Information on asset value and how it is changing may support a number of different applications related to both TAM and financial reporting. When establishing the approach to calculating asset value, it is important to consider which applications the calculation is intended to support. This will then guide subsequent decisions concerning how specifically to calculate asset value.
Section 2.1 discusses a range of different applications of asset value for supporting TAM, and provides examples of approaches for using and communicating asset value. Many of the applications of asset value described in this section are complementary to one another. However, some of the applications require a greater level of detail in the calculation, while others may lead to selecting specific options regarding the nuances of the calculation. For the purpose of this step the different applications can be grouped into the following for the purpose of establishing the primary motivation or driver for calculating asset value:
- Maintaining consistency with financial reporting. In this case, an agency wishes to obtain a calculation of current asset value that is consistent with the agency’s calculation of asset value prepared for its financial reports based on GASB 34 and using historic costs.
- Reporting asset value for TAM. Here the primary motivation for calculating asset value is to report value in a TAMP and/or other documents to be read by the agency’s citizens and oversight groups. In addition to calculating current value, one also typically calculates required maintenance costs, and may calculate other measures. In this case, it is not necessary to maintain consistency with the asset value reported in agency financial reports prepared based on GASB 34, though some agencies may choose to do so.
- Evaluating treatment decisions. In this case the asset value calculation is intended to help evaluate what treatments to perform for an asset, such as when defining an agency’s life cycle policies. For this application, it may be necessary to perform the asset value calculations at a greater level of detail, but once performed the calculations can be used in a TAMP or in support of other applications.
- Determining the benefits to transportation users and society. For certain applications it is necessary to determine the benefits of an asset to users and/or society as a whole – e.g., if determining what assets should have highest priority for resilience investments, or whether an asset merits public investment.
Table 3-1 summarizes these drivers and the implications of each for subsequent decisions regarding how to calculate asset value. For each asset value driver the table lists the value perspective that best supports it. Also, it summarizes the implication of selecting the driver for calculation of asset value, calculation of depreciation and treatment selection.
Table 3-1. Implications of Different Asset Value Drivers on the Calculation Process
| Asset Value Driver | Initial Asset Value (Chapter 4) | Treatment Effects (Chapter 5) | Depreciation (Chapter 6) | Measure Calculation (Chapter 7) |
|---|---|---|---|---|
| Maintaining Financial Reporting Consistency | Calculate value based on historic cost. | Establish cost, useful life and treatment history for construction, reconstruction and replacement. | Depreciate value linearly based on asset age. | Asset Value Asset Consumption Ratio |
| Reporting Asset Value for TAM | Calculate value based on replacement cost or market value. | Establish cost and useful life for construction, reconstruction and replacement. Avoid analysis of historic treatments by using condition data where available. | Depreciate value based on effective age determined using condition data. Use linear depreciation unless a non-linear depreciation pattern has been established. | Asset Value Cost to Maintain Value Asset Consumption Ratio Asset Sustainability Ratio Asset Funding Ratio |
| Evaluating Treatment Decisions | Calculate value based on replacement cost | Establish cost, useful life and treatment effects for all treatments being compared. Avoid analysis of historic treatments by using condition data where available. | Depreciate value based on effective age determined using condition data. Evaluate the benefit consumption pattern in determining how to depreciate. | Asset Value Cost to Maintain Value Net Present Value Asset Consumption Ratio |
| Determining Benefits to Users and Society | Calculate value using an economic perspective. | Establish cost and useful life for construction, reconstruction and replacement. | Calculate costs and benefits expected over the life of the asset in lieu of depreciation. | Net Present Value Benefit/Cost Ratio |
As detailed in the table, it is important to maintain consistency with financial reporting then it is important to adopt a cost perspective and base asset value calculations on historic costs. On the other hand, if one seeks to quantify the benefits of an asset to transportation users and society, then one should adopt the economic perspective.
With the other drivers listed in the table one may adopt a cost or market perspective, and may use different approaches for different asset classes. These two drivers differ from each other in the level of detail they imply. More detail is needed to support making treatment decisions than to calculate an overall value without comparing specific treatment decisions. Thus, in cases where treatment decisions are being evaluated a greater level of detail may be required, specifically with regard to calculating depreciation and treatment effects.