We also have one particular question that relates to one piece of inventory is how do you determine the realistic lifespan of a piece of equipment?
And it gets into that useful life question, so we always ask people to estimate how much longer you think a piece of equipment when your asset is going to last.
And so, one way that people like to use is just thinking of the age. And we want to be very careful with using “age” as either the only or primary indicator of how much longer a piece of equipment is going to last because it’s not that great of an indicator in many cases.
And one example was the utility that we worked with, wastewater utility. And based on age, the utility had done a useful life estimate of their entire plant. And they came up with the idea that 75 per cent of their plant was past useful life.
So, the city manager was quite concerned, thinking that if we have to replace 75 per cent of that plant, that will be a significant investment of resources. They were a relatively large community, about 15-16,000 people.
So, we went with the operator to talk through some useful life estimates and like, okay, you put this thing with five years past useful life, but you’re still using it. It seems in pretty good shape. What do you think? Oh yes, I can use this for ten more years. There’s no problem.
So, you find out that when you talk about each piece of equipment and do a different assessment that is not age-based but more condition-based, maintenance-record-based, so have I been doing the maintenance? Do I have spare parts available?
How has it been operating for me? Is that something that breaks down every week? Or it hasn’t broken down for the last two years.
And putting the operator’s perspective on it, we came up with a very different thing, where 10 percent of the assets were past useful life.
Just by bringing in other considerations into the story instead of mere age, you will find out that useful life is quite different than just saying well, my pump was ten years old and pumps last ten years, so it’s zero. Well, your pump might last 20 years, it might last 5. I mean, it’s very different than just an age-related question.
And as subsidiary ones to that or an adjunct to it is, in New Zealand, and I’m sure I know if you are in America, you have permits for discharge and permits to taking in treatment as well, water treatment.
We have the same thing. Ours is on a 30-year cycle typically. Some are 20, but most are 30 years. And you can work around a big wastewater treatment plant, and it’s got a discharge permit.
And you can look at the civil works that the concreting stuff, and how long it’s going to last. So, it should last for 50 years. And you can say to them, mechanical, electrical, 20 years maybe.
But here’s the kick up, every time in New Zealand, for the last three cycles that we’ve renewed the discharge permits, the conditions have changed. This is the environmental discharge commissions. And the minute they changed you’ve got different process trains.
So, what I’ve been saying to many of my clients is look, the life of your assets is the life of the permit because if you completely change the process to meet the new environmental requirements, you’ll be going to abandon those assets.
It’s not that they don’t work or they aren’t in good condition. It’s just that you’re not going to have that process anymore.
So, me putting a 100-year life on the cast iron pipe in the old process train, well fantastic, but that’s actually not the life of that asset.
The life of that asset is 30 years because at the end of 30 years we’re going to go, we are going to put in a completely different process.
So that’s that functional obsolescence due to change in the permit. I think a lot of the probes and recording assets are like that as well, you know. That’s an area that’s just charging ahead, at a 100-miles an hour. Really.
And so, some of those assets might have a physical life of 20 years but a functional life of 10 or 7 or 5 years. So, it’s thinking about those sorts of things.
What is going to cost you to change that asset out or to change that process? And that might be the life.
A very simple example in pipelines is if you’ve got a valve, and it’s got a different life than the actual pipe. So you might have a pipe that has 30 years left, and you think there are 70 years left onto the valve’s life for argument sake.
When swapping that pipe out, and you’re going to put a new pipe on your parallel alignment, hopefully, one thing is for sure, the guys are not going to be digging up the old valves to put them on a new pipe.
They will fit all of those in the workshop and bring them out on the truck and put them in.
So, the life of your valve is actually the functional life of your pipeline. Same with your hydrants if they’re on the mainline hydrants.
And so, it’s thinking about how you replace stuff that can give you a really good steer as to what the useful life of the asset is.
BACKGROUND PHOTO CREDIT: Central Park – New York by Karl Hipolito. Used with permission from Karl. Thank you.