An asset management plan helps you manage your assets, so you can get the most value from them and have the financial resources available to renew them when necessary. Many small water systems need considerable lead-time to budget and gather the necessary funds for replacement of assets. Effectively managing your assets by planning for timely renewal and avoiding untimely failures will help you to provide safe, reliable, and secure drinking water.
Steps in Preparing an Asset Management Plan
There are five main steps to preparing an asset management plan:
- Step 1: Create an asset inventory
- Step 2: Prioritize the order to replace assets
- Step 3: Calculate the money you need to replace assets
- Step 4: Prepare an asset replacement schedule
- Step 5: Set up a replacement reserve fund
Each of these steps is outlined in the sections below. And for each step, there are tools, such as worksheets, available to you in the Resources and Tools section at the bottom of the page.
Before you can create an asset management plan, you need to know what assets you have.Your tangible assets are things such as pipes and pumps that make up your water system.
Instructions for creating an asset inventory can be found on our Basic Asset Inventory page. If the asset inventory was done more than year ago, review and update it by inspecting each component of your system and recording new information.
Once you have inventoried your assets, your next step is to prioritize your assets to help you allocate resources. Prioritize your assets by giving an importance ranking to each of the assets in your system. There are several ways of prioritizing asset renewal and replacement. Typically, assets are prioritized based on their remaining useful life. Another method is shown in the box below. Choose a method that suits your circumstances.
Questions to consider when prioritizing:
- What is the remaining useful life of the asset?
- How important is the asset for safe drinking water?
- How important is the asset to the operation of the system?
- Can other assets do the same job?
Box 1: Prioritization Methods
One approach to prioritizing assets is to put them in order from most critical to least critical:
- Existing threats to public health, safety or environment
- Potential public health, safety or environmental concern
- Internal safety concern or public nuisance
- Improved system operations and maintenance (O&M)
- Nice to have …
Other factors can also influence which water system projects are funded and when they are completed. Developing an asset management plan and prioritizing your assets will help you work out when you should replace your assets so water delivery is not jeopardize. You may have to work with your community to develop a replacement schedule that works for all parties.
An asset management plan linked to long-term planning will help you forecast your financial needs well into the future and develop a rehabilitation and replacement schedule appropriate for your system. At this point in the process, you may want to tell your customers that you are preparing organized asset management and communicate the benefits to them, as there could be short- and long-term financial consequences to them.
Calculate how much money you will need for asset replacement in the future by
- listing your assets,
- their replacement priority,
- the year until replacement is needed,
- the estimated cost, and
- the annual reserve required.
Worksheets to help you help you prepare the calculations are available in the Resources and Tools section below.
To calculate how much it will cost to rehabilitate and replace your assets as they deteriorate, gather information on all costs associated with the rehabilitation or replacement of an asset, including
- equipment purchase,
- pilot tests,
- labour charges,
- cleanup, and
- disposal of the replaced asset.
For information about estimated repair or replacement costs, contact suppliers and consultants.
Box 2: Preventive Maintenance
A Preventive Maintenance Plan will help maximize the useful life of your assets, avoid problems, and reduce or delay replacement costs. It will help you stay on top of maintenance, repairs, and parts replacements so you can prevent equipment failure.
Having completed Steps 1 through 3 to calculate the remaining useful life of an asset and the priority in which it should be renewed or replaced, you can summarize this information for all assets on a worksheet called an Asset Replacement Schedule [NOTE1].To protect public health and deliver safe water, you will need to rehabilitate and replace your assets over time. Many systems need considerable lead-time to budget and gather the necessary funds. By developing an Asset Replacement Schedule, you will be able to allocate your resources in the most efficient way.
[NOTE1] LINK to a sample
A key element of asset management is having a Replacement Reserve Fund (RRF), where you accumulate money for future asset renewal. This reserve fund should be protected from other uses. The RRF ensures funds will be available to replace system components when required.
The Replacement Reserve Fund worksheet (available in the Resources and Tools section below) leads you through the steps necessary to determine how much money to put in reserve each year to fund your highest priority activities.
It its important to make sure your customers understand that although the total reserves needed each year may seem like a lot of money, it is easier to put aside $200 a year to replace, say, a chlorinator, than to come up with $2,000 once it fails. Customers on limited incomes often cannot suddenly find significant sums to pay for unexpected repairs.
As your system’s finances and costs of new assets can change from year to year, it is important to update this worksheet annually. This will ensure you have enough reserves to cover necessary rehabilitations and improvements. This also has several other benefits: for example, if you have enough money in the bank, it may be easier for individual property owners to sell their homes, because new buyers have some assurance that they will not suddenly receive a large and unexpected charge.
Key decision makers (for example, the trustees or key property owners) will want to understand the financial requirements related to the renewal of your assets. The draft version of the Business Management Plan [NOTE1] should be presented to key decision makers at an early stage, and your customers should be informed, also. This information should be reviewed annually and modified as necessary.
[NOTE1] This is the first reference to a BMP. Is it discussed elsewhere? Eg. Governance and Business Plan. If so, LINK to there.
To help you create an Asset Management Plan, you can complete Excel worksheets available at the Canadian Water Directory's Financial Best Practices web page.
- Click on this link to the web page to access the Excel worksheets: Financial Best Practices
- Once on the web page, click on the worksheets listed under BMP B.