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Capital Improvement Program (CIP)


The purpose of the Capital Improvement Plan (CIP) is to provide the Erie County Department of Environment and Planning (ECDEP) Division of Sewerage Management (DSM) with projected capital expenditures for the wastewater treatment and collection system.

While ECDEP has been proactive in maintaining its infrastructure and ensuring regulatory compliance, this CIP provides a formal approach to consider the long-term costs of rehabilitating and replacing these assets as they age or become technically obsolete over time. All assets eventually reach the end of their useful life where; condition and risk of failure is unacceptable, they can no longer provide required capacity or performance, they become technically obsolete, or they become financially inefficient to operate and maintain. The goal of this CIP is to provide a sound basis for project prioritization along with reasonable estimates and predictions of the timing and cost of future capital investments based on the best information currently available. Using this information, ECDEP can ensure that financial and funding plans are in place to meet expected future capital needs across the seven sewer districts (including East Aurora) in which it provides service.

For a detailed explanation of Asset Management please read below.

Overview of Relevant Asset Management Concepts and Principles

What is Asset Management?

Capital investment is a core component of effective asset management. Asset management ("AM") provides for the systematic planning, acquisition, deployment, utilization, control and decommissioning of capital (infrastructure) assets. It integrates strategic-level management, mid-level management, and operations level management into one focus. It extracts maximum value from performance of the assets per dollar invested. In short, AM focuses on the "stewardship" of substantial community assets by local government officials working within a political environment.

AM has been variously defined as:

"...a comprehensive and structured approach to the long-term management of assets as tools for the efficient and effective delivery of community benefits." (American Public Works Association AM Task Force)

"...a systematic process of maintaining, upgrading, and operating physical assets cost effectively." (Federal Highway Agency and AASHTO)

"...managing infrastructure assets to minimize the total cost of owning and operating them while continuously delivering the service levels customers desire." (American Metropolitan Sewer Association)

Enterprise-wide asset management is defined as:

  • A management paradigm and a body of integrated management practices;
  • That is applied to the entire portfolio of infrastructure assets and at all levels of the organization;
  • That seeks to minimize the total cost of acquiring, maintaining, operating, and renewing the assets;
  • Within an environment of limited resources;
  • While continuously delivering the service levels customers/stakeholders desire and regulators require;
  • At a level of risk the community is willing to accept.

Asset Management's "Value Proposition" - how AM pays its way

  • Public organizations are about creating "units of value" - output that is of value to customers, stakeholders, communities and regulators.
  • To generate this output - the described units of value - organizations transform input resources (cash, labor, materials, etc.) into output through the integration of work processes, labor, materials, information and tangible assets.
  • To be of value, the output unit must be of the right form and nature, delivered at the right time to the right place and delivered at an acceptable cost.
  • Conversion of inputs to valued output requires investment in assets. Planning, designing, building/acquiring, installing, commissioning, operating, maintaining, repairing, renewing, replacing and decommissioning assets is expensive, typically involving millions of dollars even to modest sized organizations.

Failure to adequately manage the life cycle of these assets leads to:

  • Over-investment in non-mission related assets;
  • Under-investment in mission critical assets;
  • Misdirection of severely limited operations and maintenance resources;
  • Imbalance among acquisition, maintenance, operation and renewal investment;
  • Misdirected appropriation for repair versus renewal;
  • Unnecessary or irrelevant levels and types of inventory materials and related expenses;
  • Overspending on operations and maintenance to compensate for design failures and misspecification; and
  • Revenue loss and dissatisfied customers and regulators due to performance failures and lack of system availability.

This definition and the related value proposition lead us to the core aspect of AM: AM is a way of thinking - a management "paradigm". This paradigm is substantially different from that which is currently employed by most US public sector managers, although it has had a significant following in the US private sector, in Europe and Australia/New Zealand's public sector for over a decade.

This paradigm can be summed up as follows:

  • The capacity to produce output of value to our customers is directly related to sustained performance of our infrastructure assets.
  • Failures in the asset base directly affect system performance.
  • Sustained system performance is the result of successfully managing failure within the asset base.
  • The management of failure in the asset base is highly constrained by cost; that is, customers are not typically willing to pay for zero likelihood of failure.
  • Different assets have different probabilities of failure, as determined by age, materials and assembly processes, operating environment, demand/usage and maintenance.
  • Failures vary substantially in their consequence to the organization, that is, in terms of the production of valued output to the customer.
  • Investment in assets (their acquisition, operation, maintenance, renewal and disposal) should be guided by the likelihood of failure and its consequence to the customer and regulator.
  • The more we understand about our assets - the demand for our assets, their condition and remaining useful life, their risk and consequence of failure, their feasible renewal options (repair, refurbish, replace) and the cost of those options - the higher the confidence we can have that our investment decisions are indeed the lowest life cycle cost strategies for sustained performance at a level of risk the community is willing to accept.

At its highest level of application, AM is a business model: It drives

  • What we do
  • Why we do it
  • How we do it
  • When we do it
  • Where we invest
  • What our costs are
  • What our return is

The Bottom Line

Millions of dollars are at stake in ECDEP's CIP management arena. Misdirected appropriations - capital investments that are made too early or too late in the life cycle or for the wrong solutions - are costly to the community; and such misdirection seriously erodes staff credibility over time.

AM is about finding that mix of management investment in maintenance, operations, and capital investment that sustains organizational performance over the long haul at the lowest life-cycle cost. It is about building confidence in decision-making - guiding investment in the right work, the right projects, at the right time.

The Seven Fundamental Principles of AM

The power of AM lies in integrating concepts, tools and techniques into a framework for finding and achieving the lowest cost of ownership while sustaining service at a level required by stakeholders. This integration is founded upon a set of core principles. These principles are summarized as follows:

1. The "Value Added/Level of Service" Principle - assets exist to deliver services and goods that are valued by the customer-stakeholder; for each consumer-stakeholder there is a minimum level of service below which a given service is not perceived as adding value.

2. The "Life Cycle" Principle - all assets pass through a discernable life cycle, the understanding of which enhances appropriate management.

3. The "Failure" Principle - usage and the operating environment work to break down all assets; failure occurs when an asset cannot do what is required by the user in its operating environment.

4. The "Failure Modes" Principle - not all assets fail in the same way. Four distinctly different failure modes operate on each asset at all times. The most imminent likely failure mode drives the selection of an appropriate management intervention.

5. The "Probability" Principle - not all assets, even of the same age and type, will fail at the same time.

6. The "Consequence" Principle - not all failures have the same consequences to the organization, its stakeholders, and to the community.

7. The "Total Cost of Ownership" Principle - there exists a minimum total optimal investment over the life cycle of an asset that best balances performance and cost given a target level of service and a designated level of risk.

A Conceptual Framework: Four Different Views of AM Relevant to this Project

Asset management can be visualized as a physical object - a box. Like any box, it has multiple faces. Each face can be thought of as providing a different view of the contents of the box, where the contents in our conceptual box consist of literally hundreds of best practices, tools, and techniques. Each face provides a different view with different insights about which best practice, tool, or technique is appropriate for a given management issue. The following discussion outlines four fundamentally different faces (views) of the box.

The Seven Fundamental Elements of an AM Program

Asset management can be seen as an interaction of seven core organizational "quality elements". Quality elements are those fundamental components of an organization's business model that drive the sustained success of the organization.

Within the seven elements are "world's best practices" that inform the practitioner as to how best to proceed in strengthening each element. These best practices are under continuous development and refinement, lifting the industry or organization that incorporates them to higher levels of performance.

A successful long-term asset management program is a continuous balancing of these seven elements, built around continuous learning - "the more we understand about our assets, the better we can manage them."

Figure 1 The Seven Fundamental Elements of an AM Program

The Five Core Management Questions

Successful management can be said to start with asking the right questions. Only by starting with the right questions can we find good answers.

This view poses five core questions that all managers of infrastructure should be constantly confronting with their management teams. Asset management's "tool bag" is comprised of literally hundreds of techniques, and these questions help impose structure and order to this extensive "tool bag," assisting the manager to select the relevant processes and practices that best help manage the assets.

Question 1. What is the current state of my assets?

  • What do I own?
  • Where is it?
  • What condition is it in?
  • What is its remaining useful life?
  • What is its remaining economic value?

Question 2. What is my required level of service (LOS)?

  • What is the demand for my services by my stakeholders?
  • What do regulators require?
  • What is my actual performance?

Question 3. Which assets are critical to sustained performance?

  • How does it fail? How can it fail?
  • What is the likelihood of failure?
  • What does it cost to repair?
  • What are the consequences of failure?

Question 4. What are my best O&M and CIP investment strategies?

  • What alternative management options exist?
  • Which are the most feasible for my organization?

Question 5. What is my best long-term funding strategy?

The Strategic Role of the AM Plan

To be viable, asset management must drive real results "to the bottom line" - that is, it must make business sense to the organization. This view is closely related to the question "why do asset management?"
The concepts embedded in this view are:
Asset management is about creating a management framework that leads to sustained performance at the lowest life cycle cost (while meeting requirements of stakeholders at a level of risk acceptable to the community).
To achieve the lowest life cycle cost, we must understand how our assets are likely to fail (the failure "mode") and which AM processes and practices to deploy to appropriately manage those failure modes.
These processes and practices are "bedded down" and supported by good data derived from an integration of asset management information sources.
This framework drives the production and constant revision of an asset management plan, which is a dynamic strategic framework similar to the agency's budget.
The Asset Management Plan, in turn, drives two things:
The execution of specific management initiatives or "improvement projects" with declared objectives, resources, and timelines that are intended to change or strengthen organizational processes or to solve specific asset-related problems
The annual CIP and operating budget.

The "10 Step Process" to Building an AM Plan

Finally, asset management can be viewed as a set of systematic steps that lead to specific deliverables, the most fundamental deliverable being the Asset Management Plan. Certain "best practice" processes and techniques relate directly to the execution of each of these steps. These best practices make up the bulk of the practitioner’s tool kit.

To successfully execute the steps, an organization must master the basics of the associated practices, processes, tools, and techniques. The graphic below shows the core steps along with the basic techniques that support them.

Relevance of the Principles and Various Perspectives to This Project

Each of these perspectives provide an effective framework for selecting and applying the rich set of tools and techniques - best practices - that strengthen the management of infrastructure assets. More to the heart of the issue, they facilitate the difficult decisions of where, when, and to what end to invest limited resources in the relentless pursuit of sustained asset performance at the lowest total cost of ownership. These perspectives and their associated best practices have been incorporated as a framework for the recommended revised CIP processes. Understanding the definition, principles, and various perspectives lead to a more complete understanding of the recommended processes and practices.