US Government Efficiency Solution: Requirements-Based Budgets

Miniseries on the US Government's Failure to Efficiently Manage its Built Infrastructure Portfolio

Mar 04, 2025

This Asset Management Partnership (AMP) Newsletter continues a miniseries that covers how the US Government is failing to manage its built infrastructure and how this problem can be solved.

This article builds on the asset management balance sheet analysis developed in a previous article - Built Infrastructure Cost Accounting and Asset Management Investment Analysis. Last article introduced the term Requirements-Based Budgeting (RBB). This AMP Newsletter article will explain what a requirement is, where they come from, and how they are used in asset management investment analysis.

Development of a RBB is foundational to US Government’s ability to manage its built infrastructure portfolio that inefficiently consumes over $70B each year. It is also an area that Federal agencies do not do well because of systematic failure of the Asset Management Systems (AMS) that are used to manage built infrastructure.

How are Requirements Based Budgets used in Asset Management?

The AMP Newsletter advocates for the adoption of the ISO 55000 series of standards for asset management as a best practice for managing U.S. Government's built infrastructure. Here's a detailed look at how this approach is framed focusing on the role RBBs have in risk management and decision making:

Context and Importance:

Scale and Complexity: The U.S. Government manages a vast portfolio of built infrastructure, encompassing nearly 3 billion square feet of building space, which is critical for federal agency operations. This infrastructure has complex lifecycle requirements from planning to disposition, necessitating a coordinated approach across various disciplines.
Recognition by Authorities:
- GAO (Government Accountability Office) has identified ISO 55000 as a leading practice in Federal Real Property Asset Management (GAO-19-57).
- National Academies in "Strategies to Renew Federal Facilities" also supports this methodology.

ISO 55000 and Asset Management:

Asset Management vs. Managing Assets:
- Managing Assets: Focuses on the technical lifecycle management of assets.
- Asset Management (ISO 55000 context): Goes beyond just managing assets to encompass how these assets generate value for the organization. It includes strategic management functions that align asset performance with organizational objectives.
ISO 55001 - AMS Requirements: This standard outlines the requirements for an Asset Management System (AMS) that organizations can use to implement asset management practices systematically through an Asset Management (AM) Framework.

The AM Framework:

The AM Framework is organized into numbered Management Activity Groups (MAGs), as shown in the figure below. MAGs structure and coordinate the asset management activities. These groups coordinate related planning, asset lifecycle management, and financial management activities. The role of the RBB within the AM Framework is:

Estimate Costs: Capture and estimate the costs associated with managing assets and operating the AMS.
Define Requirements: The sum of work needed to manage assets and operate the AMS becomes the requirements for budgeting.
Align with Objectives: The budget reflects the needs to meet Asset Management Objectives set through the AM Framework for built infrastructure, ensuring that financial resources are aligned with Organization Objectives through achievement of Asset Management Objectives.

The AM Framework empowers asset management investment analysis by comparing the costs (captured in RBBs) to achieve Asset Management Objectives with the available budget. This provides insights into the efficiency and effectiveness of built infrastructure management.

Objectives and Requirements

There are multiple AMP Newsletter articles that highlight the relationship between objectives and requirements. They include:

The figure below depicts the relationship between key asset management terms defined in ISO 55000:

These terms are applied to RBB development and use as follows:

Asset Portfolio - The core from which value is derived. Requirements define the work needed to make the Asset Portfolio work for the organization.
Asset Management System (AMS) - A systematic approach to managing assets to optimize value generation. The AMS is implemented through the AM Framework.
Asset Management (AM) Framework - A conceptual model for implementing asset management that focuses on how value is measured and how decisions are made. Asset management is the means used manage organizational performance risk that is dependent on built infrastructure.
Value Generation - The outcome of managing assets effectively, contributing to organizational success.
Organizational Objectives (MAG #1) - High-level goals that dictate what constitutes value for the organization, driving strategy and policy.
Asset Management Objectives (MAG #2) - Specific goals related to asset and AMS performance that support the achievement of Organizational Objectives. These objectives set performance criteria and targets.
Requirements - Derived from applying Asset Management Objectives to the asset portfolio. They are the needs or expectations, either stated, implied, or obligatory, for managing assets effectively.

Top-Down and Bottom-Up Dynamics:

Top-Down: Organizational Objectives are set at a high level, influencing the direction of asset management. Asset Management Objectives define performance criteria and targets needed to achieve Organizational Objectives.
Bottom-Up: Requirements emerge from the ground level, based on the operational needs to meet the Asset Management Objectives; these requirements inform budget needs and form the basis for RBB calculations.

How ISO 55000 Frames RBBs:

Asset Management Objectives serve as the foundation for RBBs, translating what is necessary (in terms of performance and condition) into financial requirements. See performance-budget integration model below.
RBBs are statements of need, capturing the costs to maintain assets at acceptable performance levels based on these objectives.

The U.S. Government's Challenge:

The failure lies in not clearly defining objectives, leading to uncertainty in costs and risk management. This vagueness results in poor allocation of resources and inefficiency in managing the lifecycle of built infrastructure.

Conceptual Model for Performance-Budget Integration

The following model is based on the AMS Implementation – Performance-Budget Integration Principle. This principle establishes the basis for RBB calculations.

The MAG tags indicated where activities are performed in the AM Framework that is shown above and covered in the AMP Newsletter and AMF Journal. This figure shows how Asset Management Objectives developed through MAG #2 activities define built infrastructure performance levels. These levels correlate to the cost/expense to deliver performance at different levels.

The Asset Management layer in the previous figure is where decisions are made that define the Asset Management Objectives that will be tracked. This is also where target performance levels are set. Plans and strategies to achieve performance levels are managed through development and implementation of the organization’s Strategic Asset Management Plan (SAMP) and supporting Asset Management Plans (AMPs) that are performed in MAG #5.

AM Framework MAG #5 activities include executive decisions that adjusts Asset Management Objective performance targets to the available budget. This involves a comparison of the RBB to the available budget. Differences between the two require either adjustments to the available budget or changes to Asset Management Objective performance targets.

The objective is to reconcile difference in budget projections. This is a means to proactively manage risk through budget development that is only possible with an ISO 55000 conforming AM Framework or its equivalent. Not addressing risk at this point defaults the organization to react to resulting consequences as they are being incurred.

Value Generated through AM Framework Requirements Based Budgets

Development of an RBB through the AM Framework forces hard decisions on what gets funded and not funded. Most Agencies fail in this effort because they lack rigor that defines objectives and links objective management to budgets in a coherent manner. The value generated is through reduction of “Risk to Readiness” as depicted in the figure above.

Use of an RBB in the context of the AM Framework mitigates the systematic failure of Federal Agency AMS’s that are only able to react to the consequences of failing built infrastructure. These consequences include:

Operational Impacts:
- Reduced Operational Readiness: When built infrastructure fails or degrades, it directly affects the ability of an agency to perform its functions. This can manifest in various ways:
  - Direct Impact on Operations: Facilities or equipment might become unusable, leading to downtime or reduced capacity.
  - Workarounds: Agencies might resort to temporary or less efficient solutions, which consume additional time, money, and resources. For example, if a federal building has a failing HVAC system, staff might work in discomfort or need to relocate, both scenarios impacting productivity and operational effectiveness.
Inefficient Management:
- Lack of Proactive Risk Management: Without a system to anticipate and mitigate risks associated with asset performance:
  - Reactive Approach: Agencies deal with issues as they arise rather than preventing them, which is more costly and less efficient in the long run.
  - Value Optimization: The focus shifts from optimizing asset performance and value to merely maintaining operations at a basic level. This means assets are not contributing to the agency's mission as effectively as they could.
Ineffective Use of Resources:
- Misallocation of Funds: When there's no clear linkage between:
  - Budget: The financial resources allocated.
  - Objectives: What the agency aims to achieve with its assets.
  - Asset Performance: How well assets are performing in support of those objectives.
  - Funds might be spent on assets that do not directly contribute to mission goals or might be underfunded in areas where they could make the most impact.
- No Strategic Investment: Without understanding the performance value of assets, there's a tendency to allocate resources based on immediate needs or historical spending rather than on strategic, long-term benefits. This can result in:
  - Over-maintenance of some assets while others are neglected.
  - Inability to plan for lifecycle costs effectively, leading to unexpected large expenditures.

These are all issues and risks that are mitigated through AM Framework use of RBB techniques and capabilities.

Conclusion:

This AMP article delves into a specific solution on how to use RBBs to address systematic failures in managing the U.S. Government's built infrastructure. The problem and solution breakdown is summarized as follows:

Problem Identification:

Federal Agencies Lack of Adequate AMS for built infrastructure. This absence leads to inefficient management of assets and resources, degradation of built infrastructure, and impacts on operational readiness and mission achievement.

Solution Framework:

AM Framework Objective Definition:
- Organizational Objectives: These are overarching goals of the agency or organization related to mission, operational efficiency, cost-effectiveness, or service delivery.
- Asset Management Objectives: These translate organizational objectives into specific, measurable goals for asset management and built infrastructure management. Asset Management Objectives define:
  - Performance Criteria: Standards or benchmarks that assets must meet.
  - Performance Targets: Quantifiable goals for asset performance.
Requirements-Based Budgets (RBB):
- Determination: RBBs are formulated by applying Asset Management Objectives to the agency's asset portfolio. This process involves:
  - Identifying what is needed (in terms of maintenance, upgrades, etc.) to meet the performance criteria and targets set by Asset Management Objectives.
  - Estimating the costs associated with these needs to create a budget that directly supports asset performance objectives.
Risk Management through Management Controls:
- PPBE (Planning, Programming, Budgeting, and Execution) Controls: These are the established processes within federal agencies for managing resources and aligning them with strategic goals. In the context of asset management:
  - Planning: Setting Asset Management Objectives and performance targets and therein calculation of the budget needed to achieve targeted levels of performance.
  - Programming: Scheduling the projects or activities to meet these objectives and determination of the program and funding source to perform the work.
  - Budgeting: Allocating funds via the Agency’s budget. This budget should be cover the budget generated in the RBB, or if not address how performance risk is going to managed, mitigated, or addressed.
  - Execution: Implementing the plans and monitoring performance through budget execution.
- Strategic Asset Management Plans (SAMPs) and Asset Management Plans (AMPs):
  - SAMPs: High-level plans that outline how an organization will manage its assets to achieve strategic objectives over the long term. SAMPs are used to integrated and reconcile objectives, budgets, and program address requirements. SAMPs also establish the AMPs that coordinate the execution of work.
  - AMPs: More detailed plans for specific asset classes or individual assets, detailing how each will be managed to meet Asset Management Objectives.

Consequences of Inadequate AMS and AM Framework:

Without an effective AMS and AM Framework, the tools and processes for managing performance risk are either absent or insufficient. This leads to:
- Inefficient Use of Resources: Assets are not managed optimally, leading to higher costs or wasted opportunities.
- Asset Degradation: Lack of maintenance or inappropriate management can lead to faster deterioration of infrastructure.
- Impact on Mission: Reduced operational readiness affects the agency's ability to fulfill its mission.

Implementation:

The solution calls for Federal Agencies to adopt or enhance their AMS to include systematic inclusion of RBB capabilities to proactively manage risk. This includes:
- Developing or refining AM Frameworks that clearly define both Organizational Objectives and Asset Management Objectives.
- Using these objectives to create RBBs, ensuring that budgets reflect the actual needs of asset management and built infrastructure operations.
- Establishing and improving upon management controls like PPBE or structured planning documents such as AM Framework generated SAMPs and AMPs to manage performance risk systematically.

By implementing these approaches, agencies can move towards a more strategic, performance-based management of their infrastructure assets, aligning financial resources with the goals of reliability, cost-efficiency, and mission support.

Written by Jack Dempsey | March 4, 2025

AMP Newsletter #112

Preceding articles at: