Glenorchy City Council Asset Strategy for Infrastructure Assets 2014/15 to 2017/18 Version 1.3 June 2014 Glenorchy City Council Asset Strategy for Infrastructure Assets
Document Control Document Control NAMS.PLUS Asset www.ipwea.org.au/namsplus Document ID: glenorchy asset management strategy v1.3.doc Rev No Date Revision Details Author Reviewer Approver 1.0 March 2014 Initial Asset Strategy, aligned with Ministerial Orders issued 10th February 2014 Assetic 1.1 April 2014 Minor typographical errors corrected Assetic 1.2 June 2014 Revised for updated status of Derwent Entertainment Centre and corrected renewal budgets. Minor typographical and format errors corrected Assetic 1.3 June 2014 Explanations of various Figures expanded Assetic NAMS.PLUS & NAMS lite Asset The Institute of Public Works Engineering Australia. www.ipwea.org.au/namsplus Copyright 2012 All rights reserved. Glenorchy City Council Asset Strategy for Infrastructure Assets
Table of Contents Executive Summary... 1 1. Introduction... 4 1.1 Legislative reform... 5 1.2 Asset Planning Process... 6 2. What Assets do we have?... 6 3. Council s Assets and their management... 7 3.1 State of the Assets... 7 3.2 Asset Condition and Asset Consumption Ratio... 8 3.3 Life Cycle Costs and Asset Sustainability Ratio... 11 3.4 Asset Renewal Funding Ratio... 14 3.5 Asset Structure... 15 3.6 Corporate Asset Team... 16 3.7 Financial & Asset Core Competencies... 16 3.8 Key Issues... 17 4. Where do we want to be?... 18 4.1 Council s Vision, Mission, Goals and Objectives... 18 4.2 Asset Policy... 19 4.3 Asset Vision... 19 5. How will we get there?... 20 6. Asset Improvement Plan... 21 6.1 Improvement Actions... 21 6.1 Asset Strategy Review... 22 Appendix A Asset Maturity Assessment... 23 Appendix B Renewal Budget forecasts using Asset Condition modelling... 24 Tables Table 1: Assets used for providing services... 6 Table 2: Financial Status of the Assets... 7 Table 3: Life Cycle Cost for Council Services... 12 Table 4: Life Cycle Expenditure for Council Services... 12 Table 5: Life Cycle Indicators... 13 Table 6: Asset Sustainability Ratios... 13 Table 7: Asset Renewal Funding Ratios... 15 Table 8: Goals and Objectives for Infrastructure Services... 18 Table 9: Asset Strategies... 20 Table 10: Asset Improvement Plan... 21 Glenorchy City Council Asset Strategy for Infrastructure Assets Page iii
Figures Figure 1: Asset Replacement Values showing Replacement Cost and Percentage of Total Asset Portfolio for each Asset Class... 7 Figure 2: Asset Consumption Ratios... 8 Figure 3: Roads Condition Profile showing Current Replacement Value and Percentage of Roads at each Condition Score... 9 Figure 4: Stormwater & Drainage Condition Profile showing Current Replacement Value and Percentage of Stormwater & Drainage Assets at each Condition Score... 10 Figure 5: Buildings and Other Land Improvements Condition Profile showing Current Replacement Value and Percentage of Buildings and Other Land Improvement Assets at each Condition Score... 11 Figure 6: Core Asset Maturity... 17 Glenorchy City Council Asset Strategy for Infrastructure Assets Page iv
Executive Summary This Asset Strategy has been prepared to assist Council in improving the way it delivers services from infrastructure assets 1 including roads, bridges, footpaths, stormwater drainage, buildings, and parks and recreation. These infrastructure assets have a replacement value of $842,870,000 2. The Asset Strategy is to enable Council to show: how its asset portfolio will meet the service delivery needs of its community into the future; enable Council s asset management policies to be achieved; and ensure the integration of Council s asset management with its long term strategic plan. Adopting this Asset Strategy will assist Council in meeting the requirements of Ministerial Orders issued on 10 th February 2014 under Section 70F of the Local Government Act 1993, the national sustainability frameworks and in providing services needed by the community in a financially sustainable manner. The Asset Strategy is prepared following a review of the Council s service delivery practices, financial sustainability indicators, asset management maturity and fits with Council s vision for the future outlined in the Glenorchy City Council Strategic Plan 2013 18. The strategy outlines an asset management improvement plan detailing a program of tasks to be completed and resources required so that Council has a minimum core level of asset maturity and competence. Key issues The Asset Consumption Ratio for Council s infrastructure assets is currently below 50%. This is an indicator that Council s asset stock is moving into the second half of its life cycle and that the requirement for asset renewal expenditure will grow relative to current levels. With an overall Asset Renewal Funding Ratio of 87%, Council is in a reasonable position in terms of adequately funding its asset renewal over the next 10 years. Increasing renewal funding will be necessary in order to maintain the current levels of service provided to the community. Council s current asset management maturity is below the target Good Practice level in most measures and investment is needed to improve information management, lifecycle management, service management and accountability and direction. 1 Not including non infrastructure assets such as information, communication and technology assets, fleet, plant and equipment. 2 Glenorchy City Council Annual Report 12/13. Glenorchy City Council Asset Strategy for Infrastructure Assets Page 1
Asset management strategies No Strategy Desired Outcome 1 Move from Annual Capital Expenditure Budgeting to Long Term Financial Planning 2 Ensure Council s decisions are made from accurate and current information in asset registers, based on service level performance and costs and whole of life costs. 3 Improve financial and asset management practices and capabilities to realise core maturity for the financial and asset management competencies within 2 years. The long term implications of Council services are considered in long term financial plans and are tracked through to annual budget deliberations. Improved decision making and greater value for money. Improved financial and asset management capacity within Council. Asset management improvement plan The program of tasks and resources required to achieve core asset management maturity were developed in the asset management strategy. The tasks and program are shown below. Ref Task Responsibility Target Date Budget 1 Complete review of the useful life of the underground pipe assets. Asset Coordinator 2 Complete the review of Council s service level manuals. Operations & Maintenance Manager 3 Complete the review of council s activity based costings. Operations & Maintenance Manager 4 Review and update Council s Infrastructure Assets Policy. Strategic Project Accountant 5 Endorse Service Levels by Council. Operations & Maintenance Manager 6 Develop Long Term Models for roads, parks, stormwater, buildings. 7 Determine service level financial strategy options with Council and embed outcomes in Long Term Financial Plan. Asset Coordinator Operations & Maintenance Manager June 2014 July 2014 July 2014 Dec 2014 Dec 2014 Dec 2014 Dec 2014 Combined budget for tasks 3 & 4 $35k Glenorchy City Council Asset Strategy for Infrastructure Assets Page 2
Ref Task Responsibility Target Date Budget 8 Link the financial depreciations to engineering renewal gaps by corporatisation of business process for asset accounting and asset modelling to enable reporting of Council s financial position at Fair Value in accordance with Australian Accounting Standards and reporting of financial sustainability and performance against strategic objectives in Annual Reports. 9 Ensure responsibilities for asset management are identified and incorporated into staff position descriptions. 10 Complete review of useful life of key Roads and Building / Land Improvement Assets Asset Coordinator Manager Infrastructure & Engineering Services Asset Coordinator 11 Update / collect asset condition data Asset Coordinator 12 Training in house system custodians to manage and improve asset data 13 Establish a procedure to review and update asset management plans and long term financial plans after adoption of annual budgets and to communicate any consequence of funding decisions on service levels and service risks. 14 Report six monthly to Council by Audit Committee/CEO on development and implementation of Asset Strategy, AM Plans and Long Term Financial Plans. 15 Report annually on Council s resources and operational capability to deliver the services needed by the community in the Annual Report. 16 Revise Asset Plans to incorporate the outcomes of Tasks 1 15. Asset Coordinator Asset Coordinator Manager Infrastructure & Engineering Services / Exec Manager Business Services Exec Manager Works & Services Asset Coordinator Dec 2014 Dec 2014 June 2015 June 2015 $60k June 2015 June 2015 Ongoing Ongoing Dec 2015 Glenorchy City Council Asset Strategy for Infrastructure Assets Page 3
1. Introduction Assets deliver important services to communities. A key issue facing local governments throughout Australia is the management of ageing assets in need of renewal and replacement. Infrastructure assets such as roads, drains, bridges and public buildings present particular challenges. Their condition and longevity can be difficult to determine. Financing needs can be large, requiring planning for large peaks and troughs in expenditure for renewing and replacing such assets. The demand for new and improved services adds to the planning and financing complexity. The creation of new assets also presents challenges in funding the ongoing operating and replacement costs necessary to provide the needed service over the assets full life cycle. The national frameworks on asset planning and management and financial planning and reporting endorsed by the Local Government and Planning Ministers Council (LGPMC) require councils to adopt a longer term approach to service delivery and funding comprising: A strategic longer term plan covering, as a minimum, the term of office of the councillors and: o bringing together asset management and long term financial plans; o demonstrating how council intends to resource the plan; and o consulting with communities on the plan. Annual budget showing the connection to the strategic objectives; and Annual report with: o explanation to the community on variations between the budget and actual results; o any impact of such variances on the strategic longer term plan; and o report of operations with review on the performance of the council against strategic objectives. Glenorchy City Council Asset Strategy for Infrastructure Assets Page 4
The Local Government and Planning Ministers Council Framework 2 Asset Planning and (May 2007), seeks to develop a nationally consistent asset management framework to support improvement in local governments asset management performance and sustainability. The framework has seven elements to assist in highlighting key management issues, promote prudent, transparent and accountable management of local government assets and introduce a strategic approach to meet current and emerging challenges. The seven elements of the framework are: Asset management policy; Strategy and planning; o asset management strategy; o asset management plan; Governance and management arrangements; Defining levels of service; Data and systems; Skills and processes; and Evaluation. This Asset Strategy is to enable Council to show: how its asset portfolio will meet the service delivery needs of its community into the future; to enable Council s asset management policies to be achieved; and to ensure the integration of Council s asset management with its long term strategic plan. The goal of asset management is to ensure that services are provided: in the most cost effective manner; through the creation, acquisition, maintenance, operation, rehabilitation and disposal of assets; and for present and future consumers. The objective of the Asset Strategy is to establish a framework to guide the planning, construction, maintenance and operation of the infrastructure essential for council to provide services to the community. 1.1 Legislative reform The Local Government (Miscellaneous Amendments) Bill 2013 was passed by the Legislative Council on 30 October 2013. The Bill included a power for Ministerial Orders to be made outlining the detail and minimum requirements for the financial and asset management reforms detailed in the amending legislation. This Asset Strategy has been prepared in line with the Ministerial Orders that were issued on 10 th February 2014. Glenorchy City Council Asset Strategy for Infrastructure Assets Page 5
1.2 Asset Planning Process Asset management planning is a comprehensive process to ensure that assets are managed and maintained in a way that enables affordable services from infrastructure to be provided in an economically optimal way. In turn, affordable service levels can only be determined by assessing Council s financially sustainability under scenarios with different proposed service levels. Asset management planning commences with defining stakeholder and legal requirements and needs, incorporating these needs into the organisation s strategic plan, developing an asset management policy, strategy, asset management plan and operational plans, linked to a long term financial plan with a funding plan. Asset Planning Process Asset Philosophy & Framework Service Delivery Knowledge Legal and Stakeholder Requirements and Expectations Organisational Strategic Plan Vision, Mission, Goals & Objectives, Levels of Service, Business Policies, Risk ASSET MANAGEMENT POLICY ASSET MANAGEMENT STRATEGY Objectives, level of service target and plans ASSET MANAGEMENT PLANS Services & service levels to be provided, funds required to provide services OPERATIONAL PLANS Service delivery in accordance with asset management plans Asset solutions operate, maintain, renew, enhance, retire Non-asset solutions partnerships, demand management, insurance, failure management KNOWLEDGE MANAGEMENT Asset data and information systems 2. What Assets do we have? Council uses infrastructure assets to provide services to the community. The range of infrastructure assets and the services provided from the assets is listed in Table 1. Table 1: Assets used for providing services Asset Class Description Services Provided Roads Public roads, footpaths & bridges Transportation access into and throughout the community Stormwater & Drainage Buildings and other land improvements Underground pipe network, culverts & channels, retention basins Buildings, recreational facilities and parks infrastructure Collection of stormwater and discharge into the Derwent River Accommodation for communitybased activities and services, accommodation for Council to deliver its services Glenorchy City Council Asset Strategy for Infrastructure Assets Page 6
3. Council s Assets and their management 3.1 State of the Assets The financial status of Council s assets, as recorded in the 2012 13 Annual Report, is shown below in Table 2. Table 2: Financial Status of the Assets Asset Class Replacement Cost ($000) Residual Value ($000) Depreciable Amount ($000) Depreciated Replacement Cost ($000) Annual Depreciation Expense ($000) Roads 429,999 0 429,999 206,714 8,934 Stormwater & 312,516 0 312,516 158,243 3,557 Drainage Buildings and other land improvements 100,355 0 100,355 45,778 2,646 Total 842,870 0 842,870 410,735 15,137 Figure 1 shows the distribution of the replacement values of Council s infrastructure assets. Figure 1: Asset Replacement Values showing Replacement Cost and Percentage of Total Asset Portfolio for each Asset Class Glenorchy City Council Asset Strategy for Infrastructure Assets Page 7
The management indicators required for assets under the Ministerial Orders are: Asset Consumption Ratio Asset Sustainability Ratio Asset Renewal Funding Ratio 3.2 Asset Condition and Asset Consumption Ratio The Asset Consumption Ratio for infrastructure assets is the depreciated replacement cost divided by the current replacement cost. This ratio is an indicator of the average proportion of as new condition left in assets. The Asset Consumption Ratios of Council s assets are shown below. Figure 2: Asset Consumption Ratios The Asset Consumption Ratios shown above suggest that Council s asset stock is moving into the second half of its life cycle and that the requirement for asset renewal expenditure will start to grow. It should be noted that the above ratios are based on financial data published in the 2012 13 Annual Report. In the case of the Stormwater & Drainage ratio, the figure of 51% does not take account of the recent extension of the financial life of the concrete underground pipes to 135 years. A revaluation of the Stormwater & Drainage assets in accordance with AASB 13 Fair Value Measurement 3 will result in an improvement of this ratio. The condition of Council s assets is shown in figures on the following pages. 3 Fair Value is the price that would be received for an asset sold in an arm s length transaction in an open and liquid market or the asset s Replacement Value if such a market does not exist. Glenorchy City Council Asset Strategy for Infrastructure Assets Page 8
Figure 3: Roads Condition Profile showing Current Replacement Value and Percentage of Roads at each Condition Score The Condition Profile for Roads shows a reasonable distribution of assets for a municipality of the age and development of Glenorchy. With no roads in Very Poor Condition (Score 5), the quantity of roads in Poor Condition (Score 4) should be manageable provided Council adequately funds the required renewal programs of works. Glenorchy City Council Asset Strategy for Infrastructure Assets Page 9
Figure 4: Stormwater & Drainage Condition Profile showing Current Replacement Value and Percentage of Stormwater & Drainage Assets at each Condition Score The Condition Profile for Stormwater & Drainage shows a manageable level of assets in Very Poor (Score 5) and Poor Condition (Score 4). A detailed analysis reveals that these are primarily Stormwater Pits and Service Connections and the condition scores are primarily based on asset age. If like the concrete underground pipes, these assets are achieving a better than expected life then the overall condition profile will be better than currently indicated. This should be investigated as part of the development of the Stormwater & Drainage Asset Plan. Glenorchy City Council Asset Strategy for Infrastructure Assets Page 10
Figure 5: Buildings and Other Land Improvements Condition Profile showing Current Replacement Value and Percentage of Buildings and Other Land Improvement Assets at each Condition Score The Condition Profile for Buildings and Other Land Improvements shows a distribution of assets that currently appears reasonable. However as this is an overall assessment of the buildings and land improvements portfolio, it does mask individual issues. Typical of such issues are the Derwent Entertainment Centre roof and the interior of both the Derwent Entertainment Centre and the Council Offices, all of which will require repair or renewal work within the next few years. With few assets in Very Poor Condition (Score 5) and Poor Condition (Score 4), the quantity of these assets should be manageable in the short term provided Council adequately funds the required renewal programs of works. Looking further ahead, there is a potential concern with the very large percentage of assets in Average Condition (Score 3). If a large proportion of this group of assets deteriorates quickly into Poor Condition, Council will need to be funding significant programs of renewal works. This needs to be investigated as part of the development of the Buildings Asset Plan. 3.3 Life Cycle Costs and Asset Sustainability Ratio Life cycle costs (or whole of life costs) are the average costs that are required to sustain the service levels over the longest asset life. Life cycle costs include operating and maintenance expenditure and asset consumption (depreciation expense). The life cycle costs for the services covered in this asset management strategy are shown in Table 3. Glenorchy City Council Asset Strategy for Infrastructure Assets Page 11
It should be noted that the depreciation expense and thus the life cycle cost is based on previous year s expenditure. Therefore the figures for Stormwater & Drainage shown Table 3 below are higher than the future figures for this asset class once the impact of extending the life of the concrete underground pipes flows through into annual depreciation expenditure. Table 3: Life Cycle Cost for Council Services Service 2012/13 Operations & Maintenance Expenditure ($000) 2012/13 Depreciation Expenditure ($000) 2012/13 Life Cycle Cost ($/yr) ($000) Roads 2,353 8,934 11,287 Stormwater & Drainage 931 3,557 4,488 Buildings and Other Land Improvements 1,263 2,646 3,909 TOTAL 4,547 15,137 19,684 Life cycle costs can be compared to life cycle expenditure to give an indicator of sustainability in service provision. Life cycle expenditure includes operating, maintenance and the capital renewal expenditure averaged over the past 3 years 4. Life cycle expenditure will vary depending on the timing of asset renewals. The life cycle expenditure at the start of the plan is shown in Table 4. Table 4: Life Cycle Expenditure for Council Services Service 2012/13 Operations & Maintenance Expenditure ($000) 2009/10 2012/13 Average Cap Renewal Expenditure Average Life Cycle Exp ($/yr) ($000) ($/yr) ($000) Roads 2,353 7,786 10,139 Stormwater & Drainage 931 443 1,374 Buildings and Other Land Improvements 1,263 703 1,966 TOTAL 4,547 8,932 13,479 The life cycle costs and life cycle expenditure comparison highlights any difference between present outlays and the average cost of providing the service over the long term. If the life cycle expenditure is less than the life cycle cost, it is most likely that outlays will need to be increased or cuts in services made in the future. 4 Later versions of this Strategy will adopt a longer period for averaging capital renewal expenditure to better account for peaks and troughs in annual spends Glenorchy City Council Asset Strategy for Infrastructure Assets Page 12
Knowing the extent and timing of any required increase in outlays and the service consequences if funding is not available will assist organisations in providing service to their communities in a financially sustainable manner. This is the purpose of the Asset Plans (AMP) and Long Term Financial Plan (LTFP). A shortfall between life cycle cost and life cycle expenditure gives an indication of the life cycle gap to be addressed in the asset management and long term financial plan. The life cycle gap and life cycle indicator for services covered by this asset management strategy is summarised in Table 5. The figures used to determine the life cycle gap and life cycle indicator can also be used to determine the Asset Sustainability Ratio, which is the amount of renewal expenditure per year divided by the annual depreciation expense. The Asset Sustainability Ratio for services covered by this asset management strategy is summarised in Table 6. Table 5: Life Cycle Indicators Service 2012/13 Life Cycle Cost ($/yr) ($000) Average Life Cycle Expenditure ($/yr) ($000) Life Cycle Gap * ($/yr) ($000) Life Cycle Indicator Roads 11,287 10,139 1,148 90% Stormwater & Drainage 4,488 1,374 3,114 31% Buildings and Other Land Improvements 3,909 1,966 1,943 50% TOTAL 19,684 13,479 6,205 68% Note: * A life cycle gap is reported as a negative value. Table 6: Asset Sustainability Ratios Service 2009/10 2012/13 Average Cap Renewal Expenditure ($/yr) ($000) 2012/13 Depreciation Expenditure ($000) Asset Sustainability Ratio Roads 7,786 8,934 87% Stormwater & Drainage 443 3,557 12% Buildings and Other Land Improvements 703 2,646 27% TOTAL 8,932 15,137 59% Based on the average capital expenditure over the past 3 years, the Asset Sustainability Ratio for Roads shows that Council is close to the appropriate level of expenditure in this asset class. If only the expenditure for 2012 13 was considered, the ratio would have been 114%. Glenorchy City Council Asset Strategy for Infrastructure Assets Page 13
At first look, the Asset Sustainability Ratio for Stormwater & Drainage indicates significant under expenditure. While a low ratio generally indicates insufficient renewal expenditure, for an asset portfolio such as Stormwater & Drainage, there are other drivers that can force this ratio artificially low. As already noted, the useful life of a significant portion of these assets, the underground concrete pipes, has been extended as the field experience indicates it has been historically too short. A consequence of the life being shorter than appropriate is that up to now, the annual depreciation has been greater than it would have been otherwise. As the Asset Sustainability Ratio is calculated by dividing the renewal expenditure per year by the annual depreciation, a higher than appropriate depreciation charge will depress the Asset Sustainability Ratio below what it should be. The forecast annual depreciation charge for 2013 14 is $2,811,189. When this figure is used to calculate the Asset Sustainability Ratio, it rises to 16%, albeit still quite low. A more significant influence on the calculated Asset Sustainability Ratio is the overall condition of the asset portfolio. If the portfolio is in fundamentally good condition, then very little renewal work is required. As shown in Figure 4 (page 10), this is the situation for the Stormwater & Drainage assets with 95% of the portfolio is in Average Condition (Score 3) or better. The value of annual renewal work currently required is significantly lower than the annual depreciation charge. As a consequence, the calculated value of the Asset Sustainability Ratio will be quite low. The Asset Sustainability Ratio for Buildings and Other Land Improvements is also quite low at 27%. As with Stormwater & Drainage, the overall condition of the Buildings and Other Land Improvements asset portfolio has a significant influence on the Asset Sustainability Ratio. However with buildings being a complex mix of short and long life components, it is more difficult to judge if an Asset Sustainability Ratio of 27% is acceptable at this time. Although only 2% of the total building portfolio assessed to be in a condition requiring intervention, if this is primarily due to short life components then higher levels of renewal expenditure may be required. Accordingly, it is vital that an Asset Plan is prepared that looks in detail at the current condition of the asset portfolio, assesses the remaining useful lives of the assets and provides a sound forecast of the future renewal expenditure required. 3.4 Asset Renewal Funding Ratio The Asset Renewal Funding Ratio is the current value of projected funding outlays for assets identified in the long term financial plan divided by the value of projected capital expenditure for assets identified in the long term strategic asset management plans. To enable the calculation of the Asset Renewal Funding Ratios for this initial Asset Strategy, renewal spends have been forecast using asset condition modelling. The results from this modelling have been included as Appendix B. The Asset Renewal Funding Ratios have been calculated over a 10 year period using the Current Renewal Spends (Scenario 1 in the forecasts in Appendix B) and the Required Renewal Spends to achieved a desired outcome of an average asset condition of 3 or better and no asset failures (it should be noted that in each scenario the target of no asset failures becomes the dominant feature and the average asset condition rises above 3 as an outcome). Glenorchy City Council Asset Strategy for Infrastructure Assets Page 14
For the asset classes of Roads, Buildings and Parks the forecast has been repeated with a cap on the Required Renewal Spend to even the expenditure from year to year. For the purposes of calculating the Asset Renewal Funding Ratio, this capped forecast (Scenario 3) has been used for these asset classes. Stormwater & Drainage did not require a capped forecast and Scenario 2 has been used to calculate the ratio for this asset class. Table 7: Asset Renewal Funding Ratios Service Current Renewal Spend * (10 year average forecast) ($000/yr) Required Renewal Spend * (10 year average forecast) ($000/yr) Asset Renewal Funding Ratio Roads 9,799 10,806 91% Stormwater & Drainage 235 410 57% Buildings and Other Land 971 1,526 64% Improvements Parks 700 739 95% TOTAL 11,704 13,481 87% Note: * Forecast spends taken from modelling results set out in Appendix B. With an overall Asset Renewal Funding Ratio of 87%, Council is in a reasonable position in terms of adequately funding its asset renewal over the next 10 years especially as the significant asset class of roads is close to the desired target of 100%. The Asset Renewal Funding Ratio for the building assets indicates that an increase in funding is required. A detailed analysis of the renewal forecasts shows that renewal work will be required in some of Council s major facilities over the coming decade and that this is a key driver of the forecast increases of renewal expenditure above past levels. The vast majority of the forecast renewal expenditure for stormwater and drainage is for the renewal of pits and service connections. This forecast is based on the age of these assets in the absence of reliable condition data. As the empirical evidence does not support the forecast required expenditures it is possible that, as with the concrete underground pipes, the nominal lives of the pits and service connections is too short. This needs to be investigated as should it prove to be the situation, the forecasts will be overstating the required renewal expenditure and thus driving the value of the ratio down. 3.5 Asset Structure Council has an Asset team consisting of four staff (Asset Coordinator, Asset Investigations Officer, Asset Data Analyst and Asset Survey Officer). This team is responsible for the overall management of Council s assets and preparation of the capital budget each year. This includes obtaining condition information on assets where available, including pavement testing. Council has a management team (IMG) that review and consider the overall capital budget each year based on the information supplied by the Asset team which is then presented to Council for overall approval. Glenorchy City Council Asset Strategy for Infrastructure Assets Page 15
3.6 Corporate Asset Team A whole of organisation approach to asset management can be developed with a corporate asset management team. The benefits of a corporate asset management team include: demonstrate corporate support for sustainable asset management; encourage corporate buy in and responsibility; coordinate strategic planning, information technology and asset management activities; promote uniform asset management practices across the organisation; information sharing across IT hardware and software; pooling of corporate expertise; championing of asset management process; and wider accountability for achieving and reviewing sustainable asset management practices. The role of the Asset team will evolve as the organisation maturity increases over several phases, as outlined below. Phase 1 strategy development and implementation of asset management improvement program; Phase 2 asset management plan development and implementation; reviews of data accuracy, levels of service and systems plan development; Phase 3 asset management plan operation; evaluation and monitoring of asset management plan outputs; and ongoing asset management plans review and continuous improvement. The current position of Council s Asset team is Phase 2. 3.7 Financial & Asset Core Competencies The National Frameworks on Asset Planning and and Financial Planning and Reporting define 10 elements. 11 core competencies have been developed from these elements to assess core competency under the National Frameworks. The core competencies are: Financial Planning and Reporting Strategic Long Term Plan; Annual Budget; Annual report; Asset Planning and Asset Policy; Asset Strategy; Glenorchy City Council Asset Strategy for Infrastructure Assets Page 16
Asset Plan; Governance & ; Levels of Service; Data & Systems; Skills & processes; and Evaluation. Council s maturity assessment for the core competencies is detailed in Appendix A and summarised in Figure 4. The current maturity level is shown by the blue bars. The maturity gap to be overcome for Council to achieve a core financial and asset management competency is shown by the red bars. Figure 6: Core Asset Maturity 3.8 Key Issues The Asset Consumption Ratio for Council s infrastructure assets is currently below 50%. This is an indicator that Council s asset stock is moving into the second half of its life cycle and that the requirement for asset renewal expenditure will grow relative to current levels. With an overall Asset Renewal Funding Ratio of 87%, Council is in a reasonable position in terms of adequately funding its asset renewal over the next 10 years. Increasing renewal funding will be necessary in order to maintain the current levels of service provided to the community. Council s current asset management maturity is below the target Good Practice level in most measures and investment is needed to improve information management, lifecycle management, service management and accountability and direction. Glenorchy City Council Asset Strategy for Infrastructure Assets Page 17
4. Where do we want to be? 4.1 Council s Vision, Mission, Goals and Objectives Council has adopted a Vision for the future in the Council Strategic Plan 2013 2018. Our Vision is to ensure Glenorchy is the best place in Tasmania to live, work and play, both now and into the future. We want a City where we all care for each other and act together to improve our lifestyle and environment through a strong sense of community. Council s purpose or reason for existence is set out in the adopted mission statement, Glenorchy City Council will be a leader in local government; representing its local community and ensuring best value services. The Strategic Plan sets goals and objectives to be achieved in the planning period. The goals set out the outcomes Council wants to achieve. The objectives are the specific aims which will support our goals. Goals and objectives relating to the delivery of services from infrastructure are shown in Table 8. Table 8: Goals and Objectives for Infrastructure Services Goals Objectives Strategies 1. Making Lives Better 3. Valuing Our Environment 4. Leading Our Community 1.3 Lead the Provision of Value for Money Services 3.1 Create liveable built environments and sustainably manage our natural and built environments. 4.2 Manage our resources to achieve community outcomes. Source: Glenorchy City Council Strategic Plan 2013 2018 1.3.1 Identify the service expectations of our different communities and respond appropriately. 3.1.1 Set priorities for management of our natural and built environments in partnership with our communities. 3.1.2 Deliver services that sustainably manage our natural environments. 3.1.3 Deliver services that create sustainable and liveable built environments. 4.2.1 Deploy the Council s resources in a way that maximises the effectiveness of the organisation and delivers value for money. 4.2.2 Ensure long term financial capacity to deliver required services. 4.2.3 Ensure we have an appropriately skilled and capable workforce and a safe workplace. 4.2.4 Maintain fair systems and processes that result in high levels of regulatory compliance in Council and the community. Glenorchy City Council Asset Strategy for Infrastructure Assets Page 18
4.2 Asset Policy The purpose of Council s Asset Policy is to define the council s vision and service delivery objectives for asset management in accordance with the Strategic Plan and applicable legislation. The current Infrastructure Assets Policy was adopted by Council in March 2006 and is overdue for review. This review has been listed as a high priority task on the Asset Improvement Plan set out in Section 6. The reviewed policy should enable Council to show: how its asset portfolio will meet the affordable service delivery needs of the community into the future; how Council s asset management policies will be achieved; and ensure the integration of Council s asset management with its long term strategic plans. 4.3 Asset Vision To ensure the long term financial sustainability of Council, it is essential to balance the community s expectations for services with their ability to pay for the infrastructure assets used to provide the services. Maintenance of service levels for infrastructure services requires appropriate investment over the whole of the asset life cycle. To assist in achieving this balance, Council aspires to develop and maintain asset management governance, skills, process, systems and data in order to provide the level of service the community need at present and in the future, in the most cost effective and fit for purpose manner. In line with the vision, the objectives of the asset management strategy are to: ensure that the Council s infrastructure services are provided in an economically optimal way, with the appropriate level of service to residents, visitors and the environment determined by reference to Council s financial sustainability; safeguard Council s assets including physical assets and employees by implementing appropriate asset management strategies and appropriate financial resources for those assets; adopt the long term financial plan as the basis for all service and budget funding decisions; meet legislative requirements for all Council s operations; ensure resources and operational capabilities are identified and responsibility for asset management is allocated; and provide high level oversight of financial and asset management responsibilities through Audit Committee/CEO reporting to council on development and implementation of Asset Strategy, Asset Plan and Long Term Financial Plan. Strategies to achieve this position are outlined in Section 5. Glenorchy City Council Asset Strategy for Infrastructure Assets Page 19
5. How will we get there? The Asset Strategy proposes strategies to enable the objectives of the Strategic Plan, Asset Policy and Asset Vision to be achieved. Table 9: Asset Strategies No Strategy Desired Outcome 1 Move from Annual Capital Expenditure Budgeting to Long Term Financial Planning 2 Ensure Council s decisions are made from accurate and current information in asset registers, based on service level performance and costs and whole of life costs. 3 Improve financial and asset management practices and capabilities to realise core maturity for the financial and asset management competencies within 2 years. The long term implications of Council services are considered in long term financial plans and are tracked through to annual budget deliberations. Improved decision making and greater value for money. Improved financial and asset management capacity within Council. Glenorchy City Council Asset Strategy for Infrastructure Assets Page 20
6. Asset Improvement Plan 6.1 Improvement Actions The tasks required to achieve a core financial and asset management maturity are shown in priority order in Table 10 below. Table 10: Asset Improvement Plan Ref Task Responsibility Target Date Budget 1 Complete review of the useful life of the underground pipe assets. Asset Coordinator 2 Complete the review of Council s service level manuals. Operations & Maintenance Manager 3 Complete the review of council s activity based costings. Operations & Maintenance Manager 4 Review and update Council s Infrastructure Assets Policy. Strategic Project Accountant 5 Endorse Service Levels by Council. Operations & Maintenance Manager 6 Develop Long Term Models for roads, parks, stormwater, buildings. 7 Determine service level financial strategy options with Council and embed outcomes in Long Term Financial Plan. 8 Link the financial depreciations to engineering renewal gaps by corporatisation of business process for asset accounting and asset modelling to enable reporting of Council s financial position at Fair Value in accordance with Australian Accounting Standards and reporting of financial sustainability and performance against strategic objectives in Annual Reports. 9 Ensure responsibilities for asset management are identified and incorporated into staff position descriptions. 10 Complete review of useful life of key Roads and Building / Land Improvement Assets Asset Coordinator Operations & Maintenance Manager Asset Coordinator Manager Infrastructure & Engineering Services Asset Coordinator June 2014 July 2014 July 2014 Dec 2014 Dec 2014 Dec 2014 Dec 2014 Dec 2014 Dec 2014 June 2015 Combined budget for tasks 3 & 4 $35k Glenorchy City Council Asset Strategy for Infrastructure Assets Page 21
Ref Task Responsibility Target Date Budget 11 Update / collect asset condition data Asset Coordinator 12 Training in house system custodians to manage and improve asset data 13 Establish a procedure to review and update asset management plans and long term financial plans after adoption of annual budgets and to communicate any consequence of funding decisions on service levels and service risks. 14 Report six monthly to Council by Audit Committee/CEO on development and implementation of Asset Strategy, AM Plans and Long Term Financial Plans. 15 Report annually on Council s resources and operational capability to deliver the services needed by the community in the Annual Report. 16 Revise Asset Plans to incorporate the outcomes of Tasks 1 15. Asset Coordinator Asset Coordinator Manager Infrastructure & Engineering Services / Exec Manager Business Services Exec Manager Works & Services Asset Coordinator June 2015 $60k June 2015 June 2015 Ongoing Ongoing Dec 2015 6.1 Asset Strategy Review Progress with the tasks set out in the Asset Improvement Plan (Table 10) should be reviewed at least twice yearly. The Asset Consumption Ratios, Asset Sustainability Ratios and Asset Renewal Funding Ratios should be updated on the availability of the annual Financial Statements. This Asset Strategy should be reviewed annually and re issued following the updating of the relevant ratios. Glenorchy City Council Asset Strategy for Infrastructure Assets Page 22
Appendix A Asset Maturity Assessment Council s Asset Maturity has been assessed by scoring its current policies, practices and procedures in 20 maturity categories as shown in the table below. The minimum target for Councils should be the Good Practice level which equates to a score of 80% in each category. Implementing the Asset Improvement Plan set out in Section 6 will assist Council in improving its assessment scores by improving its policies, practices and procedures. Maturity Category No. of Criteria Assessed Current Score Max Score Current Assessment Good Practice Gap Excellence Gap Levels of Service (Documentation) 6 22 30 73% 7% 20% Asset Data (Holistic List) 4 20 20 100% 0% 0% Asset Data (Componentisation) 4 20 20 100% 0% 0% Condition Assessment (Methodology) 8 27 40 68% 13% 20% Condition Assessment (Practice) 5 17 25 68% 12% 20% Condition Assessment (Collection Process) Service Capacity Assessment (Methodology) Service Capacity Assessment (Practice) Service Capacity Assessment (Collection Process) Asset Functionality Assessment (Methodology) 2 6 10 60% 20% 20% 5 13 30 43% 37% 20% 5 9 25 36% 44% 20% 2 2 10 20% 60% 20% 5 17 30 57% 23% 20% Functionality Assessment (Practice) 4 4 20 20% 60% 20% Functionality Assessment (Collection Process) Asset Inspections Risk and Maintenance Capital Works Planning and Annual Budgeting 2 6 10 60% 20% 20% 9 29 40 73% 8% 20% 10 30 50 60% 20% 20% Maintenance Planning 6 18 25 72% 8% 20% Asset Accounting 12 52 65 80% 0% 20% Staff Skills 8 35 40 88% 0% 13% Resource Levels 1 3 5 60% 20% 20% Resource Morale 1 3 5 60% 20% 20% GIS Functionality 6 26 30 87% 0% 13% Glenorchy City Council Asset Strategy for Infrastructure Assets Page 23
Appendix B Renewal Budget forecasts using Asset Condition modelling Asset Condition modelling using mypredictor has been undertaken for the asset classes of Roads, Stormwater & Drainage, Buildings, and Parks. The results of the modelling have been used to calculate the Asset Funding Renewal Ratios. Glenorchy City Council Asset Strategy for Infrastructure Assets Page 24
Roads: The above graph shows the forecast budget requirements and expected average condition for Road assets covering three scenarios of: 1. Current Renewal spend of $9.7 million per annum (red). 2. Optimal Renewal spend required to keep the average condition at or above 3 with no asset failures (green). 3. Capped Renewal spend that aims to keep the average condition at or above 3 while providing for a more stable budget from year to year (blue). Comparing the three scenarios, from Year 5 onwards there is approximately $2.3 million gap per year between the current budget level and the capped budget of $12 million per annum. Glenorchy City Council Asset Strategy for Infrastructure Assets Page 25
Stormwater & Drainage: The above graph shows the forecasts budget requirements and expected average condition for Stormwater & Drainage assets covering two scenarios of: 1. Current Renewal spend estimated at $235,000 per annum (red). 2. Optimal Renewal spend required to keep the average condition at or above 3 with no asset failures (blue). It should be noted that the forecast of renewal expenditure in Scenario 2 is primarily for Pits and Service Connections. The forecast renewal expenditure steps up significantly at Year 16 when the Pits and Service Connections are forecast to be reaching the end of their useful life. However current empirical evidence indicates that, like the underground pipes, the Pits and Service Connections are in better condition than forecast. A review of the nominal age of the Pits and Service Connections together with improved condition assessment methodologies is warranted. Glenorchy City Council Asset Strategy for Infrastructure Assets Page 26
Buildings: The above graph shows the forecasts budget requirements and expected average condition for Building assets covering three scenarios of: 1. Current Renewal spend estimated at $1 million per annum (red). 2. Optimal Renewal spend required to keep the average condition at or above 3 with no asset failures (green). 3. Capped Renewal spend that aims to keep the average condition at or above 3 while providing for a more stable budget from year to year (blue). Comparing the three scenarios, the optimal budget shows significant variation with large peaks when renewal works are undertaken on the Derwent Entertainment Centre (Years 6, 10 and 15) and the Council Chambers Office Building (Years 6, 15 and 21). A capped budget of $2 million per annum would allow for these works to be carried out progressively and smoothe the peaks and troughs. The gap is thus $1 million per annum for the next decade. Glenorchy City Council Asset Strategy for Infrastructure Assets Page 27
Parks: The above graph shows the forecasts budget requirements and expected average condition for Park assets covering three scenarios of: 1. Current Renewal spend estimated at $700,000 per annum (red). 2. Optimal Renewal spend required to keep the average condition at or above 3 with no asset failures (green). 3. Capped Renewal spend that aims to keep the average condition at or above 3 while providing for a more stable budget from year to year (blue). Comparing the three scenarios, the optimal budget shows a large initial peak when catch up renewal works are required to bring the poor condition assets into the target range for the average condition and to ensure that there are no asset failures. A capped budget of $1 million per annum would allow for these works to be carried out progressively. The gap is thus $300,000 per annum for the next 5 years. Glenorchy City Council Asset Strategy for Infrastructure Assets Page 28