of public transport in order to reduce reliance on road assets Improving school education and counselling services to reduce demands on health, policing and judicial services Opportunities for providing services with the use of resources other than assets will vary across agencies and will depend on the relationship between assets and the services they support. The scope for reducing asset dependency may be limited in situations where the asset is essentially the service (as, for example, in the case of National Parks). Before implementation, any options for reducing asset-dependency should be assessed with respect to: Total and relative economic advantages compared with other options Demand for other resources The need for inter-agency agreements The impacts on service delivery. Issue: The charges rate at country Police Stations has reduced due to improved procedures for handling juvenile offenders and local policing initiatives of counselling offenders. Strategy: Convert one of the present cells into an interview room. Close remaining cells, thus avoiding the need to upgrade their security to meet current standards. Detainees will be driven to the nearest holding station. January 2001 TAM Asset Strategy 5

30 Gate 2 Asset Utilisation Gate 2 Asset Utilisation Many assets have spare capacity often deliberately built-in for predictable future growth in service demand. Surplus capacity can also result from reduced demand for services. For example, less invasive medical procedures and more effective use of drugs reduce hospital stays. However, surplus capacity may also signal that an asset portfolio is not being utilised efficiently and is operating at greater than necessary cost. Where unplanned surplus asset capacity is identified, agencies should consider: Utilising surplus asset capacity to improve or enhance service delivery (providing this can be achieved in an efficient and effective manner) Allocating surplus capacity to other agencies via cross-agency asset sharing arrangements, where possible Disposing the surplus asset capacity following analysis of future demand It will not always be possible or desirable to utilise or dispose of surplus asset capacity. An agency may elect to continue supporting surplus assets but to review the situation regularly for future opportunities. Issue: Tarrawarra District Hospital Accident and Emergency Unit has 30% surplus daytime capacity during 70% of the year. However, the Unit runs at % capacity during summer tourist season. Strategy: No appropriate off-season use can be found and hence the utilisation of the Unit is to remain unchanged (but earmarked for regular review). 6 TAM Asset Strategy January 2001

31 Gate 3 Asset Location Gate 3 Asset Location The impact of asset location varies with the type of services provided by the agency. Those involving personal contact or emergency response are obviously more sensitive than administration or information services. The current explosion in information technology can potentially reduce sensitivity to location by allowing more service interface to occur at remote locations electronically. There is potential for a wide range of government services (eg. vehicle registrations) to be provided with the use of Information Technology (IT). Changing demographics has an impact on the demand for services and location of assets. Where relocation of assets is too expensive, some compensatory service should be considered. Compensatory services may provide a cost-effective way of meeting service delivery requirements without the need to relocate or expand expensive infrastructure. Issue: Demographic changes in Sydney s inner city and east have led to excess capacity at several High Schools with surplus classrooms or laboratories available at each. Strategy: Convert the vacant classroom block at Eileen O Connor High School for use by the Schools Technology Advancement Unit currently housed in rented premises. Demolish the laboratory blocks at other affected schools and transfer the science equipment to schools in the growing South- West region. For example, it may be more cost effective to extend school bus services than to relocate schools closer to new housing estates. Some health services in rural areas (eg. child inoculations) could be provided by mobile clinics or local family doctors to minimise the impacts on the community of long travel to the regional hospital. Due to economic or other constraints (such as environmental considerations) it will not always be possible to satisfy the asset location requirements either by relocation or by providing compensatory service. The assessment should be reviewed periodically for new opportunities that may arise. January 2001 TAM Asset Strategy 7

32 Gate 4 Asset Capacity Gate 4 Asset Capacity Asset capacity is concerned with asset numbers, space or volume but incorporates factors such as comfort, security, speed, power, specific safety requirements, etc. The estimated levels of demand for services, and specific service levels, as defined in the Service Delivery Strategy will determine required asset capacity. Peaks and troughs in the demand for services along with their timing will also affect asset capacity requirements. As with every gate of the process, asset capacity requirements can be met either by adjustments to the asset portfolio or by changing the way in which services are delivered to make better use of the assets already available or make service delivery less asset dependant. For example, cells in police stations may not meet specific safety requirements for detention of prisoners charged with minor offences and therefore lack capacity for this particular need. This can be addressed by: Upgrading the cells to meet the safety requirements for prisoners charged with minor offences Streamlining arrest and bail procedures so that these prisoners need not be held in custody at police stations Decision should be made following analysis of both options A school that has insufficient science room capacity can extend the science block. It could also consider the alternative options of: Providing some classes outside normal school core time and accepting additional staff or transport costs Packaging some science experiments into purpose built trolleys and carrying out science classes in the gymnasium or language laboratory (with appropriate safety measures being put in place) Both alternatives could be more cost effective than extending the existing laboratory accommodation, particularly if the increased demand for science facilities at a school was predicted to be of short duration. Issue: Load and speed restrictions on Millers Bridge have led to greatly increased traffic delays and increased distances travelled by coal trucks and consequential overloading of alternative roads. Strategy: Fund replacement of Millers Bridge in Year 2 over two consecutive years or upgrade alternative roads Issue: Motor traffic accident statistics have highlighted Class 5 traffic blackspots at Namboc Crossing, and Groginup and Class 3 blackspots at seven locations on the Bolyx Highway. Strategy: Fund upgrade works to Class 5 location this year; fund upgrade to Class 3 blackspots over the next three years. 8 TAM Asset Strategy January 2001

33 Gate 5 Asset Functionality Gate 5 Asset Functionality Asset functionality is concerned with the degree to which the asset is suitable for the delivery of the service it is intended to support. For example, while older building assets may meet their intended capacity, location, and utilisation service delivery requirements, their heating, cooling, insulation, lighting, and ventilation functions may not satisfy currently accepted service delivery standards regarding comfort. Asset functionality can change over time due to either changes in service delivery requirements (eg. higher comfort levels) or the development of more efficient methods of delivering services (eg. assets requiring fewer resources such as number of staff, energy, etc). Care needs to be taken in assessing solutions to improve asset functionality. While replacement with newer assets may be required in some cases, many asset functionality problems can be overcome by: Retrofitting, refurbishment or upgrading of existing assets; and/or Changing service delivery methods using other rescues such as IT or HR Cost benefit analyses will assist agencies in assessing alternative solutions to asset functionality problems. Issue: Several old school buildings have an outdated electrical installation including few power points and are therefore unable to fully accommodate modern teaching aids such as overhead projectors, TVs, videos, computers, etc. Strategy: Upgrade electrical systems to satisfy load and power outlet requirements including the provision of spare capacity to meet developments in IT. January 2001 TAM Asset Strategy 9

34 2.3 Reporting the Asset Strategy Agencies are required to prepare an Asset Strategy as part of their annual budgetary requirements. Agency Asset Strategies are assessed by NSW Treasury. The strategic focus of Strategies is assessed by the Department of public works and Services for Treasury. Criteria for assessing Asset Strategies are included in Appendix A of this guideline. The Asset Strategy should include the following information: 1. Services objectives as formulated in the Service Delivery Strategy including: Service outcomes to be achieved with performance indicators and benchmarks Service outputs to be delivered with performance indicators and benchmarks 2. Description of agency asset portfolio with details of segmentation used for development of asset strategy 3. Results of analysis of matching asset performance with service delivery strategies: Asset-service dependency Asset utilisation Asset location Asset capacity Asset functionality 4. The asset actions proposed in response: Capital Investment overview Asset Maintenance overview Asset Disposal overview The cross impact each of these proposals has on the others 5. Benefits to the agency and/or government from these proposed asset actions 6. Analysis of asset performance required to deliver the required service outcomes over duration of the asset strategy-planning period. 7. Analysis of opportunities for joint asset or service delivery between agencies 8. Benefits to the agency and/or government for these proposed asset actions 2.4 Applying the Asset Strategy Over time all agencies will experience degrees of mismatch between their service strategy and the assets within their portfolio, either because of changing service requirements or because of asset deterioration. However this should be seen as the exception not the norm. The Asset Strategy should develop a culture in agency that contemplates changes to their asset portfolio only when optimum service delivery is seriously threatened. Otherwise only maintenance action should be expected. Therefore, in general, the great majority of asset segments will pass most of the gates, with asset maintenance as the main strategic action required to meet service delivery. Capital investment and asset disposal strategic actions will be the exception and are only required when the assets in their present form do not fit ie. fail some gates. Note that mismatches are considered together. A failure to pass every gate may demand a different outcome for the asset segment than a failure to pass only one gate. Misfits may also require an agency to re-examine its service strategy for alternatives, which minimise the dependency on assets. Obviously application of the framework requires a detailed knowledge of the agency s asset portfolio as well as a thorough understanding of the Service Strategy. The development of an Asset Strategy will require the cooperation of several specialist groups within an agency, corporate and service planners and those with a detailed knowledge of the asset portfolio. Assessment at each gate of the framework will also require development of a range of performance indicators that measure both how well the asset portfolio supports the delivery of service and how available the assets are to provide that support. 10 TAM Asset Strategy January 2001

35 Appendix A Assessment Criteria for Agency Budget dependent agencies asset strategies are reviewed to determine their uptake of Total Asset Management and the extent to which their funding bids are based on strategic asset planning. Three categories of agency development have been identified: Level 3 Input oriented project focus attention is paid to individual projects Level 2 Output oriented asset focus attention is paid to asset performance and output levels Level 1 Outcomes oriented service focus attention is paid to resources that are aligned to achieve service outcomes Six major criteria have been established in alignment with the Total Asset Management approach. Under each major criteria, minor specific criteria have been included. These could reasonably be expected in an agency s Asset Strategy. Agencies scoring a level 3, the lowest level of development of total asset management, would typically achieve only two of the 6 major criteria. Agencies that score the 4 major criteria illustrated would be considered to have progressed to a level 2 while strategies that achieve all major criteria are considered to be at Level 1. Agencies Asset Strategies are assessed against the criteria and scored accordingly. An Asset Strategy is considered to have complied with a criterion if it includes that aspect in sufficient depth to make the Strategy and its outcome effective. Each criterion is further expanded to guide agencies on issues that should be included. While an agency s Strategy is not formally marked against this level of detail for compliance, it would be expected to contain a majority of them for the Strategy to be scored as achieving the related criterion. January 2001 TAM Asset Strategy 11

36 ASSESSMENT CRITERIA FOR ASSET STRATEGIES Corporate goals & service measures defined Corporate goals communicated Service outcomes defined & documented Service outcomes linked to corporate goals Service outputs defined & documented Service outputs linked to service outcomes to be achieved by the agency Asset strategies developed Use of demand management documented Alternative/non asset delivery strategies considered & documented Asset strategies developed & documented Asset strategies linked to documented service outputs Asset output and performance targets defined Asset performance criteria determined Performance indicators determined Performance benchmarks determined Capital investment, maintenance & disposal plans developed Value management /economic appraisal /risk management applied appropriately Capital investment plans developed Maintenance plan developed Disposal plan developed Asset plans linked (capital investment, maintenance, disposal) Asset plans link to established asset performance criteria Asset performance data collected and reported Data collection/evaluation/reporting system established Asset performance documented Linkages of asset performance to service outcomes Achieving asset performance benchmarks & budgets Opportunities to improve asset performance systematically identified Review of asset performance in achieving service outcomes established & implemented Review of best service delivery options documented LEVEL 3 LEVEL 2 LEVEL 1 Input Oriented Output Oriented Outcome Oriented Project Focus Asset Focus Service Focus Attention to individual projects Attention to asset performance and output targets Attention to resources aligned to achieve service outcomes 12 TAM Asset Strategy January 2001

37 ASSESSMENT CRITERIA FOR ASSET STRATEGIES CORPORATE GOALS AND SERVICE MEASURES DEFINED Corporate goals communicated Corporate goals for the agency (or in conjunction with other agencies) are clearly defined, and included in the agency s corporate plan. Corporate performance indicators defined and included in the corporate plan. Service outcomes defined & documented Service outcomes that an agency plans to achieve are defined. (Service outcomes are benefits delivered to the community/consumers as a result of the service outputs provided by an agency). Where a range of service outcomes are sought, each is identified individually. The extent of each service output is quantified. Delivery timetables for each service output are established. Service outcomes linked to corporate goals All service outcomes delivered by an agency have links to the corporate goal or goals they support. Service outcomes, and their linkages to the agency s corporate goals, are signed off by the agency s CEO. Service outputs defined and documented All significant aspects of the service outputs to be delivered are quantified and documented. (Service outputs are services or goods delivered by an agency or group of agencies.) Service outputs and the standards to which they will be delivered are defined. Service outputs linked to service outcomes to be achieved by the agency Performance indicators established for each service output. Linkages are evident between each service output and the service outcome(s) it supports Service outputs, their performance indicators (PI) and benchmarks are listed for each service outcome to be delivered. January 2001 TAM Asset Strategy 13

38 ASSET STRATEGIES DEVELOPED Use of demand management documented Analysis of present and future pressures driving the demand for services is documented. Results of forecasting future demand and its impact on service outputs and service delivery strategy is documented from the service delivery strategy. Demand management strategies to limit service delivery levels to the resources available, are documented. Alternative non asset delivery strategies considered and documented Cross agency planning for joint service delivery or asset sharing is documented in the service delivery strategy. Analysis of service delivery options with alternative use of resources (less dependent on assets) is documented in the service delivery strategy. Analysis of options to deliver different services to achieve the same service delivery outcomes with better use of resources, is documented in the service delivery strategy. Asset strategies linked to documented service outputs Each asset strategy refers to the service outputs it supports. Asset strategies developed and documented Detailed agency knowledge of its asset base including locations, functions, physical attributes and condition, is evident Asset base is segmented into appropriate groupings to develop the asset strategy (eg geographic location, service type, age, capacity, etc.). Gaps between the agency s exiting and required asset capacity is developed into capital investment, asset maintenance and asset disposal options. ASSET OUTPUT AND PERFORMANCE TARGETS DEFINED Asset performance criteria determined Asset performance criteria required to deliver service outputs is agreed by the agency (eg. image, noise levels, flow rates, security levels etc.) A rating system to determine the levels of performance criteria required in each asset is in place. The rating system establishes the gap between required and actual asset performance. Performance measures determined Performance measures of key physical attributes of the assets, costs of maintenance and operation and costs of services delivered through the asset have been developed. Comparison of measures is possible between assets and over time. Performance measures are combined with assess asset efficiency against benchmarks for that industry and effectiveness in supporting service delivery. Performance targets determined (benchmarks) Comparative data on the asset performance and service delivery performance of other agencies or comparable industries is available. Targets for asset efficiency are set. Targets for asset effectiveness in delivering service outputs are set. 14 TAM Asset Strategy January 2001

39 CAPITAL INVESTMENT, MAINTENANCE & DISPOSAL PLANS DEVELOPED Value management/economic appraisal/risk management applied approximately Procedures are in place for when and how Value Management, Economic Appraisals and risk management are used both formally and informally. Evidence that Value Management and economic appraisal is used in accordance with the above procedures. Summary of Value Management and Economic Appraisal outcomes and implementation strategies are documented. Capital investment plans developed Asset portfolio has been assessed against the agency s service and asset strategies and gaps have been documented. Service Delivery outcomes have been translated into detailed project objectives. Project specific information including estimated total cost, project status (major or minor, new work or work in progress), project type (eg. land acquisition, purchase or construction of assets), commencement and completion dates, and cash flows for each year of the project, is included in the plans. Development of the capital investment plan is documented. Maintenance Plan Developed Maintenance resources internal or external to the organisation have been identified. (This should include operational, strategic and cultural influences that affect the way maintenance is organised.) Long term maintenance strategies have been defined for various asset types and for assets within various risk categories. Asset condition assessments are carried out against established asset performance criteria. Detailed costed program of proposed works for the next year developed and long term maintenance budgets are prepared. Disposal Plan Developed Asset portfolio has been assessed against the agency s asset strategy and assets surplus to service delivery requirements have been identified. Opportunities for maximising asset disposal value are identified. Detailed costed program of proposed disposals for the next year is developed and long term disposal budgets prepared. Asset plans linked (capital investment maintenance disposal) Each project included in the Capital Works Plan is linked to the Agency s Maintenance Plan to ensure appropriate ongoing maintenance. Each project included in the Asset Disposal Plan is linked to the agency s Maintenance Plan to remove ongoing maintenance no longer required. Asset plans linked to established asset performance criteria Asset condition standards and capital works standards are developed from asset performance criteria. Projects contained in the asset plans comply with these standards. January 2001 TAM Asset Strategy 15

40 ASSET PERFORMANCE DATA COLLECTED & REPORTED Data collection / evaluation /reporting system established Asset management system is fully understood and used by the agency. Asset management system includes all significant non current assets. Asset reporting enables efficient asset management and feedback to service planning. Asset performance documented Data on asset performance criteria is recorded. Data on levels of asset operation or usage is recorded. Data on costs of asset maintenance and operation is recorded. Linkage of Asset Performance to service outcomes Service output measures are recorded against, and related to, the assets supporting their delivery and can be compared over time. Achievement of asset performance benchmarks Benchmarks for asset performance are in place. Benchmarks are in a form that allows comparison with asset performance measures collected by the agency. Evidence that systematic review of performance and benchmarks is undertaken. OPPORTUNITIES TO IMPROVE ASSET PERFORMANCE SYSTEMATICALLY IDENTIFIED Review of asset performance in achieving service objectives established and implemented Evidence that systematic reviews of asset performance indicators against service delivery outputs take place. Evidence that results of review are effectively used for continuous improvement of asset management and for more effective delivery of services. Review of best service delivery options documented Benchmarks of best service delivery options are in place. Benchmarks are in a form that allows comparison with agency measures of the services delivered. Evidence that results of reviews is used to consider changing: Services to be delivered Methods of delivery for increased efficiency and/or effectiveness. 16 TAM Asset Strategy January 2001

41 Office Accommodation Strategy

42 Office accommodation strategy January 2001 DPWS Report Number NSW Department of Public Works and Services Cataloguing-in-Publication data New South Wales. Government Asset Management Committee. Office accommodation strategy ISBN (set) ISBN Asset management New South Wales. 2. Capital investment. 3. Public administration New South Wales I. Title. (Series : TAM) This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission from the NSW Government Asset Management Committee. Requests and inquiries concerning reproduction and rights should be addressed to: Secretariat Government Asset Management Committee Level 23 McKell Building 2-24 Rawson Place SYDNEY NSW 2000 Website E:mail [email protected] Set consists of : ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN X Asset strategy Office accommodation strategy Capital investment : strategic planning Asset maintenance : strategic planning Asset disposal : strategic planning Sustainable development guideline Heritage asset management guideline Demand management guideline Life cycle costing guideline Value management guideline Risk management guideline Post implementation review guideline Asset information guideline

43 Contents 1 INTRODUCTION The need for a Strategic Approach to Office Accommodation Benefits of a Strategic Approach AGENCY ROLES AND RESPONSIBILITIES Service Agencies NSW Treasury Department of Public Works and Services DEVELOPING THE OFFICE ACCOMMODATION STRATEGY Development of the Office Accommodation Strategy Service Delivery Strategy Considerations Accommodation Asset/Service Dependency Accommodation Asset Utilisation Accommodation Asset Capacity Accommodation Asset Functionality Evaluating Strategic Options and Selecting Preferred Strategies Preparing the Office Accommodation Strategy REVIEWING THE OFFICE ACCOMMODATION STRATEGY Office Accommodation Review Process...13 APPENDIX A DATA REQUIREMENTS 14 APPENDIX B OFFICE ACCOMMODATION PLANNING CHECKLIST 15 APPENDIX C KEY PERFORMANCE INDICATORS 17 January 2001 TAM Office Accomodation Strategy 1

44 1 Introduction The NSW Government's property portfolio is a key component of the State's infrastructure and resources. The proper strategic planning and management of this portfolio is therefore essential to the central Government focus of providing efficient and effective service delivery. As at 2000, the NSW Government occupied approximately one million square metres of office accommodation, housing some 52,000 employees at a cost of around $230 million per annum. An analysis of NSW Government accommodation in 1996 indicated that the average office space utilisation across the NSW public sector was close to 24 m 2 per employee. As a consequence of the implementation of the Government s Office Accommodation Reform Program this figure has reduced to 18.75m 2 per employee in National and international best practice standards indicate that space efficiencies between 15 and 18 m 2 per employee are readily achievable. There is therefore considerable room for improvement in the NSW public sector's utilisation of office space. Direction Community needs and expectations Legislation Government policies, priorities and strategies Fiscal strategy Monitoring, reporting, and modification 1 Inter-agency strategic planning 2 Agency corporate plan 3 CEO performance agreement Service and resource planning 4 Service delivery strategy Implementation planning 7 Inter-agency plans 5 Budget proposals and allocations 8 Business plans 6 Service and resource allocation agreement 9 TAM strategy HR plans IT plans Procurement plans Social responsibility plans Total Asset Management Strategy Asset Strategy Office Accommodation Strategic Plan Capital Investment Strategic Plan Asset Maintenance Strategic Plan Asset Disposal Strategic Plan Service delivery Figure 1 Total Asset Management 2 TAM Office Accomodation Strategy January 2001

45 The benefits of a strategic, coordinated wholeof-government approach to office accommodation have been demonstrated in a number of ways including the reduction in the overall space use of Government agencies. Government is therefore keen for this focus on accommodation reform to continue. The benefits and directions for this reform were outlined in Premier s Memoranda 97/2 and 99/6 Premier s Memorandum 97/2 (PM 97/2), issued in February 1997, outlined new procedures for the planning and management of office accommodation including the requirement for agencies to prepare an Office Accommodation Strategy as part of their Total Asset Strategy. An Office Accommodation Strategy is an asset strategy specifically for office accommodation and should be developed at a whole-of-agency level with clear links to the agency s corporate plan and Service Delivery Strategy. Accordingly, this document provides guidelines to agencies on the development of an Office Accommodation Strategy as part of their Total Asset Management (TAM) processes. The guideline only relates to Government office accommodation and excludes operational (ie, non-office) accommodation such as schools, courthouses, hospitals, etc. These are addressed in individual agency planning documents, which utilise existing asset management standards and procedures in the TAM Manual. 1.1 The need for a Strategic Approach to Office Accommodation The integration of Office Accommodation Strategic Planning into each agency's TAM process will provide a whole of government strategic approach to the management of this important resource. This will: Establish direct links between required service delivery outcomes and accommodation requirements Maximise the benefits to be gained from the government's purchasing power Improve the standard of accommodation and enhance the capital value of stock Achieve overall cost savings and value for money whilst maximising the results of decentralisation The specific objectives of the NSW Government for its office accommodation portfolio in the short to medium term are to: Reduce the average utilisation of office space across the NSW public sector to 18 m 2 per employee. (See PM 97/2) Reduce exposure to leasing costs Ensure that no Government agency is adversely affected in terms of office accommodation given the current lease expiry schedule It is recognised that the savings achieved will vary across the State. For example, office space reductions in the Sydney Central Business District will lead to major savings while only minor savings will generally be available in country areas. In addition, some buildings, particularly heritage assets and older office estates, have design restrictions that limit improvements in space utilisation. Therefore to achieve the overall target of 18m 2 per employee the Government has adopted a target of 15m 2 per employee for all new fitouts in modern buildings subject to service delivery and OHS&R requirements not being compromised. January 2001 TAM Office Accomodation Strategy 3

46 1.2 Benefits of a Strategic Approach All sectors of society will benefit from a strategic approach to the management of Government office accommodation including: Whole of Government Government Agencies Community Whole of Government Effective office accommodation planning minimises Government s exposure to occupancy costs thereby enhancing the financial performance of the State and improving the range and quality of services provided to the community by Government. Agencies Accommodation costs are one of an organisation's highest recurrent expenditure items. Any strategy, which delivers efficient management of these costs, means stronger financial performance. The effective planning of office accommodation will also provide agencies with functional efficiencies including: Better alignment of accommodation needs with service delivery goals Reduction in the costs of "churn" (ie, the percentage movement, relocation, etc of employees in any one year) through flexibility of design Improved service delivery Higher quality work environments specifically catering to business and employee needs Equitable redistribution of space based on functionality rather than seniority/grade Employee satisfaction (and productivity improvement) within a more intelligent working environment Community Proactive accommodation planning provides Government with the flexibility to meet the changing needs of the community. Cost and space efficient accommodation means "reclaimed" accommodation costs can be redirected into improved services and enhanced program delivery. The community as a whole benefits from accommodation planning through the improved delivery of Government services. Effective accommodation planning provides opportunities to co-locate agencies with like service provision or customer base. This provides ease of access to multiple government services and makes the Government more user-friendly for face-to-face encounters. Co-location also provides opportunities for agencies to share facilities resulting in cost savings from reduced space use and other resource efficiencies. 4 TAM Office Accomodation Strategy January 2001

47 2 Agency Roles and Responsibilities 2.1 Service Agencies Premier s Memorandum 99/6 (PM 99/6), issued in February 1999, outlined a number of strategies that continued the Government s reform in asset management. These strategies cover the areas of whole-of-government coordination, investment practices, location, regional development, space utilisation, colocation, and lease rationalisation. Agencies are required to address the implementation of these strategies in their Office Accommodation Strategy. In accordance with the Department of Public Works and Services (DPWS) coordination role (see Section 2.3), all agencies are to liaise and consult with DPWS in the preparation of their annual Office Accommodation Strategy. In accordance with PM 97/2, budget sector agencies are required to refer any proposed office accommodation changes to DPWS at the earliest stage in the planning process and prior to any approach to private sector property owners or agents. This is to ensure that preference is given to surplus government office accommodation. Non-budget sector agencies are required to seek the advice of DPWS on any proposed office accommodation changes. Specifically: Government Trading Enterprises should include any proposed accommodation changes in excess of 500 m 2 in their Statement of Financial Performance and obtain Treasury approval. They must give preference to government owned or leased vacant space. State Owned Corporations should include proposed accommodation changes within their Statement of Corporate Intent and obtain Treasury approval. They are not required to give preference to surplus government accommodation. 2.2 NSW Treasury Treasury will review existing accommodation funding and management policies to ensure they support the objectives of best practice in accommodation planning. Treasury will also: Approve all office accommodation proposals for budget sector agencies within the annual budget process Review the economic appraisals for lease versus own options for accommodation proposals for budget sector agencies January 2001 TAM Office Accomodation Strategy 5

48 2.3 Department of Public Works and Services A coordinated, whole-of-government approach is required to reduce any existing duplication and overlap of functions in the planning and management of government office accommodation. The Department of public works and Services (DPWS) is responsible for this centralised coordination role and advises the Budget Committee and relevant Ministers on the Government's current and future strategic property and accommodation needs. Specifically, DPWS s roles and responsibilities include: Assistance to agencies in the preparation of their Office Accommodation Strategies In their role as a member of the Government Asset Management Committee (GAMC): Reviewing agencies Office Accommodation Strategies and reporting progress made towards the space utilisation targets Identifying the State s future and current accommodation needs from a whole-ofgovernment perspective through: Alignment of asset and office accommodation resources with Government Service delivery priorities Development of office accommodation strategies for Sydney CBD and regional centres Consideration and implementation of major investment strategies Development and monitoring of benchmarks and performance standards for asset and property portfolios Approval and coordination of changes to leasing arrangements including new leases and lease renewals Development, implementation and monitoring of government policy relating to asset management Implementation and review of the Government Office Accommodation Workspace Guidelines Maintenance of the Government Office Accommodation Database The Department s Policy Services Division meets these responsibilities. The Department of Public Works and Services can also provide commercial services to agencies on all aspects of their office accommodation planning. 6 TAM Office Accomodation Strategy January 2001

49 3 Developing the Office Accommodation Strategy Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 Stage 7 Asset/ Service Dependency Asset Utilisation Asset Location Asset Capacity Asset Functionality Evaluation Implement Can service delivery be made less dependent on accommodation assets? Are accommodation assets fully used in service delivery? Are accommodation assets appropriately located for effective service delivery? Have accommodation assets sufficient capacity to provide the required services? Are accommodation assets suitable for optimal service delivery? Evaluate potential strategies and select preferred strategies Prepare Office Accommodation Strategy 3.1 Development of the Office Accommodation Strategy An Office Accommodation Strategy is an asset strategy specifically for office accommodation assets. Its formulation therefore follows the Asset Strategy Development Framework as described in the Asset Strategy section of the TAM manual. This Framework as applied to office accommodation is shown in the above diagram and described in the following sections. The application of the framework requires a detailed knowledge of the agency's office accommodation portfolio as well as a thorough understanding of its Service Delivery Strategy. The development of an Office Accommodation Strategy may therefore require the cooperation of several people with specialist skills including detailed knowledge of the accommodation portfolio. The Office Accommodation Strategy is to be prepared for a minimum 3-year time frame and is to be reviewed and updated annually. This will ensure: Where possible, suitable vacant Government space is utilised as it becomes available Sufficient time is allowed for the planning and implementation of accommodation changes Ongoing evaluation of leases against current and future market trends to achieve the best long term financial performance 3.2 Service Delivery Strategy Considerations A well-defined and comprehensive Service Delivery Strategy is essential to the development of a meaningful and effective Office Accommodation Strategy. It must specify the services to be provided in sufficient detail to assess office accommodation options against each service delivery component. (See Service Delivery Strategy section of the TAM Manual). With respect to office accommodation, the Service Delivery Strategy should: Define the agency s core business and services it intends to deliver, examine service delivery methods and determine the most efficient and cost effective means of service delivery Show the agency organisational structure together with client and other major stakeholder relationships Broadly define the resource requirements (human, IT and financial) of the agency and/or its various divisions/business units together with the associated overall accommodation needs Establish the key accommodation issues based on the agency's and/or its divisional/business unit accommodation needs as well as its corporate objectives January 2001 TAM Office Accomodation Strategy 7

50 Criteria should be developed for assessing existing accommodation for its suitability to support service delivery objectives. This suitability will be expressed as a performance gap between existing accommodation and what is required. It should be measured at each step in the framework (eg; location, capacity, functionality etc.). This gap analysis should also highlight areas of waste, (such as under-utilisation of space or payment of rents above market value), and clarify opportunities for improving performance. An agency s future direction is influenced by a number of factors including budgetary constraints, advances in technology, government initiatives or changes in legislation etc. These factors impact on the way an agency delivers its services and need to be taken into account when determining future accommodation requirements. Hypothetical Case Study: Background Agency A is responsible for providing advice to the community on how to access government services. The agency currently provides this service out of a central office located in the Sydney CBD. To access this service members of the public are required to make an appointment with one of the 15 consultants located in the central office. Current Accommodation Agency A currently employs 20 staff based in a central office located near public transport in the Sydney CBD. The agency leases 300 m2 with the lease due for expiry in 12 months time. Future Direction A recent Government initiative encouraging community service agencies to improve public access to their services has prompted Agency A to review its service delivery methods. As a result, Agency A is planning to implement two initiatives to improve public access to its services. 1 The launch of an interactive Internet site that will allow the public to access the agency s services online from their homes or businesses. 2 The provision of mobile advice centres to be situated outside shopping centres and community halls. Impact on Accommodation Requirements The changes to Agency A s service delivery methods will impact on its future accommodation requirements in terms of its size and location. Size The provision of the mobile advice centres will take 10 of the 15 consultants out of the office for 90% of their working day and only 5 consultants will be required to remain in the central office to administer the agency s online service. As a result, the agency will only require office space for approximately 11 staff. (5 consultants, 5 administrative staff and one workspace for the field staff). Location As the agency will no longer be providing its services directly to the public from its central office it is not necessary for Agency A to be located in the Sydney CBD. Action Terminate lease upon expiry and relocate to less expensive accommodation with a reduced area. 8 TAM Office Accomodation Strategy January 2001

51 3.3 Accommodation Asset/Service Dependency Can Service delivery be made less dependent on accommodation assets? In line with the government's initiatives to minimise expenditure, the first stage in the development of an Office Accommodation Strategy encourages agencies to critically examine ways in which their services can be made less dependent on office accommodation assets. Opportunities for reducing dependency on accommodation assets may exist through utilisation of non-or less-asset intensive solutions and/or cross-agency asset sharing. Non-or less-asset intensive solutions to office accommodation could involve employment of: New and innovative workplace strategies such as shared office spaces, hotelling, telecommuting, etc. in addition to traditional open and closed office layouts (the Government Office Accommodation Workspace Guidelines provide descriptions of a range of workplace strategies and selection criteria) Information kiosks or call out centres or the out-sourcing of some service delivery functions It is noted that strategies such as telecommuting will also impact on IT&T requirements and hence on the type of buildings agencies require. Cross-agency asset sharing involves joint use of: IT systems and administrative functions (shared service centres), and/or Accommodation spaces such as conference facilities, educational facilities, etc. It is recognised that opportunities for breaking the nexus between services and office accommodation assets will vary amongst agencies and will depend on the extent to which office accommodation is directly related to the services provided. The scope may be limited in situations where, for example, a presence is required in or close to a particular location. Before implementation, any options for reducing dependency on office accommodation assets should be assessed with respect to total economic advantages, demand for other resources, the need for inter-agency agreements, and the impacts on service delivery. 3.4 Accommodation Asset Utilisation Are accommodation assets fully used in service delivery? Office accommodation utilisation is concerned principally with the assessment of floor space requirements. Critical questions that need to be asked include: Does floor space utilisation meet the Government's overall targets (see Section 1.1) If above the targets, can it be reduced? If at or below the targets is it overcrowded and/or does it meet OHS&R and Building Code of Australia requirements? Is there vacant space or can it be created by better use of existing space? If so can it be sublet? If not can it be reorganised so that part of it can be sublet? Is office space being used for items that can be stored off-site? It is noted that while additional office accommodation is often deliberately acquired for predictable future growth in service demand, surplus accommodation space can also result from reduced demand for services. However, surplus space may also signal that an office accommodation asset is not being utilised efficiently and at greater than necessary cost. Where unplanned surplus accommodation space is identified, it can be: Utilised to improve or enhance service delivery, providing this can be achieved in an efficient and effective manner. Allocated to other agencies via cross-agency asset sharing arrangements. Disposed of by way of sale or sub-letting arrangements. January 2001 TAM Office Accomodation Strategy 9

52 It will not always be possible or desirable however, to utilise or dispose of surplus accommodation space. When this is evident an agency may elect to continue supporting surplus assets but to review the situation regularly for future opportunities. PM 97/2 requires agencies to notify DPWS of any vacant or surplus office space in their portfolios. Through its role of coordinating leases across the State, DPWS will be able to assist agencies in backfilling the space. 3.5 Accommodation Asset Location Are accommodation assets appropriately located for effective service delivery? The location of offices must be carefully considered to support the core business of the organisation by asking who are the clients and who are the employees, where do they come from and how do they travel. The impact of office accommodation location varies very much with the type of services provided. Services that require personal contact or emergency response are obviously more sensitive than administration or information services. Current developments in information technology can potentially reduce sensitivity to location by allowing more service interface to occur at remote locations electronically. There is potential for a wide range of government charges to be paid by credit card over the telephone (as council rates, and electricity accounts currently are). Similarly, market and weather information for farmers could be provided by means of the Internet thus reducing reliance on access to field offices. Changing demographics in the demand for Government services may also indicate the need to relocate office accommodation. It is recognised that economic or other constraints may, at times, prevent assets from being ideally located. This conclusion is a valid outcome of the Office Accommodation Strategy providing that an appropriate assessment has been undertaken. However, the situation should be reviewed periodically for new opportunities to improve asset performance by relocation. One important initiative to be considered when developing accommodation strategies is the Government s commitment to investigating regional development opportunities. If a whole agency cannot be relocated from the Sydney metropolitan area, jobs may still be able to be moved to regional centres. The Government Office Accommodation Reform Program requires agencies to annually test the viability of relocating to regional areas as part of their accommodation planning process. The test should examine whether: The agency provides services critical to regional business development There is scope to place staff at regional locations Any withdrawal of agency staff from regional locations will affect the quality of service to clients or the regional labour market Agency activities are similar to prospective private sector activities in regional locations There is scope to place staff in regional locations to complement private sector developments In many cases the location of the office accommodation will be determined at the outset (eg. Government decides to extend an agency s service delivery role in a specific new location). In other instances, such as agency head offices, the requirement to be in a particular location, such as the Sydney CBD, is not immediately evident. 10 TAM Office Accomodation Strategy January 2001

53 3.6 Accommodation Asset Capacity Have accommodation assets sufficient capacity to provide the required services? Office accommodation capacity relates to the size of the accommodation and whether it is sufficient for the agency to deliver its services satisfactorily. It is also concerned with compliance of the accommodation with OHS&R and Building Code of Australia requirements. The demand for services as defined in the Service Delivery Strategy will determine required accommodation capacity in this regard. Peaks and troughs in the demand for services along with their timing will also affect accommodation capacity requirements. The nominal area requirements should be calculated in accordance with the Government Office Accommodation Workspace Guidelines. These area requirements are also to be calculated three years in advance based on the projected staff numbers. As with every step in the framework, the required office accommodation capacity can be met either by adjustments to the accommodation portfolio or by changing the way in which services are delivered to make better use of the existing office accommodation. 3.7 Accommodation Asset Functionality Are accommodation assets suitable for optimal service delivery? Office accommodation functionality is concerned with the degree to which the accommodation is suitable for the delivery of the service it is intended to support. For example, while older office accommodation buildings may meet their intended capacity, location and utilisation service delivery requirements, their heating, cooling, insulation, lighting, ventilation, etc, functions may not satisfy currently accepted service delivery standards regarding comfort. Other questions that need to be asked in assessing office accommodation functionality include: Does the accommodation meet the agency s predetermined building selection criteria? In leased accommodation is the rental consistent with market rentals and the desired image? Does the shape of the space allow for efficient floor layouts? Care needs to be taken in assessing solutions to reduce office accommodation functionality. While replacement with newer assets may be required in some cases, many asset functionality problems can be overcome by: Retrofits, refurbishment or upgrades to existing assets, and/or Reconfiguring service delivery utilising HR and IT solutions Cost benefit analyses will assist agencies in assessing alternative solutions to office accommodation functionality problems. January 2001 TAM Office Accomodation Strategy 11

54 3.8 Evaluating Strategic Options and Selecting Preferred Strategies Since potential strategies identified at any one stage of the Office Accommodation Strategy Development Framework may conflict with those at another, all potential strategies must be evaluated as a whole rather than separately in order to identify a set of preferred strategies. The inherent guiding principle in the selection of preferred strategies is to maximise benefits to the agency while minimising costs (time, disruption and dollars). Over time all agencies will experience degrees of mismatch between their Service Delivery Strategy and the office accommodation assets within their portfolios, either because of changing service requirements or because of asset deterioration. The Office Accommodation Strategy should develop a culture in agencies that contemplates changes to their accommodation portfolios only when: Deterioration of an asset to the point where OHS&R becomes compromised Optimum service delivery is seriously threatened Additional space is required to meet service delivery requirements Floor space utilisation does not meet the Government's targets, and/or Office accommodation costs are significantly higher than market rentals 3.9 Preparing the Office Accommodation Strategy The Office Accommodation Strategy should use as its structure the stages of the Development Framework (see Section 3.1) and should include: A summary of the agency's owned and leased office accommodation in accordance with the data items given in Appendix A, Sections A1 and A2. The relative performance of the accommodation occupied in terms of space utilisation and rental costs per person An assessment of existing service delivery methods and whether they will continue to be appropriate to meet your agency's corporate objectives An examination of existing work practices along with the extent to which they might change and the impact this could have on office space required A review of the agency's existing accommodation portfolio and its suitability to meet service delivery goals in regard to location, size, quality and cost An assessment of whether leases are to be renewed or owned premises are to be retained, and if not, what action is proposed. The average space usage per person for the agency and where necessary the identification of strategies to meet the Government's space utilisation target. A regional viability test to assess the viability of a move to regional areas. The preparation of the final Strategy should include a commentary on the methodology with reference to policy compliance, for each stage including the needs analysis, assessment of existing accommodation and the assessment of accommodation strategies. Finally the Strategy should explain the preferred strategies proposed to meet the Government's accommodation targets. (See Appendix B for Office Accommodation Planning Checklist) 12 TAM Office Accomodation Strategy January 2001

55 4 Reviewing the Office Accommodation Strategy 4.1 Office Accommodation Review Process Agencies office accommodation strategies are reviewed by DPWS and reported to the Budget Committee of Cabinet via the Government Asset Management Committee. As part of this review, DPWS identifies the Government s current and future strategic property and accommodation needs from a whole-ofgovernment perspective by: Identifying opportunities for relocating jobs/functions to regional centres Analysing key performance indicators for the State s property portfolio to compare agency performance over time and identify under performing agencies and locations to be targeted for review The methodology used for reviewing each agency s Office Accommodation Strategic Plan is to: Review each plan to identify service delivery objectives, space use rations, accommodation costs and any proposed strategies to meet service delivery goals and the Government s space use target Record proposed accommodation changes and/or strategies identified Review agencies responses to their regional viability tests (see Section 3.5) The outcome of the review process is the development of regional/major centre office accommodation strategies, which identify how Government objectives can be achieved and what investment decisions need to be considered. These strategies are developed in line with the Premier s Department's Regional Service Delivery Plans and in accordance with agreed priorities and timetables. Once completed, the strategies are continually updated and reviewed in the light of Government priorities and the information provided in agencies annual Office Accommodation Strategies. The implementation of these strategies will deliver a number of benefits to agencies including: Increased service delivery through improved access to multiple government services Opportunities for integrated service delivery. More efficient use of resources through shared facilities etc. Improved accommodation standards/work environments Reduced accommodation costs from reduced space use and increased flexibility January 2001 TAM Office Accomodation Strategy 13

56 Appendix A Data Requirements A1 Leasehold Office Accommodation Address of each of leasehold interest (land and/or buildings) including net floor area in accordance with the Property Council of Australia (PCA) survey guidelines Gross and net lease cost expressed in dollars per square metre Staff numbers Lease expiry date and any option period Date(s) options must be exercised Rent review pattern and basis of review (ie. Consumer Price Index, market or other) A2 Freehold Office Accommodation Location of each premises Gross floor area and net lettable area in accordance with PCA survey Staff numbers Gross site area Title information Tenancy details Rental value including notional value Capital costs and recurrent costs Market value (including date and valuer's name) 14 TAM Office Accomodation Strategy January 2001

57 Appendix B Office Accommodation Planning Checklist Stage 1 Stage 2 Assess Asset / Service Dependency Examine existing service delivery methods and determine whether they will continue to be appropriate to meet the agency s corporate objectives. Examine existing work practices and determine the extent to which they might change and the impact this could have on office space required. Identify accommodation needs consistent with the future direction of the agency and taking into account future trends in information technology, work practices and human resources. Establish criteria for key accommodation issues (eg. utilisation, location, capacity, functionality etc.) to be used to assess the gap between desired and actual performance of current accommodation. Assess Existing Accommodation Document scope of existing office accommodation portfolio. Use the criteria identified in Stage One to evaluate the suitability of existing accommodation to meet service delivery goals. Asset utilisation Calculate the average space usage per person and where necessary identify strategies to meet the Government s target of 18m2 per person across the portfolio. Determine if accommodation assets are fully utilised in service delivery. Identify existing and potential surplus space and determine if space can be utilised to enhance service delivery, allocated to another agency or disposed of. Notify DPWS of any vacant or surplus space. Asset location Determine if accommodation assets are suitability located for effective service delivery ie, do they support the agency s core business and needs of stakeholders and staff. Investigate opportunities to relocate jobs/functions to regional areas. Asset capacity Determine if accommodation assets have sufficient capacity for the agency to delivery its services satisfactorily. Determine area requirements in line with Government benchmarks for the next three years based on projected staff numbers. Asset Functionality Determine if accommodation assets are suitable for optimal service delivery eg. is rental consistent with market rentals and the desired image. Determine efficiency of floor layout. Determine if accommodation assets meet the agency s predetermined building selection criteria. Identify opportunities to improve functionality through retrofits, refurbishments and upgrades or through HR and IT solutions. January 2001 TAM Office Accomodation Strategy 15

58 Stage 3 Stage 4 Evaluation Identify opportunities for change to meet the gap between existing and required accommodation. Determine whether leases should be renewed or owned premises retained and if not identify what action is proposed. Develop accommodation options in line with the Government Office Accommodation Reform Program. Determine preferred options. Implementation Outline methodology with reference to policy compliance for each stage including the needs analysis, assessment of existing accommodation and the assessment of accommodation strategies. Identify and explain preferred strategies proposed to meet the Government s accommodation targets. 16 TAM Office Accomodation Strategy January 2001

59 Appendix C Key Performance Indicators Office Accommodation Defined Success Performance Indicator Basis of Comparison Reduction in the area occupied per employee across an agency s portfolio. Accommodation is provided at a cost consistent with market trends. Reduction in the cost of providing accommodation per employee taking into account the movement in average rents. Area occupied per person (m 2 /person) Cost per square metre ($/m 2 ) Cost per employee ($/person) Government benchmark target of 18m 2 /person across whole portfolio. 15m 2 /person for new tenancies. Market rental Trend over time (present value) January 2001 TAM Office Accomodation Strategy 17

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61 Capital Investment Strategic planning

62 Capital investment: strategic planning January 2001 DPWS Report Number NSW Department of Public Works and Services Cataloguing-in-Publication data New South Wales. Government Asset Management Committee. Capital investment: strategic planning ISBN (set) ISBN Asset management New South Wales. 2. Capital investment. 3. Public administration New South Wales I. Title. (Series : TAM) This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission from the NSW Government Asset Management Committee. Requests and inquiries concerning reproduction and rights should be addressed to: Secretariat Government Asset Management Committee Level 23 McKell Building 2-24 Rawson Place SYDNEY NSW 2000 Website E:mail [email protected] Set consists of : ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN X Asset strategy Office accommodation strategy Capital investment : strategic planning Asset maintenance : strategic planning Asset disposal : strategic planning Sustainable development guideline Heritage asset management guideline Demand management guideline Life cycle costing guideline Value management guideline Risk management guideline Post implementation review guideline Asset information guideline

63 Contents 1 INTRODUCTION Background The Essence of Capital Investment Planning AGENCY ROLES AND RESPONSIBILITIES Service Agencies NSW Premier s Department NSW Treasury Department of Public Works and Services CAPITAL INVESTMENT STRATEGIC PLANNING PROCESS The Process...5 Stage 1 Develop Project Brief...6 Stage 2 Generate Project Options to meet Project Brief...7 Stage 3 Evaluate Project Options...8 Stage 4 Stage 5 Compare Project Options and Select Preferred Option...9 Prepare Capital Investment Plan Budget Funding Approval Procedure...11 APPENDIX A CAPITAL INVESTMENT PLANNING CHECKLIST 12 APPENDIX B MEASURING PERFORMANCE 14 January 2001 TAM Capital Investment Strategic Planning 1

64 1 Introduction 1.1 Background The need for effective and efficient Capital Investment planning in NSW reflects both the size of the ongoing investment in capital works and the importance of the Government services it supports. The State Capital Program currently involves investments in the order of $5 billion per annum. It comprises capital expenditure by both the Budget and Non Budget Sectors. Capital is a scarce resource and new assets give rise to long term maintenance and operational costs. Construction of assets limits government flexibility to change its service delivery mode during the life of that asset. Thus capital investment planning must take a reasonable and long term financial and service perspective. Capital Investment planning aims to provide planning of limited government capital resources by ensuring that there are clear and detailed links between assets and service delivery outcomes. This updated guideline provides a structured process to assist agencies in their capital investment planning and to provide a framework for new government approaches to asset management and performance measurement. Direction Community needs and expectations Legislation Government policies, priorities and strategies Fiscal strategy Monitoring, reporting, and modification 1 Inter-agency strategic planning 2 Agency corporate plan 3 CEO performance agreement Service and resource planning 4 Service delivery strategy Implementation planning 7 Inter-agency plans 5 Budget proposals and allocations 8 Business plans 6 Service and resource allocation agreement 9 TAM strategy HR plans IT plans Procurement plans Social responsibility plans Total Asset Management Strategy Asset Strategy Office Accommodation Strategic Plan Capital Investment Strategic Plan Asset Maintenance Strategic Plan Asset Disposal Strategic Plan Service delivery Strategic Plan Figure 1 Total Asset Management 2 TAM Capital Investment Strategic Planning January 2001

65 1.2 The Essence of Capital Investment Planning Capital Investment Planning applies where the Asset Strategy indicates investment in new assets or significant improvement or upgrading of existing assets. It involves assessment of all investment options to meet service delivery requirements including purchase, lease, service contract, private sector involvement and non-asset solutions together with all the required resources. Capital investment planning provides benefits to both agencies and Government. Strategic planning to align an agency s asset portfolio with the delivery of services maximises the effectiveness of those services and the efficiency with which they are delivered. Poor capital planning can restrict an agency s ability to deliver their services flexibly and effectively. The NSW Treasury s Guidelines for Capitalisation of Expenditure in the NSW Public Sector (June 2000), provides guidance on the appropriate accounting and budgeting treatment for capital and maintenance expenditure by Budget and Non-Budget Sector agencies. The Treasury Guidelines on Economic Appraisal Principles and Procedures Simplified (March 1999), establish requirements for evaluation of capital works, tailored to the characteristics and scale of projects. Economic appraisal is required for all projects with a total cost in excess of $0.5 million. Full reports are required on projects costing in excess of $5 million. Summary reports are required to be submitted for projects costing between $1 million and $5 million. Projects costing below $5 million may be identified for specific reporting requirements. January 2001 TAM Capital Investment Strategic Planning 3

66 2 Agency Roles and Responsibilities 2.1 Service Agencies All agencies are required to prepare annual Capital Investment Strategic Plans (CISPs) as part of their Total Asset Management Strategic Plans. This reflects the need to integrate capital planning into an agency s annual strategic asset management planning and budgeting cycle. CISPs should only contain capital investment proposals that have been identified in the agency's Service Delivery Strategy or Asset Strategy together with clear evidence of the pursuit of non-build options (including information management and technology solutions, contracting out, leasing etc) and verification of action taken to optimise financing by alternative means. The plans have to include all major new works proposals that are part of the funding submission to Treasury. 2.2 NSW Premier s Department The Infrastructure Coordination Unit (ICU) of Premier's Department reviews specific agencies' Capital Investment Strategic Plans and Enhancement Requests and provides advice to Treasury. The purpose is to ensure that the various plans and proposals provide for a coordinated approach to the provision of infrastructure and meet the Government's overall objectives for the planning and delivery of infrastructure to meet the needs of the people of NSW. 2.3 NSW Treasury The NSW Treasury reviews agency Capital Investment Strategic Plans as part of the agency s forward estimates. Treasury makes its funding recommendations to the Budget Committee of Cabinet for determination of allocations to agencies. 2.4 Department of Public Works and Services On behalf of the Government Asset Management Committee (GAMC), the Department of Public Works and Services reviews an agency s Capital Investment Strategic Plans to ensure that asset proposals are strategically linked to the agency s service outcomes. It advises Treasury of its findings and the GAMC on the state of agency strategic planning. These reviews aim to benchmark agency asset strategies to encourage increased strategic asset performance and cross agency planning, particularly in: Developing and monitoring of agency benchmarks and performance standards Developing, implementing and monitoring of government sector asset management The Department of Public Works and Services develops and maintains the Total Asset Management manual. 4 TAM Capital Investment Strategic Planning January 2001

67 3 Capital Investment Strategic planning Process Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Project Brief Translates service delivery outcomes into specific and detailed project objectives Generate Project Options Consider all options including non asset solutions Short list options Select options which best satisfy service delivery outcomes Evaluate short listed options Compare options Compare options and select preferred option Prepare plan Detail all benefits of selected options 3.1 The Process The Capital Investment planning process above is a structured process for selecting the best procurement option for capital investment projects identified by the Asset Strategy. The process requires a detailed knowledge of the agency s asset portfolio, service delivery strategy and asset strategy. While options can include non-build solutions such as demand management or direct procurement of service these should generally have been identified earlier during the development of the Service Delivery and Asset Strategies. The level of detailed assessment within the process will depend on the size and complexity of the project and/or its funding time frame. Projects proposed for funding in the first year will require full assessment while those in subsequent years may be subject to progressively less detailed analysis. When detailed assessment is required Stages 1 and Stage 2 may warrant the use of a formal Value Management Study and Economic Appraisal. For details refer to the Value Management Guidelines and The Economic Appraisal Guidelines in the Assessment and Decision tools section of TAM manual. Agency Capital Investment Plans should cover the same period of time as the agency s Asset Disposal and Asset Maintenance strategic plans, ie. a detailed annual plan, a three-year predictive plan and a longer-term projection. This will allow: The development of cross agency perspective on the use and redistribution of assets that may become available Sufficient time for the planning and implementation of asset changes Ongoing evaluation of asset procurement methods against current and future market trends to achieve the best long term financial performance A well-defined service delivery strategy is essential for the development of a capital investment strategic plan. It will specify service outcomes required in sufficient detail to assess any asset investment needed to achieve each outcome. For detail refer to the Service Delivery Strategy. Capital Investment planning links via the asset Strategy with service delivery in the following five stages as shown in the diagram below and described in the following sections. January 2001 TAM Capital Investment Strategic Planning 5

68 Stage 1 Develop Project Brief Stage 1 Develop Project Brief Project brief for capital procurement can be developed based on the information provided in the Service and Asset strategies. It will provide detail requirements of capital investment project. Project briefs should answer question such as: How is the required service going to be provided? What level of service is required? Who are the customers and what are their specific needs? Who are the stakeholders? What asset capacity is required? What is the time period of our investment? What functionality is required? What is the expected reliability of assets? What are the environmental concerns? What will be the impact of the capital investment on the operation of other agencies? Value Management studies should be used to generate and to answer these questions and to ensure stakeholders input. Capital investment planners need to use their judgement in assessing the value management needs for a project. It will depend on the project size and complexity. 6 TAM Capital Investment Strategic Planning January 2001

69 Stage 2 Generate Project Options to meet Project Brief Stage 2 Generate Project Options This stage generates a number of options for satisfying the project Brief. Each option is developed and evaluated. Lateral thinking is encouraged to produce as many options as possible, including alternatives to purchase such as leasing, information management and technology solutions, contracting out or private sector participation. The selection of delivery options should include non-asset solutions even though that assessment was done during the formulation of the service and asset strategies. If non-asset solutions are identified as preferred delivery options this information should be referred to the agency s service planners for assessment. During generation of options the following questions could be asked: How else may the required service delivery outcome be achieved? What will the alternatives cost? Options are checked against the project's brief. Any significant non-compliance with the brief will require the option to be modified or discarded. Depending on the size of a project, Stages 1 and 2 may form part of a Value Management Study (see the Value Management guideline in the Assessment and Decision tools section of the TAM manual) January 2001 TAM Capital Investment Strategic Planning 7

70 Stage 3 Evaluate Project Options Stage 3 Evaluate Project Options The project options identified in Stage 2 are subjected to Risk Analysis, Economic Appraisal and Sustainable Development Assessment. Risk Analysis Risk Analysis is a process designed to provide reasonable assurance that project objectives will be achieved. It identifies all risks associated with a project; that is, both their potential impacts and the procedures for their effective management. Good risk management reduces costs and improves outcomes by: Identifying and reducing key risk exposures Providing greater certainty to support decision-making Improving the planning of contingencies for dealing with risks and their impact For further details, refer to the Risk Management guidelines in the Assessment and Decision tools section of the TAM manual. Economic Appraisal A fundamental objective of Capital Investment Planning is the development of options that make the most efficient use of financial and other resources available to the Government. Economic Appraisal is used for ranking competing options in order to identify the option with the best benefits to the community over the life of the project. Details on Economic Appraisal are provided in the Guidelines for Economic Appraisal, NSW Treasury June 1997 and Economic Appraisal Principles and Procedures Simplified, NSW Treasury March 1999 For further details, refer to the Economic Appraisal Guideline in the Assessment and Decision tools section of the TAM manual. Sustainable Development Assessment Sustainable development seeks to ensure the needs of the present are met without compromising the ability of future generations to meet their needs. Sustainable development has four primary objectives: Minimised risk of environmental damage arising from incomplete knowledge Ecological sustainability and environmental protection Socio/cultural sustainability which recognises the needs of all Economic sustainability which maintains high and stable levels of economic growth and employment NSW Government agencies have a secondary service obligation to provide services in a manner that will not adversely affect ecological, socio/cultural and economic sustainability. For further details, refer to the Sustainable Development Guideline in the Assessment and Decision tools section of the TAM manual. 8 TAM Capital Investment Strategic Planning January 2001

71 Stage 4 Compare Project Options and Select Preferred Option Stage 4 Compare Project Options The information generated by the evaluation of the project options then enables them to be compared with respect to: Compliance with service delivery requirements Level of risks and their management Economic considerations Cash flows Budgetary considerations Sustainable Development issues The inherent guiding principle in the selection of preferred strategies is to maximise benefits to the agency while minimising costs (time, disruption and dollars). Asset strategic planning should develop a culture in agencies that contemplates changes to their asset portfolios only when: An asset has deteriorated to the point where occupational health and safety (OH&S) becomes compromised Optimum service delivery is seriously threatened Additional space is required to meet service delivery requirements Asset utilisation does not meet the Government s targets, and/or Asset operating costs are significantly higher than market standard Details of all options are considered A summary of the analysis undertaken for each option prepared, which includes the reasons for selecting the preferred option(s) January 2001 TAM Capital Investment Strategic Planning 9

72 Stage 5 Prepare Capital Investment Plan Stage 5 Prepare Capital Investment Plan The Capital Investment Strategic Plan forms the basis of funding proposals and must provide a summary of each project, its total cost and its expenditure time frame. The project summary should include: A summary of project brief Links to the agency's Service Delivery Strategy and Asset Strategy A summary of the maintenance requirements of the preferred options and corresponding linkages to the agency's Asset Maintenance Plan Linkages to the agency's Asset Disposal Plan where projects involve replacement of existing assets Implications on recurrent expenditure including ongoing operational and staff costs 10 TAM Capital Investment Strategic Planning January 2001

73 3.2 Budget Funding Approval Procedure The current procedure for obtaining Budget funding for capital works is as follows. The Treasurer annually seeks bids for new projects that would commence in the Budget (ie. next financial) year from all Ministers responsible for Budget Sector agencies. The Treasurer's letter also seeks information about works in progress in relation to projects that will not be completed before the start of the Budget year. The project specific information sought from agencies includes estimated total cost, project status (whether major or minor, new works or works in progress), project type (eg. land acquisition, purchase or construction of buildings), commencement and completion dates, and cash flows for each year of the project. Treasury reviews each project in order to brief the Budget Committee as to whether or not the project should be approved, amended or rejected. The Budget Committee determines Authorisation Limits for agencies that are to receive capital allocations, based on the information provided by Treasury and the agencies in review. These limits encompass: Approved major works (projects with an estimated total cost of $500,000 or more) covering the allocation for the Budget year, the two forward years and the total cost to complete Approved minor works (projects with an estimated total cost of less than $500,000 and annual provisions, eg. recurring land purchases, furniture and equipment etc) covering the allocation for the Budget year and a commitment level for each of the two forward years. January 2001 TAM Capital Investment Strategic Planning 11

74 Appendix A Capital Investment Planning checklist Stage 1 Prepare Project Brief Define and segment assets (existing and proposed assets) to meet requirements of Service Delivery Strategy From Asset Strategy identify assets requiring alteration, upgrading, extension, etc. for inclusion in the Capital Investment Strategic Plan From Asset Strategy identify new assets for inclusion in the Capital Investment Strategic Plan Determine the range of services supported by each asset Conduct Value Management Study to ensure all stakeholders requirements are included in Project Brief Establish how long assets are required to continue delivering service Determine performance parameters for each asset or asset segment Set performance levels for each performance parameter Determine required asset functionality Determine required asset capacity Determine expected reliability of assets Identify all stakeholders and their requirements Identify customers and their specific needs Identify all environmental concerns Stage 2 Generate Project Options to meet Project Brief Conduct Value Management Studies to generate project options Review alternatives to purchase such as leasing, use of IT solutions, contracting out, purchasing of service, private sector participation Determine all non-asset solutions that will achieve required service outcome Review involvement of other agencies in providing solutions to service delivery requirements Review Regional Development Plans to incorporate specific Regional needs in planning process Stage 3 Evaluate Project Options Conduct economic appraisal of all Project Options to review benefits, analyse results Conduct Risk assessment of all proposed options, Decide the level of risk the agency is prepared to accept in their service delivery (this information should be obtained from Service Delivery Strategy) Conduct Sustainable Development Assessment of all options Determine overall capital investment strategies (ie. build solution, shared services, use of private sector) Stage 4 Compare Project Options and Select Preferred Option Collect all information about each project option Analyse and compare all information collected during planning process Review risk management plan and analyse outcomes Analyse economic considerations including short term and long term impact Assess cash flow requirements and their impact on delivery of the project Select preferred options Document decision process 12 TAM Capital Investment Strategic Planning January 2001

75 Stage 5 Prepare Capital Investment Plan Present summary of Project Brief Distribute capital investment works into the years they are required to be done Prepare detailed Risk Management Plan Prepare project budget and cash flow plan Identify proposed funding strategy and adjust capital investment priorities as required Commit any maintenance works for assets to the Maintenance Plan, and cross-reference Examine agency service and asset strategies and adjust capital investment priorities as required Establish linkages to the agency s Asset Disposal Plan where projects involve replacement of existing assets Develop short, medium and long term capital investment planning components Prepare a costed Capital Investment implementation plan Rank the priority of the capital investment tasks Submit Maintenance Plan to Treasury or agency funding authority If Capital Investment Plan for Year 1 has not been fully funded: Establish if sufficient works from Year 1 can be deferred to accommodate funding reductions, and/or Identify reduced asset availability due to funding reductions and adjust service strategies for Year 1 accordingly Amend Capital Investment Plan to incorporate all changes If Capital Investment Plan for Year 1 has been fully funded: Divide Year 1 Capital Investment Plan into programs according to implementation responsibilities or reporting needs Develop reporting and feedback process to provide information for agency annual strategic planning cycle Monitor and review Capital Investment Plan and programs Develop performance indicators to monitor the Capital Investment Plan and programs Measure and evaluate the indicators Review Capital Investment Plan and asset strategies where asset performance is not meeting service delivery needs Review Capital Investment Plan to identify more efficient and effective ways of achieving the required asset availability and standards Modify the Capital Investment Plan for future years January 2001 TAM Capital Investment Strategic Planning 13

76 Appendix B Measuring performance B1 Developing performance indicators Performance indicators are used to report the quality of service, efficiency, productivity or cost effectiveness of an agency, program or activity Performance indicators compare existing performance to a standard, target or norm for management purposes. Developing performance indicators Define the key performance levels, outputs or outcomes to be monitored for effective planning and control. For each of these key performance levels, outputs or outcomes, define successful achievement, ie. the success factor - that which happens when things are going well. Determine how to measure the success factor, eg. dollars expended/square metre, units completed per period, etc. Establish targets or benchmarks to compare with the achievements, eg. last period s performance, an industry average, etc. When used successfully, performance indicators enable managers to see how their programs or activities are performing and show where action is needed to correct a deviation from the program or activity plan. However, indicators should cover the broad range of results to be achieved. They should be balanced where appropriate with qualitative information and be based on data that can be collected without consuming disproportionate human and/or financial resources. Key factors for performance indicators Indicators should focus on outcomes achieved rather than action taken Consistency in definitions and methods of measurement is essential to ensure results can be analysed and compared over time Simplicity should be as highly valued as reliability. Complex approaches are expensive and often need a high level of expertise Rarely do numbers alone tell the story. Qualitative information on performance is equally useful Indicators should be explicit in their format and expressed as a percentage, a ratio or some other numerical format The number of indicators used at any management level should be limited to a maximum of, say, seven. Larger numbers of indicators tend to lose relevance and their impact is diluted Indicators should be underpinned by an information system that enables the information required by the indicator to be readily available In defining success, past experience has shown that input at the development stage from those involved in using the indicators will help engender ownership and support for the application of the indicators B2 Application of the indicators The indicators proposed should be examined with the intention of: Culling the indicators to a workable number that will provide the information needed by managers to see that their maintenance activities are effective and efficient Assigning the resulting indicators to appropriate management levels It is important to remember the indicators are what they say they are - indicators. They are not intended to be highly accurate measures of performance. Instead they should be considered quick and simple assessments to guide future actions. Therefore, focus on materiality rather that precision. As far as possible, managers should use performance indicators to monitor the outcomes they are achieving. Indicators are intended, first and foremost, as a tool to help managers manage. Using them for control purposes, risks misuse of data to make particular managers look more successful. When this occurs, the usefulness of the tool is lost. 14 TAM Capital Investment Strategic Planning January 2001

77 At this stage there are few valid industry benchmarks against which the indicators can be compared. Therefore, in the short term, it may be necessary to use the performance of the previous period as an interim benchmark. The indicators need to be underpinned with appropriate procedures including: Standardised definitions Standardised methods of measurement Coordination with information systems. B3 Defining the planned service outcomes Many different outcomes arise from the capital investment in physical assets. For the purpose of developing an effective set of performance indicators, the key outcomes can be grouped into five categories: Physical assets are available as required to deliver service at their intended standard. Capital Investment is conducted both costand time-efficiently and meeting determined milestones Stakeholders (including corporate management, property managers, funding providers, customers and community) are satisfied with the capital investment program Investment in physical assets is protected (economic lives are extended where appropriate and asset values are optimised) Exposure to risks is appropriately managed Typical performance indicators for each of the above outcome categories are given in the following section January 2001 TAM Capital Investment Strategic Planning 15

78 B4 Typical performance indicators Planned service outcome 1 Physical assets are available and serviceable as required Defined Success Performance Indicators Basis of Comparison Assets perform at their specified standard Assets comply with appropriate health and safety requirements Number of client complaints of service interruption per months OH&S defects reported / period Trend over time Target Reduction of accidents over time accidents No. of accidents/injuries attributable to asset defects per period % workforce injured Trend over time Planned service outcome 2 Capital Investment is conducted both cost- and time- efficiently Defined Success Performance Indicators Basis of Comparison Cost of construction is within the budget Construction is progressing in accordance with established schedule Capital Investment cost per unit of service delivery ($ per user) Capital Investment cost to useable physical measure ($/m², $/km travelled) Cost of defects arising during construction Target Target Target / trend 16 TAM Capital Investment Strategic Planning January 2001

79 Planned service outcome 3 Stakeholders are satisfied with the maintenance program Defined Success Performance Indicators Basis of Comparison Corporate, property managers with Treasury, clients and community perceive capital investment to be: Cost efficient Timely Of an appropriate standard Construction programs are completed within budget allocations % clients surveyed annually (for key stakeholder categories) who express satisfaction regarding: Effectiveness Timeliness Assessment of a new facility No. Of complaints of unacceptable standards per period per $1000K spent Ratio of actual construction expenditure to budgeted expenditure (%) Target / trend Trend over time Target/trend Planned service outcome 4 Exposure to risks is appropriately managed Defined Success Performance Indicators Basis of Comparison Risks are identified and contingency plans are in place Effective management practices are in place Risk management plan being implemented % of management checklist items being implemented Target Target January 2001 TAM Capital Investment Strategic Planning 17

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81 Asset Maintenance Strategic Planning

82 Asset maintenance: strategic planning January 2001 DPWS Report Number NSW Department of Public Works and Services Cataloguing-in-Publication data New South Wales. Government Asset Management Committee. Asset maintenance: strategic planning ISBN (set) ISBN Asset management New South Wales. 2. Capital investment. 3. Public administration New South Wales I. Title. (Series : TAM) This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission from the NSW Government Asset Management Committee. Requests and inquiries concerning reproduction and rights should be addressed to: Secretariat Government Asset Management Committee Level 23 McKell Building 2-24 Rawson Place SYDNEY NSW 2000 Website E:mail [email protected] Set consists of : ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN X Asset strategy Office accommodation strategy Capital investment : strategic planning Asset maintenance : strategic planning Asset disposal : strategic planning Sustainable development guideline Heritage asset management guideline Demand management guideline Life cycle costing guideline Value management guideline Risk management guideline Post implementation review guideline Asset information guideline

83 Contents 1 INTRODUCTION Background The strategic planning approach Benefits of maintenance planning AGENCY ROLES AND RESPONSIBILITIES The role of maintenance planning Maintenance and total asset costs Minimum and optimum maintenance costs Asset deterioration Capitalisation of Maintenance AGENCY ROLES AND RESPONSIBILITIES Service agencies NSW Treasury requirements Department of Public Works and Services MAINTENANCE PLANNING PROCESS Maintenance planning process...9 Stage 1 Define and segment assets to meet Service Delivery Strategy...10 Stage 2 Determine required asset performance...11 Stage 3 Define maintenance resources and overall strategies...12 Stage 4 Assess condition of assets and recommend maintenance...13 Stage 5 Stage 6 Assess Maintenance Costs...14 Implement Maintenance Plan and programs...15 Stage 7 Disposal Plan and Implementation Overview Sources of planning information...17 APPENDIX A MAINTENANCE PLANNING CHECKLIST 18 APPENDIX B MEASURING PERFORMANCE 20 APPENDIX C EXAMPLE OF THE DEVELOPMENT OF A MAINTENANCE PLAN 25 January 2001 TAM Asset Maintenance Strategic Planning 1

84 1 Introduction 1.1 Background A significant cost in the operation of the State of NSW is the maintenance of assets in public ownership. This is a cost that is likely to continue increasing due to: The gradual ageing of the assets, the bulk of which were developed over the last four decades. As assets become older, there is a tendency for maintenance to become more costly The growth and diversity of investment in public assets which has exposed government to wide ranging financial risk caused by poor management of these assets The changing expectations and technologies, which have prompted the renewal or refurbishment of assets, despite the fact that they functioned adequately to provide the required level of service Direction Community needs and expectations Legislation Government policies, priorities and strategies Fiscal strategy Monitoring, reporting, and modification 1 Inter-agency strategic planning 2 Agency corporate plan 3 CEO performance agreement Service and resource planning 4 Service delivery strategy Implementation planning 7 Inter-agency plans 5 Budget proposals and allocations 8 Business plans 6 Service and resource allocation agreement 9 TAM strategy HR plans IT plans Procurement plans Social responsibility plans Total Asset Management Strategy Asset Strategy Office Accommodation Strategic Plan Capital Investment Strategic Plan Asset Maintenance Strategic Plan Asset Disposal Strategic Plan Service delivery Strategic Plan Figure 1 Total Asset Management 2 TAM Asset Maintenance Strategic Planning January 2001

85 Unless it is effectively managed this cost will consume a high portion of the State s available wealth, threatening its ability to deliver current and future services. It is inappropriate to expand the capital stock to the exclusion of adequate maintenance of existing assets. The issues of rising costs, escalating risk and reduced flexibility need to be contrasted with the limited potential for income growth available in the future to either individual agencies or to Government. It is clear that costs must be controlled and reduced, risks managed and flexibility enhanced. 1.2 The strategic planning approach The NSW Government s Strategic approach to asset planning is based on Total Asset Management (TAM), which links assets to providing services. As part of this policy, agencies are required to develop Asset Maintenance Strategic Plans in support of submissions to the Budget Committee of Cabinet for funding. These plans must be focused on ensuring assets support the planned delivery of services, identify any deferred maintenance requirements and establish a funding plan. The change in focus by Government from capital works asset creation to strategic asset management places an increasing importance on maintaining the service capacity of existing assets. In order to successfully implement maintenance planning, agency managers need to pursue initiatives that: Enhance the link between service outcomes delivered to the community and the maintenance of the assets involved in the delivery Establish clear links between maintenance objectives and asset performance Resolve uncertainty regarding the disposal of assets Gain the commitment of operational maintenance managers and staff to Maintenance Planning 1.3 Benefits of maintenance planning The adoption of Maintenance Planning offers a number of benefits to both agencies and government as a whole: Benefits to agencies Assets perform at optimum levels, reducing service disruptions and losses due to asset failure Risks to the agency can be identified and ameliorated The costs of asset maintenance can be quantified and budgeted with confidence The performance of the asset can be reviewed to suit service delivery needs The plan provides a foundation for continuous process improvement The plan provides a feedback to improve future application of the maintenance process Reduced environmental impact by controlling resource usage Benefits to government Asset costs associated with service delivery can be identified and minimised in the long term Risks to the Government can be identified and ameliorated Alternative asset and non-asset solutions can be compared to best suit service delivery needs Maintenance costs can be benchmarked across agencies and industries The value of public sector assets can be protected, where appropriate The global environmental responsibilities of the State such as energy management, water usage, and pollution control can be addressed January 2001 TAM Asset Maintenance Strategic Planning 3

86 2 Agency Roles and Responsibilities 2.1 The role of maintenance planning Maintenance planning has a key role in the strategic management of an asset over its life span. It is therefore fundamental to an agency s service delivery objectives. After acquiring an asset, a periodic review of its role is required to ensure it continues to match the service delivery needs. This review is initially undertaken during the development of the Asset Strategy and may indicate one of three options for the future of the asset: Maintenance to meet the ongoing service role of the asset Renewal and adaptation to suit changed service needs by capital expenditure, or Disposal of the asset when it is no longer required for service delivery and has no other value to the agency. Asset Maintenance planning is a detailed assessment of those assets or asset segments, which the Asset Strategy indicates, require only strategic maintenance in order to satisfy the service delivery outcomes. It is aimed at ensuring these assets remain productive at the lowest possible long-term cost and involves: A detailed functional analysis of maintenance needs that meet the required service delivery outcomes The development of maintenance strategies The institution of procedures to ensure adequate control of the implementation of the maintenance plan 2.2 Maintenance and total asset costs The total cost of an asset over its life comprises: Capital procurement costs (including acquisition, renewal and adaptation) Maintenance costs over the life of the asset Operating costs over the life of the asset (including staffing) Disposal costs Incremental maintenance costs are generally relatively small and therefore tend not to receive the same attention as procurement and disposal costs or the more visible, day-to-day operating costs. However, the annual expenditure on maintenance and its impact on delaying expenditure on new works can be very substantial. Moreover, maintenance costs over the life of an asset are often many times the initial purchase cost. Maintenance therefore is a principal cost element of the total management of an agency s assets. Benefits of good maintenance Assets will operate more reliably and economically and their operational service life will be achieved Operating costs will be reduced, often exhibited in lower energy costs, reduced incidence of premature failure requiring expensive repair or replacement, thus freeing funds for other purposes Optimisation of maintenance will allow more effective use of the asset, alignment with service needs and a resulting reduction in the demand for capital expenditure Disposal 5% Capital Procurement 20% Operating 40% Maintenance 35% Figure 2 Typical cost of an infrastructure asset over its life 4 TAM Asset Maintenance Strategic Planning January 2001

87 2.3 Minimum and optimum maintenance costs Maintenance is a technique to address risks emanating from the ownership of assets. Risk Management processes should be used to identify the risks associated with the failure or non-performance of an asset. These risks-of-failure costs could include: Service delivery risk Delivery interruption (failure) Delivery level not achieved (eg. water pressure, water quality, voltage stability, asset image etc) Cost risk Higher maintenance costs, from greater asset deterioration Litigation payout, from failure to deliver services or failure of the asset Social risk Occupational health and safety Litigation, and Community disruption. Maintenance can therefore be regarded as an insurance premium against the underlying risks associated with the operation of the asset. The aim is to select the type and level of maintenance, which results in minimal overall cost. The minimum overall cost is the position where the sum of the maintenance cost and the risk of failure cost cross. 2.4 Asset deterioration Some part or components of the asset will fail before others. Timely attention to these repairs can allow the remainder of the system to continue in service. Tyres and brakes will be replaced several times during the life of a vehicle. Similarly, carpet and paint systems will require renewal many times over the service life of a building. Maintenance slows the overall deterioration of the asset by restoring the condition of its short life components and allows its overall full service life to be achieved. Sometimes there is a need to increase the asset performance beyond that available when the asset was new, to accommodate revised corporate requirements, changed technology, social expectations, demographics and the like. For example, to accommodate the new computer requirements in classrooms it may be necessary to upgrade schools electrical systems. The diagram below shows the deterioration in asset condition over time, the deterioration being regularly addressed with maintenance expenditure. The restored condition is usually below that of a new asset. At less frequent intervals, more extensive refurbishment and upgrading commonly occurs to replace components and to change the asset s functionality to accommodate changed service requirements. Particular aspects of the asset or its overall standard may then exceed those of the original asset. Regardless of the funds source both maintenance and upgrades should be featured in the Asset Maintenance Plan. If the amount to be spent on maintenance or upgrading assets exceeds available funding, then value management and economic appraisal techniques can be used to test alternative courses of maintenance action and disposal/replacement options. The value of alternative maintenance options that may require significantly different expenditure patterns over the life of the asset can be compared by use of Life Cycle Costing Methods. The technique allows the selection of optimised maintenance strategies by adjusting the cost of each proposal to allow for the changing value of money over time. January 2001 TAM Asset Maintenance Strategic Planning 5

88 2.5 Capitalisation of Maintenance Works to an existing asset will fall into one of the following categories: Works to allow the asset or its subcomponents to achieve their full life expectancy Works to replace sub-components at the end of their life to protect the rest of the asset Works to enable the asset to fulfil a changed functional role (eg. changed level of lighting need) If these works result in greater capacity than the original asset had, they should be capitalised. If the value of the replacement is significant and below the level of a separately identified subelement, eg. the roof of a building, it should be treated as maintenance expenditure. Figure 3 $ Renew and adapt combined with maintenance to address functionality of asset Effect of Maintenance over the life of an asset Actual asset condition Periodic maintenance Capital injection for refurbishment Time Renew and adapt combined with maintenance to raise standards above those originally constructed to suit new service standard The identification depends on: The useful life of the segment being significantly different from the asset The segment being capable of separate valuation or being apportioned a separate value, and The segment being significant enough to justify the accounting effort required. 6 TAM Asset Maintenance Strategic Planning January 2001

89 3 Agency roles and responsibilities 3.1 Service agencies Each agency is responsible for the on-going maintenance of assets to a standard appropriate for effective achievement of its corporate goals and service delivery objectives. Agencies are required, as part of the budget process, to develop an Asset Maintenance Plan as part of their annual Asset Management Strategy. The preparation and updating of the plan and the achievement of nominated maintenance targets should be referenced in managers and senior executives individual performance agreements with performance monitoring systems maintained by each agency. To achieve real benefits from maintenance planning the agency will need to be committed to its successful implementation. It is expected that a fully committed agency will: Provide adequate resources and training of personnel Put in place an information and planning system that is tailored to the agency s culture and methods of operation, and Be prepared to persist with use of the system long enough to achieve long-term gains Each agency is expected to prepare a Maintenance Plan in accordance with the process outlined in Section 4. Treasury reviews these plans prior to submission to the Budget Committee, as part of the Capital Investment development process for the forthcoming financial year. Agencies should report on their maintenance strategies and achievements in their Annual Report In preparing the Maintenance Plan each agency will need to: Demonstrate the linkage of the proposed maintenance plan to its service delivery outcomes Indicate the basis for the maintenance budget Link the Plan to the asset register List the maintenance tasks to be undertaken and the approaches to be adopted List the resources required Provide a framework for performance monitoring and control Include targets & indicators to evaluate performance achieved Comply with current Treasury reporting needs Ensure assets efficiently and effectively support service delivery and comply with statutory requirements. January 2001 TAM Asset Maintenance Strategic Planning 7

90 3.2 NSW Treasury requirements NSW Treasury has issued Guidelines for the Capitalisation of Expenditure in the NSW Public Sector that provides guidance on the appropriate accounting and budgeting treatment of capital and maintenance expenditure in both Budget and Non-budget Sector agencies. The Guidelines require that all agencies develop Maintenance Plans, which set out their approach to optimising the economic life and operating performance of all existing assets. As there is limited capacity to increase overall funding within the State budget, maintenance of existing assets should take precedence over the acquisition of new assets. Agencies with asset bases having replacement value in excess of $5 million must submit Asset Maintenance Plans to Treasury. Economic appraisal and value management studies must be offered in support of major periodic maintenance. In reviewing the Plan, some issues that Treasury will consider include: Is the plan linked to the agency s service strategy and Capital Investment Strategic Plan? Does maintenance strategy and methodology appear effective in achieving service objectives? Do cost estimates/maintenance standards appear comparable with industry standards? Does an independent assessment appear warranted? Is proposed work priorities/justified by detailed analysis? Are annual cash flows separately shown for routine maintenance, major periodic maintenance and asset enhancement? Is proposed major periodic maintenance supported by economic appraisal (or is one proposed)? Does proposed level of funding exceed present maintenance allocation? What sources of funding or strategies will the agency use to address funding shortfalls? Does the Plan raise any policy issues? Is the information in the Plan ready to be submitted to the Budget Committee for decision? 3.3 Department of Public Works and Services On behalf of the Government Asset Management Committee the Department of Public Works and Services reviews the asset maintenance plans of both budget dependent and non-budget dependent agencies as part of the review of their asset management strategies. The review looks for consistency with service delivery strategies and effective linkages with Capital Investment, Asset Disposal and Asset Accommodation Strategic Plans. The review forms part of the annual budgetary process. 8 TAM Asset Maintenance Strategic Planning January 2001

91 4 Maintenance planning process Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 Stage 7 Define and segment assets to meet service delivery strategy Determine required asset performance Define maintenance resources and overall strategies Assess condition of assets and recommend maintenance action Assess maintenance costs Implement maintenance plan and programs Monitor and review maintenance plan 4.1 Maintenance planning process Maintenance planning is a structured and systematic process, which ensures an agency s portfolio of assets supports agency service delivery at the lowest possible long-term cost. The application of the planning process requires a detailed knowledge of the agency s asset portfolio and good understanding of the service delivery strategy. A well-defined and comprehensive Service Delivery Strategy is essential to the development of a meaningful and effective Asset Maintenance Strategy. It must specify the services to be provided in sufficient detail to assess asset options against each service delivery component. Refer to the NSW Premier s Department guideline, Service Delivery Strategy. It can be accessed electronically from the Asset Strategy section of the TAM manual web site: Criteria should be developed for assessing existing asset maintenance for its suitability to support service delivery objectives. This suitability will be expressed as a performance gap between existing asset maintenance level and what is required. It should be measured at each step in the Asset Strategy framework (eg. location, capacity, functionality etc.). This gap analysis should also highlight areas of waste, (such as under-utilisation of an asset or operating cost above market standard), and clarify opportunities for improving performance. An agency s future direction is influenced by a number of factors including budgetary constraints, advances in technology, government initiatives or changes in legislation etc. These factors impact on the way an agency delivers its services and need to be taken into account when determining future asset maintenance requirements. Maintenance planning involves: An analysis of maintenance needs against agency corporate objectives and service outcomes The development of maintenance strategies The instigation of procedures to ensure adequate control of the implementation of the maintenance program The 7-step planning process has been developed to link service strategies with asset maintenance. It is described in the following sections and summarised in a checklist format in Appendix A. Appendix C provides an example of the development of a Maintenance Plan. The descriptions of each stage are not intended to be prescriptive but rather present a range of issues, which should be considered. The significance of each issue and the degree of detail evaluated in the Plan will vary from agency to agency and with the type of asset. As part of the overall Asset Strategy, the Maintenance Plan should be coordinated with the Capital Investment and Asset Disposal strategic plans. The Office Accommodation Plan will contain information relevant to all three plans but relate only to office buildings. Preparation of the Maintenance budget is part of the process of preparing the Maintenance Plan. January 2001 TAM Asset Maintenance Strategic Planning 9

92 Stage 1 Define and segment assets to meet Service Delivery Strategy Stage 1 Define and segment assets to meet service delivery strategy An agency asset strategy should clearly define the assets which are to be retained and maintained and over what period of time. Assets could be grouped into segments according to the service outcomes they support. It is necessary to establish why assets are needed and what purpose they serve. Assets should be maintained to the level that best contributes to achieving service strategy objectives. Limitations that an asset imposes on an agency s service delivery capability must be recognised. These would have been identified in the agency s Asset Strategy. They could apply to the type of asset used, the effect of the limitation on asset capacity, location or access, or the impact of heritage or environmental restrictions. Some of these limitations could be addressed while others might warrant disposal, replacement or review of service strategies. Agencies also have a wider implied charter that reflects Government priorities such as protection of the environment or heritage assets. These should be taken into account when determining Service Delivery Strategy objectives. The alignment of an agency s asset portfolio with delivery of service is a fundamental step in the development of the Maintenance Plan. 10 TAM Asset Maintenance Strategic Planning January 2001

93 Stage 2 Determine required asset performance Stage 2 Determine required asset performance The required asset performance level is determined by the service to be achieved. The performance level defines the asset needs and these needs are communicated to the maintenance planners. Assets usually have many attributes, which contribute to the achievement of the required service delivery; eg. availability, security, hygiene, comfort, aesthetics, image, etc. Some attributes are more necessary than others for the asset to perform a particular service role. Therefore, maintaining all attributes to their original standard might well be an unnecessary burden. For example, a room can be structurally sound, quiet, secure, and aesthetically pleasing. Some rooms will require lighting maintained to very critical standards while security or aesthetics in the same area might not be of particular importance. It is necessary to define broad performance requirements that establish which attributes must be maintained for each asset and/or asset segment and to what level. The standard at which a particular asset is required to perform should allow it to satisfy its role in agency service delivery. Any gaps between service delivery outputs and asset performance level should be identified here. The range of services supported by each asset and how long it is required to continue in service will provide impute to the asset performance requirements. Once the asset performance requirements have been defined, a range of performance outputs is set for each attribute. The minimum value of this range for each attribute, which achieves the desired performance level for each asset segment, is then adopted as an asset standard. The standard of each parameter required for an asset to support the delivery of service can vary significantly throughout a facility, or across a portfolio. For example, image may vary between a courtroom and a court waiting area. Air quality control is higher in an operating theatre than in a hospital ward, and lighting levels are more critical in a classroom than in corridors. January 2001 TAM Asset Maintenance Strategic Planning 11

94 Stage 3 Define maintenance resources and overall strategies Stage 3 Define maintenance resources and overall strategies A maintenance strategy that sought to prevent all failures from occurring would be costly and disruptive. Similarly a strategy that attended to all maintenance only after failure would also be costly and even more disruptive (see Section 2.3). An optimal balance between preventive and corrective maintenance is needed and will vary with each agency s requirements, resources, and circumstances. The most appropriate strategy will depend on the type of asset, its condition and the specific circumstances of the agency. These may include the: Type of asset to be maintained Consequences of breakdown or nonperformance of the asset, and/or Availability of resources to execute the maintenance Different strategies may be adopted for various assets or components thereof. These generally fall under three categories: Fix when fail, or breakdown maintenance Scheduled or routine maintenance Condition based or major periodic maintenance For example, within a building: Fix when Fail maintenance is usually adopted for minor mechanical, hydraulic and electrical plant or when attending to vandalism Scheduled maintenance generally applies to machinery that requires regular servicing or where a statutory requirement for maintenance at prescribed intervals exists (as with lifts or fire control equipment) Condition based maintenance may be applied to building fabric elements (roofs, carpets, etc) and services and reflects the maintenance applied to achieve desired service levels Advances in technology may allow replacement of asset elements with improved materials and techniques leading to increased performance and service life. These should be taken into account when planning future maintenance or replacement. Having defined the maintenance resources and overall strategies, an agency is then able to decide in broad terms how the maintenance work is to be delivered; eg. by in-house staff, individual external contractors and/or performance based maintenance contracts. 12 TAM Asset Maintenance Strategic Planning January 2001

95 Stage 4 Assess condition of assets and recommend maintenance Stage 4 Assess condition of assets and recommend maintenance action It is necessary to identify any asset deficiencies that might interfere with an agency s service delivery. This may be achieved by conducting condition surveys, or by sampling and statistical analysis of a large numbers of similar assets. Each asset segment is broken into components, which require different maintenance approaches, skills and resources. Any important inter-relationships between these components should be identified. For example: A water supply scheme will consist of a dam or reservoir, pumping stations, treatment works, distribution system and a monitoring/control system A freeway will consist of bridges, culverts, pavement types and traffic control systems A hospital could be segmented into 10 departments each consisting of part of the building, the relevant electro-medical equipment, computers, whitegoods and vehicles, etc attached to that department Continuous assets such as a road or pipeline can be segmented on an operational or regional basis if they are too large to consider otherwise. The condition of the components should be assessed in the light of their service delivery role to: Identify any defects, deterioration and deficiencies either currently effecting asset performance or likely to occur over the life of the Maintenance Plan Identify the effect on their service delivery ability Determine the maintenance or renovation required to return the asset to the state when it provides most effective service Estimate the cost to maintain Consider the risk and cost entailed in not rectifying the deficiencies immediately. In some situations it may be cheaper to live with the defect or substandard asset. Create asset maintenance task list An appropriate register of assets and maintenance work is vital to the success of the Maintenance Plan. Asset registers should be secure and allow easy retrieval of the information in a useable and flexible format. Regular feedback about asset performance in achieving desire service outcomes needs to be provided to service planners. Rank the maintenance tasks The maintenance tasks are then ranked in order of priority based on supporting service objectives. It is unlikely that funds will be available to carry out all the desired maintenance tasks and therefore the tasks that are most important to supporting service outputs should be identified and given priority. List the criteria that determine the importance and urgency of maintenance. These may include: Statutory requirements Occupational health safety and rehabilitation Social Commercial The maintenance tasks are then evaluated and ranked against these criteria with an agencywide perspective to remove regional or operational unit bias. It is recognised that the assessment of asset condition may reveal differing maintenance strategies, resources and/or contractual approaches to those established in Stage 3 and hence Stages 3 and 4 must be treated as iterative. January 2001 TAM Asset Maintenance Strategic Planning 13

96 Stage 5 Assess Maintenance Costs Stage 5 Assess maintenance costs In addition to the asset segmentation according to service output requirements undertaken in Stage 1, a thorough understanding of asset performance may require assessment of other groups of assets having similar characteristics such as: Type Age Service life Maintenance approaches Demographics Cost structures, etc. The sum of these assessments effectively translates into the agency s Maintenance Plan. In assessing the maintenance costs it is important to carefully evaluate priorities and to focus on appropriate standards along with the most cost effective solutions. Rarely will funds be available to allow all identified tasks to be carried out. This will require the development of a proposed funding strategy that may revisit the recommended maintenance established in Stage 4, and to this extent Stages 4 and 5 are iterative. Planning should be done at three levels of detail: Long-term planning Medium-term planning, and Short-term (annual) planning Each plan should be integrated with the agency s capital investment and disposal strategy. Long-term planning Long-term planning should show the timetable for replacement, disposal or modification of major assets as well as any long-term maintenance cycles and their funding. Planning should be as long as clear decisionmaking allows. For example, if a seven-year cycle is adopted for external painting, then the plan should exceed seven years in order to encompass at least one full painting cycle. If a major asset is scheduled for total refurbishment in 20 years time, say, then the appropriate planning period may be 20 years. If the service delivery method or the demand for the service is likely to change greatly over 5 years than those may limit longer-term asset planning. Medium-term planning Medium-term planning schedules impending major tasks, and asset downtime, programs resources, and is the basis for budget planning. Its shorter time scale allows it to be a more focused and accurate prediction than a longterm perspective. Short-term (annual) planning Planning is a dynamic process. Priorities sometimes change at short notice. The annual plan is the final assessment of priority and is the working maintenance plan. Annual planning is also needed to confirm funding required for the following year. 14 TAM Asset Maintenance Strategic Planning January 2001

97 Stage 6 Implement Maintenance Plan and programs Stage 6 Implement Maintenance Plan and programs This stage involves securing finance and scheduling the maintenance tasks to the limit of the available funds. If the first year of the Maintenance Plan has not been fully funded, then it will be necessary to review the plan to establish where funding cuts can be accommodated. In broad terms this can be achieved by: Holding over works from the first year, thus reducing the standard of which the asset operates, and/or Reducing asset availability along with corresponding adjustments to the Service Delivery Strategy for the first year The use of risk management techniques allows analysis of the risks posed by delaying maintenance peaks on the future viability of the asset and the risks to the service it supports. The Maintenance Plan is then amended accordingly and divided into programs according to implementation responsibilities or reporting needs. The maintenance programs detail the execution of maintenance and should not be recorded in the Maintenance Plan. They are documents internal to an agency used to schedule asset downtime and to control the progress of works throughout the year. January 2001 TAM Asset Maintenance Strategic Planning 15

98 Stage 7 Disposal Plan and Implementation Stage 7 Monitor and review Maintenance Plan As with all management processes, it is necessary to monitor and review the relevance, effectiveness and efficiency of the Maintenance Plan in relation to achieving required service delivery levels. This continuous feedback is a most important aspect of the maintenance planning cycle. Monitoring is most effectively achieved through the use of performance indicators. Guidelines on the development of performance indicators specifically for maintenance planning are given in Appendix B. Such measures should utilise best practice benchmarks to provide a basis of assessing relative performance. With the benefit of hindsight and the use of collected data, it is possible to improve the previous decisions concerning management of assets and their maintenance so that subsequent maintenance expenditures will be more effective. Actual performance should be compared against the nominated performance indicators. This involves reviewing asset and service objectives and achieved results. Questioning the maintenance strategy Did it really need to be done? Was the timing and standard appropriate? Would another method have been more effective? Would adaptation of the asset have enabled better performance? Was the maintenance strategy appropriate to the asset? Simply, could it have been done better? 16 TAM Asset Maintenance Strategic Planning January 2001

99 4.2 Overview Stage 1 Consider agency Service Delivery Strategies and service levels to be achieved Decide period of time that asset is to be retained in service Establish the purpose served by assets Segment assets according to which service outputs they support Stage 2 Decide what asset attributes are necessary to provide required service Establish asset performance levels Set performance indicators which achieve desired performance level Stage 3 Identify agency operational strategic and cultural influences on resourcing maintenance Set a balance between preventative and corrective maintenance responses to optimise results Stage 4 Identify asset service defects Establish works to ameliorate service defects Rank tasks by priority Stage 5 Establish long-term maintenance Establish medium-term maintenance Establish annual maintenance Stage 6 Secure finance Re establish priorities within available funding Establish programs by responsibilities or reporting needs Execute works programs Stage 7 Devise indicators of asset operation and maintenance effectiveness Consider effectiveness of maintenance on agency service delivery Undertake continuous improvement review of maintenance process Provide feedback to asset managers and service planners 4.3 Sources of planning information Planning requires information, some of which may have to be purpose generated but some may already be available from the: Agency Service Delivery Strategy Agency Asset Strategy Agency Capital Works Plan Agency Asset Disposal Plan Past maintenance expenditure and budgets Inspection reports Operation and maintenance manuals OH&S fire security survey reports Facility master plans Post occupancy review reports Consultancies January 2001 TAM Asset Maintenance Strategic Planning 17

100 Appendix A Maintenance planning checklist Stage 1 Define and segment assets to meet Service Delivery Strategy Identify (from the agency Asset Strategy) assets required for service delivery and segment assets according to their role Identify assets not required for service delivery for inclusion in Asset Disposal Strategic Plan Identify assets requiring alteration, upgrade, extension, etc. for inclusion in the Capital Investment Strategic Plan Stage 2 Determine required asset performance Determine the range of services supported by each asset Establish how long assets are required to continue delivering service Determine performance parameters for each asset segment Set performance levels for each performance parameter Stage 3 Define maintenance resources and overall strategies Identify agency cultural influences which affect the manner in which maintenance is organised Identify strengths of agency planning, technical or trade resources and staff resources Identify strengths of external maintenance planning and technical or trade resources Decide the level of risk the agency is prepared to accept in their service delivery Determine overall maintenance strategies (ie. Fix when Fail, Scheduled or Condition Based maintenance) Decide how the maintenance work will be carried out (eg. in-house maintenance, individual maintenance contracts and/or broad based maintenance contracts) Stage 4 Assess condition of assets and recommend maintenance Identify assets whose condition is known and therefore not requiring condition assessment Identify assets whose condition can be assessed by sampling; ie. assets having predictable operating and/or maintenance environments and highly homogeneous in terms of manufacture, age, use, etc Identify assets requiring individual condition assessments Carry out individual and sample condition assessments Prepare a costed Asset Maintenance Task List for the period of the Maintenance Plan Estimate the repeat period for maintenance tasks requiring attention more than once during the life of the Plan Rank the priority of the maintenance tasks Determine strategic drivers for assessment of maintenance priorities Stage 5 Prepare Maintenance Plan Consider and assess groups of assets with similar characteristics (eg. type, age, service life, etc) as required Distribute maintenance works into the years they are required to be done Conduct economic appraisal of major periodic maintenance proposals to review benefits Commit any capital works for assets to the Capital Investment Plan and crossreference Examine agency service and asset strategies and adjust maintenance priorities as required Develop short, medium and long term maintenance planning components Identify proposed funding strategy and adjust maintenance priorities as required 18 TAM Asset Maintenance Strategic Planning January 2001

101 Stage 6 Implement Maintenance Plan and programs Submit Maintenance Plan to Treasury or agency funding authority If Maintenance Plan for Year 1 has not been fully funded: Establish if sufficient works from Year 1 can be deferred to accommodate funding reductions, and/or Identify reduced asset availability due to funding reductions and adjust service strategies for Year 1 accordingly Amend Maintenance Plan to incorporate all changes If Maintenance Plan for Year 1 has been fully funded: Divide Year 1 Maintenance Plan into programs according to implementation responsibilities or reporting needs Develop reporting and feedback process to provide information for agency annual strategic planning cycle Stage 7 Monitor and review Maintenance Plan and programs Develop performance indicators to monitor the Maintenance Plan and programs Measure and evaluate the indicators Strategically Review Maintenance Plan and asset strategies where asset performance is not meeting service delivery needs Review Maintenance Plan to identify more efficient and effective ways of achieving the required asset availability and standards Modify the Maintenance Plan for future years January 2001 TAM Asset Maintenance Strategic Planning 19

102 Appendix B Measuring performance B1 Developing performance indicators Performance indicators are used to report the quality of service, efficiency, productivity or cost effectiveness of an agency, program or activity. Performance indicators compare existing performance to a standard, target or norm for management purposes. Developing performance indicators Define the key performance levels, outputs or outcomes to be monitored for effective planning and control. For each of these key performance levels, outputs or outcomes, define successful achievement; ie. the success factor - that which happens when things are going well. Determine how to measure the success factor, eg. dollars expended/square metre, units completed per period, etc. Establish targets or benchmarks to compare with the achievements; eg. last period s performance, an industry average, etc. When used successfully, performance indicators enable managers to see how their programs or activities are performing and show where action is needed to correct a deviation from the program or activity plan. However, indicators should cover the broad range of results to be achieved. They should be balanced where appropriate with qualitative information and be based on data that can be collected without consuming disproportionate human and/or financial resources. Key factors for performance indicators Indicators should focus on outcomes achieved rather than action taken Consistency in definitions and methods of measurement is essential to ensure results can be analysed and compared over time Simplicity should be as highly valued as reliability. Complex approaches are expensive and often need a high level of expertise Rarely do numbers alone tell the story. Qualitative information on performance is equally useful Indicators should be explicit in their format and expressed as a percentage, a ratio or some other numerical format The number of indicators used at any management level should be limited to a maximum of, say, seven. Larger numbers of indicators tend to lose relevance and their impact is diluted Indicators should be underpinned by an information system that enables the information required by the indicator to be readily available In defining success, past experience has shown that input at the development stage from those involved in using the indicators will help engender ownership and support for the application of the indicators 20 TAM Asset Maintenance Strategic Planning January 2001

103 B2 Application of the indicators The indicators proposed should be examined with the intention of: Culling the indicators to a workable number that will provide the information needed by managers to see that their maintenance activities are effective and efficient Assigning the resulting indicators to appropriate management levels It is important to remember the indicators are what they say they are - indicators. They are not intended to be highly accurate measures of performance. Instead they should be considered quick and simple assessments to guide future actions. Therefore, focus on materiality rather that precision. As far as possible, managers should use performance indicators to monitor the outcomes they are achieving. Indicators are intended, first and foremost, as a tool to help managers manage. Using them for control purposes, risks misuse of data to make particular managers look more successful. When this occurs, the usefulness of the tool is lost. At this stage there are few valid industry benchmarks against which the indicators can be compared. Therefore, in the short term, it may be necessary to use the performance of the previous period as an interim benchmark. The indicators need to be underpinned with appropriate procedures including: Standardised definitions Standardised methods of measurement Coordination with information systems B3 Defining the planned service outcomes Many different outcomes arise from the maintenance of physical assets. For the purpose of developing an effective set of performance indicators, the key outcomes can be grouped into five categories. Physical assets are available as required to deliver service at their intended standard Maintenance is conducted both cost- and time-efficiently Stakeholders (including corporate management, property managers, funding providers, customers and community) are satisfied with the maintenance program Investment in physical assets is protected (economic lives are extended where appropriate and asset values are optimised) Exposure to risks is appropriately managed Typical performance indicators for each of the above outcome categories are given in the following section January 2001 TAM Asset Maintenance Strategic Planning 21

104 B4 Typical performance indicators Planned service outcome 1 Physical assets are available and serviceable as required Defined Success Performance Indicators Basis of Comparison Assets are available within appropriate levels of downtime and/or service disruption Assets perform at their specified standard Assets comply with appropriate health and safety requirements Downtime as a proportion of total operating time (%) No. Of breakdown call-outs on critical services (lifts, aircon etc) per month Cost of major defects / area. Total defect costs / annual expenditure No. Of client complaints of service interruption per month Age profile of assets for example: Age / floor area Age / value per category Oh&S defects reported / period Target Target / trend Trend over time Trend over time Trend over time Target / trend Trend over time Target Reduction of accidents over time accidents No. of accidents/injuries attributable to asset defects per period % workforce injured Trend over time 22 TAM Asset Maintenance Strategic Planning January 2001

105 Planned service outcome 2 Maintenance is conducted both cost- and time- efficiently Defined Success Performance Indicators Basis of Comparison Cost of maintenance is reasonable Majority of maintenance is programmed rather than emergency Maintenance cost to relevant occupant unit ($/occupant) Maintenance cost per unit of service delivery ($ per user) Maintenance cost to facility replacement cost (%) Maintenance cost to useable physical measure ($/m², $/km travelled) Maintenance cost to total operational cost (%) Maintenance cost to 5 year moving average maintenance cost (%) Cost of defects arising in key categories eg: statutory, structural, waterproofing, key plant items Ratio of emergency maintenance cost to total maintenance cost (emergency maintenance index) Ratio of breakdown call-outs per period to average call-out rate (%). Target Target Target Target Target Target / trend Target / trend Target / trend Trend over time Response time is appropriate Average time taken to respond to work requests Target / trend Number of incomplete work orders at period end to number of work orders received during period (%). Trend over time January 2001 TAM Asset Maintenance Strategic Planning 23

106 Planned service outcome 3 Stakeholders are satisfied with the maintenance program Defined Success Performance Indicators Basis of Comparison Corporate, property managers with Treasury, clients and community perceive maintenance to be: Cost efficient Timely Of an appropriate standard % clients surveyed annually (for key stakeholder categories) who express satisfaction regarding: Effectiveness Timeliness Condition of assets (stakeholder sentiment index) Target / trend Maintenance programs are completed within budget allocations No. Of complaints of unacceptable standards per period per $1000K spent Trend over time Planned service outcome 4 Ratio of actual maintenance expenditure to budgeted expenditure (%) Target / trend Exposure to risks is appropriately managed Defined Success Performance Indicators Basis of Comparison Risks are identified and contingency plans are in place Effective management practices are in place Risk management plan being implemented % of management checklist items being implemented Target Target 24 TAM Asset Maintenance Strategic Planning January 2001

107 Appendix C Example of the development of a Maintenance Plan By way of example, the development of a Maintenance Plan is presented in an abbreviated form for the hypothetical Tarrawarra College of Advanced Education. The development of the Plan follows the seven stages of the Maintenance Planning Process. The costs generated in this plan would be incorporated in the overarching agency Maintenance Plan. Scenario: Tarrawarra College of Advanced Education is located in the Casey Valley and occupies the site of the former Tarrawarra District Hospital. The College has faculties of Science, Engineering, Agriculture, Metallurgy and Boot making. Enrolments have grown steadily over the last 10 years in line with population growth in the valley. The opening of two new mines and the establishment of a major manufacturing complex within the College s catchment have increased demand for mining, mechanical and electrical engineering courses and robotics. Outcomes from Service Delivery Strategy The College aims to meet the demands for education within the valley and the demands of area industries for highly skilled workers able to adapt to rapidly changing technology and techniques. Service outcomes: Meet the growing demand for tertiary education in the Casey Valley Produce sufficient graduates to meet regional industry need for highly trained specialists in robotics, mining, mechanical and electrical engineering Service outputs: Increase the number of student places in robotics, mining, mechanical and electrical engineering by 16% per year for the next 5 years Maintain number of placements and teaching hours in the remaining courses Set-up the Ongoing Education in Industry Scheme to increase the skills of workers throughout their working lives. The scheme will offer 50 places per year for the next 3 years January 2001 TAM Asset Maintenance Strategic Planning 25

108 C1 Definition and segmentation of assets to meet Service Delivery Strategy Asset Portfolio: The campus consists of six major buildings: Buckley Block, Gaynor House, O Farrell Library, O Toole Engineering Complex, Bernie Parker Union Building and the Administration Building. Asset Strategy: The college plans to establish an annexe in nearby Abbots Glen to conduct some courses for the mining industry and another in Roscrea for process engineering. No major rebuilding to the main campus is anticipated although major replacement of airconditioning equipment to two blocks and fire protection to O Farrell Library are planned within 2 years. 26 TAM Asset Maintenance Strategic Planning January 2001

109 C2 Determination of required asset performance Only buildings and CNC workshop training equipment are considered in this example. The College executive and senior faculty staff established performance standards for each asset segment. Buildings Performance required from the College s buildings was defined by establishing five parameters or qualities that must be achieved for these assets to provide the required service. These are: Image Ease of cleaning Slip resistance Indoor air quality Capacity for teaching increased number of students For each parameter, three acceptable levels were defined that would equate to the highest and lowest required standards in particular throughout the facility. As the importance of each parameter varied with the activities accommodated from area to area, a matrix of generic areas and required values for each parameter was developed. Maintenance and upgrading works identified in the maintenance plan are needed solely to retain these standards. CNC workshop training equipment A majority of the computer numerically controlled and robotic equipment installed in workrooms has been selected to equip students with the necessary skills to operate similar equipment employed in the local mines and manufacturing enterprises. Largely, performance parameters for such equipment are set with the decision to acquire particular equipment. Levels of service supplied are those recommended by manufacturers, and hence no performance parameters have been considered. C3 Defining maintenance resources and overall strategies The College developed a maintenance policy two years ago regarding the level of maintenance response required and the necessary resource levels to achieve them. It was decided that an emergency maintenance response of one hour was required for mechanical, electrical and hydraulic services, where breakdowns threaten the ability of critical areas to function. The College s staff level is adequate to attend to an estimated 90% of emergency repairs as well as 30% of programmed maintenance. The remainder of the work is performed by local contractors. There has been a deliberate policy of cultivating knowledge of the campus mechanical and electrical services among the private sector to increase the range of works they can undertake, and this will continue. Specialist technicians on contract service CNC and robotic equipment. College staff have undertaken training by the equipment manufacturers to provide running repairs and adjustments, and so reduce down time that would otherwise disrupt training classes. January 2001 TAM Asset Maintenance Strategic Planning 27

110 C4 Condition assessment and recommended maintenance The asset portfolio has been reviewed to determine its present condition and estimate what maintenance action and costs will be required over a designated period. For the purpose of this review, assets were divided into two groups: Those whose age and condition and capacity are known and very similar, such as vehicles, robotic equipment, classroom and office furniture, and Those that vary in these respects, such as the building stock Condition assessment was necessary to establish maintenance requirements of this second group. Building assets A condition assessment of each building and structure on the site was carried out to assess maintenance works that will be required over the next 10 years. These individual reports are not included in this example. CNC and robotic equipment The age and known condition of each item of equipment meant that condition surveys were not required. Maintenance to manufacturers recommendations and allowance for items of work not covered by contract but from historic data, considered likely to fail, is included in the maintenance plan. C5 Preparation of the Maintenance Plan The condition assessment of the College assets has identified significant maintenance works in years 1 and 2 of the ten-year plan. This cannot be accommodated within the College s operating budget. A risk management analysis has identified the following two groups of works that can be redefined to accommodate likely available funding. Those which will have only a secondary impact on service delivery Those that can be delayed with no impact on service delivery but will involve additional cost in future years because of likely accelerated deterioration and damage An optimal mix of jobs from both categories has been withdrawn from year 1 and 2 and distributed over years 3 to 6 of the Plan. 28 TAM Asset Maintenance Strategic Planning January 2001

111 C6 Implementation of the Maintenance Plan The previous year s maintenance works were programmed to coincide with close-down of particular facilities, eg. term holidays and some out-of-hours work. Urgent minor works backlogs were reduced by 60% with the introduction of charges for all services being made to the cost centre initiating the request. Most requests were for minor hydraulics and electrical calls. C7 Monitoring of the Maintenance Plan All significant maintenance works carried out in the previous year have been reviewed to decide whether the maintenance action was warranted in terms of its impact on the service delivered by the College or its impact on ensuring the asset remained serviceable in the future. The review found: The use of continuous epoxy materials for floor and wall surfaces in food preparation areas would have given similar performance to the ceramic tiles used, as well as being easier to clean and cheaper Replacement of roadway lighting carried out by contractors of the local council has proved highly cost effective Use of a dado to a height of 1500mm in all corridors and classrooms will now become a college policy as it allows economic repainting of soiled or damaged surfaces of lower wall areas Performance indicators A range of performance indicators has been established to measure the effectiveness of the maintenance work. These include: Percentage maintenance cost to replacement value Percentage maintenance backlog cost to replacement cost Maintenance cost per unit of service delivered from the asset (eg. maintenance cost per hour of teaching) Results for each indicator over the last 5 years form part of the College s maintenance planning report. January 2001 TAM Asset Maintenance Strategic Planning 29

112 C8 Typical agency roll-up of maintenance planning The maintenance plan for each facility forms part of the agency s overall maintenance plan and is rolled up to form a regional, divisional or area maintenance plan. An overarching agencywide maintenance plan is shown diagrammatically below. C9 Typical agency roll-up of maintenance planning Maintenance Plan Overarching Plan Region Plan segmentation of agency assets to meet service delivery strategy condition survey of assets in each region 10 year maintenance plan for all agency assets segmentation of regional assets to meet service delivery strategy condition survey of each regional asset 10 year maintenance plan for all regional assets Facility Plan asset performance required to meet service delivery strategy maintenance resources and strategies facility condition survey facility 10 year maintenance plan 30 TAM Asset Maintenance Strategic Planning January 2001

113 Asset Disposal Strategic planning

114 Asset disposal: strategic planning January 2001 DPWS Report Number NSW Department of Public Works and Services Cataloguing-in-Publication data New South Wales. Government Asset Management Committee. Asset disposal: strategic planning ISBN (set) ISBN Asset management New South Wales. 2. Capital investment. 3. Public administration New South Wales I. Title. (Series : TAM) This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission from the NSW Government Asset Management Committee. Requests and inquiries concerning reproduction and rights should be addressed to: Secretariat Government Asset Management Committee Level 23 McKell Building 2-24 Rawson Place SYDNEY NSW 2000 Website E:mail [email protected] Set consists of : ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN X Asset strategy Office accommodation strategy Capital investment : strategic planning Asset maintenance : strategic planning Asset disposal : strategic planning Sustainable development guideline Heritage asset management guideline Demand management guideline Life cycle costing guideline Value management guideline Risk management guideline Post implementation review guideline Asset information guideline

115 Contents 1 INTRODUCTION Background The Essence of Disposal Planning Benefits of Disposal Planning AGENCY ROLES AND RESPONSIBILITIES Service Agencies NSW Treasury Department of Public Works and Services THE ASSET DISPOSAL PLANNING PROCESS The Process...7 Stage 1 Assets Surplus to Service Delivery...8 Stage 2 Stage 3 Stage 4 Stage 5 Benefits of Disposal vs. Retention...9 Value Maximisation...10 Disposal Mechanism...12 Prepare Capital Investment Plan...13 APPENDIX A EXAMPLE DEVELOPMENT OF AN AGENCY ASSET DISPOSAL PLAN 14 APPENDIX B DISPOSAL OF REAL PROPERTY ASSETS 19 APPENDIX C DISPOSAL BY PRIVATE TREATY 22 January 2001 TAM Asset Disposal Strategic Planning 1

116 1 Introduction 1.1 Background Assets are of value to an agency only if they continue to cost effectively support the delivery of the agency s services. Once they no longer play this role, their worth lies only in the benefits to be gained from their disposal. Asset disposal is thus the final stage in the asset life cycle. Its proper planning and management is therefore an integral part of the TAM strategic process as illustrated below. This document provides guidelines to agencies on the strategic processes to be adopted in planning disposal of their surplus assets. While the guideline is generic in nature and relates to the full range of government assets, it recognises that real property assets generally have high values and their disposal often involves more complex planning and financial issues. The guideline includes Appendices, which provide more detailed guidance on the application of the generic process to the disposal of real property. Direction Community needs and expectations Legislation Government policies, priorities and strategies Fiscal strategy Monitoring, reporting, and modification 1 Inter-agency strategic planning 2 Agency corporate plan 3 CEO performance agreement Service and resource planning 4 Service delivery strategy Implementation planning 7 Inter-agency plans 5 Budget proposals and allocations 8 Business plans 6 Service and resource allocation agreement 9 TAM strategy HR plans IT plans Procurement plans Social responsibility plans Total Asset Management Strategy Asset Strategy Office Accommodation Strategic Plan Capital Investment Strategic Plan Asset Maintenance Strategic Plan Asset Disposal Strategic Plan Service delivery Figure 1 Total Asset Management 2 TAM Asset Disposal Strategic Planning January 2001

117 1.2 The Essence of Disposal Planning Asset Disposal Strategic Planning allows agencies to cull redundant assets that might otherwise reduce efficient and effective service delivery. Asset Disposal planning involves two separate and distinct elements: the detailed assessment of assets identified as Surplus by the Asset Strategy followed by an analysis of the physical Disposal of the assets. An asset is identified as SURPLUS when one of the following occurs: The asset is not required for the delivery of services, either currently, or over the longer planning time frame The asset becomes uneconomical to maintain and/or operate The asset is not suitable for service delivery For example, changes in service delivery methods either due to advances in technology or social expectations can cause assets to become surplus. This can also occur as a result of changing demographic patterns or the economies of scale made possible by new service capacity. Once an asset is identified as surplus, its physical DISPOSAL will depend on one or more of the following: Whether there are net disposal benefits, either in financial or other terms Whether there are secondary service obligations associated with the asset which dictate its retention Whether a disposal can be carried out without adverse impacts on the physical environment Therefore, the disposal of an asset identified as surplus is not a foregone conclusion. The net disposal benefits (disposal value less disposal costs) may be negative for some assets (especially fixed or purpose-built equipment such as buildings, pipelines and process control equipment) which will discourage their premature disposal. The disposal value will also be dependent on the market for the asset. For example, the market for two-year old cars is much larger than that for second hand office furniture. Disposal benefits will not always be dictated by monetary returns. Disposal relieves an agency of responsibility for an asset s supervision, dayto-day management, maintenance, insurance, security, cleaning, etc along with housing or storage throughout the asset s life. Under-utilised assets may be of significant value to another agency. In assessing the benefits of disposal, the advantages from the whole of the government perspective must be considered. Assets identified as surplus to core service delivery requirements, may need to be retained for other reasons such as heritage, open space or other social environmental considerations, which agencies may have as secondary service obligations. January 2001 TAM Asset Disposal Strategic Planning 3

118 1.3 Benefits of Disposal Planning A strategic approach to the management of Government assets and the disposal of those no longer required will have impacts on: Whole of Government Government Agencies Community Environment Whole of Government A managed disposal strategy will assure Government that its asset investments are effective and that the assets are currently relevant to the service it requires agencies to provide, thus maximising the return on government investment. Constant review of asset relevance offers Government the economies and benefits that flow from new cross agency asset sharing opportunities that can replace existing assets. Agencies Disposal planning offers agencies a means of disposal of unnecessary or non-performing assets timed to minimise disruption to their business and maximise returns by selecting appropriate times in their market cycle to dispose. Disposal may have impacts on agency clients and agency staff. An agency s clients may feel they will be adversely affected by disposal in that some aspect of service may be reduced or made more difficult. Staff may see disposal of a facility in which they work as threatening, especially if it requires them to relocate to distant premises or if it significantly alters or ends their employment. In both cases, an agency should consult the affected groups, explaining the organisation s role, the reasons for the disposal and advise of any compensatory measures it plans to introduce to avoid or reduce the impacts. In the disposal of significant assets, agencies should also be aware that there may be broader community concerns other than those related to service delivery, particularly when disposal involves re-use or redevelopment of property assets. Ultimately, it will be of benefit to agencies to identify any such concerns and to accommodate them where possible since this can avoid protracted community confrontation and consequent delays in the disposal of the asset. Community The community will benefit from the increased efficiency in overall service delivery resulting from disposal of assets that have become ineffective. Again, the disposal of assets may cause anxiety among communities that feel their services will be compromised by such disposal. To minimise this understandable concern, agencies should break the perceived nexus between the services they provide and the assets that are used to deliver them. When a community understands that the service it requires is, for example, education or policing and not a school or police station, they are less likely to resent disposal of assets. It is the responsibility of the agency to design an effective service delivery model using the portfolio of assets proposed to demonstrate to the community: That the change will not affect them adversely, or How special provisions will be implemented to minimise impacts 4 TAM Asset Disposal Strategic Planning January 2001

119 Agencies need to be sensitive to the symbolic importance that major assets play in the community. The presence of a hospital or police station in a town provides a sense of security quite apart from the service. The symbol is in part the service. Agencies must consider the cultural significance of assets such as courthouses, schools and police stations to a community when planning their disposal. Failure to address such concerns may well result in community confrontation and delays in the disposal process. Environment The production, maintenance and disposal of assets can each have environmental impacts. Hence, there are significant environmental advantages in minimising both the number of assets used and the density of that usage. If asset disposal is strategically considered, is not premature and considers further use or recycling by future owners, then it is the final stage of good environmental stewardship of an agency s assets. January 2001 TAM Asset Disposal Strategic Planning 5

120 2 Agency Roles and Responsibilities 2.1 Service Agencies All agencies are required to prepare annual Disposal Plans as part of their Total Asset Management Strategic planning. This reflects the need to integrate disposal planning into an agency's annual strategic asset management planning and budgeting cycle. General Asset Disposals Most agencies have the skills to manage the disposal of general assets. The actual disposal process, which may include valuation, auctioneering or agency roles can be outsourced to specialists. Agencies should carefully consider the advantages of engaging expertise if their experience in disposal activities is infrequent or not core business. Real Property Disposals All properties with a highest and best use value in excess of $3M, including properties involving joint venture arrangements and leasehold disposals are to be referred to DPWS for the management of their disposal. Agencies are not to dispose of smaller parts of such properties prior to referring the disposal to DPWS. DPWS is to be advised of all proposed disposals of property with a highest and best value of between $1M and $3M to ensure they do not have a strategic value or are capable of consolidation with other property. Agencies are also required to consult with DPWS at the earliest possible point in the following circumstances: Where the property is capable of consolidation with other Government properties Where land exchanges, development agreements, provision of facilities are proposed Where accommodation (leased or freehold) of sufficient value to be financially significant to an agency becomes vacant and available for disposal All individuals involved in providing expert advice on property disposals, including consultants, must declare any conflicts of interest. Such conflicts would not necessarily exclude the individual from providing advice, but an agency should be made aware of these conflicts and information must be maintained confidentially at all times. 2.2 NSW Treasury Treasury will review existing funding and management policies to ensure they support the objectives of best practice in asset planning. Treasury will also: Approve all high value asset disposals for budget sector agencies within the annual budget process Approve all disposals in which the assets are to be offered for sale at less than their market value (refer to NSW Treasury Directions/Guidelines on Asset Disposal) 2.3 Department of Public Works and Services The Department of Public Works and Services (DPWS) is responsible for review of all agency asset strategic plans (including those related to disposal) and for the provision of advice to Treasury as part of the budget process. These reviews aim to benchmark agency asset strategies to encourage increased strategic asset performance and cross agency planning. DPWS is also responsible for the centralised coordination and management of those asset disposals involving real property over $3 million. This includes assistance to agencies in the preparation of their property disposal plans. 6 TAM Asset Disposal Strategic Planning January 2001

121 3 The Asset Disposal Planning Process Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Assets surplus to service delivery Benefits of disposal vs. retention Value maximisation Disposal mechanism Disposal Plan and implementation 3.1 The Process Asset Disposal Planning is a structured and systematic process aimed at ensuring an agency's asset portfolio comprises only those assets that effectively meet its service delivery requirements at the lowest long- term cost to Government. Disposal Planning links, via the Asset Strategy, with service delivery in the following five stages as shown in the diagram above and described in the following sections. The process described here is generic and covers the disposal of all types of assets. The additional aspects to be considered for the disposal of real property at each stage of the process are detailed in Appendix B. Stage 1 Assess in detail those assets identified by the Asset Strategy as surplus to service delivery requirements. Stage 2 Assess the advantages to Government, agency and the community in divesting assets. Stage 3 Identify opportunities for increasing asset value before their disposal. Stage 4 Identify disposal requirements including probity considerations. Stage 5 Prepare and implement the Disposal Plan and monitor performance. Appendix A provides an example of the development of a Disposal Plan to guide agencies on the application of the planning process. Agency Disposal Plans should cover the same period of time as the agency s Capital Investment and Asset Maintenance strategic plans, ie. a rolling detailed annual plan, a threeyear predictive plan, and a longer-term projection. This will allow: The development of cross agency perspectives on the use and redistribution of assets that may become available Sufficient time for the planning and implementation of asset changes Ongoing evaluation of asset sales against current and future market trends to achieve the best long term financial performance While the accuracy of a plan reduces with time, the period of the long-term projection should be chosen to include much of an agency s asset service life expectancy and its longest service life planning cycle. In the case of real property assets, this could be up to 20 years. As indicated previously, the process described here is generic and covers the disposal of all types of assets. The additional aspects to be considered for the disposal of real property at each stage of the process are detailed in Appendix B. January 2001 TAM Asset Disposal Strategic Planning 7

122 Stage 1 Assets Surplus to Service Delivery Stage 1 Assets surplus to service delivery The first stage in the disposal process is to assess in detail those assets identified by the Asset Strategy as surplus to service delivery needs both at the present time and over the longer planning time frame. Assets are of value to an agency only in so much as they continue to cost effectively support the delivery of the agency s service. Once they no longer play this role, their worth lies only in their disposal value. An asset's continuing acceptability in service must be measured against its disposal and procurement of alternative assets to provide the services specified in the agency Service Delivery Strategy. The identification of surplus assets should include the following considerations: Assets may no longer support an agency s service objectives either because of changes in the type of service or its method of delivery Assets can have varying service life expectancies. Some are required to continue in service indefinitely with adequate maintenance, eg. civil structures such as mass gravity dams or sewerage systems Assets such as buildings can often be economically maintained and kept in service for prolonged periods, however some become uneconomic or cannot be economically adapted to changed operating environments or service requirements Some assets may still be able to perform as originally planned but have been made redundant because of advances in technology or changed work practices The potential savings available from replacement of an asset must be weighed against the cost of that replacement, the estimated economic service life and the market value of the asset Some assets are perceived to be inferior in certain aspects (particularly when compared to more recently acquired assets) yet may still provide acceptable service. Care must therefore be taken to avoid replacing assets on superficial grounds such as improved but unnecessary performance or higher prestige. This can be challenging especially when technical experts plead the case for disposal and replacement. Sometimes, disposal may be more advantageous to the operatives than the agency s clients. If an asset is not presently used, the likelihood of it being required within the foreseeable future should be considered. Changing demographic trends or service demands may see a renewed call for the asset in its present or altered state, or in a new location. Electromedical imaging equipment considered no longer able to service demand in a major teaching hospital may provide satisfactory service in a smaller base hospital for many years. It is also noted that agencies may have implied or secondary service obligations in addition to their core service delivery responsibilities. These could include heritage and other environmental aspects related to an asset and may affect its disposal. The Heritage Asset Management and Sustainable Development guidelines contained in the TAM Manual should be consulted in these circumstances. 8 TAM Asset Disposal Strategic Planning January 2001

123 Stage 2 Benefits of Disposal vs. Retention Stage 2 Benefits of disposal vs retention Not all assets identified as surplus will have great residual value and in some cases this will be negative when the disposal costs are included. In such circumstances, the advantages of disposing must be weighed against the cost of continued ownership. Many assets require significant resources for their maintenance (repairs, servicing, etc) and operation (staff, energy, cleaning, security costs, etc.). Other costs that stem from ownership include opportunity costs on the residual value of the asset and the cost of insurance. Property assets may also incur various local government rates and charges as well as those levied by other rating authorities. Therefore, retaining such assets in service when they no longer effectively support service delivery will expend resources that could otherwise be used elsewhere and could effectively block the acquisition of more suitable and economic assets. If the cost of removing redundant pipelines or decommissioned railway tracks is greater than its scrap value and if there is no significant risk, or impact on re-use options, in leaving the asset in its present state, then disposal should be decided against. If disposal released the land for sale or further use, then this might well make disposal of the assets worthwhile. The failure to dispose of under-capacity desktop computers restricts the organisation from acquiring more effective technology. The real need for greater capacity should however be closely checked prior to decisions being made. January 2001 TAM Asset Disposal Strategic Planning 9

124 Stage 3 Value Maximisation Stage 3 Value maximisation Maximisation of net benefits to both Government and an agency requires a whole-oforganisation and cross-agency view of the assets to be disposed of over the period under consideration. The disposal value of an asset is its sale value and the savings achieved in the cost of service delivery or other benefits. The sale value is dependent on the market for the asset and the perceived advantages it offers the buyers in that market. An asset can have a range of values to potential buyers, with each valuing different aspects of the asset. A disused police station may be valued as a domestic residence, a council park or a classroom block by an adjoining school. It may also be most highly valued as part of a site for a major office development, but this might be dependent on the acquisition of adjoining sites. An understanding of the property cycle allows maximum advantage to be made of rising property markets and disposal may be delayed to coincide with such cycles if a longer term perspective is taken. Care however is required in attempting to speculate on market trends and expert advice should be sought if timing is important. The perspective can also allow judgements to be made on the levels of maintenance applied to the asset and the best condition in which to present it for disposal. If the disused police station is to be sold along with adjoining blocks of government owned land (for re-development purposes), then the state of the building is not going to affect the value realised. If the station is to be sold separately or disposed of for re-use (eg. as a classroom), then significant work three years prior to sale to preserve the building's fabric might prove worthwhile. A personal computer may have one value as a trade-in, a second value if sold along with 1000 others from an agency to a reseller and yet another price if marketed individually to students. The wider and longer term the perspective that can be taken, the greater the options for maximising the value by most appropriately marketing surplus assets. Repairs to computers may not be warranted if they are trade-ins on new models However, if they are to be sold to private buyers, work to repair and present them well could realise a higher net value. The buyers at weekday car auctions are mainly motor dealers. In an effort to increase their return, some agencies are selling their used vehicles directly to the private used car buyer at Saturday auctions. 10 TAM Asset Disposal Strategic Planning January 2001

125 Several transport authorities have increased their returns from the disposal of buses retired from their fleets by considering non-traditional disposal options. These have included establishing agency agreements to sell the vehicles interstate and overseas where they could be privately registered without modification. Disposal of assets from one agency to another may maximise the benefit to government. Such disposals are usually transacted at market price by means of private treaty (see Section 3.6). Part of value maximisation is seeking to cultivate a market for disposed assets, especially if there are many assets with short service lives or valuable items to be disposed of. Obviously the cost of alternative disposal processes must be weighed against the marginal increase in price received. Disposal need not generate a financial outcome to be valuable. Often opportunities will arise including: Swapping one asset or site for another Joint disposal with owners of adjoining properties Contra-deals involving construction of a facility for an agency within a development in payment for the land on which it is built Other assets may have no value but disposal can provide benefits such as avoidance of maintenance or operating costs, staffing or insurance costs. Agency s implied charters include consideration of heritage and environmental matters imposed by legislation. Beyond this, agencies have the general interest of the community as an implied charter. This may lead to conflicts on disposal options especially where a large part of the community may want one disposal action while the agency's best financial and operational interests would be better served by other disposal means. In such situations, unless directed otherwise an agency should pursue that course of disposal action that maximises benefit to itself and government. Value management studies can be used to resolve disputes with community groups. January 2001 TAM Asset Disposal Strategic Planning 11

126 Stage 4 Disposal Mechanism Stage 4 Disposal mechanism The disposal mechanism must be carefully chosen to ensure that the disposal of assets is carried out to: Satisfy probity considerations Provide adequate and equal opportunity to purchase, including clear stipulation of the basis on which decisions will be made Achieve the best return to government Avoid any adverse environmental impacts Disposal will generally be by auction, tender or private treaty. Any other proposed methods of disposal should be referred to the Department of Public Works and Services. Auction is a common method of disposal because it is usually more straightforward and the process is open to public scrutiny. In some circumstances the environment of an auction may generate a higher price. Tender is preferred where more control over the actual disposal of the asset is required or where the credentials of the buyer need to be assessed in detail. Private Treaty is a less common form of disposal. It is generally used for the disposal of real property although it may be applicable for other types of assets in certain special circumstances where there is likely to be only one purchaser. Appendix C provides further details on disposal by Private Treaty. Whatever the disposal mechanism, it may be important for an agency to be satisfied as to the credentials of the proposed purchaser. Department of Fair Trading searches may be appropriate. 12 TAM Asset Disposal Strategic Planning January 2001

127 Stage 5 Prepare Capital Investment Plan Stage 5 Disposal Plan and Implementation Disposal plans should cover the same period of time as the agency s Capital Investment and Asset Maintenance strategic plans, ie. A rolling detailed annual plan, a three-year plan in moderate detail and a longer-term projection. Although Treasury has placed financial limits on the disposals that require reporting, an agency should implement a culture of regularly analysing all parts of its asset holdings to identify those no longer necessary to support delivery of services. This ensures agencies remain focussed on service delivery rather than the assets. Linkages should be made between the capital investment and disposal plans by listing assets for disposal that have service lives within the planning time frame. These linkages are particularly important where the proceeds of asset disposals are being relied upon to fund capital works. In such situations, it is essential to allow an adequate time and funding buffer between the disposal and acquisition events. While disposal plans will not contain every asset under an agency s control, significant items should be listed in appropriate detail on a long-term basis to ensure agencies are properly prepared for disposals and replacements. The one-year plan should contain asset disposal proposals that can be achieved. That is: They can be removed from service and if replacement assets are involved, these will become available so that service delivery is not jeopardised Pre-disposal approval and planning (including protracted actions such as rezoning) have or can be obtained in time for disposal to be completed within the year The state of the market being appropriate to achieve a satisfactory outcome While annual plans should be considered to be binding on an agency to achieve the actions proposed, the longer-term disposal plans will always have some inherent flexibility to cater for changes in operating environment. January 2001 TAM Asset Disposal Strategic Planning 13

128 Appendix A Example Development of an Agency Asset Disposal Plan By way of example, the development of an Asset Disposal Plan is presented in an abbreviated form for the hypothetical Tarrawarra College of Advanced Education. The development of the Plan follows the five stages of the Asset Disposal Planning Process. The costs generated in this plan would be incorporated in the overarching agency Asset Disposal Plan. Tarrawarra College of Advanced Education is located in the Casey Valley and occupies the site of the former Tarrawarra District Hospital. The College has facilities of Science, Engineering, Agriculture, Metallurgy and Bootmaking. Enrolments have grown steadily over the last 10 years in line with population growth in the valley. The opening of two new mines and the establishment of a major manufacturing complex within the College s catchment have increased demand for mining, mechanical and electrical engineering courses and robotics. The campus consists of six major buildings: Buckley Block, Gaynor House, O Farrell Library, O Tool Engineering Complex, Bernie Parker Union Building and the Administration Building. The College plans to establish an annexe in nearby Abbots Glen to conduct some courses for the mining industry and another in Roscrea for process engineering. The Abbots Glen Annex replaces the present below-ground mining training facility at the Abbots Bore No 3. No major rebuilding to the main campus is anticipated although major replacement of airconditioning equipment to two blocks and fire protection to O Farrell Library are planned within two years. Stage 1 Property Assets Surplus to Service Delivery Gaynor House comprising the old hospital refectory and engineering laboratories is currently used to conduct bridging courses for mature aged students from industry. These courses are to be accommodated at the new Abbots Glen and Roscrea annexes making the Gaynor House property surplus to needs. Below-ground Mining Training Facilities The opening of the new mines in the area and the establishment of the College s new Mining Engineering Facility also at the Abbots Glen annex will render the present below-ground mining training facilities at Abbots Bore No 3 surplus to requirements. Industrial Equipment In keeping with the College s policy of ensuring that industrial training equipment is similar to that currently used in local industry, the following equipment has become outmoded. Plasma Cutting Robotics Equipment 4 Abbot A3700 Turret Lathes 20 Miller Centreless Grinders 10 OCSO Spectrum Analysers 7 Fox Crucible Furnaces 4 Angelarc 600A Oil Cooled Arc Welders 1 Brindrop 10t Hydraulically Operated Drop Hammer 14 TAM Asset Disposal Strategic Planning January 2001

129 Computer Equipment The College s ongoing program of computer equipment upgrading results in disposal of PCs at three to five year intervals on a rolling basis. Based on currently predicted impacts of technological change on courses offered and the rate of decline in the second hand value of the computers, it is expected that an average of 130 PCs will be disposed of annually. Vehicles The College s fleet of vehicles, trucks and tractors is also upgraded on an ongoing basis resulting in the following disposal program. Vehicle Type Qty Disposal Every Cars 12 2 yrs Utilities 3 2 yrs Trucks 4 5 yrs Tractors 5 7 yrs Stage 2 Benefits of Disposal vs. Retention Below-ground Mining Training Facilities The cost of salvaging these facilities (teaching spaces, spur railway lines, equipment bays, etc) would be uneconomic. The College could make occasional use of the facility and its retention would provide a valuable training facility for the local mining industry (over and above the new facilities provided by the College at Abbots Glen). Stage 3 Property Value Maximisation Gaynor College is located on a separate site from the main campus and includes a remnant open sclerophyll eucalypt forest, which occupies 20% of the land area and connects to the forested areas of Meleray Park and Meleray Creek. The buildings were constructed between 1950 and 1958 and, while in sound condition, are not suitable for commercial or residential reuse. The highest and best use of the site is redevelopment for residential use. Consultations with the Tarrawarra community were undertaken which identified the following issues regarding the disposal of the site The community accepted the transfer of mining engineering bridging courses to the new Abbots Glen annex since it was relatively close to the Main Campus However, there was concern regarding the movement of process engineering bridging courses to the new Roscrea annex because this is some 8 km from Tarrawarra The community also considered the remnant forest to be visually and environmentally significant and was greatly concerned that it would be destroyed The College assessed these concerns and the community accepted the following proposals. Alteration of bus timetables to coincide with student course schedules at the Main Campus and Roscrea Rezoning, as Bushland Conservation, that part of the site containing the remnant forest Changes to bus timetables will not incur any additional costs to the Government. The retention of the remnant forest will reduce the value of the site by 10%. This has been offset by arranging for Council to increase the allowable site coverage for redevelopment by 5%. By accommodating these community concerns, the status of the College in the region has been enhanced. This will lead to more effective dealings with the community in the future. January 2001 TAM Asset Disposal Strategic Planning 15

130 Stage 4 Property Disposal Mechanism The Gaynor House site is to be offered for sale by tender with the identified highest and best use of residential redevelopment. Below-ground Mining Training Facilities It has been decided to offer these facilities to the owners of the Abbots Bore No 3 Mine in return for occasional use of the facility. This will effectively provide for retention of a valuable training facility for the local mining industry at no cost to government. Industrial Equipment Six monthly auctions of industrial and commercial equipment in the district have consistently returned premium prices for wellmaintained College equipment. Sean O Tool and Co, Auctioneers are under contract to the College for the disposal of its surplus industrial equipment. The exception will be the Plasma Cutting Robotics Equipment that has a wider market that extends beyond the local area to industries located in the capital cities. This item of equipment will therefore be offered for sale by tender through industry advertising in Sydney, Wollongong, Newcastle and Melbourne with an expected return of $370,000 net after disposal costs. Computer Equipment An assessment of disposal methods for the College s PCs has shown that the best return is achieved by offering them for sale on a fixed price, as is/where is basis, firstly to the students and then to the community in general. The fixed price will be set at 15% above the unit sale price received by other Colleges in bulk sales of their PCs to second hand dealers. This method of disposal has the added indirect benefit of increasing the availability of computers for student study at home, including greater use of library and tutorial information via the Internet. Vehicles Surplus items in the College s vehicle fleet are disposed of through State Fleet contracts. Stage 5 Disposal Plan and Implementation See next two pages. 16 TAM Asset Disposal Strategic Planning January 2001

131 FIVE YEAR ASSET DISPOSAL PLAN Income and Expenditure from/for asset disposal Property YEAR 1 $ 000 YEAR 2 $ 000 YEAR 3 $ 000 YEAR 4 $ 000 YEAR 5 $ 000 Gaynor Lodge 850 Abbots Bore -5 0 Tony Buckley Parade Grounds Industrial Equipment Computers Vehicles TOTAL (-) expenditure to prepare for disposal January 2001 TAM Asset Disposal Strategic Planning 17

132 YEAR 1 ASSET DISPOSAL PLAN ASSET ACTIVITY PROPERTY Gaynor Lodge Community Consultation Tender documentation Tenders called Finalisation Abbots Bore Negotiations TIMESCALE July Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun INDUSTRIAL EQUIPMENT Robotics Plasma Cutter Centreless Grinders (20) Spectrum Analysers (10) Crucible Furnaces (7) Arc Welders (4) Drop Hammer Computer Equipment PC type (130) Vehicles Order replacement Call tenders Finalise disposal Remove equipment Install replacement Order replacements Call tenders Finalise disposal Order replacements Call tenders Finalise disposal Order replacements Call tenders Upgrade workshop Finalise disposal Install replacements Call tenders Finalise replacement Advertising Dispose progressively Replace progressively Dispose progressively Replace progressively 18 TAM Asset Disposal Strategic Planning January 2001

133 Appendix B Disposal of Real Property Assets Real property assets generally have much higher value than other asset types particularly those located in urban areas and they usually appreciate in value. In addition, their disposal can involve unique and complex planning, environmental and social issues. Accordingly, the following sections raise some common issues under each of the five stages of the asset disposal process that may require consideration when real property is to be sold. Stage 1 Assets Surplus to Service Delivery Property Ownership and Status Government property is either freehold or Crown Land. Freehold property is either vested in a government Minister or in the case of GTEs, SOCs and Authorities, in the agency itself. Land that has no legal title or status automatically reverts to the Crown and is therefore classified as Crown Land under the control of the Department of Land and Water Conservation (DLWC). Crown Land can be "reserved" for a particular use (eg. Crown Road Reserves) or dedicated to a legal entity for a specified use in which case the property is legally vested in the Crown. While a property may have been available for use by (and therefore under the administration of) an agency, its legal ownership may be vested in another agency s Minister whose authority to dispose must therefore be obtained. Consequently, the legal status of the property and presence of any encumbrances (eg. easements, leases, etc) needs to be determined through title searches. Where Crown Land is involved, DLWC should be consulted, as it is the only agency that can legally sell such land following due process. Heritage Properties It cannot be assumed that the absence of a heritage listing indicates that the site has no heritage significance. Properties identified as surplus may therefore require assessment of their heritage significance, which is to include any buildings, works, vegetation or relics located on the land. A special investigation may be required where the heritage significance is unknown. For properties with possible local, regional or state significance, this investigation may involve a detailed assessment and/or a conservation study along with the preparation of a conservation plan. Further information on heritage properties is contained in the Heritage Asset Management Guidelines within the TAM Manual. Stage 2 Benefits of Disposal vs. Retention Transfer to Another Government Agency Property, which may be surplus to one agency, may be well suited to the needs of another. It is the responsibility of both acquiring and disposing agencies to indicate to each other their intentions. Information on opportunities to transfer property to, and to obtain property from, another government agency is available from the Department of Public Works and Services (DPWS). This information is based on details of non-essential land provided by all government agencies. Negotiations for transfer of surplus property can occur directly between the parties. DPWS is to be consulted if more than one party is interested in the property. It is the responsibility of both agencies involved in the transfer to demonstrate that funds will be available to settle the transfer. January 2001 TAM Asset Disposal Strategic Planning 19

134 Open Space Potential Agencies are required to undertake a preliminary assessment of the open space potential of any land currently in public ownership that is declared surplus. In its review, the Department of Urban Affairs and Planning (DUAP) may recommend that part or all of a surplus site should be used for open space purposes, in accordance with the State Government's Open Space Strategy. The open space potential of a site should be assessed according to its significance both in the local area and in the wider region. The site may have potential for contributing wholly or in part to an overall open space plan. The plan may relate to waterfront land, specific local needs (such as where the Government is promoting urban consolidation), major urban release areas on the fringe of the city, major urban centres, or it may relate to a regional network or corridor of open space. Agencies should seek preliminary advice on open space potential from DUAP and the Local Council (or undertake their own assessment) in order to determine the proposed use of surplus property. Stage 3 Possible Uses Value Maximisation In order to maximise the disposal value, an assessment should be made of the likely uses of the property after disposal. The proposed use should be the "highest and best" use and the assessment therefore includes examination of options for development of the property. Assessment of potential uses of the site necessarily includes investigation of the constraints on the site. Depending on the property, this may include issues such as: Land use controls as defined in planning instruments applying to the land Services provision Natural areas to be conserved Site contamination Traffic, noise, etc Heritage considerations Industrial hazards Geology and soils Community concerns As a rule, in-depth investigations of these issues are required only if it is proposed to re-zone the property or if they form impediments to disposal. The zoning of the property must of course be suitable for the proposed uses. Re-zoning may be required and this should be assessed in conjunction with the relevant Local Council. Services Upgrade An assessment should be made as to whether development of new or upgraded services is required to facilitate the proposed use. Then assess whether it is economical to upgrade services to permit the proposed use, compared to disposing of the property in its existing state. In order to permit the proposed use and to maximise returns, it may be necessary to complete the following prior to disposal: Remediation if contaminated Protection of heritage items Relocation of Existing Facilities and Vacant Possession An assessment should be made as to whether relocation of existing facilities and vacant possession is required to maximise the sale price. Planning for relocation of facilities will run parallel with planning for disposal to avoid undue delay. Relocation may entail the construction of new facilities. Treasury should be consulted where this involves commitment of capital works funds prior to the proceeds from disposal being available. DPWS should be consulted where disposal is on the basis that the purchaser provides alternative public facilities within the proposed development or elsewhere (ie. contra development). Valuation A valuation of the property based on market value should be obtained assuming the proposed uses. 20 TAM Asset Disposal Strategic Planning January 2001

135 Valuations may be obtained from either the State Valuation Office or an independent Valuer. Stage 4 Disposal Mechanism Any legislative requirements peculiar to the agency, which may affect the disposal procedure, should be identified to ensure the disposal program is not delayed. For example, the State Rail Authority may require the consent of the Minister for Transport for the sale or lease of land in certain circumstances. Any overlapping of responsibilities with other bodies having legislative based roles should also be identified and resolved. The disposal of properties should occur on a commercial basis. This means that current market value should be realised, including when transfer is to other Agencies. An assessment should be made to determine whether the property will be disposed of as leasehold or freehold. Disposal as leasehold may be considered where: It is desirable to impose detailed conditions of use under a lease Heritage precincts of significance, whether or not the property has a particular heritage listing It is desirable for the property to remain in government ownership (eg. a site where location is unique or important for some other reason, or where there is potential for site consolidation in the future) The site may be required for public purposes such as schools or hospitals in future development areas, particularly those likely to experience increased growth as a result of urban consolidation Market rents will normally be sought although lesser amounts may be acceptable (eg. where the lessee has entered into a maintenance or restoration contract). However, the total value of such arrangements should be equivalent to current market value. Disposal as freehold is usually preferred. In the case of disposal as freehold, an appropriate Agreement for Sale of Land (Contract of Sale) must be completed by the Government agency, its selling agent or legal adviser. Auctions are appropriate for smaller and less complex sales. In such cases, an auction is generally preferred to tender because it is usually more straightforward and the process is open to public scrutiny. In some circumstances the environment of an auction may generate a higher price. Disposal by tender is preferred where some control over the future use of the property is required or where the credentials of the buyer need to be assessed in detail. Disposal by Private Treaty will require special consideration and may apply where disposal is to Local Councils and community organisations for public use and in certain special circumstances where there is likely to be only one purchaser. Appendix C provides further details on disposal by Private Treaty. In the event of a lease to a community group or other organisation that is unable to pay market rent, an explicit subsidy should be paid out of the annual State Budget. Treasury should be consulted if an arrangement of this type is being contemplated. Stage 5 Disposal Plan and Implementation Whether freehold or Crown Land, the property should be unencumbered prior to disposal if possible. The actual disposal of property by selling agents, or the transfer of property to another Government agency, should be monitored to ensure that performance targets are achieved. The proceeds of disposal should be distributed according to Treasurer s Directions. In general, the Directions provide for the retention of 50% of proceeds by inner-budget agencies and 100% of proceeds by outer-budget agencies, for application to capital works programs or to retire debt. DPWS should be notified of the disposal (ie, when settlement occurs) through reporting for the property disposal program. January 2001 TAM Asset Disposal Strategic Planning 21

136 Appendix C Disposal by Private Treaty Introduction Disposal by private treaty is a formal agreement between two parties concerning the exchange of an asset at a price and on terms privately agreed between them. Disposal by Private Treaty is occasionally utilised by Government as a legitimate alternate method of disposal to the more common process of auction or tender. However, disposal by private treaty will be the exception rather than the rule. Agencies intending to dispose of assets by private treaty should ensure that the necessary legal powers to do so exist, particularly in the case of real property. Agencies should also ensure that the person or body with these powers has approved of its disposal by way of private treaty. In circumstances where the Governor s approval to a sale is required, the relevant Executive Council minute should specify that the sale is to be by private treaty. The following sections provide guidance on the circumstances under which disposal by Private Treaty may be appropriate and the procedures to be followed. Disposal to other Government Organisations The disposal of public property and assets to other Government agencies or to Local Councils is generally by private treaty. Transfer to other Agencies Agencies interested in acquiring a surplus government property may directly approach the owner agency or enquire as to the availability of surplus properties through the Government s property disposal program. Agencies wishing to acquire an asset are required to ensure that the transfer and full payment is made by the expected disposal date shown in the Asset Disposal Plan. This is necessary as the returns to the owner agency are often crucial to achievement of the Capital Works Program. Compensation payable on transfer should be the market value, as assessed or agreed by the State Valuation Office or independent valuer. Disposal to Local Councils Disposal to Local Councils by private treaty may only occur where a Council requires an asset for its own non-profit making purposes or where a Council will contractually commit to lease a property to a community. The basis of disposal to Councils will be the same as that relating to transfers to other Government agencies, namely the market value assessed or agreed by the Valuation Office or independent valuer. Where Councils propose to acquire a property for a commercial proposition or for subsequent resale, the disposal shall proceed in accordance with the procedures laid down in Appendix B. Disposal at less than Market Value It is Government policy that market values be realised on the sale or lease of Government assets, unless specific approval has been granted to the contrary. Where it is proposed to dispose of property at less than market value to other Government agencies, to Councils or Community organisations, the matter should be referred to the Department of Public Works and Services. Factors to be considered in such sales include the likelihood of alternative purchasers, the nature of the property including its value, the purpose to which it will be put, whether or not the organisation is profit making and the extent of community support. 22 TAM Asset Disposal Strategic Planning January 2001

137 Disposal to the Private Sector Disposal by private treaty to the private sector should only occur when: Public competition by auction or tender has failed to attract a purchaser, or It can be clearly shown that no other purchasers exist There may however be exceptional circumstances in which a sale by private treaty is appropriate provided these are adequately assessed and documented. Following Public Competition When sale by public competition has failed to attract a purchaser, offers received have been unacceptable and it can be established that further efforts to dispose of the asset by public competition are unlikely to succeed, a private treaty disposal may be negotiated within a reasonable time of the competitive process (up to 12 months). Lack of Other Possible Purchasers Direct negotiation may occur with interested parties without public competition where it can be clearly shown that there are no other possible purchasers. This may be the case where, because of location, size or other factors, there is clearly only one purchaser. This situation will often occur for minor parcels of land that are surplus following government works such as road widening where the adjoining owner is the only likely purchaser, but may also arise in other cases. In all cases, the current market value for the asset must be assessed or agreed by the State Valuation Office or independent valuer. Disposal to Former Owners Former owners of land acquired by the Government have no legal claim for preferred treatment if that land is subsequently to be disposed of by the Government. A private treaty disposal to a former owner is justified only if it meets the listed criteria. Disposal to Lessees Current lessees may be offered an option to acquire a property where the circumstances outlined above have been met. January 2001 TAM Asset Disposal Strategic Planning 23

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139 Sustainable Development Guideline

140 Sustainable development guideline January 2001 DPWS Report Number NSW Department of Public Works and Services Cataloguing-in-Publication data New South Wales. Government Asset Management Committee. Sustainable development guideline ISBN (set) ISBN Asset management New South Wales. 2. Capital investment. 3. Public administration New South Wales I. Title. (Series : TAM) This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission from the NSW Government Asset Management Committee. Requests and inquiries concerning reproduction and rights should be addressed to: Secretariat Government Asset Management Committee Level 23 McKell Building 2-24 Rawson Place SYDNEY NSW 2000 Website E:mail [email protected] Set consists of : ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN X Asset strategy Office accommodation strategy Capital investment : strategic planning Asset maintenance : strategic planning Asset disposal : strategic planning Sustainable development guideline Heritage asset management guideline Demand management guideline Life cycle costing guideline Value management guideline Risk management guideline Post implementation review guideline Asset information guideline

141 Contents 1 SUSTAINABLE DEVELOPMENT What is the Purpose of this guideline? What is Sustainable Development? What is the history of Sustainable Development? Sustainable Development and the NSW Government Sustainable Development and Total Asset Management SUSTAINABLE DEVELOPMENT IN THE TOTAL ASSET MANAGEMENT PROCESS Integrating SD and TAM The Corporate Plan Service Delivery Strategy Asset Strategy Capital Investment Strategic Plan Asset Maintenance Strategic Plan Asset Disposal Strategic Plan...12 APPENDIX A APPLICATION OF SUSTAINABLE DEVELOPMENT TO TAM PLANNING PROCESSES 13 APPENDIX B ASSET ENVIRONMENTAL MANAGEMENT PLAN 14 APPENDIX C EXAMPLE SUSTAINABLE DEVELOPMENT OBJECTIVES AND STRATEGIES 16 APPENDIX D EXAMPLE SUSTAINABLE DEVELOPMENT CONSIDERATIONS FOR BUILDINGS 17 APPENDIX E EXAMPLE SUSTAINABLE DEVELOPMENT CONSIDERATIONS FOR SMALL PRODUCTS 22 APPENDIX F EXISTING GOVERNMENT REQUIREMENTS 24 APPENDIX G CONSULTATION AND APPROVALS 27 APPENDIX H CASE STUDIES 29 January 2001 TAM Sustainable Development 1

142 1 Sustainable Development 1.1 What is the Purpose of this guideline? The general purpose of this guideline is to advise NSW Government Agencies on the need for sustainable development to form part of their business planning and how it can be considered at each stage of the total asset management process. 1.2 What is Sustainable Development? The Principles of Sustainable Development Fundamental to the philosophy of sustainable development is the fact that human communities and economies are not separate from the environment. An interdependence exists between the way humans manage the environment, the level of cohesion in a community and economic performance. The concept of sustainable development promotes not only protection of the environment and creation of wealth but equitable distribution of that wealth within society. Sustainable development seeks to ensure the needs of the present are met without compromising the ability of future generations to meet their needs. This implies that some limits on human activity due to the present state of our technology and social systems will be necessary if the biosphere is to be able to accommodate our activities. Within these limits on the development of both technology and social systems, growth can be expected to be based on responsible use of resources and to focus on investment, technology and technical development that will be wholly sustainable. The following Sustainable Development principles ensure that ecological processes and therefore human communities and economies can be sustained: The precautionary principle Conservation of bio-diversity and ecological integrity Intra and inter-generational equity, and Internalisation of ecological and social impact costs. The word environment will be used in the following guideline to encompass the ecological, socio/cultural and economic environments. The Objectives of Sustainable Development Sustainable development has four primary objectives: Minimised risk of environmental damage arising from incomplete knowledge Ecological sustainability and environmental protection Socio/cultural sustainability recognising the needs of all Economic sustainability maintaining high and stable levels of economic growth and employment An action which promotes one of these objectives at a rate which undermines the long term net viability of another is not sustainable development. Table 1 shows the relationship between the principles and the objectives of sustainable development. 2 TAM Sustainable Development January 2001

143 In some circumstances short term disbenefits might be acceptable to achieve longer term benefits. For example, it may be desirable to shut down an industry that is clearly polluting the environment but if the industry were located in a small town and was a significant local employer, closure could have significant social consequences. It may be possible to implement a strategy that in the short term could be counter to one of the sustainable development principles but over the longer term would be sustainable. Careful consideration therefore needs to be given to the context of the situation. Benefits of Sustainable Development By adopting a sustainable approach to conducting business, agencies can ensure the activities pursued will benefit the community, the environment and the economy. 1.3 What is the history of Sustainable Development? During the late 1970 s and early 1980 s, a number of independent scientists, activists and policy-makers attempted to address the conflict between preserving the environment and human development. They began to use the term sustainability to describe the goal of integrating economic development and ecological health. In 1987, the United Nations World Commission on Environment and Development released its report Our Common Future (or the Brundtland Report), which brought the terms sustainability and sustainable development into wide spread use. Our Common Future defined sustainable development as development that meets the needs of the present without endangering the needs of future generations to meet their own needs. At the 1992 Earth Summit in Rio de Janeiro, more than 100 nations, including Australia, signed Agenda 21 - an international approach towards sustainable development. When the concept of sustainable development was introduced in Australia, it was given an ecological focus - hence the term Ecologically Sustainable Development (ESD). The Commonwealth defined ESD in 1990 as using, conserving and enhancing the community s resources so that ecological processes, on which life depends, are maintained, and the total quality of life, now and in the future can be increased. An Inter-Government Agreement finalised in 1992 included principles for a cooperative national approach to the environment and in the same year a National Strategy for Ecologically Sustainable Development (NSESD) was announced. The NSESD sets out the broad strategic and policy framework under which governments can take actions to pursue ESD in Australia. January 2001 TAM Sustainable Development 3

144 Table 1 The Principles, Objectives and Strategies of Sustainable Development Principles Objectives Strategies The precautionary principle Where there is a threat of serious or irreversible environmental damage, lack of full or complete knowledge should not be used as a reason for postponing mitigating measures. Minimise the risk of environmental damage arising from incomplete knowledge Organisations should identify the potential ecological, socio/cultural and economic impacts of proposals and activities through environmental and social impact assessments, and economic appraisals. They should then develop and implement strategies to overcome such impacts. Conservation of bio-diversity and ecological integrity The concept of bio-diversity covers species, habitat and genetic diversity. Lost diversity means loss of genetic information, lost ability for species to adapt, lost opportunities for cultural advances derived from nature, loss of cultural value and leads to instability in all ecosystems. Conserving bio-diversity and protecting eco-systems will help to ensure that natural processes and therefore human economies can be sustained. Intra and Inter-generational Equity The present generation should ensure that the health, diversity and productivity of economic, ecological and social environments are maintained or enhanced for the benefit of current and future generations. Inequity in the distribution of resources results in increased environmental degradation through lack of social coordination and un-managed resource use. Committing to intra and inter-generational equity will help maintain high levels of community well-being and thereby ensure efficient use of resources. Community wellbeing includes economic health, quality of life, and the networks, norms and trust that facilitate coordination and cooperation for mutual benefit within the community. Internalisation of ecological and social impact costs The economic stability of a community that is simply ignoring social issues and using up its natural resources is unsustainable. The cost of social and environmental impacts should therefore be considered in decision-making and built into or internalised in the costs of goods and services. By internalising the costs of environmental and social impacts, a more accurate picture of economic and social health can be obtained and measures taken to ensure sustainability. Internalisation of ecological and social impact costs also contributes to Sustainable Development through improved valuation of community and natural resources. Ecological Sustainability To maintain the mechanisms by which natural processes operate. Socio/Cultural Sustainability To maintain acceptable and equitable levels of community well being. Economic Sustainability To achieve longterm economic stability for the community. Strategies for achieving ecological sustainability include: Ecological protection: ecosystems, fauna and flora Improving quality of air, water and soil Waste avoidance and minimisation Hazardous materials avoidance Strategies for achieving socio/cultural sustainability both now and in the future include: A commitment to social justice - Equity: ensuring equity in the distribution of resources - Rights: recognising individual rights - Access: providing fairer access to economic resources and services - Participation: providing opportunities for those who will be affected to participate in decision making - Ensuring equitable distribution of the costs and benefits of sustainable development Conserving aesthetic and cultural diversity, and heritage, in both society and the built environment Conserving community resources Strategies for achieving economic sustainability include: A commitment to improvement not just growth Internalisation of social and environmental impact costs Conservation of resources eg. Energy, water, soil, materials Using renewable or recycled resources and recycling Efficient use of non-renewable resources Supporting alternative technologies Ecological costing includes the concepts of: Polluter pays Full-cycle costing for goods and services, including the use of natural resources and assets and the disposal of wastes, and Cost effective pursuit of environmental goals, via use of incentive structures - including market mechanisms 4 TAM Sustainable Development January 2001

145 1.4 Sustainable Development and the NSW Government The NSW Government has the following key commitments: Integrating environmental protection into all activities Achieving greater social justice for all members of the community Encouraging economic development and sustainable employment Delivering more financially responsible programs that reduce public debt and unfunded liabilities In addition to these commitments the Government is a signatory to the National Strategy for Ecologically Sustainable Development and in accordance with the Inter- Governmental Agreement on the Environment, has adopted the four general principles of sustainable development. 1.5 Sustainable Development and Total Asset Management NSW Government agencies have a secondary service obligation to provide services in a manner that will not adversely affect ecological, socio/cultural and economic sustainability. Therefore, all agencies are required to integrate sustainable development objectives over the full spectrum of their business practices from Corporate Planning through to Service Delivery and Resource Planning as well as at the detailed implementation level (see Appendix F for a list of existing government requirements). Thus in Total Asset Management, sustainable development objectives are considered at each stage of the TAM process as illustrated in the diagram below. January 2001 TAM Sustainable Development 5

146 2 Sustainable Development in the Total Asset Management process Identify activities Identify issues Identify impacts and benefits Assess priority and/or risk Develop Strategies Identify all activities relating to function, operation and user behaviour Issues that are part of an agency s activities, products or services that can interact with the environment. Impacts and benefits are any change to the environment wholly or partly resulting from an agency s activities, products or services. The cost of environmental impacts should also be considered. Priority is the importance of carrying out an action Risk is the severity and likelihood of impact occurring Include up front cost estimates and 5-10 year cost benefit estimates 2.1 Integrating SD and TAM Total Asset Management ensures that assets are managed to best support agency service delivery. As a secondary service obligation, agencies are expected to contribute towards sustainable development by the services they deliver and the way they are delivered. For example, in providing training and education to a community, both economic and socio/cultural benefits are given to certain members of that community. The way in which it is provided, such as a new school, provides greater local employment, generates social interaction for the wider community and may require careful consideration of the affect on local ground water and environment. Integrating Sustainable Development into Total Asset Management (TAM) will ensure that an agency s service provision and asset management support the objectives of sustainable development. To enable sustainable development to be incorporated into TAM, a sustainable development implementation process has been developed. It is generic and applicable to each stage of Total Asset Management and can be used to identify and address the environmental impacts and benefits of agency activities. In order to make more accurate decisions during the application of the generic Sustainable Development implementation process to TAM planning processes, agencies are encouraged to develop an Asset Environmental Management Plan (AEMP). The AEMP is a tool for identifying, documenting and addressing the environmental impacts of an agency s activities, products or services. While the implementation of an AEMP may have initial up front costs, substantial cost savings can be obtained over time through better resource management, avoidance of environmental litigation costs, and minimised clean-up costs. Steps for implementing an AEMP are shown in Appendix B. Where funding is available, agencies may choose to establish a full Environmental management system to identify and address environmental issues. ISO for example is an Environmental Management System currently adopted by organisations internationally. The kind of impacts and benefits affecting ecological sustainability include air, water, soil, and noise pollution. Air, water and soil impacts are caused primarily through gaseous, liquid and solid wastes resulting from manufacturing processes, consumer use and disposal. The impacts and benefits relating to socio/cultural sustainability include community impacts such as social justice, equitable access to services, diversity, economic stability, heritage, aesthetic and cultural issues and transportation. Impacts and benefits that should be considered in relation to economic sustainability include methods of funding, the accrual of long term debt, continued funding of services either directly or by user pay principles and impacts on economic viability. 6 TAM Sustainable Development January 2001

147 2.2 The Corporate Plan Agencies should make a commitment to sustainable development in their corporate plans and develop corporate environmental policies. The commitment should be to both deliver services that support sustainability and to deliver them in such a way that supports sustainability. 2.3 Service Delivery Strategy The Service Strategy translates the broad aims of the corporate plan into: The specific service outcomes the agency wants to achieve The service strategies to be adopted (ie. How the agency proposes to achieve its service outcomes) The indicative resources (Physical assets, people, information, financial) required as input to the development of the asset strategy. In order to fulfil their secondary service obligation of contributing to Sustainable Development, agencies should include Sustainable Development objective and strategies in their Service Strategy. NSW Premier s Department has prepared guidelines on developing a service delivery strategy. The guidelines can be accessed electronically from The Asset Strategy section of the Total Asset Management manual. The following section will show where to apply the generic Sustainable Development implementation process in the Service Strategy development framework and provide additional Sustainable Development considerations. Agencies that have their own planning model should apply the generic Sustainable Development implementation process to that model in a similar way. The Process The analytical stages where the generic Sustainable Development process should be used are indicated by an asterisk (*). See Appendix H for a case study of the use of the process. Stage 1 * Define intended service delivery outcomes. The Generic Sustainable Development process can be used here to develop detailed Sustainable Development objectives and strategies. Broad sustainable development objectives and strategies are shown in Table 1. (Page 4) Stage 2 Forecast future demand and its impact on service delivery outcomes. Future environmental considerations include changes in the environmental regulations, increased community demand for environmentally friendly practices and the effects of environmental degradation such as the greenhouse effect and the hole in the ozone layer. Stage 3 * Assess current service performance and identify service delivery gaps. Determine whether the current service performance measures up against the Sustainable Development objectives identified in Stage 1. Strategies should then be developed to match performance with the Sustainable Development objectives and resource limits. These should be incorporated into service delivery strategy options. Stage 4 * Identify evaluate and select delivery strategies. The generic Sustainable Development implementation process can be used here to evaluate the Sustainable Development performance of service delivery strategy options. Stage 5 Document Service Delivery Strategy. Ensure that Sustainable Development evaluations are included. * analytical stages where the generic Sustainable Development process should be used January 2001 TAM Sustainable Development 7

148 2.4 Asset Strategy An Asset Strategy is the vehicle by which an agency matches its asset portfolio to its service delivery requirements. It is the analytical step between the Service Strategy and the Capital Investment, Asset Maintenance and Asset Disposal strategic plans and determines how these plans interlink. In order to fulfil their secondary service obligation of contributing to Sustainable Development, agencies should include Sustainable Development principles in their Asset Strategic Planning. The focus will be on the impacts the assets and their operation have on sustainable development. The Asset Strategic Development Framework in The Asset Strategy Guideline is a system for achieving a better match between service delivery and assets by assessing asset need, utilisation levels, suitability of location, capacity, functionality, and condition. The following section shows where to apply the generic Sustainable Development implementation process in the Asset Strategy Development framework and provides additional Sustainable Development considerations. The process Before undertaking the Asset Strategic Planning Process, the asset portfolio should be grouped and segmented. Segmenting could be by asset type, age, use or location. The generic Sustainable Development implementation process should be used here to determine the environmental impacts/benefits of particular asset groups. This can then be used as a basis for the Asset Strategy Development framework. The generic Sustainable Development implementation process should be applied at all gates of the Asset Strategy process to: Assess existing assets Evaluate options for improvement identified during the process Gate1: Asset Service Dependency Can service delivery be made less asset dependent? This part of the process encourages agencies to assess whether they need a physical asset to deliver a service. Generally speaking, physical assets consume more natural resources than non-asset solutions over their life span. Typical non-asset solutions include: Roads and Traffic Authority works depots procuring bitumen in bulk rather than 200 litre drums. While requiring a bulk tank and bunds surrounding it to control spillage, it reduced the number of storage buildings and the costs of handling and purchase. The sustainable development focus is providing materials on an economically viable basis, while protecting any risk of ecological damage. Department of Education and Training extending the bandwidth in which classes are held to accommodate more students in existing facilities. The sustainable development focus is on providing access to education rather than constructing more assets and the associated operational costs Department of Health provide telemedicine in a remote regional hospital to provide specialist medical services. The sustainable development focus is providing regular access to specialist services on an economically viable basis. Gate 2: Asset Utilisation Are assets fully used in service delivery? In most cases under-utilised assets waste natural resources. They consume, for example, materials, energy and water to remain operable. Strategies for using the assets more effectively should therefore be considered and evaluated using the Sustainable Development Generic process. 8 TAM Sustainable Development January 2001

149 Gate 3: Asset Location Are assets appropriately located for the effective service delivery? The Sustainable Development implications of the service being delivered in particular locations should be assessed. The provision of services may have socio/cultural and economic effects on the community and the regional Sustainable Development implications of the asset operating in a location should also be evaluated. Gate 4: Asset Capacity Have the assets sufficient capacity to provide the required services? Roads that become impassable in the wet may discourage growth of local markets or industry. Hospitals or schools that cannot support the delivery of particular services may result in poorer health or education standards being available. This in turn may cause excessive travel to other service locations. Insufficient capacity suggests that desired service outcomes are not being achieved. The environmental impacts of this should be evaluated using the Sustainable Development Process. Before increasing asset capacity, nonasset solutions should be explored. Gate 5: Asset Functionality Are assets suitable for the optimal delivery of services they are intended to support? Assets should not only function effectively enough to provide a service but also have high Sustainable Development performance. 2.5 Capital Investment Strategic Plan Capital Investment Strategic Planning involves assessment of all investment options to meet service delivery requirements including purchase, lease, service contract, private sector involvement and non-asset solutions together with all the resources required (assets, financial, HR and IT) The Capital Investment Strategic planning process in the Capital Investment Planning Guideline is a system for selecting the best procurement option for capital investment projects identified by the Asset Strategy. The following section shows where to apply the generic Sustainable Development implementation process in the Capital Investment Strategic planning process and provides additional Sustainable Development considerations. High Sustainable Development performance often equates with lower operating and maintenance life costs and reduces the likelihood of environmental fines or future clean-up costs. The Process The analytical stages where the generic Sustainable Development process should be used are indicated by an asterisk (*). See Appendix H for a case study of the use of the process. For example, a road bridge must not only be capable of carrying the required traffic load but must not restrict flood waters. A school must not only support optimal education but also provide a safe and healthy environment. January 2001 TAM Sustainable Development 9

150 Stage 1 * Prepare service delivery functional analysis for each project In this stage agencies are required to translate service delivery outcomes into detailed project objectives. Sustainable Development objectives should be included here and incorporated into the functional brief. Stage 2* Generate project options that meet service delivery functions. Stage 3* Short list project options, develop each, and evaluate Stage 4* Compare project options and select preferred option In Stages 2, 3 and 4 the Sustainable Development Performance of project options should be evaluated using the Sustainable Development Generic Process. Stage 5 Prepare Capital Investment Plan Criteria for ranking project proposals should include Sustainable Development principles. Those projects that offer the greatest environmental benefits to the user group and the wider community should therefore be given high priority. 2.6 Asset Maintenance Strategic Plan The purpose of maintenance planning is to ensure the productivity and reliability of the asset by appropriately managing the risk of asset failure or deterioration. The Asset Maintenance Strategic Planning process in the Asset Maintenance Planning Guideline is a structured and systematic process aimed at ensuring that an agency s portfolio of assets remains appropriate and productive at the lowest possible long-term cost. Integrating Sustainable Development principles into maintenance planning relates both to minimising adverse environmental impacts of the asset, and ensuring all environmental benefits of the services delivered continues. The integration of Sustainable Development principles into asset operation focuses on: The health and safety of the asset users and the community Ensuring maintenance works are affordable and hence service delivery remains affordable Improving efficiency in resource use and decreased waste production. The integration of Sustainable Development principles into the implementation stages of asset maintenance is best facilitated by an Asset Environmental Management Plan. (See Appendix B) The following section shows where to apply the generic Sustainable Development implementation process in the Asset Maintenance Planning process and provides additional Sustainable Development considerations. The Process The analytical stages where the generic Sustainable Development implementation process should be used are indicated by an asterisk (*). See Appendix H for a case study of the use of the process. * analytical stages where the generic Sustainable Development process should be used 10 TAM Sustainable Development January 2001

151 Stage 1 Define and segment assets to meet service delivery strategy Assets may be grouped by location, capacity, age or any other category that is significant to its service delivery support role. Major environmental impacts of assets could also be used to segment the portfolio, such as: Disaster relief communications Assets that contain asbestos or radioisotopes Assets located within environmentally sensitive regions Stage 2 * Determine required asset performance Performance criteria that will allow the assets to perform as required should be assessed to ensure any Sustainable Development impacts are identified and those criteria amended. Additional performance criteria may have to be developed to ensure the asset delivers Sustainable Development outcomes. Stage 3* Define maintenance resources and overall strategies The Generic Sustainable Development process should be used here to evaluate the environmental impacts/benefits of resources (people, equipment and materials) and maintenance methods. Overall strategy options should also be evaluated using the Generic Sustainable Development Process Stage 4 Assess conditions of assets and recommend maintenance Recommendations should be evaluated using the Sustainable Development Generic Process. Stage 5 Prepare Maintenance Cost Plan The cost plan should also include cost estimates for implementing environmental related changes. The impact of the proposed costs of maintenance should also be considered for its impact on sustainable development. If an asset is not economically viable, then the service it supports may be jeopardised. Stage 6 Implement Maintenance Plan and programs An Asset Environmental Management plan can be implemented as a stand-alone program or integrated into a maintenance planning program. Some agency s have begun with an Asset Environmental Maintenance Plan to accommodate a gradual shift in behaviour and later integrated the system into the overall maintenance program. Stage 7 Monitor and review Maintenance Plan and programs * analytical stages where the generic Sustainable Development process should be used January 2001 TAM Sustainable Development 11

152 2.7 Asset Disposal Strategic Plan Asset Disposal Strategic Planning involves continuous review of an agency s asset holdings to ensure they remain fit and in support of service delivery requirements. The Asset Disposal Strategic Planning process in the Disposal Planning Guideline aims to ensure that an agency s asset portfolio comprises only those assets that effectively meet its service delivery requirements at the lowest cost to government. The following section shows where to apply the generic Sustainable Development implementation process in the Asset Disposal Strategic Planning process and provides additional Sustainable Development considerations. The Process The analytical stages where the generic Sustainable Development process should be used are indicated by an asterisk (*). See Appendix H for a case study of the use of the process. Stage 1 * Assets Surplus to Service Delivery Determine Assets that are surplus to service delivery requirements both now and over the planning time frame. Assets are considered surplus if they are not required to deliver services or no longer contribute to Sustainable Development objectives. Stage 2* Benefits of Disposal vs. Retention Assess the advantages to Government, agency and the community in divesting assets. The generic Sustainable Development process should be used to assess the environmental impact/benefits of disposal including ameliorating ecological contamination. Stage 3* Value Maximisation Identify opportunities for increasing asset value. The value of the asset to both the community and the agency may be a combination of ecological, socio/cultural and economic value. Value maximisation strategies should be evaluated using the generic Sustainable Development process Stage 4* Disposal mechanism Identify disposal requirements including probity considerations. Options for disposal should be evaluated using the generic Sustainable Development process. Agencies should consider options that reflect Sustainable Development objectives such as reuse or recycling of the asset. Stage 5 Prepare and implement the Disposal Plan and monitor performance * analytical stages where the generic Sustainable Development process should be used 12 TAM Sustainable Development January 2001

153 Appendix A Application of Sustainable Development to TAM Planning processes Table 2 gives an overall view of how Sustainable Development is linked to TAM and its relationship to each stage of the TAM strategy. Table 2 Sustainable Development Implementation process Step 1 Identify activities Step 2 Identify environmental aspects Step 3 Identify environmental impacts, benefits or potential improvements. Service Delivery Strategy Asset Strategy Capital Investment Strategic Planning Asset Maintenance and Operation Planning Asset Disposal Strategic Planning Physical or Pollution (Air, Water, Soil, Noise) Biological (Fauna, Flora, Eco-Systems) Waste Resource Use Community resources Natural resources Community Social Factors Economic Factors Heritage, Aesthetic or Cultural impacts or benefits Transportation impacts or benefits Step 4 Assess risk or feasibility Step 5 Develop objectives and strategies/actions to address impacts and maintain or enhance benefits January 2001 TAM Sustainable Development 13

154 Appendix B Asset Environmental Management Plan An Asset Environmental Management Plan (AEMP) identifies, documents and addresses the impacts that assets and the way they were designed to operate have on the natural environment. Development of an AEMP can result in the following benefits: Cost savings through: Better resource management Avoidance of environmental litigation costs, and Minimised clean-up costs More accurate application of the generic Sustainable Development process to the TAM planning processes The generic Sustainable Development implementation process can be used to develop an AEMP and a detailed process is shown (to the right). Agencies should develop their own specialised program and it is recommended that this be done by completing a pilot study of one or a number of typical assets. The RTA for example found that by conducting a pilot study, a set of procedures could be developed for dealing with proposed and existing assets. Activities, aspects, impacts and actions should be determined by an agency s senior management or environmental manager and those preparing the plan. This information can then be used by staff associated with the operation of the asset. As an information system the AEMP can be: Linked to an intranet system to facilitate communication of the information to all staff Linked to an asset register An AEMP will ideally fall under the umbrella of an Environmental Management System. Other issues to consider in an Environmental Management System Legal requirements. Training, awareness and competence Internal and external communication Environmental management system documentation Operational control Emergency response Environmental monitoring and measurement Procedure for environmental nonconformances and corrective and preventative action. Environmental management system audits and reviews Additional points to be considered within the generic Sustainable Development implementation process Information generated during the following steps should be recorded on the AEMP Register and it is recommended that this is done electronically. Tables 2 and 3 on the following page give the suggested content of the AEMP Register. Step 1 Identify activities Identify activities relating to the function of an asset and record on the Part A of the AEMP Register. The activities should be divided into the categories of general asset maintenance, operational issues and general activities relating to the function of the asset. Step 2 Identify natural environmental aspects Identify aspects of asset maintenance, operation or other activities that can interact with the natural environment. Record these on Part A of the AEMP Register. This should include energy and water consumption and waste production. 14 TAM Sustainable Development January 2001

155 Step 3 Identify natural environmental impacts. Impacts refer to any change to the natural environment wholly or partly resulting from an agency s activities, products or services. Record this information on Part A of the AEMP Register. Step 4 Assess risk See Table 5 Risk Ranking of Impacts for a suggested system. Step 5 Develop objectives and actions to address impacts. These should be listed on the Part B of the AEMP Register. Actions should then be implemented and the AEMP updated and reviewed annually through audits and self-assessment findings. Table 3 AEMP Register: Part A Number Activity / Facility / Issue Environment Aspect (element of an activity) Environmental Impact/Benefits Current Environmental Condition: Notes Probability (A) Severity (B) Risk Ranking A x B Table 4 AEMP Register: Part B Number Activity / Facility Objective Action Target Date Estimated cost/time Estimated cost benefit (over 5 years) Performance Indicator Person responsible Monitoring schedule Date & Signature Table 5 Risk Ranking of Impacts Probability (A) 5 Common/Repeating Occurrence 4 Likely Occurrence 3 Moderate Occurrence 2 Unlikely Occurrence 1 Rare Occurrence Severity (B) 5 Catastrophic: Major irreversible impact on environment 4 Major: Major reversible impact on environment 3 Moderate: Minor reversible impact on environment 2 Minor: Minimal effect - contained in a small area 1 Insignificant: Insignificant impact Risk Ranking equals A x B January 2001 TAM Sustainable Development 15

156 Appendix C Example Sustainable Development Objectives and Strategies This table can be used as a guide in developing broad Sustainable Development objectives and strategies within a corporate environmental policy, service delivery strategy or Environmental Strategic Plan. Table 6 Suggested Objectives Objective 1 Ensure that service delivery is managed in such a way as to minimise adverse ecological, socio/cultural and economic impacts. Objective 2 Ensure that adverse ecological, socio/cultural and economic impacts resulting from agency activities are minimised. Objective 3 Ensure that the consumption of natural resources by the agency s activities is reduced. Objective 4 Ensure compliance with environmental legislation and government policy. Objective 5 Ensure that the agency is a more open and consultative organisation. Example Strategies Behavioural change of users Less asset dependent service delivery modes Use of alternative technologies Strategic environmental impact assessment of major programs Strategic social impact assessment of major programs Economic appraisal and value management of major programs with the cost of environmental and socio/cultural impacts included. (Discounting should be used to calculate future clean-up costs) Ensure that the agency s suppliers and contractors are environmentally responsible. Ensure Environmental Impact Assessment (EIA) processes are comprehensive and regularly reviewed Ensure environmental socio/cultural and economic mitigation policies lead continuous improvement of practice and are regularly reviewed. Ensure the environmental and socio/cultural performance of agency activities are reviewed and reported. Ensure trends in the use of natural resources and recycled materials are reported and reviewed; and that targets are set on an annual basis Ensure the green office concept is promulgated and adopted. Ensure that the Total Asset Management process is adopted Ensure agency staff and contractors have appropriate environmental awareness training Develop and implement an Environmental Management System Ensure comprehensive monitoring and review procedures are carried for all construction and maintenance works Review works procedures at regular intervals. Ensure that all stakeholders are involved in agency environmental planning and decision making. 16 TAM Sustainable Development January 2001

157 Appendix D Example Sustainable Development Considerations for Buildings See Database of Environmental Objectives for Buildings published by the Department of Public Works and Services (1998) for detailed descriptions of objectives. Each objective is numbered for easy reference to the database. This list has been included to show the types of Sustainable Development issues and level of detail that should be considered. Many of the issues included in this section apply to a wider range of assets than just buildings. Agencies should develop similar guidelines for other asset types in their portfolio. D1 Environment Management - Process Objectives Consider alternatives such as the no development and other non-structural options Adopt environmental management plans through all phases of projects Evaluate site and local ecosystems using a structured Environment Impact Assessment (EIA) process Adopt an inter-disciplinary, integrated approach to environment design Carry out design reviews with the Client to ensure objectives are met or exceeded Apply EIA methods to demonstrate compliance with project objectives Demonstrate life cost paybacks for all incorporated environmental measures Provide constructive feedback to designers and suppliers Continually revise current design practice to encourage use of environmentally advanced materials Provide user education through operation manuals / training Require tenderers to validate operation and maintenance costs where tendering to performance specifications Establish the probity system for verifying environmental credentials of manufacturers, contractors and suppliers Continually revise leasing documents to ensure lessees comply with environment regulations Undertake post-occupancy evaluations of all developments to provide performance data against design targets At end of facility life prepare a dismantling and disposal plan D2 Protection of Natural and Cultural Environment Natural Preserve the physical viability of natural ecosystems Support the maintenance of biodiversity with site remediation activities Conserve viable site populations of all native species and maintain their habitats Preserve existing landscape features Ensure ongoing habitat protection Carry out endangered species habitat assessments Construct on previously used or reclaimed sites Incorporate permaculture principles in design and operation at appropriate sites Minimise the use of chemicals for landscape control Protect adjacent environments during construction Provide education packages for visitors re the environmental values of sites January 2001 TAM Sustainable Development 17

158 Cultural Assess both the opportunities to reuse existing and the long-term viability of new facilities Carry out heritage assessments of proposed sites Identify and retain items of value to the local community Incorporate art in developments to enhance environment awareness Minimise physical and visual adverse impacts on nearby residents Promote multi-functional role of communal space and incorporate community services Consider the shared use or provision of adjacent facility infrastructures Consider social impacts through community participation Ensure social impacts of construction are equitably distributed Ensure appropriate access and facilities for people with disability Include environmental impacts in project cost benefit analysis Balance needs for privacy, security and social interaction Provide appropriate levels of privacy Provide appropriate levels of safety and security Maximise the opportunity for local internalenvironment control by individuals D3 Conservation of Resources Energy Minimise energy demand by adopting passive design solutions as first priorities Document design options and energy consumption forecasts in an Energy Efficiency Statement Minimise impact of site location re new infrastructure and public transport Minimise energy demand by taking maximum advantage of site selection and planning Minimise energy requirement by optimising the building design Minimise energy consumption by optimising the engineering services design Where possible install renewable energy systems Where possible install refuelling facilities for alternative-fuel vehicles Ensure installed engineering services and energy efficient measures are properly commissioned and operated Carry out programmed preventative maintenance in all systems to ensure efficient operation Monitor energy use in operation and implement further opportunities for operational efficiency 18 TAM Sustainable Development January 2001

159 Water Minimise water use by installing water efficient appliances, fittings, and devices Decrease water requirements by adopting water wise landscape designs Install water usage monitoring and reporting devices Implement water consumption audit and leakage detection programs Minimise water imports Consider reuse of reclaimed water and greywater Minimise stormwater run-off and hydrologic impacts Soil Balance cut/fill and minimise importation of fill and topsoil Use site demolition or waste materials for onsite fill and avoid transport off-site Prevent soil erosion and siltation of waterways Construction Materials Consider environmental implications of construction materials Adopt life cycle costing principles for materials and systems selection Design for use of appropriate technology level Design for ease of future adaptability Reduce and avoid if possible, the use of rare and non-renewable resources Maximise the potential life cycle length of development Use recycled and recyclable materials where fit-for-purpose Consider reuse and recycling principles where temporary structures are required Assess natural disaster risk and adopt preventive measures Avoid use of rainforest timber and timber from Australian high conservation forests Design for use of engineered wood products in preference to solid wood Use industrial wastes in materials where possible and appropriate Aim to define the optimum intervention in existing structure and systems when refurbishing January 2001 TAM Sustainable Development 19

160 D4 Improve Quality of Air, Water and Soil Air Specify refrigerants and processes that minimise ozone depleting potential and greenhouse warming potential Use building materials free of Chlorofluorocarbons (CFC) and Hydro chlorofluorocarbons (HCFC) Consider optimum microclimate effects from site design Design and configure development to avoid undesirable wind effects Design to reduce the release of Carbon Dioxide (CO 2 ) into the atmosphere Design to reduce the emission of the Oxides of Nitrogen (NO x ) into the atmosphere Minimise air pollution and emissions from buildings Design buildings for controllable natural ventilation alone where possible Ensure daylight access for habitable areas Maintain high level of indoor air quality Maximise effectiveness of indoor air circulation Use local exhaust ventilation for specific indoor sources Consider adoption of a building flush-out prior to occupancy Control humidity in mechanically ventilated buildings Protect against release of microbial hazards into ambient air Consider the common denominators of Sick Building Syndrome Minimise toxic fume emissions in fit-outs within buildings Specify suitable diagnostics for system failure and ineffective performance Ensure reduction of construction contaminants in buildings prior to occupancy Exceed minimum dust control standards in construction Maintain existing CFC air-conditioning so as to reduce leakage Avoid use of hazardous materials such as asbestos and lead-containing products Select building materials to avoid pollutant release during fires Avoid risk of electro-magnetic radiation (EMR) Noise Protect from noise pollution of sites Design site layout to separate noise generating activities from quiet activities Minimise noise emitted from external equipment Minimise noise transmission within multipleoccupancy buildings Light Avoid overshadowing of adjoining sites Design and site buildings to avoid hazardous or undesirable glare Design to minimise the impact of night lighting on adjacent areas Water Maximise rainwater infiltration by designingin permeability Control contaminated run-offs from polluting sources such as parking areas Use artificial wetlands to remove pollutants Avoid standing water conditions that encourage the generation of bio-pollutants Protect water quality of adjacent environments during construction Soil Carry out contamination testing of sites Install and utilise composting facilities where appropriate Minimise use of chlorine-based products Manage the use and storage of hazardous substances and waste 20 TAM Sustainable Development January 2001

161 D5 Waste Avoidance and Minimisation Formally apply dimensional coordination of design where practical Give consideration to the ease of future recycling of materials and components Give consideration to incorporating occupant recycling equipment Include dedicated space requirements to support recycling activities Implement waste management project plans during project construction Make provision for transfer of reusable materials to recycling or reuse stations Adopt special procedures for disposal of hazardous materials Pay regard at all project phases and activities to cut paper consumption generally January 2001 TAM Sustainable Development 21

162 Appendix E Example Sustainable Development considerations for small products This section has been included to show the types of Sustainable Development issues that should be considered when planning to purchase items like office equipment, stationery, maintenance equipment etc. By applying the 4 R's methodology (Reduce, Reuse, Recycle and Recover) at each phase of the material life-cycle (planning, acquisition, operations, utilisation and maintenance, and disposal), procurement activities can be more environmentally responsible. When purchasing, environmental considerations should be integrated with other criteria such as performance, life expectancy, quality, and value for money (cost), as far as possible. Many environmental practices can be phased in over time without additional costs. Although in some cases "green" products may cost more, the overall effect of adopting environmentally appropriate purchasing practices can result in significant savings when the total costs of purchasing, operation and disposal are considered. In order to reduce the environmental impact of your acquisition, this checklist has been designed to help you ask the right questions at the PLANNING stage of your acquisition. E1 Acquisition Have other options for meeting the needs been explored, for example: Have both departmental surplus and Crown Assets Disposal been checked to ensure that no comparable product is available internally? Have the feasibility of short-term rental or sharing the product been investigated as alternatives to purchasing? Is the quantity requested appropriate and sure to be used? Will the product be used to the end of its useful life? If not, can it be easily reallocated? Once you have determined that a purchase should be made, there are a number of specific product characteristics that can help identify a "greener" item. Be wary of products with unsubstantiated claims. Look for qualifying statements such as the percentage of recycled content. Is the product: Certified by an Environmental Labelling Program? Designed to minimise waste? Energy efficient (eg. Office equipment with a power-saving "sleep" mode)? If included in the Energy Star labelling program, does it compare favourably to other labelled products in the same category? Less polluting during its use than competing products (eg. Non-toxic, biodegradable cleaners)? Free from hazardous ingredients that would require special disposal (eg. Mercury)? Free from resources that come from environmentally sensitive regions (eg. Contains no lumber from tropical rainforests such as some teak or mahogany)? Free from banned and/or restricted, substances (eg. Contains no CFCs, Benzene, or Arsenic)? Manufactured from recycled materials, including a high percentage of post-consumer recycled content? Is the product packaging: Designed to minimise waste (eg. Bulk packaging)? Reusable by the end-user? Accepted by the supplier for reuse, recycling or recovery? Recyclable locally? Made from recycled materials? 22 TAM Sustainable Development January 2001

163 E2 Operation, utilisation and maintenance Is the product: Durable, with a long service life? Accompanied by clear and comprehensive operating instructions? (this will help ensure that it is used efficiently) Easy to maintain in good operating condition? Economical to repair? Easy to upgrade? Reusable or does it include reusable parts (eg. rechargeable batteries)? E3 Disposal Can the product or its parts: Be reused (eg. Furniture which can be refurbished) or reallocated? Be resold through Crown Assets Distribution? Be returned to the supplier for reuse, recycling or recovery? Be contributed to a waste exchange program? Be recycled locally? The relative importance of each of these questions will vary from one product category to another. In general, choose the option that satisfies the greatest proportion of these criteria. Be sure to advise your suppliers that you will be evaluating products according to these factors. When purchasing services, require your contractor to meet the same environmental standards. January 2001 TAM Sustainable Development 23

164 Appendix F Existing Government requirements In support of their statement of sustainable development, principles the NSW Government is committed to the following practices under the Environmental Planning and Assessment, (EP&A) Act, Under the EP&A Regulation, it is necessary to justify proposals having regard to biophysical, economic and social considerations and the principles of ecologically sustainable development (ESD) Comprehensive Environmental Impact Assessment (EIA) An EIA will be conducted for all programs and projects and encompass all stages of asset development from inception through to operation and ultimately, decommissioning or demolition. All identified impacts will be eliminated or mitigated. Environmental Impact Statement (EIS) An EIS must be prepared for proposals that have the potential to significantly affect the environment. The legal requirements for environmental impact assessment are included in the Act. The consent authority is normally the local council, but could be a Minister, the Director-General of Urban Affairs and Planning or another authority under certain circumstances. The applicant should consult the council in the first instance to ascertain the consent authority. It is the responsibility of the agency preparing the EIS to determine what approvals will be required as a result of the service delivery strategy and to demonstrate that the strategy can meet all approval and licensing requirements. In preparing the EIS, consultation with relevant parties should be undertaken early in the EIA process and their comments taken into account in the EIS. Social Impact Assessment The NSW Government Cabinet Office, Social Policy Development Unit issued Guidelines for assessing Social Impacts in December The guidelines do not impose compulsory assessment requirements but provides agencies with tools to identify and evaluate the likely social impacts of policies and programs. A number of assessment criteria relating to social impacts are already applied by government in specific policy areas. For example: For projects which require an Environmental Impact Statement with an assessment of social impacts see Is an EIS required - Best Practice guidelines for Part 5 of the Environmental Planning and Assessment Act 1979, produced by the New South Wales Department of Urban Affairs and Planning The Cabinet Office Publication, From red tape to results - Government Regulation: A guide to best practice, provides guidance on both designing and evaluating proposals in terms of their impacts. Under the national Competition Principles Agreement legislation Review Program, agencies must review their legislation for anticompetition impact. 24 TAM Sustainable Development January 2001

165 Waste Reduction and Purchasing Plans (WRPP) The NSW Government has introduced a Procurement Policy with environmental objectives and a Waste Reduction and Purchasing Policy. The Waste Reduction and Purchasing Policy requires all agencies to develop and implement a Waste Reduction and Purchasing Plan. The plans should reflect the significant impact the government s purchasing power can have on the market development for sustainable products. Government Energy Management Policy (GEMP) The GEMP introduced in 1998 committed the NSW government to lower and sustainable levels of energy use. The commitment extends to all aspects of energy use in the Government s operations, from buildings to motor vehicles. Specific reduction targets are to reduce total energy consumption of government buildings by: 15% of the 1995 level by % of the 1995 level by 2005 In addition agencies are encouraged to identify and implement energy management plans that will lead to energy saving outcomes. Under the policy agencies are required to monitor and report progress towards meeting the targets. To assist agencies the Energy Smart Government program was launched in Its aim is to encourage agencies to invest in cost effective energy efficiency projects. The Sustainable Energy Development Authority (SEDA) provides a range of services and guidance to participating agencies. F1 Approvals or consultation that may be required Local Councils Local Councils for development approvals under Part 4 of the EP&A Act and any building approval under the Local Government Act 1993, also for any alteration to local roads or buildings or trees of local heritage significance. Department of Urban Affairs and Planning The Department of Urban Affairs and Planning (DUAP) is responsible for environmental planning issues including the coordination of State, regional coastal and metropolitan planning. Consult DUAP for concurrence if the proposal impacts on SEPP 14 - Coastal Wetlands, SEPP 26 - Littoral Rainforest, potential or actual koala habitat under SEPP 44 - Koala Habitat Protection. Environment Protection Authority The EPA works with all levels of government, business and the community to help find nationwide solutions to Australia s environment problems. The EPA manages Commonwealth environment protection responsibilities, administers Commonwealth environment protection legislation and fulfils Australia s international environment protection obligations. For air, water and noise licenses, approvals and certificates of registration under relevant pollution control legislation; regulation of waste generation, transportation and disposal; licenses for transport of dangerous goods under the Dangerous Goods Act; licenses for chemicals subject to chemical control orders under the Environmentally Hazardous Chemicals Act. January 2001 TAM Sustainable Development 25

166 Department of Land and Water Conservation The provision of water supply and sewerage services to country towns in NSW is the responsibility of local government under the Local Government Act, Soil and Vegetation Management provides: Information on soils Information on design and construction of erosion and sediment controls, and rehabilitation Approvals on protected lands State Lands Services should be consulted: Regarding effect of development on any Crown Land For leasing, license, or purchase of Crown Land Whether the land is subject to Aboriginal land claim or Native Title legislation To determine if Crown Reserves and dedicated lands exist, whether a proposal is compatible with the stated public purpose State Water Management should be consulted regarding impact on: Ground or surface water resources Clearing riparian vegetation Works within 40 metres of a stream Coastal and Rivers Management should be consulted regarding flooding and coastal areas. National Parks and Wildlife Service The National Parks and Wildlife Service maintains registers of aboriginal sites and relics, and of historic places located on its own lands on behalf of all government agencies. NPWS manages heritage assets and protects large tracts of natural areas and endangered flora and fauna, including nature reserves. To be consulted if land clearing or impacts on natural vegetation are likely, (particularly in relation to the provisions of the Threatened Species Conservation Act 1995 and Native Vegetation Conservation Act 1997) or if sites of Aboriginal heritage significance or land managed by the Service are likely to be affected. Heritage Council of New South Wales The Council was established in 1978 by the Heritage Act Its charter is to develop policies and programs to conserve the State s heritage and to promote community awareness of heritage and its value. It should be consulted if the proposal is likely to affect any place or building having State heritage significance, or if the proposal is affected by Interim Conservation Orders (ICO) or Permanent Conservation Orders (PCO). Agencies should also consult the TAM Capital Works Investment Heritage Asset Management Guidelines in order to prepare a Heritage Asset Management Strategy. NSW Fisheries Threatened species of fish and marine vegetation are addressed under provisions of the Fisheries Management Act TAM Sustainable Development January 2001

167 Appendix G Consultation and Approvals G1 Special Legislative Requirements Building and other Approvals from Council Under the Environmental Planning and Assessment Act, building or activity approvals may need to be obtained from council for certain works: Building erect/demolish building, install temporary structures etc Waste management, transport and disposal Certain activities on community land Public roads lifting or hoisting goods over footways or roads, extending service pipes beyond road alignments Pollution Licences and Approvals from the EPA Several Acts are intended to control and reduce pollution in order to protect the environment and human health. Pollution Control Act Clean Waters Act Noise Control Act Environmentally Hazardous Chemicals Act Licenses and approvals may be needed for: Water Discharge to any waters Install or modify equipment for waste treatment discharge Air Emissions on scheduled premises Emissions and use of plant consuming more than 300 kg of fuel hour Noise Noise conditions of operation on scheduled premises Heritage and Aboriginal Items Approval is needed from the Heritage Council under the Heritage Act to demolish, damage, remove or alter an item of heritage. There are also restrictions that can be placed on works that expose relics without consent. For aboriginal relics and places, a licence is needed from the National Parks and Wildlife Services (NPWS) to damage, deface or remove any relics or places in the site of any works. Under the National Parks and Wildlife Act, there is a duty to notify NPWS of the discovery of such relics and places. Vegetation Protection and Weed Control Several Acts relate to the protection of vegetation, fauna habitats and soil. Protected Land A permit is needed to injure, lop, or remove any tree, shrub or sapling on Protected Land under the Soil Conservation Act. Protected land is classified as land steeper than 18 degrees slope, environmentally sensitive land, land within 20m of certain prescribed rivers and lakes. Habitat of Endangered Flora or Fauna If any works, including clearing, significantly affect the environment or habitat of endangered fauna or flora, an impact statement must be prepared and a licence be sought. Protected Plants Native plants are protected under the National Parks and Wildlife Act. A licence is needed from the NPWS to pick certain plants. Mangroves, Sea Grasses and other Marine Vegetation A permit is needed from NSW Fisheries to cut, remove, damage or destroy mangroves, sea grasses and other marine vegetation on public water or land, agricultural leases or foreshores. These are valuable habitats protected under the Fisheries Management Act. January 2001 TAM Sustainable Development 27

168 Noxious Weeds Noxious weeds must be controlled and destroyed under the Noxious Weeds Act. Other Works on or Near Waterways The Rivers and Foreshores Improvements Act aims to prevent erosion of land by waters and protect rivers, lakes and foreshores. Permits are likely to be needed under the Act to: Excavate or remove material within 40m of protected waters Reclaim or till land Design, realign, or divert a channel Cause any change to a river bed or bank Dredging and Reclamation Under the Fisheries Management Act the Minister for Fisheries must be informed of any proposal to dredge or reclaim in any waters. Protection of Fish Passage Under the Fisheries Management Act: No works are allowed to obstruct or strand fish across a bay, inlet, river, creek, or across and around a flat. This may apply to certain works including those that involve temporarily damming or diverting waters. If a dam or weir is to be constructed or altered, you must first consult the Minister of Fisheries on the need for a fishway. Unhealthy/Contaminated Land Approval is needed from the EPA under the Unhealthy Building Land Act to build on land declared as unhealthy. The EPA has control over contaminated sites under the Environmentally Hazardous Chemicals Act and may require a licence if an environmentally hazardous waste or declared chemical waste is to be transported. Storage, Transport and Disposal of Substances and Wastes In addition to Local Government Act and pollution control laws, several other Acts aim to reduce waste to human health and the environment from dangerous substances. Environmentally Hazardous Chemicals Under the Environmentally Hazardous Chemicals Act, a licence is needed from the EPA and safeguards are needed for storage, transport and disposal of certain chemicals. Dangerous Goods Under the Dangerous Goods Act licenses are required from the WorkCover Authority for the storage or transport of dangerous goods. Waste Disposal Under the Waste Disposal Act a license is needed to operate a waste depot, accept wastes from other sites, transport waste or create trade waste. The relevant authority is the EPA. The release of the ISO series standards for life-cycle assessment and environmental management will increase pressure to give consideration to design and construction systems and the potential that these decisions have on the volumes of waste produced. 28 TAM Sustainable Development January 2001

169 Appendix H Case Studies Neighbourhood Improvement Program Developing Sustainable Communities The Neighbourhood Improvement Program was born out of an acknowledgment that the large mono economic Public Housing had failed to deliver a sustainable living environment. Social indicators of sustainability showed the estates were failing to provide an acceptable level of amenity for thousands of public housing tenants who were expected to live in them. The housing estates were developed using the principles of the Radburn Planning scheme, which aims to separate pedestrian and vehicle access. It emerged as a guiding philosophy for American town planners in the 1920's as a response to the introduction of the motorcar into residential neighbourhoods. The Australian adoption of Radburn was based on a misinterpretation of the social and to some extent physical context needed to support such an initiative. American Radburn emerged in wealthy neighbourhoods where the upper middle classes were eagerly embracing the new technology of the domestic motor vehicle. Car courts were provided to the rear of the houses where garages housed the valuable family car. Access was provided to the front and back doors of the main house, the latter off pedestrian/bicycle paths that meandered through idyllic open space corridors that linked the residential areas to the town centres. In contrast in the large housing estates in NSW the population is predominantly low-income earners or welfare recipients with little if any private ownership. Employment is not available locally, facilities are solely provided by government and the individualisation and appropriateness of the built form were not seen as issues that would concern public housing tenants. The result is whole suburbs of disenfranchised communities that are characterised by high rates of crime, poor health levels, low education retention rates, intergenerational poverty and welfare dependence that manifest as unstable populations with many households moving out of the area within the first or second year. In other areas of Australia where these problems have been confronted the solutions have revolved around removing the problem housing and thereby moving the tenants by large-scale demolition or gentrification for re-use to private housing. In NSW neither of these two options was pursued, instead the decision to develop sustainable communities was supported as the most appropriate method for re-positioning the public housing estates and their tenants within a broader more sustainable environment. The basis of the change process had to be the tenants themselves, they in fact are the greatest resource available on the estates and historically the most under-utilised. Acknowledging this fact involves a huge paradigm shift from one where the tenants are recipients of a patriarchal paternalistic construct to one of reciprocal responsibility where the tenants drive decisions and are partners in the process of defusing and maintaining their neighbourhoods as sustainable communities. January 2001 TAM Sustainable Development 29

170 The nature of adopting sustainable practices often means extensive financial outlays at the beginning of an enterprise in return for greater longer term cost savings over the life of the project. In the case of the Neighbourhood Improvement Program housing funds have been directed from construction of new houses to replanning and redesigning of existing nonsustainable communities. Probably the most obvious manifestation of sustainability is vacancy rates, that is the number of properties and the length of time each dwelling is vacant, especially when viewed against a waiting list of applicants who are in proven housing stress. In some estates the vacancy rate runs at 16% annually out of a portfolio of 1300 properties. To replace this lost housing opportunity off site would require funding assistance ten times that required to bring the existing resource up to a sustainable level. When employment creation is factored in to the cost scenario of achieving sustainable communities, it is possible to arrive at a situation where demonstrated savings from a whole of government approach can contribute to a cross subsidised sustainable program, that is sustainability based on prevention of community disintegration. Inter-related savings can be achieved in the following areas: Reduced vacancies Reduced welfare payments Reduced vandalism damage Reduced use of emergency services Reduced loss of rents Reduced administration costs Reduced crime Improved property care Improved asset values Improved community satisfaction Improved safety and security The Neighbourhood Improvement Program has already been assessed by the tenants as highly successful, the challenge now is to ensure that the philosophy of community change and empowerment is continued and is not sacrificed to the processes of commoditisation. The ultimate test of a community s sustainability lies in the physical, social, economic and cultural streams being integrated into a robust entity that can look to the future where the human resources available within a community are fully utilised. This might mean for low economic communities the environmental fabric could start to resemble the alternate technology, high labour initiatives of other less affluent cultures where employment is generated from meeting the needs of the local community. If the economic focus is to change from the global to the local then legislative controls that prohibit or interfere in self-sufficiency will need to also change, as will the relationship between those commissioned with governing and those actively contributing to the development of sustainable communities. Whilst the Life Cycle Cost modelling for the projects is in a large part hypothetical, the basis of the methodology aims to capture the current costs in providing services to the, communities and offset them against the investment of funds into preventative and sustainable initiatives that impact on the need for income support, housing subsidies, cost of property damage, lost rents, reduced asset values, direct service provision from emergency services, cost of crime and ultimately cost of criminal justice including detention. 30 TAM Sustainable Development January 2001

171 Hypothetical Case Study Organic Waste Services is a government agency currently collecting green and kitchen waste from households and agencies in the Tarrawarra area and transport it to a landfill site. It currently services households and 5 government agencies. In light of the new NSW Government target to achieve a 60% reduction in waste to landfill by the year 2000, the agency has decided to review its current practices and integrate Sustainable Development principles into their service delivery strategy and asset management. Service Strategic planning Stage 1 Define intended service delivery outcomes Adopt the broad objectives and strategies of Sustainable Development contained in Table 1 Stage 2 Forecast future demand and its impacts on service delivery outcomes Meeting the requirements of the Waste Minimisation and Purchasing Policy Increased community expectation for environmentally safe practices. Increased population in the South West of Tarrawarra by c Increased population densities in the inner city areas of Tarrawarra. (Higher densities means that users often lack a backyard which limits the use of on-site composting) Stage3 Assess current service performance and identify service delivery gaps The agency is currently meeting service demands in the Tarrawarra area. It is however not meeting new government requirements to minimise waste to landfill or to incorporate Sustainable Development principles into its business practices. The tables show how to assess the Sustainable Development performance of current services and develop objectives and strategies to address environmental issues. Cost estimates, shown in the left table, should be included in order to compare long-term costs and benefits of each option. Stage 4 Option A: Identify, evaluate and select strategies Compost waste at source: Provide current service to users who cannot accommodate a compost bin Provide compost bins to organisations and households who can accommodate compost bins Give or sell waste to local worm farms Option B: Compost waste at depot and sell compost January 2001 TAM Sustainable Development 31

172 32 TAM Sustainable Development January 2001 Sustainable Development Evaluation of Current Service (see page 3 for evaluation of resources) Item No. price Cost Waste Trucks 20 50, Investment 3 50, Maintenance 20 2, Operation 20 4, Disposal Cars 5 30, Investment.5 30,000-15,000 Maintenance Operation Disposal Depot Investment 400m 2 720/m Maintenance Operation Disposal Admin. Investment Maintenance Operation Disposal IT Investment Maintenance Operation Disposal HR Salaries Transport Amenities Note: Cost estimates in this table TOTAL must be included to show the link between environmental initiatives and cost benefits. It also reinforces the need for life cycle costing. Activity Aspect Environmental Impact/Benefit Services The service itself contributes to Sustainable Development by ensuring that less desirable methods of waste disposal are avoided Current agency activities have medium to high levels of environmental impacts 1 Collection of waste 2 Transport of waste 3 Dumping of waste Parking Driving Dumping of waste into landfill sites Socio/cultural: parking may interrupt local transport disrupting access to houses and businesses Ecological: air emissions (CO2) Socio/cultural: increases traffic volume - more congestion on roads Economic: increases traffic volume- need for more roads and therefore increased use of natural resources Ecological: ecosystems Socio/cultural: use of space Economic: use of a natural resource Priority Objectives Low Med High Maintain environmental benefit Minimise environmental impacts Minimise impact on local transport routes Minimise ecological impacts Minimise use of roads Minimise waste to landfill to zero if possible Potential Strategy Implement an Environmental Management System Reduce the need to collect the waste Avoid peak hours Monitor problem areas Reduce the need to transport the waste Shorten transport routes: decentralise depot Look at alternatives to petrol and diesel Compost waste at source by providing compost bins Compost waste at depot and sell compost

173 Sustainable Development Evaluation of Option A Item No. Price Cost Waste Activity Aspect Environmental Impact/Benefit Priority Objectives Potential Strategy Trucks Investment Maintenance Operation Disposal 1 Cars Investment Maintenance Operation Disposal Depot Investment Maintenance Operation Disposal Admin. Investment Maintenance Operation Disposal IT Investment Maintenance Operation Disposal HR Salaries Transport Amenities TOTAL Services The service itself contributes to SD by ensuring that less desirable methods of waste disposal are avoided and that waste is recycled The activities associated with this option have minimal environmental impacts 1 Collection of waste Delivery and replacement of bins 2 Transport of bins and waste 3 Provision of bins Parking Driving Material Socio/cultural: parking may interrupt local transport disrupting access to houses and businesses Ecological: air emissions (CO2) Socio/cultural: increases traffic volume - more congestion on roads Economic: increases traffic volume- need for more roads and therefore increased use of natural resources Ecological: bins could contaminate air, water, soil and generate waste through their manufacture, use and disposal Low Low Low Maintain environmental benefit Minimise environmental impacts Minimise impact on local transport routes Minimise ecological impacts Minimise use of roads Minimise ecological impacts Implement an Environmental Management System Avoid peak hours Monitor problem areas Shorten transport routes: decentralise depot Look at alternatives to petrol and diesel Ensure bins are environmentally safe and manufactured in an environmentally safe way. Ensure bins can be easily recycled 33 TAM Sustainable Development January 2001

174 34 TAM Sustainable Development January 2001 Sustainable Development Evaluation of Option B Item No. Price Cost Waste Trucks Investment Maintenance Operation Disposal 1 Cars Investment Maintenance Operation Disposal Depot Investment Maintenance Operation Disposal Admin. Investment Maintenance Operation Disposal IT Investment Maintenance Operation Disposal HR Salaries Transport Amenities TOTAL Activity Aspect Environmental Impact/Benefit Services The service itself contributes to SD by ensuring that less desirable methods of waste disposal are avoided by recycling waste The activities associated with this option have low to medium environmental impacts 1 Collection of waste 2 Transport of waste and compost 3 Composting waste Parking Driving Socio/cultural: parking may interrupt local transport disrupting access to houses and businesses Ecological: air emissions (CO2) Socio/cultural: increases traffic volume - more congestion on roads Economic: increases traffic volume- need for more roads and therefore increased use of natural resources Priority Objectives Potential Strategy Low Med Maintain environ-mental benefit Minimise environ-mental impacts Minimise impact on local transport routes Minimise environ-mental impacts Minimise use of roads Disposal Ecological: waste production Low Minimise waste to landfill to zero if possible Implement an Environmental Management System Reduce the need to collect waste Avoid peak hours Monitor problem areas Reduce the need to transport waste Shorten transport routes: decentralise depot Look at alternatives to petrol and diesel Look at ways to use or sell compost

175 Sustainable Development Evaluation of Current Resources Activity Aspect Environmental Impact/Benefit Priority Objectives Potential Strategies 1 VEHICLES Trucks and cars Investment Economic: non-renewable resource consumption Medium Reduce resource consumption Look at alternative technologies Ensure vehicles are fuel efficient Maintenance Ecological: soil, water, and some air contamination Contain ecological impacts Implement an AEMP Economic: resource consumption Operation Ecological: air emissions -air quality, greenhouse gases emissions Economic: non-renewable resource consumption - fuel Contain ecological impacts minimise fuel and oil consumption Look at alternative fuels such as electricity and gas Minimise distances Implement an AEMP Disposal Ecological: waste production. Minimise waste to landfill Reuse or recycle parts or whole asset 2 ACCOMMODATION Depot and admin office Investment Ecological: eco-system and air, water, soil, noise pollution during construction Socio/cultural: location, aesthetics Medium Ensure building has high Sustainable Development performance Include Sustainable Development objectives in brief and all project proposals Economic: natural resource consumption Maintenance Ecological: soil, water contamination Contain ecological impacts Implement an AEMP Operation Ecological: waste production Economic: resource consumption - energy water Minimise waste to landfill increase efficiency of resource consumption Reduce, reuse, recycle waste Use recycled office equipment and stationary Conduct energy, water and waste audits and develop strategies for more efficiency Implement and EMS Disposal Ecological: waste production. Minimise waste to landfill Reuse or recycle parts or whole asset 3 IT Investment Ecological: ecological impacts during manufacture, Economic: resource consumption - natural resources Low Purchase environmentally friendly, energy efficient, recyclable equipment Ensure equipment is energy efficient eg.: sleep modes Maintenance Economic: resource consumption - energy Minimise energy consumption Operation Economic: resource consumption - energy Minimise energy consumption Institute energy saving initiatives such as turning equipment off when not in use Disposal Waste production Minimise waste to landfill Ensure supplier has a take back system or remanufacturing program 4 HR Transport Economic: fuel consumption Medium Minimise fuel consumption Provide incentives to use public transport Amenities Ecological: waste production Minimise waste production Implement and EMS Use recycled papers 35 TAM Sustainable Development January 2001

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177 Heritage Asset Management Guideline

178 Heritage asset management guideline January 2001 DPWS Report Number NSW Department of Public Works and Services Cataloguing-in-Publication data New South Wales. Government Asset Management Committee. Heritage asset management guideline ISBN (set) ISBN Asset management New South Wales. 2. Capital investment. 3. Public administration New South Wales I. Title. (Series : TAM) This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission from the NSW Government Asset Management Committee. Requests and inquiries concerning reproduction and rights should be addressed to: Secretariat Government Asset Management Committee Level 23 McKell Building 2-24 Rawson Place SYDNEY NSW 2000 Website E:mail [email protected] Set consists of : ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN X Asset strategy Office accommodation strategy Capital investment : strategic planning Asset maintenance : strategic planning Asset disposal : strategic planning Sustainable development guideline Heritage asset management guideline Demand management guideline Life cycle costing guideline Value management guideline Risk management guideline Post implementation review guideline Asset information guideline

179 Contents 1 INTRODUCTION State Government as heritage custodian Heritage assets in the context of Total Asset Management Living with a heritage asset ROLES AND RESPONSIBILITIES New South Wales Government Agencies Local Government Other groups Local Communities Relevant Legislation HERITAGE MANAGEMENT PROCESS Identification - learn what s there Strategic Planning - fit the heritage assets to the business Detailed Planning - plan what has to be done Implementation - do it Monitoring and Review - ensure the goals were met IDENTIFICATION OF HERITAGE ASSETS Survey, categorisation and significance mapping of assets Asset registers STRATEGIC PLANNING Key factors for consideration Continuing with current use Adapting the asset to a new use Transferring the asset to a new owner DETAILED PLANNING AT ASSET LEVEL Items to consider when preparing asset management plans Funding considerations IMPLEMENTATION 21 8 MONITORING, REVIEW AND FEEDBACK 22 January 2001 TAM Heritage Asset Management Guidelines 1

180 APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E APPENDIX F APPENDIX G APPENDIX H RELEVANT LEGISLATION 23 CATEGORIES OF HERITAGE ASSETS 26 ASSESSMENT/CLASSIFICATION OF HERITAGE ASSETS 27 TYPICAL RECORD FOR INCLUSION IN S.H.I. DATABASE 28 CHECKLIST OF DATA FOR ASSET REGISTER 33 GLOSSARY OF HERITAGE TERMS 35 CONTACT NUMBERS FOR HERITAGE ORGANISATIONS 37 NSW HERITAGE MINIMUM STANDARDS OF MAINTENANCE AND REPAIR 39 2 TAM Heritage Asset Management Guidelines January 2001

181 1 Introduction 1.1 State Government as heritage custodian Heritage assets are an integral part of a community and its environment. They are the tangible evidence of the state s cultural origins and its progress, and the historical foundation on which many decisions concerning the community s future are built. Familiar examples of heritage assets in the State are given in Table 1. These natural and built assets link the culture and history of a community. Table 1 HERITAGE ASSETS Categories 1 Landscapes World heritage parks Places, precincts and streets Works Buildings Groups of buildings Rooms within buildings Archaeological sites Relics and objects Shipwrecks Examples Royal Botanic Gardens, roadside verges containing rare and/or endangered species, individual trees, old growth forests and isolated remnants of bushland NSW World Heritage classified Lord Howe Island Group, Willandra Lakes Region and Central Eastern Australian Rainforest The Rocks precinct and aboriginal sites Macquarie Street Sydney Harbour Bridge and Eveleigh railway workshops Sydney Opera House and the Walter Burley Griffin incinerator, Willoughby Kirkbride Block at Rozelle Hospital Sir Henry Parkes Room in the Chief Secretary s Building Archaeological remains at the first Government House site Furniture Speakers Chair, NSW Parliament House Archival records Captain James Cook s log, books, paintings and photographs Objects the Department of Land and Water Conservation s collection of surveying equipment Statues, fences, gates, pathways and street furniture Convict ship Hive at Wreck Bay; over two thousand shipwrecks lie within the inland rivers and coastal waters of NSW 1 A detailed list of all categories of heritage assets is given in Appendix B January 2001 TAM Heritage Asset Management Guidelines 3

182 The broad objective of the heritage guideline is to identify and conserve the environmental heritage of New South Wales for the benefit of present and future generations. Considerable work has been done since the introduction of heritage legislation in the 1970s. This can clearly be seen in conserved areas throughout the State that have become the focal point for community activities, and in the widespread support for the retention and maintenance of heritage assets. More specifically the Government s heritage management policy and supporting legislative framework aims to: Conserve significant heritage assets for the benefit of present and future generations Systematically identify, assess and develop appropriate management strategies for heritage assets Maintain required standards and conditions, and Conserve by agreement rather than compulsion. This guideline integrates conservation obligations into planning and asset management processes. It is primarily for use by those engaged in business planning, development of service strategies, facilities management, capital investment strategic planning, asset maintenance planning and budgeting. The management system described in these guidelines is not meant to inhibit the development or use of heritage assets. Instead, the emphasis is on developing management options that maintain heritage values as an integral part of asset management decisionmaking. In the context of these guidelines heritage assets are specifically defined as: a landscape, place, work, building or relic of architectural, archaeological, aesthetic, social, cultural, technical, scientific or natural heritage significance. 2 2 NSW Department of Urban Affairs & Planning 4 TAM Heritage Asset Management Guidelines January 2001

183 1.2 Heritage assets in the context of Total Asset Management Total Asset Management focuses assets on the delivery of an agency s primary service responsibilities. Organizations that have control of heritage assets also have a second service obligation. While they use the assets in delivering their primary service, they are also responsible for the stewardship of the assets and protection of their significance for future generations. The procedures given in this guideline may be implemented by government agencies in a flexible manner reflecting the differing size and nature of their assets, their heritage portfolios and agencies program requirements. However, agencies must ensure that the purposes of the Government s Total Asset Management policies, procedures and performance standards are met and that they comply with relevant heritage legislation. The management of heritage issues should be viewed as an essential part of the management of the assets, rather than another problem and cost impost. Sustainable management of heritage values should be treated by an agency as part of its core business. The need for agencies assets to be employed optimally is imperative. The establishment of asset performance requirements is a key component in the process of assessing the ongoing relevance of the agency s portfolio, and in making management and investment decisions. January 2001 TAM Heritage Asset Management Guidelines 5

184 1.3 Living with a heritage asset A substantial part of government agencies heritage assets comprises property: buildings, groups of buildings, rooms within buildings and works. In that context, the best way of conserving a heritage asset is to maintain a viable and living use. Experience has shown that unoccupied property of any kind will deteriorate rapidly and become a target for vandals. Heritage property controlled by government agencies must therefore be secured, properly maintained and buildings should not be left vacant. Immediate service delivery priorities should not compromise the heritage values of heritage property. This may call for special conservation expertise and/or the allocation of resources to maximise a property s potential and to maintain the property to an extent that is also acceptable to the community. There are many feasible uses for heritage assets that can fulfil the owner s needs without compromising the historic integrity. This means finding a use that maintains such things as the visual setting, form and scale of the property, and arranging for continuous protective care of the fabric that involves the least possible intervention. The museum use of heritage property has often proven to be impractical and should be limited to property of major cultural significance. Other options should also be explored. The Historic Houses Trust, the state instrumentality responsible for maintaining and managing house museums, manages a limited portfolio of houses and public buildings and is not actively seeking to expand its portfolio. A heritage asset which continues in active use should contribute to an agency s service delivery capabilities and thus to its core business. It will almost certainly enrich the heritage of the State for the benefit of the community as a whole by contributing to its life, urban quality and to the economy. The benefits of occupying heritage assets can be considerable. However, in some circumstances the cost of service delivery may be increased by the use or occupation of a heritage asset. The costs of heritage management (including increases in service delivery costs) should be compared with any benefits gained from the use of the asset. The net cost can then clearly be identified in the agency's reporting. Most penalties are due to backlog maintenance. This in itself is often the product of past neglect rather than the inherent poor performance of the asset. All assets, old or new, require maintenance and periodic upgrading and this will not usually be accepted as grounds for special funding. If such costs are increased because of constraints imposed through meeting heritage requirements or because the type of work is now considered specialised or antiquated, grounds for assistance may exist. Therefore, when budgeting for heritage management of an asset, one that continues in active use, the costs are not solely related to heritage issues, but can be apportioned between the cost of an agency s services (for example, calculated by the cost of an equivalent new building) and the cost of maintaining heritage values. The heritage management process described in Sections 3 to 8 gives a generalised step-by-step approach to the management of all categories of assets. 6 TAM Heritage Asset Management Guidelines January 2001

185 2 Roles and responsibilities 2.1 New South Wales Government Agencies Government agencies must identify, assess and plan for the future of the natural and built heritage assets under their control. Their heritage assets are to be managed within the Total Asset Management framework. Agencies responsibilities fall into two main categories: Under Government heritage policy and legislation, agencies are required to identify and record the heritage value of the assets under their control, and As stewards of heritage assets, agencies are required to appropriately manage the use and maintenance of their assets. Agencies service outcomes must incorporate the conservation and management of any heritage assets within their portfolios. Heritage Council of New South Wales The Council was established in 1978 by the Heritage Act Its charter is to develop policies and programs to conserve the State s heritage and to promote community awareness of heritage and its value. The Council s role includes: Encouraging government agencies, local government and the community to acquire conservation skills and to participate in identifying and conserving items of heritage significance Advising the minister on measures to be taken under the heritage act to protect heritage under threat, or of special significance, and Providing advice on the implementation of the Heritage Act. More specifically, the council administers the Heritage Act and has a determining role in relation to alteration to property covered by conservation orders. In this context, it is principally an expert advisory and recommending body. Supported by the NSW Heritage Office, it takes a guiding, decisionmaking, and educative role towards places of cultural significance. Department of Urban Affairs and Planning The Department of Urban Affairs and Planning (DUAP) is responsible for environmental planning issues including the coordination of State, regional, coastal and metropolitan planning. NSW Heritage Office In 1996, the Minister for Urban Affairs and Planning announced the establishment of a new Heritage Office to provide advice to the community and to the Minister on heritage matters. The role of the office is to: Service the NSW Heritage Council Maintain the NSW State Heritage Inventory Provide specialist advice to the community on heritage matters Provide policy advice relating to heritage to the Minister, and Deal with smaller matters that would otherwise go to the Heritage Council (especially for Councils without the authority for their own heritage matters). Department of Public Works and Services The Department of Public Works and Services (DPWS) assists agencies with all aspects of heritage management. This includes dealing with heritage issues affecting properties and the development and maintenance of asset registers. DPWS provides specialist services through their Heritage Design Services Unit. These services include management of the interface with consultants and contractors and the provision of contract and project management services. It can assist with the development of adaptive reuse options and project or program evaluation tools, heritage maintenance programming, etc. These services are provided on a fee-forservice basis. January 2001 TAM Heritage Asset Management Guidelines 7

186 National Parks and Wildlife Service The National Parks and Wildlife Service (NPWS) maintain registers of aboriginal sites and relics, and of historic places located on its own lands and on behalf of all government agencies. Enquires concerning the management of any aboriginal relics or sites should be directed to NPWS. It manages heritage assets and protects large tracts of natural areas and endangered flora and fauna, including nature reserves. 2.2 Local Government Local government authorities make determinations concerning development proposals. Under the Environmental Planning and Assessment Act 1979, local government authorities in New South Wales are required to identify and manage heritage assets which are of significance in the areas under their administration. They do this through heritage studies and planning instruments. Local government authorities are also responsible for informing and educating the community on heritage matters. Some have appointed specialist advisers to provide technical and management advice on heritage matters. A number also have a Heritage Advisory Committee to facilitate community input and to promote community involvement. Local government authorities administer conservation of heritage assets as part of the environmental impact process under the following planning instruments: Local Environment Plans (LEP) An LEP sets out developmental policies for the area administered by the local government authority. Local government authorities are required to exhibit and gain community acceptance for a draft LEP before it is submitted for approval to the Minister for Urban Affairs and Planning, who ensures it conforms to the requirements of the Environmental Planning and Assessment Act 1979, Local Government Act 1993, directions from the Minister, State environmental planning policies and regional environmental plans. The LEP will identify any conservation areas and heritage items. It may stipulate development controls for zones within the area for residential, industrial, open space and other activities. It will also cover matters such as car parking, tree preservation and outdoor advertising. Development Control Plans (DCP) Several local government authorities also have DCP that provide detailed guidance on the design principles which owners need to observe to maintain the special qualities of an area. Other programs and incentives Some local government authorities now have structured programs that provide protection for heritage assets, supported by extensive promotion of heritage awareness, and at the same time offer a comprehensive package of encouragement and incentives for sympathetic development and use of the natural environment. 8 TAM Heritage Asset Management Guidelines January 2001

187 2.3 Other groups Institution of Engineers (IE) The Institution of Engineers is very active in the development of policy and in the identification and mapping of items for registration. The institution plays a major role by participating in conservation programs. For example, heritage assets such as Sydney Harbour Bridge and Eveleigh Railway Workshops. National Trust of Australia (NSW) 3 The National Trust of Australia is the country s largest private conservation organisation and is part of a worldwide network of similar organisations. The National Trust has no statutory powers. Through its expert honorary committees it identifies and records historic places of national and local significance. Classification by the National Trust gives recognition to the heritage value of a particular place or object. The Trust stimulates debate and conducts campaigns aimed at raising the level of community and government awareness of conservation. Royal Australian Institute of Architects (RAIA) 4 A professional organisation of architects, the RAIA promotes architecture and its public role through exhibitions, lectures, awards and public comment. The Institute contributes to the formulation of heritage management policies and sustains a 20th Century Buildings of Significance Register to identify and retain outstanding works of architecture in the State. The register is maintained by the Architecture Conservation Committee (ACC). The Institute coordinates the register with government agencies and like-minded groups and maintains lists of conservation architects and others who specialise in the management of heritage assets. To date 1,000 buildings have been included on the RAIA list. Royal Australian Historical Society (RAHS) The RAHS maintains a centre for the study, research, writing and publication of Australian history and provides advice on historical matters to government and statutory bodies. Its technical information service can assist agencies seeking access to qualified individuals who can help document the history of a heritage asset or area. Small grants are provided by the society to community groups, individuals, churches and local councils for archival and local history projects. RAHS conducts workshops and training for society volunteers. Royal Australian Planning Institute (RAPI) 5 RAPI is a professional organisation of planners with members throughout Australia who are committed to excellence in the practice of urban and regional planning. 2.4 Local Communities Community attitudes and expectations regarding heritage assets are expressed by individuals, groups such as those mentioned in the previous section, other local historical societies, and by property owners themselves. The community can actively support the conservation of heritage assets, and groups very often become involved in heritage issues related to a specific asset. This is because local communities frequently feel a sense of ownership, in particular towards assets in government control. Community bodies invest countless hours in maintaining and supporting heritage assets across the State. Government values the views of the community on conservation issues and encourages community participation in the management of heritage assets. For this reason, the interests of both parties are usually best served when government agencies engage in appropriate community consultation, and seek to develop partnerships with communities to work jointly to identify and conserve local heritage assets. 3 Represented on the Heritage Council of NSW 4 Represented on the Heritage Council of NSW 5 Represented on the Heritage Council of NSW January 2001 TAM Heritage Asset Management Guidelines 9

188 2.5 Relevant Legislation 6 New South Wales 6 Government policy, conveyed through relevant legislation, requires that where assets are assessed as having heritage values, the assets be regarded as inalienable. This means: The agency s responsibilities cannot be ignored or avoided and cannot be transferred to another organization without approval Heritage values are to be understood, respected, protected and conserved No material change can be made to an asset without approval by relevant authorities Doing only as much as is necessary to protect and reveal the significance of an asset Doing work which makes heritage assets useful and secure Heritage considerations should be factored into all asset management activities and budgeting, and The agency has an over-arching responsibility to administer assets for the benefit of the people of New South Wales. In New South Wales there are six major acts and minor sections of several other Acts involved in the protection of the State s heritage: NSW Heritage Act 1977, amended 1999 Environmental Planning and Assessment Act 1979 National Parks and Wildlife Act 1974 Endangered Fauna (Interim Protection) Act, 1991 Wilderness Act 1988 The Historic Houses Trust Act Regulatory controls affecting heritage assets can be imposed through other legislation such as: Local Government Act, Coastal Protection Act, Clean Waters Act, Clean Air Act, Fisheries and Oyster Farms Act, Soil Conservation Act, Forestry Act, Historic Shipwrecks Act and the Water Resources Act. Commonwealth Legislation Australian Heritage Commission Act 1975 The Australian Heritage Commission is an independent statutory authority established under the Commonwealth Australian Heritage Commission Act It provides advice on identifying natural, historic, and Aboriginal and Torres Strait Islander heritage places, many of which are listed on the Register of the National Estate. The Commission s main task is to compile and update the register, which now lists more than 11,000 natural and cultural places in Australia. The register alerts governments, planners, decision-makers, researchers and the community to the heritage values of these places so that action can be taken to conserve them. All places listed in the register are strictly assessed against publicly available criteria outlining national estate values. The Commission does not own or manage any national estate places and does not have entry rights to places in the register. All are owned by governments (Commonwealth, State or local), by business, voluntary or other organisations, or by private individuals. Listing in the register does not lock up or directly affect the way owners manage places. There is no legal obligation on the part of owners of listed places to alter the way in which a property is managed or disposed of, nor does it mean that owners are required to provide public access to listed places. 6 For a detailed understanding of the impact of this body of legislation refer Appendix A 10 TAM Heritage Asset Management Guidelines January 2001

189 3 Heritage management process Identify Strategic Planning Detailed Planning Implement Monitor Identify assets Assess assets Record assets Register assets Determine heritage management policy Review corporate objectives and service strategy Produce a Conservation Plan Determine future use Produce work plan Identify & rank risks Secure resources Incorporate into asset management plan Allocate resources Implement plan Review and evaluate Figure 1 The heritage asset management process 3.1 Identification - learn what s there This step involves identifying and assessing heritage items under the agency s ownership or control; registering them for inclusion in the State Heritage Inventory Program; and surveying them and completing condition assessments to provide information for strategic and detailed planning for short and long-term management of the heritage assets in the portfolio. 3.2 Strategic Planning - fit the heritage assets to the business This step links heritage needs to the agency s corporate objectives and service strategies. It involves determining heritage management policies and making decisions concerning the future use of heritage assets. Decisions are made that affect all future management actions including whether a particular asset is to continue in its present role, be adapted to a new role or be transferred to another agency or owner. This involves testing and confirming functional and economic requirements and service outcomes. A Conservation Plan should be produced and incorporated into the agency s overall Asset Management Plan and Capital Investment Strategic Plan. 3.3 Detailed Planning - plan what has to be done At this point it is necessary to develop a management program for individual heritage items. This involves: identifying and ranking the tasks required to implement the program; testing the extent of risks entailed in the adoption of the preferred option; assessing the likely extent of human, technical and financial resources required; finalising the economic, financial and service delivery outcomes; and preparing a maintenance plan to be incorporated into the portfolio Asset Management Plan. 3.4 Implementation - do it This involves securing approvals, resources and funding and implementing the program to the extent of the available funds and other resources. 3.5 Monitoring and Review - ensure the goals were met This phase involves setting in place mechanisms and implementing an ongoing monitoring program to review the effectiveness and efficiency of heritage management activities. Success will be measured in terms of the agency s overall business outcomes, service delivery obligations and asset portfolio performance requirements. It may be necessary to amend future phases of the asset management program to address new or changed circumstances. January 2001 TAM Heritage Asset Management Guidelines 11

190 4 Identification of heritage assets Identify Identify assets Assess assets Record assets Register assets 4.1 Survey, categorisation and significance mapping of assets Agencies are required to survey their portfolios to identify any assets, which may have heritage significance. Standard heritage categories 7 should be used to organise the survey and begin the process of heritage assessment. The Department of Urban Affairs and Planning (DUAP) assessment guidelines and criteria 8 must be used as the basis of assessment and classification. It is also wise to obtain professional advice from qualified heritage practitioners to clarify the heritage significance of any items or assets. Generally, it is necessary to gather a range of information about the area in which the items or assets are located 9. Typically this would include the history, architectural characteristics, development patterns and the topography of the area. If a number of heritage items are located within one area they should be surveyed at the same time. The survey should reveal dominant heritage features, define the location of specific items, and place them within their historical context 10. Information concerning government policies and other matters, which influenced the acquisition of an asset, can help to establish whether the asset has state or regional significance, and could be included in funding applications. 4.2 Asset registers Government agencies are required to maintain an accurate register of all assets which have a service potential and/or the capacity to provide economic or social benefits, and which may be used in the production of goods and services. 11 For convenience and security this data should be stored and updated electronically. Agencies should continuously update their asset register to allow efficient, day-to-day management of all assets, including those of heritage significance. The register should be an information tool for continuously improving asset management and should enable agencies to reduce the risks associated with inappropriate use or underutilisation being overlooked In 1988, Section 170 was added to the Heritage Act, requiring NSW Government agencies to prepare a Heritage and Conservation Register. In particular, agencies are required to: Ensure that the heritage assets on the register are being monitored Update the heritage register annually at least, and preferably continuously Make the particulars of registered heritage assets available for public inspection, and Submit particulars of the heritage assets to the Heritage Council of New South Wales for inclusion in the State Heritage Inventory (SHI) 12 database. 7 Summarised in Appendix B 8 Summarised in Appendix C 9 A sample of a record detailing information covered in the initial survey is given in Appendix D 10 A detailed check list of items for inclusion in the asset register is given in Appendix E 11 Refer Total Asset Management Manual, Asset Registers 12 Data supplied concerning each asset for inclusion in the S.H.I. database should follow the format given in Appendix D 12 TAM Heritage Asset Management Guidelines January 2001

191 In 1999, additional provisions were added to section 170 of the NSW Heritage Act. These provisions require government instrumentalities (including state owned corporations) to maintain their identified heritage items in accordance with the best practice heritage management principles issued by the Minister and guidelines issued by the Heritage Council. In addition, annual reports need to include a summary of heritage items listed in their section 170 registers and a statement on the condition of the State significant heritage items in the care of the agency. A large proportion of heritage assets will consist of buildings and works. However, furniture, fittings, written records and art works should also be surveyed to assess whether they should be included in the heritage and conservation component of the agency s asset register. The register should contain a fundamental record of current facts concerning an agency s heritage assets, used to assist with making decisions about their management. The register should be referred to before any maintenance, planning, or capital work projects are contemplated. Any links between registers should be shown, for example inclusion in the agency s register and inclusion in other registers such as the Australian Heritage Commission s Register of the National Estate, the RAIA managed 20th Century Buildings of Significance Register, Institution of Engineers Register of Significant Engineering Works, or the National Trust s register. This will assist in coordinating interagency and inter-governmental activities and avoid duplication of effort and costs. The register should be continuously updated as changes occur. This will help to ensure that the information is reliable and relevant. For example, it is necessary to: Add new information about heritage assets Add new information about existing assets when they qualify for heritage registration, and Delete information about assets that have been disposed of or found to be of insufficient heritage significance. Heritage Asset details Figure 2 Relationships between Agency Asset Register; Section 170 and S.H.I. Registers Government Agency Asset Register Incorporates all assets Apply Total Asset Management System Section 170 Heritage Asset Registration Agency Information System State Heritage Inventory Program S.H.I.P State Information System January 2001 TAM Heritage Asset Management Guidelines 13

192 5 Strategic planning Strategic Planning The next step is to determine management strategies for the agency s heritage assets. An agency may choose to continue to use the asset in its present role, to adapt it to a new role or to transfer the asset to a new owner. Several different types of input and activities are required for heritage asset strategic planning: adoption of an agency-wide heritage management policy/strategy; reference to many of the agency s other strategic planning resources; assessment of fitness-for-purpose; assessment of benefits to the agency and to the public; consideration of options for future use, and specialist heritage planning expertise. Professional expertise should be sought by employing experienced conservation practitioners to prepare a Conservation Plan for individual items or groups of items where appropriate. A good Conservation Plan is an essential problem-solving tool, which clearly establishes the significance of the heritage asset. It may make recommendations for future use, however there is no standard brief. Conservation Plans should be reviewed regularly and updated as necessary. 5.1 Key factors for consideration What performance is required from the asset, and what contribution should it make to service outcomes? These answers should be compared to the ability of the asset to deliver this performance. What are the statutory requirements relating to the asset? Statutory requirements relating to heritage may derive from several sources: A Local Environment Plan (LEP) Regional Environmental Plan (REP) Interim Conservation Order (ICO) or Permanent Conservation Order (PCO) All potential controls should be checked to determine any constraints affecting future development. A Conservation Plan should include details of any statutory requirements. What are the needs of Government? Does the Government have a particular interest in the asset? Does government policy affect the re-use of such assets? Is there a current government policy regarding heritage assets in that particular area? What are the needs of the community? Does the community have a particular interest in the asset? How will community interest be harnessed? Will a change of use create community opposition? 14 TAM Heritage Asset Management Guidelines January 2001

193 Which is the preferred option for use? Continue with the current use? Adapt the asset to a new use? Could the asset be better used by another agency, and is transfer of ownership an option? What is required to achieve the selected option? Determine what work is to be undertaken and when; obtain any necessary approvals; allocate management, technical, financial and any specialist resources and skills; and develop internal and external communications strategies. How will the agency determine whether the strategy adopted meets desired outcomes? What are the desired outcomes and what are the criteria for assessing whether the asset is meeting them? 5.2 Continuing with current use The best way to effectively manage a heritage asset is to maintain a viable and living use for it. Many State-owned heritage assets such as schools, courthouses and fire stations remain in full and active use. As a general rule, this ensures their maintenance and conservation. However, it is important that heritage values are not jeopardised by short-term decisions by owners, occupiers or users, for example through inappropriate development, use, maintenance or refurbishment. Agencies should bear in mind that part of their heritage management responsibility is ensuring that building users are appropriately aware of heritage significance and conservation constraints. Where appropriate this may extend to the occupiers or users having contractual obligations. 5.3 Adapting the asset to a new use Current uses may no longer be functionally or financially compatible with the agency s service delivery requirements and it may be more appropriate for the asset to be put to another use. This is known as adaptive re-use. The aim is to find a use that meets the agency s service requirements and at the same time conserves intrinsic heritage values. Business needs must be balanced with heritage obligations. Agencies are advised to use established methodologies such as value management and economic appraisal to help determine whether a new use would be more appropriate. Examples of successful adaptive re-use of heritage assets include Sydney Park (formerly the St Peters Brickworks), East Sydney Technical College, Pyrmont Bridge, the Powerhouse Museum, the First Government House Site, the Walsh Bay precinct, Rodd Island and the Quarantine Station. Effective use of heritage assets can produce many benefits: Lower operating costs - after catch-up maintenance or improvements have been carried out, lower maintenance costs and lower energy consumption may be possible An attractive working environment - offices can be quieter, may not require air conditioning and are often in pleasant surroundings A link between the agency and the local community - heritage assets attract public attention, and conservation activity often attracts public support. Links with the community can be enhanced through open days, allowing public access to facilities, forming trust groups etc. Employment and business opportunities - direct and indirect employment can result, for example through tourism-related business activities Status and recognition - heritage assets are valued and known in the community. January 2001 TAM Heritage Asset Management Guidelines 15

194 5.4 Transferring the asset to a new owner In some cases a heritage asset may not support the efficient delivery of an agency s services. In spite of this, the responsibility for maintaining the asset s heritage values remains with the agency. However, the agency may consider transferring the use and/or control of the asset to another agency. This could be arranged by transferring the title, or by leasing or licensing the asset to that agency, or by another form of agreement. Maximum effort should be made to avoid abandoning or destroying heritage assets. The potential loss incurred to society by the destruction of a heritage asset must be fully assessed, with reference to professional heritage expertise. Demolition of heritage assets requires the consent of the Heritage Council See also Total Asset Management Manual guidelines on Asset/Property Disposal 16 TAM Heritage Asset Management Guidelines January 2001

195 6 Detailed planning at asset level Detailed Planning Having determined how an asset is to be used, detailed planning at asset level is the next step. This requires a combination of experience, foresight, detailed knowledge of the agency s requirements, and technical and specialist heritage expertise. The detailed planning must incorporate whatever is necessary to protect, conserve, reveal and explain the heritage significance of the asset. The success of an agency s heritage management will be evident if heritage values are conserved and extended, and will be seen in outcomes such as: The quality of conservation work and the standard of finishes The extent to which functional requirements are met Successful integration of old and new elements. Successful outcomes depend on less tangible things such as: Whether innovative solutions are found to accommodate service delivery needs within heritage constraints The quality of the interaction between the parties involved, and The extent of community satisfaction with the processes and outcomes. The scope of detailed planning will be determined by the future use requirements. Management methodologies such as value management, risk management and economic appraisal can be used to assess and confirm the functional, economic, financial, social and cultural benefits that will be generated. If used at the right time these methodologies can help to prioritise works and ensure maximum value for money. 14 Planning should clearly identify the human, technical, financial and physical resources required; including their availability, cost, respective roles, responsibilities and accountabilities. Key steps during this phase include: Identifying and prioritising tasks, to generate a work plan for each asset, and Prioritising and scheduling this work in relation to the agency s other asset management projects. 14 See also Total Asset Management Manual, Value Management/Risk Management/Economic Appraisal January 2001 TAM Heritage Asset Management Guidelines 17

196 6.1 Items to consider when preparing asset management plans When preparing an asset management plan for heritage items, reference should be made to many of the agency s management planning strategies, resources and reports. In particular the following items should be considered: If continuing with the current use Conservation Plan Having decided to continue with the current use, review the Conservation Plan. Document the policies, procedures and performance standards that are recommended in order for heritage significance to be retained in continued use and/or future development. Integrate these recommendations with the agency s overall asset management strategy. Ensure that an appropriate level of funding is allocated. Capital Investment Plan Determine whether capital investment is the best solution. Where capital investment is required, identify and document long and shortterm capital investment requirements in relation to the delivery of services. Identify what needs to be done to cover any shortfall between what exists and what is needed. Identify the most cost effective solutions and incorporate these in the agency s Capital Investment Strategic Plan. 15 Asset Maintenance Plan It is important that agencies recognise heritage property as an asset not merely as the source of maintenance liabilities. However, heritage property may require detailed attention, frequent maintenance, specialist advice, specialist tradespeople, and therefore budgeting based on special heritage requirements. Assets of high cultural significance may require a very high standard of maintenance at all times. Others may be maintained to general commercial standards, whilst others that are not presently in use should be maintained to prevent deterioration, discourage vandals and ensure public safety. Maintenance strategies are governed by an agency s particular requirements and circumstances and may include a mix of fix when fail or breakdown maintenance, preventative maintenance, servicing maintenance, cyclic maintenance, and condition-based maintenance. When assets are registered their condition should be assessed and decisions made about maintenance priorities. In some instances it will be necessary to schedule maintenance to address specific needs, eg. a stonework program. Guidelines should be provided for building managers concerned about protecting the significance of the place on a day-to-day basis, and for future owners/occupiers. The costs for maintenance are met from agencies recurrent allocations. Major periodic maintenance costs are reviewed by the Budget Committee in the same way as major new capital works, within the context of the Government s overall budget priorities. These must be supported by economic appraisals and value management studies. It is advisable for agencies to prepare budgets for all stages of a conservation program in connection with a single asset and for the portfolio as a whole. 15 See Total Asset Management Manual, Capital Investment Planning 18 TAM Heritage Asset Management Guidelines January 2001

197 Maintenance planning should follow the structured and systematic process defined in the Total Asset Management Manual 16. The preliminaries include linking the asset to the agency's service strategies and defining the level of performance required. This is aimed at ensuring assets remain productive at the lowest possible long-term cost, and includes conservation of the heritage value of assets. Long-term plans (more than 10 years) should provide for the replacement or modification of major components. Medium-term plans (five to ten years) should define impending major tasks. Both long-term and medium-term plans should then be integrated with the agency s Capital Investment Strategic Plan and provide for down-time and other impacts on productive capacity. An annual program will be required to control the implementation of the maintenance program. Once a maintenance plan is drafted all necessary approvals should be sought, and notice of any significant works may need to be provided to relevant authorities and organisations. If adapting the asset to a new use As for continued use, plus Development re-use options Investigate re-use and development/design options. Ensure these options are compatible with heritage requirements. If conflicts arise, for example between the development/design options, heritage needs, and/or service delivery obligations, the preferred option may need to be justified through a Statement of Heritage Impact. Arrange for all necessary approvals and notify relevant authorities and organisations about change of use. Develop an internal and external communication strategy. If considering transferring the asset As for continued use, plus Transfer strategy plan Take all constraints into account. Prepare a transfer strategy to ensure that heritage values are fully understood and are not compromised during the process. Ensure that the asset will not be left unprotected or unoccupied and therefore prone to vandalism. The asset should be thoroughly documented and any moveable items should be protected. Arrange for all necessary approvals and notify relevant authorities and organisations about change of use. Develop an internal and external communication strategy. 16 See Total Asset Management Manual, Maintenance Planning January 2001 TAM Heritage Asset Management Guidelines 19

198 6.2 Funding considerations This phase involves securing finance, and ensuring that the work planned is within the limit of the available resources and funds. Agencies should clearly demonstrate how the funding sought is linked to service strategies and overall obligations. Several questions are frequently asked: Who is responsible for securing funding? The agency controlling the asset is responsible for managing the heritage asset and for organising the funds required to conserve the asset s heritage values, whether the funds are from its own resources, other sources or from Treasury. How is funding secured? State Government funding is secured through normal annual applications for capital works and maintenance expenditure, as part of normal business planning and budgeting. Guidance should be sought from the agency s relationship manager in Treasury to comply with the Strategic Management Cycle and the current timeframe for planning of activities. Can funding be secured to cover all activities in the asset management strategy? Rarely will funds be available to allow all identified tasks to be carried out at one time. It is therefore critical to carefully assign priorities and to identify the most cost-effective solutions. Planning for heritage assets will certainly span five to ten years, and because of the nature of heritage assets may extend to longer periods of fifty years or more. It is important to make allowance for the higher than usual costs that could be incurred for maintenance of heritage assets. Are special funding programs available? Across-Agency Capital Programs are available where there are economies of scale or management advantages to funding programs that effect several agencies. Heritage Assistance Grants Program Commonwealth Government funding is available through the National Estate Grants Program (NEGP). This is the Commonwealth s major heritage funding program and is coordinated by the Australian Heritage Commission. The program is undertaken in cooperation with State and Territory governments and provides funds for national estate identification, conservation, promotion and education projects. The Department of Urban Affairs and Planning, Heritage Office administers the Heritage Assistance Grants Program. This program is aimed primarily at funding non-government projects. Public Buildings Stone Conservation Program This 20-year program was established to make the best use of limited resources and skilled labour to conserve significant stone buildings within NSW. The Department of Public Works and Services manage the program. Works are funded from within an agency s own resources. 20 TAM Heritage Asset Management Guidelines January 2001

199 7 Implementation Implement Key steps during this phase are: Securing funding and other resources Obtaining approvals from relevant authorities and organisations, and Community liaison During implementation, agencies should continue to bear in mind that the intrinsic value of heritage assets must be maintained, and that assets should be optimally employed. It is essential to have realistic asset performance requirements in relation to service outcomes. This will assist agencies in the ongoing decision making during implementation. The asset register and the plans that are prepared dealing with heritage assets must be practical and manageable, should contain appropriate information for decision-making, and should not be burdened with irrelevant material. Heritage asset management activities should be coordinated with other bodies. For example, studies, surveys, and other informationgathering activities should be coordinated with work carried out by other government agencies or historic, preservation and environmental groups. This could extend to joint decisionmaking and agreements that serve the conservation purposes of all parties. Similar agreements could apply to monitoring activities. Unless an agency has adequate in-house resources it should seek specialist input, as sound advice will pay off in the long term. For example, the services of a qualified conservation practitioner could be engaged to: Oversee the agency s heritage asset management activities Help establish the agency s advisory panel and to liaise with other interested parties Prepare field studies and surveys Assist in obtaining appropriate consents and approvals Develop specifications and contract packages and assist with tendering activities Identify skilled contractors and tradespeople to execute conservation or restoration work Provide competent on-site supervision and quality assurance procedures, and Assist in the preparation of education and communications programs In this way it should be possible to avoid inadvertent, often irreparable damage to an asset. January 2001 TAM Heritage Asset Management Guidelines 21

200 8 Monitoring, review and feedback Monitor In keeping with sound asset management practices, agencies should monitor and review the relevance, effectiveness and efficiency of the assets under their control and the implementation of their management programs. Additionally, agencies are required to monitor the state of conservation of heritage assets included in the Heritage and Conservation Register and to take action to ensure that the qualities and characteristics that justified registration are not eroded. An agency s monitoring system should alert it to any activity that could result in changes in the character or use of the heritage assets under its control. This could include new and continuing projects or programs that may originate with other government agencies, other levels of government, the private sector or the community. The integrity of a heritage asset may be diminished by changes to its location, design, setting, materials, workmanship, feeling, or association. Many activities can have an adverse impact on heritage values, for example: Physically destroying, damaging, or altering all or part of the asset Isolating the asset from its setting, or altering the character of the setting when that environment contributes to the asset s integrity Introducing visual, audible, or atmospheric elements that are out of character with the asset or that alter its setting Neglecting an asset and leaving it vulnerable to theft, vandalism, trespass, unlawful occupation, deterioration or destruction, or Transferring, leasing, or selling the asset Ideally, these possibilities should be addressed through an appropriately structured risk management plan, following established NSW Government guidelines. The plan should incorporate strategies to deal with these sorts of problems. Monitoring of heritage projects should form an integral part of the agency s overall asset monitoring activities, and should include measures that specifically relate to maintenance of the heritage values of the assets in the portfolio. Systematic monitoring of the ongoing relevance of the assets should: Ensure that they are appropriate to the corporate needs of the agency and its short and long-term goals Identify under-performing assets Ascertain reasons for performance deficiencies, and Determine what action should be taken to remedy unfavourable situations. Monitoring of the heritage management process should be approached from the perspective that it is always possible to improve upon past decisions concerning management of an asset, upon how a heritage asset is employed, and how the asset is maintained. Successes and failures should be incorporated in any future strategies and programs, and actual performance should be compared against anticipated performance. 22 TAM Heritage Asset Management Guidelines January 2001

201 Appendix A Relevant legislation A1 New South Wales legislation In New South Wales there are five major acts and minor sections of several other Acts involved in the protection of the State s heritage. NSW Heritage Act 1977 The Heritage Act is concerned with all aspects of historic conservation. The scope of the legislation ranges from the most basic protection against damage and demolition to restoration and communication activities. The Act can affect all properties, whether in government, church, institutional, private, or corporate ownership. Many measures are available to the Minister for Urban Affairs and Planning under the Act to ensure timely and appropriate protection of the environmental heritage. This includes: orders to control demolition (S130); emergency orders to halt demolition (S136); interim conservation orders (ICO); and, permanent conservation orders (PCO). For example, the Heritage Council s approval is necessary to carry out any kind of development activity on any item protected by either permanent or interim conservation orders. Demolition or removal of a property from a government agency s Heritage and Conservation Register requires the consent of the NSW Heritage Council. The Act enables owners and the public to be involved in the heritage system through submissions and hearings about the placing or removing of conservation orders and appeals about development decisions. Appeals against the decisions of the Heritage Council and local government authorities on items covered by conservation orders are made to the Minister, irrespective of whether the approval was made under the Heritage Act, the EPA Act or the Local Government Act. The Minister then decides whether the matter should be referred to the Land and Environment Court or be determined by him/her following the recommendation of a Commission of Inquiry. Section 170 of the Act, added in 1988, requires State government agencies to prepare a Heritage and Conservation Register of heritage items they control, own or occupy. Further amendments to the NSW Heritage Act in 1999 included additional clauses to section 170 requiring government instrumentalities to maintain their identified heritage items in accordance with the best practice heritage management principles issued by the Minister and guidelines issued by the Heritage Council. In addition, annual reports need to include a summary of heritage items listed in their section 170 registers and a statement on the condition of the State significant heritage items in the care of the agency. Additional changes include: Replacing provisions for making Permanent Conservation Orders (PCOs) with provisions for listing items on the State Heritage Register Provisions for minimum standards of repair for items listed on the State Heritage Register To impose further obligations on government instrumentalities in respect of items of environmental heritage that they own or occupy (with government instrumentality being extended to include State owned corporations) To increase the maximum penalty for an offence against the Act from 200 penalty units to 10,000 penalty units (currently $1,100,000) January 2001 TAM Heritage Asset Management Guidelines 23

202 Environmental Planning and Assessment Act 1979 The Environmental Planning and Assessment Act allows for the protection of heritage assets at local and regional levels through the preparation of Environmental Planning Instruments (EPI), the development assessment process; and, the environmental impact assessment process. EPI include: State Environmental Planning Policies (SEPP) Local Environmental Plans (LEP) Regional Environmental Plans (REP), and Development Control Plans (DCP) Many local councils have gazetted an LEP for items of environmental heritage in their local area. The LEP list items of heritage significance and are based on studies undertaken by conservation practitioners. The LEP will also list the council requirements if an owner wishes to undertake development on a listed site. Such requirements can include: Preparation of a Conservation Management Plan to accompany the DA Preparation of a Statement of Heritage Impact Referral of the application to the NSW Heritage Council if demolition or major alterations are proposed. Listing of an item on a heritage LEP does not preclude development of that item. However, it requires the property owner to demonstrate an understanding of the heritage significance of the property and the means by which that significance will be protected, and preferably enhanced, by the proposed development. National Parks and Wildlife Act 1974 The NPW Act, 1974 provides the legislative framework for the management of historic sites and protection to Aboriginal places and relics, in addition to the protection of natural areas and endangered flora and fauna. Natural areas include national parks, State recreation areas, wild and scenic rivers, wildlife refuges and nature reserves. Endangered Fauna (Interim Protection) Act, 1991 The Act amends the EPA Act and NPW Act and requires an assessment of the environmental impact on protected fauna to be undertaken as part of the development process. Wilderness Act 1988 The Act enables the declaration and management of wilderness areas. The Historic Houses Trust Act 1988 The Act enables the management, curation and interpretation of house museums and a small selection of major public buildings owned by the State for conservation and educative purposes. The Trust plays an important role in education and setting exemplary standards of conservation work within a philosophical framework. Other Regulatory controls affecting heritage assets can be imposed through other legislation such as the Local Government Act, Coastal Protection Act, Clean Waters Act, Clean Air Act, Fisheries and Oyster Farms Act, Soil Conservation Act, Forestry Act, Historic Shipwrecks Act and the Water Resources Act. 24 TAM Heritage Asset Management Guidelines January 2001

203 A2 Commonwealth Government legislation Australian Heritage Commission Act 1975 The Australian Heritage Commission is an independent statutory authority established under the Commonwealth Australian Heritage Commission Act It provides advice on identifying natural, historic, Aboriginal and Torres Strait Islander heritage places, many of which are listed on the Register of the National Estate. The Commission s main task is to compile and update the register, which now lists more than 11,000 natural and cultural places in Australia. The register alerts governments, planners, decision makers, researchers and the community to the heritage values of these places, so that action can be taken to conserve them. All places listed in the register are strictly assessed against publicly available criteria outlining national estate values. The Commission does not own or manage any national estate places and does not have entry rights to places in the register. All are owned variously by governments (Commonwealth, State or local), by business, voluntary or other organisations, or by private individuals. Listing in the register does not lock up or directly affect the way private owners manage places. There is no legal obligation on the part of owners of listed places to alter the way in which a property is managed or disposed of, nor does it mean that owners are required to give the public access to listed places. January 2001 TAM Heritage Asset Management Guidelines 25

204 Appendix B Categories of heritage assets Landscapes - including those created by mining, farming, even the changing shape of a growing town, and that often reflect specific techniques of sustainable land-use, considering the characteristics and limits of the natural environment they are established in, and a specific spiritual relation to nature. Places - a place may be a garden or area of landscape associated with an historic house, or it may be a natural area that supports rare or endangered birds and animals and includes cemeteries, old roads, remnant bushland areas, street trees and geological sites. Works - usually associated with commercial industrial or engineering development which include: mines, breweries, tanneries, brickworks, woollen mills, steelworks, railways, wharves, early iron suspension bridges or their remains, water supply plants, sewage treatment plants. Buildings - public buildings including: museums, libraries, courthouses, police stations, prisons, hospitals, institutions for training such as universities, technical colleges, school buildings, council chambers and halls, churches, houses and simple cottages including those made of timber slabs, mud bricks and corrugated iron, commercial buildings, factories, forts, rural buildings, small country pubs and grand city hotels, clubs, workshops. Structures - such as wells, drainage systems, flood mitigation levees, pipelines, winding houses, mineshafts, dams and bridges, retaining walls, sea walls. Relics - must be over 50 years old, but may be many things: crockery, household utensils, historic equipment used for crafts, fragments of tiles and ornaments, clay pipes and a wide range of personal items such as clothing and jewellery. Machinery and tools - such as steam and hydraulic powered engines and presses, farm tools drawn by horse and bullock, mine machinery, hand tools, scientific instruments, moveable items such as ferry boats and locomotives. Objects - including crockery, bottles, toys, and furniture. Archaeological/historical site (maritime) - shipwrecks such as river barges, coastal steamers and all that sank with them. Archaeological/historical site (terrestrial) Ruins and foundations - of early domestic, rural and industrial buildings and complexes. Deposits - including such things as rubbish pits and the accumulation of dirt and objects under the floors of old buildings. 26 TAM Heritage Asset Management Guidelines January 2001

205 Appendix C Assessment/classification of heritage assets A critical step in the heritage asset management process is to ensure that assessment and classification of assets is valid, appropriate and relevant. The recommended method for assessment and classification is detailed in the Heritage Assessment Guidelines published by the Department of Urban Affairs and Planning (DUAP). Significance may be rare or representative across a number of values. The DUAP guidelines provide an objective means of assessment and aim to establish standard criteria that can be applied consistently throughout the State. The criteria are compatible with those used by the Australian Heritage Commission and fall within two linked groups as outlined in the following table. Both need to be assessed when establishing the heritage significance of an asset or group of assets. To be assessed as significant an item must qualify under one of the five nature of significance criteria and must also qualify under one of the two degree of significance criteria. In addition the item must retain the integrity of its key attributes of significance. It should be noted that an item does not have to be intact, or even in good condition to retain its integrity. Heritage significance may relate to the asset itself. It may also relate to its wider context, both physical and historic. For example, its significance may arise from being part of a wider set of similar assets. The methodology has been established to avoid errors being made in assessments, recommendations and reporting that could have long-term adverse effects. For example, an incorrect assessment could lead to incorrect data that some time later is used to make a management decision that results in unsympathetic upgrading, development and/or use that does irreparable damage to the asset and to a diminution of the heritage values. It is important to ensure the methodology is carefully followed so that there is consistency in establishing heritage values across all agencies and that the quality of the information recorded in the register is of the highest standard. NSW Heritage Office Heritage Significance Criteria Group 1 Criterion Nature of significance Concern 1 Historic Range of historical content 2 Aesthetic and technical Creative or technical accomplishments 3 Social Community regard or esteem 4 Scientific and archaeological Research or archaeological potential 5 Other Other special values January 2001 TAM Heritage Asset Management Guidelines 27

206 Appendix D Typical record for inclusion in S.H.I. database The accompanying record shows the range of information that would normally be submitted to the Heritage Council for inclusion in the State Heritage Inventory (S.H.I.) database. 28 TAM Heritage Asset Management Guidelines January 2001

207 Marine Ministerial Holding Corporation Marine Ministerial Holding Corporation S170 Register SHI Number Item Name: MSB Bond Store No. 3 Address: 30 Windmill Street Corner: Hickson Street Suburb / Nearest Town: Millers Point 2000 State: NSW Other/Former Names: MSB Bond and Free Store No. 3; Parbury's Bond Store No. 3 Area/Group/Complex: Walsh Bay Precinct Group ID: Local Govt Area: Local Government Area: DUAP Region: Historic region: Sydney City Sydney South Sydney Property Identifier: Boundary: Item Type: Built Group: Government and Ad Category: Other - Government & Owner: Marine Ministerial Holding Corporation Owner Codes: Code 2: Code 3: Current Use: Former Uses: Arts centre Bond store Assessed Significance: State Endorsed Significance: State Statement of Significance: Historical Notes or Provenance: Bond Store No. 3 is of significance for its historical association with the development of the waterfront trade in the Miller's Point and Walsh Bay area. In its architectural merits, Bond Store No. 3 ranks with three other 19th century bond stores - Grafton Bond (1881) and Parbury's No. 1 Bond (1880s) both in Hickson Road, and Oswald Bond (c1890) in Argyle Place. The building also contributes to the unique streetscape quality of Walsh Bay. The site has potential archaeological research value. (DPWS Heritage Group, 1998) Bond Store No. 3, originally known as Parbury's Bond Store No. 3, was completed in 1892 as a warehouse for Lamb & Parbury. The building partly incorporated the Wool Pressing Store that was existing on site. (The Wool Pressing Store, built c.1880s, had replaced an earlier single-storey bond store erected on the site in c.1850s.) In 1894 Parbury's Bond Store No. 3 was purchased by Central Wharf Stevedoring Co. In 1900 the first reported victim of bubonic plague came from Central Wharf. The Sydney Harbour Trust resumed Parbury's Bond Store, among other buildings, in the first decade of 1900's. In 1936, the building was transferred to the Maritime Services Board and became known as MSB Bond Store No. 3. Extensions to the building were made in when the adjoining Bond Store No. 4 was constructed. As usage of the building as a warehouse declined in 1980's, the State Government began looking for new uses. In , conservation analysis and works were undertaken to allow part of the building on Windmill Street to be converted into an Aboriginal Arts and Performance Centre. The project, however, was halted as a result of the proposed redevelopment of Walsh Bay precinct. (Heritage Group 1998) National Themes: Prepared by DPWS Heritage Design Services Full Report This report was produced using State Heritage Inventory database software provided by the Heritage Office of New South Wales January 2001 TAM Heritage Asset Management Guidelines 29

208 Marine Ministerial Holding Corporation Marine Ministerial Holding Corporation S170 Register SHI Number Item Name: MSB Bond Store No. 3 State Themes: Commerce Government and administration Study Themes: Designer: Maker / Builder: Year Started: 1880 Year Completed: 1892 Circa: Yes Physical Description: Physical Condition: Bond Store No. 3 is a six-storey, brick-faced building in Queen Anne Revival style, with three-storey fronting Windmill Street. It is the most intact warehouse building in the Miller's Point and Walsh Bay area, which dates from the period of Sydney's mercantile history predating the Sydney Harbour Trust. Externally, architectural features include cornices, string courses, lintels, hoods and base courses, all visible on the front (southern) elevation. The front wall on Windmill Street probably incorporated the basement walls of the former Wool Pressing Store. Internally, the cast iron decorative columns contain fine architectural details. Bond Store No. 3 contains machinery with historical engineering interest. The whole building demonstrates methods for handling goods, especially wool, in the late 19th and early 20th centuries. It has three 19th century hydraulic lifts built by Mort's Dock and Co, a four-sheave hoist, and substantial remains of a cart hoist. The cart hoist in the centre of the building allowed a section of the floor to be lowered from the ground floor to the third level basement. This device appears to be the only of its kind in the Walsh Bay area. The building also contains the 1890s remnants of a large and unusual internal cart ramp from Pottinger Street. (DPWS Heritage Group, 1998) Good Modification Dates: Sandstone detailing removed from the western-most entry. (Sydney City Council 1989) Recommended Management: Refer to relevant recommendations contained in REP16-Walsh Bay. Retain, conserve, and maintain in accordance with the Burra Charter. Preparation of a Conservation Plan recommended. Any proposed works should minimise damage to original fabric. Liaise with Heritage Office for archaeological Permit if substantial excavation on site is proposed. Further Comments: Historical Significance: Aesthetic Significance: Social Significance: Bond Store No. 3 is of significance for its historical association with the development of the waterfront trade in the Miller's Point and Walsh Bay area. (DPWS Heritage Group, 1998) Bond Store No. 3 ranks in architectural merit with three other 19th century bond stores Grafton Bond (1881) and Parbury's No. 1 Bond (1880s) both in Hickson Road, and Oswald Bond (c1890) in Argyle Place. The building also contributes to the unique streetscape quality of Walsh Bay. (DPWS Heritage Group, 1998) Further research required. Prepared by DPWS Heritage Design Services Full Report This report was produced using State Heritage Inventory database software provided by the Heritage Office of New South Wales 30 TAM Heritage Asset Management Guidelines January 2001

209 Marine Ministerial Holding Corporation SHI Number Marine Ministerial Holding Corporation S170 Register Item Name: MSB Bond Store No. 3 Technical / Research: The site has potential archaeological research value. (DPWS Heritage Group, 1998) Rare Assessment Representativeness: Integrity/ Intactness: References: Studies: Author: Title: Year: National Trust National Trust of Australia (NSW) Classification 1989 Author: Title: Number: Year Anglin Associates Maritime Services Board Heritage and Conservation Register: Sydney Harbour Sydney City Council City of Sydney Heritage Inventory DPWS Heritage Group, Ministry For The Arts Heritage and MFTA Verena Ong Conservation Register Listings: Name: Title: Number: Date: Custom Field One: Custom Field Two: Custom Field Three: Custom Field Four: Custom Field Five: Custom Field Six: Heritage Act - Permanent Conservation Order - Walsh Bay /02/199 Heritage Act - s.170 NSW State agency heritage register - Bond Store No.3 MFTA007 01/08/199 Heritage Act - s.170nsw State agency heritage register /03/199 Regional Environmental Plan REP16 05/12/199 Heritage study /02/198 National Trust of Australia register 13/07/197 Within a National Trust conservation area - West Rocks 23/07/197 Register of the National Estate Data Entry: Date First Entered: 08/05/1998 Date Updated: 18/03/1999 Status: Completed Prepared by DPWS Heritage Design Services Full Report This report was produced using State Heritage Inventory database software provided by the Heritage Office of New South Wales January 2001 TAM Heritage Asset Management Guidelines 31

210 Marine Ministerial Holding Corporation Marine Ministerial Holding Corporation S170 Register SHI Number Item Name: MSB Bond Store No. 3 Images: Picture of the Asset Caption: Copyright: Image by: Image Date: Image Number: Image Path: Image File: Thumb Nail Path: Thumb Nail File: 1028.bmp 1028t.bmp Data Entry: Date First Entered: 08/05/1998 Status: Completed Date Updated: 18/03/1999 Prepared by DPWS Heritage Design Services Full Report This report was produced using State Heritage Inventory database software provided by the Heritage Office of New South Wales 32 TAM Heritage Asset Management Guidelines January 2001

211 Appendix E Checklist of data for asset register 1 Name and category of asset Name of asset Category of asset Description Inventory of moveable items 2 Specific location Location/address City/postcode Local Government Authority Region Electorate Real property description Location plan: refer exhibit # Map reference: refer exhibit # DP plan number Site area Current zoning Surveyed by, survey date 3 S.H.I. description Category S.H.I. sub-category S.H.I. period S.H.I. theme Architectural style (if applicable) Architects Engineers Other 4 Juridical data Owner Name/address/city Contact person/position Phone number/fax number Legal status Details of legal and administrative provisions for the protection of the property (date and text) Decrees or orders which protect the nominated property (date and text) Laws or decrees which govern the protection of the asset (date and text) Master plan for historic preservation land-use plan, urban development plan, regional development plan or other infrastructure projects Town planning regulations and orders issued in application of these plans including zoning, permitted uses, etc. What are the penalties foreseen in case of a contravention of these juridical provisions? What, if any, juridical or other measures exist which encourage the revitalisation of the asset in full respect of its historic authenticity and its social diversity? Responsible administration Details of the mechanism or body already set up or intended to be established in order to ensure the proper management of the asset. Information on institutions or associations concerned with the safeguard of the asset, at local community, regional, State and Commonwealth level. January 2001 TAM Heritage Asset Management Guidelines 33

212 5 Listings Commonwealth (statutory for Commonwealth property) Register of National Estate (register): Australian Heritage Commission Register of National Estate (interim): Australian Heritage Commission NSW statutory Heritage Conservation Register Permanent Conservation Order: Heritage Council of NSW Heritage Conservation Register Interim Conservation Order: Heritage Council of NSW Heritage Conservation Register S130 Orders: Heritage Council of NSW Regional Environmental Plan (REP) Heritage Schedule Local Environment Plan (LEP) Heritage Schedule Conservation Area NSW government department heritage register (S110) Non-statutory Register of National Trust of Australia Within National Trust Conservation Area: National Trust Register of Significant 20th Century Architecture: Royal Australian Institute of Architects Institution of Engineers (NSW) Heritage Register Archaeological zoning plan NSW heritage database Other please specify 6 History Description and inventory Photographic, film and/or video documentation History Bibliography Construction date 7 State of preservation conservation Diagnosis History of preservation/conservation Measures for preservation/conservation (include management plans or proposals for such plans) Agent responsible for preservation/conservation Development plans for the region 8 Thematic significance Local historical themes Regional historical themes State historical themes National themes Date of assessment Author of historical notes 9 Justification for inclusion in the agency s heritage list Evaluation of significance (nominate value category [ie. historic, aesthetic, social, scientific or other] and whether rare, associative or representative). Additional information should be provided under three separate headings as follows: The reasons for which the asset is considered to meet the criteria An evaluation of the asset s present state of preservation as compared with similar assets elsewhere Indications as to the authenticity of the property. 10 Occupancy/use (where applicable) State of occupancy/use Category of occupancy/use (public or private) Accessibility to the general public Category of present use Category of future permitted use 34 TAM Heritage Asset Management Guidelines January 2001

213 Appendix F Glossary of heritage terms adaptation Modifying a heritage asset or item to suit proposed compatible uses. Burra Charter Charter and guidelines adopted by Australia ICOMOS that establishes the nationally accepted standard for the conservation of places of cultural significance. conjectural reconstruction Alteration of a heritage item to simulate a possible earlier state which is not based on documentary or physical evidence; treatment that is outside the scope of the Burra Charter s conservation principles. See also reconstruction. conservation All the processes of looking after a place so as to retain its cultural significance; includes maintenance and according to circumstances, may include preservation, restoration, reconstruction and adaptation, and commonly will be a combination of more than one of these. conservation instrument or conservation order A permanent or an interim conservation order, or a Section 130 or 136 Order under the NSW Heritage Act, exemptions Work on heritage items covered by conservation orders that can be exempted under Section 57(2) of the Heritage Act from the requirement to obtain the Heritage Council s consent. ICOMOS: International Council on Monuments and Sites An international organisation linked to UNESCO that brings together people concerned with the conservation and study of places of cultural significance. There are national committees in sixty countries including Australia. Interim Conservation Order (ICO) An order made under Section 26 of the Heritage Act to control demolition and development. The order lasts for one year or until it is revoked or a permanent conservation order is made. Permanent Conservation Order (PCO) An order made under Section 44 of the Heritage Act to protect a significant heritage item in NSW. This order remains in place indefinitely, unless revoked. preservation Maintaining the fabric of a place in its existing state and retarding deterioration. reconstruction Returning a place as nearly as possible to a known earlier state by the introduction of materials (new or old) into the fabric not to be confused with conjectural reconstruction. restoration Returning the existing fabric of a place to a known earlier state by removing accretions or by reassembling existing components without the introduction of new material. Section 60 Application Application made under Section 60 of the Heritage Act, to make changes to an item covered by an ICO or PCO. Section 117 Direction (G21) Direction issued under Section 117 of the Environmental Planning and Assessment Act, 1979 that requires local councils to address heritage issues when preparing Local Environment Plans. Section 130 Order An order made under Section 130 of the Heritage Act to control demolition. This order normally lasts for one year unless revoked. Section 132 Notice Notice of intent to demolish or harm an item covered by a Section 130 order under the Heritage Act. January 2001 TAM Heritage Asset Management Guidelines 35

214 Section 136 Order An emergency order made under Section 136 of the Heritage Act to halt or prevent demolition. This order lasts for 40 days unless revoked. Section 167 Certificate A certificate issued by the Heritage Council specifying the conservation instruments applying to a property under the Heritage Act. Section 170 Register Section 170 of the Heritage Act requires each New South Wales government agency to prepare and maintain a register of heritage items in their ownership or under their control. 36 TAM Heritage Asset Management Guidelines January 2001

215 Appendix G Contact numbers for heritage organisations Australian Heritage Commission phone (02) NSW Heritage Office phone (02) fax (02) Department of Public Works and Services Heritage Design Services phone (02) Historic Houses Trust phone (02) Institution of Engineers, Australia Heritage Branch phone (02) National Parks and Wildlife Service Asset Management phone (02) National Trust of Australia (NSW) phone (02) Royal Australian Historical Society (RAHS) phone (02) Royal Australian Institute of Architects (RAIA) Architecture Conservation Committee phone (02) Royal Australian Planning Institute (RAPI) phone (02) January 2001 TAM Heritage Asset Management Guidelines 37

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217 Appendix H NSW Heritage - Minimum Standards of Maintenance and Repair MARCH 1999 NSW Amendment Regulation 1999 Extract from New South Wales Government Gazette No.27, 1999 MINIMUM STANDARDS OF MAINTENANCE AND REPAIR NEW SOUTH WALES GOVERNMENT GAZETTE No. 27 January 2001 TAM Heritage Asset Management Guidelines 39

218 MINIMUM STANDARDS FOR MAINTENANCE AND REPAIR Minimum Standards have been established in the Heritage Amendment Regulation 1999 to ensure that heritage significance is maintained. Owners are required to achieve minimum standards of maintenance and repair. The standards are set out in the Regulation, and relate to: Weatherproofing; Fire protection; Security; and Essential maintenance. They do not require owners to undertake restoration works, but where works are needed owners may apply for financial assistance through the Heritage 2001 funding program. Where these standards are not met and the heritage significance of the item is in jeopardy the Heritage Council has the power to order repairs after consultation with the owner. As a last resort, if negotiations have failed and the owner does not comply with the order, the Heritage Council can arrange for the works to be carried out and charge the expenses to the owner. The Minister may consent to the Heritage Council's prosecution of the owner for failure to comply with an order. A copy of the Heritage Amendment Regulation 1999, extracted from the New South Wales Government Gazette No.27, 1999 is included for your information. NEW SOUTH WALES GOVERNMENT GAZETTE No TAM Heritage Asset Management Guidelines January 2001

219 1596 LEGISLATION 5 March 1999 Heritage Amendment Regulation 1999 under the Heritage Act 1977 His Excellency the Governor, with the advice of the Executive Council, has made the following Regulation under the Heritage Act CRAIG KNOWLES, M.P., Minister for Urban Affairs and Planning Explanatory note The object of this Regulation is to impose minimum standards with respect to the maintenance and repair of buildings, works and relics that are listed on the State Heritage Register or within a precinct that is listed on that Register. This Regulation is made under the Heritage Act 1977, including sections 118 (as substituted by the Heritage Amendment Act 1998) and 165 (the general regulation-making power). NEW SOUTH WALES GOVERNMENT GAZETTE No. 27 January 2001 TAM Heritage Asset Management Guidelines 41

220 1596 LEGISLATION 5 March 1999 Clause 1 Heritage Amendment Regulation 1999 Heritage Amendment Regulation Name of Regulation This Regulation is the Heritage Amendment Regulation Commencement This Regulation commences on 2 April Amendment of Heritage Regulation 1993 The Heritage Regulation 1993 is amended as set out in Schedule 1. 4 Notes The explanatory note does not form part of this Regulation. NEW SOUTH WALES GOVERNMENT GAZETTE No TAM Heritage Asset Management Guidelines January 2001

221 1596 LEGISLATION 5 March 1999 Heritage Amendment Regulation 1999 Amendments Schedule 1 Schedule 1 Amendments (Clause 3) [1] Part 1, heading Insert before clause 1: Part 1 Preliminary [2] Clause 3 Interpretation Insert at the end of clause 3: (3) Notes in the text of this Regulation do not form part of this Regulation. [3] Part 2, heading Insert before clause 4: Part 2 Fees and forms [4] Part 3 Insert after clause 9: Part 3 Minimum standards of maintenance and repair 9A Minimum standards imposed Pursuant to section 118 of the Act, the standards set out in this Part are imposed as minimum standards with respect to the maintenance and repair of a building, work or relic that is listed or within a precinct that is listed on the State Heritage Register. Note. Section 119 of the Act requires the owner of the building, work or relic to ensure that it is maintained and repaired to standards that are not less than the minimum standards-imposed by this Part. Nothing in this Part affects any requirement for the approval under Part 4 of the Act of any aspect of maintenance or repair. NEW SOUTH WALES GOVERNMENT GAZETTE No. 27 January 2001 TAM Heritage Asset Management Guidelines 43

222 1596 LEGISLATION 5 March 1999 Heritage Amendment Regulation 1999 Schedule 1 Amendments 9B Inspection (1) The building, work or relic, and its curtilage or site, must be inspected to identify maintenance and repairs that are needed to ensure compliance with section 119 of the Act in respect- of the standards set out in clauses 9C-9H. (2) The inspection must be carried out at least once every 12 months in the case of the standards set out in clauses 9C-9G and at least once every 3 years in the case of the standards set out in clause 9H. Note. The maintenance and repair requirements of section ll9 of the Act are ongoing and are not limited to matters identified by an inspection carried out for the purposes of this clause. (3) The inspection is to be carried out by a person with expertise and experience appropriate to the nature of the item concerned. (4) In the case of a relic kept in a repository or as part of a collection, the inspection is to extend to the conditions under which the relic is kept. (5) In the case of a relic that is attached to or forms part of land, the inspection is to include an assessment of the stability of the site of the relic. 9C Weather protection (1) The following systems or components, if present, must be maintained and repaired (including by being cleaned and secured) when and to the standard necessary to ensure a reasonable level of protection for the building, work or relic, and its curtilage or site, against damage or deterioration due to weather: (a) (b) (c) surface and sub-surface drainage systems, roof drainage systems, including gutters, rainwater heads, down pipes and storm water drainage systems, water storages, dams, ponds, retention basins, watercourses, batters, levee banks, sea walls and other flood and erosion mitigation measures, NEW SOUTH WALES GOVERNMENT GAZETTE No TAM Heritage Asset Management Guidelines January 2001

223 1596 LEGISLATION 5 March 1999 Heritage Amendment Regulation 1999 Amendments Schedule 1 (d) roofs, walls, doors and windows (including the glass components of doors and windows) and other components intended to exclude sun, rain, wind, hail, snow or other weather elements, including their security against the effects of high winds, (e) systems or components which might be at risk of damage or dislodgment by high winds, including damage by falling, trees and branches, tidal inundation or wave action, (f) systems and components such as damp proof courses, flashings, ventilation systems and other measures intended to prevent the ingress of water or dampness or to reduce its effects, (g) (h) lightning conductors, any other system or component designed to protect the building, work or relic or its curtilage or site against damage or deterioration due to weather. (2) Doors and windows of a building may, as an alternative to being repaired, be boarded up, but only: (a) (b) if the building is unoccupied, or as a short term measure pending repair. (3) If an opening to a building is designed or intended to have a door, window or other closure in place and does not have the door, window or other closure in place, the opening must be boarded up. 9D Fire protection (1) Vegetation, rubbish and any other material that could create a fire hazard for the building, work or relic is to be removed and not permitted to accumulate. Note. Vegetation and other items can be of heritage significance, and their removal may require the approval of the Heritage Council or the local council. NEW SOUTH WALES GOVERNMENT GAZETTE No. 27 January 2001 TAM Heritage Asset Management Guidelines 45

224 1596 LEGISLATION 5 March 1999 Heritage Amendment Regulation 1999 Schedule 1 Amendments (2) The following systems or components, if present, must be maintained and repaired when and to the standard necessary to ensure a reasonable level of protection for the building, work or relic against damage or destruction by fire: (a) (b) (c) (d) (e) lightning conductors, fire detection and control systems, including smoke and beat detectors and fire sprinkler systems and including associated alarm and communication systems, stores of inflammable materials or rubbish, building services such as electricity, gas and heating systems, any other system or component designed to protect the building, work or relic from damage or destruction by fire. 9E Additional fire protection for unoccupied buildings (1) The following additional fire protection measures must be taken for the protection of a, building that is to be unoccupied for a continuous period of 60 days or more: (a) heating or gas services must be shut down, gas or oil supply to those services must be turned off at the mains or other point of connection to supply, and portable gas or oil storages must be removed, (b) permanent or temporary smoke detection systems must be installed with associated communication systems connected to the Fire Brigade and, if the building will be unoccupied for a period of 6 months or more, provided with a permanent power supply. (2) This clause does not apply to any outbuilding within the curtilage or site of a building unless the out-building has been constructed or adapted for use as a dwelling. (3) The use of a building for storage of goods or materials does not constitute occupation of the building for the purposes of this clause if the building ordinarily has another use or is a building of a kind not ordinarily used for storage. NEW SOUTH WALES GOVERNMENT GAZETTE No TAM Heritage Asset Management Guidelines January 2001

225 1596 LEGISLATION 5 March 1999 Heritage Amendment Regulation 1999 Amendments Schedule 1 9F Security (1) Fencing or surveillance systems appropriate to the nature and location of the building, work or relic must be installed to secure it and its site and prevent vandalism. (2) The following systems or components, if present, must be maintained and repaired when and to the standard necessary to ensure a reasonable level of security for the building, work or relic: (a) (b) (c) (d) boundary and internal fences and gates, including associated locking mechanisms, in the case of a building, the walls, roof and other building elements, doors, windows and other closures, including glazing and associated locking and latching mechanisms, any electronic surveillance or alarm system installed on the site, any other system or component designed to ensure the security of the building, work or relic. (3) Doors and windows of a building may, as an alternative to being repaired, be boarded up, but only: (a) if the building is unoccupied, or (b) as a short term measure pending repair. (4) If an opening to a building is designed or intended to have a door, window or other closure in place and does not have the door, window or other closure in place, the opening must be boarded up. 9G Additional security measures for unoccupied buildings (1) The following additional security measures must be taken for the protection of a building that is to be unoccupied for a continuous period of 60 days or more: (a) if an electronic surveillance or alarm system is installed, the system must be connected to a Police Station or a commercial security provider, NEW SOUTH WALES GOVERNMENT GAZETTE No. 27 January 2001 TAM Heritage Asset Management Guidelines 47

226 1596 LEGISLATION 5 March 1999 Schedule 1 Heritage Amendment Regulation 1999 Amendments (b) if no electronic surveillance or alarm system is installed, arrangements must be in place for regular surveillance of the building, work or relic, as appropriate to its nature and location. (2) This clause does not apply to any outbuilding within the curtilage or site of a building unless the outbuilding has been constructed or adapted for use as a dwelling. (3) The use of a building for storage of goods or materials does not constitute occupation of the building for the purposes of this clause if the building ordinarily has another use or is a building of a kind not ordinarily used for storage. 9H Essential maintenance and repair (1) Essential maintenance and repair of a building, work or relic (being maintenance and repair necessary to prevent serious or irreparable damage or deterioration) must be carried out whenever necessary. (2) Essential maintenance and repair includes: (a) (b) the taking of measures (including inspection) to control pests such as termites. rodents, birds arid other vermin, and the taking of measures to maintain a stable environment for in-situ archaeological relics. (3) The requirement for essential maintenance and repair extends to (but is not limited to) the following: (a) (b) (c) (d) foundations, footings and supporting structure of any building, work or relic, structural elements such as walls, columns, beams, floors, roofs and roof structures. and verandah or balcony structures, exterior and interior finishes arid details, systems and components (such as ventilators or ventilation systems) intended to reduce or prevent damage due to dampness, NEW SOUTH WALES GOVERNMENT GAZETTE No TAM Heritage Asset Management Guidelines January 2001

227 1596 LEGISLATION 5 March 1999 Heritage Amendment Regulation 1999 Amendments Schedule 1 (e) fixtures, fittings and moveable objects attached to the building, work or relic, or to its curtilage or site, (f) landscape elements on the site of and associated with the building, work or relic, including vegetation, garden walls, paths, fences, statuary, ornaments and the like. 9I Conservation management plans (1) A conservation management plan is a plan prepared by the owner of a building, work or relic for the conservation of the building, work or relic. (2) A conservation management plan endorsed by the Heritage Council for a building, work or relic may: (a) (b) provide that a standard set out in this Part does not apply to the building, work or relic (in which case the standard does not apply to it), or impose additional standards of maintenance and repair for the building, work or relic (in which case those standards are imposed as minimum standards with respect to the maintenance and repair of the building, work or relic, in addition to those set out in this Part). [51 Part 4, heading Insert before clause 10: Part 4 Miscellaneous NEW SOUTH WALES GOVERNMENT GAZETTE No. 27 January 2001 TAM Heritage Asset Management Guidelines 49

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229 Demand Management Guideline

230 Demand management guideline January 2001 DPWS Report Number NSW Department of Public Works and Services Cataloguing-in-Publication data New South Wales. Government Asset Management Committee. Demand management guideline ISBN (set) ISBN Asset management New South Wales. 2. Capital investment. 3. Public administration New South Wales I. Title. (Series : TAM) This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission from the NSW Government Asset Management Committee. Requests and inquiries concerning reproduction and rights should be addressed to: Secretariat Government Asset Management Committee Level 23 McKell Building 2-24 Rawson Place SYDNEY NSW 2000 Website E:mail [email protected] Set consists of : ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN X Asset strategy Office accommodation strategy Capital investment : strategic planning Asset maintenance : strategic planning Asset disposal : strategic planning Sustainable development guideline Heritage asset management guideline Demand management guideline Life cycle costing guideline Value management guideline Risk management guideline Post implementation review guideline Asset information guideline

231 Contents 1 INTRODUCTION Purpose of the guidelines The demand - asset linkage What is Demand Management? GOVERNMENT POLICY ON DEMAND MANAGEMENT Agency roles and responsibilities Reporting requirements Monitoring and feedback...5 THE DEMAND MANAGEMENT PROCESS Overview...6 Stage 1 Stage 2 Know your clients...7 Establish the true costs...8 Stage 3 Identify the demand...9 Stage 4 Stage 5 Develop Demand Management response...10 Implement and evaluate BENEFITS OF DEMAND MANAGEMENT 12 APPENDIX A DEMAND MANAGEMENT STRATEGIES 13 APPENDIX B INDUSTRY EXAMPLES OF DEMAND MANAGEMENT 16 January 2001 TAM Demand Management Guidelines 1

232 1 Introduction 1.1 Purpose of the guidelines In the context of public sector asset management, demand can be described as the needs and expectations of the community and government as well as the ambitions and aspirations of sectional groups. Communities expect that government at its various levels will provide for their security, for education of their children and the workforce, for transport of people and goods, for community health and so on. In addition, sectional interests within the community harbour hopes that their particular concerns, whether social or economic, will be catered for. These needs, expectations, hopes and aspirations are the driving force for the supply of services. They are a key input into the process of asset management. The purpose of these Guidelines is to: Raise awareness of the connection between community needs and expectations and the subsequent delivery of services and expenditure on resources including physical assets Suggest ways that agencies can respond to the needs and expectations in a manner that best matches service delivery (and the relevant supporting assets) to the available resources Assist agencies incorporate demand management techniques into their asset management planning 1.2 The demand - asset linkage Demand motivates the supply of services and leads to the provision and use of resources including physical assets. Community demand for security leads to provision of police services, judiciary and detention of offenders, leading to the construction and maintenance of police stations, courthouses and prisons. Demand for education leads to schools and colleges. Demand for transport leads to roads, railways, seaports and airports. The list is endless. This process can be depicted as: DEMAND SERVICE ASSET The linkage between demand, service supply and provision of assets is far from straightforward. Demand involves humans, and human behaviour can be very complex. As a simple example, when demands are satisfied by the supply of a service, new expectations arise. When one need is satisfied, other needs will also need to be satisfied. As well, people tend to compare their circumstances to others and expect equivalent treatment. Thus, when town X receives a hospital, school, bridge or infrastructure, the citizens of town Y are encouraged to seek a similar asset. Therefore, supply of a service tends to foster demand. Instead of the linear sequence as shown above, the relationship between demand, services and assets is often cyclical. For simplicity, in the remainder of the Guidelines the notion of need, expectation, hope and aspiration will be grouped under the common description of demand. Government agencies are in the business of supplying services to the community. Physical assets are a means to providing these services. They are usually not the service in themselves. 2 TAM Demand Management Guidelines January 2001

233 1.3 Why manage demand? Over time communities expect higher level of services from government as part of a progressive improvement in the standard of living. In response, public sector agencies have striven to meet these expectations by increasing the scale and scope of services they deliver. They have focussed on planning, organising and controlling the supply of services and resources required to support them. The rapid growth of our stock of physical assets over the past decades is evidence of how successfully this was pursued. Focussing on service supply alone is not sustainable in the long term, as: Demand will always outstrip supply The capital cost of additional assets must be considered in the light of the limited resources of the community at large, and It will cause the overall stock of assets to grow, bringing about an increase in the operating and maintenance costs of the assets. The question of ensuring that the resources of the community are distributed equitably among the whole range of government services is also pertinent. Within the finite resource limits of the community, services provided of one type and in one region reduce its ability to provide other types of services or to deliver them elsewhere. A whole of government view of service delivery focuses on delivery of a range of government services that will provide maximum benefits to the community overall rather than on individual agencies maximising the delivery of a particular service. There are circumstances where it may be beneficial to increase the demand for certain services. For example, services that promote healthy lifestyle changes will improve the quality of life of members of the community at large. Other examples could include promotion of public transport to reduce the use of private vehicles with their resulting smog and gridlock. Consideration of community expectations and demand, whether they are related to promoting or decreasing the expectations and demand should be matched with consideration of supply wherever the public sector plans to provide services. Neither the community nor the government should rely on supply side policies alone. If agencies keep building assets without some constraint on demand it is likely that their capital requirements to operate and maintain these assets will eventually jeopardise the services they are seeking to provide. January 2001 TAM Demand Management Guidelines 3

234 1.4 What is Demand Management? Demand management policies enable the interaction between supply of service and demand for assets. Demand Management is defined as: The active intervention in the market to influence the demand for services and the assets generated and/or used in the supply of these services in order to best match available resources to real needs and to ensure the services provided are delivered with the best value for money. Successful demand management requires agencies to clearly understand that their corporate role is not to provide ever more services, but to provide: Effective service outcomes to meet identified community needs Assess if this need is changing and To respond appropriately and within the resources available. This requires that agencies develop a close working relationship with their clients based on thorough knowledge of their characteristics, needs and expectations. Demand management is not intended to reduce the scope or standard of services in order to offset management deficiencies elsewhere. Rather it is concerned with aligning demand for services with the available resources to ensure genuine needs are met and community benefit is maximised. The concept of managing the demand-serviceasset relationship in a holistic sense is one of the basic tenets of Total Asset Management. It affects all elements of an agency s operations - its financial, social, technical and environmental activities. It is a fundamental aspect of the dayto-day business of the public sector and its people. A number of agencies are already applying demand management in its various forms with considerable success. Demand Management has the potential to become a key element of reform in the resource planing and management process, encouraging agencies to jointly plan service delivery. Demand can be managed in a variety of ways: By reducing the underlying need for the service. For example, actions to raise awareness of the benefits of pregnant women taking foliate will reduce the need for medical and social support for children with neural tube defects By changing the way in which community needs will be met to reduce pressure on available resources. For example, the Department of Housing is trialing different accommodation alternatives to reduce the demand for individual accommodation units By educating consumers to limit their consumption. For example, educating water users to save water during droughts has led to significant reduction in demand. By pricing mechanisms. For example, charging consumers a truer price for water encourages its more responsible use and may reduce the demand. By revising service delivery levels. For example, the threshold at which benefits become available or the level at which benefits are provided will be changed. By imposing legal penalty. For example, fines can be imposed for use of fixed sprinklers during the evening to reduce demand for additional reservoir pumping capacity. Selecting the correct technique to manage particular demands is critical as the financial and social implications on the target group and the community generally could be severe. 4 TAM Demand Management Guidelines January 2001

235 2 Government policy on Demand Management 2.1 Agency roles and responsibilities All agencies need to apply the principles and procedures of Demand Management to all aspects of their service delivery. Relevant stages would include, but need not be limited to: Strategic service and resource planning The preparation of economic appraisals The conduct of Value Management Studies. Each agency is expected to apply the principles of Demand Management in a structured and systematic manner that suits the nature, scale and complexity of their particular programs and projects. 2.2 Reporting requirements There are no separate overall reporting requirements for Demand Management. However, agencies would provide an analysis and discussion of the underlying demand and its management within existing formal reporting structures concerning the acquisition and use of physical assets. Some agencies, such as Sydney Water, have separate demand management reporting requirements under their Operating Licences. Examples of formal reporting structures where this may be appropriate include Economic Appraisals, Value Management Study Reports, annual Capital Investment Strategic Plans and annual Maintenance Plans. Within economic appraisals, demand management issues can be addressed within the context of the no-build options. 2.3 Monitoring and feedback Demand Management is an evolving process requiring ongoing review in order to achieve the most equitable, cost-effective and efficient service delivery and best use and distribution of resources. Agencies need to regularly monitor the effectiveness and achievements of their Demand Management processes and, where necessary, fine tune and/or re-define measures so that they achieve the desired outcomes. At an early stage in the application of Demand Management, it is expected that review and monitoring will be largely restricted to qualitative assessment of the efficiency and effectiveness of Demand Management measures. As agencies become more familiar with Demand Management and skilled in the application of its procedures, they will be expected to develop more formal reporting procedures based on quantitative performance evaluation criteria. January 2001 TAM Demand Management Guidelines 5

236 The Demand Management process Know your clients Establish the true costs Identify Demand Develop response Implement & evaluate Client attitudes Client response to service charges Effect on Client expenditure Client response to incentives Direct costs Indirect costs Needs/Wants Services/Access Factors influencing demand Special/temporal demand patterns Demand depth/ strength Identify appropriate strategies Develop strategies into actions Evaluate options Select preferred options Effect schedules, management measures or Plan Monitor Review & evaluate Figure 1 The demand management process 3.1 Overview Demand Management involves a number of key steps within the three characteristic phases of any strategic management process - Preparation, Analysis, Planning and Implementation. The preparation phase involves gaining a proper understanding of your clients together with establishing the true costs of providing service. This then provides the basic information for the analysis and planning phase in which the demand is clearly identified and a response to its management formulated. In the implementation phase, a plan is prepared documenting the process stages including procedures for implementation, monitoring and evaluation of the defined demand management response. This process is outlined in the diagram above. While it should be applied at each stage of the Asset Management process, it is an essential part of the development of the Service Delivery Strategy. NSW Premier s Department has developed a guideline on developing a Service Delivery Strategy. This can be accessed through the Links part of the Asset Strategies section of the TAM Manual). 6 TAM Demand Management Guidelines January 2001

237 Stage 1 Know your clients Know your clients Supply strategies require you to know your services and products. Demand strategies require a comparable knowledge of your client s needs, motivations, expectations and operating procedures. This not only enables an agency to better serve its clients, but also provides the basic information required to evaluate and distinguish needs from wants, and hence the demand for services. The client's response to changes in service and/or service levels The decisions of clients to accept or oppose demand side initiatives will be influenced by how they perceive the changes will affect their activities. The effect on the client's expenditure The impact of demand management strategies on the client s expenditure must be considered. The effect will vary with The wealth of the consumer and the density of their use of services The intensity of their reliance and use of services Availability of alternative form of service The client s perceived ability to change their consumption patterns. Part of the solution is often to empower the client to see viable alternatives to the service by: Information and education on lifestyle changes Offering alternative service delivery methods. The client's attitudes The attitudes of clients to the agency, the service offered, their social values and other factors will affect whether they will participate in and support demand management initiatives. In each case empowerment of clients to see alternatives will reduce the likelihood of defeatist client/victim mentalities emerging which make it difficult for them to adapt and engenders resistance to agency action. The client's response to incentives Incentives are useful to attract client participation. These can be explicit (eg. a financial benefit) or implicit (eg. an improvement in the quality of life of future generations). Incentives can also include the provision of other services to offset the impact on clients. Lower prices through increased production and decreased costs enabled Texas Instruments to gain a major share of the hand-held calculator market. However, when the company followed the same approach with digital watches they were unsuccessful - people found the watches unattractive. They did not know that their customers wanted attractive, affordable digital watches. January 2001 TAM Demand Management Guidelines 7

238 Stage 2 Establish the true costs Establish the true costs Knowledge of the true costs of providing services and operating assets - whether they are financial, social or environmental - is essential for sustainable service delivery. For example, many inner budget agencies use heritage-listed assets, which place particular obligations on their budgets. Knowledge of the true costs of these obligations enables government and treasury to establish a more rational and equitable operating environment for such agencies, thereby improving their efficiency of service provision. From the perspective of demand management, a thorough knowledge of the true costs of service provision and asset operation provides an essential basis for: Assessing the impacts of potential strategies aimed at influencing demand Monitoring and evaluating the effects of the chosen demand management response. The true costs of providing service and associated asset operation encompass: The full range of costs to the agency Any costs that fall on other agencies or sections of the community Both the financial and economic costs need to be established. Concerted action in diverse fields such as smoking prohibition, micro-economic reform and environmental protection was preceded by information on true costs. Knowledge gives the incentive for change. Financial costs are evaluated by assessing the value of net cash flows that result from the implementation of a project. Financial cost will generally be defined by an agency's accounting system, which should be able to show: Interest and redemption of loans Allocations for extensions, renewals and improvements of assets and technology Allocations for maintenance and operating costs Recurrent cost of staff Administrative overheads Economic cost is derived from analysing all the costs and benefits of various ways in which a project objective can be met. In essence, an economic appraisal of these costs shows: Whether the benefits of a project exceed its costs Which among a range of options to achieve an objective has the highest net benefit, or Which option is the most cost effective if project benefits are equivalent. Sydney Water uses an approach that ranks demand options in terms of levied cost. (ie. the present value of cost of the option to the community divided by the present value of the annual reduction in demand for water resulting from the option). This cost does not include costs and benefits that are transfer payments between Sydney Water and its customers, such as: forgone revenue, reduced customer bill or proceeds from sales of reclaimed effluent. It represents the cost to the community to achieve a certain level of water saving by means of reducing demand or reducing losses. In Sydney Water s calculations cost to the community means cost incurred by Sydney Water and its customers. 8 TAM Demand Management Guidelines January 2001

239 Stage 3 Identify the demand Identify the demand Before demand management options can be developed, the current and future demands must be identified and quantified. Data can be obtained through traditional market and demographic analyses. These analyses should be aimed at providing the baseline data to establish: Needs as distinguished from wants or expectations Demand for services as distinguished from demand for assets related to those services The factors which influence the demand Spatial and temporal demand patterns The depth or strength of the demand Understanding the needs vs. wants and service vs. assets relationships is central to identifying the real demand since there is often a direct link between these relationships. WANTS (ASSETS) NEEDS (SERVICES) UNDERLYING NEED Hospitals Health Care Health & Wellbeing Schools Colleges Universities Police Stations Court Houses Prisons Education Security Employment / Career Readiness Community Safety & Security Power Stations Electrical Comfort Security Technology Dams Water Clean hands/clothing Thirst Green gardens Roads Railways Seaports Airports Parks Playing Fields Community Facilities Transport Passive/ organised leisure activity Ability to relocate Access to services Recreation For example, the community may want a hospital (asset) but the need (service) is for health care. They may want schools, colleges, universities, etc but the need is for education. Other examples are listed in the adjoining table. January 2001 TAM Demand Management Guidelines 9

240 Stage 4 Develop Demand Management response Develop response This key stage in the demand management process involves identifying appropriate strategies that could be used to influence demand and combining them into options for evaluation. The types of strategies that can be used to influence demand generally fall under four generic headings. These are shown below and described in detail in Appendix A. Education Aims to influence the level of demand by making clients aware of the financial, social and environmental costs and benefits of their actions. Pricing Aims to change demand by altering the unit price charged for a service. Technological Innovation Can result in less resource-intensive solutions to demand or provide alternative measures to offset demand. Management Procedures Involve changing administrative and management practices to alter the way services are supplied, to whom they are supplied and/or resources used in meeting demand. Regulation and Operational Changes Are other management procedures, which can be used alone or in conjunction with other demand management techniques. The attraction of working on the demand side is the almost limitless variety of approaches that can be used to influence demand. There is no one solution. In many cases a range of coordinated strategies will often be more successful than a single strategy. The key is to be able to seek out the effective strategies by identifying and evaluating as many options as possible. During early stages of demand management, agencies should be prepared to experiment to see what works and what doesn't in particular situations, and to apply the same energy and cleverness that has characterised past efforts in the supply side where services have been tested and refined over a long period. Value Management has proved in practice to be invaluable in uncovering innovative options and evaluating their effectiveness, and should be considered an essential companion to demand side management. It also has a role in testing the validity of the demand at the outset of the process. The rigour of identifying and evaluating options can expose fallacies in the assumptions that many people take for granted when approaching a problem. This leads to a clearer understanding of the problem itself, and consequently to the chance of finding a more effective solution. 10 TAM Demand Management Guidelines January 2001

241 Stage 5 Implement and evaluate Implement & evaluate As a necessary part of any implementation process, a demand management plan needs to document: Client profiles True costs of providing services The demand analysis Option analysis and the preferred option Implementation and evaluation. The implementation and evaluation section of the plan could include: Programs to inform clients of demand management initiatives and why they were introduced and to empower clients to find alternatives Training for staff in the skills involved in successfully applying the demand management strategies. The implementation plan should also include targets for altering demand and a structured procedure for evaluating the effects of the selected initiatives on demand, costs and, where applicable, revenues. Where quantitative measures are desired, data will need to be collected and assessed in order to identify changes in demand directly attributable to the selected demand management initiatives. Particular attention should be given to monitoring and evaluating the impacts on clients. Significant hardships not predicted should be ameliorated by timely supplementary action. Attention should also be given to identifying any unexpected outcomes such as transference of demand from one type of service or product to another. January 2001 TAM Demand Management Guidelines 11

242 4 Benefits of Demand Management The combination of supply and demand side policies will allow agencies to optimise the trade-off between available resources, service delivery and asset performance and cost, for the mutual benefit of both the agency and its clients. It will allow a fairer distribution of the limited resources that are available to the public sector and better outcomes obtained for the public funds involved. The benefits of Demand Management will vary with the type of service provided. However, there have been sufficient examples of dramatic savings in areas as diverse as electrical power consumption, water consumption, transport usage and waste disposal to demonstrate the value of the process. The Sydney Harbour Tunnel has reduced traffic delays and travel times. It has also provided the opportunity to dedicate one lane of the Harbour Bridge for buses. In the long term, the resulting shorter bus travel times will encourage public transport therefore reducing the demand for further car crossings. The benefits of demand management can be summarised as improving value for money spent on services through: More efficient allocation of resources to programs and projects of greatest need Reduced waste and misuse of resources by reducing the provision of unnecessary services by communicating (through charges, education or other means) the true cost of the service Deferred capital and recurrent expenditures by reducing excessive consumption Greater client participation and control over the cost of the service. Consistently rising demand for water in the Hunter region suggested the need to build a new dam by 1987 at an estimated cost of $100 million. The dam would raise water prices for many years and flood large areas of valuable rural land. However, using pricing and education demand management strategies, the Hunter Water Board was able to reduce future demand by 30% enabling the dam, along with an additional $50 million for reticulation works, to be deferred for 10 years. The Hunter Water Board therefore continued to meet the community's need for water at a lower longer-term cost and avoided the environmental issues associated with the proposed dam. 12 TAM Demand Management Guidelines January 2001

243 Appendix A Demand Management strategies A1 Introduction Community demands mirror social circumstances. Issues, which range from basic physical needs, economic conditions, technological change and tradition to advertising and fashion, influence them. Agencies should not simply follow community demands - this can be a path with no end. Agencies should realise the impact the services they provide have on individual consumers and the community generally. Agencies should attempt to identify and separate genuine needs from more unrealistic wants in order to allow the limited resources of the public sector to be targeted effectively to where they can do the most good. There are many ways of influencing demand. They generally fall under the following four headings. A2 Education In the private sector, the strategy might be more appropriately called promotion - one of the private sector s most powerful marketing tools. Examples of where education has been used to alter demand and hence asset requirements through behavioural patterns are illustrated below. As with all strategies there is a time delay between commencing an education strategy and achieving the changes sought. This will vary with the activity or attitude, but in the case of entrenched behaviour that is being reinforced by commercial interest such as smoking, the avoidance campaign can be arduous. Sometimes the link between the issue at the basis of the education campaign, and the effects sought on the asset are indirect, whereas in other cases good correlations occur. Education strategies trade on the assumption that awareness of the costs and benefits of various types of consumption will change the behaviour of clients. This in turn will influence the demand for public sector services - and thereby the demand for assets. Health ISSUE Smoking avoidance Sun protection Heart disease EFFECT SOUGHT ON ASSETS Fewer hospital beds Fewer operating suites Fewer nursing homes Another role for education is to temper public expectations to the realities of the prevailing circumstances. Lobby groups sometimes seek to raise expectations (ie. to elevate demand) above reasonable levels, and even to distort the public perception of the benefits and costs. To satisfy these unrealistic expectations, funds tend to be diverted from areas of real need. Education offers a method of countering this situation. Waste Disposal Driving Recycling Less road damage Conservation of scarce resources Alcohol consumption Speeding limits Seat belt restraint Fewer land-fill sites Fewer hospitals Fewer courts January 2001 TAM Demand Management Guidelines 13

244 A3 Pricing strategies The underlying premise of pricing strategies is that, when clients are charged the true cost of the service, consumption will tend to reflect its true value to the client. On the other hand, if something is cheap, there is little cost incentive to use it prudently and avoid wastage. An agency can choose to encourage or discourage consumption; to direct consumption from one form to another; or to encourage the option of choice over levels of service by offering a range of rates (eg. 24 hour availability at $x/hour or 8 hour availability at $y/hour). Pricing strategies are being used extensively by commercial sector agencies, particularly the power and water authorities, where performance is dominated by concepts of economic efficiency and commercial discipline. Knowledge of the true cost of providing a service and related assets (see Section 3.3) is the starting point for the development of pricing strategies. Decisions can then be made regarding the cost recovery structure on which pricing is to be based. In a perfectly competitive market, it is generally accepted that for most services the price should be based on the marginal cost (ie. the cost of producing an additional unit) rather than the average cost. Marginal cost pricing means that all costs due to an increase in the output of a service are incorporated into the price of the increased output. The economic viewpoint is that pricing based on average cost of production can be inefficient and that the optimum allocation of resources occurs when the price equals the marginal cost. However, in the case of government agencies that are monopoly suppliers, prices set at marginal cost may fail to cover total costs thus requiring a subsidy payment. For these agencies to break even or achieve a lower subsidy level, prices may be set either using a Ramsey pricing or an average cost pricing approach. While pricing strategies can be effective in influencing the location and distribution of demand and its occurrence with time, they can often result in unexpected outcomes. For example, demand can be simply transferred to other services. A decision to recover the cost of bus and rail transport could lead to increased road usage and in turn, increase demand for medical services resulting from a pro-rata increase in road trauma and air pollution. Care therefore needs to be taken in the formulation and application of pricing structures aimed at influencing demand. 14 TAM Demand Management Guidelines January 2001

245 A4 Technological innovation Technology can be used to influence demand for assets by offering less asset-intensive solutions to the demand, or alternatively by offering measures to offset the demand. Technological systems pervade almost every aspect of service provision. Increased use of the available innovative and advanced systems can be a powerful means of reducing the demand for, and dependence on, capital assets. Technology can however increase the demand for services, increasing overall cost. Less invasive surgical procedures may make new procedures appropriate for more patients. Innovative Building Design Technologically advanced control systems for energy efficient air conditioning, ventilation and lighting reduce power demands. This can delay or even remove the need for new or upgraded power stations. Health Services High technology non-invasive surgery techniques can reduce the time patients spend in hospitals thereby reducing the demand for overnight hospital accommodation, catering, laundry and so on. Overall demand may be managed through increased use of ambulatory care and nonhospital based services, resulting in a change in the venue from which services are provided. Computer Data Storage and Retrieval High technology advancements in this area has the potential to allow remote access to agency data, making information kiosks possible, and making access to government services more streamlined and economic. A5 Management procedures Unlike the other strategies, changes to management and administrative procedures alter the demands placed on an agency s existing assets and other resources. This can be achieved directly by utilising other assets outside the agency through long-term leasing or short-term hiring arrangements, or by sharing another agency s under-utilised assets and resources. It may also be achieved indirectly by changing the way in which services are provided, or, the delivery of government services may be contracted to the private sector. NSW Health has introduced several asset sharing service delivery solutions. Community health services have been co-located with public hospitals at Coffs Harbour Hospital and Manning Base Hospital and co-location of community health services and General Practitioner clinics at Iluka. A private hospital has been co-located on the public hospital site at Royal North Shore. A Motor Registry Office used to bill all its licence holders at the end of the month, so that for three weeks out of four there was little demand for space. But in the fourth week, the week that everyone came in to renew their licences, the crowds would extend out onto the footpath. The Registry Office claimed that it needed enlarged premises to cope with this demand. But changing its management practice to continuous billing solved the issue far more cheaply. January 2001 TAM Demand Management Guidelines 15

246 Appendix B Industry examples of Demand Management B1 The water supply industry Water supply authorities have been introducing demand side strategies for some years (leaving aside restrictions imposed in time of drought, a demand side control used since the beginning of history). The objective has been to match consumption to the capacity of the resource and to defer the expansion of headworks such as new dams, pumping stations and supply mains, as well as distribution networks. These headworks and distribution networks are expensive and can be environmentally contentious. Water pricing has been the main weapon, with a progressive move to tariffs based on the level of consumption in place of tariffs based on property values. This does not mean that tariffs based on property value are being discarded. These tariffs are attractive because the income stream is predictable and assured, whereas incomes from tariffs based solely on consumption tend to be highly variable, depending on climatic and economic conditions from year to year. Consequently, authorities are tending towards recovery of capital expenditure by a base charge determined by property type or value or connection size, plus a consumption component (or series of components) determined by the volume of water consumed. Systems based on charging for water use depend on the ability to measure consumption; therefore it is necessary to install meters for all clients. This is expensive, and each water supply authority has had to assess the benefits that might accrue. In practice, the effect on water demand has been dramatic. There are examples where meters have been installed coupled with a moderate pricing policy, annual consumption has been reduced by more than 30%. The argument against pay for use and metering arises where there is surplus capacity. In such a case the financial reasons for reduced consumption may be insufficient to justify the changeover costs, but arguments of conservation of resources remain valid. As meters and pricing policies are introduced, the process can be progressively refined in consultation with users to allow prices to match levels of service. That is, for a higher or lower price, the client can select the reliability and volume of service he/she wants to pay for, instead of the one service - one fee arrangements of the past. Water authorities are also introducing educational programs to influence consumption. These programs appeal to the financial, environmental and moral concerns of the community, and give advice on how to, for example: Reduce the volume of water used industrially and domestically Reduce wastage by correcting leaks Handy hints such as how to use more efficient garden watering systems and how to select plantings that need less water Some agencies, such as Sydney Water are implementing a comprehensive package of demand management options including: Water efficiency measures such as the auditing and retrofitting of residences and commercial/ industrial facilities Active leakage reduction on its water supply system Recycling of effluent from sewage treatment plants Increased pricing of water to reflect the true value of resource lobbying for the introduction of appropriate water efficiency standards for showerheads and washing machines Potential introduction of low-level permanent restrictions 16 TAM Demand Management Guidelines January 2001

247 B2 The electrical power industry Electrical power supply agencies lead the field in developing and analysing demand side programs. This is due largely to the impetus given by the energy crises of the 1970's and the enormous costs involved in expanding the supply capacity of a power grid. The agencies realised a dollar spent on influencing consumption gave a higher return than a dollar spent on increasing supply. Demand side strategies have mainly involved actions on the clients' side of the meter, either directly caused or indirectly stimulated by the agency. These actions include: Load management These are activities by which the operation of a client's equipment may be altered to change the level of demand. Incentives in the form of rate reductions are usually offered. Load controls can work in two ways: clients can control their loads by voluntarily altering the use of equipment in response to pricing strategies. Or, agencies may control clients' loads by utilising a signal activated remotely or at the point of use. Remote control involves the use of a communications system, while point of use control may involve techniques such as cyclic timers, time clocks or thermostats. Strategic conservation The objective here is to reduce client consumption through energy conservation programs. A broad spectrum of programs has been devised covering almost every major end use and every appliance. These programs combine pricing incentives, education and technological innovation. Options include installing insulation within buildings to improve thermal performance; improved heating, ventilation and air conditioner efficiency; solar programs; and energy efficient appliances and uses. Pricing Strategies A wide range of rate options is being used by different agencies with the objective of: Obtaining an optimum electrical load distribution Minimising costs to clients Preserving the financial viability of the agency Minimising future costs Addressing social and environmental concerns. Extensive literature is available on the various systems being used in the electrical power industry. January 2001 TAM Demand Management Guidelines 17

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249 Life Cycle Costing Guideline

250 Life cycle costing guideline January 2001 DPWS Report Number NSW Department of Public Works and Services Cataloguing-in-Publication data New South Wales. Government Asset Management Committee. Life cycle costing guideline ISBN (set) ISBN Asset management New South Wales. 2. Capital investment. 3. Public administration New South Wales I. Title. (Series : TAM) This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission from the NSW Government Asset Management Committee. Requests and inquiries concerning reproduction and rights should be addressed to: Secretariat Government Asset Management Committee Level 23 McKell Building 2-24 Rawson Place SYDNEY NSW 2000 Website E:mail [email protected] Set consists of : ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN X Asset strategy Office accommodation strategy Capital investment : strategic planning Asset maintenance : strategic planning Asset disposal : strategic planning Sustainable development guideline Heritage asset management guideline Demand management guideline Life cycle costing guideline Value management guideline Risk management guideline Post implementation review guideline Asset information guideline

251 Contents 1 INTRODUCTION Why use Life Cycle Costing? What is Life Cycle Costing? Distribution of Costs over the Asset Life Cycle Linkages with Total Asset Management MODELLING LIFE CYCLE COSTS Life Cycle Costing Models LCC Breakdown into Asset Cost Elements Estimating Asset Cost Elements THE LIFE CYCLE COSTING PROCESS Overview...7 Stage 1 Plan LCC Analysis...8 Stage 2 Select/Develop LCC Model...9 Stage 3 Apply LCC Model...10 Stage 4 Document and Review LCC Results...11 Stage 5 Prepare Life Cost Analysis...12 Stage 6 Implement and Monitor Life Cost Analysis...13 APPENDIX A THE CONCEPT OF DISCOUNTING AND ITS APPLICATION 14 January 2001 TAM Life Cycle Costing 1

252 1 Introduction 1.1 Why use Life Cycle Costing? The determination of costs is an integral part of the asset management process and is a common element of many of the asset manager s tools, particularly Economic Appraisal, Financial Appraisal, Value Management, Risk Management and Demand Management. In the past, comparisons of asset alternatives, whether at the concept or detailed design level, have been based mainly on initial capital costs. Growing pressure to achieve better outcomes from assets means that ongoing operating and maintenance costs must be considered as they consume more resources over the asset s service life. For example, the operating costs of a hospital consume an equivalent of the capital cost every 2 to 3 years and can continue to do so for 40 years or more. The operating costs of a school can consume the equivalent of its capital cost every 4 to 5 years and remain in service for a century. Both the capital and the ongoing operating and maintenance costs must be considered wherever asset management decisions involving costs are made. This is the Life Cycle Cost approach. Life Cycle Costing is a process to determine the sum of all the costs associated with an asset or part thereof, including acquisition, installation, operation, maintenance, refurbishment and disposal costs. It is therefore pivotal to the asset management process as an input to the evaluation of alternatives via Economic Appraisal, Financial Appraisal, Value Management, Risk Management and Demand Management 1.2 What is Life Cycle Costing? The Life Cycle Cost (LCC) of an asset is defined as: " the total cost throughout its life including planning, design, acquisition and support costs and any other costs directly attributable to owning or using the asset". Life Cycle Costing adds all the costs of alternatives over their life period and enables an evaluation on a common basis for the period of interest (usually using discounted costs). This enables decisions on acquisition, maintenance, refurbishment or disposal to be made in the light of full cost implications. Life Cost Planning Life Cost Planning concerns the assessment and comparison of options/alternatives during the design/ acquisition phase. It utilises similar techniques as those for Economic Appraisal in that future, nominal costs are discounted to today's dollar Discounted Cost. The application of Discounted Cost analyses to Life Cost Planning differs from that in Economic Appraisal in that Life Cost Planning generally: Considers all cost components within asset options over the asset s life Does not directly consider benefits or revenue streams that are generally assumed to be equal amongst the options being compared (benefits and revenues are considered in the evaluation of options). There is an Australian Standard on Life Cycle Costing (AS4536) that includes examples of the application of Life Cycle Costing in its appendices. 2 TAM Life Cycle Costing January 2001

253 Life Cost Analysis Life Cost Analysis enables the creation, operation and disposal costs of a selected alternative to be monitored throughout its life to enable accurate and timely decision-making as to how these costs can be minimised. Where ownership of the asset changes over time, each owner, takes responsibility for decisions required during the period of ownership only. Life Cost Analysis is used as the basis for monitoring and management of costs over an asset s life. It is essentially a financial management tool and hence costs are generally not expressed as real or discounted costs but as nominal costs (ie. estimated costs that are to be paid when due) to enable a comparison of the predicted cost and the actual cost. This enables better prediction and adjustment of the Life Cycle Costing model. Appendix A provides a summary of the discounting concept along with an explanation of the differences between real, discounted and nominal costs. 1.3 Distribution of Costs over the Asset Life Cycle Life Cycle Costing can be carried out during any or all phases of an asset's life cycle. It can be used to provide input to decisions regarding asset design, manufacture, installation, operation, support and disposal. By the end of the concept and definition phases of acquisition, more than half of the asset s life costs may be committed by decisions made with respect to asset features, performance, reliability, technology, and support resources. By the end of design and development phases, even more of the asset's life costs may be fixed. The interaction between potential savings and asset costs is shown in Figure 1 - Potential Savings and Cost Relationship Early identification of acquisition and ownership costs enables the decision-maker to balance performance, reliability, maintainability, maintenance support and other goals against life cycle costs. Decisions made early in a asset's life cycle have a much greater influence on life cycle costing than those made late in a asset's life cycle, leading to the development of the concept of discounted costs. Figure 1 Potential Savings and Cost Relationship Cost Cost of making changes Time Potential for making savings January 2001 TAM Life Cycle Costing 3

254 1.4 Linkages with Total Asset Management TAM reflects priorities for whole-of-life asset management, extended planning requirements for new works, and new relationships between services planning and asset procurement activities. Costs may change and accumulate as a program or project progresses. Therefore initial provisions made to manage whole-of-life costs should be evaluated and updated before committing to one alternative. A LCC model provides a mechanism to compare these costs. 4 TAM Life Cycle Costing January 2001

255 2 Modelling Life Cycle Costs 2.1 Life Cycle Costing Models A Life Cycle Costing (LCC) model is essentially an accounting structure containing terms and factors which enable estimation of an asset's component costs. There are a number of commercially available models that can be used for LCC analysis. However, in some cases it may be appropriate to develop a model for a specific application. In either case, the Life Cycle Costing model should: Represent the characteristics of the asset being analysed including its intended use environment, maintenance concept, operating and maintenance support scenarios and any constraints or limitations Be comprehensive enough to include and highlight the factors relevant to the asset LCC Be easily understood to allow timely decision- making, future updates and modification Provide for the evaluation of specific LCC elements independently of other elements Before selecting a model, the purpose of the analysis and the information it requires should be identified. The model should also be reviewed with respect to the applicability of all cost factors, empirical relationships, constants, elements and variables. 2.2 LCC Breakdown into Asset Cost Elements Estimating the total LCC requires breakdown of the asset into its constituent cost elements over time. The level to which it is broken down will depend on the purpose and scope of the LCC study and requires identification of: Significant cost generating activity components The time in the life cycle when the work/activity is to be performed Relevant resource cost categories such as labour, materials, fuel/energy, overhead, transportation/travel and the like. Costs associated with LCC elements may be further allocated between recurring and nonrecurring costs. LCC elements may also be estimated in terms of fixed and variable costs. To facilitate control and decision-making and to support the life cycle costing process, the cost information should be collected and reported in a manner consistent with the defined LCC breakdown structure. January 2001 TAM Life Cycle Costing 5

256 2.3 Estimating Asset Cost Elements The method used to estimate asset cost elements in LCC calculations will depend on the amount of information needed to: Establish asset use patterns and operational characteristics and hence expected asset life Understand the technology employed in the asset Sources of Cost Data By definition, detailed cost data will be limited in the early stages of the asset life, particularly during the design/acquisition phase. Cost data during these early stages will therefore generally need to be based on the cost performance of similar asset components currently in operation. Where new technology is being employed, data can only be based on estimated unit cost parameters such as $/construction unit, construction unit/labour hours, specified or suggested by the technology. More information on asset component costs will become available during use of the asset, enabling more complete and descriptive costs to be defined. Methods of Analyses One or more of the following methods for analysing cost data should be used. Engineering Cost Method The Engineering Cost Method is used where there is detailed and accurate capital and operational cost data for the asset under study. It involves the direct estimation of a particular cost element by examining the asset componentby-component. It uses standard established cost factors (eg. firm engineering and/or manufacturing estimates) to develop the cost of each element and its relationship to other elements (known as Cost Element Relationships - CER). Analogous Cost Method This method provides the same level of detail as the Engineering Cost Method but draws on historical data from components of other assets having analogous size, technology, use patterns and operational characteristics. Parametric Cost Method The Parametric Cost Method is employed where actual or historical detailed asset component data is limited to known parameters. This available data from existing cost analyses is used to develop a mathematical regression or progression formula that can be solved for the cost estimate required. AS 4536 contains an example of regression analyses to find the cost per vehicle to undertake new delivery routes based on known delivery costs and known route distances. A formula of the form y=a+bx is then solved for the required route. (y is vehicle costs, a is a transport constant, b is the slope of the regression line and x is the route distance) 6 TAM Life Cycle Costing January 2001

257 3 The Life Cycle Costing Process Plan Analysis Select/ Develop Model Apply Model Document and Review Results Prepare Life Cost Analysis Implement and Monitor Life Cost Analysis Life Cost Planning Life Cost Analysis 3.1 Overview As shown in the attached diagram, Life Cycle Costing is a six-staged process. The first four stages comprise the Life Cost Planning phase with the last two stages incorporating the Life Cost Analysis phase. The six stages are: Stage 1: Plan LCC Analysis Stage 2: Select/Develop LCC Model Stage 3: Apply LCC Model Stage 4: Stage 5: Stage 6: Document and Review LCC Results Prepare Life Cost Analysis Implement and Monitor Life Cost Analysis All stages may be performed iteratively as needed. Assumptions made at each stage should be rigorously documented to facilitate such iterations and to aid in interpretation of the results of the analysis. LCC analysis is a multi-disciplinary activity. An analyst should be familiar with the philosophy, which underlies Life Cycle Costing (including typical cost elements, sources of cost data and financial principles), and should have a clear understanding of the methods of assessing the uncertainties associated with cost estimation. Depending upon the scope of the analysis, it will be important to obtain cost inputs from individuals who are familiar with each of the phases of the asset life cycle. This may include representatives of both the supplier(s) and the user(s). January 2001 TAM Life Cycle Costing 7

258 Stage 1 Plan LCC Analysis Plan Analysis The Life Cycle Costing process begins with development of a plan, which addresses the purpose, and scope of the analysis. The plan should: Define the analysis objectives in terms of outputs required to assist management decisions. Typical objectives are: Determination of the LCC for an asset in order to assist planning, contracting, budgeting or similar needs Evaluation of the impact of alternative courses of action on the LCC of an asset (such as design approaches, asset acquisition, support policies or alternative technologies) Identification of cost elements which act as cost drivers for the LCC of an asset in order to focus design, development, acquisition or asset support efforts Delineate the scope of the analysis in terms of the asset(s) under study, the time period (life cycle phases) to be considered, the use environment and the operating and maintenance support scenario to be employed. Identify any underlying conditions, assumptions, limitations and constraints (such as minimum asset performance, availability requirements or maximum capital cost limitations) that might restrict the range of acceptable options to be evaluated. Identify alternative courses of action to be evaluated. The list of proposed alternatives may be refined as new options are identified or as existing options are found to violate the problem constraints. Provide an estimate of resources required and a reporting schedule for the analysis to ensure that the LCC results will be available to support the decision-making processes for which they are required. The plan should be documented at the beginning of the Life Cycle Costing process to provide a focus for the rest of the work. The intended users of the analysis results should review the plan to ensure that their needs have been correctly interpreted and clearly addressed. 8 TAM Life Cycle Costing January 2001

259 Stage 2 Select/Develop LCC Model Select/ Develop Model Stage 2 is the selection or development of an LCC model that will satisfy the objectives of the analysis. The model should: Create or adopt a cost breakdown structure (CBS) that identifies all relevant cost categories in all appropriate life cycle phases. Cost categories should continue to be broken down until a cost can be readily estimated for each individual cost element. Where available, an existing cost breakdown structure may provide a useful starting point for development of the LCC breakdown structure (see Section 2.2). Identify those cost elements that will not have a significant impact on the overall LCC of the asset(s) under consideration or those that will not vary between alternatives. These elements may be eliminated from further consideration Select a method (or methods) for estimating the cost associated with each cost element to be included in the model (see Section 2.3). Determine the data required to develop these estimates, and identify sources for the data. Identify any uncertainties that are likely to be associated with the estimation of each cost element. Integrate the individual cost elements into a unified LCC model, which will provide the LCC outputs required to meet the analysis objectives. Review the LCC model to ensure that it is adequate to address the objectives of the analysis. The LCC model including all assumptions should be documented to guide and support the subsequent phases of the analysis process. January 2001 TAM Life Cycle Costing 9

260 Stage 3 Apply LCC Model Identify the demand Application of the LCC Model involves the following steps: Obtain data and develop cost estimates and their timing for all the basic cost elements in the LCC model. Validate the LCC model with available historical data if possible. Obtain the LCC model results from each relevant combination of operating and support scenarios defined in the analysis plan. Identify cost drivers by examining LCC model inputs and outputs to determine the cost elements that have the most significant impact on the LCC of the asset(s). Quantify any differences (in performance, availability or other relevant constraints) amongst the alternatives being studied, unless these differences are directly reflected in the LCC model outputs. Categorise and summarise LCC model outputs according to any logical groupings, which may be relevant to users of the analysis results (eg. fixed or variable costs, recurring or non-recurring costs, acquisition or ownership costs, direct or indirect costs). Conduct sensitivity analyses to examine the impact of variations to assumptions and cost element uncertainties on LCC model results. Particular attention should be focused on cost drivers, assumptions related to asset usage and different discount rates. Review LCC outputs against the objectives defined in the analysis plan to ensure that all goals have been fulfilled and that sufficient information has been provided to support the required decision. If the objectives are not met, additional evaluations and modifications to the LCC model may be required. The LCC analysis (including all assumptions) should be documented to ensure that the results can be verified and readily replicated by another analyst if necessary. 10 TAM Life Cycle Costing January 2001

261 Stage 4 Document and Review LCC Results Document and Review Results The results of the LCC analysis should be documented to allow users to clearly understand both the outcomes and the implications of the analysis along with the limitations and uncertainties associated with the results. The report should contain the following. Executive Summary: a brief synopsis of the objectives, results, conclusions and recommendations of the analysis. Purpose and Scope: a statement of the analysis objective, asset description including a definition of intended asset use environment, operating and support scenarios, assumptions, constraints and alternative courses of action considered. LCC Model Description: a summary of the LCC model, including relevant assumptions, the LCC breakdown structure and cost elements along with the methods of estimation and integration. LCC Model Application: a presentation of the LCC model results including the identification of cost drivers, the results of sensitivity analyses and the output from any other related analyses. Discussion: discussion and interpretation of the results including identification of uncertainties or other issues which will guide decision makers and users in understanding and using the results. Conclusions and Recommendations: a presentation of conclusions related to the objectives of the analysis and a list of recommendations along with identification of any need for further work or revision of the analysis. A formal review of the analysis process may be required to confirm the correctness and integrity of the results, conclusions and recommendations presented in the report. If such a requirement exists someone other than the original analysts should conduct the review (to ensure objectivity). The following elements should be addressed in the review: The objectives and scope of the analysis to ensure that they have been appropriately stated and interpreted The model (including cost element definitions and assumptions) to ensure that it is adequate for the purpose of the analysis The model evaluation to ensure that the inputs have been accurately established, the model has been used correctly, the results (including those of sensitivity analysis) have been adequately evaluated and discussed and that the objectives of the analysis have been achieved All assumptions made during the analysis process to ensure that they are reasonable and that they have been adequately documented. January 2001 TAM Life Cycle Costing 11

262 Stage 5 Prepare Life Cost Analysis Prepare Life Cost Analysis The Life Cost Analysis is essentially a tool, which can be used to control and manage the ongoing costs of an asset or part thereof. It is based on the LCC Model developed and applied during the Life Cost Planning phase with one important difference: it uses data on nominal costs. The preparation of the Life Cost Analysis involves review and development of the LCC Model as a "real-time" cost control mechanism. This will require changing the costing basis from discounted to nominal costs. Estimates of capital costs will be replaced by the actual prices paid. Changes may also be required to the cost breakdown structure and cost elements to reflect the asset components to be monitored and the level of detail required. Targets are set for the operating costs and their frequency of occurrence based initially on the estimates used in the Life Cost Planning phase. However, these targets may change with time as more accurate data is obtained, either from the actual asset operating costs or from benchmarking with other similar assets. 12 TAM Life Cycle Costing January 2001

263 Stage 6 Implement and Monitor Life Cost Analysis Implement and Monitor Life Cost Analysis Implementation of the Life Cost Analysis involves the continuous monitoring of the actual performance of an asset during its operation and maintenance to identify areas in which cost savings may be made and to provide feedback for future life cost planning activities. For example, it may be better to replace an expensive building component with a more efficient solution prior to the end of its useful life than to continue with a poor initial decision. January 2001 TAM Life Cycle Costing 13

264 Appendix A The Concept of Discounting and its Application A1 The Discount Rate and its Components Since asset component costs for differing options occur at varying times throughout the asset life cycle, they can only be compared by reducing them to costs at a common base date. This is achieved through the well-known process of discounting that reflects the net changes in the real value of an asset component as a result of: Decreases in value due to inflation Increases in value due to the (potential) interest earned if the money expended on the asset component was otherwise invested The discounting of costs takes account of three elements: 1. The interest rate available from long term investment in bank or government bonds 2. The interest rate that business would expect as a return for risk 3. The inflation rate that would affect the purchasing power of the currency The real discount rate makes allowance for A and B. A2 Nominal, Real and Discounted Costs For the purposes of discounting, there are three relevant expressions of asset component costs. These are: Nominal Cost, C N The expected price that will be paid when a cost is due to be paid (ie. including inflation and price movements due to changes in efficiency, technology, etc.) Real Cost, C R The cost expressed in values of the base date excluding inflation but including price movements due to changes in efficiency, technology, etc. Discounted Cost, C D The Real Cost discounted by the Real Discount Rate which is equivalent to the Nominal Cost discounted by the Nominal Interest (or Discount) Rate. The Discounted Cost is thus often referred to as the Net (or Discounted) Present Value. The nominal discount rate makes allowance for A, B and C. Note that discounting does not incorporate changes due to price movements as a result of changes in efficiency, technology, etc. since these are in essence real changes in value. The discount rate thus reflects the net changes in real value due to the compounding effect of interest (potentially) earned on money and the discounting effects of inflation as expressed in the following formula. Thus the Discount Rate reflects the real rate of interest at which money is borrowed or lent ie. the absolute (or nominal) interest rate at which money is borrowed or lent discounted for the effects of inflation. Consequently, the terms discount rate and real interest rate are synonymous. 14 TAM Life Cycle Costing January 2001

265 Therefore, for an asset component having a Nominal Cost, C N in Year n, then the Real Cost (or Present Value), C R at the base date (Year 0) is given by: ( 1 ) C = C + f R N n and the Discounted Cost (or Net Present Value), C D at the base date (Year 0) is thus: C = C + d D R ( 1 n ) ( 1 n ) ( 1 ) n ( 1+ i) ( 1 f ) ( 1+ f ) ( 1 n i) = C + f + d N = C + N = C + N ( ) 1 + d = where d = ( ) 1 + i ( 1 + f) ( ) 1 + i ( 1 f) n n n d = (Real) D iscount Rate i = Nominal Interest (or Discount) Rate f = Inflation Rate For this reason, i is often referred to as the Nominal Discount Rate since it is the rate applied when discounting Nominal Costs. January 2001 TAM Life Cycle Costing 15

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267 Value Management Guideline

268 Value management guideline January 2001 DPWS Report Number NSW Department of Public Works and Services Cataloguing-in-Publication data New South Wales. Government Asset Management Committee. Value management guideline ISBN (set) ISBN Asset management New South Wales. 2. Capital investment. 3. Public administration New South Wales I. Title. (Series : TAM) This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission from the NSW Government Asset Management Committee. Requests and inquiries concerning reproduction and rights should be addressed to: Secretariat Government Asset Management Committee Level 23 McKell Building 2-24 Rawson Place SYDNEY NSW 2000 Website E:mail [email protected] Set consists of : ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN X Asset strategy Office accommodation strategy Capital investment : strategic planning Asset maintenance : strategic planning Asset disposal : strategic planning Sustainable development guideline Heritage asset management guideline Demand management guideline Life cycle costing guideline Value management guideline Risk management guideline Post implementation review guideline Asset information guideline

269 Contents 1 INTRODUCTION What is Value Management? Purpose of the Value Management Guideline Linkages with Total Asset Management VALUE MANAGEMENT POLICY VM perspective Value Management assessments Roles and Responsibilities CONCEPT AND APPLICATION Value Management concept Application of Value Management in Total Asset Management Value Management benefits Value Management investment return VALUE MANAGEMENT PROCESS NSW public sector model Value Study duration Value Study workshop Value Study Group Value Study Team VALUE MANAGEMENT PROCEDURES Information phase: Function analysis phase: Ideas/options phase: Evaluation phase: Action plan: Analysis and reporting:...17 APPENDIX A EVALUATION MATRICES 19 APPENDIX B CASE STUDIES 21 January 2001 TAM Value Management Guideline 1

270 1 Introduction 1.1 What is Value Management? In general terms, Value Management may be described as a structured, analytical process for developing innovative, holistic solutions to complex problems. Value Management has the following key characteristics: It has a specific methodology It is based upon a creative problem solving approach It involves key stakeholders in a managed team approach It focuses on function ie. what it must do, not what it is The approach is focused on achieving valueadded solutions It is based upon on integration The focus is on project learning The greatest gains through the adoption of Value Management have been demonstrated when it is directed towards obtaining maximum value from a total system. The examination of function remains fundamental, however this occurs within the system wide context. It is the systematic analysis of functions, which sets Value Management apart from other approaches to improving value. Value Management studies should be scheduled at optimal points in the project lifecycle and is structured to meet the objectives relevant to the particular stage of the project. Applications of Value Management to government projects include but are not restricted to: Establishing and verifying project objective analysing project briefs Optimising design solutions Resolving conflicts and improving communication and Creating and analysing a range of options for executive consideration. 1.3 Purpose of the Value Management Guideline The primary purpose of the Value Management Guideline is to clarify Government policy and outline the VM process in a way that assists Government agencies in its use and application. The Value Management Guideline is also recommended for the use of members of the building and construction industry and other professionals so that they may better understand their role in the conduct of studies, timing, costs and benefits. Specifically, this document aims to foster an appreciation of the process, to show the possible extent of its use, and to draw up procedures for implementing value studies. 1.4 Linkages with Total Asset Management TAM reflects priorities for service planning, whole-of-life asset management, extended planning requirements for new works, and new relationships between services planning and asset procurement activities. Provision for a Value Management study at each step of the TAM process will ensure that the best value is obtained. For a major project/program, several VM studies may be needed, for example at the service planning stage, the concept development stage, at the construction stage, at the operation and maintenance stage and, ultimately, at disposal. 2 TAM Value Management Guideline January 2001

271 2 Value Management policy 2.1 VM perspective Value Management and Economic Appraisal are companion tools for program and project development. Value Management addresses the technical and functional dimension while Economic Appraisal addresses the resource allocation perspective. 2.2 Value Management assessments The use of Value Management throughout the development of a project is a requirement for all Government agencies. This requirement applies particularly to the early development stages including: The establishment of project objectives Preparation of the project brief, and Consideration of concept and design options. The application of Value Management to the concept stage will particularly assist in defining project objectives, needs and scope, focusing attention upon issues to be examined in the Economic Appraisal. With the increasing involvement of the private sector eg, Build, Own, Operate and Transfer (BOOT) schemes etc, the clear definition of objectives, performance criteria and scope is of fundamental importance. These projects should have been subjected to a concept Value Management Study prior to any involvement in the market place. Value Management reporting requirements parallel those for Economic Appraisal. These procedures are as follows: Projects less than $5 million No formal requirements exist in terms of project submissions to Treasury. However, Value Management techniques should be applied, particularly in establishing the project rationale and considering options. Projects of $5 million and over Formal Value Management Studies are required and submissions to Treasury require a summary of the Value Management Study outcomes, copies of the Value Management Study reports, and the agency s preferred direction and implementation strategy. Designated projects Due to the importance and/or sensitivity of certain projects, Treasury may attach specific Value Management assessment and reporting requirements. 2.4 Roles and Responsibilities Responsibilities of the respective agencies and sectors are outlined as follows: Treasury In reviewing the agency s Asset Strategic Plans and budget submissions, some questions that Treasury will consider include: Is the proposed program or project linked to the agency s service delivery strategy and capital investment strategic plan? Is proposed work justified by detailed analysis? Does the proposal raise any particular policy issues? Is the information in the proposal in a form suitable for Budget Committee consideration? Value Management is a powerful means of achieving compliance with such requirements as well as achieving stakeholder buy-in to the planning and approvals processes. Premier s Department In reviewing the agency s Asset Strategic Plans and budget submissions, some questions that will be considered include: Has the proposed work included detailed analysis of regional and other agency initiatives? Are there opportunities for shared infrastructure or shared service provision January 2001 TAM Value Management Guideline 3

272 Department of Public Works and Services The Department of Public Works and Services (DPWS) reviews the asset plans of both budget dependent and non-budget dependent agencies as part of the review of their asset management strategies. The review looks for consistency with their service strategies and for effective linkages with their Capital Investment, Maintenance and Asset Disposal plans. DPWS will also check the agency s asset planning and decision making process for robustness and look for evidence of the appropriate application of tools such as Value Management. Service Agencies Agencies responsible for the delivery of services on behalf of Government are responsible for the effective management of their assets to a standard that is appropriate for effective achievement of its corporate goals. As part of the budget process agencies are required to develop Total Asset Management strategies involving three interlinked planning processes, namely: Capital Investment Strategic Planning Asset Disposal Planning Asset Maintenance Planning Each of these plans and the programs and projects that flow from them are to be based on sound principles of analysis and planning. Value Management is an appropriate tool that can be used to develop and implement these plans. Every agency is expected to: Have in place an effective planning process for when and how Value Management will be used Demonstrate compliance with government s policy in relation to the use of Value Management when applying for the funding of significant projects Private sector The Government requirements for the use of Value Management apply to the procurement of all public infrastructure, including that undertaken by the private sector. This applies equally to the single consultancy commission (eg. design development) as it does to projects autonomously managed by the private sector. The former involves the private sector s participation in the Value Management process whereas the latter will require its management of the process. 4 TAM Value Management Guideline January 2001

273 3 Concept and application 3.1 Value Management concept Value Management is a structured, systematic and analytical process that seeks to achieve all the necessary functions at the lowest total cost consistent with required levels of quality and performance. Underlying the Value Management theory is the principle that there is always more than one way to achieve project objectives and that examination of the alternatives will produce the most acceptable conclusion. At the core of the Value Management process is the analysis of functions from the point of view of the system as a whole (including the relationship or cost impact of design decisions on the project and/or scheme operation). It is this aspect in particular that distinguishes Value Management from other methods of improving value. Function analysis involves clearly and succinctly identifying what things actually do or perhaps more importantly, what they must do to achieve the objectives. Through the analysis of functions, it is possible to identify wastage, duplication and unnecessary expenditure thus providing the opportunity for value to be improved. The functional analysis perspective not only enables Value Management to explore the project and/or program brief but also to test the assumptions and needs perceived by the author(s) of the brief. Taking a system wide view has particular relevance to the construction industry. For the most part, the construction industry has a compartmentalised approach to the design of facilities. As a result each specialist group within the industry is responsible for issuing, reviewing and updating the criteria and requirements of its own field. This approach tends to emphasise the performance and costs of the part without due consideration of performance and costs of the whole. The concept of value as used in Value Management distinguishes this method from conventional methods of cost review. It achieves this by considering the relationship between function, cost, and worth. Value Management is not a review process per se, but rather a means to assist in the better management of the procurement process. Value Management essentially aims to produce solutions creatively and economically by: Identifying unnecessary expenditure Challenging assumptions Generating alternative ideas Promoting innovation Optimising resources Saving time, money and energy Simplifying methods and procedures Eliminating redundant items Updating standards, criteria and objectives. January 2001 TAM Value Management Guideline 5

274 3.2 Application of Value Management in Total Asset Management The system based functional analysis of Value Management allows consideration of complex interrelationships. Consequently, Value Management has a broad range of applications throughout the strategic planning and procurement processes. It is particularly useful in focussing or distilling objectives and priorities, and in generating alternative solutions. The application of Value Management varies in intent and outcome depending on the timing within the delivery or resolution process. The use of Value Management in the strategic planning process is especially useful in analysing service strategies and in generating alternate and innovative options for meeting service needs. This includes the identification of options that do not require additional capital investment for physical assets. At the strategic planning level Value Management can be used to: Test and validate planning assumptions Identify and confirm stakeholder values Create a shared vision or agreed direction Develop alignment to Corporate directions Establish Master Planning principles and objectives, and Define key challenges and strategies At the project level it can be used to: Resolve a problem Clarify needs versus wants and set priorities Challenge the robustness of the business case for the project Generate stakeholder commitment Share information and clarify expectations Review/establish performance requirements Review design solutions Set/agree project objectives Review scope/functions to be provided Create/confirm options for detailed analysis Create/select alternatives to achieve agreed functions Select a preferred option for detailed planning or development Clarify whole of life cycle costs Clarify stakeholder values that must be addressed Review/develop the project brief Align the project functions to resources, and Create/review action plan to progress the project At the project level Value Management should be planned on an integrated basis. For most projects best Value Management results are achieved by scheduling a Value Study for both the concept and early documentation (say 35%) stages. This application program provides a framework to identify the most appropriate concept and final design solution that reflects best value for money including: Program and project activity stages, and Anticipated Value Study outcomes for corresponding program or project stages. 6 TAM Value Management Guideline January 2001

275 3.3 Value Management benefits Amongst the benefits that a Value Management Study is able to achieve are: A better understanding of needs and the functions necessary to meet those needs A better definition of program or project objectives A better definition of quality and performance standards Clearer briefs Reduced wastage of resources Capital funds savings Improved operational efficiencies Team building and strategies which Create a climate of shared understanding Reduce conflict and risks Foster joint ownership of problems and solutions Create new ideas for improved outcomes Enhance the skills of the participants Save on project development time and ultimate service delivery to the community 3.4 Value Management investment return The results of project based Design Value Studies undertaken on budget sector projects in NSW have exceeded expectations based on international experience. Value Studies completed at the Concept Stage have exceeded those results by an even wider margin. When considering the return on investment, a point of particular importance is that the earlier that Value Management is introduced in the procurement process, the greater the possible improvement in value. This is illustrated in the return on investment diagram below for the procurement phases of concept, design and documentation. The graph of Cost impact of making changes over time below illustrates the inverse relationship between the cost of making changes and the potential for making savings. Again it illustrates the importance of scheduling the Value Management Study at the earliest stage of the project lifecycle to optimise potential value improvements. As a direct result of involvement in the structured workshop process, participants generally achieve a better overall understanding of the project. In many cases there can be a major transformation of perceptions. Communication and networking can be enhanced through the workshop process. This, in turn, can have a significant impact throughout the program planning and project development processes. Specific Value Management study outcomes are demonstrated in the case studies included in the Appendices. These case studies have been selected to demonstrate outcomes for various stages in the procurement process. January 2001 TAM Value Management Guideline 7

276 Figure 1 Return on investment Ratio of accrued savings to cost of value study Ratio 0:1 to 200:1 Stage of project development Concept Early design early sketch final sketch Final design design development final documentation Figure 2 Cost impact of making changes over time Cost of making changes Cost Potential for making savings Time 8 TAM Value Management Guideline January 2001

277 4 Value Management Process 4.1 NSW public sector model This section provides an overview of the Value Management process, which has been specifically tailored to NSW public sector needs, ie. a process capable of analysis at the earliest concept stage, with multi stakeholder participation. The model maintains the elements of the traditional value management process, also known as the job plan, and is outlined in the following steps of a Value Study: Information Identification and testing of program or project rationale from the perspective of stakeholders positions eg. alignment with Corporate Objectives and/or Service Strategies. Function analysis Identification and ranking of primary and secondary functions and their associated cost and worth relationship. Ideas generation Generation of value improvement options through innovation and alternate means of achieving the required function. Evaluation Sorting and prioritising value improvement options to identify viable alternatives. It should be noted that evaluation of options may continue beyond the Value Management Study. Action plan Identification of actions/strategy required to achieve Value Study outcomes and to provide ongoing management framework for project progression. Analysis and reporting Final reporting includes a description of outcomes and documentation of rationale to ensure appropriate focus is maintained through the project development stages. Although the core of the traditional approach is maintained the NSW Public Sector Model for Value Management differs in terms of timing, workshop duration, structure, and Study Group composition. The diagram below illustrates the model, its timeframe and the commitment expected of the key participants. Figure 3 Value Study Group Workshop input say 2 days. information function analysis generate ideas evaluation action plan analysis & reporting implementation Value Study Team total study timeframe say 4 weeks Project life January 2001 TAM Value Management Guideline 9

278 4.2 Value Study duration There is no hard and fast rule concerning duration, save that sufficient time be allocated to ensure all phases are appropriately addressed. It might be quite appropriate to complete a Value Study in a matter of days where either the scope of work, the range of issues or the stakeholder group is small. Equally, the Value Management process may be integrated into the overall program or project management strategy and, hence, be used as a long-term management strand. The timeframe typically adopted is some four to six weeks which allows sufficient time for the necessary preparatory work, workshop, analysis and reporting (for further details refer to section 5). 4.3 Value Study workshop The Value Study Workshop forms the pivotal element of the total process with all phases of the job plan being addressed either whole or in part. The workshop provides the vehicle for bringing the key stakeholders together in a forum which: Maximises their contribution Draws on their combined knowledge Maximises the benefits of group dynamics rather than the same people acting in isolation, and Ensures the most cost effective use is made of participants time by concentrating their contribution into a short duration workshop. The importance of the Workshop reinforces the need to achieve a time commitment from key participants for the full workshop session. In summary, the Workshop process capitalises on the opportunity to explore the overlapping areas of knowledge and experience between the various disciplines and interests groups. Figure 4 reflects the benefits of the participation and knowledge/expertise overlap obtained through the Value Management process, rather than the filtering which often occurs in the traditional procurement approach. mechanical process s Figure 4 Constructive overlap civil/ architectural/ structural electrical & instrumentation owner s requirements 10 TAM Value Management Guideline January 2001

279 4.4 Value Study Group The Value Study Group generally comprises a disparate group of people representing the various stakeholders and others associated with the program or project together with a specialist Value Study Team. The composition and selection of the Value Study Group is of fundamental importance to the success of the process. Experience has shown that in order to gain the appropriate multi stakeholder and multi disciplinary representation on major government projects the Value Study Group size typically averages 17 people. There is often pressure to considerably exceed this number, but for practical reasons the number of participants in Workshop Sessions should be restricted. Executive Management An overt commitment by Executive Management greatly enhances the Value Management process by providing the Value Study Team with a corporate benchmark for maintaining the study focus. Consequently, attendance at the initial Value Study Workshop sessions by Executive Management is strongly recommended. In certain circumstances it may be appropriate to involve a representative from the relevant Minister s office. This situation applies particularly to new initiatives and/or high profile projects. Program agency representatives The Program Agency should be represented in such a way that a full span of issues can be addressed ranging from program rationale through to detailed project function requirements. The participation of a senior executive of the agency is essential during that part of the study in which objectives and rationale are being examined (usually the first half day of a workshop). In program or project concept studies, it is usual for the relevant Agency Program Manager to participate in the whole of the workshop session. Service providers and/or user representative These representatives should advise on functional requirements from an operational perspective and should contribute to the generation of alternative ideas. Design team and project consultants In project studies key players in the design process should participate. They are particularly important as they can provide background data concerning evolution of the project from their specialist standpoints, key issues or concerns, and identification of assumptions that have influenced design decisions. Further, based on their detailed knowledge, this group will provide essential participation in the generation and evaluation of alternative ideas and options for value improvement. Contribution The contribution of the various participants will vary, ranging from one or two members of the Value Study team (outlined in section 4.5) being virtually fully committed, to stakeholder participation of one or two days for the actual workshop. 4.5 Value Study Team The NSW model has developed the benefits of an external team of specialists in the Value Management process, the members of which take varying roles and levels of management throughout the Value Management phases. The Value Study Team participates in the Workshop Session to provide the structure and independent level of enquiry, probing and discussion on the study topic. Typical roles of the Value Study Team members include facilitation, organisation, reporting, and technical independence. Independent technical specialists In certain instances it will be beneficial and/or essential to include in the Value Study Team a person with technical or other specialist expertise pertaining to a particular study topic. This gives the Value Study Team an extra dimension and enhances the level of incisive review and analysis in the Value Management process. January 2001 TAM Value Management Guideline 11

280 5 Value Management procedures This section provides an overview of the specific elements of the Value Management Procedure. This is provided to assist potential participants gain an appreciation of the extent of effort required in a Value Management Study. 5.1 Information phase: Pre-workshop As Value Management is often looked to as a means of resolving emerging problems, providing direction, etc. there is sometimes a tendency to truncate this phase in the rush to complete the Value Study. This tendency should be actively resisted because much of the ultimate success of the Value Study is dependent on the thorough coverage of the activities contained within this phase. These activities fall in to two categories - scope and logistics. Scope The activities under this category are all associated with establishing the focus and bounds of the Value Management Study. The information that is gathered, assessed, and consolidated, forms the foundation for all subsequent analysis. Key activities are: Canvass issues and concerns Establish Value Management Study objectives. The objectives form the basis for maintenance of Value Study focus, particularly during the workshop ie. they form an ongoing benchmark. The objectives should be framed in a manner that permits evaluation of the outcomes in terms of their consistency with corporate or service strategies. Identify and prepare background material. The assembled background material should represent a précis of the topic and perspectives of the stakeholders and participants. As such it provides an immediate identification of key issues, areas of conflict, assumptions by various parties, etc. In addition it begins the process of identification of the functional requirements of the program or project. Logistics This concerns all matters associated with making the Value Study happen. Some suggest that these matters are of little consequence. When however the workshop exercise is concentrated within, say, a two-day framework it is vital that everything is in place prior to the event. Essential activities include: Formation of Value Study Team including technical specialists Establish study timetable Identify and gain commitment of stakeholders Nominate, invite and brief participants Arrange venue Brief presenters for workshop component of the Information Phase Distribute consolidated background material. 12 TAM Value Management Guideline January 2001

281 Workshop The information phase of the actual Value Study Workshop has several components, which encompass: Confirmation of Value Study objectives Scheme and project overview Project assumptions Project imperatives in terms of cost and funding Project imperatives in terms of time and other criteria Key issues and concerns. The workshop commences with the presentation of information by key participants. This provides an overview from the stakeholder s own perspective. It presents an opportunity to quickly gain an appreciation of value judgements, and rationale, which underpin the proposal(s) being considered. The background information gathered during the pre-workshop phase is tabled. This includes relevant data concerning the client s corporate, regional, area and project objectives. The information phase provides the opportunity to explore the total project rationale, questioned from a functional viewpoint, always with the intention of searching for alternative solutions that will provide the client with best value for money. This part of the information phase also offers the opportunity to identify assumptions that have been made in the project development from all stakeholders points of view. 5.2 Function analysis phase: Workshop In this phase of a Value Study functions are identified and analysed. The thrust of a Value Study is concentrated upon function, the cost of those functions and the worth of those functions. Certain key questions are asked during the analysis of functions, namely: What does it do? What must it do? What does the function cost? What is the function worth? A number of techniques have been developed to identify and analyse functions. These include Functional Hierarchies and the use of Function Analysis System Technique (FAST). These techniques commence with the more global functions of the total system and then extend to specific functions of individual components. They can also be completed in the reverse order. The purpose is to provide the basis upon which alternatives may be generated and evaluated with the view to eliminating or combining functions, and to ensure that there is compatibility between functions within the whole system. The hierarchy shown in the diagram below was developed to demonstrate the logical relationship between the functions. The function definition is expressed in active verb and measurable noun terms. This extremely rapid method of analysis involves the Value Study Group taking a system wide view of the project. January 2001 TAM Value Management Guideline 13

282 Table 1 Example of a functional hierarchy diagram. Hierarchy levels Level 1 Level 2 Level 3 Level 4 Control pollution Management strand Provide money Collect rates Manage facility Protect public health Provide sewerage service Infrastructure strand Collect and remove waste Reduce water pollution Pump sewerage Transport Sewerage Monitor activities Maintain system Enhance quality of life Re-use water Treat sewerage Discharge effluent Accommodate growth Irrigate land The resulting diagram is not as detailed as a traditional FAST diagram, however it may be sufficient to identify functions and assign order of costs. When performing a FAST diagram, the relativities and linkages between the functions are established in detail. The functional examination from a system perspective is fundamental and involves an analysis of the combination of interrelated, interdependent, or interacting elements forming a collective entity and serving a common set of objectives. If the subject project is a building, it is, of itself, a system comprising many parts serving a common function. Within the building there are many sub-systems such as the air-conditioning, transportation, etc. Taking a wider view of a system, if the subject building is a hospital it forms part of the health system; a bus depot forms part of the transportation system; and a dam forms part of the water supply system. 14 TAM Value Management Guideline January 2001

283 5.3 Ideas/options phase: Workshop One outcome of a value study is the preparation of a shopping list of alternative ideas which to achieve value improvement. Lateral thinking is encouraged during this phase with the purpose of producing as many ideas as possible, even those ideas that at first sight may seem unworkable or unreasonable. The basis for the generation of ideas and options is encompassed by the following questions: How else may the required function be performed? What else will perform the required function? What will the alternatives cost? There are several ways in which the study may be structured in order to facilitate idea generation. The method will depend upon the number of people in the study and the nature of the project. In project terms various parts of the project will need to be specifically targeted for idea generation (eg. use of space within buildings, security systems, etc). If it is a single product that is being considered, then the product will need to be analysed component-bycomponent or aspect-by-aspect. Where there are more than say seven or eight people in the study, it is useful to generate ideas in small groups and then to hold plenary sessions in which all ideas generated are identified and discussed. 5.4 Evaluation phase: Workshop Option evaluation: criteria and ranking Each idea/option generated needs to be carefully considered by the group as a whole and decisions taken on which ideas should be evaluated in detail. The ideas are evaluated in terms of the advantages and disadvantages they offer to the project with respect to value improvement. This includes those ideas that, in spite of additional capital cost, could lead to a better return on investment. There is a tendency at this stage to discard ideas that might lead to additional re-design or to a disruption of the program. In some cases, say involving a project where time is of the essence, it may be too late in the development process to implement change but in other cases such changes can be incorporated within an acceptable time frame. As a general guide it is common to retain the majority of the ideas/options for detailed evaluation. A range of evaluation tools exists to assist this process. These will be used appropriate to the situation at hand. For example, Evaluation Matrices may be used when it is desirable to determine the relative priorities of a list of objectives or project criteria. The process works by considering one pair of criteria at a time and taking decisions as to the relative priority of each criterion. These matrices are especially beneficial when considering issues and/or objectives at the earliest stages of project development. However, they may also be employed to rank detailed design criteria, for example the functional requirement of a floor finish. January 2001 TAM Value Management Guideline 15

284 Option development Those ideas showing most potential are developed to a stage where they are shown to be workable or otherwise. This may include preparing detailed drawings and cost estimates. Part of this process may continue after the Value Study is over. The extent to which option development occurs is dependent on the workshop duration, for example, a 3-day workshop may allow the Value Study Group to be in the position to make final decisions on option adoption. Alternatively, a 1-day workshop may rely upon the Action Plan resolution period for evaluation. Some options may require advice beyond either the expertise and/or authority of those present at the Value Study. For example a system wide option which might negate or defer the need for work. This would normally then require further corporate direction 5.5 Action plan: Workshop The final action in a Workshop is the preparation of the Action Plan, which encapsulates the outcomes and provides a framework for subsequent tasks/evaluation/ decision-making. It represents the consensus of views of the Value Study Workshop participants and those ideas that show greatest potential for value improvement are highlighted. Ideally, the workshop outcomes and the Action Plan should be made the subject of a presentation to the client (including senior representatives of Management), at which the entire Value Study Group attends. The Plan identifies target dates for each item and nominates people to take responsibility for the pursuit of those items and any reporting. The ultimate success is dependent upon the effort with which the Action Plan is pursued. Action Plan Co-ordinators should be nominated at the conclusion of the workshop to ensure the appropriate effort is applied and Action Plan Nominees have a common point of reference. The elements that should be included are: List all activities to be carried out Identify people responsible for each activity Indicate time frame (for each activity) for further evaluation and decision(s), and Specify finalisation date. It is especially important to involve the client in the co-ordination activities. Ideally, follow-up sessions are scheduled for Action Plan Nominees approximately one month after the Value Study Workshop. At that time the implementation schedule is examined to ensure that all value improvement opportunities are being pursued fully and to determine further actions. This is an extremely useful approach as it gives the Action Plan Nominees a clear focus and thus tends to promote positive action. 16 TAM Value Management Guideline January 2001

285 5.6 Analysis and reporting: Post-workshop Reporting principles Reporting requirements for Value Studies vary considerably according to the project stage at which the Value Study is undertaken. As a rule of thumb, the earlier a Value Study is undertaken the more substantial the reporting requirements. The reasons for this are best illustrated by examining the two most common phases at which project based Value Management Studies are undertaken. Strategic or concept studies Such Value Studies invariably deal with a multiplicity of factors and/or issues. As these studies are used to establish/confirm the project framework, rationale and direction, the reporting needs to document all relevant issues dealt with during the study. The period of relevance of these reports/findings, equates to a benchmark from which to continually monitor the project s achievement of the project s objectives. 30% - 35% design development These Value Studies are primarily concerned with design performance. The purpose of the Value Study is to identify a range of options that will meet the functional requirements. Decisions on design options will normally be taken within weeks rather than months. Strategic or concept stage Value Study reporting In many instances it is beneficial to integrate a formal follow-up reporting session by Action Plan nominees into the reporting phase. This helps to: Maintain the ongoing focus of the Value Study Continue the high level of commitment which Value Management invariably generates, and Consolidate and better define outcome reporting. The following outlines the reporting framework that best suits this approach. However, the reporting scope (Interim Report and Final Report) defined below should be addressed in the Value Study Report irrespective of whether or not a follow-up session is undertaken. Interim report The Value Study Team should provide an interim report approximately two weeks after the Value Study Workshop to provide Action Plan nominees with a rationale of key issues. This assists with the resolution of Action Plan issues. The report content should include: Value Study findings Project rationale and objectives Précis of the project scope Précis of the Value Study scope Summary outline of key functions, with system implications Description of value improvement options, together with a description of rationale and/or implications Outline of the Action Plan Appendices incorporating papers presented to the Value Study by participants and others. January 2001 TAM Value Management Guideline 17

286 Final report The interim report forms the basis for the final report. After the follow-up meeting the final report should provide Project Management and the Client with a detailed record, commentary and distillation of rationale. It should present the outcomes of the follow-up meeting and executive summary of the Value Management Study as a whole. In Concept Studies this provides a benchmark from which to monitor project development in terms of ensuring: Alignment with agency corporate goals Design development reflects concept philosophy. Design stage Value Study reporting In Design Stage Value Studies a report is primarily a set of minutes of the workshop. The reason being that design decisions are invariably taken within weeks of completion of the Value Study Workshop, hence the relativity of Design Stage Value Study Report is substantially shorter. In cases where a major shift in option emphasis occurs, the reporting requirements will equate to those prepared covering a Concept Stage Value Study. The Value Study Report must document the impact (advantages and disadvantages) of the various ideas/options with regard to program and project goals. 18 TAM Value Management Guideline January 2001

287 Appendix A Evaluation matrices This appendix contains two techniques commonly used in value studies priority setting matrices and weighted evaluation matrices. A.1 Priority setting matrices These matrices are used when it is desirable to determine the relative priorities of a list of objectives or project criteria. The process works by considering one pair of criteria at a time and taking decisions as to the relative priority of each criterion. These matrices are especially beneficial when considering issues and/or objectives at the earliest stages of project development. However, they may also be employed to rank detailed design criteria, for example the functional requirements of a floor finish. functional objectives total score weighted score A B C D E F G H I B C D E F G H I A B C D E F G H January 2001 TAM Value Management Guideline 19

288 A.2 Weighted evaluation matrices These matrices are used to facilitate the evaluation of a range of solutions to a particular problem. Their most common use is in the selection of project strategies (for example, design and siting) or in the selection of a particular building element (for example, facades). The process works by considering each solution or proposal in turn, evaluating them against a predetermined set of criteria which have been ranked in order of importance using the prioritising matrix. The major benefit of this system is that it allows quite subjective data to be analysed on an objective basis. Weighted evaluation matrix functional objectives weighted score of functional objectives potential solutions 1 performance rating weighted rating total 2 performance rating weighted rating 20 TAM Value Management Guideline January 2001

289 Appendix B Case Studies B1 A Strategic Health Program Brief Description Objectives To prepare a comprehensive Strategic Services and Asset Management Plan addressing both models of health care and associated recurrent costs as well as capital costs for the re-alignment of assets (57 different facilities), over a seven-year program, to better accommodate and support future service delivery requirements. Area Health servicing a population of 500,000 people with a changing profile of health care needs. It had a budget scope of $279M (June 96 $) that had increased to $326M (June 97). Government to fund approx. 70% with the Area to contribute balance from mixture of asset disposals and recurrent savings. The Program had reached the stage of Project Definition Plan (PDP). Review the Draft Project Definition Plan and ensure it was appropriate as the basis for proceeding with detailed development and implementation of the program. Stakeholders Health Department including: Information & Asset Services; Financial Management & Planning; Capital & Asset Management; Services Development; Mental Health Area Health Service including: CEO & Executive Management Team; Health Services; Capital Works; Mental Health; Primary Health; Cardiovascular; Oncology; Hospitals Managers; Nursing Services Department of Public Works & Services; Government Architect Project Director & Manager Capital Insight Method A two-day workshop following the VM Job Plan. The Key Themes given to the sub-groups for the final Development Phase were: Program Scope/Variations/Cash Flows and Funding Program Inter-relationships/Dependencies/Services Sequencing and Integration Program Transition/Flexibility of 2 major facilities in the program Program Benefits and Risks Summary of Outcomes Further Information Confirmed the robustness of the Model of Care and program strategy as the most appropriate way to provide future services Identified variations and the importance of presenting a comprehensive business case for their inclusion in the program Noted the need to assess the costs of not doing the program as part of the Business Case Confirmed a set of values which were agreed as being collectively important for the program and identified the key principles upon which the program should proceed Noted the critical importance of resolving an agreed funding strategy with the Government and highlighted potential funding options Confirmed the givens and major constraints for the Program Identified and challenged a range of assumptions for the program s planning Noted the need to review expected recurrent savings especially in the light of potential further changes in inter-area flow patterns Identified the major risks to the Program and developed some initial strategies to manage these risks NSW Health Department January 2001 TAM Value Management Guideline 21

290 B2 Exhibition Facility Brief Description Objectives Stakeholder Participants Method Summary of Outcomes Further Information The new Sydney Showground Facilities are located in the Homebush Bay Olympic Park precinct. The facilities were planned to be ready to stage the Sydney Royal Easter Show in early 1998 and to be used during the Sydney 2000 Olympics. Facilities comprised the complete replacement of the former Showground. At the time of the Value Management Study, the project was at Schematic design Stage. Design was assigned in three packages to three design consortia one of which was responsible for overall site integration. The project budget was $258M. The Cost Plan showed potential overrun of $70M. The Study Workshop took place over three days in April Refine the design proposals against brief, budget and program for the showground and exhibition facilities, which will comprise the new Sydney Showground at Homebush Bay. Olympic Co-ordination Authority Sydney Organising Committee for the Olympic Games Royal Agricultural Society The design consortia The Project Manager A three-day workshop. The three design zones were dealt with separately, one each day. The facilitation strategy centred on reconciling the design response proposals: To the original design brief The cost plan of the design responses to the budgeted funds Functional requirements of the facilities in show mode, non-show mode, Olympic and Paralympic modes and as integrated elements of the whole Olympic Park The essence of the design proposals as presented were embraced by the stakeholders, with directions able to be given for the design development to be further advanced Agreed variations and identified opportunities for further design adjustments which reduce the estimated cost plan to within the approved budget The identification of opportunities for staging and sequencing of the development, both permanent and temporary, which can optimise funds effectiveness whilst facilitating operational objectives Royal Agricultural Society 22 TAM Value Management Guideline January 2001

291 B3 Infrastructure Project Brief Description Objectives Motorway development to replace a section of the Pacific Highway that has a poor accident record and has been the subject of community concern regarding tourist traffic delays and safety. Traffic volumes have grown at a faster rate than improvements to the existing highway have been able to cope with. The investigation corridor passes through a region that requires consideration of a number of issues including environmental, agricultural, economic, road engineering and social concerns. It was at the stage of identifying a preferred route within the investigation corridor in order to prepare an Environmental Impact Study (EIS). Review the work undertaken on the upgrade project to date to ensure it meets the project objectives and to recommend a preferred route, if appropriate, to progress the project to the next stage of development. Stakeholders Roads & Traffic Authority Local Government Councillors & Executive Management Dept Urban Affairs & Planning Dept of Land & Water Conservation NSW Agriculture National Parks & Wildlife Service Koala Carers Caldera Environment Centre Conservation of North Ocean Shores Residents Associations Australian Cane Farmers Association NSW Cane Growers Association NSW Sugar Milling Co-operative Consultant Specialists in Traffic, Transport, Road Design, Hydrology & Agriculture The Project Manager Method A two-day workshop following the VM job plan. Key presentations were required to outline site investigations, environmental and engineering issues and community concerns. Early establishment of the values of the stakeholders was critical to achieve a shared appreciation as well as active involvement in setting parameters against which route selection options could be tested and aligned. Sub-groups were established to assess the route options in sections enabling localised focus and sensitive analysis. Summary of Outcomes Further Information Agreed on a suggested route to be further refined and developed by the project team in progressing the project to the next stage Identified the values important to the participants which the project must reflect, and in doing so recognised the environmental sensitivities, the agricultural viability and community/social dimensions of the project For each section where route options were identified, the sub-groups suggested an option for further development and refinement together with a rationale, and in some cases, qualifications to progress the project NSW Roads & Traffic Authority January 2001 TAM Value Management Guideline 23

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293 Risk Management Guideline

294 Risk management guideline January 2001 DPWS Report Number NSW Department of Public Works and Services Cataloguing-in-Publication data New South Wales. Government Asset Management Committee. Risk management guideline ISBN (set) ISBN Asset management New South Wales. 2. Capital investment. 3. Public administration New South Wales I. Title. (Series : TAM) This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission from the NSW Government Asset Management Committee. Requests and inquiries concerning reproduction and rights should be addressed to: Secretariat Government Asset Management Committee Level 23 McKell Building 2-24 Rawson Place SYDNEY NSW 2000 Website E:mail [email protected] Set consists of : ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN X Asset strategy Office accommodation strategy Capital investment : strategic planning Asset maintenance : strategic planning Asset disposal : strategic planning Sustainable development guideline Heritage asset management guideline Demand management guideline Life cycle costing guideline Value management guideline Risk management guideline Post implementation review guideline Asset information guideline

295 Contents 1 INTRODUCTION 3 2 WHAT IS RISK MANAGEMENT? General Guideline terminology Asset management implications Legislative requirements RISK MANAGEMENT REQUIREMENTS Policy requirements Linkages with Total Asset Management Integrating with other decision tools Agency roles and responsibilities RISK MANAGEMENT PROCESS Proposal familiarisation Risk analysis Risk response planning Formal reporting Risk management implementation Advanced techniques and software CHECKLIST FOR RISK MANAGEMENT 21 Initiation Proposal familiarisation Risk analysis Risk response planning Reporting Risk management implementation...22 APPENDIX A APPENDIX B APPENDIX C1 APPENDIX C2 RISK MANAGEMENT PLAN 23 CASE STUDIES 24 RISK ACTION SCHEDULE - TYPICAL FORMAT 35 RISK ACTION SCHEDULE 36 January 2001 TAM Risk Management Guideline 1

296 APPENDIX D APPENDIX E EXAMPLES OF SOURCES OF RISK 39 CALCULATING RISK FACTORS 41 2 TAM Risk Management Guideline January 2001

297 1 Introduction Managing risk is an integral part of good management and is something many managers do already in one form or another. Sensitivity analysis or scenario planning for a project or economic appraisal are familiar examples, as are assessing the contingency allowance in a cost estimate or budget, buying insurance, revising contract provisions or undertaking community consultation during project planning. Although the term risk may not be used when these activities are undertaken, the concept of risk is central and the activities share a common objective, namely to recognise and prepare for a range of possible future outcomes. Many NSW Government agencies undertake projects involving significant capital outlays. Three aspects of these projects make risk management desirable: Their size implies there may be large potential losses unless they are managed carefully. Such projects may also involve unbalanced cash flows, when large initial investments are necessary before any returns are obtained. For assets with potentially long lives, risks associated with changing economic conditions, varying levels of demand for services, new competition and maintenance and disposal requirements must be analysed and managed to ensure the investment is worthwhile. Large investments that lie outside the Government s ability or desire to fund from its own resources and involve private sector participation may require an additional focus to identify and manage the residual risks for Government. Size, however, is not the only consideration. Projects or programs, which are inherently complex or risky will also benefit from particular attention to risk management. This might occur when there are important political, economic or financial aspects, sensitive environmental or safety issues, or complex regulatory and licensing requirements. Asset procurement involving the development or use of new technology, or unusual legal, insurance, underwriting or contractual arrangements are further suitable applications. There is also a relevant standard for Risk Management, titled, Australian and New Zealand Standard AS/NZS 4360 January 2001 TAM Risk Management Guideline 3

298 2 What is risk management? 2.1 General Risks arise because of limited knowledge, experience or information and uncertainty about the future. They may also arise through changes in the relationships between the parties involved in an undertaking. This latter category is particularly relevant to current reforms in the supply, ownership, operation and maintenance of assets for public purposes where contracting out and private sector participation initiatives are being undertaken. Risk management is aimed at providing a structured way of identifying and analysing potential risks, and devising and implementing responses appropriate to their impact. These responses generally draw on strategies of risk prevention, risk transfer, impact mitigation or risk acceptance. Within a single project or proposal each of these strategies may have application for different individual risks. Risk analysis is a part of risk management. It addresses the question: What might go wrong as compared with expectations? While risk management, as well as asking this question, seeks to resolve: What should be done about this? Risk management processes are designed to assist planners and managers to systematically identify risks and develop measures to address them and their consequences. The aim is to produce more reliable planning, greater certainty about financial and management outcomes and improved decision making. NSW Government asset planning and procurement strategies implemented in recent years have led to: Different allocations and specifications of responsibility Innovative forms of financing New forms of control and accountability, and Increased choice of contractual arrangements. These changes have exposed agencies to a range of new risks. They have increased the importance of incorporating risk management when undertaking strategic planning and testing project viability. Risk management should begin at the strategic planning stage of a proposed project or program and continue through its life. 4 TAM Risk Management Guideline January 2001

299 2.2 Guideline terminology The following terms are defined in the context of this guideline and the application of risk management to the proposal planning/service strategy and Total Asset Management process: Risk The possibility that an expected outcome is not achieved or is replaced by another, or that an unforeseen event occurs. This is a broad view of risk that includes both uncertainty due to future events and the consequences of limited knowledge, information or experience. It is measured in terms of consequences and likelihoods. Risk exposure Arises from the possibility of economic, financial or social loss or gain, physical damage or injury, or delay. The significance of risks is the impact they may have on the achievement of proposal objectives, delivery goals or management effectiveness. Risk consequences The impacts on desired outcomes from the risk event occurring. Essentially, the concern focuses on loss since, although windfalls may also result, they do not create a liability or cost. It is these consequences that create the need for management attention. Risk analysis The process of identifying risks, estimating their likelihoods and evaluating potential consequences. Risk management The set of activities concerned with identifying potential risks, analysing their consequences and devising and implementing responses so as to ensure that proposal or project objectives and delivery goals are achieved. This includes management of on-going risks associated with ownership of assets. Contract or project risk management The management of risks for the procurement, construction phase and lifetime use of a capital asset. January 2001 TAM Risk Management Guideline 5

300 2.3 Asset management implications In asset management, it is convenient to think about two principal categories of risk management applications: Strategic/Feasibility Risk management as applied in the strategic planning stages of the Total Asset Management process, from the corporate plan, service and asset strategy to the feasibility of the more specific capital investment, asset maintenance and acquisition/disposal plans. Risk management at this level is concerned with: Ensuring corporate, service and strategic objectives will be achieved Confirming risk consequences do not compromise the viability of the proposal for any stakeholder, and Ensuring that the best planning options are selected. Procurement to disposal In the procurement, maintenance and disposal stages, the focus is on efficient and effective project and service delivery. Here, risk management is directed towards achieving more favourable and reliable outcomes in terms of: Timeliness Cost and quality of the asset Functional and service delivery requirements, and Ensuring that the best procurement option is selected These different applications impose different requirements for risk management at different project stages. It is essential to recognise that risks may change as a project progresses and there will be a need to review and update management provisions as the nature of risks change to match project requirements. For major projects, several risk analyses may be conducted: At concept development and appraisal stages of the proposal For the procurement and construction of the approved project, and For maintenance and disposal strategies. 2.4 Legislative requirements Risk management is mandatory under legislation for some classes of hazardous facilities and activities. The risk management processes described in this guideline are supplementary to the standards set by the legislative requirements. They do not replace or supersede them. 6 TAM Risk Management Guideline January 2001

301 3 Risk management requirements Total Asset Management (TAM) is part of a larger reform program within NSW aimed at improving value from public sector assets and increasing productivity in capital works investment. Risk management can contribute to these objectives through more economic service delivery, opportunities to reduce uncertainty and costs, and more effective contingency planning. 3.1 Policy requirements NSW Government agencies are required to adopt a structured and systematic risk management process within their asset and capital works management procedures. The policy requirements for risk management responsibilities of NSW public sector agencies are as follows: Risk Management Plan For designated proposals, a Risk Management Plan is to be prepared and included in documentation submitted to Treasury for the Budget Committee of Cabinet. Designated proposals will include: All new projects valued in excess of $20 million All proposals which involve private sector financing Proposals which are characterised as being significantly sensitive in economic, environmental or political terms, and Complex or innovative projects where significant risks in terms of viability, procurement or Government commitment can be identified. Where agencies are uncertain as to designated status, they should consult with their Agency Relationship Manager in Treasury. The central agencies will also retain discretion for designating particular projects as circumstances may require. For Private Sector Participation proposals, the Risk Management Plan should detail the impact on State Government borrowing requirements and recurrent outlays. Details about Private Sector participation proposals are outlined in the NSW Government Guideline titled Guidelines for Private Sector Participation in the Provision of Public Infrastructure. A link to this document is available from the private sector participation section of this document Risk Evaluation and Risk Management Responses For other major asset management activities, including new projects valued from $5 million to $20 million, procurement selection, maintenance and disposal strategies, agencies are required to undertake risk evaluation and prepare risk management responses, but external formal reporting will not be required. Risk management procedures for these activities should form part of the normal asset management processes and provide input to agency strategic management and planning. In these cases, risks and their associated management proposals should be evaluated as part of value management studies and economic appraisals. Unless exempted by Treasury, all Budget dependent and nominated non-budget dependent agencies are required to utilise the NSW Department of Public Works and Services to manage the private sector interface on Capital Projects over $500,000 in value. January 2001 TAM Risk Management Guideline 7

302 Table 1 Policy requirements summary Projects Action required Who by Application Designated Develop a Risk Management Plan Agency Report to Budget Committee via Treasury Input to Agency planning process $5M - $20M Identify risks and prepare management responses Less than $5M Note: No formal requirements Agency Input to Agency planning process (including economic appraisals and value management studies) The term projects includes any major asset-related activities from feasibility to disposal stages. 3.2 Linkages with Total Asset Management TAM reflects priorities for whole-of-life asset management, extended planning requirements for new works and new relationships between services planning and asset procurement activities. Risk management needs to be a part of the asset management process as a program or project progresses. Provisions made to manage risk should be reviewed and updated as circumstances and risk exposure change over time. For a major project, several risk studies may be needed, for example at the concept development stage, at the construction stage, at the operation and maintenance stage and, ultimately, at disposal. 8 TAM Risk Management Guideline January 2001

303 3.3 Integrating with other decision tools When significant planning decisions are involved, risk management should be combined with an Economic Appraisal (or Financial Appraisal where appropriate) and a Value Management study. Co-ordination of these tools is depicted at Appendix E. The Economic Appraisal should include an evaluation of economic, investment and finance risks and propose suitable management measures. In a similar fashion, value management studies should address risk factors relevant to the topic of the study. This may concern project concept, feasibility, functional and design aspects or risks associated with the procurement, delivery and contracting arrangements. The integration of risk management with economic appraisal and value management provides a strong foundation for effective decision-making. Agencies should apply the risk management approach appropriate to the scale of the risk and reporting should be incorporated within established documentation procedures. Figure 1 (below) demonstrates the interaction of those tools and how they can complement each other in the planning process. Figure 1 Integrating Risk Management Integrating Risk Management Integrating risk management with economic appraisal and value management in the planning process ECONOMIC APPRIASAL RISK MANAGEMENT VALUE MANAGEMENT 1. Specify Objectives 2. Identify Options 3. Modify Options in Light of Risk Review and VM Study 4. Evaluate options For each viable option Establish the risk content Identify risks of each option Assess their magnitude Develop treatment strategies (Note 1) 2. Develop Options (Note 3) 3. Identify and Evaluate Risks (Note 3) 4. Evaluate options (Note 3) 5. Select preferred option Prepare a Risk Management Plan (where required) for the recommended option (Note 2) 5. Prepare a Study Report (where required) for the recommended option (Note 2) Note 1 At this stage, the risk a review involves many options and should therefore be limited to an overview Note 2 The Plan and VM Study Report should address the preferred option in comprehensive detail Note 3 The Value Management process can be used flexibly to address single issues eg. Clarify objectives or multiple issues eg. agree objectives, identify and evaluate options. January 2001 TAM Risk Management Guideline 9

304 3.4 Agency roles and responsibilities The roles of the principal agency groups in reference to risk management are as follows: Treasury NSW Treasury has developed a Risk Management and Internal Control Toolkit (Treasury Document TPP 97-3) designed to assist agencies in implementation of an efficient and effective risk management and internal control framework. The kit consists of: Risk Management and Internal Control Assessment Guidelines Risk Management and Internal Control Assessment Matrix The toolkit is part of the Treasury s Policy and Guidelines Papers, and is available online at: Treasury provides assistance to agencies in the management of financial and economic risk, government budgetary strategy and implications on Loan Council guidelines, including risksharing principles. Treasury will also be involved in the nomination of designated proposals. Department of Public Works and Services The Department of Public Works and Services (DPWS) provides assistance to central agencies on technical and procurement risk generally, and provides risk management services to agencies in relation to development, management, procurement and asset management programs. DPWS manages the interface with the construction industry and provides contract or project risk management services for projects over $500,000. Contract or project risk management relates to procedural aspects of procurement and project delivery and is aimed primarily at ensuring probity, independence and efficiency for Government in these processes. Service Agencies Service agencies are required to ensure risk management procedures for major projects are completed and comply with designated and new project requirements, including the nomination of designated proposals. 10 TAM Risk Management Guideline January 2001

305 4 Risk Management Process The objective of risk management is to identify and analyse risks and manage their consequences. Risk management involves several key steps that have general application and can be applied at various stages of the asset cycle. The process outlined below should serve as a guide to agencies but can be adapted to individual needs. Proposal Familiarisation Risk Analysis Response Planning Reporting Implementing Define objectives Identify criteria Define key elements Identify risks Assess risks Rank risks Screen minor risks Identify responses Select best responses Develop action & management Collate schedules & management measures or Write risk Management Plan Effect schedules, management measures or Plan Monitor Review & evaluate Figure 2 The risk management process The process of risk management should commence at the strategic planning stage of a proposed project. The steps in the process are: Proposal familiarisation Define proposal/project scope and objectives Identify criteria for assessing the proposal or project Define the key elements and issues Risk analysis Identify all risks that might impact on the proposal or project Assess the potential likelihood and consequences of each risk Screen risks to discard the minor risks having low impacts and low likelihood of occurrence Identify moderate and major risks that require management attention Risk response planning Identify the feasible responses to moderate and major risks. Risk responses will include: Risk prevention Impact mitigation Risk transfer Risk acceptance Select the best response Develop risk action schedules for major risks Develop management measures for moderate risks January 2001 TAM Risk Management Guideline 11

306 Reporting For major undertakings, prepare a Risk Management Plan For other projects, compile and collate risk action schedules and measures Risk management implementation Implement the action schedules and management measures Monitor the implementation Periodically review risks and evaluate the need for additional risk management The main output from the process is the definition of action schedules and management measures and assignment of responsibility for implementation. For designated undertakings, the Risk Management Plan summarises the risk analysis process and documents in detail the action strategies for managing individual risks. Monitoring and evaluating implementation is essential. 12 TAM Risk Management Guideline January 2001

307 4.1 Proposal familiarisation Proposal familiarisation As a preparatory step, familiarity with the proposed project or activity needs to be gained and key parameters and assumptions identified. This should follow definition of the risk management brief and assignment of responsibilities for undertaking the risk management evaluation. For illustrative purposes, familiarisation can be seen to comprise three activities: Define objectives This involves the risk management group becoming familiar with: The nature and scope of the proposal, its key objectives, and The relationship between these and the agency s objectives and strategies. This step links risk management into the agency s main strategic plans, including its service, capital investment, asset maintenance, and disposal strategies and into the agency s procurement, operating, maintenance and disposal procedures. Identify criteria The assessment criteria for a proposal or project are concerned with how well its objectives will be met and possibly the appropriateness of these objectives. They will reflect the principal purposes of the proposal and its means of execution and assist in defining key elements. In the planning stages of the asset cycle, the criteria will reflect strategic concerns, while in the delivery, maintenance and disposal stages the criteria are likely to concern the efficient completion of procurement, cost control, service delivery, quality and the like. Define key elements This involves separating the proposal or project into a set of base elements for structuring the analysis. The initial separation is usually into the major items or activities, but the detailed structure depends on the nature of the associated risks. A broad view of the asset or activity at this stage is more appropriate than a detailed one to avoid a loss of focus on the main issues and to establish a balanced framework for the analysis. In practice, a range of 20 to 50 items or elements is commonly targeted. The items should be distinct and meaningful, and cover the entire proposal scope or procurement and operational aspects. January 2001 TAM Risk Management Guideline 13

308 4.2 Risk analysis Risk analysis Identify risks Checklists, similar projects, brainstorming Assess likelihoods & consequences Evaluation Determine risk factors Rank risks Identify major and moderate risks Major risks: Develop Risk Action Schedule Moderate risks: Specify management measures Screen minor risks Minor risks: Accept risk Identify risks The analysis begins with listing the risks that might affect each key element of the project. The aim is to generate a comprehensive list of the relevant risks and document what each one involves. The analysis should include a description of the risk and how it might arise, possible initiating factors, the main assumptions and a list of the principal sources of information. There are several ways in which risks can be identified: Risk checklists provide a useful starting point for some projects. Agencies carrying out many similar projects can construct their own checklists based on their experience or project databases, and/or draw on information from specialist industry, research, insurance, or management expertise. Examining similar current or previous projects, risk analyses or project evaluations. Brainstorming or workshopping may be valuable for projects involving new or unusual risks, innovative management arrangements or to develop initial checklists. Risk management teams comprising multidisciplinary backgrounds are well suited to this phase. They can be supported by the many specialist techniques applicable to particular kinds of projects or risks. For example, hazard analysis may be directed to specific safety issues or complex environmental applications, while failure modes analysis can be used for examining risks in technical systems. Some of the main risk areas appropriate to different proposal or project stages are listed in the table below. A more detailed list is provided in Appendix D. Table 2 - Main risk areas Planning and proposal stages commercial technological contractual economic environmental financial political Project procurement & management stages construction and maintenance health and safety human factors natural events organisational systems 14 TAM Risk Management Guideline January 2001

309 High impact Assess risk likelihood and consequences The second step of the analysis is to determine or estimate both the likelihood of a risk arising and its potential consequences. All available data sources should be used to understand the risks. These may include: historical records; procurement experience; industry practice; relevant published literature; test marketing and market research; experiments and prototypes; expert and technical judgement and independent evaluation. The assessment involves: An estimate of the likelihood of each risk arising. This might be done initially on a simple scale from highly unlikely to almost certain, or numerical assessments of probability might be made An estimate of the consequences of each risk, in terms of the proposal/project criteria. This might be done initially on a simple scale from negligible to very severe, or quantitative measurements of impacts might be used Determine significant risks The objective is to identify significant risks that must be managed, and to screen those minor risks that can be accepted and so excluded from further consideration. To compare risks a ranking mechanism is used. Moderate risk Specify management measures Major risk Develop Risk action schedule For straightforward risks, qualitative assessment can be used to estimate the likelihood and impact of each risk, and to set cut-off points for the determination of major, moderate or minor status. A more formal structured approach is recommended for more complex assessments. There are many suitable methods available, including the preparation of risk factors. Risk factors are a simple instrument for ranking risks and are based on scaling and then combining the likelihood of a risk and the severity of its impact. A risk factor will be high if the risk is likely to occur or its impacts large, and highest if both are present. Appendix E illustrates two simple techniques for calculating risk factors. A risk-ranking matrix (Figure 3) can provide a graphic presentation of risk classes and assist reporting. The risk ranking and risk factors provide a basis to set cut-off points to determine which risks may be discarded (minor) or identified as major and moderate risks. As a working definition: Minor risks can be accepted or ignored Moderate risks are either likely to occur or to have large impacts but not both. Management measures should be specified for all moderate risks Major risks are those risks with both a high likelihood of arising and a large impact. These risks will require close management attention, and the preparation of a formal risk action schedule Minor risk Moderate risk Figure 3 Risk ranking matrix Low impact Accept Specify management measures Low Likelihood High Likelihood January 2001 TAM Risk Management Guideline 15

310 4.3 Risk response planning Response planning Identify feasible responses Identify feasible responses Checklists, projects,data, brainstorming, evaluation Select the best response Evaluation Develop Risk Action Schedules For major risks Management measures For moderate r risks Allocate responsibilities and resources Overall strategies for managing classes of risks should be determined at the agency level, as it is at this level that the policy decisions must be made about the extent to which the agency is prepared to accept or tolerate risk. There are four broad strategies for dealing with risks and their consequences: Risk prevention Risk prevention is directed to eliminating sources of risk or substantially reducing the likelihood of loss from their occurrence. Examples include the selection of alternative proposals, design and engineering changes, quality assurance procedures, asset utilisation studies, operations reviews, regular audits and checks and preventive maintenance. Impact mitigation Impact mitigation is directed to minimising the consequences of risks. Some risks, such as those associated with market variations or weather, cannot be avoided. Risk management must then be directed to coping with their impacts. Impact mitigation measures include contingency planning, contract terms and conditions, inspections and checks to detect technical compliance or security breaches, and recovery programs. 16 TAM Risk Management Guideline January 2001

311 Risk transfer Risk transfer shifts responsibility for a risk from the agency to another party, who ultimately bears the consequences if the risk arises. The agency will normally incur a cost for the other party assuming the risk. Insurance is a well-known risk transfer strategy for physical and other assets and activities and for a limited range of commercial risks. In procurement, contracts and agreed procedures entered into between an agency and its contractors or suppliers are the primary means of allocating risk between the parties involved. The specific terms of a contract also provide a means of transferring risk. The aim is to place or neutralise significant sources of risk via contractual measures between the agency, the prime contractor and insurance providers. A general principle of risk management is that risks should be the responsibility of those best able to control them. Equally, reward should be commensurate with accepting risk responsibility. The risk analysis process, in identifying how risks might arise, can provide the initial guide to which party is best able to manage risks and the most appropriate form of contract. The analysis also identifies the potential impacts, and so may aid in determining a fair price for taking the risks involved. Most risk transfer strategies require decisions to be taken very early in the life of a project, usually in the pre-tender phases. Risk acceptance Risk acceptance occurs when risks cannot be avoided or transferred, or the costs of doing so would not be worthwhile. Risks must then be accepted. Impact mitigation measures and monitoring may nevertheless be appropriate and should be recommended in these circumstances. Select the best response Selection of the best response involves tradeoffs between the potential benefits of implementing a response and the actual costs of doing so. Established practice may assist in the selection of alternatives but the overall objective is to recognise which risks to address and which risks to accept and to confidently select the best value response. As part of this process, it is useful to examine risks at the project or program level to develop wider decision rules for controlling and managing risk at a strategic level. The aim is to identify common risks and general responses that occur in more than one circumstance or that have wide potential effects. Selecting the most appropriate option involves balancing the cost of implementing each option against the benefits derived from it. In general, the cost of managing the risk needs to be commensurate with the benefits derived. Develop management measures and risk action schedules For moderate risks, management measures should be prepared. These are simple action statements that specify the activities necessary to meet the risk event. For major risks, risk action schedules should be developed to enable successful risk management in practice and over time. Appendix C provides the outline of a typical risk action schedule. The risk action schedule should assign individual responsibilities and time frames and identify those who are responsible for follow-up. Risk action schedules may be applied by the agencies having responsibility for undertaking or overseeing large procurements or for managing assets. Alternatively, or in addition, agencies might require them to be developed and implemented by contractors providing products or services to the public sector, as part of their control and oversight procedures. January 2001 TAM Risk Management Guideline 17

312 4.4 Formal reporting Reporting Formal reporting is an important phase of the risk management process, particularly given what may be long project lead times, complex procurements and lengthy operational life cycles. For formal reporting of designated or major undertakings, a Risk Management Plan summarises the results of the risk management process, action strategies and implementation framework. In particular, it describes the risk management measures and action schedules to be implemented to reduce and control risks. The Plan includes provision for implementation and ongoing reporting. Appendix A provides a typical format for a Risk Management Plan. For projects that are not designated, collation and summary of action schedules and management measures provides an adequate basis for reporting. For a summary of reporting requirements see Table 1 Policy requirements summary. (Page 8) 18 TAM Risk Management Guideline January 2001

313 4.5 Risk management implementation Implementation The most important task in risk management is implementation of the action schedules and management measures and allocation of management resources. This should be followed by monitoring the effectiveness of these measures over time. Planning for implementation requires particular attention to be given to resources required, management responsibilities and timing of tasks. Monitoring of risks and risk management effectiveness should be a routine and recognised activity. The frequency of monitoring, and the responsibility for it, should be specified in either the Risk Management Plan or summary documentation. Review and evaluation Ongoing review of the proposal or project and the evaluation of risks is essential to ensure a Risk Management Plan or action schedules remain relevant. As the proposal or project proceeds and the focus changes from strategic concerns to more operational ones, different forms of risk analysis and risk management may be needed. The review process should be specified in the Risk Management Plan or summary documentation. January 2001 TAM Risk Management Guideline 19

314 4.6 Advanced techniques and software Many specialised techniques have been developed to assist managers undertaking risk analyses and risk management. Some have wide application, while others are specific to particular kinds of assets or risks. The table below summarises a few of them. These techniques and tools enhance the role of the manager. They provide assistance in analysis and evaluation tasks, but do not substitute for good judgement and management experience. Table 3 Risk management: specialist techniques Techniques Applications Sensitivity analysis Very wide application, from economic appraisal and financial feasibility to operations and maintenance models Scenario analysis Economic appraisals and feasibility studies Decision analysis Choice amongst uncertain alternatives Risk engineering Wide application to proposals, projects and budgets, through all stages in the life of an asset Failure modes, effects and criticality analysis Analysis of designs and operating plants; may be directed to safety, plant integrity or ensuring production is maintained Fault tree analysis Identifies the causal factors that may lead to a risk arising Event tree analysis Identifies the consequences of an initiating event Hazard analysis, HAZOP Safety analysis for operating plant Probability assessment Quantification of risk probabilities and consequence distributions Risk surveys Continuing monitoring of risk in a project or a pool of assets, to identify high-risk areas 20 TAM Risk Management Guideline January 2001

315 5 Checklist for risk management Initiation Assemble risk management resources Appoint the team leader and ensure a breadth of skills/experience within the team Assign risk management responsibilities appropriate to task 1 Proposal familiarisation Specify objectives and criteria Familiarise the team with the proposal, assemble documentation and define the key objectives Assess the proposal in relation to the Agency s objectives and strategies Determine assessment criteria for proposal Define key elements Define key elements (target elements, items or activities) to structure risk analysis 2 Risk analysis Identify risks Prepare a comprehensive schedule of risks for each element Describe each risk and list the main assumptions Assess risk likelihoods and consequences Assemble data on risk and their consequences Assess risk likelihoods Assess risk impacts Identify significant risks Rank risks to reflect impacts and likelihoods Where applicable, estimate risk factors Discard/accept minor risks Identify moderate risks for management measures Identify major risks for detailed risk action planning January 2001 TAM Risk Management Guideline 21

316 3 Risk response planning Identify feasible responses For each moderate and major risk, identify the feasible responses Responses may include: Risk prevention Impact mitigation Risk transfer and insurance Risk acceptance Describe each feasible response and list main assumptions Select the best response Evaluate the benefits and costs for each response Select the preferred response Develop management measures and action schedules Specify risk management measures for moderate risks Develop risk action schedules for major risks Actions required (what is to be done?) Resources (what and who?) Responsibilities (who?) Timing (when?) 4 Reporting For designated proposals, produce the Risk Management Plan For other projects, collate and summarise risk action schedules and measures 5 Risk management implementation Implement measures and action strategies Monitor the implementation Assign responsibilities Timing Undertake periodic review and performance evaluation 22 TAM Risk Management Guideline January 2001

317 Appendix A Risk management plan Typical format For designated proposals, a risk management plan must be prepared by agencies and submitted Treasury and to the Budget Committee of Cabinet as part of project approval procedures. A typical format for an RMP is presented below. Risk Management Plan 1 Proposal familiarisation 1A 1B 1C Scope, issues and objectives Criteria Key elements 2 Risk analysis 2A 2B 2C List of risks Table of impacts, likelihoods and risk factors Priority list of major, moderate and minor risks 3 Risk management 3A 3B 3C Major risks: summary of risk action schedules Moderate risks: summary of management measures Schedule of discarded minor risks 4 Implementation monitoring 4A 4B 4C Resources and responsibilities Implementation monitoring plan Review and evaluation plan Appendices Detailed risk action schedules for major risks (see Appendix C1) January 2001 TAM Risk Management Guideline 23

318 Appendix B Case studies This section provides brief summaries of a number of case studies illustrating a range of risk management applications. These have been drawn from various agency and corporate experience. They include identified risks, estimated consequences and proposed risk measures. Case #1 Proposal familiarisation Arterial road extension The project involved a dual-lane carriageway extension, with grade-separated interchange and linkage bridgework, pedestrian and landscaping elements. Procurement was to be on the basis of a design, construct and maintenance tender, supported by Agency financing. The objectives of the project were to achieve functional and cost effective outcomes, encourage innovation, provide for substantial private sector involvement, and trial a new procurement strategy. Assessment criteria for the procurement included compliance with design specifications and value-added innovations. The key elements of the procurement were the sixteen stages of the project from concept development, through community consultation and briefing to construction, operation and maintenance of the road. Risk analysis Risks were identified on behalf of the client by drawing on a systematic consideration of the key elements from concept development through to post-completion reviews and maintenance operation in workshop forums. The workshops involved multi-disciplinary teams reflecting a breadth of experience. Risks included aspects of the new procurement approach and the availability of suitable tenderers, oversight of design development and delineation of maintenance responsibilities. Likelihoods and consequences were estimated for each significant risk. Consequences ranged from additional cost or time penalties to impacts on project viability. Risk management Risk measures were set out as remedial activities either to be undertaken by the contractor or agency. They included procedural arrangements, contract provisions or revised procurement conditions. They are set out against the individual risks in the table below. 24 TAM Risk Management Guideline January 2001

319 Risk management table: Arterial road extension Risk Consequences Risk measures Industry does not respond to No responses received to Expressions Alter the conditions and/or documents. procurement strategy of Interest/tender Industry consultation Substantially higher costs than Invite responses from selected anticipated contractors Non-conforming bids are offered Revise/discard procurement concept No legal precedents exist for new conditions of contract Difficult to price maintenance component because scope of the maintenance task is not known (eg axle loads may vary and increase maintenance demands) Utilities not completely identified Geotechnical status of the site is unknown Current environmental standards change Environmental review process too narrow Time and cost of legal disputes High tender costs Cost (repairs and/or relocation). Geometrical constraint Cost increase Remediation delays Cost Project viability affected Project viability affected Time and/or cost impacts of required design changes Oversights in the Environmental Review may necessitate the process being repeated Community resistance to concept Use proven conditions of contract Nominate alternative dispute resolution methods Insure against the unknowns in the maintenance period Provide for traffic volume adjustment across the maintenance period Nominate risks to be addressed by contractor Review concept Conduct utility survey of site/areas Hold discussions with utility authorities Investigate sub surface conditions Advise tenderers of history of site Review/monitor environmental standards Review concept design changes Conduct an EIS Form and liaise regularly with a community committee Tenders are in different formats Difficult to compare tenders Require schedule formats for critical data Nominate format for other responses January 2001 TAM Risk Management Guideline 25

320 Risk Consequences Risk measures Insufficient or inadequate information provided on which to base tender Poor pricing No responses Inadequate design Initiate early contact with utilities Provide all known and available information to tenderers Include PC provisions for third party costs Total project costs not identified Low construction but high overall project costs Conduct discounted cash flow analysis of total project costs Tender exceeds the cost limit for the project Design is deficient Project construction adversely impacts on local community because of: Access Noise Dust Maximum permissible axle loadings increase Contractor s ongoing financial viability High construction but low overall project costs Project not viable Legal problems/unclear liability Reduced asset life Safety problems Inconsistent with user expectations Community resistance Poor project image Reduced pavement life Increased maintenance cost Structural damage Bankruptcy Takeover/merger Lower maintenance activity Ensure appropriate risk apportionment Include statement of assumptions in tenders Include schedules for tenderers to break up their costs Review project or DCM concept including the following: Funding Concept Design Scope Develop a review/ acceptance process Ensure code and performance criteria compliance Pay for changes requested Limit types of construction equipment to be used Require a sedimentation control plan for construction and operation Document standards to be maintained during construction in tender Comply with EPA requirements Maintain community information and liaison Obtain increased funds for maintenance Require ongoing bond from contractor for maintenance costs Include step in rights and criteria in contract Include termination rights and criteria in contract 26 TAM Risk Management Guideline January 2001

321 Case #2 Proposal familiarisation Commercial budget and business plan An Australian communications equipment and service provider had prepared a business plan and budget for the next financial year. The objectives were to: Reduce costs Withstand an anticipated substantial increase in competition, and Generate a significant improvement in profitability. Management was concerned that the key risks had been addressed adequately in the business plan and that the budget projection was reasonable. Assessment criteria were: The level of profitability, and The level of residual risk to which the company was exposed. Key elements of the project were the main revenue and expenditure items in the budget. Risk analysis Risks were identified in a workshop involving the senior managers of the company. Examples of risks are shown in the tables. Likelihoods, consequences and risk priorities were not identified separately. Risk priorities were assessed directly by the responsible managers Risks Risk ranking 1 Increased competition Major (likely, severe impact): develop action plan as key part of the Marketing Plan 2 Price changes Moderate (result of Item 1): monitor 3 Negative customer price perception Moderate: include in Marketing Plan 4 Lack of product penetration Minor (mature product) 5 Competing product, product substitution Major (related to Item 9): review with R&D and include in Marketing Plan 6 Shift in pattern of demand Moderate (unlikely but high impact): monitor 7 Slow fault correction response Moderate: include monitoring in Operations plan 8 Industrial action Major (due to staff reductions): include in HR Plan 9 Technological change Major: include with Item Fee for service leakage Major (likely, potentially large impact on revenue) 11 Price change processes inadequate Moderate (large impact): review 12 Insufficient cross-selling Moderate (likely, but low impact): include training in HR Plan January 2001 TAM Risk Management Guideline 27

322 Risk management Options for managing risks were developed by the senior managers in a team workshop. The following table summarises the responses to Item 10, the fee-for-service leakage risk (revenue loss from under-charging by customer service personnel), and the recommended actions. Risk action schedule (extract) Management plans, which were in effect risk action schedules, came to form an important part of the Business Plan. The table shows responses to risks in one area may appear in the action plans of several different managers. The action proposed included provisions for monitoring and reporting together with progress and completion dates. 10 Fee for service leakage: Major risk Risk measures Management actions 1 Managers to identify sources of leakage Review Fee-for-service usage and billing, to be assessed by managers responsible 2 Better QA QA Manager tasked to ensure billings aspects covered in procedures 3 Improve computer systems to link work and account records MIS Manager tasked to provide feasibility estimates for further assessment 4 Show staff how loss can be measured Incorporate in staff training 5 Follow up and audit fee-for-service quotes Delay action until tasks and completed 6 Contract out activities Not feasible yet, no current action 7 Provide additional training and support Training Manager tasked to modify training for relevant customer service staff 28 TAM Risk Management Guideline January 2001

323 Case #3 Proposal familiarisation Health services facility A major new health facility was proposed for a greenfields site in regional NSW. A design, document and construction procurement method applied. The objective of the project was to provide an up-dated facility with substantial private sector involvement in both the areas of planning and construction, and service provision. The assessment criteria for the procurement concerned the capability of the tendering parties and cost competitiveness of both construction and recurrent costs. The key elements of the project were the main project phases including concept development, design briefing and contract, expressions of interest and tender, stakeholder consultation, design development, construction, operation and maintenance. Risk analysis A schedule of procurement risks was prepared reflecting contract conditions, contractor performance and client and principal responsibilities. Risks included inadequate performance by the contractor, client service specifications and communication and key contract provisions. Consequences of individual risks were itemised and their significance rated. Generally the consequences represented either additional cost implications, delays to construction or facility commissioning or the potential for dispute under the contract. A sample of identified risks and consequences are included in the following table. Risk management Risk responses ranged from briefings and confirmation of contingencies to the client to procedural provisions, confirmation and adjustment of contract provisions and requirements placed on the project management team or contract principal. An extract of individual risk measures are included in the table below. Risk management table (extract): Health facility Risk Consequences Risk measures Design fails to meet Client requirements Additional cost and delays for the Client Produce accurate design brief and check tender submissions for compliance Poor consultant performance Design or documentation errors/omissions Deterioration of relationships, delay to project Rework or extra work necessary Performance monitored and reported and eligibility for future commissions controlled Risk placed with contractor under terms of contract User group changes design Cost and delay to project Manage changes to ensure only essential changes are made and that they are made in adequate time Currency fluctuation excessive Equipment costs become prohibitive Methodology for adjustment incorporated in contract and early ordering of equipment January 2001 TAM Risk Management Guideline 29

324 Risk management table (extract): Health facility continued. Risk Consequences Risk measures No interest rate on overdue payments stated Unrealistic rates charged Rates stated under standard documentation and within General Conditions of Contract Public liability and contract works insurance policy not taken out by contractor or lapses Principal exposed to cost of loss Insurance taken out by Principal Subcontractor/subconsultant insolvency Contractor attempts to pass on loss Risk stays with contractor under terms of contract Progress payment delays Breach of contract by Principal Notices of breach received and payment delegation can be withdrawn or revised Variation disputes Access denied for private sector participation Deterioration of relationships, recourse to arbitration Client in breach of separate contract Contract structure requires review and determination before arbitration can proceed Process to include Client participation Contract structure provides for access to work and for progressive handover Project Director to concur in clauses relating to interface with contractor Principals equipment not delivered Commissioning delayed Program monitored and contract structure allows for conditional completion and handover Project Director required to report status of Principal supplied items each month Faults during defects liability period Facility operation hindered Security deposit retained and contract structure gives right to repair and recover costs Budget overruns Client dissatisfaction Onus placed with Project Manager to provide suitably skilled staff to monitor and manage the budget process Unfavourable media reports Client dissatisfaction Contractual restriction on media releases 30 TAM Risk Management Guideline January 2001

325 Case #4 Proposal familiarisation Toll road development (feasibility stage) The proposal involved extensive improvement of a regional road system on a major corridor. Two main options were under consideration developing a new tollway or upgrading the existing road system. The project objectives were to improve safety, reduce travel times and costs and provide opportunities for private sector participation. Assessment criteria for the project included the timeliness and viability of the upgrade and flowthrough effects on safety, traffic flow, regional development, requirements for Government support and the environmental and community impacts of the development. Key elements of the project were drawn from the major phases of the project including concept development, economic and financial analysis, environmental assessment, procurement and tendering, community consultation and construction planning. Risk analysis Five major areas of risk were identified. These were: Risk areas Economic Examples of risk Population and traffic growth forecasts, discount rates, benefit values Financing Ownership, funding sources, debt / equity ratios, residual risks for Government Environmental Environmental approval processes, community involvement, potential need for new legislation Political Taxation, toll charges, parliamentary support Construction Physical construction problems, site access, spoil locations, disruption to community services, contractor insolvency, industrial disputes Likelihood and priorities Likelihoods and impacts were assessed for the principal risks. The following matrix (figure 4) shows the assessments for a sample of the risks. High impact Moderate risk Specify management measures Major risk Develop Risk action schedule Minor risk Moderate risk Figure 4 Risk ranking matrix Low impact Accept Specify management measures Low Likelihood High Likelihood January 2001 TAM Risk Management Guideline 31

326 Some risks, like construction risks, were identified as of minor impact and required no further action in this phase of the project. Moderate and major risks required more detailed analysis. The financing structures created for implementing the project were identified as providing the greatest potential risks for the Government. Risk management An extended risk management schedule was developed to cover all moderate and major risks. As an example, the extract below summarises some of the risks and risk measures considered in the environmental planning and tender processes. For many risks, multiple responses were appropriate, particularly when there were several parties involved. Risk action schedules were developed for all major risks, with recommendations on implementation covering resources, timing and monitoring. The principal measures for environmental risks, for example, were included in a detailed Environmental Strategy Plan. Risk management table (extract): toll road Risk Consequences Risk measures Environmental Planning Delayed start to process Delay, cancellation Start planning early Public consultation fails Delay Develop explicit management plan Additional studies needed Delay and additional costs Prepare contingency plans Appeals or challenges Delay May be reduced by SEPP conditions Departmental liaison problems Delay Create Steering and Working Committees Large number of submissions Delay, depends on number Arrange adequate support resources Cabinet approval delayed Delay, cancellation Start ministerial briefing early Tender Process Insufficient information provided by tenderer Cannot evaluate tenders Tender cost subsidy Clear specification requirement Too much information provided by tenderer Time and cost Limit tender period Nominate level of information Tenders in different formats Difficult to compare Include schedule for key data Specify format for responses Design differs from concept Delay Reject bid Change tender Negotiate to obtain conforming tender 32 TAM Risk Management Guideline January 2001

327 Case #5 Project familiarisation Tender risk assessment The project involved demolition of an overhead roadway where significant implications for continuing use of adjoining infrastructure arose. These implications included loss of life and disruption to major services. The objectives of the project were the timely and safe removal of the obsolescent roadway, at the lowest practical cost. Tenders had been called and assessment criteria included compliance with tender requirements, capacity to meet programming deadlines and restricted site access and procedures to minimise adverse risk impacts. The key elements of the project concerned the main phases of work and precautions proposed by tenderers to address the sensitive aspects of the demolition. These included cranage provisions, removal of debris and excess material, precautions to retain structural integrity and preparatory measures prior to site access. Risk analysis As part of the tender documentation, major risks of the demolition project were identified by agency staff, impacts assessed and likelihoods estimated. These risks included damage to adjoining infrastructure, protracted interruption to services, failure to complete within time frame and injury to works personnel. Reference to these factors was included within tender documentation. As part of the tender evaluation an assessment was made of how well each tenderer addressed these factors and the risk measures proposed. An additional measure outlined in tender submissions was also considered. An outline of the principal risks and minimum measures is presented in the following table. Risk management The selection of the preferred tenderer took into account how well the risk implications associated with the work were addressed and any additional measures that reduced potential liabilities, within the context of meeting time and cost constraints. Tender acceptance was made conditional on these procedures being observed or completed during execution of the works. January 2001 TAM Risk Management Guideline 33

328 Risk management table: Tender assessment Risk Consequences Risk measures Work not completed to deadline Delays to adjoining services Additional costs Adverse publicity Detail preparatory work Power lines damaged Damage to rail or signalling Derailment due to debris on the track Loss of service Additional costs Loss of service Adverse publicity Additional costs Injury or loss of life Damage to equipment Loss of service Collapse of roadway segment in Injury or loss of life easement Loss of service Damage to equipment Adverse publicity Injury or fatality to contractor personnel Injury / loss of life Delay to works Adverse publicity Assured method of temporary span holding Establish reserve cranage capacity for contingencies Adequate protection of wiring Method of work to minimise likelihood of line interference Protection for signalling Security of span lift Minimisation of debris from lift activities Plan to minimise debris Preventive measures to exclude debris from service easement Lighten span to reduce likelihood of failure No loading of span after first section removed Reduction of personnel in danger areas Precaution measures / training Barriers to access to live equipment Coordination with service agency 34 TAM Risk Management Guideline January 2001

329 Appendix C1 Risk action schedule - Typical format Risk action schedule 1 Recommended risk management actions 1A 1B Summary Impact 2 Risk identification and assessment 2A 2B Activity description Risk identification 3 Responses to risk 3A 3B Alternative courses of action Consequences of alternatives 4 Implementation 4A 4B 4C 4D 4E Proposed actions Resource requirements Responsibilities Timing Reporting January 2001 TAM Risk Management Guideline 35

330 Appendix C2 Risk action schedule Case study This appendix provides a simplified risk action schedule from a Government procurement project. The project is concerned with the provision of integrated communication facilities for a large fleet of vehicles that must operate in several regions. Details are provided for two major risks and the associated responses. Risk action schedule - Integration software 1 Recommended risk management actions 1A Summary The Project Manager will contact her counterpart in Northern Region to establish a joint team to liaise on system specification and operations across the regional boundary. The Engineering Manager will set system specifications and commence development of common modules. He will obtain advice and assistance for managing software development, and monitor requirements for additional rack space. The Quality Manager will review and monitor the implementation of software development procedures by the contractor. 1B Impact These measures will minimise the impact of delay in specifying integration protocols in the adjoining region and assist in maintaining project milestones. 2 Risk identification 2A Item description The Integration Software item consists of the software necessary to integrate the new communications system with the operating protocols in the adjoining region. 2B Risk identification and assessment No. Risk description Priority assessment 1 Requirements unknown at contract start date Major problem, high likelihood due to specification delays and high impact risk. 2 Installation and integration problems. Major risk. 3 Fleet compatibility problems during changeover. Minor risk, acceptable. 4 Difficulties in measuring software performance. Moderate risk (high likelihood but low impact). 5 Lack of in-house software management skills. Moderate risk. 6 Time for extended reliability testing not available. Moderate risk. 7 Requirement for hardware upgrades. Moderate risk. 36 TAM Risk Management Guideline January 2001

331 3 Responses to risk 3A Alternative courses of action for major risks Risk 1 Requirements not specified fully Response no. Description 1.1 Liaise with adjoining region to obtain advance specifications from project team and contractor. 1.2 Create joint specification team with adjoining region. 1.3 Delay start of all software development. 1.4 Start development of common system modules, with provisions for delay until specific integration details are available. Risk 2 Response no. Installation and integration problems Description 2.1 Fix specification for our side of system. 2.2 Create joint integration team with adjacent region. 2.3 Pre-test modules. 3B 2.4 Specify integration modules with parameters. Consequences of alternatives Risk 1 Response no. Requirements not specified fully Assessment of responses 1.1 Low cost, high effectiveness. 1.2 May not be acceptable to other contractor. 1.3 Only feasible to delay for 4 weeks. 1.4 These should be started, to reduce potential project delay. Risk 2 Response no. Installation and integration problems Assessment of responses 2.1 Should be done, Engineering Manager to action. 2.2 Pursue as part of This is contractual requirement. 2.4 Only feasible in part; discuss with contractor. January 2001 TAM Risk Management Guideline 37

332 4 Implementation 4A Proposed actions The Project Manager will contact her counterpart in the adjoining region to establish a joint liaison team. This team s responsibilities should be more extensive than software integration alone. They should cover communication system specifications and protocols. The Engineering Manager will ensure system specifications are fixed as soon as possible (they are already firm for many of the contracted elements). Development of common modules will be started. The Quality Manager will review and monitor the implementation of software development procedures by the contractor. 4B Resources No additional resources required. 4C Responsibilities Manager Project Manager Engineering Manager Quality Manager Responsibilities Contact project manager. Nominate members of joint team. Set terms of reference. Fix system specifications. Specify common modules. Obtain advice and assistance. Monitor requirements for rack space. Monitor software development. 4D Timing Liaison to start immediately. 4E Reporting Managers are to report every two weeks to the Project Management Committee. 38 TAM Risk Management Guideline January 2001

333 Appendix D Examples of sources of risk Planning and feasibility stages Commercial & strategic competition market demand levels growth rates technological change stakeholder perceptions market share private sector involvement new products and services site acquisition Economic discount rate economic growth energy prices exchange rate variation inflation demand trends population growth commodity prices Contractual client problems contractor problems delays force majeure events insurance and indemnities joint venture relations Financial debt/equity ratios funding sources financing costs taxation impacts interest rates investment terms ownership residual risks for Government underwriting Environmental amenity values approval processes community consultation site availability/zoning endangered species conservation/heritage degradation or contamination visual intrusion Political parliamentary support community support government endorsement policy change sovereign risk taxation Social community expectations pressure groups Project initiation analysis and briefing functional specifications performance objectives innovation evaluation program stakeholder roles and responsibilities Procurement planning industry capability technology and obsolescence private sector involvement regulations and standards utility and authority approvals completion deadlines cost estimation January 2001 TAM Risk Management Guideline 39

334 Project delivery stages Procurement and contractual contract selection client commitment consultant/contractor performance tendering negligence of parties delays - weather, industrial disputes damages and claims errors in documentation force majeure events insurance and indemnities Construction and maintenance buildability contractor capability design and documentation geotechnical conditions latent conditions quality controls equipment availability and breakdowns obsolescence industrial action materials availability shut-down and start-up recurrent liabilities health and safety accident, injury OH&S procedures contamination noise dust and waste disease irradiation emissions Human factors estimation error operator error sabotage vandalism Natural events landslip/subsidence earthquake fire flood lightning wind weather Organisational industrial relations resources shortage scheduling operational policies management capabilities management structures personnel skills work practices Systems communications or network failure hardware failure linkages between sub-systems software failure policies and procedures 40 TAM Risk Management Guideline January 2001

335 Appendix E Calculating risk factors Two simple techniques are illustrated below for calculating risk factors. Both are essentially based on establishing quantitative criteria in reference to likelihoods and risk consequences. The key objective is to create a means to nominally rank risks and identify the most significant. Example 1 To estimate the likelihood of each risk arising and assess its impacts, initially use verbal scales that are readily understood. The tables show examples. Where necessary, adapt or adjust these to suit the circumstances, or use different scales for different criteria. Convert the verbal assessments to numerical measures. Risk likelihood L Risk impact I Almost certain 0.9 Extreme 0.9 Highly likely 0.7 Very high 0.7 Likely 0.3 Medium 0.3 Unlikely 0.1 Low 0.1 Rare 0.01 Negligible 0.01 Calculate a risk factor or combined risk measure for each major risk: The risk factor (RF), varies from 0 (low) to 1 (high). It reflects the likelihood of a risk arising and the severity of its impact. The risk factor will be high if a risk is likely to occur, if its impacts are large, or both. Rank components or work packages in decreasing order of their risk factors, to generate a risk profile. The ranking and the risk factors are used to decide which risks are acceptable and unacceptable, and to enable risk management priorities to be set. Risk profile Risk factor (RF) Priority area Components ranked in order of decreasing RF L = risk likelihood measure, on a scale 0 to 1 = average of likelihood factors; I = impact measure, on a scale 0 to 1 = average of impact factors; RF = risk factor = L + I - (L x I) January 2001 TAM Risk Management Guideline 41

336 Example 2 This technique users different quantitative values for likelihoods and consequences and derives risk factor values by simple addition. However, the objective, namely to develop a ranking of risks, remains the same. Risk likelihood Frequent Likely to occur frequently (several times per year) Reasonably probable Occasional Remote Very unlikely Likely to occur several times in life of operation (once per year) Likely to occur sometime in life of operation (once in 10 years) Unlikely but possible in life of operation (once per 100 years) Very unlikely (might occur once per 1000 years) Scale Risk impact Damage Scale Catastrophic > $10 million 7 Critical $1 million < $10 million 6 Major $100,000 < $1 million 5 Minor $10,000 < $100,000 4 Negligible < $10, TAM Risk Management Guideline January 2001

337 In this example, risk factors are calculated by adding the likelihood and impact scores, and risk priorities are assigned on the following score groupings: Risk likelihood Frequent Probable Occasional Remote Very unlikely Risk impact [1] [0] [-1] [-2] [-3] Catastrophic [7] Critical [6] Major [5] Minor [4] Negligible [3] Risk profiles Risk priorities are then allocated as follows: Score Ranking Management Action [5], 6, 7, 8 Major risk Imperative to suppress risk to lower level 4, [5] Medium risk Corrective action required in a reasonable time frame < 4 Low risk Corrective action where practicable. January 2001 TAM Risk Management Guideline 43

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339 Post Implementation Review Guideline

340 Post implementation review guideline January 2001 DPWS Report Number NSW Department of Public Works and Services Cataloguing-in-Publication data New South Wales. Government Asset Management Committee. Post implementation review guideline ISBN (set) ISBN Asset management New South Wales. 2. Capital investment. 3. Public administration New South Wales I. Title. (Series : TAM) This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission from the NSW Government Asset Management Committee. Requests and inquiries concerning reproduction and rights should be addressed to: Secretariat Government Asset Management Committee Level 23 McKell Building 2-24 Rawson Place SYDNEY NSW 2000 Website E:mail [email protected] Set consists of : ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN X Asset strategy Office accommodation strategy Capital investment : strategic planning Asset maintenance : strategic planning Asset disposal : strategic planning Sustainable development guideline Heritage asset management guideline Demand management guideline Life cycle costing guideline Value management guideline Risk management guideline Post implementation review guideline Asset information guideline

341 Contents 1 INTRODUCTION Background Alternative Review Strands Successfully implementing Post Implementation Review Strategies Benefits of performing a Post Implementation Review SELECTING AN APPROPRIATE STRATEGY Post Implementation Review Post Completion Review...8 METHODOLOGY A Generic process...10 Stage 1 Define Review Objectives and Structure...11 Stage 2 Background Research...12 Stage 3 Allocate Resources and Determine Evaluation Framework...13 Stage 4 Stage 5 Data Collection...14 Analyse and compare data...15 Stages 6&7 Identify Major Issues and Findings/Link to Feedback Mechanism DATA COLLECTION TECHNIQUES Generally Questionnaire Participant Interview Expert Walk-Through (Infrastructure/ Building Projects) Observation Survey Workshop Discussion PIR/PCR OUTCOMES PIR Results Implementing Feedback Information Bank External Standards...20 January 2001 TAM Post Implementation Review 1

342 APPENDIX A PIR PLANNING AND ASSESSMENT CHECKLIST 21 APPENDIX B PCR PLANNING AND ASSESSMENT CHECKLIST 22 APPENDIX C PIR REPORTING FORMAT 23 2 TAM Post Implementation Review January 2001

343 1 Introduction 1.1 Background The Post Implementation Review (PIR) process is designed to collect and utilise the knowledge learned throughout a project to optimise the delivery and outputs of projects in the future. A PIR can be used on a wide range of projects from the design and construction of buildings to the development of an asset strategy or an asset register. PIR is a process, a tool and a means of collecting and communicating information. A PIR can be used to evaluate all stages in the asset life cycle. This document is intended to provide a generic structure for NSW public sector agencies when conducting PIR studies. The objective is to define the principles, practices and outcomes of PIR studies to develop a feedback mechanism to optimise decision-making on future projects. The guideline provides a generic structure that is intended to provide flexibility to permit the PIR process to be tailored to: The service delivery requirements and outcomes required by an individual agency The objective of the review (efficiency, effectiveness and outcomes of the project/program) The size, location and complexity of the project/program. This guideline will assist those either performing a PIR in-house or commissioning a PIR from an external consultant. It provides assistance on preparing a PIR brief, monitoring the progress of the review team and judging the efficiency and effectiveness of the completed product. A PIR generally follows a simple process. However the process can develop into an elaborate system, as even a simple project is a diverse collection of an almost unlimited number of variables. To overcome this complexity, it is essential to have a clear focus on the objectives of the review, its composition and the likely applications of the review s findings. 1.2 Alternative Review Strands This guideline is structured around the Post Implementation Review process, and includes a second review process, more limited in its focus, the Post Completion Review. Post Implementation Review (Did the agency get what it needed?) PIR is a comprehensive feedback mechanism designed to assess project outcomes. This assessment focuses on how well the project outcomes were matched to the actual needs that the project aimed to fulfil. This evaluation will indicate how well the agency communicated (through the project brief) the project outcomes and how well these were achieved. Post Completion Review (Did the agency get what it asked for?) A Post Completion Review (PCR) is intended to systematically and rigorously compare the actual performance of the project outcome with the stated objectives of the original brief. The PCR process seeks to identify ways in which future project conception, design development, and implementation can be improved. A number of strands of PCR exist including; Economic Review Brief Compliance Review Procurement Process Review Performance Review Technical Review. January 2001 TAM Post Implementation Review 3

344 Figure 1 describes the relationship between the two mutually exclusive strands of PIR. Commonality of various components of the two strands provides both the basis for a mutual sharing of information, and the desired information linking the two strands. While the conceptual diagram (Figure 1) shows a total feedback process, clearly there is feedback between each of the strands. Any notions of continuous improvement and achieving best practice are not achievable unless effective feedback mechanisms are developed. Figure 1 Types of Evaluation Agency Service Requirements Agency Procurement Program Project Performance Brief Design PIR Feedback Mechanism Documentation PCR Feedback Mechanism Project Development/ Construction Commission PIR Assessment of Project/Service outcomes Implementation PCR 1. Economic Review 2. Brief Compliance Review 3. Procurement Process Review 4. Performance Review 5. Technical Review Post Implementation Review (PIR) Post Completion Review (PCR) 4 TAM Post Implementation Review January 2001

345 A fully developed model of PIR should be linked to an information management system that focuses on the management of information and the easy application of PIR feedback for the continuous improvement of the planning, procurement and implementation processes. This system needs to be able to integrate the results of a PIR with other relevant project material and make it available to the right people, at the right time and in the easiest form for application to future projects. The process of combining the outcomes of a number of PIRs into a resource tool is very often assumed. However this is not the case and will require careful planning and evaluation by the individual agencies if maximum value is to be obtained from a series of completed PIRs. 1.3 Successfully implementing Post Implementation Review Strategies The implementation of an effective and successful PIR will require the dedication of those involved in the review process, access to all relevant information and personnel, and finally a commitment to apply the knowledge gleaned from the study. During the course of a PIR it should be stressed that criticism of specific individuals is undesirable and counter productive. A PIR should not be used to find fault or apportion blame. A professionally performed PIR should provide a balanced assessment focusing on positive and negative feedback. This focus on an overall constructive feedback process should be emphasised throughout the review process. The involvement of decision makers in the PIR will help to overcome the feeling that they themselves are being evaluated. Project decision makers should be used as an information resource able to answer questions about the history of the project. The PIR need not be limited to new or recently completed projects. A project may be significant if it seems to be performing exceptionally, effectively or poorly, or it is a key service delivery resource. Formal evaluation of any asset may provide information that could be the basis for improving the economical operation and maintenance of all asset types. January 2001 TAM Post Implementation Review 5

346 There are a number of reasons why PIR is not pursued more effectively: At the end of each phase of a project the assembled team disbands and moves quickly to the next project Long project timeframes. Some asset based projects can have extensive timeframes between feasibility and occupation. (Up to 3-5 years) Due to the long turnover period many of the factors that produced the original asset solution change. These factors include service delivery requirements, political factors, budget, state of the economy, industry practices, etc. Where projects exhibit shortcomings there is an unwillingness to expose participants to perceived criticism In an increasingly litigious society criticisms may be taken as libellous There are rarely funds for effective and continuous PIRs PIR itself is often seen as ineffective. Overly complex and long-winded studies are perceived as time wasting The asset management industry has not developed a culture of critical examination and evaluation There is no effective mechanism for developing a collective reference system. Compare for example the legal and medical professions with their extensive case histories. To successfully conduct a PIR a number of key points should be considered by the project team: What decisions are key to improved project value? Who makes these decisions? When and where are these decisions made? What issues impact on them? What other reference material is used? Generally agencies should aim to review between 1 in 5 and 1 in 10 of all completed projects. All pilot projects or projects involving innovative procurement systems should be evaluated. These guidelines provide a broad range of techniques to assist agencies in developing a PIR. However, the final responsibility for implementing a PIR remains with each agency. In overview the following key points should be considered: PCRs of the design and construction of built assets are best undertaken when the project has been occupied for two (2) to five (5) years More numerous indicative studies are preferred to fewer investigative studies Employ a range of techniques to demonstrate the validity of the findings Involve the original design development and procurement team if possible Project users have strong opinions about their projects and are a valuable source of feedback PCR can be cost-effective and a range of simple survey techniques are available Develop a keyword classification system to group and sort feed-back issues There has to be an organisational commitment to respond to the feedback. Ultimately a PIR program is a continuous, repetitive and divergent process. As one project PIR is completed and its findings applied, new projects are completed. This requires a continuous cycle of PIR. In order to obtain the maximum benefit from a continuous PIR program an information feedback system will need to be adopted that is suitable for the purposes of each individual agency. (Refer to section 5 PIR Outcomes). 6 TAM Post Implementation Review January 2001

347 1.4 Benefits of performing a Post Implementation Review Post-Implementation Reviews are the last step in the project delivery process and represent closure of the feedback loop. Notionally PIR provides the means where the lessons learnt from previous projects are fed-back into the process, to the benefit of future projects. Given the massive resources expended in both asset and non-asset procurement it is a serious criticism that feedback is not pursued more diligently. Undertaking a PIR can generate both short and long term gains. Short-term gains include: Identification of the ways to improve the functional value of a project Identification of ways and means to assist asset users overcome occupational problems and Increasing user morale through the continuous improvement of asset created environments. Longer-term gains may include: Learning from precedent Economies resulting from improved project performance Improved concept criteria and project briefing Development of more precise design criteria; and Improved decision-making. The purpose for undertaking a PIR is to gain information and understanding with which to improve project decision-making. A successfully completed PIR may or may not result in a recommended action plan. In its simplest form, it will provide a forum for discussion and the basis for improved understanding between members of a project team. A more complex PIR may extend the current body of knowledge to the agency or beyond it to the industry in general. January 2001 TAM Post Implementation Review 7

348 2 Selecting an appropriate strategy Post Implementation Review is a generic description of a range of reviews, or evaluations, which vary with the key stakeholders in the performance of a project. A clear understanding of the purpose of the review is therefore a prerequisite for successful implementation. Generally reviews are either defined as Post Implementation Review or Post Completion Review. 2.1 Post Implementation Review A PIR is designed to evaluate how well the brief predicted project delivery requirements. In a rapidly changing environment many projects, which faithfully meet the briefed requirements, are considered to perform poorly because service requirements have changed dramatically. When this occurs, the root problem is clearly the inability to accurately predict project requirements not the quality of the project solution. 2.2 Post Completion Review Economic Review Due to the increasingly stringent feasibility process being adopted for projects, especially economic appraisal, an important strand of PCR is to evaluate whether the project met its economic or service predictions. Such an evaluation is critical if these predictive tools are to be properly developed. Brief Compliance Review An important aspect of PCR is to assess whether the completed project complied with its original brief, and, as a separate issue, whether the completed project meets the end user requirements. Examination of these issues provides insight into how effective the translation of brief to reality has been. This component of PCR seeks to describe or to explain cause and effect relationships to enable project decision-makers to improve the quality of their future decisions. Procurement/ Delivery Process Review Agencies may wish to assess the effectiveness of the process used to deliver the project. Typically this review would examine the time and resources used to deliver the project and review matters such as the level of variations and disputes etc. It would examine whether original time and cost targets were met and may include benchmarking against accepted norms, or against other similar projects. Given the range of contractual systems employed it is worth gaining feedback on the merits of each contracting strategy employed. Interviews with key participants to determine the level of consultation are also suggested. (This review parallels Performance Reviews of consultants and building contractors). This form of PCR essentially focuses on the concerns of the project manager, particularly, cost, time, decision-making and communication. This type of review has been consistently undertaken by Department of Public Works and Services. Asset Performance Review The traditional PCR concentrates on user feedback of the project performance. For buildings, this review would typically focus on physical planning issues and examine whether the range of spaces are appropriately sized, relationships between spaces are correct, the fitout and engineering services are acceptable, etc. Feedback on the durability, ease of use and maintenance of finishes and fittings is also appropriate. Comment from key staff, cleaning and maintenance staff and end users (be they school children, hospital patients, visitors or general public) should be sought. Such a review tends to employ questionnaire, observation, walk-through and interviews as data collection techniques. (Refer to section 4 PIR Data Collection Techniques). 8 TAM Post Implementation Review January 2001

349 The NSW Health Department, The Department of Education and Training and The Department of Public Works and Services have undertaken a number of reviews of this kind in recent times. (Refer to section 3 Stage 2 for further sources of PIR information). Technical Review A wide range of technical reviews may be undertaken. Generally this kind of review would be triggered by perceived consistent deficiencies, or a major technical change. A specialist team would conduct a review of procurement and operational issues, with a view to identifying good and bad practice. Such a review could include examination of defects records and maintenance activities. Specialists reviews of engineering services, typically airconditioning, communications, hydraulics, Building Management Control System, etc, would be undertaken by the relevant disciplines. Appropriate specialists would similarly undertake detailed operational reviews. January 2001 TAM Post Implementation Review 9

350 3 Methodology Define Review objective and structure Undertake background research Allocate Resources and Determine Evaluation Framework Collect Field Data Analyse & compare data Identify major issues/ findings Link findings to feedback mechanism Feedback Loop Figure 2 The Planning Process 3.1 A Generic process The general methodology for PIR & PCR is based on a generic problem-solving strategy. This process is described in Appendix A PIR planning and assessment checklist and Appendix B PCR planning and assessment checklist The process for performing both the PIR & PCR should generally follow the Planning Process shown in Figure TAM Post Implementation Review January 2001

351 Stage 1 Define Review Objectives and Structure Define Review objective and structure Effective pre-planning and continuous monitoring of the PIR/PCR process is vital to avoid the inevitable explosion of available information beyond the ability of the PIR/PCR team to evaluate. This stage is essential to make the optimum use of available resources and to specify intended objectives and required performance measures. Initially the scope of the PIR/PCR including the needs of key stakeholders and major issues should be addressed. A program or agenda should be prepared to keep the process on schedule. This agenda should include: PIR/PCR objectives Specific issues for investigation Define a priority list Define/select performance measures for comparison. A new PIR team s first task will be to clearly identify the: Context and limits of the evaluation Possible concerns of individual stakeholders Resources available for the review and potential sources of data To successfully complete this first stage and define the PIR/PCR objectives, it is critical that: PIR/PCR objectives are developed that are achievable within the constraints of time and cost factors PIR/PCR process and activities are described rather than the outcomes to be achieved. This will focus the team on effective implementation rather than simply end results. Additional elements to be considered at this stage include individual agency corporate gaols and objectives. The ongoing goal of best practice by NSW Government agencies together with community expectations will also impact at this stage. Significant attention should be focused on the type of feedback required and matching this to data collection techniques selected. Other aspects to be considered include the fee, time frame and personnel required, including the facilitator and any specialist technical expertise. The extent of involvement of the original project team is often debated since there is a perception they may be defensive and biased. However the value of their experience relating to a project and the historical knowledge base they can bring to the process warrants their inclusion. January 2001 TAM Post Implementation Review 11

352 Stage 2 Background Research Undertake background research The smooth running of the PIR process will require the project team to undertake as much background research as is practical. However this research should be relevant to the specific PIR/PCR objectives. Available background material typically includes: Feasibility studies Value management reports Cost plans Contract documentation Progress reports Site minutes etc. The pre-planning stage of the PIR/PCR should identify a specific timeframe for background research. Access to written documentation and individuals will need to be sourced from other agencies and from private consultants. The PIR/PCR team should consider this aspect in the pre-planning stage and attempt to make the maximum use of available material. They should become as familiar with the background of the project as possible. This will avoid unnecessary confusion in the data collection and subsequent phases of the review process. The research stage will provide an opportunity for the PIR/PCR team to gain a broad grounding of the project procurement/ delivery process and associated relevant issues for the effective implementation of the evaluation process. 12 TAM Post Implementation Review January 2001

353 Stage 3 Allocate Resources and Determine Evaluation Framework Allocate Resources and Determine Evaluation Framework The resources and framework employed should be capable of both achieving the objectives of the PIR/PCR and generating suitable performance measures. Consideration should be given to the PIR/PCR process objectives when considering: The identification of specific information targets Appropriate resources required The cost/benefit of achieving the identified information targets. Interviews with key project stakeholders in the procurement/ delivery of the project will allow a greater understanding of the history, background and sensitivities of the project. Generally, key project stakeholders would be used to review the PIR/PCR process on an ongoing basis. A framework or structure outlining the major process stages in the review process will be the end product of this stage. The framework will describe the specific responsibilities, time frames and objectives of each major stage in the evaluation process. In order to ensure maximum benefit from undertaking PIR/PCR the methodology should be tailored to the characteristics of the particular project being investigated. January 2001 TAM Post Implementation Review 13

354 Stage 4 Data Collection Collect Field Data Team members will be tempted to collect more data than is actually required to achieve the set objectives. This temptation should be resisted, as it will lead to: A significant increase in cost, time and complexity with no real gain to the original objectives of the PIR/PCR The data collection process becomes so complex or so time consuming that those respondents required may not wish to give additional time to complete a survey or answer further questions. Specific data collection techniques include: Questionnaires Participant interview Expert walk through in the case of infrastructure or buildings Observation surveys Workshops Discussion (Refer to section 4, Data Collection Techniques). The techniques should be selected primarily for their appropriateness to the project rather than their inherent logic or intellectual rigour. Essentially it is more desirable to gather data that is timely, in an appropriate form, and at a reasonable cost than it is to have the best possible information. To minimise any pre-existing concerns of the various project stakeholders, planning of the data collection process should consider: How the evaluation team is to be introduced to the project stakeholders Identifying, and notifying each stakeholder of the PIR/PCR process at its commencement and inviting their involvement in its development and implementation. Limiting the number of group sessions used to collect data. Whichever data collection techniques are used consideration should be given to insuring that information generated is in a form suitable for analysis and comparison. Specific attention should be made at this stage to performance measurement data, which is critical to the success of both a PIR and a PCR. 14 TAM Post Implementation Review January 2001

355 Stage 5 Analyse and compare data Analyse & compare data Analysis of survey results, preparation of the draft report for review by key personnel, and linking the findings to the evaluation objectives is the culmination of any PIR/PCR. This stage is the most critical, difficult and timeconsuming stage of the evaluation. Success will depend on: Accurate translation of the data An effective data management system that enables the PIR/PCR team to receive and manage new information Coordination between agency employees and relevant consultants Communication of the objectives of the study to the relevant consultants and project participants. This stage is essentially built on the successful completion of all previous stages. The PIR/PCR team should be driven by the original objectives and evaluation plan to complete it. The most appropriate and effective format of the findings should be directly linked to the objectives of the evaluation and consideration given to a generic format that can readily be adapted across all project types. A workshop to review draft results and obtain a collective view of the PIR/PCR process can provide an opportunity to review and reflect prior to the completion of the final document. Where survey results indicate a lack of data or inconclusive results it may be necessary to carry out additional primary research. January 2001 TAM Post Implementation Review 15

356 Stages 6&7 Identify Major Issues and Findings/Link to Feedback Mechanism Identify major issues/ findings Link findings to feedback mechanism The PIR/PCR report can perhaps be best prepared using the format of the data collection technique used. The report should include findings of the study as well as recommendations and future actions. A copy of the completed evaluation should be made available so as the evaluation results can be acted upon and provide: Valuable input into the ongoing updating and continuous improvement of the Agency s project strategy Opportunity for ongoing refinement of the PIR/PCR process applied by individual agencies. Items of specific interest to individual agencies may form the basis for articles in the Agency Newsletter. The document is not regarded as public information and further distribution should be carefully considered. (Refer to Section 5 - PIR Outcomes) 16 TAM Post Implementation Review January 2001

357 4 Data collection techniques 4.1 Generally A range of techniques is available to conduct PIR/PCR. Most are based on social sciences approaches and, where more sophisticated exercises are required, the input of sociologists or psychologists could be considered. The following criteria should be considered in selecting the data-collection techniques for each PIR/PCR: Appropriateness and validity to the project Uniqueness Completeness Comprehensibility Controllability Cost Timeliness of feedback Accuracy and reliability 4.2 Questionnaire Perhaps the most commonly employed technique is the structured questionnaire. This approach requires the development of a range of questions geared to measuring user responses to the required subject areas. A major advantage of this approach is that it allows the survey of a large sample of users and thereby improves statistical reliability. Generally the best advice is keep it simple. There are many pitfalls with questionnaire design. Before embarking on the cost of a major survey it is recommended that pilot questionnaires be tested. Also consider carefully how the questionnaires are to be analysed. 4.3 Participant Interview Structured, or loosely structured, interviews are an effective way of getting direct feedback from key staff/users. Experience would indicate interviews tend to be hard to control and a flexible approach is suggested. A checklist of target issues is recommended. Output tends to be verbatim quotes. 4.4 Expert Walk-Through (Infrastructure/ Building Projects) This approach employs a team of experts to visit the facility and assess its performance by observation. If the team is well selected, a significant amount of information can be gleaned simply by observation. Some amazingly powerful indicators of design problems can include pedestrian desire-lines across lawns where paths have not been provided, temporary signage replacing the designed signs, posters and notices covering observation windows, corridors used for storage purposes, windows propped open for ventilation, broken door hardware, offices or spaces accommodating more than their designed capacity, etc. Construction detail issues can include leaking roofs, overflowing gutters, cracking brickwork, excessive heat gain, defective door hardware, leaking taps etc. While this approach is effective it is preferable to combine observation with interviews to check that the identified problems are correctly diagnosed. Similarly it is often desirable to allow users to participate in the walk-through. Identification of these problems raises further issues as to whether the cause was briefing, construction, supervision or user initiated. January 2001 TAM Post Implementation Review 17

358 4.5 Observation Where user behaviour patterns are a major concern non-participant observation may be appropriate. Typical examples from road design would be a traffic count. Buildings with large pedestrian movements could undertake pedestrian counts. Simple devices like time-lapse movies could be considered. Often attending the site at critical times can provide insight into these issues. Historical records of service outputs, number of patients, customer complaints, etc can be obtained Survey A very simple technique for gaining quick responses is the questionnaire, which asks users to list three positive aspects and three negative aspects of the project. One good outcome of this technique is that it gives equal weight to positive features. Unfortunately it is often easier to focus on negative issues rather than positive ones. 4.7 Workshop The techniques of Value Management can be applied to PCR. A structured workshop can be organised with key participants to gather user responses. This approach has the advantage of being a focussed, short duration technique. 4.8 Discussion Unlike sociological or market surveys PCRs have a very small sample size. Often there may only be one CEO responsible for a service delivery strategy, one Principal of a primary school or one Nurse Unit Manager of the Emergency Department. In these instances the PCR team need to make judgements about the validity of the data and try to disentangle the complex, conflicting issues of personality, organisation, morale, physical environment, etc. This issue of how to translate the survey results requires the input of experienced personnel. Generally it is suggested that a larger number of over-view surveys is preferable to limited indepth studies that may be skewed by specific project conditions. Unlike scientific experiments it is rarely possible to isolate any of the variables. 18 TAM Post Implementation Review January 2001

359 5 PIR/PCR outcomes 5.1 PIR Results Clearly the data generated and analysed from a PIR will impact on briefing, design and procurement or delivery. Ideally, PIR results should be translated into briefing or specification requirements. Such requirements can be endorsed by the agency and incorporated into future project briefing or standard design guides. Where the same organisation has responsibility for the whole process this desirable linkage can be achieved more readily. 5.2 Implementing Feedback The objective of any feedback system should be to link the findings back to the right people, at the right time and in the right format, for easy application and understanding to each new project. Agencies need to be aware that the PIR process may identify deficiencies, for example layout problems, which are causing distress at the user level. Ideally these problems should be eliminated by alterations, if required. Where the problems are generated by lack of user awareness, or inappropriate delivery/operational practices, some form of awareness raising or retraining may need to be considered. 5.3 Information Bank Ideally feedback gained across a range of studies should be accessible to the widest audience. Such a possibility would allow a comparison of results across projects. Architects about to embark on the design of a new operating theatre could access results from PCRs of recently completed theatres. A service delivery planner could access feedback on the establishment of call centres by other agencies, etc. This approach would also overcome some of the statistical validity issues discussed earlier since it would provide a larger sample. During the late 1980 s both the Schools Building Research and Development Group of the then NSW Department of Public Works and the former Commonwealth Department of Housing and Construction, developed computerised data-bases for retrieval and sorting of results (Reference #5). Both systems employed categorisation systems, by both userdefined functions, eg. building department, and by technical or building function, planning, relationships, engineering services, acoustics, thermal comfort, etc. Such a categorisation allowed flexible retrieval and sorting as outlined in figure 3. Figure 3 Classification System SERVICE ISSUES PLANNING UNIT TECHNICAL ISSUES (School) (School) (School) Student/Staff Issues Growth/Expansion Technology Change Learning Techniques Administration Staff Facilities Relationships Learning Areas Library Communal Areas Support Space Requirements Architectural Acoustics Comfort Conditions Openings Security Finishes Services Communication Furniture/Fixtures January 2001 TAM Post Implementation Review 19

360 The success of this approach relies heavily on suitable classification of survey data. Adoption of a standard classification system across the building industry would ideally allow for more effective sharing of feedback. If this could be attained then a collective feedback system would be achievable. There is a wide spectrum of feedback retrieval systems that an agency can apply to manage the information generated from a PIR program. The spectrum is graphically described in the following figure 4. Figure 4 Feedback Spectrum 5.4 External Standards Where feedback indicates inappropriate external standards (Australian Standards, Building Codes, etc), recommendations can be made to the relevant agencies. Clearly such a course is a more substantial undertaking and reflects the real difficulties of building a more responsive feedback process. The credibility of the PIR/PCR process rests on the way survey results are handled. Production of another report to sit on the shelf is not satisfactory. Organisations need to accept responsibility for the feedback achieved and respond appropriately. Complexity Shelf Storage System Electronic Data Base The issues arising from the storage, retrieval and administration of PIR/PCR results is a reflection of a general condition affecting the whole asset creation industry. Earlier approaches like the Sfb (Building Component Index) system are largely discontinued. Attempts by the former National Public Works Committee (now the Australian Procurement and Construction Council) to establish standard nomenclature have been beneficial. The National Committee for Rationalised Building (NCRB) has also invested efforts into the development of an industry-wide information system and have produced glossaries of terminology and conceptual models as a first step. (Reference #5 & #10). 20 TAM Post Implementation Review January 2001

361 Appendix A PIR Planning and Assessment Checklist A1 Service Level Requirements Where are project objectives defined and service requirements? Did the completed project align with the project service objectives? Did the project meet service needs upon completion? Was an Economic appraisal done? (Required for all projects costing >$500,000) A2 Project Planning Was a Value Management Study done? (Required for all projects costing >$1,000,000). Was a Risk Analysis done? Was Private Sector Participation considered? (Required for all Projects costing >$5 Million). A3 Project Outcomes Consideration of the project outcomes will include the following questions: Have the desired benefits as expected in the EA/VMS accrued? Have the Client s needs been met? What are the customer effects? What are the environmental effects? Was the Scope of Works delivered to the required technical standard? Was the project completed on time? Was the project completed within budget? January 2001 TAM Post Implementation Review 21

362 Appendix B PCR Planning and Assessment Checklist B1 Brief Assessment Was the scope of Works fully detailed? Project total cost known to within acceptable order of accuracy? Implementation Plan available? Environmental impacts adequately assessed? B2 Design Performance Was the Tender and Procurement Process followed properly? B3 Project Approvals Was the Project Approval process followed and the necessary approvals obtained? B4 Construction/ Delivery Process Control Was a Project Management Plan compiled? Was this Project Management Plan monitored against targets set, that is, cost and physical progress? Where the actual performance deviated from Plan were corrective actions taken? These actions include necessary officers informed and adjustments made to the Plan. 22 TAM Post Implementation Review January 2001

363 Appendix C PIR Reporting Format The following format should be used. Project Summary Sheet/Executive Summary The project Summary Sheet is attached to the completed report and contains basic project data such as project title, asset location, project manager s name, client name and position, together with a brief description of the procurement process covering time, cost and completion. Contents 1 Executive Summary 1.1 Overall Assessment 1.2 Lessons Learned 1.3 Follow-up Actions 2 Background 2.1 Project Background and Objectives 2.2 Scope, terms of reference, direction and project team 3 Project Efficiency 3.1 Evaluation objectives to be achieved 3.2 Criteria to be meet 3.3 Project Costs (Planned vs Actual) 4 Project Approval and Management. 4.1 Approvals 4.2 Procurement 4.3 Handover/Completion 5 Operational Performance 6 Performance Assessment and Measurement 7 Overview and Observations 8 Recommendations and Conclusion. Appendices A B User Survey Results. Other additional information as may be appropriate. January 2001 TAM Post Implementation Review 23

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365 Asset Information Guideline

366 Asset information guideline January 2001 DPWS Report Number NSW Department of Public Works and Services Cataloguing-in-Publication data New South Wales. Government Asset Management Committee. Asset information guideline ISBN (set) ISBN X 1. Asset management New South Wales. 2. Capital investment. 3. Public administration New South Wales I. Title. (Series : TAM) This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission from the NSW Government Asset Management Committee. Requests and inquiries concerning reproduction and rights should be addressed to: Secretariat Government Asset Management Committee Level 23 McKell Building 2-24 Rawson Place SYDNEY NSW 2000 Website E:mail [email protected] Set consists of : ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN ISBN X Asset strategy Office accommodation strategy Capital investment : strategic planning Asset maintenance : strategic planning Asset disposal : strategic planning Sustainable development guideline Heritage asset management guideline Demand management guideline Life cycle costing guideline Value management guideline Risk management guideline Post implementation review guideline Asset information guideline

367 Contents 1 INTRODUCTION The New Perspective What is an Asset Register AGENCY ROLES AND RESPONSIBILITIES Service Agencies ASSET REGISTER DEVELOPMENT PROCESS Needs Analysis Planning the system Planning the Asset Register Implementing the Asset Register...15 APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E APPENDIX F INFORMATIONAL NEEDS 17 IDENTIFYING SYSTEM NEEDS - FUNCTIONAL LINKAGES 18 ASSET REGISTER MODELS 20 ASSET REGISTER HIERARCHY 22 ASSET INFORMATION STRUCTURE 23 BUSINESS CASE FORMAT 24 APPENDIX G THE TOTAL ASSET MANAGEMENT SYSTEM 25 January 2001 TAM Asset Information Guidelines 1

368 1 Introduction 1.1 The New Perspective Wonderful, even if exaggerated, urban myths abound of agencies being unaware of the assets they owned. In reality, in the past agencies were able to manage their assets with modest levels of information that was centrally recorded and historic costs were recorded only for accounting purposes. Local asset managers were familiar with each of their assets and less pressured to ensure their cost-effectiveness. Much has changed with the environment in which public assets operate and consequently the information necessary for agencies to manage their assets has also changed. The increased demands for government services without a similar increase in government resources has led to a focus on service, and whole of life asset management approach. Consequently, the need for asset information has increased significantly. Total Asset Management utilises asset registers to provide an invaluable source of information concerning the agency s asset usage and ongoing capacity to be an efficient and effective service provider. In addition, asset registers provide the information base for further management improvement techniques such as benchmarking. Therefore, the asset register should be seen as the core of an agency s information management system as shown in the figure below. The potential to integrate all the different functional registers and plans to create more efficient information linkages is growing as technology advances. The development and improvement of asset registers is therefore a key element of the Total Asset Management process. Asset Disposal Capital Works Condition Assessment Reporting Service Strategy Asset Register Operations Asset Strategy Maintenance History Maintenance Planning Figure 1 The Asset Register 2 TAM Asset Information Guidelines January 2001

369 1.2 What is an Asset Register Asset registers are listings of information relating to various aspects of an asset portfolio, in a form that allows data to be cross-referenced and retrieved as required. Assets should be recorded if they have a service potential and/or the capacity to provide economic benefits that may be used in the delivery of agency services. An asset register may be computer, card file or paper based and contain data relating to one or more asset categories including: Service delivery functions Physical properties Technical data Financial information Property title details Key operational data Maintenance data Performance records In more sophisticated asset management systems, specific data sets may be kept in separate registers and not in the main asset register. The collection of data is very costly and should focus on those aspects of assets that need to be known. The following assets are required by Government statute to be included in the asset registers: All State owned property and infrastructure including assets which may be regarded as inalienable, such as heritage buildings and parkland Leased assets or property which is owned and/or operated by other bodies but in which the state has legal interests, such as: Water treatment plants which have been created under Build, Own, Operate (BOO) schemes Office accommodation Rolling stock Other assets where lease arrangements include responsibility for the State to meet ongoing costs for maintenance to predetermined levels of service capacity Buildings or work under construction needing a holding entry on an asset register The following criteria should be considered when determining which assets are to be included in the asset register. January 2001 TAM Asset Information Guidelines 3

370 Cascading Some asset systems are made up of major components that may be changed or replaced during the service life of the overall asset system. A fire-fighting appliance may consist of a cab chassis vehicle onto which are mounted ladder units, water tanks, pumps, and communications equipment. Each of these components will have different service lives and may be replaced separately. Changing needs may also lead to a change of components. It is necessary for such components to be registered and tracked separately as well as recorded as being part of a particular appliance. Expected life The expected life of an asset is a function of utility, life costs and technical or social obsolescence. Economic Life Economic life should exceed 12 months to warrant inclusion in the register and to attract depreciation. Integration with other resource registers Assets are but one of the resources used to provide services and each of these resources relates one to another. The main categories of resources include assets, human resources, information and information technology. While asset registers are separate to information systems relating to each of these resources, a commonality of structure and information coding across each resource register will permit cross referencing for more effective planning and management. This will allow, for example, staff costs for particular medical units or information management needs in primary schools to be obtained Materiality Materiality is a lower limit on cost below which items should be expensed. The limit on individual items is usually set by each agency. 4 TAM Asset Information Guidelines January 2001

371 2 Agency Roles and Responsibilities 2.1 Service Agencies Agencies are required to maintain appropriate records of their non-current assets to ensure they are: Efficiently and effectively used to support the delivery of service Properly managed throughout their life cycle Responsibly accounted for on their balance sheets and allowance made for their depreciation January 2001 TAM Asset Information Guidelines 5

372 3 Asset Register Development Process Conduct needs analysis Plan the system Plan the asset register Implement the register Identify information needs Identify system needs Prioritise needs Review the system development options Review data collection requirements Choose options Choose the register model Establish assets hierarchy Establish information hierarchy Prepare action plan Establish data management procedures Prepare business case Implement plan Figure 2 The asset register development process This guideline provides a systematic approach to the development of asset registers. The four stage process described in the following sections can be used to initiate the asset register and for its operation and further development. Due to the central functional role of the asset registers, it is imperative to plan their integration into the agency s management information system. All agencies are different and have different needs but consistency of approach is to be encouraged. There are four stages in the process: Conduct a needs analysis Plan the system Plan the asset register Implement the register The basis steps in establishing an asset register are: Focus on the asset s ability to service delivery Define information reporting requirements for relevant issues Identify optimal system structure for facilitating efficient reporting Design a register structure to suit both government needs and the agency s functional/management structure Identify the optimal technology to achieve desired system development Plan the implementation of improvements Justify the project through a cost benefit analysis and obtain funding approvals Set up the new system and implement new data collection and reporting procedures Run the system efficiently on a day to day basis 6 TAM Asset Information Guidelines January 2001

373 3.1 Needs Analysis Conduct needs analysis Identifying Information Needs The business goal of all agencies is to provide the best and most cost effective level of service possible to match client and community needs. Irrespective of what computer system an agency decides to adopt, or the level of sophistication, there are basic data sets that are needed for effective management of its service functions and for financial and strategic planning. There are also demands from State Government to facilitate statewide financial and strategic planning. Management should identify information needs by looking at the three main areas of demand for information and asking objectively if improvements can be made. Information is demanded for planning, management reporting and operations management. Planning Information The Service Delivery Strategy will define service delivery responsibilities and set the scene for development of strategic business plan(s) for the individual services or activity centres that comprise the business. These needs give rise to specific reporting needs to justify both current and long term budget and revenue fixing. This in turn dictates the data and information to be collected. Management Reporting The emphasis for all agencies is to maximise the utilisation and economic life of existing assets before the creation of new assets. Information is required to define the asset base and to assess its value, condition and level of utilisation. Utilisation measures will require asset data to be able to be linked to information on other resources such as staff or finance, and to service output reports Summary information is also required on the operation and maintenance of the asset base. Management reporting summaries should be available to the planning level. Operations Management Asset management initiatives must be developed at both operational and business management levels. On the basis that you cannot control what you cannot measure, data collection storage and management, are essential activities and hence asset registers assume a pivotal role in the asset management system. January 2001 TAM Asset Information Guidelines 7

374 Identifying Reporting Needs To determine reporting needs, the Asset Manager should consult senior management. Reporting inputs and outputs at each management level should be identified and recorded for each section. The information collected should also include timing requirements. Information demands may be mainly cyclic for management reporting, and activity based for operations. The data requirements to satisfy these needs can then be incorporated in the planned development of the asset register. To promote uniformity of approach and provide agencies with a manageable framework within which to develop their systems, the NSW Government has developed The Total Asset Management Systems (TAMS) and CAMSYS softwares are described in Appendix G. Identifying System Needs In the past, asset registers for different asset categories were kept separately by each business manager, as were all the operating records. Linkages were weak resulting in poor communications between business sections. Once the desired reporting structure has been defined, information flows can be charted. These charts can identify the origins of both management and operational data needed for reporting and they will show linkages between registers and other management systems. Prioritising Data Needs Priorities will be dictated by a number of criteria. These criteria are generic to all functions but can be broadly aligned to the planning, management, and operating functions: Planning Accessibility of data Flexibility to modify and extend the system Ease of updating data Management Ability to produce relevant, timely reports Flexibility to develop customised reports Relevance of the data and outputs to the business Operations Cost effectiveness of the system Security of the data and information Connectivity to other systems and activity areas Reliability of the system When reviewing existing systems or planning justifying proposed improvements, managers should apply these criteria to identify tangible benefits. The best practice approach might be to rank potential improvements by assessing them against these criteria on a scale of 1 to 5. This will highlight opportunities for improved data communication and the potential for additional functionality including linkages to corporate business functions. These functional linkages along with possible outputs are discussed in detail in Appendix B. 8 TAM Asset Information Guidelines January 2001

375 3.2 Planning the system Plan the system Identifying the System Development Components The latest computer technology, allows a flexible and modular approach for establishing asset management database systems and reporting for all levels of operations and management within the organisation. This is made possible by the linking of the primary asset register module with the other registers (modules), as discussed earlier. The agency s desired structuring will be achieved by the application of appropriate, available, and affordable, technology. The objective is to make the asset data as accessible as possible and in a format that can benefit the real time management of the agency s business. Data collection and storage methods must also, of necessity, become more sophisticated to match the increasing handling capability, and hence demands, on the asset management system. There are many available data collection options although these basically fall into the following categories Geographical Information Systems can be used as a front-end function to aid in the spatial identification of assets or groups of assets in the registers. These are usually used in conjunction with CAD systems. The benefits are: Mapping representation of the assets Rapid downloading of field data Quick identification of assets by area (polygon) Plan generation for operation & maintenance Identification of adjacent services Incident analysis As a planning and design tool Global Positioning Systems work in conjunction with Geographical Information System to provide instant location information. The benefits are: Improved management data for operation & maintenance operations Improved monitoring of emergency response operations Improved data for fleet management Data Loggers, including Lap-Top Computers can be used to facilitate direct download into the asset registers. The benefits are: Rapid collection of data Predetermination of data to be collected Automatic formatting Direct download to system Quality control January 2001 TAM Asset Information Guidelines 9

376 Compact Disk Technology can be employed to provide linked images such as certificates, photographs etc. which help in the administration and planning of the assets. The benefits are: Paperless office Direct reference to important documents and information Visual records of asset characteristics and condition Spreadsheets are basic tools for the storage and analysis of data. They have their uses in one off situations but more sophisticated database software is increasingly being utilised because of the speed, retrieval abilities, and report generating features. Identifying Data Collection Requirements The major cost in running a data management system is in collection and maintenance of the data. To obtain the greatest value from data systems the information must be complete and current. Costs of maintaining the database are partly a function of reporting needs and frequency of update. The frequency depends on cyclic reporting patterns, as well as maintenance and inspection schedules. The maintenance schedules, in turn, need to be appropriately planned to reflect the criticality of the assets to the system. In the past maintenance was carried out and data collected according to instruction manuals rather than a prioritised maintenance plan. This has resulted in redundant data being stored. Reliability Centred Maintenance is the name given to an approach that recognises the performance capability, system criticality and minimum service requirements of each asset. The information flow charts should be used to assist in the review of existing data collection activities in order to identify the who, what, when, and how for each operation. This will form a reference base for data collection and a guide to estimating the cost of the proposed improvements. The main sources of asset data are: As constructed drawings Work order / project costing Operating reports Maintenance reports Condition audit reports Call reports Inventory stocktake Choosing the Best Options In choosing the most appropriate technologies, the benefits of both the system structure and the technology should be considered. The system design should take into account any existing systems and procedures but should not maintain them to the detriment of long-term goals and outcomes. It should also be stressed that it is far better to have a simple but effective system than a complicated system that is difficult to understand and which nobody wants to use. When desirable reporting and system improvements have been identified and before consideration of the costs, the Asset Manager, as facilitator for the information planning process, should circulate draft proposals to all the key managers. The benefits, capital costs and potential cost savings of each technology option should be assessed. Readers should refer to the Value Management Guidelines in the TAM Manual. 10 TAM Asset Information Guidelines January 2001

377 3.3 Planning the Asset Register Plan the asset register Choosing the Register Model The model format to be adopted for the Asset Register should be chosen to match the type of organisation and its management structure. Registers can classify assets by service, functional area or both. Which is used will depend on the size and complexity of the operation Generally, if a number of activities exist to support one service function then there is merit in keeping all the information together. Where there is no integration between service areas they might be dealt with as autonomous units. The other option is where there is a matrix of activity with certain functions serving several other functions. There are three basic types of models as illustrated in the following diagram (Figure 3). These are described in detail in Appendix C. The Database may often serve several purposes, eg: Establishing levels of use Planning space allocation Planning maintenance/cleaning Calculating service capacity Calculating insurance and other liabilities It is likely to have a growing number of uses therefore it should be made as flexible and extendible as possible. Unified Composite Segmented Autonomous Umbrella Integrated Management Operations Figure 3 Asset Register Models January 2001 TAM Asset Information Guidelines 11

378 Establishing the Asset Hierarchy The effectiveness of an asset management database system depends on its ability to allow operators to quickly and easily store, recall, sort, analyse and evaluate different types of information about assets. This can best be achieved by following a hierarchical structure and designing a meaningful and recognisable asset numbering system. Taking this approach, assets may be defined at a number of levels within a system; from the system level itself, to sub-systems, facilities or components of the system according to the information to be collected. Figure 4 System Level 1 Sub-System Level 2 Facilities Components Sub Components Asset Hierarchy Level 3 Level 4 Level 5 The component is the lowest level of recording for non-current assets. Sub-components may be recorded for costing or maintenance purposes The system approach has the following benefits: Assets can be viewed in their logical hierarchy Assets can be grouped the way they are managed The structure assists in ensuring that all assets are covered There is flexibility with level of detail Data entry in minimised The system allows for reporting at different levels In planning the asset hierarchy a consistent approach is recommended. For example, buildings in water, sewerage, and property registers should all appear at facility level. This not only allows for ease of consolidation for reporting but is also the logical level from the point of view of identifying components and sub-components. As a guide, Appendix D shows typical asset register hierarchies for different types of agencies. An asset identification system should be used consistently throughout the organisation. The application should match the operational needs of the information asset system including movement of assets and information linkages with other functions: ie, a GIS, design models, on-site tagging etc. The requirements for asset identification are: A unique number that stays with the asset for the whole of its life that enables searching for, and tracking of assets. Where there is a need to track sub-systems, or components separately the numbering system must enable unique numbering down to this level. A code that says what the asset does and can be used for operations and maintenance analysis A location indicator for finding the asset on site: eg coordinates in a GIS or linkage to the system/sub-system of which it forms part. A nodal number that identifies its position in the system for network analysis, etc Incorporation of existing numbering system (if applicable), thereby reducing the need to re-number assets or support different styles of information systems. 12 TAM Asset Information Guidelines January 2001

379 In practice, it is recommended that the following three number identifiers be used: 1. Reference Code (System/Sub-system code, etc) that varies with function 2. Internal record Number (Unique identifier used by system) that is always the same 3. Asset ID (same as 2. or user defined or use existing asset number) that is always the same Establishing the Information Hierarchy With any record database system it is important to first identify ownership and category / groups of assets to be recorded. The actual breakdown of categories by service, area etc. will be determined by the register model structure chosen for the agency. In the information hierarchy the breakdown structure is as follows: Data sets will record data in the database according to how the asset hierarchy has been structured. For example, performance data could tell managers how the system has behaved on a system wide level or down at the level of individual components. Data sets might be seen as providing slices of information about the assets. The database structures should be systematically built up through focus group meetings of the various stakeholder groups. This will prepare managers for change, encourage ownership, and ensure approval of the final proposals. There is no limit to how wide or narrow the definition of assets may be, nor how much data is collected. The assets profile to be recorded will differ from agency to agency. OWNER: ASSET CATEGORY: REGISTER: DATA SET: DATA: The agency The service or asset group breakdown according to the asset model structure adopted A grouping of data sets by function eg. assets, operations etc. A collection of data concerning one asset characteristic or activity Recorded attributes about an asset or an asset related activity. January 2001 TAM Asset Information Guidelines 13

380 Asset register Operational requirements Maintenance requirements System Energy usage Optional eg. performance data Technical Physical Financial Utilisation Sub-System etc Tasks Costs etc Asset hierarchy Facilities Components Sub Components Figure 5 Information Hierarchy Data sets Slices of information about the assets In practice, the content of the asset register will be determined by the usefulness of the data. For example, a vehicle can be broken down into small parts but the cost of maintaining information on them all, is not worthwhile, since the car operates as a cohesive whole. Another example is where a hospital ward or a group of wards could be considered to be the operational unit for assets accounting rather than the individual beds. It is critical not to break up assets smaller than needed for operational needs. Access control is very important and the system must prioritise usage and prevent accidental or unauthorised editing of the data. By necessity a system must include a full user/action audit trail and employ regular backup procedures. Availability of only the relevant reports appropriate to the function of the user will save time and maintain a focus on designated activities. Primary asset data should be accurately updated when new capital investment projects are handed over, and/or when enhancements and replacements alter the material nature of individual assets and hence the value of the asset base. The tables in Appendix E may serve as a guide to the data required to populate the various data sets. 14 TAM Asset Information Guidelines January 2001

381 3.4 Implementing the Asset Register Implement the register Preparing an Action Plan As part of a business case submission for the system improvements, a development schedule should be prepared. From experience reported to date, one major caveat is not to be tempted to develop a totally integrated system all at once. While the overall strategic vision should be strongly supported and maintained throughout the development process, the action plan should adopt a measured, step by step approach, with data having the greatest payback being collected first. For assets already held in the portfolio, the incorporation of additional data should be prioritised according to the Government s requirements and urgency of need to improve the agency s service capabilities. Appropriate milestones should be identified throughout the implementation process up to the handover stage (completion of project). Updates should be made to the project management schedule to suit the project. The final proposal including cost schedules for each activity and milestone should be documented. The following milestones may be appropriate: Planning and feasibility studies Broad user requirements Detailed functional procedures Technical design System development Training and implementation guides Ongoing operations and maintenance System review procedures Establishing Data Management Procedures As a part of a business case submission for the system improvements, operating schedules should be prepared. These schedules will take into account the data collection schedules previously identified and the various activities and resources applied to the upkeep and operation of the asset registers. An annual cost estimate should be derived from these schedules. Resource scheduling should be based on the application of several best practice principles for efficient data collection and management. These should be considered for implementation as standard procedures for the agency: The person(s) who benefits most from the accuracy, relevance and timeliness of the data should be responsible for its collection and input If data collection is a by-product of operations, it is more likely to be carried out cheaply and efficiently Where there are likely to be many users and a number of people supplying and/or inputting data, an Asset Manager should take overall responsibility for ensuring the relevance and the accuracy of the data supplied and ultimately recorded Key personnel should be trained in the operation of the asset management database system and responsibilities defined (and allocated) for its general upkeep Procedures should also be established to ensure that any updates or changes are authorised and correctly recorded January 2001 TAM Asset Information Guidelines 15

382 For security reasons, data entries and changes should be carried out by the person responsible for generating the information, with the exception that updating certain primary information about assets (eg. creating or deleting an asset), should only be performed by a designated person (eg. the Asset Manager), operating in accordance with defined procedures Site plans and servicing information is best assembled at the time of commissioning of the asset or at the time of acquisition It is important to identify the usage of the data at operational level as well as for management reporting Preparing a Business Case The Systems Manager should prepare an Asset Register Business Case incorporating all the data, information, and planning recommendation that have been identified throughout the development process. A business case format is included for reference in Appendix F. A key part of the business case is the cost benefit analysis. This enables comparison of alternative solutions and requires the quantification of all the financial and economic benefits of the proposal to be compared with the costs. Inputs should have been prepared during the development process for the costs of reporting, data collection, and technology. This will be offset against the cost savings and benefits from improved communication, planning, and asset structures. Where it is not possible to quantify the costs, then recommendations for a valued judgement have to be made. Otherwise an acceptable return on investment should be demonstrated. Any redundancy of existing systems should also be considered. Implementing the Plan and Reviewing the Register The preparedness of key managers is important. Throughout the development process they should have been regularly involved and be fully aware of the improvements and upgrades proposed. The managers should make special arrangements during the transition period to the new system, including if necessary for the parallel running of both existing and new systems. Once budgets are approved, the equipment should be purchased, space allocated, staff trained, and software installed. The Asset Manager should take charge of the initialisation of the asset register model and the establishment of the information and asset hierarchies. The registers will then be ready for populating with data. Some data may be transferred from existing spreadsheets or databases, other will have to be entered manually from drawings, card systems, record files etc. New data will accumulate as operations and maintenance crews begin to use the new reporting procedures. There are several other data collection preparation exercises to be carried out depending on the technical options chosen. These include digitising of the GIS cadastral base, programming of data loggers, and training of operatives. If the agency is undergoing a complete change from historical costing and reactive maintenance practises to current cost accounting and condition based maintenance systems, then it is recommended that a program of condition audits should be undertaken progressively starting with the most critical assets. This will provide a base case for future activity planning. 16 TAM Asset Information Guidelines January 2001

383 Appendix A Informational Needs Output Demands Information Needs Corporate Plan Service standards CORPORATE Approval of annual program and budgets Budget schedules Submission to Treasury Resource data Approve asset policies and standards Accounting data Technical data Annual accounts and report Asset valuation data Management plan System data PLANNING STRATEGIC Resourcing plans Cost and utilisation data INFORMATION PLANNING System design Physical data Business plans Service/demographic data System condition analysis Condition data Environmental impact review Incident data Capital works program Financial data CAPITAL Detailed design Technical data WORKS Business cases Design data PLANNING Cost estimates Unit cost data Ranking project options Ranking scores System condition analysis Condition codes Economic analysis Benefits PROJECT Financial analysis Cashflow data DEVELOPMENT Review of asset standards and renewals Parameters and criteria criteria Specifications Technical data MANAGEMENT Criteria INFORMATION Project progress reports Performance data QA procedures Insurance data Implementation plans Priorities PROJECT Work planning and scheduling Cost estimates IMPLEMENTATION Time constraints Contract documents Contract data Project monitoring and control Completion progress Valuations and earned value Analysis of lifecycle costs Cost data ASSET DISPOSAL Utilisation reports Survey data Failure/incident analysis Asset age profiles Rolling programs for operation & management renewals Technical data Physical data ASSET Outage data reports Breakdown data OPERATIONS Collect inspection data Inspection data Carry out work schedules Cost data OPERATIONS Asset criticality analysis Risk data INFORMATION Maintenance history reports Historical data MAJOR Asset condition data reports Condition data PERIODIC Carry out work schedules Work schedule data MAINTENANCE Spares inventory reports Spares data Audit reviews Inspection data Priorities for rolling program Renewal criteria ASSET Risk assessment REHABILITATION Carry out work schedules Costs and budgets Work schedule data January 2001 TAM Asset Information Guidelines 17

384 Appendix B Identifying System Needs - Functional Linkages In the past asset registers for different asset categories were kept separately as were all the operating records. Linkages were weak resulting in poor communications between business sections. Once the desired reporting structure has been defined, information flows can be mapped. These charts can identify the origins of both management and operational data needed for reporting purposes and the linkages between registers and management systems. Opportunities should be highlighted for improved data communication and the potential for additional functionality including linkages to corporate business functions. An example of these functional linkages along with possible planning outcomes is given in the diagram below. Asset Management System Fire Insurance Heritage Environment Images Emergency Numbers Asset Registers Property GIS Maintenance Maintenance History Operations Capital Works Revenues Accounts Work Order System Corporate Management System Work Management System 18 TAM Asset Information Guidelines January 2001

385 Development of the appropriate functional linkages can allow a wide range of useful outputs from the asset database. These include: The potential for the linking of computer mapping and images to the physical register. This provides the benefits of identification of assets and the spatial information analysis. System data can be down loaded to design programs. A capital works creation and disposal facility could be linked to the asset register. This would facilitate future planning and budgeting. A maintenance management function provides maintenance budgets and facilitates resource planning. The maintenance register should include an asset condition audit feature, which, in conjunction with an assessment of priorities and asset criticality, can produce future work and resource schedules. A maintenance history function would further assist the planning process by providing information on how much had been spent, how many breakdowns occurred, and how many complaints had been received. Action requests (reactive maintenance) can be logged from the calls desk and provide not only a record of where problems have occurred, but generate schedules of urgent and non-urgent reactive maintenance work to be carried out. Environmental issues related to an asset may also be logged in the incident register or recorded as a note against the asset. Materials, spares and tools inventories are needed as a support to operations and maintenance functions. This register could be supported by a stocktake function. There are a number of other databases that could be linked to the asset register to enhance existing functions: eg. heritage listing, land register, energy usage, etc. Operations routines and emergency functions could be linked to the asset base along with a register or resources and costs that will facilitate future resource scheduling. The greatest problem of management is insufficient data for decision making. Asset Management provides this data in a format appropriate to the management level reading it. Links with corporate management and work management functions have the potential to greatly enhance an agency s efficiency as follows: A work management system can run and monitor work orders. Links are necessary with the accounting system to record expenditure, and with asset registers to record the new works completed. The system must integrate work schedules to prioritise programming for: New works Renewals Routine and reliability centred maintenance Reactive maintenance (action requests) The accounting system links to the asset register to update: Valuation summaries Current written down value, and Depreciation schedules in the general ledger. The revenue model could also link with the asset registers and accounting system. In the case of local authorities, active links with the property and water meter registers could allow for generating rates notices. There are a number of statutory and administrative information databases that can effectively be linked to the main asset register system: eg, insurance schedules, fire safety records, etc January 2001 TAM Asset Information Guidelines 19

386 Appendix C Asset Register Models Unified Composite Segmented Autonomous Umbrella Integrated Management Operations Unified Composite Model This model may be appropriate for small or very focused organisations such as libraries, hospitals etc. It may also be appropriate for an organisation where there are geographical divisions with identical structure in each area but a centralised management structure: eg. small local authority, Education, Police, etc. The benefits of this style of model are: All the information is held in one database Reporting can be diverse and flexible depending on what the operators and managers wish to know There is more overall control by the users Caveats are: Managers must be very clear as to what they are trying to achieve There is the danger that the system will become difficult to manage as it grows in size Switching costs to an alternative system are high The reason for collecting data may not be appreciated by the data collectors Segmented Autonomous Model A segmented model might be employed by large organisations with separate business centre operating diverse assets: eg the ferries and buses of the State Transit authority or the rolling stock and track of State Rail. Alternatively, organisations might be segmented on a geographical basis such as the Housing Department or by service location such as four regional water and sewerage business of Sydney Water. The main benefit of this type of structure is that it focuses efforts on the management of individual products or asset groups. Caveats are: Culture and communication problems Common corporate functions cannot be easily managed across all the asset groups There is a danger that the structure and treatment of the different asset groups evolves along different lines 20 TAM Asset Information Guidelines January 2001

387 Umbrella Integrated Model Frequently, asset information spans more than one register and will need to be selectively accessed by different users. This structure is appropriate where there is a multi-disciplinary organisation with consolidated reporting responsibilities and common funding sources such as local government agencies. In local government various services are operated separately but there are common assets, such as property, and plant and equipment. There are also common management functions: eg. accounting. The advantages of an integrated system are: The model can closely and sensitively reflect the workings of an organisation All relevant tables can be updated automatically Synergies of time and effort produce cost savings Reduction in the risk of errors and omissions Allows staff to focus on core activities Common definitions and standard operating rules Encourages standardised behaviour across different disciplines: eg. accounting, administration, engineering More effective management control Allows for summary information and reporting Facilitates linkages with GIS However it is noted that this model needs to be carefully planned and the data reviewed periodically to determine its integrity and continuing usefulness. Key managers should be consulted regarding any long term corporate planning that may influence the model structure. Opportunities for change should be reviewed, as it may be possible to refocus activities in more productive ways. If the structure suits the needs of the agency s corporate strategic direction then the model pitfalls should be avoided and the benefits maximised. January 2001 TAM Asset Information Guidelines 21

388 Appendix D Asset Register Hierarchy SERVICE LEVEL 1 (System) LEVEL 2 (Sub-System) Parks Property Playground Recreation Area gardens Buildings Property Admin Area Wards Recreation Area NB All sites will have service facilities to NB All buildings will have service components LEVEL 3 (Facility) Play Equipment Swimming Pool Flower Beds Building 1 Building 2 Landscaping Water Drainage Sewerage Water Supply Water System Distribution Pipeline Pumping Station Reservoir Telemetry Tunnel Headworks Borefield Dam/Weir Pipeline Pumping Station Reservoir River Intake Telemetry Treatment Works Tunnel Sewerage Sewerage System Collection Pipeline Pumping Station Telemetry Tunnel Treatment / Residual Management Biosolids Management Effluent Management Pipeline Pumping Station Storage Telemetry Treatment Works Urban Drainage Catchment Sub-Catchment Conduits Storage Structures Gross Polln Traps Road System Road Segment Pavement Culverts Drains Signal System Kerbs & Gutters Gas Supply System Sub-System Gas Main Meters Plant & Equipment Property Site Mobile Plant Vehicles Boats Office Equipment Flood Mitigation River Region Flood Gate Flood Gauge LEVEL 4 (Component) Pump Waiting Room Ward Wall Power Air conditioning Heating Pipe Pump level Sensor Autodial System Portal Instrument House Bridge Valve Access Road Structure Weir Repeater Transmitter Alum Doser Lining Pipe Pump Modem Manhole/Shaft Building Channel Fittings Flowmeter Lagoon Pager Chlorination Equipment Pipes Channels Screen Traffic Lights Pipe Meter Tractor Computer Level 5 (Sub-Component) Windows Carpet Bricks 22 TAM Asset Information Guidelines January 2001

389 Appendix E OWNER CATEGORY REGISTERS Asset Information Structure Agency Module: eg, Property Datasets CLASSICAL DATA Physical Data Financial Construction Technical Reporting Data Name Est. replacement cost Manufacturer Description Audit trails Data Address Est. residual life Constructed by Capacity Valuation Data Description Est. residual value Construction/ Acquisition date Dimensions Age profiles Data ID Economic life Enhancement Date Design Data Data Asset Number Land value Cost Designer Data Reference Number Valuation date Warranty Data File Numbers Depreciation method Drawing Numbers Data Co-ordinates OPTIONAL DATA - Can be incorporated in functional registers Service Data Classifications Functionality Performance Unit Costs Data LGA Functional class Function Main type Material Data Community Activity class Suitability Criticality Quantity Data Population Land classification Disposal potential Failure rate max Unit rate Data Zoning Custodianship Lease potential Out time max Cost factors Data Percentage use Development potential Responsibility Service life Data Condition Age Data Overheads Functional Registers OPERATIONS Insurance Leases Risks Contractors MANAGEMENT Procedures Heritage Functionality Performance OPERATIONS Costs Budget Liability claims Asset utilisation MONITORING Customer surveys Action requests Energy usage Security MAINTENANCE Work required Task details Cost estimates Trades PLANNING Budgets Procedures Tools Materials MAINTENANCE HISTORY CAPITAL WORKS PLANNING Work done Failures Job costing Performance Improvements Capital works Budgets Disposals January 2001 TAM Asset Information Guidelines 23

390 Appendix F Business Case Format Introduction Definition of need and evidence of supporting data indicative of current shortcoming or need. Event history Decision criterion Submission detail Scope of proposed work Associated and on-going work obligations Options and benefits Technical justification for proposed option Long term planning perspective Proposed work Details of the work program Resources to be employed Proposed monitoring of outcomes Performance indicators Funding requirements Schedule of payments Schedule of overheads and recurrent expenditure Expected financial benefits ie. schedule of revenues Summary of funding requirements Assumptions Financial (& economic) evaluation Net present value analysis Sensitivity analysis Compliance with statutory regulations Critically and downsize risks Asset management life cycle costs Value management study outcomes (if applicable) Environmental investigation study (if applicable) Recommendation Statement of recommendation Sign-off by responsible officers Attachments Program Location sketch Supporting data Cost benefit analysis data 24 TAM Asset Information Guidelines January 2001

391 Appendix G The Total Asset Management System The pressures and demands on Government authorities are greater than ever before. There are more stringent performance and accounting criteria, and their planning, budgeting and fiscal responsibilities are under constant scrutiny. NSW Department of Public Works and Services, the Department of Lands and Water Conservation and the Roads and Traffic Authority, have a role to support and assist Government agencies. Two computer based asset management systems TAMS and CAMSYS have been developed for the purpose of achieving their asset management goals. The DLWC has also developed a financial model for water supply and sewerage business planning. TAMS and CAMSYS allow agencies to: Plan and budget for assets Manage and optimise asset maintenance Measure performance against established targets Satisfy the requirements of AAS27 Develop performance predictions for assets The core of the system is an asset register, which records all financial, location, construction and performance requirement information for each asset. An easy and flexible range of functions provides a whole of life management system, including: Condition rating Maintenance planning Maintenance history Operations management Operations monitoring Capital works management Asset disposals Within the same system are six modules for the different asset categories. These all operate in a similar way but are specifically tailored to the assets concerned. The modules are: Property and buildings (including parks) Water supply and sewerage systems Stormwater drainage Flood mitigation Plant and equipment Roads and bridges TAMS and CAMSYS can be customised to suit individual requirements including extension to interface with geographical information systems and interface with additional modules such as: Defect maintenance system Works management system The RTA asset maintenance management system. January 2001 TAM Asset Information Guidelines 25

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