An investment is a cost incurred in the expectation of receiving future benefits. Effective investment planning is the bedrock of asset management but is complex as it involves integrating a broad range of financial, economic, risk, and asset management concepts.
Industry experience suggests that improvements in investment planning increase the efficiency and effectiveness of service delivery and this is facilitated by the adoption of well-designed tools like PARMS.
Effective investment planning involves analysing the impact of short-to-medium term expenditures on longer-term strategic goals. In turn, this requires trade-offs between service levels, risk exposure and financial/economic implications (Totex + Risk Cost) to be assessed.
Strategic plans help regulators to place proposed expenditure within a longer-term framing, which helps them understand the benefits of investment and, perhaps just as importantly, the cost and risk of reducing budgets beyond those considered prudent.
If required budgets are not obtained, then necessary work cannot be done, transferring problems into the future.
If short term expenditure is not aligned with strategic goals, then the strategy will only be delivered by chance. Effective tools and techniques are thus needed to align investments across the three planning horizons.
Ultimately, the goal should be to achieve strategic, tactical and operational alignment via business as usual decision-making processes. Decision support and modelling must use ‘best available’ information at each stage and drive data improvements when these are value adding.
These concepts were the guiding principles in the design and development of PARMS.
Efficient and effective service delivery also requires expenditure to be well targeted. If this is not achieved, investments will not deliver expected benefits.
The impact of poor targeting is, unfortunately very real. For example, results obtained by analysing the legacy renewal program of various utilities suggest that they could have achieved the same asset management outcomes with 60% of the investment made, in part due to ‘age-based reasoning’ being applied in the prioritisation of asset renewals.
This implies that tens of millions of dollars spent each year could be invested differently and to much more effect.