Value-Based Decision-Making

Hello, and welcome back to Transforming AM, our regular video series where we discuss key asset management topics and share tips drawn from our experience in the industry. Rory Gibbons is my name, and I've got Rex Cheng with me today. Rex, welcome to the show. Thanks. It's great to be here. It's good to have you, mate. And today, we wanted to talk about value based decision making. So our assets exist to provide value, to provide service for our communities and stakeholders, and we're starting to see a number of organizations develop more formal value creation frameworks. So we just wanna start with what is value based decision making? Yep. So, I mean, the reality is most organizations nowadays have more decisions they wanna make than there are in terms of finance or resources to actually do it. We're all constrained. So we need some sort of metric to prioritize one investment over another. And value based decision making is one of them. And to me, really, it's about looking at our assets not just as the physical objects themselves, but really as what kind of purpose, what kind of service does that asset provide and really optimize our decisions and and investments around that to get the maximum value, get the maximum service rather than just asset condition, for example. So to extend that example, if you have a city that has got all their street lights needing replacement, it it could cost two million dollars in two years to do it. But if they take a very value based approach and prioritize sort of high crime areas or high pedestrian areas, they can ensure that they're getting the maximum return or the maximum value on their investment. Okay. Yeah. It's good topics. So I think maybe organizations at an organizational objective level have some of these value objectives built into their their goals. So, you know, looking beyond just financial condition based considerations, looking at, you know, environment or social factors, cultural factors. But sometimes I think that might get lost when we we kind of get down to that implementation decision making level. So what would you recommend? How can organizations define and really utilize these value value benefits? Yeah. I mean, so the the most obvious place to use it is in your strategic asset management plan. Right? What makes it strategic is not just that it's long term thinking, but it's also aligned with your strategic objectives in the sense that you really understand how investing in your assets actually results in more service or more value that is delivered to your customers or to your community. And that value should then be measured really based on your strategic objectives. So whether it's environmental benefits, cultural benefits like you said, societal benefits, reliability benefits, whatever they are, try and sort of quantify and understand how does my investments or how does improving my assets improve those services. And then that's sort of the starting point of arriving some sort of framework that you can replicate and make consistent and transparent decisions on your asset investments. Yeah. Awesome, mate. And I know you like the the the concept of time value of value. Yep. But do wanna give us a run through on that? Yeah. Yeah. So in finance, we have the concept of time value of money, which is essentially the the later you incur a spend, the better it is because in finance, have interest and the longer I can hold on to money, the better it is. Well, similarly, in asset management, if we're realizing value, right, so in that early example of replacing those street lights, we're realizing a safety value. Right? The earlier we do it, the longer we get to enjoy the benefits of sort of reduced safety risks. Conversely, the later we do it, the longer we have to endure that risk of a safety event happening. So really, if you think about that and apply it network wide across all your different assets and asset classes, you can really maximize the the the value by considering, well, when do I do these investments? When do I wanna get these benefits and these values? And try and arrive at sort of, again, the highest return on investment in terms of value and and and money. Yeah. Alright. Well, great topic, and thanks for dropping by and discussing. Thank you. Thanks everyone for watching. Hope you've enjoyed. If your organisation doesn't have a value creation framework, do check out some of the industry examples that exist. Transport for New South Wales got a good one, so bit of a professional reading recommendation for you there, and we're hope to see you at home see your homework. We hope to see you here next time at Transforming AM. Transforming AM.