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RD&D, Technology February 1999

A Proposed Strategy

for Quality in

Life-cycle Asset Management


RD&D, Technology August 1993

A Proposed Strategy for Quality in Life-cycle Asset Management i

Executive Summary

The principal objective of asset management is to achieve value-for-money throughout an asset's service life. In order to

provide cost-effective solutions to the various demands placed upon a facility adequate decision making tools must be available. The

need for such tools is more significant when resources are limited.

Maintenance levels directly affect the asset performance as well as their economic lives by altering the rate and nature of the

deterioration process. Current understanding and explanation of the degradation mechanisms tend to be subjective. Government

Services Canada recognizes that further development of performance indicators is required.

A basic responsibility of GSC is to supply client departments with facilities which provide stated functions for an optimum life-cycle

at an ideal level of maintenance. GSC has in-place the necessary framework for quality management. The Project Delivery System

(PDS) provides guidance for the delivery of initial facility quality while systems such as the Preventative Maintenance Support System

(PMSS) attempt to sustain the required asset function. Despite use of these tools, more complete and updateable knowledge of the

future service lives of facilities is required.

The key goals stated in this strategy are:

i) the development of tools to assess service life and performance at any point within the service life;

ii) the retention, via databases, of the knowledge/experience obtained;

iii) the optimization of maintenance practices, on a life-cycle basis, in order to maximize facility service life and more

effectively allocate resources; and

iv) the on-going identification, investigation and quantification of deterioration mechanisms.

The tools to be developed will be used to examine performance indicators at any point within the life span of the asset. It is crucial

to methodology that the information gathered, and the tools themselves, be useful for on-going supervision of O&M on an annual

basis.
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A Proposed Strategy for Quality in Life-cycle Asset Management ii

Due to the dynamic nature of the factors which describe performance, the use of probabilistic (reliability-based) techniques is the only

approach that will provide realistic analysis of the likelihood of fulfilling performance requirements. The reliability-based methodology

hinges upon the identification of functions which describe the conditions governing performance of the components for any given

system.

The wealth of information found within GSC will form the basis for developing our future reliability-based maintenance and

management procedures and practices. Application of the life-cycle asset and quality management concept will help asset managers,

engineers and architects to make rational and cost-effective decisions.

This document proposes a concept utilizing a reliability-based analysis system, based on our GSC knowledge, will provide asset

managers with a dependable and easy-to-use tool for their decision making processes in the management of buildings. The creation

of such a tool will permit the monitoring and management of quality during the building's life-cycle;

eventually resulting in improved asset performance and significant savings in repair and maintenance expenditures on our facilities.

The continued enhancement of these knowledge bases should result in better selection of materials, equipment and maintenance

procedures. A direct effect of application of this knowledge would be heightened life-cycle performance of our assets.

To strengthen the assessment capability, all expertise in the Department must be marshalled to work toward the same objectives.

More effective communication ties must be established between the respective domains in order to effectively link the economic and

technical aspects of the same asset. By establishing this link the Department will have created the necessary mechanisms to fulfil Real

Property's roles in Asset and Investment Management.


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A Proposed Strategy for Quality in Life-cycle Asset Management iii

Table of Contents Page

1.0 Purpose 1

2.0 Scope of Application 1

3.0 Background 2

3.1 Need to enhance Quality of Life-cycle Asset Management 6

3.2 Existing Quality Assurance Framework 8

3.2.1 Role of Real Property Branch

3.2.2 Role of the Service Branches

3.2.3 Provision of Quality via the Project Delivery System

3.2.4 Sustaining In-service Quality

3.3 Difficulties with Existing Framework 14

4.0 Strategy 16

5.0 Implementation of Enhanced Quality Management Framework 18

5.1 Performance Indicators 18

5.1.1 Assessing Service Life

5.1.2 Determining Economic Factors

5.2 Maintenance, Expected Performance and Inspection 22

5.3 Data/Knowledge Base 23

5.4 Potential Applications 24

6.0 Conclusion 27
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A Proposed Strategy for Quality in Life-cycle Asset Management iv

List of Figures Page

1 Concept of Life-cycle Asset and Quality Management 2

2 Conceptual Relationship of Performance, Service Life

and Premature Deterioration 3

3 Typical Service Life Ranges for Principal Building Subsystems 4

4 Comparison of Repair vs. Replacement of Parking Slab 25

List of Appendices

Appendix A Potential Impact of Maintenance upon Life-cycle


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A Proposed Strategy for Quality in Life-cycle Asset Management 1

1.0 Purpose

The purpose of the strategy is:

a) to strengthen Government Services Canada's capability to assess and provide value-for-money

throughout asset service life;

b) to identify the techniques necessary for the successful enhancement of the existing Asset

Management procedures; and

c) to provide background information on the methodology being proposed as well as that currently in place.

2.0 Scope of Application

The strategy and implementation presented in this document are in keeping with Public Works Canada's vision of the future. Basic

assumptions are:

i) that PWC (GSC) will continue to be the major provider of real property services and of office and general purpose

facilities to the Federal Government;

ii) that inter-branch cooperation for the provision of products and services to fulfil client requirements will be

nurtured; and

iii) that the department is committed to an ethic of continuous improvement.

The methodology proposed in this document should be developed as an integral tool of the Project Delivery System. As such these

techniques would be applied to all GSC real property projects. This includes new construction, fit-up and repair.

Full implementation of the enhanced procedures will provide insight into the anticipated long-term performance of our assets. This

type of information is not currently available or rationally determined. Continuing investigation of it's applicability to various building

components is recommended.

3.0 Background

The principal objective of asset management is to attain, and sustain, value-for-moneythroughout the entire service life of an

asset. The optimum potential value which may be realized, for any particular facility, is dependent upon the optimum level of

investment (money). Both the value to be obtained and the monies available for investment vary with time. The relationship
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A Proposed Strategy for Quality in Life-cycle Asset Management 2

between these three elements is graphically depicted below in Figure 1.

Figure 1

Concept of Life-cycle Asset and Quality Management

The relationship between money and time is the primary concern of economists and financial analysts. There are many mathematical

models and formulae which represent the relationships between money and time for numerous economic situations. Very little future

development work is required for the horizontal plane of Figure 1.

However, neither the true value of an asset nor the variation of that value with time are readily defined. Facilities may be considered

to have value if they can generate revenue. Revenue generating potential is usually a reflection of a facility's capability to meet the

ongoing functional requirementsof clients. The extent to which a facility is capable of providing for those needs is related

directly to quality. Relatively soft expressions or notional relationships between quality and time are available for a number of

building components, systems or equipment. Considerably more work needs to be done in establishing reproducible criteria of

measurement.
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A Proposed Strategy for Quality in Life-cycle Asset Management 3

For any given building component, there is a distinct anticipated service life which will be directly dependent upon its environment,

material properties as well as operations and maintenance (O&M) (Figure 2). Similarly, building subsystems have typical service

life

ranges, which rarely

coincide with one another

(Figure 3), yet these

subsystems are expected to

perform satisfactorily

throughout the anticipated

service life of the facility.

Figure 2
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A Proposed Strategy for Quality in Life-cycle Asset Management 4

SERVICE LIFE - YEARS

Figure 3

The ability to accurately evaluate performance throughout an asset's life-cycle and then to manage that asset to alter future

performance would be particularly useful. Those preparing and managing investment plans would benefit from an ongoing

refinement in the prediction of facility service lives and from that the relative impacts of various maintenance options and schedules

would guide annual O&M allocations.

The pressure to make sound decisions regarding alternative construction/ repair/rehabilitation methods and priorities is never greater

than it is during difficult economic times. Thorough examination of the relative efficiency of repair and replacement as well as the

long and short term returns on investment is crucial to the decision making process.

Current maintenance levels impact upon the economic life of the facility, the downstream operating and maintenance costs, future

value of the asset as well as the ability to maintain a safe and healthy working environment. In addition, the capability to provide

fundamental tenant functional needs, with an acceptable degree of reliability, and other aspects of a "productive work environment"
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A Proposed Strategy for Quality in Life-cycle Asset Management 5

is directly influenced by the maintenance levels.

Certain asset functions, including basic occupant requirements such as lighting, heating plumbing and electrical supply as well as those

functions dealing with health and safety concerns, must be provided and appropriate maintenance procedures implemented to assure

the required reliability of service. Other functional aspects should be provided in order to demonstrate that the facilities are being

operated with prudence and probity.

The GSC funding levels for maintenance should be compared to industry norms (Building Owners & Managers Association). It

is believed that our existing maintenance practices may not be cost effective, yet comparative tools do not exist. It also may be

suspected that mandatory requirements are being met. The effect of timeliness of maintenance must not be overlooked. It is generally

believed that considerable more reinvestment capital would be required to restore a deteriorated facility, which was poorly or under

maintained, than it would cost to have adequately preserved the facility in the first place. The development of a framework for the

systematic collection of the information necessary to verify or to deny these suspicions is being performed as an initial task of the

implementation phase.

The majority of the existing knowledge related to the deterioration of performance and the required procedures to arrest that

deterioration is subjective. The strategy and proposed implementation described in this paper attempt to quantitatively examine asset

deterioration as well as the impact of various maintenance procedures. We must enhance our knowledge of the factors influencing

asset performance, particularly those pertaining to life safety issues and to the provision of tenant functional requirements.

3.1 Need to enhance Quality of Life-cycle Asset Management

Not all building materials, or systems, provide equivalent initial effectiveness or long term performance.

It is desirable to control the condition of assets throughout their service lives.


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A Proposed Strategy for Quality in Life-cycle Asset Management 6

By properly maintaining facilities the owner/operator will prolong asset life.

All of the above statements are generally accepted as truths yet many of the key words they contain have not or can not be specified

with certainty. Understanding of the rates at which material degradation affects overall performance is very limited. Knowledge of

the deterioration mechanisms is often weaker. Without these pieces of information little may objectively be said concerning

performance, service lives or the appropriateness of either material selection or maintenance scheduling.

Clearly, there is a need to investigate degradation of performance of building systems in order to predict at what point the system will

no longer be capable of meeting its intended function. That is, to define service life. Appropriate measures may then be taken to

synchronize the service lives of the various systems to the overall estimated life span for the asset.

The causes of performance degradation should be identified so that similar circumstances are not repeated and that the information

may be used to develop remedial strategies. Once the degradation processes are understood and described it is possible to: predict

the performance of a facility at any point in time; make relative comparisons of the performance of construction options; to examine

the impact of maintenance scenarios upon asset life-cycle and value.

Financial information is essential to these analyzes since the ability of any given option to provide its required function is not

necessarily directly proportional to either their implementation price or their O&M costs.

"To assess the cost-effectiveness of the (Real Property) Program's operations, the

Accommodation Branch (Real Property) will continue to develop and monitor against certain

performance indicators, including: unit cost comparisons with the private sector and across

regions; and return on investment targets." 1

1
1992-93 MYOP Real Property Program -Asset Management
-Business Methodology
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A Proposed Strategy for Quality in Life-cycle Asset Management 7

This objective acknowledges that further development of performance indicators is required. If realistic appraisals of the relative worth

of various assets and/or their performance histories is to be conducted, analysis should be based on actual life-cycle performance of

each individual asset.

3.2 Existing Quality Assurance Framework

Government Services Canada (GSC) supplies office and general purpose accommodation and the related technical services support

to client departments and agencies. GSC's ability to provide the level of service requested by its clients depends upon many factors;

one of the most significant being inter-branch cooperation and communication.

We must recognize that for GSC to provide facilities which initially meet client needs does not necessarily assure the client satisfaction

or that the function being performed will remain relevant. It is extremely important that the facilities turned over to the clients be of

the best possible quality in keeping with stated requirements and budget. The clients must be fully aware of the ongoing maintenance

requirements if the service is to remain satisfactory. The goal is to provide the desired functionality for an optimum life-cycle at an

ideal level of maintenance expenditure.

3.2.1 Role of Real Property Branch

The mission of the Real Property Branch is to manage a diverse portfolio of federal real property to appropriately accommodate

federal tenants and to optimize the investment in the asset. Two of the business activities undertaken by the Real

Property Branch are of particular interest to this discussion and are briefly described below.

-Asset Management

- the management of assets to ensure that they meet all codes, standards and norms

required to support the operational needs of the tenants and the public; to ensure that

maintenance decisions taken reflect a reasonable return on investment; and that

a productive work environment is provided to federal tenants

-Investment Management
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- the management of the capital and leasing investments to ensure that investment and disinvestment

decisions optimize the long-term economic advantages to the Crown and take into

account land use plans and policies of levels of government

Real Property "Branch must ensure that the quality and condition of the real property asset base

does not deteriorate. The Branch must not only preserve the economic value of the assets

but also ensure the assets continue to meet operational needs of the tenants and the public."
2

Asset Management Plans which include detailed building condition studies are currently being conducted for each of GSC's assets.

The review of GSC office buildings is scheduled for completion by March 1994. Some of the issues considered in these plans are:

provision of tenants' needs; usability/functionality; repair versus disposal; and the effectiveness of management from a tenant, building

performance and return on investment perspective.

The Real Property Branch is currently reviewing its revenue management policies, practices and procedures, including such functions

as revenue generation, recognition, forecasting and collection. By improving this management process the Branch is attempting to

collect all revenues possible.

3.2.2 Role of the Service Branches

A primary responsibility of the Service Branches to Real Property is the provision of expertise to assess technical quality and

merit. Architectural and Engineering Services (A&ES) provides planning, design and construction services as well as related

engineering and architectural advise and support. Asset Managers of Real Property purchase operations, maintenance and property

management services from the Realty Services Branch. Dependant upon the size and type of Project, Real Property Branch will

engage the services of Project Managers from either A&ES or Realty Services Branch.

2
1992-93 MYOP Real Property Program - Overview
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The Service Branches provide verification that the assets and facilities are designed, constructed and maintained in accordance with

the existing codes and state-of-the-art knowledge. Technical assessment of GSC's assets is usually performed by Service Branch staff.

The Service Branches also estimate expected facility service life and associated operation and maintenance costs.

3.2.3 Provision of Quality via the Project Delivery System

PWC (GSC) policy calls for the use of the Project Delivery System on all real property projects in which the Department is involved.

It is applicable to new construction, fit-up and repair of existing and leased facilities and is intended to provide an initial quality

of the asset.

The PDS acknowledges that the Planning stage of any project will require input from numerous sources of expertise. The

Planning stage produces the Investment Analysis Report. Identified by this report are: the need; the objectives; the

recommended solution; the budget; and schedule. All feasible alternatives are examined and the most viable means of meeting the

stated requirement(s) is recommended. Comparison of the relative economic worthiness of options usually takes the form of life-

cycle cost analysis. The net expenditures associated with owning and operating a facility over its useful life are compared

to the potential revenue sources throughout and at the conclusion of that life. The Investment Analysis Report serves as a guide for

subsequent phases of the project delivery and therefore will greatly influence the initial quality of product which may be delivered.

The Definition phase provides a quantification of the required quality described in the Investment Analysis Report. The

Project Brief defines the project requirements in verifiable technical criteria and specifies the implementation strategy.

Implementation of the project is to be conducted in accordance with the strategy laid out in the Project Brief. Success of

project execution is measured relative to the criteria for content, cost, time and quality as defined in the Investment Analysis Report

and the Project Brief.

Verification that the end product meets the initial performance expectations is conducted in the Commissioningphase. The
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facility is taken to an operating state. The outcome of this phase is a facility operating as intended and staffed with personnel

conversant in the operational and maintenance requirements. The Commissioning Reportdocuments the performance

compared to the stated requirements. Relative to the future service life of the facility this is the most important phase of the PDS since

a poorly commissioned or non-commissioned facility is considerably less likely to provide the initial level of performance required (

Refer to Section 3.2.4 ) .

The Operationphase of the project brings the facility to in-service operations in response to needs identified in the preliminary

phases of the project. These needs are transferred, where applicable, into Occupancy/User Agreements.

A systematic comparison of the final project against the stated goals is undertaken in the Evaluation phase. In addition,

performance data is gathered as input for planning of future projects (feedback loop for PDS - Planning Stage). This information

is documented in an Evaluation Report.

3.2.4 Sustaining In-service Quality

Once the Operation phase of the PDS has been concluded the custodian is responsible for the continued performance of the facility.

Often the regular operations are conducted by the same personnel who had brought the facility into operation (Operation phase),

usually a Property Manager from GSC Realty Services Branch. (Subsequent discussions shall assume that the facilities management

is being conducted by GSC staff.)

Property Managers allocate, on an annual basis, O&M funds for designated works within an asset. Following resolution of health

and safety issues, priority should ideally be given to activities which, if not performed, bare grave impact upon the functionality and/or

the level of performance. The life-cycle performance of any given facility is directly dependant upon the O&M practices. The

understanding of the interrelationship and the relative importance of the various systems of a facility is dependent upon the

thoroughness of the Commissioning Report and the capabilities of the Property Manager.
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A Proposed Strategy for Quality in Life-cycle Asset Management 11

The Preventative Maintenance Support System is an information base in ongoing development by Realty Services Branch. It is

intended to readily provide information on maintenance requirements and records, material properties and specifications as well as

inspection logs of all components used in systems of facilities maintained by Realty Services Branch.

Asset management evaluates an overall investment plan, relative to asset performance, for a portfolio of facilities throughout their

expected service lives. Information on the various projects vying for funds is submitted by the Property Managers for consideration.

The Asset Managers must weigh the factors which affect the ability of any particular facility to fulfil predefined functions. As the

reliability of providing a function increases so does the expected service life and the revenue generating capability of that as
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A Proposed Strategy for Quality in Life-cycle Asset Management 12

3.3 Difficulties with Existing Framework

Real Property Branch's goal of ensuring that maintenance decisions provide reasonable return on investment cannot be achieved in

an objective manner without thorough knowledge of asset service life (past and future) as well as the impact of various maintenance

scenarios. The decisions to invest or divest in facilities should, in part, be guided by the potential future service which may be realized

from the property.

The intent of the Real Property's Asset Management Plans is very good. The applicability of the information gleaned from the

condition surveys to make decisions as to appropriate investment scenarios is, however, questionable since the surveyed conditions

are static in time and do not necessarily provide an indication of the future performance. In order to manage the revenue generation

from an asset, there should be reliable forecasts of that facility's future life span as well as an indication of any potential breaks in its

revenue generating capability.

The building construction and maintenance is generally conducted by people with years of experience in the field. Often, little other

than "gut-feelings" and "standard-operating-procedures" dictate the selection of materials, maintenance schedules and scenarios.

Rules of thumb and manufacturers' performance and materials specifications provide some expectations and estimates of service life

of components.

These practises, while generally satisfactory, are relatively inflexible, do not make comparative evaluations of alternatives and the

knowledge-base is not readily transferable. Little is passed-on concerning either the service life of the systems comprising any given

asset or the effect which particular maintenance scenarios may have upon the service life. With current technology, rigorous

determination of service life (initial or remaining) of any given asset is not readily conducted.

The usefulness of life-cycle cost analysis for the assessment of options hinges upon the accurate determination of service life of the asset

and the costs and revenue expected over that life. Traditionally, the procedure has been used to examine the asset's financial
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A Proposed Strategy for Quality in Life-cycle Asset Management 13

performance either before the life-cycle is initiated or when it has concluded. In the first of these instances the analysis is speculative

and in the latter it is of historical significance only.

The budgets associated with the capital investment and the annual maintenance of assets are separate. For this reason, the impact

which initial design considerations may have upon long term building performance and the subsequent maintenance requirements

is often overlooked. The material, component and system options available may imply vastly differing maintenance budgets and asset

service life.
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A Proposed Strategy for Quality in Life-cycle Asset Management 14

4.0 Strategy

The most evident shortcoming of the existing quality assurance framework is the technical inability to analytically assess the service

life of an asset.

The key goals of the proposed strategy are: the development of tools to assess service life and performance (financial and technical)

at any point within the service life; the retention, via databases, of the knowledge/experience obtained; the optimization of

maintenance practices, on a life-cycle basis, in order to maximize facility service life and more effectively allocate resources; and the

on-going identification, investigation and quantification of deterioration mechanisms.

Information to be used in the preliminary planning of the latter of the key elements shall describe the functional requirements of the

various types of GSC building stock, categorizing the asset functions as either basic or occupant driven. For each of the functional

requirements, the system(s) that control and/or influence the provision of function will be identified and the inter-relationship(s)

between the systems described. For each of these systems, the key equipment and components will be identified and the economic

factors which influence capital reinvestment and disinvestment decisions shall be described. The typical levels of funding (normal

practise) to maintain each of the systems may then be compared to actual GSC funding levels.

The life-cycle asset and quality management concept being proposed attempts to unite economic indicators of performance to the

asset's ability to continue to provide the function(s) for which it was designed. It recognizes that both the functionality and required

maintenance of a facility are time dependant.

The concept and techniques presented in the following section should be used to assess the relative merits of various construction,

rehabilitation and major maintenance alternatives. By employing this concept at the planning stage of the PDS more realistic

indications of expected life-cycles will be available for the options analyses. When the facilities are on-line, use of the modified

framework will provide insight to the best procedures of assuring continued reliability of service.
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A Proposed Strategy for Quality in Life-cycle Asset Management 15


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5.0 Implementation of Enhanced Quality Management Framework

By scrutinizing the condition of any given asset the merits of various construction and maintenance options may be determined on

an economic as well as scientific basis. Since the intent of this analysis will be to examine the performance indicators at any point

within the life span of the asset, it is crucial to methodology that the information gathered be useful for on-going supervision of O&M

on an annual basis. Reassessment of the service lives and economic factors affecting any given facility must be conducted frequently

enough to provide an accurate reflection of the asset performance and to allow for modification of the O&M practices if (and as)

deemed necessary.

5.1 Performance Indicators

The performance indicators to be used in this methodology are of two basic types, economic and technical. The technical indicators,

those describing the physical performance of the asset, vary from case to case dependant upon the functional requirements of the

occupant. Generally, the economic indicators used are considerably less variable; dealing primarily with the net expenditures and

net benefits associated with a particular option.

5.1.1 Assessing Service Life

Based upon experience, the conditions which govern performance of the various components and systems may be determined. This

would permit:

i) the calculation of the likelihood that these governing conditions will exceed designated acceptable limits;

ii) the calculation of the expected (or remaining) service life of a facility; and

iii) the updating of service life predictions of an asset from within the life-cycle.

A system can be defined as a number of components combined in parallel or in series. In series systems, if one component fails so does

the system. All components of a parallel system must fail for system failure to occur. More complex systems may be modelled by

combining parallel and series subsystems.


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A Proposed Strategy for Quality in Life-cycle Asset Management 17

The performance of any particular component, subsystem or system of an asset depends upon numerous variables. Only in rare

instances would the values of any of these variables or their interactions be known categorically. In most instances the values and

nature of these variables are in accordance with definable distribution functions.

For example, the relative humidity (RH) in office buildings may reasonably be expected to range between 20 % and 60 %. Within

that range, the likelihood of having a particular value of RH may vary with the geographic location and building usage as well as with

other considerations. Therefore, the analysis must consider the potential variation in physical conditions and their inter-relationships

to accurately portray the asset performance.

A deterministic approach, using fixed or arbitrary values for pertinent variables, should not be used to assess facility performance since

it can not take the natural variation of the physical parameters into account. Analysis by probabilistic means will permit consideration

of inherent randomness and shall determine the probability that certain events may occur. The use of probabilistic, or reliability-

based, techniques is the only approach which will provide realistic analysis of the likelihood of fulfilling performance requirements.

The reliability-based methodology hinges upon the identification of functions which describe the conditions governing performance

of the components for any given system. These governing conditions describe the mathematical relationships between various

parameters and component performance. More significantly, the methodology should be capable of reflecting changes in these

physical and/or chemical conditions.

Some fundamental terminology related to reliability-based techniques is presented below.


Reliability is the probability that a function will be fulfilled.

Governing Parameters are the physical and chemical properties which are used to mathematically define the function.

Probability Density Function is the frequency function,f(x), describing the likelihood that a particular variable will take a specific
value , x .

Probability of Exceedance is the likelihood that the value of the defined function will exceed designated acceptable limits.
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A Proposed Strategy for Quality in Life-cycle Asset Management 18

Component Reliability is the probability that the component will provide its defined function.

System Reliability is the probability that the system of components will fulfil its function.

The basic methodology to be used for analysis of individual components and systems is:
a) identification, prioritization and quantification of the conditions governing performance;
b) determination of the nature (probability density functions) of relevant physical parameters;
c) calculation of the probability that the asset will fail to provide its predefined function(s), pf;
d) expression of performance in terms of reliability, R = 1 - pf ; and
e) determination of service life; the asset age when reliability falls below an acceptable level.

5.1.2 Determining Economic Factors

The economic elements required for this analysis (initial cost, operating costs, revenues and profit) can be relatively easily acquired.

The principles associated with the manipulation of these factors (such as Net Present Value and Capital Recovery Factor) are widely

understood and shall not be described further in this discussion.

The concept of ongoing management of operations and maintenance is complementary to that of asset management from within the

life-cycle. Economic or investment performance indicators will be based upon the expressions of annual owning and operating costs

as defined below:

- annual owning costis derived from the amortization of the initial cost, at a given rate of interest, over the

expected service life of the asset; and

- annual operating cost is composed of the cost of labour, material, taxes (and grants in-lieu-of) and other

cost incurred on a regular basis.

From these costs, the annual revenue and annual profit (where applicable) indices can then easily be determined and controlled.

Specific revenue, revenue per unit of production, is an example of one such indicator that can serve as a very useful asset performance
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A Proposed Strategy for Quality in Life-cycle Asset Management 19

management tool.

By influencing the service lives of facilities, maintenance procedures have direct impact upon both the annual owning and operating

costs. Maintenance cost is a principal component of the annual operating cost. If the service life of an asset deviates from initial

predictions, the annual cost of owning will change accordingly. Ideally, if better and more appropriate operation and maintenance

practices are conducted the service life will be extended; lowering the annual owning cost.

Analysis could identify the scope of operation and maintenance that would yield the lowest sum of annual owning cost and annual

operating cost. Once established this sum may be set in accordance with (or determine) the expected revenue and funding

requirements for the asset.

5.2 Maintenance, Expected Performance and Inspection

For any identified deterioration mechanism there will be a variety of physical and chemical characteristics which play a significant

role. Each of these parameters is considered to vary according to a definable distribution function. The exact distributions are evasive.

Inspection data and the records of performance of various facilities, to be obtained from the PMSS and other sources, will be used

to indicate tendencies in observed conditions which reflect physical conditions. This link provides essential input to the reliability-

based analysis. It is believed that, through extensive collection of field performance data, and its implementation within the

methodology, the confidence in the distributions being chosen and hence in the methodology itself shall steadily increase.

Output from the analysis will, similarly, be available to modify the output of, or input to, the PMSS.
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A Proposed Strategy for Quality in Life-cycle Asset Management 20

5.3 Data/Knowledge Base

The maintenance options chosen over the life of a facility undoubtedly influence both the annual cost of operating the asset and its

service life.

Thorough examination of the relative efficiencies of various design options, repair and replacement scenarios, as well as the long and

short term returns on investment is crucial to the decision making process. Such assessment can only be accomplished if adequate

suitable data exists.

The ability to manage annual O&M activities should be greatly increased once the desired service life of an asset has been determined

and translated into annual operations budgets. The relative impacts of various O&M scenarios on asset performance will become

more evident as the experience/knowledge base grows.

By regularly collecting data which reflect performance the knowledge of the costs associated with owning the asset as well as of the

effect of the maintenance procedures upon the asset's service life will be continually improved.

As our knowledge of the controlling conditions grows so will the understanding of the maintenance levels required to provide

functional continuity from our assets at an acceptable level of reliability. The costs associated with various levels of maintenance may

then be used to manage the assets in a fiscally prudent manner so as to optimize financial performance.

5.4 Potential Applications

The strengths of various construction and maintenance options may be determined on an economic as well as scientific basis by

scrutinizing the condition of any given asset and comparing the performance to previous predictions. The methodology may be

applied at any time, prior-to, within or after the asset service life.
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A Proposed Strategy for Quality in Life-cycle Asset Management 21

As a planning tool this procedure will be applied to various GSC activities. In the early stages of new capital projects, it may be used

for needs identification purposes by demonstrating the advantages of different material selections or by providing substantive evidence

of the relative effectiveness of various building system options. Similar potential applications will also arise for retrofit and

rehabilitation projects. In cases where the required service life is definitively stated and system selection has been made the procedure

will provide an indication of the required maintenance funding levels.

Figure 4

Comparison of Repair vs. Replacement of Parking Slab

An example of the potential applications of the methodology to assess the relative merits of repair and/or replacement scenarios is

presented in Figure 4. The horizontal dashed line in this plot indicates the risk acceptance level for this particular system as

determined by economic and physical performance characteristics. If the reliability of the system falls below this level, remedial action

should be taken to restore function. By anticipating when the system is likely to provide less than the acceptable reliability, inspection

schedules may be optimized to confirm or denounce the predicted asset condition.


RD&D, Technology August 1993

A Proposed Strategy for Quality in Life-cycle Asset Management 22

The initial curve of Figure 4 estimates that the reliability will fall to the risk acceptance level at approximately three and a half years.

An inspection conducted at 3 yrs. 4 months confirmed the condition of the slab to be comparable to that predicted. The curve

indicated with F's represents the expected performance projection resulting from the slab repair at an age of 4 years. Alternatively,

the slab could be completely replaced at that time. The projected reliability curve for the latter option is plotted with G's. The two

projected scenarios indicate reliability falling to the risk acceptance level at approximately 6 yrs. and 9 yrs. respectively. Having

predicted the potential life extensions to be achieved, a comprehensive economic analysis/comparison of the each of the alternatives

is possible.

The cycle of prediction-inspection-action should be continued throughout the desired asset life-cycle; inspections would be scheduled

in accordance with the predicted performance of the chosen scenario. The modified performance curve for the replaced slab, plotted

with +'s, results from an unfavourable inspection at an age of 10 years.

By having an informed idea of the rate of deterioration of any given asset the operational personnel may optimize their inspection and

maintenance schedules. Maintenance budgets will reflect not only the appropriate level of funding but also will indicate the most

effective placement of those funds. Continued use of the procedure and recording of the findings will provide further knowledge of

the effectiveness of various scenarios.

Different maintenance options will undoubtedly result in variations of the expected service life and of the annual maintenance costs.

As the life-cycle of the facility varies with the maintenance practises so does its revenue generating capability. An example of the

potential effect of the level of maintenance upon the life-cycle viability of an asset is presented as Appendix A.

The sum of the costs associated with owning and operating the asset should not outweigh the benefits; an optimum annual

operating cost may be determined for each asset and/or component. The most significant of the benefits is the revenue

generated from rental/lease agreements. The revenue and profit (potential as well as real) to be acquired from a facility influence the

investment plan and should therefore determine the maintenance scheme(s) to be implemented.
RD&D, Technology August 1993

A Proposed Strategy for Quality in Life-cycle Asset Management 23


RD&D, Technology August 1993

A Proposed Strategy for Quality in Life-cycle Asset Management 24

6.0 Conclusion

Government Services Canada provides client departments and agencies with accommodation while attempting to preserve the quality,

condition and economic value of the asset base. A comprehensive and rational decision making framework,

linking all aspects of facility life-cycle (from the planning stage through to operations and

maintenance, reinvestment and disinvestment), is essential if GSC is to fulfil its

responsibility to prudently manage the assets.

Implementation of the methodology presented in the preceding paper will develop a continually strengthening knowledge base as well

as providing non-subjective evidence on the effectiveness of various construction, maintenance and refurbishing alternatives. Due

to the dynamic nature of the factors which describe performance, the reliability-based technique is the only

approach which permits rational prediction and assessment of asset life-cycle and thereby provides the necessary

tools to manage federal real property in an efficient and cost-effective manner.


RD&D, Technology August 1993

Appendix A A-1
Potential Impact of Maintenance upon Life-cycle

(Hypothetical Example - intended for discussion purposes only)

Assumptions

Unit capital Cost P = 1000

Interest rate i = 10 % per annum

Annual Owning Cost A = P i(1 + i)n / ( (1 + i)n - 1)

where n = service life (yrs.)

Annual Operating & Maintenance Cost OMa = Oa + Ma

where Oa = annual operations cost


Ma = annual maintenance cost
Annual Cost AC = A + OMa

Annual Revenue AR = AC + Overhead + Profit

where Overhead = 300% OMa


Profit = 0% (break-even)

Typical Example

Expected Service Life n = 20 yrs.

Annual Operating & Maintenance Cost OMa = P / 8 = 125.00 (P /8 as per BOMA norm)

Operations Oa = .9 OMa = 112.50

Maintenance Ma = .1 OMa = 12.50

Annual Owning Cost A = 117.00

Annual Cost AC = A + OMa = 117 + 125 = 242

Annual Break-even Revenue AR = AC + 3 OMa = 242 + 375 = 617

Therefore Annual Maintenance Cost is :

12.5 . 5% of the Annual Cost; and


242

12.5 . 2% of the Annual Revenue.


617
Maintenance has a very direct impact upon the service life of any given asset. The economic advantages that particular maintenance schemes and funding
levels would provide are not accurately known. The following table illustrates three possible scenarios of maintenance funding and the estimated service
lives as well as presenting likely tendencies of the relative economic indictors.

Capital Cost P = 1000


RD&D, Technology August 1993

Appendix A A-2
Potential Impact of Maintenance upon Life-cycle

(Hypothetical Example - intended for discussion purposes only)

Interest rate i = 10 % per annum

Annual Operations Cost Oa = 112.5 (constant)

Expected Service Life -amortization period- nexp = 20 yrs.

Annual Maintenance Cost Ma 6.3 12.5 18.8

Estimated Service Life nest * 15 20 25


(yrs.)

Annual O&M Cost OMa 118.8 125.0 131.3

Annual Owning Cost A 117.0 117.0 117.0

Annual Cost AC 235.8 242.0 248.3

Annual Revenue AR 592.2 617.0 642.2


(break-even)

Annual Cost / Revenue


AC / AR .398 .392 .386

Total Cost
Ct=(nest x OMa)+(nexp x A) 4122 4840 5622

Total Revenue Rt= nest x AR 8883 12340 16055

Total Cost / Revenue


Ct / Rt .464 .392 .350
Normalized 1.18 1.0 .89

* These service lives and annual maintenance costs are presented to demonstrate the tendencies of the cost-to-revenue ratios. More accurate,
rational estimates of asset service lives should be determined.