Getting asset management right: A new Asset Management framework for the NSW Public Sector
Abstract This paper outlines the whole of NSW Government approach, as led by Infrastructure NSW, to develop a new modern NSW Asset Management Framework that is focused on improving the asset management capability and accountability of the NSW public sector. This approach was in response to the anticipated challenges of population growth, climate change, expectations of level of service offered by infrastructure and the age profile of assets as outlined in the NSW State Infrastructure Strategy 2018-2038. A strong asset management framework is critical to extract maximum benefit from the NSW asset portfolio and to ensure that infrastructure spending remains sustainable to meet future service demand. A NSW Government Asset Management Policy is the first step to ensure that the management and use of the State’s assets must become smarter, more productive and efficient to manage the upward pressure on maintenance requirements and expenditure.
Keywords NSWAsset Management Policy, NSW Asset Management Framework, NSW State Infrastructure Strategy 2018-2038, Infrastructure NSW
A strong asset management framework is critical to extract maximum benefit from the asset portfolio of NSW and to ensure that the State’s infrastructure spending remains sustainable to meet future service demand. This paper outlines the whole of NSW Government approach, as led by Infrastructure NSW, to develop a new modern NSW Asset Management Framework that is focused on improving the asset management capability and accountability of the NSW public sector. This approach was in response to the anticipated challenges of population growth, climate change, expectations of level of service offered by infrastructure and the age profile of assets as outlined in the NSW State Infrastructure Strategy 2018-2038.
2 The need for change
In February 2018, the NSW State Infrastructure Strategy 2018-2038 (Infrastructure NSW, 2018) was released. This strategy set out a 20 year vision for the state to have the right infrastructure, in the right places, that is well managed and put to good use, boosting productivity, global competitiveness, and improving the quality of people’s lives.
NSW currently has the largest state infrastructure investment program in the nation (over $87 billion from 2018/19 to 2021/22), supported by the strongest state economy in Australia (NSW Treasury, 2018). Unlike prior state infrastructure strategies, this strategy looked beyond existing infrastructure needs. The recommendations in the State Infrastructure Strategy 2018-2038 identify investment and policy priorities that are achievable, affordable, and that deliver the highest economic, employment and liveability benefits to the people of NSW. This strategy is less about a recommended list of projects – NSW already has a healthy pipeline of capital works – and more a set of policies and strategies required to make more efficient use of existing and new infrastructure with a focus on optimising efficiency, better asset management and managing peak demands while delivering essential infrastructure in the most cost-efficient way.
As outlined in the State Infrastructure Strategy 2018-2038, the demand for infrastructure to meet growth is increasing, but government alone cannot afford to build its way out of demand. Population growth, climate change and increasing service expectations (as shown in Figure 1) offered by infrastructure are placing risks on asset performance and the NSW economy which is forecast to grow from $539 billion today to $1.4 trillion by 2056.
Figure 1 – Forecast of demand on services in the next 20 years (Infrastructure NSW, 2018)
In response to these challenges, the State Infrastructure Strategy 2018-2038 makes recommendations for the NSW Government to introduce an asset management policy that includes a new assurance model managed by Infrastructure NSW by the end of 2018 to transition NSW state agencies into a new Asset Management framework in line with modern accepted asset management standards and practices.
At the 2018-19 Budget (NSW Treasury, 2018), the NSW Government’s recurrent maintenance expenditure was approximately $4.4 billion for the non-financial public sector in 2017-18. Despite an anticipated growth of 22% in assets from the significant level of investment noted above by 2022, maintenance funding in the short term is to remain the same. In addition, the current age profile of assets and service expectations is placing significant upward pressure on maintenance requirements and expenditure in the near term.
Further compounding these challenges is the current asset management capability in the NSW public sector and industry. In April 2018, the Asset Management Council of Australia (Asset Management Council, 2018) surveyed a cross section of organisations from a variety of industries throughout Australia and determined that the state of asset management capability within the industry remains a current challenge across Australia, as summarised in Figure 2.
Figure 2 – Asset Management Council Industry Survey (Asset Management Council, 2018)
In addition to responding to the recommendations in the State Infrastructure Strategy 2018-2038, the proposed new NSW Asset Management Policy also required a focus on the asset management capability and accountability of NSW State agencies. The policy does not merely ask organisations to do the right thing, but also advocates the creation of an environment for the public sector to grow and attract the right people who can adequately manage the anticipated asset management challenges.
Without the right kind of investment in the asset management capability in the NSW public sector we may end up in a very similar situation to the USA. During my time consulting in the USA across various states and cities, I encountered many public sector agencies without visibility of their asset portfolio and limited understanding of asset risks and challenges in service delivery, as summarised in Figure 3. The one common thread within these US public sector agencies was a significant lack of investment in their asset management capabilities.
Figure 3 – Current asset management experience in USA (American Society of Civil Engineers, 2017)
3 Responding to these challenges
In response to these challenges, and the asset management recommendations contained in the State Infrastructure Strategy 2018-2038, a new Asset Management Policy for the NSW public sector is being developed by Infrastructure NSW in collaboration with NSW Treasury and in consultation with NSW State agencies). The NSW Asset Management Policy is designed to achieve a consistent approach to asset management across the NSW public sector in line with industry accepted asset management standards, enabling agencies to:
- make better use of their existing assets;
- adopt clear and consistent definitions and methodologies to report and manage the size of any maintenance backlog in their sector;
- broaden assessments of asset performance to take into account economic, social, and environmental outcomes;
- develop a whole of asset lifecycle and whole of government approach across interconnected infrastructure networks to drive an integrated vision of infrastructure provision and management that creates value, reduce costs, manage risks, and improve the performance of assets;
- adopt innovative, contemporary technologies to improve the operations and maintenance of infrastructure; and
- use quality data that will support evidence-based decision-making the NSW Government to balance cost, risk, and performance.
Importantly, in addition to supporting a consistent and improved approach across State agencies, the policy demonstrates value to the State, communities and customers through the core focus to build and sustain a level of asset management capability in the NSW public sector that aims to deliver the following improvements to State outcomes in response to the relevant strategic challenges identified (above) as outlined in Table 1.
Table 1 – Response to key strategic asset management challenges for NSW
|Growth in new infrastructure
|The NSW asset portfolio is expected to grow by 22 per cent over the forward estimates from $340 billion in 2017-18 to $414 billion in 2021-22. Industry reviews indicate asset management capability of organisations remains a challenge across NSW agencies (Asset Management Council, 2018).
|Increase the level of asset management maturity of NSW public sector agencies in line with accepted industry standards.
|Asset use and resilience
|Population growth, technology change, a changing climate, and increasing service expectations offered by infrastructure are placing risks on the performance of current assets and the NSW economy.
|Demonstrate and increase economic and social benefit of current assets through evidence based and transparent asset planning and prioritisation.
|The current age profile of assets and service expectations is placing significant upward pressure on maintenance requirements and expenditure in the near term. Further, a potential short-term response to emerging fiscal pressures, at the agency and general government level, may be to defer maintenance which increases long-term risks of failure and a reduction in service performance.
|Decease lifecycle operating costs through risk-based preventative maintenance regimes. Increase return on assets through improving commercial value and performance of assets.
|In 2016, the NSW Audit Office (Audit Office of NSW , 2017) found significant maintenance backlogs for the three largest capital-intensive infrastructure sectors (transport, education, and health).
|Prospectively identify the optimal asset maintenance regime and any upfront expenditure required with consideration to criticality and economic outcomes.
4 Approach and implementation
The success of the new NSW Asset Management Policy in delivering on its strategic goals is critically dependent on a robust and effective implementation program across all NSW State agencies. Outlined below in Figure 4 is Infrastructure NSW’s implementation framework for a whole of government approach to adopt this critical change.
Figure 4 – The pathway to improving asset management practice in NSW
At first glance the approach may look similar to that taken by Victoria in developing and implementing its Asset Management Accountability Framework (Department of Treasury and Finance Victoria, 2016). However, many of the lessons learnt from Victoria’s implementation (in consultation with the Department of Treasury and Finance of Victoria), have been incorporated by Infrastructure NSW. The four key components of NSW’s approach (Figure 4):
- Determine an understanding of current state: This step involved obtaining detailed insight in collaboration with NSW Asset Managers and Executives on the current asset management challenges faced within agencies including the use of a formal industry accepted asset management maturity assessment and benchmarking (as provided by the Asset Management Council). This initial diagnostic established a baseline of current asset management practice across NSW State agencies.
- Establish NSW Asset Management Policy requirements: The requirements of the NSW Asset Management Policy will be aligned to current accepted industry standards (ISO55000) so that the overall asset management practice in NSW State agencies can be improved, and includes:
- Agencies to have a fit-for-purpose Asset Management Framework which includes Strategic Asset Management Plan (SAMP), an agency-level Asset Management Policy, Asset Management Plans (AMPs), and an Asset Register.
- Accountable Authority of each agency attest annually to compliance with the policy.
- Agencies undertake a periodic assessment of their asset management maturity.
- Leadership commitment and recognition of incremental improvement: The evolution of asset management practice by State agencies starts with the level of commitment by their leadership. Only then can there be a genuine understanding of what their organisation will need to change through improving current asset management capabilities or consideration of organisational reform to support creating the right culture within their organisation for asset management to thrive. The policy recognises this and outlines transitional arrangements for agencies through the adoption of maturity road maps that aim to improve asset management practice over a period of time (through interim states), moving towards full compliance with the policy.
- Infrastructure NSW Influence and Support: The NSW Government expects agencies to demonstrate strong transparency and accountability as part of their role as stewards of public assets. The attestation process and the independent asset management assurance is to be led by Infrastructure NSW (under its role as the independent strategic advisor to the NSW Government). This process provides a level of confidence to NSW Government that agencies are meeting their obligations in relation to asset management, and that their performance remains relevant, consistent and reflects contemporary and good asset management practice. Further to this, the partnership with the Asset Management Council of Australia has been critical in enabling Infrastructure NSW to provide policy implementation support to State agencies through:
- availability of accredited asset management training for agencies;
- availability of a formal industry recognised Asset Management Maturity Assessment; and
- quarterly NSW Asset Management Community of Practice events.
The quarterly NSW Asset Management Community of Practice forums (as chaired by Infrastructure NSW) commenced in May 2018 and has grown to include almost 70 members across NSW agencies. This forum alone has been key to the success of developing and implementing the new NSW Asset Management Policy as each event provided:
- a dedicated Asset Management forum for NSW Government agencies and asset management practitioners focused on improving the understanding, capability and application of asset management knowledge and practice in NSW Government;
- opportunity for Infrastructure NSW to collaborate across NSW Government on the development of the NSW Asset Management Policy and Asset Management Assurance Framework; and
- alignment, improvement and efficiencies in cross-sector and agency relationships on key challenges and priorities for NSW.
5 Successes and opportunities
The NSW Government Asset Management Policy will drive a whole-of-life approach to asset management by agencies, which will minimise the long-term cost of service provision. The policy also specifies that agencies have in place robust and defensible Asset Management Plans, supported by clear evidence on asset performance, cost and outcomes to the State.
Further, the introduction of an Asset Management Assurance Framework, managed by Infrastructure NSW, will assist the NSW Government in determining the maintenance requirements of agencies by objectively assessing the maturity of an agency’s asset management framework and evidence base. This critical function previously did not exist in NSW.
The new NSW Asset Management Policy is expected to deliver financial benefits for the State as a result of improved asset management capabilities across NSW agencies. Infrastructure NSW projections, based on industry case studies following implementation of asset management reform in line with accepted international standards (ISO5001) over a three to five year period, have demonstrated an improvement of up to 15 percent to an agency’s maintenance allocation within their overall expenditure limits.
Potential approaches to the treatment of any financial benefits arising from the implementation of the policies are currently being considered. A series of pilot initiatives have commenced involving agencies, in collaboration with Infrastructure NSW, reviewing opportunities to improve asset management practices within their organisations in the next 12 months.
Infrastructure NSW has also commenced a review to establish a consistent methodology for the State to best quantify, understand and manage the NSW maintenance backlog. As outlined in the 2016 NSW Audit Office reports (Audit Office of NSW , 2017), there is no consistent definition for backlog maintenance and measurement methods across NSW Government agencies. This lack of consistency renders it difficult to determine the actual levels of future maintenance expenditure required, risk and quantum of the current maintenance liability, and the relationship to social, economic and financial outcomes.
Asset management in the NSW public sector has focused primarily on individual infrastructure sectors to date, with an emphasis on inputs. The new Asset Management Policy will now for the first time mandate consideration of environmental, social and economic outcomes as well as interdependencies between infrastructure sectors. Through this policy, the management of NSW assets is anticipated to become smarter, more mature, more productive and more efficient to avoid infrastructure spending increasing unsustainably and risk impacting the delivery of services to communities.
American Society of Civil Engineers, 2017. 2017 Infrastructure Report Card, Washington: American Society of Civil Engineers.
Asset Management Council, 2018. NSW Government Asset Management Community of Practice, Sydney: Asset Management Council.
Audit Office of NSW , 2017. NSW Auditor-General’s Report to Parliament – 2016 An Overview, Sydney: Audit Office of NSW .
Department of Treasury and Finance Victoria, 2016. Asset Management Accountability Framework, Melbourne: Department of Treasury and Finance Victoria.
Infrastructure NSW, 2018. State Infrastrutcure Strategy 2018-2038, Sydney: Infrastructure NSW.
NSW Treasury, 2018. 2018-19 Budget Paper No. 2, Sydney: NSW Treasury.
 R. Affan, Executive Director Asset Management
Infrastructure NSW, Sydney, New South Wales, Australia