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IDENTIFICATION OF CRITICAL LEVEL OF
ASSETS BY USING ANALYTIC HIERARCHY
PROCESS FOR WATER ASSETS MANAGEMENT
Mohd Hazley Halim
1
, Abdul Hakim Mohammed
2

1
Pengurusan Aset Air Berhad (PAAB)
2
Universiti Teknologi Malaysia

Abstract - The management of a water asset is becoming more
complicated and demanding, not only to keep the water asset in
good condition but also in an optimal manner. To overcome these
challenges water asset should be managed according to the
critical level of each asset that is determined base on the
identified critical criteria for each asset hierarchy. The main
purpose of this study is to identify the critical level of each asset
by using analytic hierarchy process (AHP). The research
methodology consists of a series of focus group workshops and
the utilization of analytic hierarchy process. A series of focus
group workshops with subject matter experts in the water
industry will be conducted to produce a hierarchical framework
for water assets through a sequence of pair-wise comparison
judgments. Analytic hierarchy process will be utilized to derive
the multi criteria decision making (MCDM) preferences from
stakeholders and to compute the corresponding relative weights
of their decision preferences towards the asset criticalities. By
using this method, the water industry will be able to analyze the
quantitative information and develop a single framework for the
water assets. It will be beneficial in water asset management and
serve it purposed for transparency, effective and efficiency in
managing water assets for future.
I ndex Terms - Utility, asset management, water, MCDM
I. INTRODUCTION
Water supply infrastructure in Malaysia has been built
progressively over the last 50 years. With the increased in
demand of supply and customers expectations of achieving the
Key Performance Index (KPI) set by National Water Services
Commission (SPAN) as the regulator, a new management
practice has to be introduced for the construction and
maintenance of new and existing assets to meet these demands.
This is important to Pengurusan Aset Air Berhad (PAAB) as
the facility licensee and water operators as the service licensee,
which are committed to deliver satisfactory performance based
on an agreed target of Key Performance Indicators (KPI) set by
National Water Services Commission as the service regulator.
With the introduction of Water Services Industry Act 2006 -
Act 655 (WSIA) and migration to the new licensing regime,
PAAB has become the only custodian of national water assets.
Upon migration to the new regime, many of the water
infrastructure assets handed over by service licenses to PAAB
is old and near towards the end of its life.
Historically water assets were managed based on personal
knowledge of the assets and processes. As more experienced
engineers and experts approach towards their retirements,
decades of undocumented and irreplaceable experienced and
knowhow of the assets and systems will be lost. As tomorrows
expert can always be built on expertise available today, it is
critical to maintain the knowledge, condition and critical level
of the water assets for future planning purposes.

In todays environment where customers continuously
demand increased levels of quality service, it is imperative that
organizations constantly enhance their performance and exceed
their customers expectations. For Pengurusan Asset Air
Berhad (PAAB) or Water Asset Management Company
(WAMCO), which is entrusted by the Federal Government
under the Water Services Act 2006 (Act 655) to develop the
nations water infrastructure in Peninsular Malaysia and the
Federal Territories of Putrajaya and Labuan, the emphasis on
the delivery of treated water supply is increasing, water
operators are being made more directly accountable for the
management of the resources involved in the delivery of public
services.

Under the new water supply regime, water supply assets
presently owned by Service Licensees will be handed over to
PAAB. As the new asset owner of water supply assets, PAAB
needs to know what assets they own, where the assets are, the
condition of the assets, the remaining useful life and the value
of these assets. These asset data and information are highly
important for effective implementation of Asset Management
program. Therefore, it is really crucial for PAAB to understand
the current condition of the assets for the purpose of CAPEX
and OPEX planning
II. SCOPE OF RESEARCH
Water was a State matter; as such treated water supply was
the purview of respective States. Up to the initiation of the
Water Supply Industry Act, State Governments own the water
infrastructures, managed, operate and maintained all water
related infrastructure to provide the service.

The Federal Government stepped up efforts to reform the
industry in 2003 for the benefit of all stakeholders including the
Federal Government, consumers and the State Government. It
is an extensive process that includes amendments to the
Constitution and passing of new legislations to enable the
Government to materialize the reformation.

Parliament approved the amendments to the Ninth and
Tenth Schedules of the Federal Constitution in January 2005.
The amendment to the Ninth Schedule involves the transfer of
water supplies and services from the State List to the
Concurrent List. In other words, the water supplies and services
is now a shared responsibility between the State and the
Federal Government. It is a pertinent move that gives the
Federal Government authority over the water services in all
States except Sabah and Sarawak. The Tenth Schedule was also
amended and as a result, the revenue from water supplies and
services (previously assigned to the States) is now assigned to
the Federal Government.

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In July 2006, further to the amendments to the Constitution,
Parliament passed two new legislations namely the
Suruhanjaya Perkhidmatan Air Negara Act 2006 and Water
Services Industry Act 2006 (WSIA). The former provides for
the establishment of Suruhanjaya Perkhidmatan Air Negara
(SPAN) or National Water Services Commission as the
technical and economic regulator and set out the function and
powers of SPAN. WSIA, on the other hand, provides the legal
framework required for the regulation of the water and
sewerage service.

Pengurusan Asset Air Berhad (PAAB) was established on
5th May 2006 as a wholly owned company under the Ministry
of Finance Incorporated. PAAB is intended to be a Facility
Licensee under the Water Services Industry Act 2006 - Act 655
(WSIA). The WSIA defines "Facilities Licensee" as a person
who is licensed under this Act to own a water supply system or
sewerage system or any part of the water supply system or
sewerage system.

A new model was developed, targeting to resolve the
financial woes of the water services industry, promote financial
sustainability in the State water operators, and alleviate the
Federal Government/taxpayers financial burden. In the long
run, the Federal Government wants the state water operators to
achieve full cost recovery and attain financial independence.
These efforts will ultimately lead to improvement in the quality
of water supply and the efficiency of the industrys services.

Under the new model, a separation of responsibilities
between water asset owners and operators were made. State
water operators will no longer be responsible for developing
water infrastructure and its funding so as they are solely
responsible in providing water services to consumer and
improving their operational efficiency. The responsibilities of
developing water infrastructure and sourcing for its funding
will be transferred to PAAB.
Under this new arrangement, PAAB will take over the
existing water assets in the States so as to transform the state
water operators to asset-light entities. PAAB will then become
water assets owner after buying over the water assets from the
states. In exchange for the assets, PAAB will assume the
States outstanding Federal water supply loans of an equivalent
sum. (However, for some states where the value of the water
assets is more than the outstanding loan, the surplus value will
be taken into consideration and the settlement terms will be
negotiated.)

By transferring the loans to PAAB, the State Governments
will be immediately relieved of the heavy burden of settling the
Federal water supply loans. The Federal Government, on the
other hand, will own the States water infrastructures via
PAAB, enabling it to have better control over the water
industry.

After transferring the assets, the State Governments will
still be responsible for providing water supply services in the
states. However, instead of owning the water assets, the State
water operators (Service Licensees) will lease these assets back
from PAAB (Facilities Licensee) for operation and
maintenance with a fee. With the lease income, PAAB will
repay the Federal Government loan over time. The relationship
of the various stakeholders can be shown in Figure 1 below.

Fig. 1. Relationship of the various stakeholders

Under section 31 of WSIA, the Water Services Commission
(SPAN) may direct the Facilities Licensee to construct or
extend public water supply systems or public sewerage
systems. Section 35 of WSIA requires the Facilities Licensee to
construct, refurbish, improve, upgrade, maintain and repair its
water supply system and sewerage system. PAAB is also
responsible of funding all its water asset capital expenditure.

The largest factor for Service Licensees to cost water
rates is the lease rental to be paid to PAAB and the operational
and maintenance cost to operate and maintain its water supply
system. Billions of Ringgit Malaysia had been invested for the

Water infrastructures managed by Service Licensees today
and billions more to be planned, designed or under construction
for present and future demand. Many new facilities and
pipelines will be much more complex and costly to operate and
maintain than of the past. As these new assets come on line,
PAAB as the asset owner requires more sophisticated
approaches to better manage all the water assets it owns.

Table 1. Existing systems in water operators for asset management
purposes.

Earlier in 2009, PAAB has conducted a desktop study on
the availability of GIS and Asset Management implementation
for water operators in Malaysia excluding Sabah and Sarawak.
Based on the findings as shown in Table 1, almost 10 out of 12
water operators are managing their assets manually without
International Journal of Technical Research and Applications e-ISSN: 2320-8163,
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proper record keeping and systematic approach. Without proper
system to identify the critical assets there will be no clear
knowledge of the condition of assets and how they are
performing. These asset lives are not optimized and this leads
to replacing the asset prematurely, which is generally expensive
in the long run.
III. RESEARCH OBJECTIVE
The objective of this research is to identify and developed
the list of criteria and elements that will be used to identify the
critical levels of assets. Not every asset presents the same
failure risk, therefore it is important to know which assets are
required to sustain in the water system's performance to ensure
continuously water connection supplied are delivered to
consumers.

In earlier days, most of the assets have been managed and
monitored using gut feel and local knowledge. Expenditure
patterns were based on knowledge of the age of the assets and
some assessment of historical failure pattern and wild guess of
the asset life expectancy. Without proper Asset Management
practice there will be no clear knowledge of the condition of
assets and how they are performing, this knowledge lacking
will leads to replacing the asset that is generally the most
expensive option whenever a premature asset failure occurs.

The criteria of the critical assets must be kept up to date to
ensure that the utility is spending its time and resources on the
appropriate assets. The criteria developed must incorporate
with the replacement of assets. If an asset that was critical
primarily due to its likelihood of failure fails and is replaced
with a new asset, the critical asset number will go down since
the likelihood of failure is much less. Therefore, Multi-criteria
Decision Making (MCDM) method through Analytical
Hierarchical Process (AHP) technique will be used in this
study.

IV. RESEARCH METHODOLOGY
Multi Criteria Decision Making (MCDM) method has been
widely applied to various techniques and disciplines. A
literature review on the MCDM methods which has been used
in research from 1999 to 2009 with a total of 628 papers were
identified to be reviewed (Abbas and Mahdi, 2011). The papers
were extracted from 20 different journals the tabulation of
MCDM methods has been classified based on the techniques
and disciplines.

On the other hand, a search by using Science Direct has
turn out a total of 1128 papers in 200 journals on the
applications of MCDM. Out of 628 papers from the 20 journals
earlier, 386 papers (61.5%) have been used as an application
while the remaining 242 papers (38.5%) were non application.
In the context of MCDM in application, out of 386 papers
reviewed a total of 72 papers (18.7%) were used in Water,
Business and Financial Management. Based from the 10 years
review on MDCM methods, AHP was the most widely
technique used as compared to other such as ANP, SAW,
TOPSIS, DSS and MOP

MCDM is a methodology use to combine a set of criteria to
achieve a single composite basis for a decision according to a
specific objective. Although a variety of techniques exist for
the development of weights for the criteria, one of the most
promising would appear to be that of pairwise comparisons
developed by Saaty in the context of a decision making process
known as the Analytical Hierarchy Process (AHP) (Saaty,
1980). The most common practice use at this moment was
practitioner experience to assess the condition of water mains
due to the lack of standard on the condition assessment scale
for water mains, which they can depend upon to measure the
condition of their water system (Al-Barqawi and Zayed, 2006).

Asset management is the collection, processing, analysis
and maintenance of extensive information about various types
of assets such as equipment, facilities and other resources to
plan work to be executed to maintain these assets at an
operational level in the most cost-effective fashion possible
(Lemer, 1998). In terms of public-works infrastructure like
water supply network, the priority of asset management is
making decisions about the effective and efficient
development, use, maintenance, repair and replacement.

In order to manage all these assets in the most cost effective
manner, an assessment especially on the critical level of assets
need to be clearly defined. Typically, this process will relate to
the assessment on existing condition of the assets. This will
provide a good indication on which items of plant are most
critical to the process and able to act quickly through diagnoses
an impending failure. As a part and parcels of the rating of an
asset, the weightage of critical level will be obtained by using
an AHP

The Analytic Hierarchy Process (AHP) is a multi-criteria
decision making (MCDM) method that helps the decision-
maker facing a complex problem with multiple conflicting and
subjective criteria. AHP provides a proven, effective means to
deal with analyzing the data collected for the decision criteria
and expediting the decision-making process. This method
claimed to be one of the best methods with comprehensive,
logical and structured framework. As shown in Figure 2, it
enables people to make decisions involving many kinds of
concerns including planning, setting priorities, selecting the
best among a number of alternatives, and allocating resources.
In summary, the AHP provides decision-makers with logical
decisions based on analytical methods, which eliminate the
chances of challenge in decision making (Saaty, 1982).








Fig. 2. Abstract diagram of pairwise comparison by hierarchy

In order to ensure the results that will be obtained are
beneficial to the water operators. A focus group approach will
be used to identify the critical level of assets. The focus group
is a tool to gather information with very high quality output for
decision making purposes.

A focus group can be utilized for many purposes such as
development, evaluation, planning and need assessment
(Krueger and Casey, 2000). In this research, a carefully
planned series of discussions have been designed to obtain the
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results for the determination of critical level related to water
assets.

The focus group for the determination of assets critical
level shares the same features of other discussion methods.
However, it must be designed to follow the steps

A controlled process and environment whereby the
participants will interact among themselves;
The process of data collection and interpretation are well
structured;
Participants are selected according to the specific
requirements which have the same area of interest.

The participants for the focus group discussion are
attended by the following agencies

National Water Services Commission
Kementerian Tenaga, Teknologi Hijau & Air (KeTTHA)
Pengurusan Aset Air Berhad (PAAB)
Syarikat Air Melaka Berhad (SAMB)
Syarikat Air Johor Holding Sdn Bhd (SAJH)
Syarikat Air Negeri Sembilan Sdn Bhd (SAINS)
Lembaga Air Perak (LAP)
Bahagian Bekalan Air, JKR Perlis
Malaysia Water Association (MWA)

As for main criticality analysis criteria, there are two
evaluation condition have been determine to chart the assets
failure which are probability and consequences of failure. This
formed Level 1 of the evaluation. The probability evaluation
comprised of physical condition, site, failure history, assets life,
maintenance practice and historical knowledge that are
included in the model are identified. On the other hand, the
consequences of failure will evaluate other area such as social,
financial and environment aspect

The two level of evaluation are later been sub divided into
Level 3, 4, 5, 6, and 7 which subject to each asset detail for
each component. Figure 3 is an example of a result of Pump
House which is structured by hierarchy obtained during the
discussion.

Fig. 3. Hierarchy of assets critical level developed for Pump House

The level of assets obtained was screened and discuss
further with the participants to identify and deliberate the
criteria and weightage given by each respective participants
groups. A commercial software by the name of Expert Choice
which has been incorporated with AHP requirement was used
as a tool to identify and prioritize the asset critical level. Once
the hierarchy has been constructed, the participants will be able
to analyze it through a series of pairwise comparisons in matrix
table that derive the numerical scales of measurement for the
nodes. Each factor weight represents the relative critical of this
factor among the other factors.

To assist, a scale numbers were developed to guide and
provide a framework to participant for the purpose of the
judgment simplification process in Expert Choice. Below is the
scale and definition used in this research.

Table 1. Numeric scale for condition assessment

The basis of judgements in giving the weight for each
criteria or factor is by the focus group decision. Through a set
of pairwise comparison at each level of the hierarchy, a matrix
is developed whereby each entities indicate the strength of an
element over another element with respect to a given criteria at
the above level. Figure 4 shows the weightage of pair-wise
comparison matrices for pump station given by participant for
Level 3

Fig 4. Pairwise matrix table and the weightage

In the Figure 4 above, the probabilities of failure for pump
house were assessed. The weightage given to the assessment of
actual physical condition of equipment is very strongly more
important with weightage of 7 as compared to the assessment
on actual physical condition. This process continues to other
comparison with each factor evaluated respectively.

Once all level for the respective of assets have been
discussed and agreed. The comparison in terms of critical level
of assets are assessed and the results obtained as show in Figure
5 that the assessment on actual physical condition of equipment
is the most important criteria for critical analysis as compared
to others.

Fig 5. Chart to view the priorities derived in Expert Choice

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The next step is to calculate the Consistency Ratio (CR) to
measure how consistent the judgments have been relative to
large samples of purely random judgments. If the matrix is
consistent, then, the weights can be accepted. The threshold on
the consistency ratio has been set not more than 0.1. If exceed,
the process has to be repeated until the minimum ratio results
has been achieved. This is to make sure an evaluation based on
the assumption is rational, i.e., if A is preferred to B and B is
preferred to C, and then A is preferred to C.

Conceptually, it is applied mathematical formula to
evaluate the consistency. Saaty (1977) has proposed a
consistency index (CI), which is related to the Eigenvalue
method:

CI = , (3) where max = maximal Eigenvalue

The consistency ratio , the ratio of CI and RI, is given by:

CR = CI/RI, (4)

where RI is the random index (the average CI of 500
randomly filled matrices).

If CR is less than 10%, then the matrix can be considered as
having an acceptable consistency.

V. RESEARCH OUTCOME
The urban water supply is a large and complex
infrastructure that has been expanded from time to time
continuously. While getting older, water supply assets, are
exposed to the deterioration process and eventually reach the
end of their useful life. Some assets will reach this point
sooner than other assets. In addition, depending on the type
of asset, it will either reach that point through amount of use or
length of service. Also as assets deteriorate, the performances
of the assets are affected. There are many factors that will
affect how much life a given asset has. Factors such as poor
installation, defective materials, poor maintenance, and
corrosive environment will shorten an assets life, while
factors such as good installation practices, high quality
materials, proper routine and preventative maintenance, and
non corrosive environment will tend to lengthen an assets life.

When an asset fails or under performs, it can be expected
that the consumers will be affected. Since there are enormous
amount of asset, it become a great task to manage the asset
systematically. Some assets need to be replaced immediately
while others need better maintenance. This task has greatly
helps by introducing element of criticality. Not all assets are
equally important to the systems operation, some assets are
highly critical to operations and others are not critical at all.
Furthermore, critical assets are completely system specific.
Certain assets or types of assets may be critical in one location
but not critical in another.

The idea of asset critical level is fundamental to asset
management. Assigning criticality enables the organization to
begin implementing the practice of asset management by
providing a formal and systematic means to:

Determine which assets deserve attention and money
to prevent failure and risks.
Determine appropriate maintenance level.
Determine priority works for renewal or replacement.
Carry out more accurate financial planning.
Carry out technical analysis and review strategies for
planning, acquisition and operation.

This research has been conducted to determine the critical
level assets through Analytical Hierarchy Process (AHP),
which is generally used as the Multi-criteria Decision Making
(MCDM). The AHP provides a convenient approach for
solving complex problems in asset management especially in
asset critical level. By using this method, PAAB will able to
analyze both quantitative and qualitative information into a
single framework for the assets. This will definitely assist
PAAB especially in asset management and serve it purposed
for transparency, effective and efficiency for the better
management of water assets.
REFERENCES
[1] Al-Barqawi, H. and Zayed, T. (2006). Condition Rating Model
for Underground Infrastructure Sustainable Water Mains, J. of
Performance of Constructed Facilities, ASCE, May, 20(2)
[2] Crespo, A., (2007). The Maintenance management Framework:
Models and Methods for Complex System Maintenance
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[3] Lemer, A.C. (1998), Progress toward integrated infrastructure-
assets-management systems: GIS and beyond, Proceedings of
the APWA International Public Works Congress. NRCC/CPWA
Seminar Series in Innovations in Urban Infrastructure, pp.7-24
[4] Ishizaka Alessio, Labib Ashraf (2009), Analytic Hierarchy
Process and Expert Choice: Benefits and Limitations,
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[9] Krueger, R.A., & Casey, M.A. (2009). Focus groups: A practical
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