AIFMM

Australian Infrastructure Financial

Management Manual
Glossary

Australian Edition 2015

GLOSSARY
Accounting policies property, plant and equipment which are non-current assets
The specific principles, bases, conventions, rules and with a life greater than 12 months and enable services to be
practices applied by an entity in preparing and presenting provided.
financial statements. Asset – property plant & equipment
Accounting standards A tangible item that is:
A set of rules that govern the way in which financial • held for use in the production or supply of goods or
statements are prepared to ensure that these statements services, for rental to others, or for administration
are comparable through time for an entity and across similar purposes, and
entities. • expected to be used during more than one period.
Accrual accounting Asset category
Recognition of assets, liabilities, equity, income and Sub-group of assets within a class hierarchy for financial
expenses (the elements of financial statements) when reporting and management purposes.
they satisfy the definitions and recognition criteria for
those elements in the Framework for the Preparation and Asset class
Presentation of Financial Statements. Financial statements A group of assets having a similar nature or function in
prepared on the accrual basis inform users not only of past the operations of an entity, and which, for purposes of
transactions involving the payment and receipt of cash disclosure, is shown as a single item without supplementary
but also of the obligations to pay cash in the future and of disclosure.
resources that represent cash to be received in the future. Asset condition assessment
Activity The process of continuous or periodic inspection,
An activity is the work undertaken on an asset or group of assessment, measurement and interpretation of the
assets to achieve a desired service outcome. The activity resultant data to indicate the condition of a specific asset so
is the level at which services are identified in a Program, as to determine the need for some preventative or remedial
Sub-Program, Activity based budgeting system. action.
Advanced asset management (AAM) Asset consumption ratio
Asset management which employs predictive modelling, The average proportion of ‘as new condition’ left in assets.
risk management and optimised decision-making The ratio shows the depreciated replacement cost of an
techniques to establish asset lifecycle treatment options and entity’s depreciable assets less their residual value relative
related long term cashflow predictions (See also Core Asset to their depreciable amount.
Management) Asset hierarchy
Amortisation A framework for segmenting an asset base into appropriate
The systematic allocation of the depreciable amount of an classifications. The asset hierarchy can be based on asset
intangible asset over its useful life. function or asset type or a combination of the two.
Annual plan Asset management (AM)
A document produced annually by an organisation to The combination of management, financial, economic,
inform stakeholders of its objectives, intended activities, engineering and other practices applied to physical assets
performance, income, and expenditure required for a period with the objective of providing the required level of service
of one financial year. It may also indicate anticipated future in the most cost-effective manner [IIMM].
short-term income and expenditure (See also Management Asset management enables the realisation of value from
Plan and Operational Plan). assets in the achievement of organisational objectives. AM
Annual service cost (ASC) supports the realisation of value while balancing financial,
environmental and social costs, risk, quality of service and
1) Reporting actual cost
performance related to assets [ISO 55000:2014].
 he annual (accrual) cost of providing a service
T
including operating, maintenance, depreciation, finance/ Asset management coordinator
opportunity and disposal costs less revenue. The person appointed by an organisation to ensure the
2) For investment analysis and budgeting corporate asset management goals, objectives and legal
obligations are met. The asset management coordinator
 n estimate of the cost that would be tendered, per
A
may also be required to lead the asset management team.
annum, if tenders were called for the supply of a service
to a performance specification for a fixed term. The Asset management information system
Annual Service Cost includes operating, maintenance, An asset management information system is a combination
depreciation, finance/ opportunity and disposal costs, of processes, data and software applied to provide the
less revenue. essential outputs for effective asset management such as
Asset reduced risk and optimum infrastructure investment.
A resource controlled by an entity as a result of past events Asset management objectives
and from which future economic benefits are expected to The asset management objectives, derived as part of
flow to the entity. Infrastructure assets are a sub-class of the strategic asset management plan (SAMP), provide

AIFMM Australian Infrastructure Financial Management Manual xxix

the essential link between the organisational objectives Asset sustainability ratio (ASR)
and the asset management plan(s) that describe how The ratio of asset replacement expenditure relative to
those objectives are going to be achieved. The asset depreciation for a period. It measures whether assets are
management objectives transform the required outcomes being replaced at the rate they are wearing out [AIFMM
(product or service) to be provided by the assets, into Financial Sustainability Indicator No 3A].
activities typically described in the asset management
plan(s) [ISO 55000:2014]. Australian Accounting Standards Board (AASB)
The AASB is an independent agency of the Australian
Asset management plan
Government with responsibility to make accounting
A plan developed for the management of one or more standards under section 334 of the Corporations Act, to
infrastructure assets that combines multi-disciplinary formulate accounting standards for other purposes and to
management techniques (including technical and financial) participate in and contribute to the development of a single
over the lifecycle of the asset in the most cost effective set of international accounting standards for worldwide
manner to provide a specified levels of service. A significant use. The Chairman of the AASB reports to the responsible
component of the plan is a long-term cashflow projection for Minister regarding the organisation’s operations.
the activities.
Australian Equivalents to International Financial
Asset management policy Reporting Standards
A document that sets out the principles by which an Accounting Standards and Interpretations issued by the
organisation intends applying asset management to achieve Australian Accounting Standards Board (AASB) that are
its organisational objectives. The policy should set out the equivalent to Standards and Interpretations that are issued
organisation’s commitments and expectations for decisions, by the International Accounting Standards Board (IASB).
activities and behaviors concerning asset management.
Average annual asset consumption (AAAC)
It should be aligned to and demonstrate support for the
organisational objectives [ISO 55000:2014]. The amount of an organisation’s asset base consumed
during a reporting period (generally a year). This may be
Asset management strategy
calculated by dividing the depreciable amount by the useful
A strategy for asset management covering the development life (or total future economic benefits/service potential)
and implementation of plans and programmes for and totalled for each and every asset OR by dividing the
asset creation, operation, maintenance, rehabilitation/ carrying amount (depreciated replacement cost) by the
replacement, disposal and performance monitoring remaining useful life (or remaining future economic benefits/
to ensure that the desired levels of service and other service potential) and totalled for each and every asset in
operations objectives are achieved at optimum cost (See an asset category or class.
also Strategic Asset Management Plan).
Backlog
Asset management system
The term ‘backlog’ is not used in this Manual. See preferred
A set of interrelated and interacting elements of an term - Unfunded renewals.
organisation to establish the asset management policy and
Balance Sheet
asset management objectives and the processes needed
to achieve those objectives. In this context, the elements of A financial statement that presents assets, liabilities and
the asset management systems should be viewed as a set equity of an entity at a given point of time (Alternatively
of tools, which includes policies, plans, business processes referred to as the Statement of Financial Position).
and information systems, which are integrated to enable Bargain purchase option
an assured delivery of asset management activities [ISO
A clause in the lease agreement allowing the lessee to
55000:2014].
purchase the asset at the end of the lease for a preset
Asset management team amount, significantly less than the expected residual value
The team appointed by an organisation to review and at the end of the lease term.
monitor the corporate asset management improvement Benefit-cost ratio (B/C)
programme and ensure the development of integrated
The ratio of the benefits of a project, expressed in monetary
asset management systems and plans consistent with
terms, relative to its costs, also expressed in monetary
organisational goals and objectives.
terms. All benefits and costs should be expressed in
Asset register discounted present values.
A record of asset information considered worthy of separate Borrowings
identification including inventory, historical, condition,
A borrowing or loan is a contractual obligation of the
construction, technical and financial information about each.
borrowing entity to deliver cash or another financial asset
Asset renewal funding ratio (ARFR) to the lending entity over a specified period of time or at
The ratio of asset renewal and replacement funding a specified point in time, to cover both the initial capital
accommodated over a 10 year period in a long term provided and the cost of the interest incurred for providing
financial plan relative to the projected asset capital renewal this capital. A borrowing or loan provides the means for
and replacement expenditure identified in an asset the borrowing entity to finance outlays (typically physical
management plan for the same period [AIFMM Financial assets) when it has insufficient funds of its own to do
Sustainability Indicator No 3]. so, and for the lending entity to make a financial return,

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normally in the form of interest revenue, on the funds replacement without the enhanced capability or functionality.
provided. Upgrade expenditure is discretionary and often does not
Brookes law
result in additional revenue unless direct user charges apply.
It will increase operating and maintenance expenditure in
A method of assessing tenders for contracts where tenders the future because of the increase in the organisation’s
are assessed solely on non-price (quality) attributes, and asset base, eg. widening the sealed area of an existing road,
price negotiations are entered into with the highest attribute replacing drainage pipes with pipes of a greater capacity,
scorer. enlarging a grandstand at a sporting facility.
Brownfield asset values Capital funding
See under Valuation. Funding to pay for capital expenditure.
Brownfield valuation Capital grants
See under Valuation. Revenues received generally from other spheres of
Business plan government that are tied to specific projects or purposes,
A plan produced by an organisation (or business units within which are often for capital upgrade and/or expansion or new
it) which translates the objectives contained in an Annual investments.
Plan into detailed work plans for a particular, or range Capital income
of, business activities. Activities may include marketing, Includes grants and contributions received specifically for
development, operations, management, personnel, new or upgraded assets, physical resources received free
technology and financial planning. of charge, e.g. from a developer and interest earned on
Capacity/Utilisation capital income (cash held) that is required to be applied
The ability of the physical infrastructure to meet service in the same way (restricted to capital) as the original
needs. Capacity/utilisation may be seen as a level of contribution (See also under Income).
service indicator for alignment of capacity with usage and Capital investment expenditure
value for money for community investments. Relatively large (material) expenditure, which has benefits,
Capital expenditure expected to last for more than 12 months (See also Capital
Relatively large (material) expenditure, which has benefits, expenditure definition).
expected to last for more than 12 months. Capital Capital revenue
expenditure includes renewal, expansion and upgrade. See Capital income definition under Income.
Where capital projects involve a combination of renewal,
expansion and/or upgrade expenditures, the total project Capitalisation threshold
cost needs to be allocated accordingly.
The value of expenditure on non-current assets above
Capital expenditure - expansion which the expenditure is recognised as capital expenditure
Expenditure that extends the capacity of an existing asset and below which the expenditure is charged as an expense
to provide benefits, at the same standard as is currently in the year of acquisition.
enjoyed by existing beneficiaries, to a new group of users. Carrying amount
It is discretionary expenditure, which increases future
operating, and maintenance costs, because it increases The amount at which an asset is recognised in the balance
the organisation’s asset base, but may be associated with sheet after deducting any accumulated depreciation /
additional revenue from the new user group, eg. extending amortisation and accumulated impairment losses.
a drainage or road network, the provision of an oval or park Cash
in a new suburb for new residents. Includes cash on hand, currency, cheques, money orders or
Capital expenditure - new electronic transfer that a bank will accept as a deposit and
Expenditure which creates a new asset providing a new demand deposits.
service/output that did not exist beforehand. As it increases Cash equivalents
service potential it may impact revenue and will increase Short-term highly liquid investments that are readily
future operating and maintenance expenditure. convertible to known amounts of cash and which are
Capital expenditure - renewal subject to an insignificant risk of changes in value.
Expenditure on an existing asset or on replacing an existing Cash flow
asset, which returns the service capability of the asset Cash flows are inflows and outflows of cash and cash
up to that which it had originally. It is periodically required equivalents.
expenditure, relatively large (material) in value compared
with the value of the components or sub-components of Cash flow statement
the asset being renewed. As it reinstates existing service See Statement of Cash Flows.
capacity, it generally has no impact on revenue, but may Cash-generating unit (CGU)
reduce future operating and maintenance expenditure
if completed at the optimum time, eg. resurfacing or The smallest identifiable group of assets that generates
resheeting a material part of a road network, replacing a cash flows that are largely independent of the cash inflows
material section of a drainage network with pipes of the from other assets or groups of assets.
same capacity, resurfacing an oval. Closed circuit television (CCTV)
Capital expenditure - upgrade The use of video cameras to transmit a signal to a specific
Expenditure, which replaces a previously existing asset with place or limited set of television monitors. CCTV methods
enhanced capability or function, where an option existed for are used to inspect pipeline assets by sending a mobile

AIFMM Australian Infrastructure Financial Management Manual xxxi

video camera along the length of the pipe to visually record Critical assets
the interior. Assets for which the financial, business or service level
Complex asset consequences of failure are sufficiently severe to justify
proactive inspection and rehabilitation. Critical assets have
A physical item of property plant and equipment that is
a lower threshold for action than non-critical assets.
capable of disaggregation into significant components.
Current assets
Component (of an asset)
Those assets which the entity either:
Specific parts of an asset having independent physical
or functional identity and having specific attributes such (a) intends to sell or consume in its normal operating cycle;
as different life expectancy, maintenance regimes, risk or or,
criticality. (b) h
 olds primarily for the purpose of trading; or,
Component (of an entity) (c) e
 xpects to realise the asset within twelve months after
Operations and cash flows that can be clearly distinguished, the reporting date; or
operationally and for financial reporting purposes, from the (d) h
 olds and are cash or a cash equivalent (and are not
rest of the entity. restricted from being exchanged or used to settle a
liability for at least twelve months after the reporting
Condition
period).
The physical state of an infrastructure asset. Condition may
be seen in some circumstances as a level of service proxy Current liability
indicator of quality from the customer’s view. Often though, A liability that the entity either:
other factors may be more or equally relevant. (a) e
 xpects to settle in its normal operating cycle; or,
Condition-based preventive maintenance (b) h
 olds primarily for the purpose of trading; or,
Preventive maintenance initiated as a result of knowledge of (c) is due to be settled within twelve months after the end
an item’s condition from routine or continuous monitoring. of the reporting date; or
Condition monitoring (d) d
 oes not have an unconditional right to defer settlement
Continuous or periodic inspection, assessment, of for at least twelve months after the reporting date.
measurement and interpretation of the resultant data, to Current replacement cost (CRC)
indicate the condition of a specific component so as to The cost required currently to replace the service capacity
determine the need for some preventive or remedial action. of an asset with a substitute asset of comparable utility and
Contributed asset condition, i.e., the depreciated replacement cost of a new
An item of property, plant and equipment that is provided at asset. It is based on the cost for a market participant buyer
no cost to an entity (eg roads and open space contributed to acquire or construct a substitute asset of comparable
to a local government by a developer). utility or service capacity, adjusted for obsolescence.
Obsolescence includes physical deterioration, as well as
Control functional and economic obsolescence. The rationale for
The power to govern the financial and operating policies of this approach is that a market participant buyer would not
an entity so as to obtain benefits from its activities. pay more for an asset than the amount for which it could
replace the service capacity of that asset.
Core asset management
Asset management which relies primarily on the use of Data warehouse
an asset register, maintenance management systems, A system that is used to centralise a group of disparate
job resource management, inventory control, condition databases in an organisation to facilitate access into each
assessment, simple risk assessment and defined levels of of those databases.
service, in order to establish alternative treatment options Decommission
and long-term cashflow predictions. Priorities are usually
established on the basis of financial return gained by Activities required to take an asset out of service.
carrying out the work (rather than detailed risk analysis and Deferred maintenance
optimised decision-making). The shortfall in rehabilitation work undertaken relative to
Corrective maintenance that required to maintain the service potential of an asset.
The remedial actions performed as a result of failure, Delphi approach
to restore an item to a specified condition. Corrective A group decision-making technique where a number of
maintenance may or may not be programmed. people are asked their opinions, which are then analysed to
Cost of an asset produce a best fit result.
The amount of cash or cash equivalents paid or the fair Demand management
value of the consideration given to acquire an asset at the The active intervention in the market to influence demand
time of its acquisition or construction, including any costs for services and assets with forecast consequences, usually
necessary to place the asset into service. This includes to avoid or defer capital expenditure. Demand management
one-off design and project management costs. is based on the notion that as needs are satisfied,
Costs of disposal expectations rise automatically and almost every action
The incremental costs directly attributable to the disposal of taken to satisfy demand will stimulate further demand.12
an asset or a group of assets, excluding finance costs and
income tax expense.

xxxii AIFMM Australian Infrastructure Financial Management Manual

Depreciable amount Economic value
The cost of an asset, or other amount substituted for its The value of an asset deriving from its ability to generate
cost, less its residual value. income which is measured by discounting the net cashflow
Depreciated replacement cost (DRC)
of the asset by an appropriate risk adjusted discount rate.
For non-cash generating assets, the economic value is the
The gross replacement cost (GRC) of an asset less, where value of the goods and services produced or provided to
applicable, accumulated depreciation calculated on the meet the entity’s objectives.
basis of such cost to reflect the already consumed or
expired future economic benefits of the asset. Effective interest rate

Depreciation
The rate that exactly discounts estimated future cash
payments or receipts through the expected life of the asset
The systematic allocation of the depreciable amount of an to the net carrying amount of that asset or liability.
asset over its useful life.
Entity
Depreciation method
Any legal, administrative, or fiduciary arrangement,
The method used to allocate the depreciable amount of organisational structure or other party (including a person)
an asset over its useful life. This includes, for example the having the capacity to deploy scarce resources in order to
straight-line, diminishing balance or units of production achieve objectives.
methods.
Equity
Deprival value
The residual interest in the assets of the entity after
The value of an asset to the present owner, if the owner deducting all of its liabilities.
were deprived of the asset. Assets are valued at an amount
that represents the entire loss that might be expected Expenditure
to be incurred if the entity were deprived of the service The spending of money on goods and services. Expenditure
potential or future economic benefits of particular assets includes recurrent and capital outlays.
at the reporting date. If an entity no longer requires, or no Expenses
longer intends, to provide a service, the nature of the asset
changes and the measurement of the asset’s deprival Decreases in economic benefits during the accounting
value may change. But the concept of deprival value period in the form of outflows or depletions of assets
remains applicable to the asset. This is a valuation basis or increases in liabilities that result in decreases in
that includes the non-market concept of the value in use of equity, other than those relating to distributions to equity
assets as part of a going concern. participants.

Deterioration rate Facilities audit

The rate at which an asset approaches failure. The physical audit of a facility, usually required for valuation,
life-cycle cost analysis, short-term maintenance planning
Discounted cash flow analysis and long-term planning purposes.
A method of valuing a project, company, or financial asset Facility
or liability based on the concept of the time value of money.
All future cash flows and their timing are estimated and A complex comprising many assets (e.g. a hospital, water
discounted to give them a present value. The discount rate treatment plant, recreation complex, etc.) which represents
used is generally the appropriate cost of capital, and may a single management unit for financial, operational,
incorporate judgments of the uncertainty (riskiness) of the maintenance or other purposes.
future cash flows. Failure modes, effects and criticality analysis (FMECA)
Discounting A technique for analysing and evaluating a maintenance
A technique for converting cash flows that occur over time strategy or life-cycle strategy to ensure that the application
to equivalent amounts at a common point in time. has the desired reliability characteristics by obviating those
critical failure modes through employment of redundancy,
Discount rate providing alternate modes of operation, de-rating, or any
A rate used to relate present and future money values, other means.
e.g. to convert the value of all future dollars to the value of Fair value
dollars at a common point in time, usually the present (see
also Effective interest rate). The price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
Disposal participants at the measurement date.
Activities necessary to dispose of decommissioned assets. Finance lease
Donated assets A lease that transfers substantially all of the risks and
See Contributed Assets rewards incidental to ownership of an asset. Title may or
Economic life
may not eventually be transferred.

The period over which an asset is expected to be Financial asset

economically useable by one or more users or the number Cash or an equity instrument of another entity or a
of production or similar units expected to be obtained contractual right or similar that can readily be converted to
from the asset by one or more users. It is the life until the cash. For example, financial assets include cash deposits,
asset ceases to be the lowest cost alternative to satisfy a fixed deposits, receivables and investments.3
particular level of service.
3
Refer AASB 132 Financial Instruments: Presentation for a more
comprehensive definition.

AIFMM Australian Infrastructure Financial Management Manual xxxiii

Financial liability projected. A current financing gap means service levels
A contractual obligation to deliver to another entity cash or have already or are currently falling. A projected financing
similar that can readily be converted to cash. For example gap if not addressed will result in a future diminution of
financial liabilities include bank overdrafts, accounts existing service levels.
payable, borrowings and amounts owing under finance Focus group
leases but exclude liabilities for taxes, operating leases and
A method of consulting with representative customers/
provisions for outstanding employee entitlements.4
stakeholders. A focus group typically comprises 6 to 8
Financial plan people, invited to participate in a discussion about a
A long-term financial plan is a plan for generating, spending specified topic, product or service.
and saving future income and raising and repaying Framework
borrowings as appropriate. It will cover a period of at
The “Framework for the Preparation and Presentation of
least 3 years but preferably longer and will highlight the
Financial Statements” is a pronouncement of the Australian
financial implications of an entity’s proposed activities and
Accounting Standards Board that sets out: the objective
anticipated events.
of financial statements; assumptions and qualitative
Financial Report (statements) characteristics underlying financial reports; elements of
The financial report consists of a Statement of Financial financial reports and recognition criteria for these elements.
Position (balance sheet), Statement of Profit or Loss Function
and Other Comprehensive Income (income statement),
A measure of the ability of physical infrastructure to meet
a Statement of Cash Flows, a Statement of Changes
program delivery needs. Function may be seen as a
in Equity and notes which are an integral part of the
level of service indicator of service or asset management
financial statements. The objective of financial statements
objectives.
is to provide information about the financial position,
performance and cash flows that is useful to a wide range Funding
of users for making economic decisions. Funding refers to the raising of revenue. Although ‘financing’
Financial Reporting Council (FRC) and ‘funding’ are different functions, they are inter-related.
For example, where total outlays in a particular year cannot
Responsible to the Minister, the FRC provides broad
be met from revenue in that year, some outlays may be
strategic direction and advice to the AASB and AUASB
financed by raising borrowings but the servicing of the
and has oversight of the process for setting accounting
borrowings will need to be funded from revenue over a
standards in Australia. The FRC appoints Board members
period of time.
to the AASB and AUASB various terms.
Future economic benefit
Financial sustainability for local governments
The future economic benefit embodied in an asset is the
A local council is sustainable if its infrastructure capital and
potential to contribute directly, or indirectly, to the flow of
financial capital is able to be maintained over the long term.
cash or cash equivalents to the entity. The potential may
Financial sustainability for local governments is being able
be a productive one that is part of the operating activities
to manage likely developments and unexpected financial
of the entity. It may also take the form of convertibility into
shocks in future periods without having at some time to
cash or cash equivalents or a capability to reduce cash
introduce substantial and economically significant or socially
outflows. For not-for-profit entities, whether in the public or
destabilising revenue or expenditure adjustments.
private sector, the future economic benefits are also used to
Financing provide goods and services in accordance with the entity’s
Financing describes how payment for an outlay is objectives. Future economic benefits are synonymous with
accommodated. This could be, for example, through an the notion of service potential and are used as a reference
entity accessing its own funds (e.g. cash held in a bank also to service potential. Future economic benefits can
account) or by an arrangement to use another entity’s funds be described as the scarce capacity to provide benefits
(e.g. by taking out a loan – also referred to as a borrowing). to the entities that use them and is common to all assets
Although ‘financing’ and ‘funding’ are different functions, irrespective of their physical or other form.
they are inter-related. For example, where total outlays in Future reinstatement cost
a particular year cannot be met from revenue in that year,
The initial estimate of the costs of dismantling and removing
some outlays may be financed by raising borrowings but
the item and restoring the site on which it is located, the
the servicing of the borrowings will need to be funded from
obligation for which an entity incurs whether the item is
revenue over a period of time. Decisions regarding raising
acquired or as a consequence of having used the item
borrowings are a financing strategy not a funding strategy.
during a particular period for purposes other than to
Financing gap produce inventories during the period.
A financing gap exists whenever an entity has insufficient Gain on disposal of asset
capacity to finance asset renewal and other expenditure
When the consideration received on the disposal of an
necessary to be able to appropriately maintain the range
asset is greater than the carrying amount of the asset in the
and level of services its existing asset stock was originally
accounts of the selling entity.
designed and intended to deliver. The service capability of
the existing asset stock should be determined assuming no Gap analysis
additional operating revenue, productivity improvements, A method of assessing the gap between a business’s
or net financial liabilities above levels currently planned or current asset management practices and the future
desirable asset management practices. Also called needs
analysis.
4
Refer AASB 132 Financial Instruments: Presentation for a more
comprehensive definition.

xxxiv AIFMM Australian Infrastructure Financial Management Manual

Generally Accepted Accounting Principles (GAAP) held) that is required to be applied in the same way
Approved financial reporting standards so far as those (restricted to capital) as the original contribution.
standards apply to a particular entity; or, where there • Operating Income is income shown in the Statement
are no approved standards, accounting policies that are of Profit or Loss and Other Comprehensive Income
appropriate to the entity and have authoritative support other than capital income.
within the accounting profession.
Inflation rate
General Purpose Financial Report A rate of increase applied to costs incurred at a future date
A financial report intended to meet the information needs to reflect the comparative purchasing power of money
common to users who are unable to command the relative to a particular time, usually the present.
preparation of reports tailored so as to satisfy, specifically,
Infrastructure assets
all of their information needs.
Physical assets that contribute to meeting the needs of
Geographic information system (GIS) organisations or the need for access to major economic and
Software which provides a means of spatially viewing, social facilities and services, eg. roads, drainage, footpaths
searching, manipulating, and analysing an electronic and cycleways. These are typically large, interconnected
database. networks or portfolios of composite assets. The components
Going concern
of these assets may be separately maintained, renewed or
replaced individually so that the required level and standard
An assumption made by accountants in preparing financial of service from the network of assets is continuously
statements that the entity is expected to continue in sustained. Generally the components and hence the assets
operation for the foreseeable future. have long lives. They are fixed in place and are often have
Greenfield valuation no separate market value.
See under Valuation. Intangible asset
Gross replacement cost (GRC) An identifiable non-monetary asset without physical
The cost the entity would incur to acquire an equivalent substance.
new asset on the reporting date. The cost is measured by Interest cover ratio
reference to the lowest cost at which the future economic The proportion of day-to-day income used to pay interest on
benefits embodied in the asset, could be obtained in loans net of interest income. The ratio indicates the extent
the normal course of business or the minimum it would to which an entity’s operating income is committed to meet
cost, to replace the existing asset with a technologically interest expense.
modern equivalent new asset (not a second hand one)
with the same economic benefits (gross service potential) Interest rate implicit in the lease rate
as the existing asset had when it was new, allowing for The discount rate that, at the inception of the lease,
any differences in the quantity and quality of output and in causes the aggregate present value of the minimum lease
operating costs. payments and the unguaranteed residual value to be equal
Heritage asset
to the sum of the fair value of the leased asset and any
initial direct costs of the lessor.
An asset with historic, artistic, scientific, technological,
geographical or environmental qualities that is held and Internal rate of return (IRR)
maintained principally for its contribution to knowledge and The discount (or interest) rate which will equate the present
culture and this purpose is central to the objectives of the value of the net cash inflows from a project with its initial
entity holding it. cash outlay. The internal rate of return is the true yield and
Impairment loss
is expressed as the average rate of return per annum or
other chosen period.
The amount by which the carrying amount of an asset
exceeds its recoverable amount. International Financial Reporting Standards (IFRSs)

Income
Are Standards and Interpretations adopted by the
International Accounting Standards Board (IASB) (Refer to
Increases in economic benefits during the accounting Australian equivalents to IFRS).
period in the form of inflows or enhancements of assets
or decreases of liabilities that result in increases in equity, Inventories
other than those relating to contributions from equity Assets held for sale in the ordinary course of business, in
participants (contributed capital). The definition of income the process of production for such sale, or in the form of
encompasses both revenue and gains. Revenue arises materials or supplies to be consumed in the production
in the course of the ordinary activities of an entity and is process or in the rendering of services.
referred to by a variety of different names including sales,
Investment property
fees, interest, dividends, royalties and rent. Gains represent
other items that meet the definition of income and may, Property held to earn rentals or for capital appreciation or
or may not, arise in the course of the ordinary activities of both, rather than for:
the entity. Gains represent increases in economic benefit (a)use in the production or supply of goods or services or
and include, for example, those arising on the disposal of for administrative purposes; or
non-current assets. (b) sale in the ordinary course of business.
• Capital income includes grants and contributions Key performance indicator
received specifically for new or upgraded assets and
physical resources received free of charge, e.g. from a A qualitative or quantitative measure of a service or activity
developer and interest earned on capital income (cash used to compare actual performance against a standard
or other target. Performance indicators commonly relate to

AIFMM Australian Infrastructure Financial Management Manual xxxv

statutory limits, safety, responsiveness, cost, comfort, asset Loans / borrowings
performance, reliability, efficiency, environmental protection See Borrowings.
and customer satisfaction.
Lowest price conforming (LPC)
Lease
A method of assessing tenders for contracts where the
An agreement whereby the lessor conveys to the lessee in lowest priced tender that passes a minimum set standard
return for a series of payments the right to use an asset for for non-price attributes is accepted.
an agreed period of time.
Maintainability
Lease term
A characteristic of design and installation usually identified
The non-cancellable period for which the lessee has by the time and effort that will be required to retain an asset
contracted to lease the asset, together with any further as near as practicable to its new or desired condition within
terms for which the lessee has the option to continue to a given period of time.
lease the asset, with or without further payment, when at
the inception of the lease it is reasonably certain that the Maintenance
lessee will exercise the option. All actions necessary for retaining an asset as near as
practicable to an appropriate service condition, including
Level of service
regular ongoing day-to-day work necessary to keep assets
The parameters or combination of parameters that reflect operating, eg road patching but excluding rehabilitation or
social, political, environmental and economic outcomes renewal. It is operating expenditure required to ensure that
that the organisation delivers. The parameters can the asset reaches its expected useful life.
include safety, customer satisfaction, quality, capacity,
• Planned maintenance has three categories:
reliability, responsiveness, environmental acceptability,
cost and availability, etc. [ISO 55000:2014]. A level of a) Periodic – necessary to ensure the reliability or to
service statement describes the outputs or objectives sustain the design life of an asset.
an organisation or activity intents to deliver to customers b) Predictive – condition monitoring activities used to
[IIMM]. predict failure.
Liability c) Preventive – maintenance that can be initiated
A present obligation of the entity arising from past events, without routine or continuous checking (eg using
the settlement of which is expected to result in an outflow information contained in maintenance manuals
from the entity of resources embodying economic benefits. or manufacturers’ recommendations) and is not
condition based.
Life
• Reactive maintenance
A measure of the anticipated life of an asset or component; Unplanned repair work that is carried out in response
such as time, number of cycles, distance intervals, etc. to service requests and management/supervisory
Life-cycle directions.
The cycle of activities that an asset (or facility) goes through • Specific maintenance
while it retains an identity as a particular asset ie from Replacement of higher value components/
planning and design to decommissioning or disposal. sub-components of assets that is undertaken on a
regular cycle including repainting, replacement of air
Life cycle cost (LCC)
conditioning equipment, etc. This work generally falls
1. Total LCC The total cost of an asset throughout its life below the capital/ maintenance threshold and needs
including planning, design, construction, acquisition, to be identified in a specific maintenance budget
operation, maintenance, renewal and disposal costs. allocation.
2. Average LCC The life cycle cost is average cost • Unplanned maintenance
to provide the service over the longest asset life Corrective work required in the short-term to restore an
cycle. It comprises average operations, maintenance asset to working condition so it can continue to deliver
expenditure plus asset consumption expense, the required service or to maintain its level of security
represented by depreciation expense projected over 10 and integrity.
years. The life cycle cost does not indicate the funds
Maintenance expenditure
required to provide the service in a particular year.
Recurrent expenditure, which is periodically or regularly
Life-cycle cost analysis
required as part of the anticipated schedule of works
Any technique which allows assessment of a given solution, required to ensure that the asset achieves its useful life
or choice from among alternative solutions, on the basis of and provides the required level of service. It is expenditure,
all relevant economic consequences over the service life of which was anticipated in determining the asset’s useful life.
the asset.
Maintenance managed item (MMI)
Life cycle expenditure (LCE)
Either an asset or a component of an asset. The MMI
The life cycle expenditure is the average operations, level establishes the lowest level of asset that should be
maintenance and capital renewal expenditure recognised and maintained individually.
accommodated in the long term financial plan over 10
Maintenance plan
years. Life cycle expenditure may be compared to average
life cycle cost to give an initial indicator of affordability of Collated information, policies and procedures for the
projected service levels when considered with asset age optimum maintenance of an asset, or group of assets.
profiles.

xxxvi AIFMM Australian Infrastructure Financial Management Manual

Maintenance standards assets) for the period [AIFMM Financial Sustainability
The standards set for the maintenance service, usually Indicator No. 2.]
contained in preventive maintenance schedules, operation Net present value (NPV)
and maintenance manuals, codes of practice, estimating
The value to the organisation of the cash flows associated
criteria, statutory regulations and mandatory requirements,
with an asset, liability, activity or event calculated using a
in accordance with maintenance quality objectives.
discount rate to reflect the time value of money. It is the
Management plan net amount of discounted total cash inflows after deducting
See Annual plan. the value of the discounted total cash outflows arising
from eg the continued use and subsequent disposal of the
Market value asset after deducting the value of the discounted total cash
The estimated amount at which an asset would be outflows.
exchanged on the date of valuation, between a willing buyer
Net realisable value
and a willing seller, in an arm’s length transaction and when
the parties have each acted knowledgeably, prudently and The estimated selling price in the ordinary course of
without compulsion. Market value is based on highest and business less estimated costs necessary to make the sale.
best use of the asset and not necessarily the existing uses. New asset
Materiality Creation of a new asset to meet additional service level
The notion of materiality guides the margin of error requirements, eg a new building.
acceptable, the degree of precision required and the Network assets
extent of the disclosure required when preparing general
A network asset is a grouping of assets or components
purpose financial reports. Information is material if its
that are individually below the entity’s capitalisation policy
omission, misstatement or non-disclosure has the potential,
threshold. Network assets are a practical way of ensuring
individually or collectively, to influence the economic
many small value assets are recognised but as a single
decisions of users taken on the basis of the financial report
asset.
or affect the discharge of accountability by the management
or governing body of the entity. Non-cancellable lease

Minimum lease payments A lease that is cancellable only upon the occurrence of
some remote contingency, or with the permission of the
The payments over the lease term that the lessee is or
lessor, or if the lessee enters into a new lease for the
can be required to make, excluding contingent rent, costs
same or an equivalent asset with the same lessor, or upon
for services and taxes to be paid by and reimbursed to
payment by the lessee of such an additional amount that,
the lessor, together with (a) for a lessee, any amounts
at the inception of the lease, makes the continuation of the
guaranteed by the lessee or by a party related to the lessee;
lease reasonably certain.
or (b) for a lessor, a residual value guaranteed to the lessor.
Non-current assets
Modern equivalent asset
All assets other than current assets, including assets
Assets that replicate what is in existence with the most
held but not traded by a business in order to carry out its
cost-effective asset performing the same level of service. It
activities. Such assets are intended for use, not exchange,
is the most cost efficient, currently available asset which will
and normally include physical resources such as land,
provide the same stream of services as the existing asset is
buildings, drains, parks, water supply and sewerage
capable of producing. It allows for technology changes and,
systems, furniture and fittings.
improvements and efficiencies in production and installation
techniques. The modern equivalent asset is evidenced Non-revenue generating investments
by renewal strategies in asset management plans and Investments for the provision of goods and services to
financing in a long-term financial plan covering at least 10 sustain or improve services that are not expected to
years. generate any savings or revenue to the entity, eg. parks and
Net financial liabilities playgrounds, footpaths, roads and bridges, libraries, etc.
A measure of net financial liabilities occurs when the Non-specialised assets
value of financial liabilities exceeds the value of financial Non-specialised assets include commercial and general
assets, a measure which is consistent with the terminology purpose buildings and other assets for which there is a
of accounting standards. However, this Manual follows secondary market.
the conventional practice used in public sector financial
Not-for-profit entity
reporting and measures net financial liabilities as the
difference between total liabilities less financial assets. An entity whose principal objective is not the generation of
Hence, this conventional measure of performance will profit. A not-for profit entity can be a single entity or a group
include the impact of the value of non-financial liabilities of entities comprising the parent and each of the entities
such as employee benefits payable and liabilities for taxes that it controls.
payable. Operational plan
Net financial liabilities ratio (NFLR) See Annual plan.
The significance of net amount owed by an entity compared Operations
to its operating income for the period. The ratio expresses
Regular activities to provide services such as public health,
an entity’s net financial liabilities at the end of a period as
safety and amenity, eg street sweeping, grass mowing and
a percentage of its operating income (excluding amounts
street lighting.
received specifically for new/upgraded assets and donated

AIFMM Australian Infrastructure Financial Management Manual xxxvii

Operating deficit viability, social and environmental responsibility and
An operating deficit occurs when the value of operating cultural outcomes.
income less operating expenses is negative and operating 2. An optimisation process for considering and prioritising
income is therefore not sufficient to cover all operating all options to rectify existing or potential performance
expenses. failure of assets. The process encompasses NPV
Operating expenditure
analysis and risk assessment.
Recurrent expenditure, which is continuously required Optimised depreciated replacement cost (ODRC)
to provide a service. In common use the term typically The optimised replacement cost after deducting an
includes, eg power, fuel, staff, plant equipment, on-costs allowance for wear or consumption to reflect the remaining
and overheads but excludes maintenance and depreciation. economic or service life of an existing asset. ODRC is
Maintenance and depreciation is on the other hand included the surrogate for valuing assets in use where there are
in operating expenses. no competitive markets for assets, or for their services or
Operating expense
outputs.
The gross outflow of economic benefits, being cash and Optimised deprival value (ODV)
non-cash items, during the period arising in the course of This is a set of rules, rather than a valuation approach, which
ordinary activities of an entity when those outflows result describe the value boundaries for specified assets employed
in decreases in equity, other than decreases relating to in monopoly markets. The rules are a combination of a cost
distributions to equity participants. based approach (ODRC) and the economic value where the
Operating expenses
ODV is taken to be the lowest of these.
Recurrent expenses continuously required to provide Optimised replacement cost (ORC)
a service, including power, fuel, staff, plant equipment, The minimum cost of replacing an existing asset with
maintenance, depreciation, on-costs and overheads. modern equivalent assets offering the same level of service.
Operating income
The optimisation process adjusts the value for technical and
functional obsolescence, surplus assets or over-design.
See under Income.
Organisational objectives
Operating lease
The overall objective that sets out the context and direction
A lease other than a finance lease. for an organisation’s activities. The organisational objectives
Operating result define the results to be achieved by the organisation
The outcome of an organisation’s operations in a period, and are generally produced from the organisation’s
which may be either an operating surplus or operating strategic level planning activities and are documented on
deficit. The operating result does not include asset disposal an organisational plan also known as a strategic plan or
and fair value adjustments, amounts received specifically corporate plan [ISO 55000:2014].
for new or upgraded assets, physical assets received free of Pavement management system (PMS)
charge or the operating result from discontinued operations. A systematic process for measuring and predicting the
These items are included in an entity’s net surplus or deficit condition of road pavements and wearing surfaces over
for a period. time and recommending corrective actions.
Operating surplus PMS score
The excess of operating income (excluding amounts A measure of condition of a road segment determined from
received specifically for new/upgraded assets and donated a pavement management system.
assets) over operating expenses.
Property, plant and equipment
Operating surplus ratio (OSR)
Tangible (physical) assets held by an entity for use in
The operating result expressed as a percentage of total the production or supply of goods or services, for rental
operating income. [AIFMM Financial Sustainability Indicator to others, or for administrative purposes, and which are
No. 1] expected to be used during more than one accounting
Operations, maintenance and renewal financing ratio period.
Ratio of estimated budget to projected expenditure for Rate of annual asset consumption
operations, maintenance and renewal of assets to achieve/ The ratio of annual asset consumption relative to the
maintain specified service levels over a defined time (e.g. 5, depreciable amount of the assets. It measures the amount
10 and 15 years). of the consumable parts of assets that are consumed in
Operations, maintenance and renewal gap a period (depreciation) expressed as a percentage of the
Difference between budgeted expenditures in a long-term depreciable amount.
financial plan (or estimated future budgets in absence of Rate of annual asset renewal
a long-term financial plan) and projected expenditures for The ratio of asset renewal and replacement expenditure
operations, maintenance and renewal of assets to achieve/ relative to depreciable amount for a period. It measures
maintain specified service levels, totalled over a defined whether assets are being replaced at the rate they are
time (e.g. 5, 10 and 15 years). wearing out with capital renewal expenditure expressed
Optimised decision-making (ODM) as a percentage of depreciable amount (capital renewal
Two definitions are: expenditure/DA).
1. ODM is a formal process to identify and prioritise
all potential solutions with consideration of financial

xxxviii AIFMM Australian Infrastructure Financial Management Manual

Rate of annual asset upgrade/new Revaluation model
A measure of the rate at which assets are being upgraded An item of property, plant and equipment is carried at
and expanded per annum with capital upgrade/new its revalued amount when its fair value can be reliably
expenditure expressed as a percentage of depreciable measured. The revalued amount is the fair value at date of
amount (capital upgrade/expansion expenditure/DA). revaluation less any subsequent accumulated depreciation
Real cost of capital
and subsequent impairment losses.

The cost of capital is equal to the total cost of raising each Revenue
element of capital (equity plus debt). It can be measured in The gross inflow of economic benefits e.g. sales, during
either before or after tax terms. The real cost of capital is the period arising in the course of the ordinary activities of
the actual costs adjusted for price increases which may be an entity when those inflows result in increases in equity,
either the general level of prices (measure of inflation) or other than increases relating to contributions from equity
specific prices. The real cost of capital may be used as a participants (contributed capital).
hurdle rate for investment analysis. For local governments, Revenue generating investments
the real cost of capital is the long term government bond
rate adjusted by a local government price increase index. Investments for the provision of goods and services to
sustain or improve services to the community that are
Recognition expected to generate some savings or revenue to offset
The process of incorporating in the financial statements an operating costs, eg public halls and theatres, childcare
item that meets the definition of an asset, liability, income or centres, sporting and recreation facilities, tourist information
expense. centres, etc.
Recoverable amount Risk cost
The higher of an asset’s fair value less costs to sell and its The assessed annual cost or benefit relating to the
value in use. consequence of an event. Risk cost equals the costs
Recurrent expenditure
relating to the event multiplied by the probability of the event
occurring.
Relatively small (immaterial) expenditure or that which
has benefits expected to last less than 12 months. Risk management
Recurrent expenditure includes operating and maintenance The application of a formal process to the range of possible
expenditure. values relating to key factors associated with a risk in order
Recurrent funding
to determine the resultant ranges of outcomes and their
probability of occurrence.
Funding to pay for recurrent expenditure.
Routine corrective maintenance
Rehabilitation
Corrective maintenance, excluding emergency corrective
See capital expenditure - renewal. and programmed corrective maintenance.
Remaining useful life Routine maintenance
The time remaining until an asset ceases to provide the Day-to-day operational activities to keep the asset operating
required service level or economic usefulness. Age plus (replacement of light bulbs, patching potholes, repairing
remaining useful life provides an estimate of useful life. leaks, etc.) and which form part of the annual operating
Renewal/refurbishment budget, including preventive maintenance.
Restores, rehabilitates, replaces existing asset to its original Section or segment
capacity, eg gravel resheets. See Capital expenditure - A self-contained part or piece of an infrastructure item.
renewal.
Sensitivity analysis
Repairs and maintenance
Testing of the variations in the outcome of an evaluation by
Costs of day-to-day servicing of property, plant and altering the values of key factors about which there might
equipment that are primarily labour and consumables, and be uncertainty.
may include the cost of small parts.
Service maintenance
Replacement cost
Service undertaken seasonally or annually to enable the
See gross replacement cost. required level of service to be delivered.
Residual value Service potential
The estimated amount that an entity would currently obtain The total future service capacity of an asset. It is normally
from disposal of the asset, after deducting the estimated determined by reference to the operating capacity and
costs of disposal, if the asset were already of the age and in economic life of an asset. A measure of service potential
the condition expected at the end of its useful life. Residual is used in the not-for-profit sector/public sector to value
value reflects consideration receivable from an asset at the assets, particularly those not producing a cash flow.
end of its useful life to the entity and accordingly would not
include cost savings from the re-use of in-situ materials. Specialised assets

Revaluation decrement (increment)

Specialised assets are assets designed for a specific
limited purpose. Specialised assets include buildings such
The amount by which the revalued carrying amount of as schools, hospitals, court houses, emergency services
a non-current asset as at revaluation date is less than buildings (police, fire, ambulance and emergency services),
(exceeds) its previous carrying amount. specialised buildings to house infrastructure (pump stations,

AIFMM Australian Infrastructure Financial Management Manual xxxix

etc.), some heritage properties and most infrastructure Strategic longer-term plan (for local governments)
assets. A plan covering the term of office of councillors (4 years
Special Purpose Financial Report minimum) reflecting the needs of the community for
A financial report other than a general purpose financial the foreseeable future. It brings together the detailed
report. A financial report tailored to meet the specific requirements in the Council’s longer-term plans such as the
information needs of a defined user or group of users. asset management plan and the long-term financial plan.
The plan is prepared in consultation with the community
Statement of Cash Flows and details where the Council is at that point in time, where
Disclosure of cashflows from all sources relating to the it wants to go, how it is going to get there, mechanisms for
operating, financing, and investing activities of the entity, monitoring the achievement of the outcomes and how the
encompassing all funds maintained by the entity. plan will be resourced.
Statement of Changes in Equity Sub-component
A reconciliation of the equity of an entity at the beginning of Smaller individual parts that make up a component part.
a period with the equity at the end of that period. Changes Substance over form
in equity disclosed may include movements in retained
earnings for the period, items of income and expense The financial statements will reflect the underlying economic
recognised directly in equity, and movements in each class reality of transactions and other events, and not necessarily
of share and each reserve. their legal form.
Unfunded renewals
Statement of Comprehensive Income
See Statement of Profit or Loss and Other Comprehensive The value of asset renewals projected to occur prior to the
Income. reporting date. The value of unfunded renewals is reflected
in current levels of service.
Statement of Profit or Loss and Other Comprehensive
Unit of account
Income (alternatively referred to as a statement of
comprehensive income, statement of financial performance, The unit in which prices are quoted and accounts are kept
income statement, operating statement or statement of for items of non-current physical (infrastructure) assets. The
profit and loss). unit of account for infrastructure assets is the component.
A report on the net surplus/deficit, and its components, Useful life
arising from activities or events during a given period, that Either:
are significant for the assessment of both past and future
(a) the period over which an asset is expected to be
financial performance.
available for use by an entity, or
Statement of cost of services
(b) the number of production or similar units expected to be
Disclosure of the costs incurred for each significant activity obtained from the asset by the entity.
by the reporting entity. It is estimated or expected time between placing the asset
Statement of Financial Position (alternatively referred to into service and removing it from service, or the estimated
as a balance sheet) period of time over which the future economic benefits
Disclosure of all assets and liabilities of the entity, embodied in a depreciable asset, are expected to be
appropriately classified including resources, financing consumed by the entity.
structure and contingencies. Upgrade/improvements
Statement of objectives Enhancements to an existing asset to provide higher levels
A formal expression of the mission and overall objectives of of service, eg widen a sealed road.
the reporting entity. Valuation
Statement of resources The process of determining the worth of an asset or liability.
A description in physical terms of the major resources held Different valuation methods may be appropriate in different
by the reporting entity. circumstances (see also Fair Value).
Valuation (2)
Statement of service performance
A report for each significant activity undertaken by the There are two definitions for ‘greenfield’ and ‘brownfield’
reporting entity, on the degree of success achieved in valuation
meeting agreed targets, in qualitative and quantitative • Brownfield valuation (A – Accounting) Valuation
terms. method where the initial recognition and subsequent
recognition of assets involves expensing those costs
Strategic asset management plan
that are considered to be ‘sunk’ one-off costs for
Documented information that specifies how organisational components that are expected to have an unlimited life
objectives are to be converted into asset management such as earthworks and formation for roadworks and
objectives, the approach for developing asset management capitalising only those costs associated with ongoing
plans, and the role of the asset management system renewal of the asset.
in supporting achievement of the asset management
• Brownfield periodic valuation (B - Valuation)
objectives. The strategic asset management plan should
Valuation approach is based on the cost to replace the
document the relationship between the organisational
asset in its existing ‘brownfield’ (developed) location.
objectives and the asset management objectives and
This valuation approach is based on the specific
should define the framework required to achieve the asset
location of the asset. As a result, existing works are
management objectives [ISO 55000:2014] [See also asset
taken into account in establishing asset values.
management strategy].

xl AIFMM Australian Infrastructure Financial Management Manual

• Greenfield valuation (A - Accounting) Valuation brief and consideration of concept/design options) to ensure
method where the initial recognition and subsequent a fully integrated approach has been taken, the project
revaluation of assets involves the capitalisation of all is consistent with strategic goals, and non-build solutions
costs including those for components that are expected (including demand management) have been properly
to have an unlimited life (such as earthworks and assessed.
formation for roadwork). Weighted attribute method
• Greenfield periodic valuation (B - Valuation) A method of assessing tenders for contracts where
Valuation method where the unit valuation rates are attributes relating to both quality and price are weighted
based on the cost to acquire/construct the asset in according to the requirements of the business.
a ‘green field’ (undeveloped) location. This valuation
approach does not assume a specific location of the Weighted average cost of capital
asset. As a result, existing works are not taken into The weighted average cost of capital (WACC) is the rate
account in establishing asset values. that an entity is expected to pay to finance its assets.
Value in use WACC is calculated by multiplying the cost of each capital
component (common equity, preferred equity, straight debt,
The present value of future cash flows expected to be convertible debt, exchangeable debt, warrants, options,
derived from an asset or cash generating unit. It is deemed pension liabilities, executive stock options, governmental
to be depreciated replacement cost (DRC) for those assets subsidies, etc.) by its proportional weight and then
whose future economic benefits are not primarily dependent summing.
on the asset’s ability to generate net cash inflows, where
the entity would, if deprived of the asset, replace its
remaining future economic benefits.
Value management
An evaluation process which addresses the technical and
functional dimensions at the early stages of a project (i.e.
establishment of project objectives, preparation of project

AIFMM Australian Infrastructure Financial Management Manual xli