Asset Management in Public and Private Sectors

Most of my firm’s clients are in the private sector but occasionally we do some public sector work. We usually notice a number of distinct differences in practices and in what motivates those practices. It would be nice to say that one can learn a lot from the other, but in truth, both can learn a lot from each other.

I thought it might be useful to compare and contrast the two sectors (based on personal observations) and then propose an idea for learning from each other.

Subject	Compare / Contrast Observations
	Public Sector	Private Sector
Business motivator	Service to public	Profit
Types of assets	Public infrastructure Linear: bridges, roads, sidewalks, highways, waterways, locks and canal systems, water and waste water systems, public transit rights of way and tracks, tunnels, elevated rail   Facilities: parks, schools, police stations, fire halls, military bases, government buildings, research facilities, hospitals and health centres   Plant: water and waste water, traffic controls systems, air traffic control system, port facilities, airport facilities, navigation systems   Fleet: ship, air and vehicle fleets: naval, coast guard, water bombers, police, fire, municipal (various uses), snow removal, municipal / regional mass transit systems (busses, light rail, streetcars, subways, trains)	Private Infrastructure (where public infrastructure is unavailable), Production and Logistics Assets Utility: Linear assets and plant for gas, electric, and telecommunications.   Resources: exploration, extraction, processing and transport (road, rail, pipeline).   Manufacturing: factories and equipment for producing goods, secondary processing plants (chemical).   Distribution: warehouses, cross dock facilities, transport (trucks, trains, aircraft fleets)   Transportation: rail roads and aircraft, private bus systems, airports, ports, railway facilities and track, cars (taxi), private security fleets   Data and telecoms: data centers, fiber optic networks, microwave networks, satellite communications,
Need for reliability (i.e.: impact of failures)	Significant impact potential. Low R risks public service failures and harm across multiple industrial sectors	Limited impact potential except where safety and environmental safeguards fail. Low R risks loss of production capacity, higher costs and loss of profitability
Funding / Revenue source	Largely from taxes with some user fees	From sales of goods and services
Handling of OPEX	Budgets with strict discipline. Tendency to spend it or lose it.	Budgets with loose discipline. Continuous effort to reduce costs (to improve profits).
Handling of CAPEX	Manage projects. Often heavily involved in design process using experienced in-house experts – heavy reliance on experience can constrain innovation.   Execution usually contracted to private sector after bidding for work.	Manage projects. Design by specialists often with emphasis on innovation. May be done in-house or contracted.   Execution usually contracted to specialty firms that may be allied to designers or may be chosen through bid processes.
Influence of taxation on decisions	None	Generally taxation acts as disincentive and drives economic activity away from areas where government applies taxation. Big consideration in finance circles.
Political influence	High – Asset Managers are civil servants; politicians ultimately hold the purse strings. Often politicians are poorly / uninformed and motivated by self-interest.	Only through taxation.
Market influence	None directly, but high level of awareness of role to support competitiveness of private sector. Long term trends do help drive public policy and ultimately infrastructure spending	Strong. Privately held firms are more resilient to short term trends in interest of longer term sustainability. Publicly traded firms can be influenced by short term market trends – can lose sight of longer term goals.
Asset Management approach	Strategic financial perspective. Well aware of condition and costs to restore / replace assets. Consider very long term sustainability of assets.   Maintenance not always treated as critical to asset longevity. Tactical execution not always well thought out.	Long range planning driven by market forecasts. Investments often made with short (10 year) life span in mind. Utilities tend to view longer time spans and long range financing needs. Other companies tend to look only at short term (5 year max. windows). Heavy reliance on maintenance to sustain assets. In fact the term “Asset Management” is often used in reference to maintenance and its systems.
Maintenance	Much of it is contracted out to lowest bidders. Quality suffers, asset deterioration is a big problem with mounting costs to recover. Driven by availability of money and procurement criteria (lowest bid wins). Reliability is responsibility of public sector asset managers, not the contractors who execute the work.	Spotty – can be very good or it can be very bad. Highly dependent on mindset of managers who have responsibility for maintenance. Reliability often seen as a maintenance role.
Outsourcing	Extensive when it comes to execution of work. Management tends to be retained in house. Contracts tend to be prescriptive – rely on in-house expertise.	Usually reserved for highly specialized capabilities, work force leveling or specific smaller jobs. Heavy reliance on in-house resources and expertise.
Maintenance program development	Based largely on past practice. Advanced methods (RCM) used in military but rarely elsewhere. Lack of tech manuals for most civil infrastructure results in no maintenance other than repair after failure.	Mix of past practice, modern technology and well-designed programs using RCM. Some reliance on vendor manuals. Same problem for structure as public sector has for civil – no manual often means no program.
Projects	Managed by public service but work contracted out. Work usually goes to lowest bidder so innovation and quality can be lacking. Asset longevity can be impacted by lower quality.   Increasingly reliance on PPP.   Good handover to operations.	Often contracted out at design stage. Some influence on design but largely hands-off approach. Encourages innovation. Usually good quality control over contracted work. Maintainers often involved in oversight.   Poor handover to operations
Asset Information Management	Good Mix of paper and computerized. Except military, only documentation is for systems bought from vendors who supply manuals.   Sufficient clerical staff to manage systems so computerized information tends to be well managed, but systems tend to be out of date.	Poor Mix of paper and computerized. Only documentation is for systems bought from vendors who supply manuals.   Where there is a reliance on computer systems they will be up to date, but there is often little investment in clerical staff to run them.
Reliability Growth	Only with new systems. Little attempt is made to improve on reliability as built. Maintenance tends to be reactive to breakdowns. Predictive technologies can be found in plant environments but little evident effort to be proactive in civil infrastructure.	Use variety of reliability improvement methods (RCFA, RCM, PMO, etc.) but only where individual managers have high awareness of them. Reliability efforts can be stifled by short term production demands leading to reactive approaches.
Preventive / predictive maintenance discipline	In plants – good.Elsewhere – all but non-existent because programs are lacking.   Some use of predictive technology.	Varies widely from organization to organization. Dependent on manager attitudes and production pressures. Extensive use of predictive technologies, but follow-up on findings can be spotty.
Quality of Maintenance	Fair – usually outsourced to low bidders.	Good – usually performed in house.

Conclusion:

Neither sector has it all right nor all wrong. Both have strengths, some in common, and there is plenty of opportunity for each to learn from the other.

In both sectors the people who manage assets tend to be dedicated, well-educated and well informed. They all work within constraints – market driven and politically motivated. In the public sector, policy and practices ensure some degree of consistency regardless of who is managing any given activity. Managers in the public sector tend to be capable and strategic in their outlook, but they won’t always have a strong technical background. In the private sector there is less reliance on policy and documented practices so individuals have a great deal of influence, resulting in a wide array of observed practices. Managers tend to be strong technical types with a more tactical perspective on what they are managing, sometimes even missing the more strategic needs of their organizations.

Market forces drive company strategy and decision making in the private sector and can lead to rapid change. Assets are tools to be utilized, built and disposed of, as needed. There is a heavy reliance on public infrastructure and it tends to be taken for granted. The influence of markets in the public sector is more muted – in fact if anything decisions lag markets considerably. There is however a keen awareness of the dependence that the entire economy has on the infrastructure they manage.

How can we share?

Presently we have organizations in which these two sectors tend to congregate to share ideas. In Canada the private sector has the Plant Engineering and Maintenance Association of Canada (PEMAC). The public sector has Canadian Association of Asset Managers (CNAM). There are other groups as well – the Institute of Asset Management (IAM) being one notable one that bridges both sectors – it is UK based but expanding globally. In the US we have the Society of Maintenance and Reliability Professionals (SMRP) which is largely private sector in focus (like Canada’s PEMAC). And there are other organizations focused on transportation assets, buildings, facilities, property management, etc.

There is little in the way of an “asset management” community that we all feel a part of.

Each of the existing organizations tends to have a well-defined focus within its sector. Some have a strong emphasis on education and certification, others on certification alone, some on pushing the state of the art forward, some on encouraging proven best practices, some on information sharing, some on networking, etc. While there is a need for all of this there appears to be only a few that view Asset Management as a professional endeavor for people from a broad range of backgrounds. The IAM is one, the American Asset Leadership Network (ALN) and the Australian Asset Management Council (AMC) have that broad focus. The IAM is still largely UK centric with a handful of national chapters elsewhere. ALN is very US focused and primarily in the public sector at the federal level. AMC is a reincarnation of the old MESA (Maintenance Engineering Society of Australia) and has broad membership and recognition.

Unfortunately for North America with its great distances, a national chapter of anything (e.g.: IAM) is almost doomed from the outset unless it relies solely on technology for sharing. SMRP and PEMAC do well in the USA and Canada with their more localized chapter structures. Perhaps that is a model we can use to share information. In fact, if those organizations would shift towards an asset management focus and de-emphasize maintenance and reliability then perhaps they could serve the asset management community. Presently however, they do not. The Australian AMC model is one I would encourage us to follow.

Update

Since this was originally published we have enjoyed more work with the public sector and gained even greater insight into AM there. In Ontario, we are very advanced – the province now has an AM Plan and municipalities are required to produce them (some are already done). To help them, I’ve recently published a new book on AM In Ontario – click on the image to the left to obtain a copy.