Renewal Demand

Renewal Demand is the amount of renewal expenditure required in a given year to ensure that no asset deteriorates beyond a predefined condition rating or that will allow for an existing renewal gap to be reduced over time.

Municipal Association of Victoria

In November 2014 the MAV circulated a memo to Councils with respect to the calculation of renewal demand. It noted that:
Council’s asset renewal demand varies over time dependent on its asset condition and degradation rate. There are variations of two renewal demand modelling techniques in use within Councils.

Method 1
This technique can allow a predetermined percentage of assets to remain above their intervention level over
time thereby allowing Council to increase renewal funding to “catch up” with out the Council showing a large
backlog or renewal gap.
A variation of this technique is to use the model to predict the future condition of the assets based on
allocated funding and asset deterioration rates. This allows a Council to better understand the service
implications of funding decisions it makes.
Using this method it is most important that Councils understand the relationship between maintenance
expenditure (effort) and asset renewal as assets already over intervention will have a higher maintenance
need than those under the intervention level.

Method 2
This second technique assumes that each asset must be renewed the moment it reaches its intervention level.
This method shows the asset renewal backlog in absolute terms and the associated costs to renew. It tends to
show a large renewal gap or backlog in the early years if the assets are in poor condition.
Both methods should calculate the same Average Annual Asset Consumption. They will however produce
different renewal demand profiles.
Both methods of calculation are considered legitimate however Method 1 is more in line with how Councils
manage their assets on a day to day basis. Management decisions around the funding and resource allocation
of asset maintenance and renewal are critical to the sustainability of the asset portfolio.

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External Links & References

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  2. Asset Renewal Calculation Methodology (MAV)
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