by Patrick Natale and Michael Salvato
The coronavirus crisis is forcing businesses to look at risk and their approaches to risk management differently. Amid rapid change and deep uncertainty, business-critical decisions have to be made in the coming weeks and months that will have long-lasting effects. Strategic asset management has a critical part to play in steering the right course.
In addition to the immediate, short-term impacts of COVID-19 that organizations are dealing with, there will be long-lasting effects. Engineers, planners, constructors, designers, and business leaders are working to identify ways to manage and improve their businesses during uncertain times. Business-critical decisions will continue to be made that will have long-lasting business effects.
Some asset owners, particularly in transportation, are facing major revenue impacts. Others have logistics challenges, such as undertaking physical works while adhering to social distancing requirements. Others again can see opportunities but are unsure how to realize them — for example, carrying out repairs, capital maintenance, or improvements while the use of assets is low. Still more are looking at how to transition their operations and modify their physical layouts to a possible “new normal,” delivering new services alongside former ones, or striking a different balance.
Challenges at a glance
Among the challenges arising from the coronavirus crisis, asset owners are having to contend with these:
Reduced revenue: At the time of writing, urgent efforts are being made to rebalance books by cutting expenditure in line with reduced revenues. Many operators are running minimum “skeleton” services and mothballing assets.
Loss of personnel: Staff are on paid leave under government-backed business support measures, such as the Paycheck Protection Program in the US, and reductions are expected.
Disrupted demand: Changes in customer behaviors and use/demand patterns are most obvious in transport, education, health, and retail, but no sector is unaffected. All are having to adjust their operating regimes and watch the effects on the performance of assets and/or personnel.
Disrupted plans of work: From routine activities to long-planned interventions and major investments, organizations are looking to replan and reprioritize, but often with limited tools to assist them.
New work practices: Ongoing project delivery and O&M activities are being adjusted to allow social distancing.
Changes in physical and digital infrastructure: Like security after 9/11, locations in which high volume and high density are the norm, such as rail travel and aviation, need to reimagine their physical location and consider digital solutions to maximize the hygiene of their equipment and facilities.
Supply chain resilience: Supply chains are already stressed — deliveries of components, materials, and equipment have been disrupted, workers and key personnel are unavailable. It is likely that some suppliers and contractors will become insolvent.
Asset management techniques help develop the right strategy in the context of these drivers.
Sean Horkan, Mott MacDonald’s Global Lead for Asset Management, says, “Strong asset management makes the tsunami of decisions easier. But for many the challenges of the next six months will be daunting. To make urgent choices quickly requires asset management, engineering, risk management, and digital expertise.”
What’s the right decision at the right time?
“When any plan is put into a crisis situation it’s bound to change, but that’s no reason for not having a plan,” adds Sean.
Alongside negative impacts, COVID-19 is bringing some surprising opportunities. Organizations must respond to both, to deliver predictable outputs and desirable outcomes. Sean advises organizations to draw up scenarios, defining what “success” will look like at three-, six-, and 18-month horizons. The scenarios and plans for achieving success need to be reviewed continuously.
To aid decision-making in the face of change and deep uncertainty, Mott MacDonald utilizes a scenario planning tool called FUTURES. It is designed to help organizations set a vision, plan, and prioritize and can be used to set a short-term course of action as well as develop a long-term roadmap.
1. Gearing up: Engage the right stakeholders and establish your objectives and needs. Stakeholders should include key information-holders, recognizing that much knowledge about assets is “tacit” — held by people.
2. Preferred futures: Define the outcomes you want to achieve at three-, six-, and 18-month horizons, weighing service quality, safety, investment, and revenue considerations alongside longer-term social, environmental, economic, and technological goals, to produce a vision and high-level strategy that can guide you forward.
3. Opening out: Test the vision and high-level strategy against all plausible scenarios to assess risk. Consider demand, revenue, supply chain, staffing — and the effects of unexpected events like extreme flooding or summer heat, for example. This may involve tough investment, operational, and staffing decisions, and negotiation with investors, lenders, insurers, and regulators.
4. Options: Develop strong, realistic, forward-looking options for managing risks and realizing the vision.
5. Closing down: With your stakeholders, examine how options would perform under different conditions — a second round of risk assessment — to develop a high level of confidence that selected options will deliver the desired outcomes.
6. Review: Monitor performance and review strategy, considering changing conditions. Assess progress towards your three-, six-, and 18-month objectives. Re-run selected stages 1 to 5 if necessary.
Project case study #1
West Virginia Transport Asset Management Plan
The Fixing America’s Surface Transportation Act 2015 requires states to develop a transportation asset management plan (TAMP). West Virginia was set a June 2019 deadline for its TAMP. Focusing on road surfaces and bridges, the plan included an analysis of state assets on the national highway system. It had to cover financial planning, risk management, and set asset management objectives.
Mott MacDonald worked with the West Virginia Department’s road and bridge teams to develop an easy-to-use asset management framework. The teams’ capabilities were assessed and we looked for any capability gaps that would prevent the department from achieving its goals. We also assessed what could be achieved with the available budget.
West Virginia now has a sound plan in place to improve its bridges over time, targeting effort where it is most urgently required.
The state’s transportation commissioner for highways has made an additional $50 million available for bridges — which represented 20% of the department’s entire capital program.
Project case study #2
Lower Catskill Aqueduct Survey
The Catskill Aqueduct is more than 100 years old and needs repair. Yet it remains a vital piece of infrastructure, supplying New York City with 40% of its water.
Creating a new pipeline to allow the 92-mile (148-kilometer) aqueduct to be taken out of service for refurbishment would be hugely costly. The most cost-effective and environmentally sustainable option for the New York City Department of Environmental Protection is to refurbish the existing structure so it can serve New York for a further 100 years. The challenges were to understand where work was needed and minimize downtime.
On a one-mile (1.6-kilometer) out-of-service section of the aqueduct, we applied and validated a fully digital approach to assessing asset condition, pinpointing defects and selecting the correct techniques for repair and reconditioning. Our work brought together geographic information systems (GIS), laser surveying, photogrammetry, Building Information Modeling (BIM), and visualization.
Ordinarily, inspection and defect mapping on the selected section of pipeline would have taken days, but our digital approach took only a few hours. Our “digital twin” enabled the contractor to plan and schedule works for maximum efficiency and safety.
Multiplied across the whole length of the aqueduct, the time savings offered by our “digital twin” solution cut scheduled field inspection days from 63 to 19 and saved more than $1 million in labor costs in the first two years.
The next step is to introduce machine learning — something we are currently testing — to further enhance the efficiency and quality of inspections.