Capital Improvement Plan Timeframe

The Capital Improvement Plan (CIP) should cover as long of a time frame as possible with the data available. The time frame should be increased as data improves until a short- and long-range plan are developed. The long-range plan allows consideration of the replacement of the longest-lived assets. For some assets useful life can be 100 years or more. The shorter-range plans will cover 5 to 10 years in a more specific and detailed manner and can include up to 20 years with the latter 10 years being less detailed. The long-range (20+ years) plans will be generalized but can provide good information to the system about the magnitude and timing of major capital investments. Looking long term avoids the temptation to put off shorter term investments because that delay will cause even larger capital investments later as the assets scheduled for replacement in those years are added to the capital needs that were deferred. Once a long-term look at capital investments is completed, it is possible to examine the needed expenditures and determine the average annual investment required to meet the long-term needs. It is unlikely that the system will invest exactly that amount of money every year because some years will require more asset replacement than others, but on average, this quantity should be invested to prevent significant replacement backlog.

The CIPCapital Improvement Plan should define the amount of money needed for capital replacements and should be the basis for the capital budget. The capital budget should present all the needs to the decision makers so that they can understand the costs and benefits of the various projects and the risks associated with budget cuts. When the budget does not support replacing all the assets in a given year, the asset risk should be used to help prioritize projects.

For those projects with a high dollar amount, business case evaluation should also be completed to justify the need for the project and fully consider all alternatives for the project. The definition of high dollar is system specific. A smaller utility might see a high dollar project as one costing a few hundred thousand dollars, a medium system a few million, and a large system tens of millions. The exact amount is not important; what is important, is to carefully consider these projects to ensure the most cost-effective solution has been selected.

Using data to drive CIPCapital Improvement Plan budgets – Derek Sherry, President and General Manager, Timber Creek Sewer Company, Platte City, MO