Digital Asset Management: dynamic use of relative reinvestment budgets
Over the past 25 years, Nordic water experts have taken a proactive approach to digital asset management and data-driven decision-making that U.S. utilities can learn from to optimize CAPEX spend, reduce OPEX and ensure an efficient and resilient service.
By Ulrich Borup Hansen & Andreas Julskjaer Pedersen
In a digital world, nothing is static anymore. This new reality indeed also applies to the methods and approaches historically used to plan and maintain our critical infrastructures.
In the coming years, water and wastewater utilities will be forced to not only replace network infrastructure on an unprecedented scale, but also modernize operations with data analytics to take advantage of smarter technologies. , predictive and profitable. According to Bluefield Research, the U.S. and Canadian digital water market is expected to grow at an annual growth rate of 6.5%, from $5.4 billion (USD) in 2019 to $10.8 billion in 2030 , surpassing the more traditional sub-segments of the municipal water and wastewater industry. .
In the Nordic countries, we are already seeing a significant shift in the introduction of data analytics and new decision paradigms used today in water and sanitation utilities. Move from classic static and traditional project assessment to a more proactive way of thinking, where digital asset management is a major driver for smart budget allocation and increased focus on optimization. This approach is being called by some “Water Industry 4.0” – in which utilities face increasing pressure from customers, partners and stakeholders to bring about real change. As an example of smart use of data, the World Bank is leveraging data more frequently to maximize various investments related to water projects. By reusing and combining data from public and private sources, and applying modern analytical techniques, merged datasets can cover more people, more accurately, and more frequently. »
The pressing need for investment in aging water infrastructure in the United States
According to the American Society of Civil Engineers, the average water pipe in the United States is 45 years old, with some cast iron pipes over a century old. Water main replacement programs are expected to peak in 2035 at 16,000 to 20,000 miles of mains replaced per year, four times the current annual replacement rate of 4,000 to 5,000 miles, according to the EPA.
The EPA also estimates that an investment of up to $839 million per year could be required to replace and monitor the 9.7 to 12.8 million lead service lines currently in use in the United States. The pressing need for investment in America’s aging water infrastructure is a well-known topic among water professionals. Recently, the U.S. Environmental Protection Agency (EPA) released a memorandum on March 8, 2022 to guide the collaborative implementation with state, local, and tribal partners of $43 billion in infrastructure funding. water resources through the bipartisan infrastructure law. Biggest investment ever by the federal government in water, but how can this investment contribute to greater digitalization in the water space?
In a 2021 McKinsey & Company article titled “Water Infrastructure in the United States: Making Financing Count,” the investment needs and financial gaps in the U.S. utility market are once further highlighted, emphasizing more efficient use of capital by having a strategic focus on asset management. The McKinsey article notes, “Effective capital planning begins with effective asset management – understanding critical assets, assessing their condition, and identifying upcoming regulatory commitments and requirements. The utility can then prioritize the allocation of operating and maintenance capital to the riskiest and most necessary assets to reduce long-term costs.
Digital Asset Management for Horizontal Assets / Dynamic Use of Relative Reinvestment Budgets
Digital asset management is a process that leverages data to manage the long-term planning for purchasing, deploying, and decommissioning infrastructure assets.
Predictive analytics is a tool used in digital asset management – and this tool relies on data that is analyzed through machine learning, modeling, and functional analysis to understand and predict various scenarios. These planning frameworks clarify the challenges and opportunities that can arise when utility decision makers evaluate life cycle costs and value engineering.
The key here is the availability of valid data, something we see present in the majority of utilities. With the use of the data already available, utilities today can work much more dynamically and make greater use of their reinvestment budgets.
A great example is the innovative Norwegian utility – Nordrefollo – which started the process of adapting digital asset management by simplifying the complex in a three-step process that provided the utility with a clear overview of its assets. In short, the utility implemented a new data structure, which:
- data capturing;
- Analyzes data; and
- Improves this data insights.
Making data available on a digital asset management platform Nordrefollo achieved the ability to make data-driven reinvestment decisions in just a few months, as the chosen platform was able to reduce a data validation process from 12 months to 2 months.
In the Nordic countries, data-driven decisions have dramatically increased the efficiency of public services. In Denmark, for example, strict regulation has made it one of the most efficient and resilient in the world over the past 25 years by forcing the water sector to adopt advanced technologies. Recently, the Danish industry has moved from simple operating cost benchmarking to the clever development of a Total Financial Benchmarking (TOTEX) model. This approach includes both OPEX and CAPEX to compare utilities on financial efficiency.
As an example, Danish utility “Herning Vand” took a proactive approach to digital asset management and partnered with APX10 in 2018 to gain a more dynamic overview of utility services. Thanks to the results of the data|APX, Herning Vand is today able to predict, forecast and validate all assets and has been allocated significantly more funds by the board of directors to maintain the infrastructure of critical water of the municipality.
“We were able to convince our board of directors of a 30% budget increase based on our asset management approach and data|APX results,” said Benny Nielsen, Head of Department, Herning Vand .
Digital asset management and predictive analytics in water represent two sub-sectors of the crucial transformation towards smarter investments (dollar for dollar); however, many in the industry are still unaware of the true value established in their network. Using digital software tools and already existing data, it is now possible to combine continuous asset condition assessment and prioritize investment decisions based on more and relevant data sources. . A very important data point in this regard is the capitalized investment relating to alternative pipeline projects.
Digital asset management platforms enable utilities to balance the materiality of investment levels against core service challenges such as pipeline conditions and consumer consequences, as well as more sophisticated environmental or climate-related issues. These balanced views—analyzed in a dynamic digital context—dramatically improve rehabilitation and reinvestment decision-making, as the real return on investment for every dollar spent must compensate for a limited budget that does not meet future rate-of-recovery demands. renewal. These decisions will improve by being able to prioritize based on data and facts.
Considering a historical annual renewal rate of water and wastewater of 1-2%, as we have seen in the Nordic countries, we can conclude that the 2% was opt-in on the basis of a classic, age-based, event-driven decision-making. The dynamic approach, now widely used in Nordic utilities, allows for relative analysis, including capitalization, and looks closely at the 98% that has also been excluded.
In a game where prioritization becomes more difficult, arguing and documenting what you refuse is more relevant than ever; But allowing decision-making to work dynamically will give you an edge.
Much of the industry comes from a world of making 5 or 10 year investment plans. All the variables influencing these plans are now dynamic, so the plan itself must also be dynamic, and that’s where access to a platform with a strategic overview of investments will help them.
In the Nordic countries, it is recognized that a simple and intuitive approach to asset management among water professionals is needed to update and scale operations. There are too many fragmented spreadsheets, personal know-how, and data silos that would instead benefit from a holistic platform that enables better-informed management decisions. A platform like data|APX actively involved Nordic water utility leaders in the development of the solution to assimilate their best practices. American utility leaders are then able to use the know-how of the utilities of the various Nordic countries, regardless of their geography.
By leveraging existing data like GIS, CCTV data, SCADA data or other available data streams, a utility can generate savings with the right tools like those prevalent in the Nordic countries. These tools are built on a deep understanding of utility data and can play a fundamental role in data-driven transformation and ROI of utilities and water, wastewater and wastewater systems. stormwater in the United States.
Ulrich B. Hansen is the CEO of data analytics company APX10. He was responsible for building and accelerating the company from a lean startup to a sustainable and international enterprise. He is based in Silkeborg, Denmark.
Andreas Pedersen is responsible for projects and communication at APX10. He has worked at the Danish Export Association (DEA) for the past five years and recently led the DEA’s Danish Water Technology Business Network at Danish Export–Water.