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Asset Management for Irrigation and Drainage Infrastructure –Principles and

Case Study

Article  in  Irrigation and Drainage Systems · June 1999

DOI: 10.1023/A:1006254924281

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AUTHOR'S PROOFS

Irrigation and Drainage Systems xxx: 1–21, 2004.

C 2004 Kluwer Academic Publishers. Printed in the Netherlands.

1 Asset management modelling framework for irrigation

2 and drainage systems: Principles and case study
3 application

4 HECTOR M. MALANO1 , BIJU A. GEORGE1 & BRIAN DAVIDSON2 F

5 1 International Technologies Centre, Department of Civil and Environmental Engineering,
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6 University of Melbourne, Victoria 3010, Australia; E-mail: h.malano@civenv.unimelb.edu.au
7 2 Institute of Land and Food Resources, University of Melbourne, Victoria 3010, Australia

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Abstract. Sustainability of irrigation and drainage infrastructure poses many challenges to

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many irrigation authorities worldwide due to a mismatch between the actual cost incurred in
the provision of irrigation and drainage service and pricing of this service. This shortfall often
11
12
13
government or other sources. T
leads to inadequate expenditure on maintenance in the absence of adequate subsidies from

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The asset management modelling framework (AMMF) presented in this paper enables the
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quantification of on-going ownership costs and operation costs. A life cycle cost (LCC) model

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for the evaluation of alternative irrigation and drainage asset management strategies is also
presented. The AMMF is applied to the evaluation of asset ownership costs and LCC for
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alternative maintenance and interest rate scenarios in the Cu Chi irrigation system, Vietnam.
The cost of three renewal strategies was evaluated: linear depreciation, full annuity and partial
19
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annuity. The cost ranges between US$ 28.00/ha and US$ 41.00/ha when interest rate varies

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between 9 and 3%. The average maintenance expenditure during recent years was estimated
to be only US$ 1.30/ha which translates into 0.68% of the total asset replacement cost.
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23
24
25 U N
The application of a simplified LCC model reveals that the least LCC varies with the level
of maintenance and interest rate between US$ 353.5/ha for 5% maintenance expenditure and
12% interest rate to US$ 522.3/ha for 3% maintenance expenditure and 6% interest rate. The
importance of exercising value judgements in applying the LCC model is also emphasised and
26 discussed.

27 Abbreviations: AMMF, asset management modelling framework; ARC, asset replacement

28 cost; CBD, condition based depreciation; IMC, irrigation management company; LCC, life
29 cycle cost; NPV, net present value

30 Key words: asset management, drainage, infrastructure, irrigation, maintenance, service

31 provision, Vietnam

32 Introduction

33 Irrigation plays a critical role in the development of agriculture and food

34 supply in Vietnam. The ability to meet this challenge will depend largely
35 on improvements to irrigation infrastructure. Many irrigation schemes in the

TECHBOOKS Journal: IRRI MS Code: 701-PT PIPS No: DO00002972 DISK 5-10-2004 14:30 Pages: 21
AUTHOR'S PROOFS

country rely heavily on pumping for irrigation and drainage and many op- 36
erators are concerned about the high energy costs incurred in the operation. 37
Potentially of greater concern is the rapid decay of irrigation infrastructures 38
due to lack of adequate maintenance. The delivery of irrigation and drainage 39
service requires a hydraulic infrastructure that is designed, operated, main- 40
tained and upgraded in the most cost effective manner to meet the desired 41
service objectives (Malano et al., 1999). 42
There are a number of events that occur during the life of any infrastruc-
F 43

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ture. These include the creation of new assets, the rehabilitation of assets to
their original design specifications or the modernisation of assets to meet new
44
45

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service requirements. Hofwegen and Malano (1997) defined asset manage-
ment programs as “A plan for creation or acquisition, maintenance, operation,
46
47

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replacement, modernisation and disposal of irrigation and drainage assets to
provide agreed level of service in the most cost effective and sustainable man-
48
49

the asset database (Malano et al., 1999). E D

ner”. The ultimate aim of an asset management program is to deliver an agreed
level of service at the least possible cost while ensuring the sustainability of
50
51

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52
Currently the price of irrigation delivery service charged by the irriga- 53

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tion management companies (IMC) in Vietnam bears no relation with the
infrastructure or operation and management cost. IMCs are heavily reliant on
54
55

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government subsidies for their operation (Davidson et al., in press). 56
Irrigation authorities are often confronted with asset decisions which may 57

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involve prioritising alternative asset strategies which may involve repairing, 58

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rehabilitating or modernising irrigation infrastructure. A key factor in opti-
mising the outcomes from this decision-making process is the ability to make
informed choices from a number of alternative future asset scenarios. Future
59
60
61

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asset scenarios may involve a combination of asset events including upgrades,
rehabilitation, modernisation and retirement. The complexity of the aspects
involved in evaluating a large number of assets in irrigation and drainage
62
63
64
system makes this task particularly well suited for computer simulation and 65
analysis. 66
An asset management modelling framework consists of two main compo- 67
nents: 68

(1) A database of assets consisting of geographical location of assets, design 69

features, maintenance records and asset condition and performance. 70
(2) An analysis module which enables the modelling of future asset strategies 71
including the calculation of future liabilities and life cycle asset costing 72
associated with alternative courses of action. 73

The asset database enables asset operators to maintain an up-to-date 74

registry of the existing assets. A computer database enables rapid recording, 75
AUTHOR'S PROOFS

76 update and retrieval of the existing data. An asset management software

77 program with these capabilities called “Asset Manager”is described in the
78 Appendix.
79 The conceptual aspects of the development and implementation of an as-
80 set management program has been presented in several papers (Burton et al.,
81 1996; Burton & Hall, 1999; Malano et al., 1999; Burton et al., 2003). One
82 of the critical components of an asset management program is the evalua-
83 tion of alternative strategies for managing the infrastructure asset base. While
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84
85 be found in other infrastructure sectors (Fabrycky & Blanchard, 1991) there O
techniques and applications for evaluation of asset management strategies can

86
87
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is a paucity of literature focusing on irrigation and drainage infrastructure.
This paper focuses on the conceptual aspects of an asset management mod-
88
89 P
elling framework (AMMF) that allows the assessment of asset management
strategies and costs associated with the operation of the irrigation system in-
90
91 Cu Chi irrigation system in Vietnam.
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frastructure. The AMMF is illustrated with an application case study on the

92 Modelling framework
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93

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Asset condition and performance assessment

94
95 R
Assets can be assessed on the basis of two parameters, namely Condition,
and Hydraulic Performance (Tran et al., 2003; Burton & Hall, 1999; Malano
96
97
et al., 1999).

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Asset condition refers to the fitness of the asset to perform the function

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98 for which it was intended. The condition of assets is the result of several
99 factors including wear and tear, quality of maintenance, age and quality of
100
101
102
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construction. It is a key measure necessary to determine the residual life of
assets and therefore the future actions that may be required. It is also important
to provide some idea of the overall reliability of the system to deliver the
103 designed irrigation and drainage services. Aspects of reliability are related to
104 the actual condition of the assets and their risk of failure.
105 Apart from their condition, the ability of assets to perform their function
106 depends on the adequacy of their design in relation to their designated function.
107 Hydraulic performance refers to the ability of the asset to satisfy the function
108 for which it was designed (NRC 1995). In this study, the term performance is
109 restricted to the effectiveness of the asset in performing its hydraulic function.
110 For instance, a canal or a control structure may be in good overall condition
111 but have insufficient capacity to deliver the required discharge because of
112 inadequate design criteria. A scoring system is usually applied to rate the
113 performance of assets. Upgrades of assets due to unsatisfactory hydraulic
114 performance may be needed despite the asset being in a satisfactory condition.
AUTHOR'S PROOFS

Table 1. Criteria for assessing asset hydraulic performance.

Rating Criteria

1 No constraint to pass maximum required discharge

2 Discharge capacity <10% below maximum required at FSL
3 Discharge capacity between 10 and 20% below maximum required at FSL
4 Discharge capacity >20% below maximum required at FSL

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The criteria used to evaluate the hydraulic performance of assets in this model
is described in Table 1. Only asset hydraulic capacity is rated and quantified O 115

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116
while other shortcomings such as ease of operation, correct installation of 117

accordingly.
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staff gauge and safety are noted as items needing attention and budgeted 118
119

Composite condition rating

E D
Assets have a different number of individual components that may lead to
asset failure. In the proposed model, the importance of each component is
120
121

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122
weighted on a scale of 0–1.0 with the final condition rating resulting from the 123

z
E C
composite weighting of all components as shown in the following equation: 124

A=
i=1
ai wi

R R (1)

C O
where ai is the component condition rating; wi the component weighting; A
the overall asset condition rating; and z the number of rated components.
There are several approaches to weighting asset components. Components
125
126
127

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can be weighted according to the impact of component failure or according
to the replacement or repair cost of the component failure. The latter appears
in principle more simple to apply since it does not require a comprehensive
128
129
130
assessment of risk arising from different failure modes. Table 2 describes the 131
components used for assessing the composite rating of various assets in this 132
model. 133

Decay function 134

In this model, the rate of decay of assets is described by a continuous function 135
of asset age of the following form: 136

∗
A = br ln(t )
(2)

where A is the overall condition rating; b the lowest condition

ln(1/b)
rating (highest 137
condition rating = 1); t ∗ the dimensionless time (e ln(r ) < t < 1); and r the 138
decay factor. 139
AUTHOR'S PROOFS

Table 2. Criteria for assessing asset condition.

Canals Gated cross Bridges,

regulators and syphons and Pumping Inspection
Rating Lined Unlined gated offtakes culverts stations roads

1 Outer Canal banks Gate operation Structural Electrical Accessibility

slope integrity controls

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2 Lining Canal Structural Buildings Side slope
waterway integrity
3 Lifting
mechanism
Motor
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4 Staff gauge Pump

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C T
R E
R
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U N Figure 1. Examples of decay curves.

140 The choice of the decay factor (r) determines the rate of asset decay as
141 shown in Figure 1. This rating function takes into account the decay pattern
142 appropriate for each asset such as accelerated decay or delayed decay. The
143 effect of a lack of maintenance on the decay of assets depends on the nature
144 of the individual assets. For instance, dynamic assets, with more moving parts
145 such as pumps and motorised equipments are likely to exhibit a premature
146 rate of decay at the beginning of their life as wear and tear of moving parts
147 may increase the risk or asset failure if maintenance is inadequate. Lack of
148 maintenance of static assets such as cross regulators and channel offtakes
149 may have greater effect later in assets life. The decay curve also reflects the
150 level of expenditure needed to bring the asset to its original condition. Assets
151 with a faster rate of initial decay require greater investment to upgrade their
152 condition earlier in their lives than assets with a more uniform rate of decay.
AUTHOR'S PROOFS

The asset decay factor also has an effect on decisions about future strategies 153
(on whether to maintain, replace, rehabilitate, or upgrade) that result from 154
their present condition. 155

Asset accounting and economics 156

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Asset valuation 157
The worth of existing assets can be determined by a number of valuation 158

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techniques. For fixed assets such as irrigation and drainage systems, roads, 159

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reticulation systems and bridges, a common approach to value an asset is
to determine the book value (written-down value) of assets based on the
depreciation that has accrued since the creation (acquisition or construction)
160
161
162

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of the asset. The main difficulty with this technique is that the actual value
of the asset resulting from its capacity to delivery service depends on its
163
164

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condition, which normally does not follow a fixed or predetermine rate of
depreciation as applied in normal accounting practices.
165
166

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For irrigation and drainage assets, whose actual condition depends to a
large extent on the level of maintenance after their installation, it is more
appropriate to assign asset values according to their actual condition. This
167
168
169

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technique is termed condition based depreciation (CBD). This method as-
sumes that the asset value is determined by its deviation from the “as new”
condition. Under this approach, any expenditure on repairs and upgrades per-
170
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172
formed on the asset will increase its current condition and its value. The decay 173

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model presented in Equation (2) can be used for this purpose. The condition
of the asset can also be periodically adjusted to reflect deviation from the
theoretical decay model.
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175
176

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Replacement analysis 177
The ability to ensure the sustainability of the irrigation infrastructure in per- 178
petuity depends on the ability to carry out the renewal of assets at the end of 179
their life by establishing an appropriate renewals reserve. Two typical situa- 180
tions usually arise when an asset management program is implemented for 181
infrastructure which already exists: (a) the initial investment which is usually 182
funded from general tax revenues or external loans is deemed to be “sunk”; 183
or (b) adequate depreciation provisions are implemented from the start of the 184
system’s operation. 185
In many irrigation schemes around the world, responsibility for the op- 186
eration and maintenance of the system is being devolved to farmers or to 187
privatised or corporatised irrigation agencies. This change in management ar- 188
rangements is often accompanied by a “write-off” of assets and a devolution 189
of future responsibility for infrastructure investment to the new management 190
authority without relying on government subsidies. When a sunk investment is 191
AUTHOR'S PROOFS

192 assumed, adequate provisions for asset renewals require the use of a renewals
193 accounting framework. This entails setting up a renewal fund that ensures suf-
194 ficient capitalisation over the renewal planning period so that the management
195 authority can invest in asset renewals when required. The question that must
196 be addressed is: How much money should be set aside each year to cover both
197 depreciation and inflation, so that there will be sufficient financial capability
198 to replace the assets when it is either worn out or due for replacement?
199 A four-stage procedure is required to calculate the amount required to
F
200
201 necessary to calculate the amount of money required to purchase the asset O
sink into a fund to replace the assets of the irrigation company. Firstly, it is

202
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at some time in the future. This calculation is known as the “amount of a
future lump sum at compound interest”. Secondly, it is necessary to calculate
204
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the salvage value of the asset at the end of its life. In many cases, this can
be assumed to be zero, especially in irrigation systems. Thirdly, once the
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amount required in the future is known (stage one minus stage two), then
the annuity needed to be saved each year can be calculated for each asset.
Finally, the system is complex involving many assets, it is necessary to sum
T
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209 the annuities required for each asset (calculated in the third stage) over all
210
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assets.

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For each asset the amount of a future lump sum at compound interest can

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212 be calculated by applying (Blank & Tarquin 1983):

Sn, p = Pp (1 + IF)n
R (3)

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where Sn , p is the amount of a future lump sum required to replace asset j; P p
the present replacement value of the asset p; IF the inflation rate; and n the
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asset life in years.
To calculate the future salvage value of the existing asset, first estimate the
present salvage value of it, as if it was salvage, and then apply Equation (3)
218 to it. To do this, for ease of understanding, ‘p’ can be used to represent the
219 present salvage value of the asset, while ‘s’ is its future worth. So the salvage
220 value of the asset in the future is

snp = p p (1 + IF)n (4)

221 where snp is the future value of salvaged asset p; p p the present value of asset
222 p.
223 Any assumptions regarding the rate of inflation on second hand assets can
224 be incorporated into the calculation. The salvage value of fixed assets such as
225 flow regulators and canal offtakes is usually negligible. Dynamic assets such
226 as electric motors and pumps may have a realisable value at the end of their
227 service life.
AUTHOR'S PROOFS

The amount required in the future to replace the asset is equal to the future 228
cost minus the salvage value. So the amount required at some point ‘n’ in the 229
future is: 230

Fn, p = Sn, p − sn, p (5)

where Fn , p is the amount required to replace asset p at time n; and all other
variables are as described above. F 231
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The annuity required to obtain Fn , p is calculated according to the following 233
equation:

Rp =
Fn, p i
RO 234

[(1 + i)n − 1]
P (6)

E D
where R p is the amount required to be set aside each year and invested to
replace asset p at time n; i the interest rate; and all other variables are as
235
236
described above.

C T
Finally, once the annuity required for the replacement of each asset has
been calculated it is necessary to sum those amounts for all assets. Thus the
237
238
239

is:
R E
amount of money required each year to be sunk into a fund to replace assets 240
241

RA =


n

p
R
O
t=1 i=1

C
Rt, p (7)

N
where RA is the amount needed each year to replace all assets; and R the 242
annuity needed to replace individual assets at time (t).

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243

Life cycle cost analysis 244

Life cycle costs (LCC) refer to all cost associated with the acquisition and own- 245
ership of assets over its entire life (Fabrycky & Blanchard, 1991). There are 246
many LCC models available in the published literature including both general 247
and specific LCC models. The specific nature of most problems usually leads 248
to the use of specific models. There is no single life cycle cost model which 249
can be used for all problems. Life cycle cost models may include both pre- 250
dictive (deterministic) variables such as maintenance cost, replacement cost 251
and stochastic variables such as interest rate and probability of failure. The 252
comparison is usually made in terms of net present value (NPV) although it 253
can also be in terms of annualised costs. Unlike commercial enterprises which 254
aim at maximising profits, the objective of irrigation and drainage authorities 255
is to achieve long-term sustainability of the infrastructure at a minimum cost. 256
This can be achieved by choosing the most cost-effective option from a series 257
AUTHOR'S PROOFS

258 of alternative strategies. The best outcome is achieved where the total LCC is
259 minimised.
260 The following general LCC model is proposed for irrigation and drainage
261 systems:
L

m
m
n CM
( p)t + CO( p)t + CR( p)t + j=1 p( p) j C ( p) j
LCCkn = CI p +
(1 + i)t
p=1 p=1 t=1
(8)F
O
262
263
264
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where LCCkn is the life cycle costs for strategy (k) over the life span (n); CI p
the initial design and construction cost of asset (p); CM( p)t the maintenance
cost associated with strategy (k) at time (t), e.g. do-nothing, defer renewals
265
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and increase maintenance or bring forward renewals and reduce maintenance;
CO( p)t the operation cost associated with the operation of asset (p) at time (t)
D
266
267 under strategy (k), e.g.. maximise use of information technology infrastruc-
268
269
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ture, reduce personnel, meet occupation health and safety regulations; CR( p)t
the cost associated with end-of-life renewal of asset (p) at time (t) under
270
271
272
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strategy (k); p( p) j the probability of failure of asset (p) associated with each
failure mode (j) during interval (t), e.g. probability of motor, electrical plant
and pump shaft/impeller failure for a pumping unit; C( p) j the cost of failure
273
274
275 R R
associated with the occurrence of each failure mode of asset (p), e.g. cost of
repair, damages, compliance penalties, crop losses; i the discount rate.
Life cycle costing is not an exact science, especially when dealing with
276
277
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irrigation and drainage assets. There are potential limitations associated with
the application of this model, notably:

278
279
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• The application of the cost model requires large volumes of historical data
of which only few are available or reliable in most irrigation and drainage
280 schemes.
281 • The cost of obtaining all the required data may be too high and surpass
282 the benefits of using the model.
283 • LCC outputs are only estimates and cannot be more accurate than the
284 inputs used for the estimates, especially for the cost of risk.
285 • The number of meaningful alternatives strategies that can be analysed can
286 be drastically limited by availability and reliability of data.

287 Some of these limitations may be temporary and may disappear as more
288 data becomes progressively available over time with the implementation of
289 the asset management program. Starting with a simplified model is often
290 advantageous to deal with the shortage of data and develop a progressive
291 understanding of the process within the organisation. A simplified model may
292 only include the capital renewals and operation and maintenance components.
AUTHOR'S PROOFS

10

Moreover, the analysis may be restricted to one or two simple asset strategies 293
such as low and high maintenance combined with shorter and longer asset 294
service life. 295
The most direct measure of the risk of asset failure is the area commanded 296
or serviced by the asset. For some types of assets, asset importance can also be 297
ascertained by parent-child relations between assets such as canal networks 298
where low performance or failure of the main canal will also affect lower order 299
canals thus causing crop and other losses to a larger area. Asset importance
F 300
provides a measure of the cost of risk associated with the inability of the
O
asset to meet the required level of service. This inability may arise either from
301
302

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inadequate hydraulic performance or from asset failure due to poor condition.
The cost of the shortfall in hydraulic performance can be measured if the
303
304

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impact on agricultural productivity is measurable. For example, insufficient
capacity of a pumping station to meet crop water demand can be measured
305
306

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by the fall in agricultural output or the reduction in irrigable area. 307

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Case study: The Cu Chi irrigation system, Vietnam

The Cu Chi irrigation system is located in the East Branch Canal of Dau
308

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309
Tieng Reservoir in Tay Ninh province. The system was constructed with the 310

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aim of supplying irrigation to 12,000 ha by gravity, in three distinct cropping
seasons: Winter-Spring (December–March), Summer-Autumn (April–July)
and the Main crop (August–November). To date only 8500 ha are irrigated.
311
312
313

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The main canal is 11-km long and the system’s infrastructure consists of more
than 1500 concrete structures. The general layout of the system is shown in
314
315

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Figure 2. 316
An asset management plan was developed and implemented as part of an 317

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improvement process which also includes the implementation of computer
assisted operation (George et al., 2004). Main delivery system assets, which
are the management responsibility of the irrigation company, were surveyed
318
319
320
using a GPS-based rapid data gathering method. The system has two main 321
field components: A Differential Global Positioning System (DGPS) to locate 322
and geo-reference asset location and a hand held computer (HPC) to store the 323
gathered information. A walk-thru the system was carried out to gather asset 324
condition data which was subsequently uploaded to a desktop computer and 325
integrated with the existing GIS of the Cu Chi system. 326
The level of detail of the asset survey was dictated by the needs of the asset 327
management modelling framework and future integration with a Maintenance 328
Management System (MMS) module. The integrated system requires asset 329
specific condition and performance data needed to carry out the financial 330
calculations for the asset modelling framework and the tracking of condition 331
and maintenance works performed on individual assets. The comprehensive 332
AUTHOR'S PROOFS

11

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C T
R E
R
C O Figure 2. The Cu Chi irrigation system.

333
334
335
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survey of field assets yielded a complete inventory of asset location and their
current condition and hydraulic performance.
The appraisal of asset condition was carried out by direct field inspec-
336 tion while basic design information was obtained from existing drawings and
337 design plans. Five categories of assets were included in the inventory: main
338 canals, secondary canals, offtakes, cross regulators and drainage orifices.

339 Modelling results

340 Asset modelling is a tool to assist asset managers in analysing the results of
341 applying alternative asset strategies. Asset cost usually represents the largest
342 item in the overall cost of providing irrigation service (Davidson et al., in
343 press). As such, the ability to adequately quantify this cost forms an essential
344 part of the organisation’s financial strategy.
345 The tally of asset condition for Cu Chi shows that offtakes, regulators,
346 culverts and drainage orifices are in fair condition with some assets in poor
347 condition and requiring renewal in the short term (Figure 3). In Cu Chi 105
AUTHOR'S PROOFS

12

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T
Figure 3. Tally of asset condition for Cu Chi.

E C
assets are in condition 2 (fair) and 10 structures are in condition 3 (poor),
which includes offtakes, regulators, culverts and drainage orifices.
The investment profile shows that a large investment is required in the
348
349
350

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next 10 years as certain group of assets (offtakes, regulators, culverts and
drainage orifices) will reach the end of their lives at similar times (Figure 4).
The irrigation management company will need to invest US$ 0.60 million in
351
352

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353
the next 10-year period to replace assets in poor condition. This will translate 354

N C
into high cost recovery annuities to make provisions for this investment in 355

Figure 4. Investment profile for asset renewal at Cu Chi.

AUTHOR'S PROOFS

13

356 this period. As an alternative strategy, the condition of these assets can also be
357 raised to rating 1 or 2 by increasing the maintenance cost and thereby extending
358 their service lives. For instance, the expenditure required to replace a cross
359 regulator in poor condition is approximately US$ 15,000 while rehabilitating
360 the same structure to good condition would cost US$ 2500. This will increase
361 the residual life of the asset thereby reducing the annual asset capital cost.
362 In this analysis, the cost of lining was used as a surrogate for the replace-
363 ment cost for canals since the excavation cost only occurs once in the life of
F
364
365
the asset and is therefore considered “sunk”. Main and secondary canals have
been concrete lined very recently at Cu Chi as shown by the high condition O
366
367
rating.

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The calculation of the infrastructure cost and annuities is based on the
368
369 P
current condition of assets which was assessed at the time of asset survey.
The condition of each individual asset is used to calculate the residual life
370
371
E D
of the infrastructure on the basis of the overall rate of decay experienced
during the life of the scheme (Equation (2)). The main assumption involved
in this approach is that the same level of maintenance will be applied in future.
T
372
373 Periodic reviews will however be necessary to assess the condition rating and
374
375
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make adjustments in the predicted condition and annuity.
Three different approaches to calculate annuities are used in this analysis:

376
377 depreciation exists.
R R
• Linear depreciation: in which it is assumed that a constant rate of annual

• Full annuity: where it is assumed that the full recovery of the renewal cost
378
379
380
C O
occurs during the residual life of the asset.
• Partial annuity: in which it is assumed that the recovery of the residual
381

382
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(written down) value of assets occurs during the residual life of the asset.

Typical asset life spans adopted for the Cu Chi system are shown in
383 Table 3. These were obtained from a combination of literature data, pre-
384 vious experience gathered in Vietnam and the expected impact from im-
385 proved maintenance expenditure. These values must be adjusted over time
386 as more data becomes available from the asset monitoring program put in
387 place.
388 Renewal annuity is very sensitive to prevailing interest rates as shown
389 in Figure 5. The analysis is undertaken for interest rates varying between 3

Table 3. Economic life of various assets in Cu Chi.

Drainage
Structure name Canal Offtake Regulators orifices

Asset life (years) 35 25 25 30

AUTHOR'S PROOFS

14

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P
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Figure 5. Variation of annuity with interest rate (Decay factor: 3, Inflation rate: 3%, Asset life:

T
Canal-35 Yrs, Offtakes and Regulators-25 & Drainage Orifice-30).

C
R E
and 9%. Full renewals cost varies between US$ 41.00/ha and US$ 28.00/ha
for this range of interest rate while partial renewal cost varies between US$
390
391

R
21.00/ha and US$ 14.00/ha. As the interest rate increases the full and partial
annuity decreases as a result of the renewal funds invested by the company
392
393

C O
producing a higher return. The difference between full renewal and partial
renewal annuities depends on the general condition of assets. In general, the
394
395

N
difference between the two approaches is reduced as the condition of the asset 396
base is improved and the residual life of assets approaches the full life of new 397

U
assets. Interest rates do not influence the linear depreciation value which is
based on a fixed percentage of the replacement cost.
Two indicators of maintenance expenditure, maintenance expenditure per
398
399
400
unit area serviced by the system and maintenance cost per water fee col- 401
lected were applied to quantify the current level of maintenance. These two 402
indicators are shown in Figure 6. The company income from water fee has 403
increased three fold from 1995 to 2002; however the level of maintenance 404
expenditure remained relatively unchanged thus explaining the declining 405
trend in relative maintenance expenditure over time. Current average main- 406
tenance costs are estimated at US$ 1.30/ha which is equal to only 0.68% 407
of the total asset replacement cost (ARC). This level of maintenance ex- 408
penditure is clearly insufficient and significantly below what is considered 409
necessary to sustain the infrastructure. Maintenance per hectare follows a sim- 410
ilar trend as a result of the irrigated area remaining relatively constant over 411
time. 412
AUTHOR'S PROOFS

15

F
O
RO
P
D
Figure 6. Maintenance cost indicators at Cu Chi.

E
T
413 Life cycle costs
414 Effective estimates of life cycle cost require the availability of reliable histori-
415
416
E C
cal cost and reliability (risk of failure) data (Dhillon, 1989). The life cycle cost
model presented in Equation (8) was simplified to suit the current availability
417
418
419
R R
of data in the initial stages of the Cu Chi asset management program. The
model was simplified to include only operation and maintenance costs and
renewal costs. Hence, risk costs were not included in the computation and
420
421 O
the operation costs were combined with the maintenance costs. The model is
represented by the following expression:
C
N
LCCkn =
U


m

p=1
CI p +

m
n

p=1 t=1
CM( p)t + CO( p)t + CR( p)t
(1 + i)t
(9)

422 where the notation used in Equation (8) is maintained.

423 LCC is applied to analyse the trade-offs between level of maintenance and
424 asset life. In the analysis, several levels of maintenance ranging from 1 and
425 6% of the ARC were applied together with interest rates varying between 6
426 and 12%. These maintenance expenditure figures were selected on the basis
427 of studies conducted elsewhere (Burton et al., 2003).
428 Several assumptions are made in this analysis:

429 • In absence of sufficient data to establish an explicit relationship between

430 asset life and maintenance level, it is assumed hypothetically that the
431 variation in asset life in relation to the level of maintenance can be de-
432 scribed by a linear relationship such that a variation in maintenance rate
433 from 1 to 6% causes a linear change in asset life of between −20 and
AUTHOR'S PROOFS

16

+20% of the base line (neutral) asset life assumed for a maintenance 434
rate of 3%. 435
• The analysis is designed to provide a general insight into the relative impact 436
of the two LCC components and therefore on the merit of adopting a high 437
or a low level of maintenance under different interest rate regimes. 438
• A constant annual rate of maintenance is assumed over the entire life cycle. 439
• An average maintenance expenditure of 3% of ARC is assumed to yield 440

•
the asset life shown in Table 3.
F 441
For comparison purposes, the maintenance and investment over different
years is brought to a net present value using different discount rates (6–O 442
443

•
12%).

RO
Maintenance levels were selected on the basis of experience gathered in
444
445
other irrigation systems as no data are available in Vietnam.
P 446

D
The variation in LCC with maintenance rate and interest rates is shown in
Figure 7. The minimum LCC declines with interest rate and with higher levels
E
of maintenance. The least LCC varies from US$ 353.5/ha at a maintenance
447
448

T
449
level of 5% when the interest rate is 12% to US$ 522.3/ha at a maintenance 450

E C
level of 3% when the interest rate is 6%. This trend would support the argument
that only when interest rates are low it is justified to reduce the level of
maintenance due to the lower incidence of capital renewal costs. It is however
451
452

R
453
important to choose an interest rate at the level comparable to that used for 454

R
project evaluation. The minimum LCC is also very sensitive to interest rate 455

O
with significant reductions observed for higher interest rate. This is due to a 456

N C
U

Figure 7. Variation of LCC at different levels of maintenance.

AUTHOR'S PROOFS

17

457 greater impact of the asset renewals term in the LCC model which translates
458 into a lower net present value.
459 In theory, a number of maintenance and replacement strategies can be
460 analysed and the optimal value strategy selected on the basis of least LCC. In
461 practice, however, the application of the LCC model is highly dependent on the
462 availability of data and degree of uncertainty associated with both predictive
463 and stochastic variables in the model. Errors in the model due to variability
464 and uncertainty have the potential to lead to erroneous conclusions. Value
F
465
466
judgement must be exercised in the selection of strategies and uncertainties
associated with the data. In this study, value judgement exercised by the O
467
468
RO
authors lead to the selection of a simplified model for the initial analysis after
a careful evaluation of the available data. A parallel plan for data collection
469
470 model in future. P
was put in place to collect additional data for the application of the complete

471 Conclusions
E D
472
C T
Understanding the appropriate costs associated with ownership and operation
of the irrigation and drainage system is vital to ascertain the actual cost of
E
473
474 service provision and to design future asset strategies that can minimise the
475
476
477 R R
cost of service provision. The AMMF presented in this paper enables the
quantification of on-going ownership costs, operation costs and the evaluation
of alternative asset management strategies based on life cycle cost analysis.
478
479
C O
The Cu Chi irrigation system in Vietnam was used to illustrate the application
of the methodology.

N
480 The cost of three renewals strategies was evaluated: Linear depreciation,
481 full annuity and partial annuity. The highest cost occurs if a full annuity
482
483
484
U
approach is used in the calculation due to the short time available to recover
the full cost of asset renewals. This cost ranges between US$ 28.00/ha and
US$ 41.00/ha when interest rate varies between 9 and 3%. This approach
485 reflects the impact of a cost recovery policy that failed to make appropriate
486 renewals provisions during the operation of assets.
487 The analysis of recent maintenance expenditure reveals a declining level of
488 maintenance in relation to fee collection and per hectare of irrigated land. The
489 average maintenance expenditure during recent years was US$ 1.30/ha which
490 translates into 0.68% of the asset replacement cost. This level of maintenance
491 has translated into a rapid decay of the asset base and increased renewal costs
492 due to shorter asset lives.
493 A simplified LCC model was used to analyse a set of maintenance strategies
494 ranging between 1 and 6% of asset replacement costs at varying interest rate.
495 The analysis assumed a linear relationship between maintenance expenditure
496 and asset life. The least LCC varies with the level of maintenance and interest
AUTHOR'S PROOFS

18

rate between US$ 353.5/ha for 5% maintenance expenditure and 12% interest 497
rate to US$ 522.3/ha for 3% maintenance expenditure and 6% interest rate. 498
Minimum LCC are found at higher levels of maintenance as the interest rate 499
becomes lower; suggesting that in an economy with prevailing low interest 500
rates it is justified to lower maintenance expenditure as the cost of capital 501
works becomes lower. 502

F
Acknowledgments
O 503

RO
The authors wish to express their thanks to the Australian Centre for Inter- 504
national Agricultural Research (ACIAR) for funding this research and to the 505

P
Vietnamese authorities who have participated in this project. 506

E D
Appendix: Description of the asset management software 507
“Asset Manager”

General C T 508

E
509

capability to:
R R
“Asset Manager”
c is an integrated modular software utility which has the 510
511

C O
• Capture and store geo-referenced asset data gathered with GPS-based field
surveys including canals, offtakes, regulators, pumps, diversion offtakes
512
513

N
and roads, and rating of asset condition and performance. 514
• Calculate asset statistics including tallying by condition, performance and 515

U
asset classes.
• Calculate and display investment profile and annualised investment costs.
• Graph and print display of asset reports.
516
517
518

Software architecture 519

Asset Manager has three main components: A graphical user interface (GUI), 520
a modelling component and a GIS-based database management system. The 521
primary functions of these three features are described in Figure A1. Spatial 522
databases related to canal network and locations of structures were created by 523
digitising original system’s maps using ARC VIEW GISTM software. 524
The GUI of the program was built using Map ObjectsTM and Visual BasicTM 525
and uses mouse-driven with pop-up windows and pull-down menus. Map 526
Objects enables the user to display the GIS files so that the database can be 527
retrieved and updated easily using the GUI. 528
AUTHOR'S PROOFS

19

F
O
RO
P
E D
T
Figure A1. System architecture.

C
529

530
R E
The main window of the software consists of six pull-down menus, namely:

• File which consists of typical WindowsTM file operations options.

531
R
• Configure which enables the input of asset costs and financial parameters.
532

533
C O
It includes the following submenus:

o Asset parameters which enables user input of asset ratings, decay factor
534
535
536
U N
and asset life.
o Canal cost which enables input of unit excavation and lining cost for
canals.
537 o Financial parameters which enables input of interest rate and inflation
538 rate.

539 • Interface which enable the display of assets in GIS format so that the asset
540 information can be viewed and the data can be retrieved, updated and stored
541 in the database. The GIS interface form also allows users to view and search
542 for asset details. The asset information can be viewed by clicking on the
543 assets in the display form. The user can update the database by changing
544 asset values in the form and store them in the database.
545 • Simulate which enables tallying calculation of investment profiles and an-
546 nuity stream and display the results in graphical form.
547 • Reports which enables the creation of various types of reports in spreadsheet
548 format to be printed or used for further analysis.
549 • Help which enables access to help for use of the software.
AUTHOR'S PROOFS

20

Outputs 550

Asset condition tallying, investment profile and financial analysis are the main 551
outputs from the Asset Manager model. The results can be displayed either 552
in graphical and textual form. The reporting module is built using Microsoft 553
ExcelTM which allows the comparison and the sensitivity of the model to 554
different asset profiles and asset strategies including sensitivity to interest 555
rates, ageing patterns and modernisation options. The main graphic outputs
F 556
generated by the model include the following.
O 557

RO
• Tally of asset condition by asset types: This is presented as a bar graph with
asset number in the Y-axis and asset condition in the X-axis. The user can
558
559

(Figure 3). P
select different asset types to view the number of assets in each condition 560
561

occurring over an annual time series.

E D
• Investment profile: Presents the aggregate of replacement cost of assets

• Renewal annuities: The software can be used to calculate annuities on three

562
563

T
564
different bases: depreciation, full renewals and partial renewals. These are 565

E C
presented as time line data series of annuities for each individual asset
category. The calculation of depreciation is based on a linear depreciation
566
567

R R
C O
U N

Figure A2. Example of renewals annuities time series.

 AUTHOR'S PROOFS

21

568 model whereby a constant annual rate of depreciation is used. Full renewal
569 annuity assumes that the entire replacement value of the asset will be ac-
570 crued during the residual life of the current assets (Equation (6)). Partial
571 renewal assumes that the residual value of assets will be recovered during
572 the residual life. This approach assumes the remaining value of the asset
573 is written-off or sunk. The calculation of annuity is designed to give the
574 company adequate information about the financial commitments that the
575 company must make to replace a particular asset. All the annuity calcula-
F
576
577
tions are based on the asset’s life that is provided as a model input. The
algorithm enables the calculation of annuities over a variable number of O
578 consecutive life cycles specified by the user (Figure A2).

RO
579 References P
580
581
E D
Blank, L. & Tarquin, A. 1983. Engineering Economy. McGraw-Hill Book Company.
Burton, M., Kingdom, W.D. & Welch, J.W. 1996. Strategic investment planning for irrigation
582
583
584
T
– The “Asset Management” approach. Irrigation and Drainage Systems 10: 207–226.

C
Burton, M., Newcombe, W., Dedja, Y. & Key, T. 2003. Development and application of sim-
plified asset management procedures for transferred irrigation systems. Irrigation and
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586
587
E
Drainage Systems 17(1–2): 87–108.

R
Burton, M. & Hall, R. 1999. Asset management for irrigation systems. Irrigation and Drainage
Systems, 13(2): 145–163.
588
589
R
Davidson, B., Malano, H.M. & George, B.A. in press. The financial viability of irrigation
management companies: A case study of Cu Chi in Vietnam. Irrigation and Drainage
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591
592
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Systems, Kluwer Academic Publishing.

C
Dhillon, B.S. 1989. Life Cycle Costing: Techniques, Models and Applications. Gordon and
Breach Science Publishers, New York.
593
594
595
596 U N
Fabrycky, W.J. & Blanchard B. 1991. Life-Cycle Cost and Economic Analysis. Prentice Hall,
Englewood Cliffs, NJ.
George, B.A., Malano, H.M., Tri, V.K. & Turral, H. 2004. Using modelling to improve oper-
ational performance in the Cu Chi irrigation system, Vietnam. Irrigation and Drainage.
597 ICID 53(3): 237–249.
598 Hofwegen, P.V. & Malano, H.M. 1997. Hydraulic infrastructure under decentralised and pri-
599 vatised irrigation system management. In: G.A.f.W.R.a.L. Improvement (Editor), Deregu-
600 lation, Decentralisation and Privatisation in Irrigation. DVWK Bulleting, pp. 188–216.
601 Malano, H. M., Chien, N. V. & Turral, H. N. 1999. Asset Management for irrigation and
602 drainage infrastructure. Irrigation and Drainage Systems, Kluwer Academic Publishing.
603 13: 109–129.
604 NRC, 1995. Measuring and Improving Infrastructure Performance. National Academy Press,
605 Washington DC, 122 pp.
606 Tran, T.X.M., Malano, H.M. & Thompson, R. 2003. Application of the analytic hierarchy
607 process to prioritise asset renewals in the La Khe irrigation scheme, Vietnam. Journal of
608 Construction, Engineering and Architectural Management 10(1): 283–390.

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