Question 1 (300 marks)
Asset Administration Strategic Planning
You are an asset supervisor for a medium sized agency, the primary goal of which is to produce firms or merchandise to industrial and/or dwelling consumers. Some examples of such an organisation embody, nonetheless are normally not restricted to:
· Water present authority
· Sewerage authority
· Freeway group proprietor
· Electrical vitality present agency
· Gas present agency
· Telecommunications provider
· Applications group provider
· Vitality station proprietor
· Product producer.
Your organisation owns a group of property that permit it to ship its firms. The property throughout the group are of varied varieties, sizes, ages and state of affairs. On account of financial constraints over the earlier quite a lot of years, the property throughout the group have not been modified apart from when fully essential. Repairs instruments may also be not in a normally good state of affairs. Inspection is particularly by seen means, supplemented the place required by further detailed investigation.
Whereas a basic asset administration system program is in place, few minor property are recorded on it. Most property are nonetheless positioned by typical methods resembling hyperlinks of key reference components (as an illustration, bends, pits, poles, instruments) to property boundaries and centreline distances, setting up areas, or associated sorts of reference components. Totally different asset knowledge is minimal, and is particularly restricted to knowledge that is fully essential for repairs features.
There could also be concern that your organisation’s property are normally not always positioned as per your organisation’s knowledge. The state of affairs has been exacerbated by poor file holding before now, and by not recording changes when there have been changes to property boundaries, flooring ranges, and the property themselves.
This poor state of information makes it troublesome for various service suppliers to have ample confidence throughout the knowledge you present about your property for his or her design, constructing and maintenance.
Over the earlier quite a lot of years, there have been a steadily rising number of complaints by prospects of your merchandise on account of fairly just a few breakdowns in service and failures. Have been it not for the reality that there are a selection of obstacles of entry to the enterprise whereby your organisation is engaged (as an illustration, value, authorities licences, experience), and the reality that the prices your organisation has levied for utilization of its firms are low price in distinction with associated firms elsewhere, your organisation might by now be in considerable problem.
With changes in experience and lessening authorities controls, there are a selection of potential rivals coming into the market. The quick technological changes throughout the property beneath your
organisation’s administration, in asset administration processes and techniques, and throughout the sorts of merchandise delivered by your organisation, are increasingly more inserting rivals in a position to downside your organisation to hold out.
In look for an answer to what are clearly numerous looming points, your organisation has not too way back appointed you to develop an asset administration approach that meets the board’s targets of best enterprise apply to your particular kind of asset group inside 5 years, and a nationwide administration place inside ten years.
Funds – nonetheless not limitless funds – have been made obtainable for this goal. Your organisation is anticipating that the vastly improved regular of service launched by your administration talents will carry contented shoppers who pays the additional value required for a up to date and reliable service.
New utilized sciences might be discovered are anticipated that will help you to minimise the worth of upgrading your asset, select the perfect kind of repairs and rehabilitation, and permit your organisation to take a primary place throughout the asset administration self-discipline. Totally different new utilized sciences usually tend to help you lengthen the alternate options obtainable to the customer and tremendously improve the usual of service provided.
Your Course of
Write a submission to your chief govt officer of your organisation describing a way to guage and improve your organisation’s property, their administration, and the same old of service which they provide, to understand the board’s targets.
You’ll have to pick the organisation, kind of property and asset group you are managing.
Whereas an precise organisation is hottest, you possibly can write your reply for a hypothetical organisation. It’s essential level out whether or not or not the organisation about which you are writing is precise or hypothetical.
Your submission must be between 3000 and 4000 phrases in measurement and may have, together with the physique of the report, an abstract, desk of contents, background, introduction, conclusion and itemizing of references. Background knowledge must be as momentary as attainable and embody a brief description of your organisation, its asset group, firms provided by that asset group, and current state of the group.
At a minimal, your report should deal with the subsequent specific components (240 marks):
· Background particulars in regards to the asset group and the property in it (this must be ample to set the scene for the reader) (20 marks)
· The asset life cycle (20 marks)
· Stakeholder expectations (20 marks)
· The outcomes you might want to get hold of on the end of the 5 and ten 12 months durations (15 marks)
· Effectivity and serviceability requirements and indicators (15 marks)
· Enchancment of a reliable asset inventory (15 marks)
· Deterioration and state of affairs monitoring (15 marks)
· How one can get hold of optimum effectivity from the asset group (15 marks)
· Current and future utilized sciences (15 marks)
· Enchancment of an organization asset administration plan (15 marks)
· Use of acceptable asset administration methods (15 marks)
· Probably benefits and costs (20 marks)
· Conclusion (20 marks)
· Ideas (20 marks).
· Abstract and desk of contents (10 marks)
· Development (10 marks)
· Language and magnificence (10 marks)
· Completion in 3000 to 4000 phrases (10 marks)
· Setting out and referencing (20 marks)
It’s recommended that you just simply take some time considering an appropriate asset type and group on which to place in writing your report. It’s essential then evaluation the chosen asset type and its seemingly group preparations; and likewise evaluation processes and techniques for managing every the chosen asset type and the group. Critically consider the data you possibly can have found to have the ability to select in all probability probably the most applicable methodology for managing the property over the next ten years and previous. Replicate on the attainable selections and take into consideration an appropriate technique for the property beneath your administration, with the intention of reaching nationwide and ultimately world best apply.
It’s essential consider references outside the course supplies, using every on-line and print property. On-line property embody every the Internet and library on-line supplies. As an illustration, the Faculty of Southern Queensland subscribes to numerous on-line databases, which embrace abstracts (and sometimes full textual content material) of many current journals.
An asset beneath your administration, with an estimated lifetime of 20 years, costs $5,zero60,000 to purchase and arrange. It has a revenue stream of $870,000 per 12 months.
Costs of operation and maintenance of the asset are as follows:
Years 1 to 15:
$320,000 per 12 months for yearly
This asset is in the meanwhile nearing the tip of its design life. It subsequently must be modified or rehabilitated. As lead events for ordering instruments and arranging contracts might be pretty prolonged, a name have to be made shortly with respect to the perfect selection.
There are two selections to ponder on the end of the 20 12 months lifetime of the asset:
1. Substitute with a similar asset.
2. Rehabilitation, which is ready to lengthen its service life by 10 years (i.e., to 30 years in full).
Funds might be discovered for regardless of risk is chosen. There is a lead time of twelve months for ordering and placing in a model new asset, or enterprise rehabilitation, and subsequently a name on probably the most appropriate selection for various or rehabilitation is required as shortly as attainable.
If the asset is modified on the end of its 20 12 months design life, its residual value then will in all probability be $200,000. It could value $550,000 to remove the asset from service when it is modified.
The choice is predicted to be commenced immediately after the tip of the design lifetime of the asset and be achieved inside only a few months of commencement.
All through the interval of other, there’ll in all probability be no disruption to service of the asset. Subsequently the traditional revenue stream will in all probability be maintained. Costs of operation and maintenance for the 12 months whereby the asset is modified are anticipated to be $420,000, as there’ll in all probability be a interval all through this 12 months whereby the outdated asset, which has comparatively extreme operation and maintenance costs, will nonetheless be functioning.
Beneath the phrases of the choice contract, all charge for altering the asset is made after the asset has been effectively modified.
The asset is also rehabilitated after the tip of 20 years of service at a worth of $2,150,000. This course of will lengthen its service life by 10 years (i.e., to 30 years in full).
The rehabilitation course of will take as a lot as one (1) 12 months, immediately after completion of the design lifetime of the asset. All through the 12 months whereby rehabilitation is undertaken, normal costs of operation and maintenance will in all probability be $360,000. For each of the remaining 9 (9) years of service of the asset following rehabilitation, costs of operation and maintenance of the asset will in all probability be $440,000 per 12 months.
All through the interval of rehabilitation, the asset will proceed working, nonetheless at a decreased functionality. Revenue acquired by means of the 12 months whereby rehabilitation is undertaken will in all probability be 1500,000. The standard revenue stream will in all probability be resumed throughout the following 12 months.
On the end of the interval of operation of the rehabilitated asset, it needs to be modified. Its scrap value then will in all probability be $50,000, and there’ll in all probability be a worth of $600,000 to remove it. Totally different costs could be the same as these listed above for altering the asset.
Beneath the phrases of the rehabilitation contract, all charge for rehabilitation of the asset is made after completion of a worthwhile rehabilitation.
Your Course of
Half A (80 marks)
Using the online present value approach, assess probably the most appropriate selection with respect to each rehabilitating or altering this asset on the end of its life. It’s essential use a spreadsheet, with any essential explanations, to your calculation.
Money costs 6% every year. Assume zero inflation. Assume moreover that for the wants of analysis, all revenue acquired and costs incurred in a given 12 months occur on the end of that 12 months.
Assume that when an risk for rehabilitation or various has been chosen that it’s going to be repeated for the second and subsequent asset life cycles following the movement taken. As an illustration, if the selection is to rehabilitate on the end of 20 years, then the next life cycle (commencing at an asset age of 30 years) will embody various adopted by rehabilitation.
Half B (60 marks)
Repeat your analysis using a minimum of 5 (5) further low price fees to the 6% every year that you just simply used for Half A. The differ of these low price fees must be from three% every year to 13% every year.
Plot a graph of Web Present Value in direction of low price charge.
At what low price charge, if any, would the proprietor of the asset be indifferent with respect to deciding on rehabilitation or various as the favored risk on the end of the design lifetime of the asset? Briefly discuss your reply.
At what low price charge is rehabilitation not a sound risk from the point of view of internet present value?
At what low price charge is various not a sound risk from the point of view of internet present value?
What are the implications, if any, of these outcomes?
Half C (20 marks)
Lastly, take into consideration (in no more than 400 phrases) how your reply might be influenced if factors aside from monetary value had been considered. As an illustration, if the asset was rehabilitated on the end of its useful life, would the decreased functionality of the asset by means of the rehabilitation course of consequence throughout the eternal lack of numerous shoppers, and subsequently decreased revenue? How would you concentrate on the availability of current provides with a greater sustainability rating than provides used throughout the distinctive asset had been obtainable? What if one risk (rehabilitation or various) increased contributed to the group than one different? What completely different factors is maybe associated?
Communication (40 marks)
40 marks are allotted to communication factors of the reply to this question.
It’s essential solely take into consideration two selections in your reply:
· Rehabilitation on the end of the asset design asset life cycle, adopted by various by a similar asset which may also be rehabilitated on the end of its life cycle.
· Substitute on the end of the asset design asset life cycle, adopted by an additional various.
Assume that each one costs and benefits occur on the end of the 12 months whereby they occur.
Ignore any costs or benefits incurred after 60 years from the commencement of lifetime of the distinctive asset.
A way of analysing cash flows in situations the place cash flows fluctuate from 12 months to 12 months is to initially use first concepts to low price yearly to a typical base 12 months using the compound curiosity parts. You then have a terrific basis for extra analysis.