Infrastructure Asset Management Practice – How Risk Impacts Cost?

In the previous post, Ross explained the “Levels of Service-Cost-Risk Diagram” and he continued to provide a couple of illustrations.

Heather also mentioned two examples regarding the safety and trust threshold.

Ross:

And a couple of examples that have dropped out recently is that, was obviously in transportation, the Mississippi bridge failure back in 2007.

So it killed – people were killed and injured, lots of destruction, lots of dollars to fix. And as a result, that right across the US transportation now there are these multiple bridge inspections to try and manage the problem.

But again, at the end of the day, it was how do you model that factor safety?

And if we go back, Heather and I were talking about the ’60s and 70’s early 80’s, we had a lot of processes and procedures in our industry and utilities that would provide multiple factors of safety.

And pressures come on to save money and it would change things.

Some of those factors of safety have come out. I don’t know that we know quite where we are now in terms of our factors of safety and our risk.

The final example we’ll talk about before we go back to Dawn, to see if there’re any questions, was Walkerton in Canada.

In 2000, the small town had a water supply safety incident that was due to, at the end of the day, corrupt and criminal practice but people died and people were ill.

And over in New Zealand, so many miles away from Canada, our public health officials looked at that problem. They said, hey the same thing could happen in New Zealand.

And over a decade, we’ve had a billion dollars of new capital expenditure, planning requirements, lots, and lots of small water supply treatment and source protection upgrades.

Our equivalent of the federal government hasn’t funded all of that, so it’s been a cost for very small communities, including on-going increased long-term operations and maintenance costs.

And that came from an incident in Canada.

And so as I said with Flint, I think you’ll find that once the inquiries all finish, there’ll be the mandated practice that will impact right across the US probably up into Canada, also Australia, New Zealand, UK just to make sure that sort of thing never happens again.

And so it imposes a societal cost and again, just for not knowing about your risk.

Heather:

Just a couple of follow-up points. There’s just a news story the other day about Flint and this whole idea of losing the trust, and so EPA came out recently or… maybe it was the state agency, I’m not sure which, and said the water is safe to drink, as long as you have your filters in place.

But when they interviewed the residents up there, none of them that were interviewed were willing to drink the water because the trust, as Ross was mentioning is gone.

They don’t trust when the agencies say it’s okay. The trust has been lost and they’re not willing to accept that so the trust is gone.

So again, it’s going to lead to even more expenditure because the only thing that they indicated that would allow the trust to come back is that if they have a brand new water utility.

So they’re talking about, well if you will replace all their pipes, which you know I think I heard somewhere around 350-400 million range but I’m not sure if that’s exactly correct or not.

But you’re talking about replacing you know, all the service lines and all the house piping before the people’s trust is going to come back.

So it is something that once lost is going to be seemingly hard to come back.

And the other point that I want to make is, risk as Ross mentioned at the beginning, it was a hidden risk and they weren’t really understanding the risk.

You know at least we hope they weren’t really understanding the risk clearly at the beginning.

And when we did our survey, with the American Water Works Association, we surveyed utilities across the country and asked them about their asset management practice, the area that by far was the lowest across the board for all utilities was the understanding of risks.

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