Final

University Transportation Research Center - Region 2

Report
Review of Asset Hierarchy
Criticality Assessment and
Risk Analysis Practices
Performing Organization: Rutgers University

January 2014

Sponsor:
Metropolitan Transportation Authority (MTA)
University Transportation Research Center - Region 2 Project No(s):
UTRC/RF Grant No: 76499-00-01
The Region 2 University Transportation Research Center (UTRC) is one of ten original University
Transportation Centers established in 1987 by the U.S. Congress. These Centers were established
Project Date: January 2014
with the recognition that transportation plays a key role in the nation's economy and the quality
of life of its citizens. University faculty members provide a critical link in resolving our national
and regional transportation problems while training the professionals who address our transpor- Project Title: Benchmarking for Asset Hierarchy, Criticality
tation systems and their customers on a daily basis. Assessment and Risk Analysis at the MTA and other
Transportation Companies
The UTRC was established in order to support research, education and the transfer of technology
in the �ield of transportation. The theme of the Center is "Planning and Managing Regional Project’s Website:
Transportation Systems in a Changing World." Presently, under the direction of Dr. Camille Kamga,
the UTRC represents USDOT Region II, including New York, New Jersey, Puerto Rico and the U.S.
http://www.utrc2.org/research/projects/benchmarking-
Virgin Islands. Functioning as a consortium of twelve major Universities throughout the region, for-asset-hierarchy
UTRC is located at the CUNY Institute for Transportation Systems at The City College of New York,
the lead institution of the consortium. The Center, through its consortium, an Agency-Industry
Council and its Director and Staff, supports research, education, and technology transfer under its Principal Investigator(s):
theme. UTRC’s three main goals are: Mohsen A. Jafari, Ph.D.
Professor
Research
Center for Advanced Infrastructure and Transportation
The research program objectives are (1) to develop a theme based transportation research (CAIT)
program that is responsive to the needs of regional transportation organizations and stakehold- Rutgers University
ers, and (2) to conduct that program in cooperation with the partners. The program includes both Piscataway, NJ 08854
studies that are identi�ied with research partners of projects targeted to the theme, and targeted, Tel: (848) 445-0579
short-term projects. The program develops competitive proposals, which are evaluated to insure Email: [email protected]
the mostresponsive UTRC team conducts the work. The research program is responsive to the
UTRC theme: “Planning and Managing Regional Transportation Systems in a Changing World.” The
complex transportation system of transit and infrastructure, and the rapidly changing environ-
ment impacts the nation’s largest city and metropolitan area. The New York/New Jersey Performing Organization(s):
Metropolitan has over 19 million people, 600,000 businesses and 9 million workers. The Region’s Rutgers University
intermodal and multimodal systems must serve all customers and stakeholders within the region
Sponsor(s):)
and globally.Under the current grant, the new research projects and the ongoing research projects
concentrate the program efforts on the categories of Transportation Systems Performance and
Information Infrastructure to provide needed services to the New Jersey Department of Transpor- Metropolitan Transportation Authority (MTA)
tation, New York City Department of Transportation, New York Metropolitan Transportation
Council , New York State Department of Transportation, and the New York State Energy and
Research Development Authorityand others, all while enhancing the center’s theme.

Education and Workforce Development

The modern professional must combine the technical skills of engineering and planning with
knowledge of economics, environmental science, management, �inance, and law as well as
negotiation skills, psychology and sociology. And, she/he must be computer literate, wired to the
web, and knowledgeable about advances in information technology. UTRC’s education and
training efforts provide a multidisciplinary program of course work and experiential learning to
train students and provide advanced training or retraining of practitioners to plan and manage
regional transportation systems. UTRC must meet the need to educate the undergraduate and
graduate student with a foundation of transportation fundamentals that allows for solving
complex problems in a world much more dynamic than even a decade ago. Simultaneously, the
demand for continuing education is growing – either because of professional license requirements
or because the workplace demands it – and provides the opportunity to combine State of Practice
education with tailored ways of delivering content.

Technology Transfer

UTRC’s Technology Transfer Program goes beyond what might be considered “traditional”
technology transfer activities. Its main objectives are (1) to increase the awareness and level of To request a hard copy of our �inal reports, please send us an
information concerning transportation issues facing Region 2; (2) to improve the knowledge base email at [email protected]
and approach to problem solving of the region’s transportation workforce, from those operating
the systems to those at the most senior level of managing the system; and by doing so, to improve
the overall professional capability of the transportation workforce; (3) to stimulate discussion and Mailing Address:
debate concerning the integration of new technologies into our culture, our work and our
transportation systems; (4) to provide the more traditional but extremely important job of University Transportation Reserch Center
disseminating research and project reports, studies, analysis and use of tools to the education, The City College of New York
research and practicing community both nationally and internationally; and (5) to provide Marshak Hall, Suite 910
unbiased information and testimony to decision-makers concerning regional transportation 160 Convent Avenue
issues consistent with the UTRC theme.
New York, NY 10031
Tel: 212-650-8051
Fax: 212-650-8374
Web: www.utrc2.org
Board of Directors UTRC Consortium Universities

The UTRC Board of Directors consists of one or two members from each The following universities/colleges are members of the UTRC consor-
Consortium school (each school receives two votes regardless of the tium.
number of representatives on the board). The Center Director is an
ex-of icio member of the Board and The Center management team City University of New York (CUNY)
serves as staff to the Board. Clarkson University (Clarkson)
City University of New York Columbia University (Columbia)
Dr. Hongmian Gong - Geography/Hunter College Cornell University (Cornell)
Dr. Neville A. Parker - Civil Engineering/CCNY Hofstra University (Hofstra)
Manhattan College (MC)
Clarkson University New Jersey Institute of Technology (NJIT)
Dr. Kerop D. Janoyan - Civil Engineering New York Institute of Technology (NYIT)
New York University (NYU)
Columbia University
Dr. Raimondo Betti - Civil Engineering
Rensselaer Polytechnic Institute (RPI)
Dr. Elliott Sclar - Urban and Regional Planning Rochester Institute of Technology (RIT)
Rowan University (Rowan)
Cornell University State University of New York (SUNY)
Dr. Huaizhu (Oliver) Gao - Civil Engineering Stevens Institute of Technology (Stevens)
Syracuse University (SU)
Hofstra University The College of New Jersey (TCNJ)
Dr. Jean-Paul Rodrigue - Global Studies and Geography
University of Puerto Rico - Mayagüez (UPRM)
Manhattan College
Dr. Anirban De - Civil & Environmental Engineering
UTRC Key Staff
Dr. Matthew Volovski - Civil & Environmental Engineering

New Jersey Institute of Technology Dr. Camille Kamga: Director, Assistant Professor of Civil Engineering
Dr. Steven I-Jy Chien - Civil Engineering
Dr. Joyoung Lee - Civil & Environmental Engineering Dr. Robert E. Paaswell: Director Emeritus of UTRC and Distinguished
Professor of Civil Engineering, The City College of New York
New York University
Dr. Mitchell L. Moss - Urban Policy and Planning Herbert Levinson: UTRC Icon Mentor, Transportation Consultant and
Dr. Rae Zimmerman - Planning and Public Administration
Professor Emeritus of Transportation
Polytechnic Institute of NYU
Dr. Kaan Ozbay - Civil Engineering Dr. Ellen Thorson: Senior Research Fellow, University Transportation
Dr. John C. Falcocchio - Civil Engineering Research Center
Dr. Elena Prassas - Civil Engineering
Penny Eickemeyer: Associate Director for Research, UTRC
Rensselaer Polytechnic Institute
Dr. José Holguín-Veras - Civil Engineering Dr. Alison Conway: Associate Director for Education
Dr. William "Al" Wallace - Systems Engineering

Rochester Institute of Technology Nadia Aslam: Assistant Director for Technology Transfer
Dr. James Winebrake - Science, Technology and Society/Public Policy
Dr. J. Scott Hawker - Software Engineering Nathalie Martinez: Research Associate/Budget Analyst

Rowan University Tierra Fisher: Ofϔice Assistant

Dr. Yusuf Mehta - Civil Engineering
Dr. Beena Sukumaran - Civil Engineering Bahman Moghimi: Research Assistant;
Ph.D. Student, Transportation Program
State University of New York
Michael M. Fancher - Nanoscience
Dr. Catherine T. Lawson - City & Regional Planning Wei Hao: Research Fellow
Dr. Adel W. Sadek - Transportation Systems Engineering
Dr. Shmuel Yahalom - Economics Andriy Blagay: Graphic Intern

Stevens Institute of Technology

Dr. Sophia Hassiotis - Civil Engineering
Dr. Thomas H. Wakeman III - Civil Engineering

Syracuse University
Dr. Riyad S. Aboutaha - Civil Engineering
Dr. O. Sam Salem - Construction Engineering and Management

The College of New Jersey

Dr. Thomas M. Brennan Jr - Civil Engineering

University of Puerto Rico - Mayagüez

Dr. Ismael Pagán-Trinidad - Civil Engineering
Dr. Didier M. Valdés-Díaz - Civil Engineering

Membership as of January 2016

 TECHNICAL REPORT STANDARD TITLE PAGE
1. Report No. 2.Government Accession No. 3. Recipient’s Catalog No.

4. Title and Subtitle 5. Report Date

Review of Asset Hierarchy, Criticality Assessment and Risk Analysis Practices January 2014
6. Performing Organization Code

7. Author(s) 8. Performing Organization Report No.

Mohsen A. Jafari, Ph.D.
Ajith Kumar Parlikad, Ph.D
Lisbeth Robazetti-Concho. Ph.D
Bobby Jafari
9. Performing Organization Name and Address 10. Work Unit No.
Center for Advanced Infrastructure and Transportation (CAIT) Rutgers University
Piscataway, NJ 08854 11. Contract or Grant No.
76499-00-01
12. Sponsoring Agency Name and Address 13. Type of Report and Period Covered
MTA-New York City Transit Final Report, April 9, 2013 to July
Enterprise Asset Management 1, 2013
2 Broadway
14. Sponsoring Agency Code
New York, NY 10004

15. Supplementary Notes

16. Abstract

The MTA NYC Transit (NYCT) has begun an enterprise-wide Asset Management Improvement Program (AMIP). In
2012, NYCT developed an executive-level concept of operations that defined a new asset management
framework following a systems engineering approach. NYCT has recognized the need for a fully developed asset
hierarchy to enable the evaluation of performance and cost at different levels within the agency. To that end, NYCT
has initiated this project as one of the initial steps in better understanding the state of the art in asset
management.

This report presents methodologies used for asset registration, asset hierarchy, and criticality and risk assessment,
gathered from an extensive literature review and interviews with industry experts. The interviews included
companies from the water, oil and gas, and rail industry in the US and UK; however, their names need to remain
confidential. In addition, a review of asset management standards is included as an appendix to this document.

17. Key Words 18. Distribution Statement

Asset management, asset hierarchy, criticality

19. Security Classif (of this report) 20. Security Classif. (of this page) 21. No of Pages 22. Price
38

Unclassified Unclassified

Form DOT F 1700.7 (8-69)

Disclaimer

The contents of this report reflect the views of the authors, who are responsible for
the facts and the accuracy of the information presented herein. The contents do not
necessarily reflect the official views or policies of the UTRC or the Federal
Highway Administration. This report does not constitute a standard, specification
or regulation. This document is disseminated under the sponsorship of the
Department of Transportation, University Transportation Centers Program, in the
interest of information exchange. The U.S. Government assumes no liability for
the contents or use thereof.
January 2014
Commissioned by:

Michael Salvato, Executive Program Manager

MTA – New York City Transit
Enterprise Asset Management Office
New York, NY 10004

Authored by:

Mohsen A. Jafari, Ph.D. Ajith Kumar Parlikad, Ph.D.

Center for Advanced Infrastructure and Institute for Manufacturing, Engineering
Transportation (CAIT), Rutgers University Department,
Piscataway NJ 08854, USA University of Cambridge,
Tel: 848-445-0579 CB30FS, Cambridge, CB3 0FS, U.K.
[email protected] [email protected]

Lisbeth Robazetti-Concho, Ph.D. Bobby Jafari

MTA – New York City Transit Enterprise Asset Management Group,
Enterprise Asset Management Office Bedminster NJ 07921, USA
New York, NY 10004 Tel: (908) 502 1067
[email protected] [email protected]

Seyed A. Vaghefi Muhammad Dayhim

Center for Advanced Infrastructure and Center for Advanced Infrastructure and
Transportation (CAIT), Rutgers University Transportation (CAIT), Rutgers University
Piscataway NJ 08854, USA Piscataway NJ 08854, USA
[email protected] [email protected]

1
Contents

List of Acronyms and Abbreviations ............................................................................................ 1

Executive Summary...................................................................................................................... 2
Introduction ........................................................................................................................... 3
Project Organization ............................................................................................................. 4
Project Approach .................................................................................................................. 5
Approaches to Asset Management ....................................................................................... 6
US Environmental Protection Agency Asset Management Methodology ........................... 6
American Association of State Highway Asset Management Model ................................. 10
Virginia Department of Transportation Asset Management Methodology ...................... 11
EA Technology Asset Management Approach for the Electricity Industry ........................ 11
Asset Hierarchy and Asset Registration ............................................................................... 13
Asset Hierarchy................................................................................................................... 13
Asset Hierarchy Development Framework ........................................................................ 16
Asset Register Development Process ................................................................................. 18
Risk Assessment and Criticality Analysis .............................................................................. 21
Risk Assessment ................................................................................................................. 21
Criticality Analysis ............................................................................................................... 28
Conclusions ................................................................................................................................ 31
Glossary ...................................................................................................................................... 32
References ................................................................................................................................. 35
AASHTO American Association of State Highway and Transportation Officials
ACRP Airport Cooperative Research Program
AMIP Asset Management Improvement Program
EPA US Environmental Protection Agency
CAPEX Capital Expenses
CIP Capital and Investment Plan
CMMS Computerized Maintenance Management System
FMEA Failure Mode and Effect Analysis
FTA Federal Transit Administration
GIS Geographical Information System
GPS Global Positioning System
H&S Health and Safety
IEAM Integrated Engineering Asset Management
KPI’s Key Performance Indicators
LCC Lifecycle and Replacement costs
LCH Lost Customer Hours
LOS Levels of Service
MADM Multi-Attribute Decision Making
MMI Maintenance Managed Item
MTA Metropolitan Transportation Authority
NYCT New York City Transit
OPEX Operational Expenses
O&G Oil and Gas
O&M Operations and Maintenance
PI’s Performance Indicators
RSSB UK Railway Safety and Standards Board
SIMPLE Sustainable Infrastructure Management Program Learning Environment
WERF Water Environment Research Foundation

1
The MTA NYC Transit (NYCT) has begun an enterprise-wide Asset Management Improvement
Program (AMIP). In 2012, NYCT developed an executive-level concept of operations that
defined a new asset management framework following a systems engineering approach.
NYCT has recognized the need for a fully developed asset hierarchy to enable the evaluation
of performance and cost at different levels within the agency. To that end, NYCT has initiated
this project as one of the initial steps in better understanding the state of the art in asset
management.

This report presents methodologies used for asset registration, asset hierarchy, and criticality
and risk assessment, gathered from an extensive literature review and interviews with
industry experts. The interviews included companies from the water, oil and gas, and rail
industry in the US and UK; however, their names need to remain confidential. In addition, a
review of asset management standards is included as an appendix to this document.

2
The term “asset management” first appeared in the banking industry to describe an
investment practice that builds wealth through investments in different types of financial
assets. The principles of asset management are well established in car manufacturing, mining
and petrochemical industries. In 1999, the US Department of Transportation defined asset
management as a business process and decision-making framework that draws from
economics and engineering theory and practice to manage a broad range of assets during an
extended time horizon. The approach incorporates the economic assessment of tradeoffs
between alternative investment options at both the project level and the network or system
level, and uses this information to help agencies make cost-effective investment decisions [1].

Asset management is no longer considered a cost but a value-generating practice that spans
over all levels within an organization and links the organization’s mission and long-term
investment strategies with the short and medium-term tactical and operational objectives.
Organization-wide, systemic and systematic approaches to value-based asset management
along with high quality asset information are necessary to guarantee success of asset
management projects.

To build and sustain a value-based asset management one must institute business practices
and the supporting technology on the basis of flexible asset hierarchy and information
quality. Asset hierarchy flexibility is essential for value-based asset management since value
recognition is not a one-time shot but rather an evolutionary process requiring machine
learning and intelligent tools to grow and to optimize. Flexibility on asset hierarchy granularity
is also a fundamental characterization of a value-based asset management system. While it is
easy to breakdown assets according to their functions, ownerships and community
memberships, it is less obvious to structure them according to technology advances and
exogenous market factors. A robust and flexible asset hierarchy must be able to adapt to new
hardware and software technology. Moreover, in a dynamic business environment assets
generate value as members of community of assets under dynamically changing functional
hierarchies and operational conditions. The functional and operational importance of assets
partially changes due to their criticality factors. In a value-based asset management
environment asset criticality assessment is an ongoing process that provides a criticality
ranking list of systems, assets and components, identifying conceivable failure mechanisms
underlying the failure rates, likelihood of impact from the failure, and ultimately, identifying
the consequences of these failures. Asset criticality can shape and reshape the interaction

3
between assets, thus significantly impacting asset hierarchy. Therefore, asset hierarchy must
be adaptable to these interactions and changing dependencies.

Information quality is another major requirement for value-based asset management. It is

defined as the fitness for use of the information – but has various dimensions. Research has
shown that six dimensions of information quality are critical for effective asset management:
accessibility, consistency, validity, timeliness, accuracy, relevance and completeness [43].
High quality asset information is essential from three perspectives: (1) to develop better
quality asset management plans (as compared to plans with incomplete or inaccurate data),
(2) to minimize the likelihood of incorrect expenditure prioritization, and (3) to avoid
unnecessary costs through having to correct the data. For instance, having a complete and
accurate record of all the assets, their age, location, function, value, etc. in the asset register
is critical for long and medium-term planning of CAPEX and OPEX. Simple and obvious as it
may sound, not many organizations can claim to have a good quality asset registry. This brings
with it a resulting business risk – unplanned expenses, asset failures and disruption to public
(especially in the case of infrastructure systems), etc.

Project Organization
This report presents a review of asset management practices with particular focus on asset
hierarchy and asset criticality in asset intensive industries.
Section 2 begins with a summary of the ten-step asset management methodology proposed
by the US Environmental Protection Agency (EPA) as it can be used as a general model for any
organization’s asset management methodology. Two of the ten steps are particularly
discussed in this report: 1) Step 1 refers to the development of an asset register, and 2) Step 6
focuses in determining business risk exposure and criticality. These two steps are discussed in
detail in section 3 and 4, respectively.
Section 3 starts with a discussion on asset hierarchy and asset hierarchy models. Then it
presents the three-phase asset hierarchy development framework developed by the Water
Environment Research Foundation (WERF), followed by a four-step asset register
development process.
Section 4 discusses risk assessment and criticality analysis. The risk assessment subsection
includes steps to estimate risk, quantitative and qualitative methods to assess risk, graphical
tools and types for risks. The criticality analysis subsection presents the steps to conduct the
analysis which includes asset identification, criteria definition, and scoring.

4
Project Approach
The Project Team conducted a comprehensive literature review and organized interviews
with experts from several domestic and international organizations. Two major types of
sources of information have been used for literature review purposes. The first type consists
of existing standards, guidelines, and regulatory compliances regarding asset management
and enterprise risk management. The second type includes white papers, technical reports,
scientific articles, and academic theses and research. This report particularly focuses on
practical methodologies and frameworks used in industry. The interviews included domestic
and international organizations from the aviation, water, transit, and oil and gas sector.
However, name of companies and detailed information cannot be disclosed.
The study is a collaboration between the Center for Advanced Infrastructure and
Transportation (CAIT) at Rutgers University and the Institute for Manufacturing (IFM)
Distributed Information and Automation Laboratory at Cambridge University – UK. CAIT has
partnered with EAM Group to accomplish this effort.

5
This section reviews asset management methodologies used by environmental protection,
highways and transportation, and power distribution organizations.

US Environmental Protection Agency Asset Management Methodology

A literature review of various asset management methodologies revealed that most
industries have accepted the general methodology developed by the United States
Environmental Protection Agency (EPA). The methodology consists of five core questions and
a ten-step process that helps define asset management plans [2].

The Five Core Questions:

The following five core questions should be clearly answered when implementing an asset
management framework [2]:

1. What is the current state of my assets?

What do I own?
Where is it?
What condition is it in?
What is its remaining useful life?
What is its remaining economic value?
2. What is my required level of service (LOS)?
What is the demand for my services by my stakeholders?
What do regulators require?
What is my actual performance?
3. Which assets are critical to sustained performance?
How does it fail? How can it fail?
What is the likelihood of failure?
What does it cost to repair?
What are the consequences of failure?
4. What are my best O&M and CIP investment strategies?
What alternative management options exist?
Which are the most feasible for my organization?
5. What is my best long-term funding strategy?

According to Remenyte-Prescott and Andrews [3] from the Nottingham Transportation

Engineering Centre at the University of Nottingham in the UK, these five core questions can
6
be used as the foundation of many asset management best practices. Variants of these five
core questions are not uncommon. For example, the Port of Seattle uses the following [4]:

1. What do we own and how long do we want it to last?

2. Who is responsible for the maintenance?
3. What is the age, condition, and cost to replace?
4. How long will the assets last based on appropriated maintenance funding?
5. Where do we place strategic priorities?

Implementing a mechanism that enables companies to provide effective responses to these

questions is the main objective of enterprise asset management [2].

The Ten-Step Process

To address each of the five core questions, EPA developed the ten-step process illustrated in
Figure 1.

Figure 1 – EPA 10 Step asset management process [5]

Step 1: Develop Asset Registry

In general terms, an asset registry is a database of all assets within an asset group. An asset
registry typically follows a hierarchical logic that enables analysts to investigate the effect of
asset failure on other assets (asset interconnectivity). In addition, in order to fully understand
the total cost of service in asset management planning; a thorough asset registry is essential.

7
Step 2: Asset Performance and Failure Modes
This step involves evaluating the performance of the assets and identifying major failure
modes. Asset functionality, level of service, availability, maintainability, sustainability and
reliability are common factors to be considered during the evaluation of asset performance.

Step 3: Determine Residual Life

Residual life is the time left until failure and is particularly important for managing high cost
and high risk assets. Residual life is usually specified once the time and likelihood of the
impendent failure mode is known. Depending on the type of asset, it will either reach the end
of their useful life through amount of use or length of service. The other general factors
determining residual life of assets worth mentioning are poor installation, requirement to
operate the assets at a level not envisaged during the design phase, defective materials, poor
maintenance and operating environment.

Step 4: Determine Lifecycle and Replacement Costs (LCC)

The Asset and Infrastructure Management for Airports – Primer and Guidebook [6] defines
lifecycle and replacement costs (LCC) as all costs of owning and operating an asset from
planning through retirement or replacement. They calculate these costs as:
LCC = Capital cost + Lifetime operating costs + Lifetime maintenance costs + Disposal
Cost – Residual value

The above calculation is based on direct lifecycle cost and economic cost which are two major
cost perspectives. Please note that capital cost is a variation of economic costs such as
financial cost and triple bottom line.

Step 5: Set Target Levels of Service (LOS)

In general, this step involves establishing target levels of service for each asset, addressing the
demand of asset services as well as stakeholder and regulators requirements, and
determining the actual performance of the assets. The LOS includes the needs of any
technical, managerial or financial components of the system, as long as all regulatory
requirements are met. The LOS should be a fundamental part of how the system is operated.

Step 6: Determine Business Risk (Criticality)

Since assets are not equally important to the system’s operation, an organization should
identify the assets that are highly critical to its operation. This step specifies those assets that
are high cost in detrimental levels of service, and consequences to the level of service at the
time of their failure. Organizations should focus investment and attention to the assets within
the system that matter the most based on risk calculations. In the literature, many methods

8
are used for evaluating risk exposure associated with the physical failure of assets. In the
simplest terms risk is calculated as follows:
Risk exposure = Probability of failure × Consequence of the failure

Step 7: Optimize Operations and Maintenance (O&M) Investment

One of the purposes of identifying critical assets is to allow the agency to make more
informed decisions regarding the use of its operation and maintenance budget. It is beneficial
to the agency to spend the greatest portion of its operation and maintenance budget on
assets that are most critical to the overall operation. As a rule of thumb, planned
maintenance costs are about one third less than unplanned maintenance for the same task.
This step in general, identifies the best O&M investment strategies, the alternatives and the
most feasible options for the agency.

Step 8: Optimize Capital Investment Plan (CIP)

The purpose of this step is to utilize the data and information established through the last
seven steps to evaluate the best operation, maintenance and capital investment strategies
needed to deliver the required level of service at the best cost and level of risk exposure.
Capital investment is made up of two major types of projects: renewal and augmentation.
Ideally, capital investment planning should cover a 20 year period. It should be updated each
year so that it always shows 20 years of needs. Overall, a cost effective Capital Investment
Plan (CIP) is about right solutions at the right time; a combination of balancing and risk
consequences.

Step 9: Determine Funding Strategy

At this step, available funding strategies are evaluated for implementation of asset
management investment plans developed through all previous steps. Up to this step, all
components of the asset management strategy lead a system to discover what actions are
most appropriate to manage the system at the desired level of service and at the lowest cost.
The last two steps in the asset management methodology determine the best way to fund the
operation, maintenance, repair, rehabilitation, and replacement of assets.

Step 10: Build / Document Asset Management Plan

The objective of this step is to prepare an asset management plan that is amenable to all
stakeholders within the organization. The asset management plan should be thought of as a
strategic and tactical roadmap for the organization. It should be written in a plain language
and updated frequently as the system performs its operational duties to determine if the
methodology used for all components has changed during time.

9
These ten steps constitute a useful guide especially for the development of the first asset
management plan. As the asset management planning activity becomes embedded in the
agency planning processes, the update of the asset management plans focuses on re-running
the investment analysis using updated data rather than a full establishment of the state of the
assets data and information and constraints, and therefore, involves far fewer resources and
time to execute.

American Association of State Highway Asset Management Model

According to the American Association of State Highway and Transportation Officials’
(AASHTO) subcommittee on asset management:
“Transportation Asset Management is a strategic and systematic process of operating,
maintaining, upgrading and expanding physical assets effectively throughout their
lifecycle. It focuses on business and engineering practices for resource allocation and
utilization, with the objective of better decision-making based upon quality
information and well-defined objectives.”

In the transportation asset management guide, AASHTO defines a business model, a decision
support system, and an asset management approach, all linked to the five core questions
presented in the EPA methodology. Figure 2 presents AASHTO’s asset management model.

Goals and Policies

Asset Inventory

Condition Assessment
and Performance Modeling

Alternatives Evaluation Budget/

and Program Optimization
Allocations

Short- and Long-Range Plans

(project selection)

Performance Monitoring

Program Implementation

Figure 2 – AASHTO’s transportation asset management model [7]

10
Virginia Department of Transportation Asset Management Methodology
The Virginia Department of Transportation (VDOT) adopted the AASHTO’s transportation
asset management model and further developed a needs-based budgeting process that
systematically identifies maintenance needs based on asset inventory and condition data. The
process guides the allocation of available resources across maintenance activities and
districts, and helps develop the annual budget request. The needs-based budgeting process
includes the following five steps:
1. Inventory and condition data collection
Annual collection of pavement condition data on 100 percent of interstate and
primary and approximately 20 percent of secondary pavements.
Biennial collection of bridge condition data on all national bridge inventory
structures.
Statewide random sampling for selected traffic and drainage assets every two
years.
2. Set goals and apply business rules
Implementation of decision logic for what maintenance treatments should be
applied based on asset characteristics and condition to restore serviceability and
minimize life cycle costs.
Business rules also include deterioration / life cycle and cost models.
3. Conduct needs analysis
Estimate the current maintenance backlog (total needs) and the cost to maintain
assets at their current condition level.
4. Develop budget requests and resource allocation strategies
Address the identified needs and move towards greater balance in the backlog of
maintenance needs across districts over time.
5. Track and evaluate accomplishments
Provide accountability for expenditures.
Build better information over time on asset age, detailed inventory characteristics,
and resource use.

EA Technology Asset Management Approach for the Electricity Industry

EA Technology LLC developed an asset management model for the electrical power
distribution industry. The six steps in the approach are as follows:
1. Identify asset deficiencies or failures.
2. Find failure processes and identify deterioration that can lead to asset failure.

11
 3. Identify and evaluate component measures. When failure data is available, it is
possible to estimate the failure rate which is related to the condition of the item. If
failure data is limited, a risk measure can be established through expert engineering
judgment and laboratory testing.
4. Format an overall condition measure.
5. Model the degradation process of the condition. Different models have been used in
practice to model the deterioration, including regression and Markov models.
6. Evaluate different asset management policies. Effects of asset management actions
can be deterministic (i.e., always return the item to its best condition or improve an
item’s condition rating by a fixed amount), or stochastic (i.e. maintenance may not
always be carried out to the same standard). The most suitable, efficient, and cost-
effective asset management strategy will be chosen.

The focus of the following sections will be to address the first and sixth steps of the EPA
model which refer to the creation of a systematic approach for asset registry and inventory,
and the development of a framework for risk definition and classification.

12
Developing a well-organized and comprehensive asset hierarchy is a significant step in
building an effective asset management program since it helps define overall priorities.
Creating an asset hierarchy process is a major step of a higher-level process called Asset
Register Development Process. This section defines asset hierarchy and introduces two asset
hierarchy models, presents an asset hierarchy development framework, and defines an asset
register development process.

Asset Hierarchy
An asset hierarchy is a systematic framework and comprehensive listing of all assets in a
logical, clear, holistic and nested order that facilitates locating asset records and the rolling up
of data from lower levels to higher or vice versa [8]. It provides a suitable framework for the
business to structure data in an information system and facilitates the classification of assets
and its relevant information [9, 10]. It also allows companies to track all their assets, through
implementing a diagram that projects the relationships between physical locations,
functionality, operations, and asset types. These relationships facilitate the process of data
collection, monitoring, grouping, as well as identifying the critical assets [11]. An effective
asset hierarchy enables companies to build a well-organized data management structure that
can be used in prioritizing maintenance and renewal activities [12-14].

At the strategic management level, an asset hierarchy provides the means to identify and plan
for replacement or renewal of major systems, organize assets in classes and with similar use
and risk, and enable long term financial planning. At the operation and maintenance level, an
asset hierarchy provides a tool for process analysis, supporting better decision-making,
improving efficiencies and effectiveness of assets, and maintenance and operations staff [15].
Beyond putting assets in different categories, an asset hierarchy is about demonstrating the
relationships and the interaction between assets [16].

Asset Hierarchy Models

Different types of asset hierarchies are used in industry; however, the most common type is
typically designed in the shape of a family tree structure, built on the parent-child
relationships. Such structure enables the user to flow down to additional levels, until the
desired level of specificity is reached. Asset hierarchies’ structures such as family trees
facilitate data collection and are specially useful in building asset registries and inventories. A
typical parent-child asset hierarchy level includes “Facilities”, “Parent asset”, “Asset” and

13
“Child Asset”. Figure 3 shows a typical asset system hierarchy diagram based on the family
tree structure.

Figure 3 – Generic asset system hierarchy

What follows is a review of two asset hierarchy models. The first one was proposed by the
Water Environment Research Foundation (WERF), the second is part of the ISO 14224
standard.

Water Environment Research Foundation Asset Hierarchy Model

The WERF report presents a generic three-level asset hierarchy.
Level 1 includes major systems (i.e. water treatment, raw water transmission
systems).
Level 2 comprises asset systems and processes (i.e. facility and operating units).
Level 3 includes maintainable assets.

The report also suggests creating further levels, if more details are required to show the
relationships between components. An alternative method for such three-level asset
hierarchy is the nine-level hierarchy introduced in ISO 14224.

ISO 14224 Asset Hierarchy Model

The ISO 14224 standard for petroleum, petrochemical and natural gas industries provides a
set of guidelines for identifying different asset levels [8]. It suggests a general framework for
development of asset hierarchies and classification of relevant data that needs to be
collected. The framework is illustrated in Figure 4.

14
 Figure 4 – ISO 14224 framework for asset hierarchy

This hierarchy performs efficiently when the company provides a clear definition of each level
or decreases number of levels to match the company’s available assets and equipment.
Different organizations customize the ISO 14224 framework based on their own
characteristics or functionalities. The hierarchy can be built based on spatial/geographical
relationship between assets, business unit operations, and responsibilities, facility types or a
combination of these characteristics. ISO 14224 provides a best practice for oil and
petrochemical companies, any deviation from this framework is possible but needs to be
specified.

In Figure 4, Levels 1 through 5 present a high-level categorization related to industry and

plant applications regardless of equipment units. Equipment units are located in Level 6. ISO
14224 explains that this is because particular equipment may be used in multiple industries
and for reliability purposes it is necessary to have further operating and technical details of
equipment. In addition, Level 6 through 9 are related to inventory (equipment unit) with the
subdivision in lower indenture levels corresponding to a parent-child relationship.

ISO 14224 directly focuses on Level 6 for the collection, recording and monitoring of reliability
and maintenance data. It also provides a supplementary reliability and maintenance
parameters in relation to each lower level of the taxonomy. Although the table was created
for the petrochemical and oil industries, it can be a good example for other industries
including the MTA.

15
Asset Hierarchy Development Framework
The Water Environment Research Foundation designed a three-step framework for planning a
well-constructed asset hierarchy and register [5]. The process is part of an intuitive and user-
friendly set of online guidelines, templates, and decision support tools called SIMPLE
(Sustainable Infrastructure Management Program Learning Environment). SIMPLE facilitates
the development of consistent total asset management and provides effective
implementation guidelines for organizations to continuously measure their improvements in
asset management. Figure 5 presents the three-step framework to implement the asset
hierarchy. Further details can be found in [8].

Figure 5 – SIMPLE’s approach to Asset Hierarchy [8]

In addition, WERF suggests the following recommendations for establishing the asset
hierarchy:

16
 1. Start with a simple hierarchy model or an existing hierarchy from a
vulnerability assessment, asset ledger, or GIS breakdown.
2. Compare to maps or as-built drawings of your assets.
3. Remove any assets that are not applicable.
4. If more than one level 1 asset exists, use separate steps for each asset.
5. Add any unique or system-specific assets. Modify the asset descriptions, if
appropriate, to match specific conditions.
6. Develop a final asset inventory but design it in such a way that additions and
subtractions can be made.

Figure 6 – Recommendations for development of an asset hierarchy and asset register [17]

The WERF report also provides a list of information that must be collected at each level of the
asset hierarchy. The information includes specifications such as asset name, definition,
components, performance indicator, and relationship diagram [18]. In addition, the report
suggests two formats for asset hierarchy, both illustrated in Figure 7. For each format, the
report provides a list of potential assets / components that should be added to the hierarchy.

Level 1 asset
- Level 2 asset
 Level 3 asset
 Level 3 asset
- Level 2 asset
 Level 3 asset
 Level 3 asset

Figure 7 – Two formats for developing asset hierarchy [18]

Attributes for each asset should be collected in a way that supports management and
operation functions. There are several categories of attributes data that could be collected
regarding each asset. Identification, physical description, location, risk analysis, asset groups,
performance etc. are different categories of attributes.

17
Asset Register Development Process
Asset registers are defined as “listings of information relating to various aspects of an asset
portfolio, in a way that allows data to be cross-referenced and retrieved as required” [19].
The asset register development process consists of four specific steps as shown in Figure 8.

Figure 8 – Four-step asset register development process [19]

Conduct Needs Analysis

In the first step, the asset management team must provide a list of requirements for the asset
register process. This list includes all required, planning information needs, management
reporting needs, as well as system needs. Then, based on multiple criteria, the data needs are
prioritized. Some criteria examples are: accessibility of data, flexibility, ease of updating, cost,
security of data, connectivity, reliability of the system, relevance of the data and so on. The
New South Wales Treasury’s guideline [19] emphasizes that “the best practice approach
might be to rank potential improvements by assessing them against these criteria on a scale
of one to five.” In addition, several “Multi-Attribute Decision Making (MADM)” techniques
can be alternatively used1.

Plan the System

In order to develop a well-established asset management system, organizations should create
a plan for their asset register system. In this plan, they must define the software and

1
- Multi-Attribute Decision Making (MADM) techniques— a subset of MCDA approach—can be implemented to
address the problems of ranking and selection. In particular, when ranking and prioritizing should be conducted
with multiple decision makers such as process owners, managers and asset management analysts. For further
information see [18, 19, 20, 21]

18
hardware structure and methods they plan to use. They also need to identify how to establish
an asset management database system and reporting for different operational levels and
management levels [19]. In this step it is also necessary to identify which technologies are the
most appropriate regarding the organization’s functionalities, constraints, and objectives. To
do so, it is necessary to evaluate different data collection systems including: Geographical
Information System (GIS), Global Positioning System (GPS), data loggers, compact disk
technologies, etc. Then the operational requirements of data collection are defined and the
data sources are determined. As-constructed drawings, work orders, and reports including
maintenance reports, condition audit and monitoring reports, call reports etc. are the main
sources of data [5].

Plan the Asset Register

In this step organizations must determine a model hierarchy that can be matched with their
management and operation structure [20]. The International Infrastructure Management
Manual classifies assets by either their functionalities, types or both. The New South Wales
Treasury introduces three types of models for classifying assets [19]. Figure 9 provides
conceptual presentations regarding each model [21]. The Unified Composite Model is often
proposed for small and focused organizations (e.g. libraries, hospitals) or for organizations
with identical geographical divisions but centralized management structure (local authorities,
education, polices). The Segment Autonomous model is appropriate for large organizations
with separate business centers such as the state transit authorities. The Umbrella Integrated
model can be employed for organizations with multiple responsibilities and common funding
sources. Further details about characteristics of each model can be found in reference [22].

Unified Segmented
Umbrella
Composite Autonomous
Integrated

Management

Operations

Figure 9 – Three different types of asset register models [19]

Implement the Register

The last step is to prepare for implementing the asset register. In this phase, an action plan
should be provided in a measured, step by step approach with the most priority on collecting
data with the greatest outcomes [19]. In the action plan, the significant milestones should be
19
identified. Moreover, a data management procedure should be established and data
collection schedules should be identified. Best practice principles for gathering efficient data,
identifying assets, their attributes, and performance indicators, are presented in the WERF
report previously discussed [19]. The final section of this step is to provide an Asset Register
Business Case incorporating all the data, information and planning recommendation that
have been identified in the development process. It includes a cost/benefit analysis that
allows organizations to conduct a quantitative comparison between alternatives. Once a plan
is selected and budgets are approved, all the steps planned should be implemented. Some
data may be transferred from existing databases and some should be created manually. A
business case template can be found in [19].

20
Risk is a function of the probability of an incident and its likely consequences. Risks
assessments are conducted to identify assets that are most likely to cause great impact to the
business should an incident occur. Common types of risk include: health, safety, financial,
performance, public image, and environmental risks. These types of risks are highly correlated
to the criteria that affect criticality. Asset criticality is a structured methodology that identifies
the assets whose failures have the highest potential impact on business goals [23]. It can be
used to determine maintenance strategies, investment strategies, and growth plans, to help
organizations prioritize expenditures on assets that are critical according to predefined
business criteria. This section presents steps, criteria and methodologies for assessing risk and
criticality.

Risk Assessment
Several approaches have been implemented by different organizations to calculate risk. Such
approaches often include the same two key elements: likelihood of failure and consequence
of failure, which can be estimated using either qualitative or quantitative methods.

Steps to Estimate Risk

The steps to estimate risk are as follows [24]:
1. Consider each asset in its operating context – what it does and where is it?
2. Develop an equipment failure description – i.e. how can it fail?
3. Estimate the consequences of each failure – i.e. what happens when it fails?
4. Determine likelihood of each failure – i.e. how often is it likely to happen?
5. Calculate the risk from the likelihood and consequences.
6. Sort the risk scores in decreasing order of importance.
7. Map the maximum risk score for the unit onto a selected scale (optional).
Note that when several types of risks are assessed, assets can have more than one risk
ranking.

Risk Elements
Risk is most commonly calculated as a function of two elements: frequency or likelihood of
failure (fr) and business consequences (Bc).
Risk = Fr × Bc

21
Alternatively, organizations may include additional elements into the equation (e.g.
vulnerability, threat, impact, etc.) to provide a more accurate measure of risk depending on
the organization’s functionalities, types of failures or losses, business goals and policies. For
instance, a generalized form of risk calculation is as follows:
Risk = Fr x Vu x Im x Bc
Where:
Fr represents frequency of asset loss or service interruption due to failure, fault,
planned or unplanned stoppages, rare events such as natural disasters, human
induced events, etc.
Vu denotes vulnerability, which indicates the degree of susceptibility a system has to
any form of harm, as well as its overall level of protection. Vulnerability can also be
defined as a combination of the attractiveness of a system or asset as a target and the
level of deterrence and / or defense provided by the existing countermeasures [25].
Im indicates impact caused by asset loss or service interruption. It is a function of
capacity, reliability or efficiency loss. For instance, capacity loss accounts for impact
amount and duration. It allows comparing different impacts. For example: 50%
capacity loss with duration measured in minutes, or 10% capacity loss with duration
measured in days.
Bc represents business consequences. This is measured in short-term and long-term
scales. The impact and business consequences are not necessarily proportional.
Depending on the type of impact, the short-term and long-term business
consequences could range from negligible to very severe.

Quantitative Methods
In the quantitative methods used to assess risk, the risk elements are calculated by directly
using quantitative measures usually gathered from historical data [26, 27]. For example,
frequency can be calculated by using historical records of failures categorized by type and
severity. Net present values of loss, total profit loss, total replacement and repair costs,
number of defective products, etc. are examples of quantitative business consequences. The
advantage of using quantitative measures is that these are tangible and make sense to
managers. The quantitative measures are usually universal regardless of types of assets and
functionality, and are often connected to business performance indicators. The main
disadvantage of using quantitative methods is that the data required to calculate risk does
not necessarily exist. Even if it exists, it may not be properly gathered and recorded. In
addition, in some cases, the consequence of an event cannot be easily quantified using
historical data.

22
Qualitative Methods
When using a quantitative approach to calculate risk is unsuitable, it is necessary to apply a
qualitative method. In these methods, engineers, technical staffs, managers and other key
stakeholders, define the elements needed to estimate risk (i.e. failure frequency,
vulnerability, impact, business consequences), and develop tables to quantify these elements
based on their expertise, the organization’s background, asset criticality criteria, etc. The
values assigned to these elements are then used to obtain the risk value.

An example of a qualitative method is Failure Mode and Effect Analysis (FMEA). It is a

systematic approach to quantify frequency of failure, consequences and impact, also used to
prioritize critical assets by ranking the risk associated to each potential failure [34, 29]. Tables
1 – 3 show examples of ranking of frequency, consequences, and probability of detection, the
associated scores, and technical descriptions [33].

Table 1 – Frequency of occurrence [28]

Score Description
An unlikely probability of occurrence during the operating time
interval. Unlikely probability is defined as a single failure mode
1-2
probability < 0.001 of the overall probability of failure during the
operating time interval.
A remote probability of occurrence during the operating time
interval (i.e. once every two months). Remote probability is
3-5 defined as a single failure mode probability > 0.001 but < 0.01 of
the overall probability of failure during the item operating time
interval.
An occasional probability of occurrence during the operating time
interval (i.e. once a month). Occasional probability is defined as a
6-7
single failure mode probability > 0.01 but < 0.10 of the overall
probability of failure during the operating time interval.
A moderate probability of occurrence during the operating time
interval (i.e. once every two weeks). Moderate probability is
8-9 defined as a single failure mode probability > 0.10 but < 0.20 of
the overall probability of failure during the operating time
interval.
A high probability of occurrence during the operating time
interval (i.e. once a week). High probability is defined as a single
10
failure mode probability > 0.20 of the overall probability of failure
during the operating interval.

23
 Table 2 – Consequences [33]
Score Description
Failure is of such minor nature that asset will probably function
1-2
with a minor problem.
Failure will result in slight deterioration of part or asset
3-5
performance.
6-7 Failure will result in deterioration of part or asset performance.
Failure will result in high degree of customer dissatisfaction and
8-9
cause non-functionality of asset.
Failure will cause non-system operation or non-compliance with
10
government regulations.

Table 3 – Detection [33]

Score Description
Very high probability: verification and/or controls will almost
1-2
certainly detect the existence of a deficiency or failure.
High probability: verification and/or controls have a good chance
3-5
of detecting the existence of a deficiency or failure.
Moderate probability: verification and/or controls are likely to
6-7
detect the existence of a deficiency or failure.
Low probability: verification and/or controls not likely to detect
8-9
the existence of a deficiency or defect.
Very low (or zero) probability: verification and/or controls will not
10
or cannot detect the existence of a deficiency or defect.

Types of Risks
Risks are broadly classified in four types:
Health and Safety (H&S) Risks
Major asset failures could result in injuries needing first aid treatment, hospital treatment,
restricted ability to work, loss of limb, and in the worst case scenario, fatalities. To assess H&S
risks, companies investigate the possible H&S consequences of asset failure and classify them
into different categories and increasing order of seriousness. For example, in the O&G
industry, health and safety risks are classified into four categories, ranging from minor injuries
at the lower end of the scale to fatalities at the higher end of the scale. In the UK, the Railway
Safety and Standards Board (RSSB) collects safety records for the rail network and provides
guidance on safety risks [29]. Inspection and maintenance standards put in place by the
companies ensure that safety risks are minimized, if not eliminated.

24
Performance and Financial Risks
Asset failure and underperformance could lead to financial consequences. Fundamental to
the rail sector is the ability of the infrastructure to provide the capability to run trains
considering key performance factors such as specified line speeds and schedules. In the UK,
contractual arrangements put in place impose penalties on infrastructure management
companies for delays resulting from asset failures. In addition to the financial risks due to loss
of function or performance, there is a direct cost related to maintenance and repairs. These
involve costs of personnel, equipment, replacement assets or components, logistics, etc.
However, in practice, the direct cost of maintenance often pales in comparison with the costs
incurred due to loss of production – in the case of O&G industry – or penalties – in the case of
rail in the UK. It is to be noted that in the UK rail sector, performance risks and maintenance
costs are also part of the criticality criteria.

Public Impact Risks

These risks involve impact of asset failures to members of the general public, and second-
order effects resulting from media coverage and damage to company reputation. In the O&G
sector, this ranges from minor consequences such as public complaints with no ensuing
media coverage, to large-scale evacuations and major road closures with ensuing extended
national and international media coverage. In the transit sector, impact of asset failure to the
public is measured by estimating Lost Customer Hours (LCH). LCH represents the average time
a customer loses due to delays and disruptions. It is calculated for each segment of the track
between two stations, for every type of disruption (e.g. temporary speed restrictions, line
suspensions, line closures), and depending on whether the disruption is planned or
unplanned. Planned disruptions, for instance, can be carefully managed by providing advance
warning to customers and by deploying replacement bus services. Other criteria include
cleanliness, ambience, etc.

Environmental Risks
This type of risk involves environmental damage caused by asset failures. This is of major
concern in the O&G sector, with risks ranging from environmental damage limited to the site,
to widespread damage requiring extended cleanup, government fines, resulting media
coverage, and damage to reputation [30]. The environmental risks in the rail sector are
considered to be minimal, and do not play a huge part in criticality assessment. However, as
regulations tighten up due to global concerns of climate change, these are expected to play a
more important role in the transportation sector.

25
Graphical Tools
Risk Matrix
A risk matrix is a two-dimensional table used to define various levels of risk of an asset. One
dimension represents frequency or likelihood of failure, and the other dimension represents
consequences. The matrix can be used as a visual tool for both qualitative and quantitative
risk assessment. When quantitative measures are used, the axis can have continuous values.
Figure 10 shows an example of a criticality matrix used by an O&G company. Tables 4 and 5
provide details regarding the rows and columns of the matrix.

Figure 10 – Example of risk matrix used in an O&G company

The lower Arabic numbers show the higher risk values. In this example A1, B1, C1, A2 and B2
represent the highest risk.
Table 4 – Probability of Failure

26
 Table 5 – Level of consequences

Based on the information received by the team during interviews with an organization from
the O&G sector, the most critical assets typically account for less than 1% of the total
available assets. Based on a review of industry practices, no evidence was found on an
approach that gives different weightings to each individual risk. On the contrary, each risk is
treated equally, and the consequences are classified in a normalized scale, which allows
different risks to be compared to each other as shown in Table 5. If an asset ranks as “very
critical” in one risk type, and less critical in another risk category, the final risk score is “very
critical”.

Risk Graph
Another visual tool for quantitative and qualitative risk assessment is risk graphs. Figure 11
shows an example from the water industry used for qualitative purposes. Different zones are
highlighted with different colors showing different levels of risk. The small red dots represent
different assets, thus allowing the organization to compare multiple assets/infrastructures
using a single table. It shows that any asset with a risk value greater than 50 (any
multiplication of frequency and consequence that results in a risk value > 50) is located in
Zone 1 (orange zone) which represents most intolerable risk. Zones can be defined by
organizations based on their policies and strategies. More advanced plots and maps have also
been used particularly when the geographical positions of the assets are important (e.g. train
stations and oil/water pipe networks).

27
 Figure 11 – A general risk graph [5]

Both, risk matrices and risk graphs help agencies understand risk and impact and allow them
to prioritize security operations so that the most important infrastructure assets are
protected and disastrous situations are prevented – or their consequences mitigated.

In order to inform decision-making and to facilitate the preparation of a business case, all the
companies reviewed use a conversion factor for converting non-financial risks into monetary
figures (e.g., average hourly salary is used to convert Lost Customer Hours to GBP). In the rail
sector, the practice is similar. However, there is often a single risk that dominates due to the
fact that sufficient risk control measures are put in place to mitigate other risks. For example,
safety risks, on the other hand are considered negligible as inspection and maintenance
standards specified either by regulatory bodies or by the companies take a risk adverse
perspective to safety, and safety related incidents are avoided at all costs.

Criticality Analysis
The important steps required to determine criticality include: asset identification, criteria
definition, and scoring.

Asset Identification
This step consists on developing a method to identify existing assets. To do this, the best
alternative is to establish an asset hierarchy, assign assets into specific asset categories, and

28
collect all the required information regarding each asset. This will enable ranking of assets
within specific categories.

In the rail industry, an initial prioritization is performed to identify those assets that have
historically attracted high expenditure. These high priority assets are decomposed down to
the component level, and each component is assigned a criticality score.

Alternatively, another approach predominantly done for strategic planning consists on

assessing route criticality by segmenting the rail network into manageable sections. For
instance, in the United Kingdom the network is segmented into ten operational routes. These
routes are further subdivided into strategic route sections that have broadly homogenous
traffic levels and infrastructure type. A similar practice involves segmenting the routes into
four quadrants based on: (1) the cost impact an incident would have in terms of safety,
performance and maintenance, and (2) frequency of incidents [31].

Criteria Definition
The criteria that affect asset criticality vary from one organization to another. These will
significantly depend on the types of assets as well as the organization’s policies. Criteria
normally used across different types of industries include [34-36]:
Reliability – asset damage, malfunction, depreciation, degradation, life cycle, etc.
Cost Factor – loss of income, repair costs, and other costs related to the assets.
Efficiency – loss of service, loss of production, etc.
Brand – loss of image
Compliance – regulations and law enforcements, failure to meet statutory
requirements.
Safety – loss of life or injury
Security – asset location
Environmental Impact / Sustainability – effect of environment on asset deterioration.

Additional criteria can include [35, 36]:

Damage to property
Third party losses
Loss of company image
Functionality, maintainability, or reparability.
Asset condition

29
Route Criticality can be assessed based on the costs per incident compared to the national
average.

Scoring
A common practice is setting an arbitrary scale (i.e. 1 to 10) for scoring the assets against
each decision criterion. Lower scores indicate lower criticality. The scoring guide and
definition of asset state for each score should be developed by experts and technical staff.
The total criticality score can be calculated either by using the average of all scores, or the
weighted average provided that the relative importance of each criterion has been
predetermined. Scores and final results should be collected in tables for later reference.

The organizations examined from the Oil and Gas (O&G) sector use a three-point scale
criticality scoring. The scores indicate asset failure is Very Critical, Critical, or Not Critical in
relation to the defined criterion. Similarly, in the rail industry, the scores used are High,
Medium or Low.

30
This project focused on collecting best industry practices from different types of industries in
the US and UK. The ten-step asset management process proposed by the US Environmental
Protection Agency (EPA) provides a platform for developing initial asset management plans,
and systematically improving asset management practices. As the asset management
planning activities become embedded in the agency’s planning processes, the amount of
effort put into updating asset management plans should decrease since it would mostly entail
updating the plans based on most recent data.

This report focused only on the first and sixth step of the ten-step process. The first step
indicates the development of an asset registry that follows a hierarchical structure is essential
to link asset performance to planning functions. The Water Environment Research Foundation
(WERF) provides an asset hierarchy development model that can be generalized to transit
organizations. The WERF model lays out the steps to define the asset hierarchy, identify data
attributes, define data collection procedures, load asset information, and implement the
asset register.

For the development of the asset hierarchy, the project team identified the ISO 14224 model
developed for the oil and gas industry as the recommended hierarchy model for NYCT. The
ISO 14224 standard has been used in many private and public organizations across different
types of industries around the world. It presents a well-organized taxonomy to classify assets
considering user, location and asset structure. It proposes a reliability and maintenance based
asset hierarchy that aligns performance of asset parts at the bottom of the hierarchy with
performance outputs at the top of the organization.

The sixth step in the ten-step EPA process focuses on determining business risks and
criticality. There is a wide variety of criteria used to assess risk and criticality, however, the
most common criteria includes: reliability, costs, efficiency, brand, compliance, safety,
security, and environmental impact. There are two types of methods to assess risk. The
quantitative methods are mostly based on estimation of risk using historical data as well as
statistical tools. The qualitative methods rely on expert knowledge.

31
AASHTO Transportation Asset Management Guide – analyzed the DOT business processes and
strategic approach to managing transportation infrastructure assets.
Asset – Hardware, software, procedure etc. used to provide a valued function.
Asset Management as defined by PAS 55 – systematic and coordinated activities and practices
through which an organization optimally and sustainably manages its assets and asset
systems, their associated performance, risks, and expenditures over their lifecycles for the
purposes of achieving its organizational strategic plan.
Asset Management Plan – document that identifies the short- and long-term service delivery
requirements of the portfolio of assets belonging to an organization. It provides a framework
for managing an asset, or group of assets, from within the asset portfolio.
Asset Management Policy – sets the framework for the management of airport infrastructure
and assets. Most policies include
Organizational context and importance of asset management,
Overall vision and goals of the organization and supporting asset management vision
and goals,
Executive and key position roles and responsibilities, and
Audit and review procedures.
Asset Management Framework – system of processes, procedures, practices, support
systems, organizational roles and responsibilities, and policies used to enable sound
management decisions for the optimal management of physical assets.
Asset Management Strategy – strategy for asset management covering the development and
implementation of plans and programs for asset creation, operation, maintenance,
rehabilitation/ replacement, disposal, and performance monitoring to ensure that the desired
levels of service and other operational objectives are achieved at optimum cost.
Asset Performance – measurement of the achievement of predetermined outputs arising
from the existence and operation of assets using a range of performance targets that
measure the individual and collective contribution an asset makes toward service delivery
and/or business outputs.
Asset Registry – a record of asset information considered worthy of separate identification
including inventory, historical, financial, condition, construction, technical, and financial
information about each.
Attributes – a data item related to an asset.
32
Business Risk Exposure – a metric to expresses risk. Business Risk Exposure is determined as
the product of the probability of failure and the consequence of failure.
Critical Assets – assets for which the financial, business, or service-level consequences of
failure are sufficiently severe to justify proactive inspection and rehabilitation. Critical assets
have a lower threshold for action than non-critical assets.
Condition Assessment – technical assessment of an asset based on a physical inspection, for
the purpose of determining its condition and remaining useful life relative to a defined
standard.
Decision Support Tools – used by asset managers to determine the best alternative among a
set of feasible alternatives. The alternatives may be potential solutions to a range of
questions related to strategic planning, airport development, outsourcing, and asset renewal
or replacement.
Effectiveness – Relates to how well outcomes meet objectives. It concerns the immediate
characteristics of an entity’s outputs, and the degree to which an asset contributes to
achieving specified outcomes. Entities should ensure that an asset is suitable to the nature of
their business and supports the delivery of budget funded entity outcomes.
Efficiency – Relates to the productivity of Commonwealth resources used to conduct an
activity in order to achieve the maximum value for those resources.
Functionality – Functionality is ‘fitness for purpose’. It describes how well a current asset
matches the activities that it supports.
Infrastructure Management – the discipline of managing infrastructure assets that underpin
an economy, such as roads, water supply, wastewater, storm water, power supply, flood
management, recreational and other assets.
Inventories – Inventories are assets:
• Held for sale in the ordinary course of business;
• In the process of production for such sale; or
• In the form of materials or supplies to be consumed in the production process or in the
rendering of services.
Lifecycle Costing – sum of all recurring and onetime costs over the full lifespan or a specified
period of an asset under consideration.
Priority – Dynamic assessment of activity importance. Priority varies for each task to be
carried out on equipment regardless of the criticality of that equipment.
Risk Management – Risk is part of the environment in which entities operate. Risk
management involves the systematic identification, analysis, treatment and allocation of

33
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the risks.
Useful Life – Useful life is the period over which an asset is expected to be available for use by
an entity, or the number of production or similar units expected to be obtained from the
asset by an entity. The useful life of an asset may be different to the period of its physical life.

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