5.5.1.1

Asset Valuation and Asset Management

Knowing what a physical asset is worth – its value – can be very useful both for financial reporting and for supporting asset management. Even if the notion of asset value is somewhat abstract, an asset owner generally prefers that the value of their assets increases or at least remains constant over time. Fundamentally, tracking and reporting asset value helps a transportation agency monitor the state of its assets and provides a sense of whether the inventory is improving or in a state of decline. Transportation agencies use data on asset value in a variety of ways to support asset management. There are four major applications of asset value aiding an overall asset management program as described below.

• Communicating the Asset Inventory–Asset value is used to communicate what assets an agency owns, their extent, and the agency’s responsibility for maintaining the asset inventory. Each asset has its own unit of measure: pavements may be summarized in terms of lane miles, bridges in terms of deck area, and other assets in terms of a count. However, it can be hard to relate these different units and to summarize the asset portfolio as a whole.
• Demonstrating Fiscal Responsibility–Various measures have been formulated that use asset value and changes in value to demonstrate that an agency is managing its assets responsibly. The basic premise is that as assets deteriorate or depreciate, an agency should invest to maintain their value. Public agencies in Australia and New Zealand have used asset value in this manner for over a decade. In the U.S., several agencies have calculated similar measures such as the Washington State Department of Transportation (WSDOT) Gray Book, which includes several long-term measures for pavement assets related to asset value.
• Testing Investment Strategies–Asset value can be used to help illustrate the difference between alternative investment strategies, such as when comparing a strategy of performing recommended preservation treatments on an asset over its life to an alternative strategy in which preservation treatments are deferred, resulting in worse relative condition and potentially a shorter asset life.
• Prioritizing Investments–Another potential application of asset value for supporting TAM is helping compare and understand asset investment options. While asset value alone is insufficient for prioritizing investments, when used in conjunction with life cycle cost analyses it can provide a complete view of the asset’s worth. In particular, asset value can help prioritize decisions such as: Resilience investments; Reconstruction; or Decommissioning. Asset value provides insights for assets identified for decommission or reconstruction by pitting their intrinsic value (including the replacement cost and socio-economic importance) against the costs necessary to maintain or replace the asset.