The state of a community's capital infrastructure is inextricably linked with its quality of life. Strategic asset management has become a critical agenda item for most developed and stable economies around the world. As the relationship between infrastructure and economics becomes better understood, the prioritization framework for infrastructure projects is changing from an exclusive focus on financial cost-benefit analysis to one that relies on a variety of community and organizational key performance indicators, economic output metrics, environmental indicators and other socio-economic drivers. Infrastructure appraisals and project prioritization have shifted from emphasizing individual, asset-level studies to a holistic, network-level analysis, with the goal of more accurately quantifying the true socio-economic value of all infrastructure projects.
A cross-disciplinary, long-term approach such as this requires robust data on not just capital assets and their networks, but also on the organization itself and the environment in which it exists. Technology is needed to improve speed and efficiency whenever possible. Lastly, high-level guidance is needed to unify technology and data in an effective way.
Network-level analysis relies on collaboration among multiple departments, including senior management; department heads from finance, engineering, and public works; and elected leadership. Time and effort are also needed, as such an approach involves building an asset management practice from the ground up and generally spans two years, including development and implementation. There will be pivotal short-term victories, including better understanding of the organization's existing capacity and a more comprehensive dataset on the state of existing infrastructure. The rewards to the entire organization in return for the time and intellectual capital invested can be substantial. Exhibit 1 explains the value of adopting network-level analysis of a government's infrastructure investment.
In Canada, local governments own 60 to 70 percent of all public infrastructure, yet collect only 8 percent tax revenues, according to the Federation of Canadian Municipalities. This imbalance severely impedes fiscal pragmatism at the municipal level. Most municipalities lack the financial capacity to ensure that infrastructure growth requirements and service enhancements are accounted for and long-term replacement needs are met. Instead, they aim to fund their annual operating costs. Providing levels of service that do not reflect fiscal capacity is a serious risk to municipal financial sustainability, and infrastructure lifecycle costs can be a big part of that. As a result, municipal decision makers need to make an effort to go beyond minimal infrastructure funding levels and work toward achieving incremental improvements in sustainability.
Some local governments are able to set aside funding to counter inflation and meet renewal requirements, which helps extend the useful life of capital assets, reducing both current costs and the burden on future generations of residents. However, most municipalities struggle to meet even day-to-day tactical investment needs related to infrastructure, let alone being able to attempt a strategic makeover.
Investment in infrastructure depends on a number of elements, including political considerations and risk tolerance in individual municipalities. Because there are no industry standards for target investment rates, the most influential of these factors is the amount of funding available--and there is a severe lack of it, in both Canada and the United States.
The Canadian Infrastructure Report Card, an annual survey-based analysis of Canada's infrastructure, suggests that 12 percent of the country's infrastructure (valued at approximately C$141 billion) is in very poor or poor condition. Further, according to the same study, seven of the eight categories of infrastructure covered will decline in condition based on current reinvestment rates (i.e., the percentage of an asset's replacement value budgeted annually for the purpose of rehabilitating, reconstructing, or meeting replacement needs). (1) The situation in the United States is no different; $3.6 trillion in infrastructure investment will be needed by 2020, according to the American Society of Civil...