Incorporating Sustainability into Asset Management through Critical Life Cycle Cost Analysis

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ABSTRACT
Asset management is about managing assets more effectively – which is really about making better decisions about and for assets, both existing and future. The main key to achieving better decision-making is having the right kind of information available from which to make the decisions. The goals that better decision making are trying to reach are service levels that are met, risks, including public health, safety, financial, and environmental, that are reduced, and costs that are optimized.

One analysis method used for asset management that facilitates long-term cost optimization is the use of life cycle cost analyses (LCCAs). A typical life cycle cost analysis (LCCA) includes evaluating the costs incurred by an asset over its useful life to find the least cost solution. However, since the goals of asset management are to meet level of service (LOS) standards and reduce risk as well, the typical LCCA solution often times does not meet these needs. This has led to the development of the critical LCCA, which meets asset management goals by incorporating LOS, condition, criticality, vulnerability, risk, and remaining useful life into the analysis. The goal of a critical LCCA is not merely the least cost solution but the least cost solution to meet the asset management goals or the “optimal” cost solution. The assets with the greatest gap between LOS and condition and the assets with the highest risk are therefore the highest priority. In order to make the critical LCCA as robust as possible, these environmental and social or sustainability principles and costs need to be included with the economic costs and the LOS and risk goals. The potential exists for the results of a critical LCCA to be significantly different if sustainability costs are incorporated, favoring the traditionally more economically costly sustainable alternative to the standard solution.

Sustainability is the concept of managing natural resources in a manner that does not cause harm to the ecosystem and allows it to be as fruitful as possible, while permitting human activity to be productive and long lasting as well. Some of the specific sustainability ideas can specifically be integrated into critical LCCAs that are applicable to the water and wastewater industry. There are two potential ways that will be discussed to incorporate sustainability principles in a critical LCCA. The first method is to change the way a critical LCCA is developed – by looking not just at one asset but at a whole system. For example, rather than analyzing and optimizing just one pump, the analysis would include the entire pumping system – pumps, motors, piping, valves, etc. The second technique is to quantify environmental and social costs, through specific tools such as the Ecological Footprint, and add them into the critical LCCA. By  integrating these concepts with life cycle cost analyses, asset management programs can help agencies make cost optimizing decisions that are more sustainable for meeting long term goals.

INTRODUCTION
Sustainability can be defined as meeting “…the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland Commission, 1992). It is based on the recognition that when resources are consumed faster than they are produced or renewed, the resource is depleted until it no longer exists. In a sustainable world, society's demand on nature is in balance with nature's capacity to meet that demand (www.globalfootprint.org). Global and U.S. trends toward more sustainable practices, emerging contaminants of concern and future regulations, rising energy costs and other natural resource limits, climate change, financial considerations, and public pressure are driving the water and wastewater industry to consider sustainability in their decision-making. Sustainability requires that decision-making criteria be expanded to include social and environmental impacts, as well as broader economic impacts; and to consider those impacts over generations, a longer period of time than considered for most decisions agencies made today.

Asset management programs are designed to improve decision-making about assets in order to manage both existing and future assets more effectively. Effective asset management ensures that service levels are met; risks, including public health, safety, financial, and environmental, are minimized; and costs optimized.

Better decision-making is crucial to achieve both asset management and sustainability goals. One key to making better decisions is having the right information available at the right time to support the decision-making process. Energy efficiency expert Joseph Romm reports that for a typical building, by the time “1% of the project’s up-front costs are spent, up to 70% of its life cycle costs may already be committed” (Hawken, Lovins, and Lovins, 1999). Clearly, there is a need to have the right information to be able to understand the impacts on life cycle costs before any decisions are made.

One analysis method used for asset management that facilitates long-term cost optimization is the use of life cycle cost analyses (LCCAs). A typical life cycle cost analysis (LCCA) includes evaluating the costs incurred by an asset over its useful life and comparing it to other assets in order to find the least cost solution. These costs generally include acquisition, installation, operations, maintenance, and disposal costs. However, since the goals of asset management also include meeting level of service (LOS) standards and reducing risk, the solution with the lowest life cycle cost (LCC) is frequently not the optimal solution.

The “critical” LCCA meets asset management goals by incorporating LOS, condition, criticality, vulnerability, risk, and remaining useful life into the analysis. The goal of a critical LCCA is not merely the least cost solution but the least cost solution that meets the asset management goals, or the “optimal” cost solution. In order to incorporate LOS goals into the critical LCCA, the existing condition and desired LOS of an asset must be compared to determine if any gap exists.
This gap identification provides the basis for determining which assets need to be improved to meet the target LOS and, conversely, which assets can potentially sustain a decrease in their LOS target. Incorporating risk, a mathematical combination of criticality and vulnerability, and managing its reduction involves identifying assets that need to have their current risk levels reduced and, conversely, assets that can potentially sustain an increase in risk level. Analyzing risk and LOS goals allows priority assets to be identified. The assets with the greatest gap between LOS and condition and those assets with the highest risk are the highest priority. These high priority assets can then be managed more closely and effectively, and decision-making can include critical LCCAs.

While critical LCCAs address asset management goals beyond least cost, they do not generally consider potential costs or benefits to the environment or society. In order to make the critical LCCA as robust as possible, environmental and social costs and benefits should be considered with the economic, LOS, and risk management goals. A more robust critical LCCA may lead to significantly different decisions in an asset management program.

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