Risk mitigation for councils and large asset portfolio managers

Councils are at the forefront of managing large asset networks, and managing the risk associated with those networks. Australian local councils are in a challenging position in so far as they have responsibility for discrete fixed position assets as well as portions of linear asset networks in their areas. Examples of the former include community buildings such as libraries, recreational centers and council facilities, and examples of the latter include roads, parks and trails. This is an experience common to local governments in the United States, United Kingdom, and around the world.

A report released by Aon highlighted the challenges and risks faced by Australian councils. Aon is a global professional services firm with a strong Australian footprint. They produce original research and benchmark reports for all sectors of business, addressing experiences and risks for corporates, consultants and associations, micro, small and medium businesses, governments at a federal, state and local level. The Aon Insights newsletter delivers snapshots from these reports and is valuable to subscribe to.

Local government asset portfolio risk

Aon's 2018 Local Government Risk Report for Australian Local Government investigated Council's exposure to risks across financial security and infrastructure, and how the two intersect. It further explores general liability and professional indemnity with respect to insurance for councils. The report is the 4th annual benchmark study on risk to Australian local government by Aon, and gained insight from more than one hundred in-depth interviews with risk management professionals working in that sector.

The key finding of this investigation was that surveyed Australian local government risk representatives reported that risk exposure has heightened, and that concurrently fewer than half were implementing basic essential practices to mitigate that exposure. Local governments collected $18.9 billion from rates in 2018, nationwide, and collective budgets of $49.7 billion - and their top responsibility is in infrastructure portfolio and property service provision, including management of local roads, bridges, footpaths, drainage, waste collection and management. With understanding of these extensive asset portfolios and large budgets, the demand for risk management and mitigation is vital - in that year, more than 86% of councils had made insurance claims in the prior 12 months.

Management and performance optimization of Council's extensive asset networks portfolios must necessarily incorporate intelligent solutions to enable predictive and strategic portfolio lifecycle modelling within their risk management programs. Other large asset network portfolio owners, such as schools, tertiary institutions, ports, transportation, energy, water and rail have analogous requirements.

State of the Assets

The annual Australian Local Government Association 'State of the Assets' report indicates that more than $500 billion in assets are managed by local governments nationwide. The next edition of this report will include greater input from local governments, with the association seeking specific input on:

• Roads – Sealed and Unsealed
• Bridges – Timber and Concrete
• Building and Facilities
• Parks and Recreation
• Stormwater
• Water and Wastewater
• Airports and Aerodromes

The resulting report will provide a more detailed insight to council asset condition, however the 2018 report (which incorporated input from more than 400 councils) found that nine percent of council assets were rated as being in "poor condition", and a modest 63 percent were in "good condition". At the time, a combined $30 billion was estimated as the cost of repairing or replacing substandard assets.

Combining insights from the Australian Local Government Association and Aon reports paints a concerning picture. Extensive publicly owned asset portfolios, which are vital to delivering community services, are in varied states of condition with substantial repair and replacement costs. Councils' asset network portfolios furthermore frequently lack appropriate or even simple risk mitigation processes, according to Aon's findings. Given more than 90 percent of council services rely on utilization of the asset networks, the failure of assets and asset networks would be devastating for communities. Indeed, this has been repeatedly demonstrated in the years since Aon's cautionary 2018 report, in which they called out natural circumstances or disasters as a key risk for local governments to manage. The 2019/2020 Australian bushfires were catastrophic and immediately followed quickly by extremely damaging floods. A final tally is difficult to assess, particularly as the impacts are extremely far reaching, however the 2019 bushfires are estimated to cost $100 billion and floods at least another billion.

Missing asset reports

On top of the above, however, there's a sizeable black hole in council's knowledge of their asset network portfolios, with one Victorian audit finding 24 councils had left $315 million in assets unreported in their asset registries. If that number could be linearly extrapolated to the 537 councils across the country, it would suggest a potential $2,142 million or $2.1 billion in assets left off local government registries.

The reason for these lapses in reporting are not malfeasance; it is the challenge of reporting on assets at scale. What is straightforward to manage for a single or handful of assets becomes incredibly challenging at scale. This is the challenge Asseti was built to address. Asseti combines real-time insight to asset portfolio condition, so that network managers and risk assessors can access updated data and act on it with ease.

Asseti integrates asset condition, through delineation of site issues, repair estimates, and the associated risk and likelihood of catastrophe. This delivers a quantitative method of ranking asset portfolio risk and probability of incident, at an individual site level or an aggregate network level. In this way Asseti eliminates the challenge of asset management at scale.

To see how our dynamic remote asset management platform can help you optimise your portfolio, book a sales call with us today!

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