2.1: Introduction

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Donald Coffelt and Chris Hendrickson
Carnegie Mellon University via Donald Coffelt and Chris Hendrickson

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Actively managed infrastructure systems typically have a structured process for asset management. Such processes are usually planned for regular time intervals such as annually or every five years. Asset management does require resources of various types. But with an asset management process, owners can reduce the risk of unexpected infrastructure failures and plan for preventive maintenance to reduce lifetime infrastructure costs.

In many cases, owners are required to have an asset management process in place by lenders or regulators. In such cases, the lenders or regulators may be interested in estimates of the value of infrastructure assets in addition to appropriate management actions. An example is the standards recommended by the Government Accounting Standards Board (FHWA 2000). Since sale of infrastructure assets happen only sporadically, the ‘value’ of infrastructure is usually estimated as either the original acquisition or construction cost less depreciation over time, the cost of replacement, or the cost of preservation for the infrastructure.

Depreciation is an accounting term that represents a loss in value over time and is usually considered a cost of business. For many infrastructure systems, depreciation is calculated as a linear loss of value over the expected lifetime of the system. So if the original construction cost was C, the expected lifetime is n years, then the depreciation in each year is C/n and the estimated value of the system in year t (counting from the time the infrastructure is constructed or acquired) is

\[value = C – t(C/n)\]

For example if \[C = $ 10 million\] \[n = 50 years\]

Then depreciation in each year is \[$ 10,000,000/50 = $ 200,000\] and the ‘value’ in year 10 is \[$ 10,000,000 - 10*$200,000 = $ 8,000,000\]

While we focus on infrastructure assets here, assets to a particular enterprise will often comprise a wide range of resources. Employees are assets whose value can improve with experience, education or training. Likewise, inventories of goods and real estate are assets. Even reputations are viewed as assets and can be subject to an asset management process.