Estimating remaining useful life

The estimate of the remaining useful life of an asset also starts with the detailed investment flows through time. The value of assets retired from the stock each year is calculated by incorporating a discard function and average service life by asset type. Investment flows are accumulated and discarded over time, giving rise to a gross stock of assets. The average age of investment is then derived as the weighted age of all investments remaining in the gross stock at year end.

The service life is the average time, in years, that an asset is expected to be productive and in use. Of course, some assets do not fulfill their expected service lives, while others might surpass them. This is accounted for in the discard function, which assumes the probability of an asset to retire or be discarded is based on a truncated normal distribution with a minimum of 50% and maximum of 150% of their expected service life, and a standard deviation of 25% of their mean service life. Different assets have different mean service lives and different discard patterns. At Statistics Canada, asset service lives are collected directly from business survey respondents using the Capital and Repair Expenditures Survey and provides a fairly comprehensive profile. These reported service lives, for both new asset acquisition and asset discards, were used to develop an econometric model of mean service lives. The results of this project were published in The Canadian Productivity Review, an update on depreciation rates for the Canadian Productivity Accounts (2015). These resulting service lives and depreciation rates were implemented in the calculation of the estimate of remaining useful life of infrastructure assets.

Lastly, the remaining useful life, which is the difference between the average age of the investment spending and their expected service life, is then divided by the expected service life, creating a ratio that indicates the percentage of the asset class that remains. For example, if the average age of investment in highways is 6 years and the expected service life is 30 years, the ratio is (30 − 6) ÷ 30 = 80%. The higher the ratio, the more useful life remains. This ratio permits a comparison of one asset class to another and can enable analysis of where investment is most required.