Asset Management BC Newsletter Summer 2017
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Asset Management BC Newsletter Summer 2017 THIRTY FIRST EDITION – WINTER 2021 Asset Management - Service, Asset Table 1: Components of Financial Sustainability and Financial Sustainability Components Basic Advanced Andy Wardell, Chief Financial Officer, District of North Long-term • Funding gap • Guiding financial Vancouver; Co-Chair Asset Management BC financial plan analysis for principles approved plans • Strategic planning Financial health and providing and strategies framework for a long-term sustainable • Planning • Set of financial future are top priorities for structure strategies local governments. This paper separates one- • Planning structure profiles two key financial time and includes target ongoing indicators that are integral to levels of service and resources how the District of North separates land requirements Vancouver measures service, financial and asset Asset • Based on asset • AM strategy management type sustainability. • AM policy or bylaw (AM) plans • All physical • Based on services From a financial sustainability perspective, major assets and levels of service components of our success include long-term financial • Including natural plans, asset management plans, audited financial assets statements, key indicators and our ability to adapt our Audited • Tangible capital • Optional AM long-term plans following a set of guiding financial financial assets reporting principles and financial strategies. From an asset statements • Accumulated • Surplus and management perspective these are all built on the work surplus reserves aligned of our Asset Management Steering Committee. • AM reporting with corporate risks requirements and long-term plan Table 1 lists the key components we use to measure financial sustainability. Key • Operating • Gap analysis by goal indicators surplus ratio • Growth analysis and As municipalities and their assets are the foundation on • Asset accuracy of related which our community standards of living are built, sustainability charges planning and reporting on key financial sustainability ratio • Adjustment plan to indicators is critical to our municipality’s long-term • Asset condition realize vision, be financial health. ratings financially resilient • Rolling plan to adapt for changes Asset Management BC Newsletter Winter 2021 The two continuous quality improvement ratios that We started tracking this ratio in 2009 and you can evidence our commitment to excellence are the: see the progress we have made since. New major assets also mean higher replacement value 1. Operating Surplus Ratio – The objective is to depreciation and life cycle maintenance costs must generate a small operating surplus every year to be included and that can drive the ratio lower fund the replacement value (fair value) depreciation of existing assets. 2. Asset Sustainability Ratio – This ratio aims at Operating Surplus Ratio ensuring that you are reinvesting in your assets to 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 cover 90% to 110% of asset consumption based on -11% -8% -5% -3% 0% 6% 6% 5% 6% 7% 4% replacement value. Minimum Benchmark Target 0% Upper Benchmark Target 15% Asset Sustainability Ratio To derive an accurate ratio, you must remove all 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 75% 87% 83% 84% 89% 91% 92% non-recurring revenues from your audited financial Minimum benchmark 5 year moving avg: 90% statements (that includes any federal and Upper benchmark 5 year moving avg: 110% provincial grants, development revenues and land a. Denominator - What do your asset sales to name a few). You also must remove management plans say you need to replace? historical cost depreciation and substitute in Update your plans every year! If you don’t have replacement value depreciation. a complete set of asset management plans you The operating surplus ratio is the most important can use replacement value depreciation until measure of financial sustainability. you develop the plans. b. Numerator - What assets did you replace (as evidenced in your audited financial statements)? Articles in this Edition: The asset sustainability ratio requires tracking every year with the goal of establishing a 3 or 5-year Feature Article: Asset Management - Service, Asset moving average. and Financial Sustainability Why a moving average? Because the plans change What is REALLY important for Asset Management? all the time, projects get delayed for any number of Case Study: qathet Regional District - There are reasons. For the District of North Vancouver, the Alternatives to Concrete and Asphalt - Integrating a years 2010 to 2013 were tracked but only included Natural Asset into a Capital Project the 5-year moving average starting in 2014. Further, David Allen, Co-chair of Asset Management BC you can see that, after a decade, we are just now receives Award from LGMA reaching the minimum benchmark of 90%. Gas Tax Funding Supports ASSET MANAGEMENT Depending on your local circumstances these ratios can Elephant in the Room: Drainage and the Unfunded support the discussion on what level of taxation your Infrastructure Liability community is willing to accept in support of aging assets and desired levels of service. Glen Brown, General Manager, Victoria Operations, UBCM receives Award from BC Water & Waste Assn By taking the long-term view we strive to address the renewal, maintenance and replacement needs of our Atlantic Infrastructure Management (AIM) Network assets while maintaining affordability and reliability for PEOPLE: Managing Assets of Infinite Value future generations. We believe our approach is sound, Tom Barnes, CEO of MIABC, receives Leadership proven and, within the Canadian context, helps reduce the Award from AGRiP infrastructure funding gap which exists nationwide. A Municipal Politician’s View of Asset Management Asset Management BC offers Training opportunities Tips and Tactics: Connecting Service Risks to LOS Upcoming Events www.assetmanagementbc.ca 2 Asset Management BC Newsletter Winter 2021 What is REALLY important for Asset fondled about the ‘other’, assigning them with evil intent: the other department, the council, the Management? administration, those idiotic ‘others’. Christina Benty, former Mayor of the Town of Golden, Long-term thinking goes out the window under now Strategic Leadership Solutions stress. The system chooses expediency over effectiveness. Without long-term thinking, we Given that this is a observe actions such as Council resorting to using publication about asset reserves to offset taxes without full consideration management, I do not need of the consequences. to espouse the benefits of It is unsafe to tell the truth. People get defensive. asset management to you. Suspicion is projected outward leading to a lack of We all know that it makes trust in difficult to digest information. good business sense, and no There is a pendulum between rigidity and chaos. reasonable person would Organizations hide behind policy and then ignore disagree. This is so obvious policy; whatever happens to be convenient at the that it is boring. time. But let me ask you this, are you as mystified as I am about The organizational culture becomes passive and the lack of real traction in the asset management milquetoast. There is no healthy conflict or movement? Have you noticed that it has garnered lots of passionate grappling with various philosophical attention but not enough real tangible action? Like me, ideologies. As a result, the right questions are not maybe you cannot help but ask: asked, and difficult things are glossed over. » What could possibly get in the way of evidence- Then there is the most insidious of all: FEAR – fear based decision making? of being wrong – fear of being second-guessed – the fear of looking bad. This shows up throughout » Why do we ignore the things we should not ignore? the entire system. » Why do we not attend to the things we should attend Staff must have perfect data before they go to to? Council or they will be humiliated. Or they The obvious, and dare I say lazy, answer is people. But overprepare for every possible question and yet what exactly is it about people? What keeps people from they are still shocked by what comes up out of left making logical, rational decisions in their best interest? field. According to the science of human systems, people under stress do not make good decisions. Humans in various Council fails to make a decision because they don’t stages of fight, flight, freeze, and fawn are hijacked by want to make a mistake. They freeze into a state of their own brain and become immobilized or irrational or inertia. Or they do not dig in and adequately unavailable. In the presence of overwhelm, threat, fear, wrestle with the complex information; they barely anxiety, and stress, humans are actually in a state of give a cursory review of the reports that, at times, trauma and the executive functions (logical, sound, represent months and even years of research and decision making) of the brain go offline. As a result, the preparation. This can happen when a Council is brain is robbed of its energy, focus, vitality, rationality, and scared to disappoint the public and they give too capacity. much weight to opinions on the street. Often with minimal debate skills and no forum for grappling What does this mean? What does it look like? And more with polarizing information is compounded by a importantly, what is at stake here? fear of the wrath of the press. Let’s take a closer look at what happens when the people Ah yes …. the press. The press who should be your in our organizations are under stress and see if anything partner in getting out sound unbiased information, resonates. are instead motivated by drama. They want Boards One of the most palpable signs that people are and Council to look bad. It solidifies the closely under stress is the ubiquitous culture of shame – held beliefs that politicians are wasteful crooks blame – finger-pointing – assumptions – fettering away the public purse. storytelling. This plays out when narratives are www.assetmanagementbc.ca 3 Asset Management BC Newsletter Winter 2021 Lastly, the angry public who feels both entitled and Fearless advice is given, and the collective terrified.