Infrastructure Australia has already identified the need for governments to make better use of existing assets rather than simply funding additional supply. With constrained capital expenditure, now is the time to maximise the use of existing assets and optimise expenditure across asset portfolios.
From 2012 to 2022, Australia's infrastructure boom saw significant capital investment, with public funding reaching approximately $470 billion, according to Infrastructure Partnerships Australia (IPA). In 2024, with declining construction productivity, higher construction costs and increased interest rates, we are now seeing a reduction of capital expenditure and increased focus onto the cost of living.
In maximising the useful life of our infrastructure assets, good asset management practice will forecast expenditure requirements for maintenance and life cycle replacements. The balance of when to replace an asset can become an expensive decision; according to the Building Owners and Managers Association, a lack of preventative maintenance shortens the asset life cycle by as much as a third, and every $1 saved in deferred maintenance results in $4 of additional capital expenditure later.
As infrastructure agencies mature in their approaches to asset management, more data will become available to further evaluate the total cost of ownership and establish clear decision points for maintenance versus life cycle replacement. When combined with needs for growth and enhanced capital to improve performance, it becomes increasingly important for organisations prioritise their projects and programs to optimise their capital expenditure.
Although state asset management policies are generally in line with the ISO55000 series, definitions and capital maintenance funding models are often not aligned. To prevent misunderstandings, it is essential the industry continues applying shared definitions of concepts such as 'maintenance activities' (opex), 'maintenance backlog', 'life cycle replacement' (capex), 'sustaining capital' (capex) and 'enhancing capital' and growth (capex). Increased understanding of these concepts will better enable asset owners to understand requirements for capital portfolio management.
With effective opex and capex needs identified, organisations are better placed to make informed decisions for capital portfolio management. Effective decision making is now underpinned by data analytics around asset and financial data to model various funding scenarios. However, the development of capital portfolio management strategies will enable organisations to optimise investment across their portfolio and enable greatest value to the business.
With effective portfolio management, often, small projects that enhance efficiency have higher returns on investment than larger capital projects. Of the projects submitted to Infrastructure Australia for assessment between 2016 and 2018, those with the highest benefit-to-cost ratios were also the cheapest. When balanced with good asset management practice and data management, there are great opportunities for investment programs across specific asset classes that generate higher cost-benefit ratios and promote asset renewals and refurbishments.
For Australia's asset owners to effectively manage their
assets, good asset management practice will enable informed
decision making and effectively manage risk and balance cost across
an asset portfolio. This asset management practice is also a key
enabler for effective portfolio management and is required to drive
value and optimise organisation capital expenditure.
Learn more about our Major Projects Advisory offering here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.