8.1 Applications of Asset Value

As discussed in Section 2.1, asset value and measures related to asset value can be used to support a variety of TAM-related decisions. This section expands the discussion of potential applications of asset value in Section 2.1 through defining a set of six key questions that an asset owner may wish to use asset value to help address. These are as follows:

1. What is the overall value of the asset inventory? This is the most fundamental question one might ask about asset value. That is, given an inventory of assets, what exactly is their value? Typically, one seeks to answer this question at a high level, such as for all pavements on the NHS, rather than for specific assets. However, even at a high level it helps put all of an agency’s TAM decisions into perspective, establishing the importance of focusing on inventory maintenance. Further, answering this question supports compliance with Federal regulations requiring State DOT TAMPs to detail the value of NHS pavement and bridges. While the Federal requirement is to calculate current value, one may seek to calculate further historic value and/or predicted future value given a set of assumptions about asset funding, use, deterioration and other parameters to provide further context for TAM decisions.
2. What is the cost to maintain current asset value? Establishing overall asset value for each asset classification is a prelude to this follow up question. Here, one seeks to determine how much value is lost each year as assets age, and what investments are needed to offset depreciation and optimize the assets’ lifespans. Value is preserved or restored as a function of the treatments performed on existing assets, or as new assets are constructed. As in the case of the first question, asking and answering this question helps put TAM decisions into context. It helps justify whether a given set of TAM investments are defensible. Information on the cost to maintain asset value can guide an agency to establish the necessary level of investment for preserving its existing assets. Also, answering this question supports compliance with the Federal TAMP regulation, which requires that State DOT NHS TAMPs document the cost needed on an annual basis to maintain value of NHS pavements and bridges. One can compare this cost to an agency’s planned expenditures to establish whether asset value, and by extension asset condition, is expected to increase, decline or remain the same.
3. How much should we spend on our existing assets? This question is closely related to the second question, but the two questions may have different answers. If the measure of value is meaningful, then an agency should ideally spend enough money to maintain or increase asset value over time. However, it is inevitable that the value of a given asset will decline following construction or renewal of the asset: it is simply not realistic to expect assets to remain in a “like new” condition indefinitely. On the other hand, if the value of the asset inventory has declined to the point that is demonstrably suboptimal (e.g., a case in which assets are in such poor condition that users experience increased costs from delay and the agency incurs increased costs from emergency maintenance) then merely maintaining such a suboptimal condition is undesirable. Thus, answering this question requires additional analysis to determine the asset value associated with achieving an agency’s “desired state of good repair,” and the cost to achieve this value. Once obtained, the answer supports decisions about how much to invest in the asset inventory.
4. How should funds be allocated between different assets or networks? To the extent that funds are insufficient for addressing all of an agency’s investment needs, it may be necessary to prioritize between different asset classes or networks (e.g., the Interstate System, Non-Interstate NHS, and Non-NHS). Information on asset value helps communicate the size of the inventory expressed in a single unit of measure – dollars. It also illustrates the impacts of different budget allocations. If the measure of value is constructed such that it is proportional to the economic value of the asset inventory, then one can demonstrate that an investment approach which maximizes value across asset classes and networks also maximizes societal benefits.
5. What’s the best life cycle strategy for our assets? Information on asset value, together with supporting management systems, can be used to test different asset lifecycle strategies and illustrate the effectiveness of different strategies for maximizing value. Doing this requires predicting asset value assuming different strategies and comparing their results. For instance, one can compare a proactive strategy, in which interventions are performed over time to achieve or extend the expected asset life, to a more reactive strategy, in which few or any interventions are performed, shortening asset life. To perform such an analysis, one must adjust asset life assumptions for each scenario and/or base depreciation on changes in condition rather than asset age. Note that while asset value can help support decisions about asset life cycle strategies, a management system is needed to develop potential lifecycle strategies and determine what specific interventions are needed for a given asset.
6. What is the value generated by the asset? Much of the discussion thus far has revolved around the value of the asset, as it relates to construction and maintenance costs. However, two assets of the same type, length, and roadway characteristics, may generate strikingly different value for the communities that use them. Variations in the volume of traffic, the availability of alternative routes, and the accessibility offered by these roads are only some of the factors affecting how road users perceive their value. For example, a road user whose next best alternative adds an additional hour to their commute will value the presence (and maintenance) of that road much more highly than the user with several equidistant alternative routes. When considering investment decisions, it is important to account for the road user’s perspective. The ISO asset management standard (1) includes further discussion of this topic.

The different measures presented in Chapter 7 may be applied to answer the key questions posed above. Table 8-1 is a matrix showing which measures can help answer each of the six questions listed above. With the exception of the first question, all others require one or more supporting measures that are derived from asset value.

Table 8-1. Asset Value-Related Measures and Mapping to Key Questions