2.4 Asset Management Plans

Local government: results of the 2002-03 audits.

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For more than a decade, the Auditor-General’s reports to Parliament have raised issues about asset management by Councils.20 These reports have particularly highlighted:

  • the importance of quality underlying information to allow robust estimates to be prepared; and
  • the need for asset management plans to be based on service levels established in consultation with ratepayers or users of services.

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The 2002 report Local Government: Looking Back and Looking Forward21 commented:

… Almost all Councils have management plans and basic information for the assets that are delivering essential services. However, the plans and accompanying information are, in general, relatively unrefined. Quite rightly, effort has been concentrated on:

  • identifying and quantifying the assets;
  • gathering information on their age and condition;
  • developing information systems; and
  • providing forecasts of cost elements – such as new capital investment (as well as renewals and operational expenditure).

Few Councils have reached an advanced level of asset management. Advanced asset management is characterised by:

  • a much higher level of knowledge of the assets held (thereby allowing predictions to be made about performance);
  • a greater understanding of the desired level of service that the community wants the assets to provide; and
  • a focus on addressing the risks associated with managing the infrastructure.

In my view, the benefits from asset management will only be fully realised by concerted effort on the advanced level.

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Various information requirements of the long-term council community plan (LTCCP) have reinforced the need for robust information so that communities can have confidence in the proposals and underlying information in these plans. In particular, clause 2(1)(d) of Schedule 10 of the Local Government Act 2002 (the 2002 Act) requires local authorities to:

… identify the assets or groups of assets required by the group of activities and identify, in relation to those assets or groups of assets,—

(i) how the local authority will assess and manage the asset management implications of changes to— (A) demand for, or consumption of, relevant services; and (B) service provision levels and standards:

(ii) what additional asset capacity is estimated to be required in respect of changes to each of the matters described in subparagraph (i):

(iii) how the provision of additional asset capacity will be undertaken:

(iv) the estimated costs of the provision of additional asset capacity identified under subparagraph (ii), and the division of those costs between each of the matters in respect of which additional capacity is required:

(v) how the costs of the provision of additional asset capacity will be met:

(vi) how the maintenance, renewal, and replacement of assets will be undertaken:

(vii) how the costs of the maintenance, renewal, and replacement of assets will be met.

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Other LTCCP content requirements to be drawn from asset management information include:

  • Clause 2(1)(e) of Schedule 10 – which requires the estimated expenses of achieving and maintaining the identified levels of service provision, including the estimated expenses associated with maintaining the service capacity and integrity of assets to be included in the LTCCP:

    (i) in detail in relation to each of the first three financial years; and

    (ii) in outline in relation to each of the subsequent financial years.

  • Clause 11 of Schedule 10 – which requires a local authority’s LTCCP to identify all the significant forecasting assumptions and risks underlying the financial estimates, including the assumptions about:

    i) the useful life of significant assets; and

    ii) sources of funds for the future replacement of significant assets.

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With regard to local authorities’ preparation to meet the new asset management information requirements of LTCCPs, we have been concerned that, for some local authorities, asset management information has:

  • not significantly advanced since many local authorities prepared asset management plans as a result of the amendments to the Local Government Act 1974 (the 1974 Act) in 1996; and
  • not been maintained or updated over time.

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We also observed that, in the LTCCPs of local authorities that chose to adopt an LTCCP in 2003, little information was provided on assets and how these are to be managed and funded.

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With new asset management content required to be included in LTCCPs from 2004, we felt it would be timely to review the robustness of current asset management planning to assess the state of information. We acknowledge that auditors do not have engineering expertise. Nonetheless, we consider that the criteria we used for our review were sufficiently clear, and that, for an issue of such importance, it would be useful for us to present a picture of the state of local authorities’ asset management.

What We Did

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We assessed local authority asset management plans (or information which has the function of such a plan), selecting the best and least developed plans of each Council for review. Because many Regional Councils are not extensively involved in asset-intensive activities, these Councils were included in the review only where they held significant assets.

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The two selected plans for each local authority were ranked from 1 (low) to 5 (high) against 12 criteria. These criteria were based on the dimensions set out in the international infrastructure management manual Creating Customer Value, which, in our view, represent current best practice for the sector in asset management planning.

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The dimensions used were:

  1. Description of assets – that there is a description of the asset, both physically and in financial terms.
  2. Service Levels – that service levels are specified:
    • based on consultation with the community or other relevant stakeholders; strategic objectives; legislative requirements and environmental standards; and the availability of resources; and
    • in terms relevant to customers, that are measurable and translate through to the operational plans.
  3. Timetable – that the length of time is defined for the asset network to deliver the required service.
  4. Planning Assumptions and Confidence Levels – that assumptions under which the asset management plan is prepared are identified, and that the reliability and accuracy of underpinning information is indicated.
  5. Outline Improvement Programmes – that the asset management plan states what needs to be done to improve asset management processes and techniques, including outlining weak areas, how these will be improved, and the timetables and resources required for improvements.
  6. Integration – that asset management planning information is linked with other relevant information in relation to effect.
  7. Financial Forecasts – that asset management planning translates the physical aspects of planned operational, maintenance, renewal and new works into financial terms, specifically for at least the next 10 years and generally over the time the asset must deliver service, in a manner that is fair and consistent.
  8. Planning Preparation – that the asset management plan was independently assessed or peer reviewed.
  9. Risk Management – that asset management planning is integrated with other corporate risk management processes, and encompasses strategies for critical assets; provides for the effects of failure; and integrates with disaster recovery and business continuity plans, and optimised decision making.
  10. Implementation – that asset management plan requirements are implemented and any discrepancies are formally reported.
  11. Updating – that underlying systems are improved over time through regular formal revisions linked to the Council’s strategic planning cycles.
  12. Optimised Decision-Making – that models and data are used to prepare options for asset treatments in order to achieve optimal costs.

Findings of Our Review of Asset Management Plans

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The following graph shows the average rankings on each dimension for best and least developed asset management plans. This graph shows that most dimensions were ranked between 2 and 3.

Graph.

Best Asset Management Plans

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Of the best asset management plans:

  • 4 cities and 2 districts scored 3 or above on every dimension ranked;
  • 11 districts, 5 cities, and 1 region scored 3 or above for all but one or two of the dimensions ranked; and
  • 4 districts scored 2 or less on every item ranked.

Least Developed Asset Management Plans

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Of the least developed asset management plans:

  • 3 districts, 2 cities, and 1 region scored 3 or above for all but one or two of the dimensions ranked;
  • 23 districts and 8 cities scored 2 or below for all but one or two of the dimensions ranked; and
  • 2 districts ranked no higher than 1 on all dimensions.

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For both the best and least developed asset management plans, the two dimensions that were ranked lowest were risk management and optimised decision-making. This result is perhaps unsurprising – many local authorities initially drew up asset management plans to help establish whether their projected operating revenue was sufficient to cover operating expenses as required by amendments to the 1974 Act in 1996.22 Future uses of information, such as those of risk management and optimised decision-making, would not have been a primary focus.

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Nonetheless, we had hoped that, when the benefits of asset management planning for managing and predicting the need for services were recognised by local authorities, they would have enhanced basic asset information to maximise the benefits that could be gained. These results suggest that such enhancement has not occurred to the degree we would have hoped – especially in view of the 2002 Act requirements.

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We considered whether there were any notable features in our rankings, such as:

  • whether greater rates of population growth might be leading to a need for better asset management planning; and
  • whether larger local authorities might be better equipped to plan (through greater resources and access to expertise) than smaller local authorities.

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We saw no clear evidence suggesting that population growth has led to better asset management planning. There was some evidence that the size of a local authority can have an effect – but overall this was not marked, with a number of smaller districts with populations of less than 32,000 (including some of the smallest district populations in the country) being among the local authorities with the highest ranked asset management plans.

Range in Rankings

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The average ranking range between best and least developed asset management plans for each local authority for all of the 12 dimensions was:

  • 0.5 or less for 50% of local authorities; and
  • 1 or less for just under 80% of local authorities.

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A similar result was found by looking at the average ranges of ranking of all local authorities for each of the 12 dimensions. The average range between the best and least developed asset management plans was between 1 and 0.5 for 11 out of the 12 dimensions. The other dimension had an average range of 0.3.

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This suggests that the variation in the quality of asset management plans between best and least developed plans is not great. While this result is heartening, we are aware that some local authorities may not have prepared asset management plans for non-infrastructure intensive assets – for example, parks and reserves. As our review was of assets for which information had been prepared, this could reflect a more positive state of asset management than actually exists for some types of assets.

Conclusions

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Our review found that some local authorities need to improve their asset information to meet the new disclosure requirements of the 2002 Act. There is no statutory requirement for local authorities to follow a framework such as the Creating Customer Value criteria that we used to assess asset management plans for this review. Nonetheless, in our view, using such a framework should assist local authorities to prepare asset information that addresses most of the requirements of the 2002 Act.

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The benefit of investing this effort to improve asset information to meet the new requirements of the 2002 Act should be to enhance local authorities’ understanding of:

  • how assets deliver service and the effect of asset decisions on service levels; and
  • the cost of operating existing assets and the funding required for extra capacity.

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Our review also suggests that, while most local authorities have a reasonable standard of base information, many need to invest further effort to apply the information to future-oriented uses such as risk management and optimised decision-making. It is through using robust asset information for these purposes that local authorities will be able to meet future needs effectively and efficiently, and protect the ability to deliver critical services to communities. The National Asset Management Steering Group has established a working party to draft guidance on optimised decision-making. We look forward to the outcome of this work.

Footnote 20: See, for example, Review of Local Government Financial Asset Condition and Long-term Planning: Statistical Results, ISBN 0-477-02845-4, 1994.

Footnote 21: Parliamentary paper B.29[02a], page 28.

Footnote 22: Section 122C(1)(f) of the Local Government Act 1974.

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