The Importance of Asset Management – By Paul Wheelhouse
A good working definition for asset management is: “The art and science of making the right decisions about the management of physical assets (their selection, maintenance, inspection and renewal) and then optimizing these processes. A common objective is to minimize the whole life cost of assets but there may be other critical factors such as risk or business continuity to be considered objectively in this decision making.” This means that asset management must be blend of technical and people issues which involve a number of different departments within a company or even a number of different companies.
Asset management is not just a fancy new term for maintenance. It is not just something done by utility companies who have asset manager job titles. It needs to be done in all industrial sectors where assets are used to deliver the product or service. It is not new. Since before the days of the pyramids in Egypt people have been doing asset management – the real issue is how well is it being done. Done well asset management can improve operational performance, competitive advantage and share price; done badly it can lead to disaster. Various high profile disasters which have resulted from poor asset management include Piper Alpha, Chernobyl, Bhopal & Challenger.
Even failures of whole companies can be linked to asset management issues. It could be argued that the demise of the international chemical company ICI was in part due to problems with its asset management. After the Second World War there was a massive investment programme but adequate provision was not made to replace all of these assets as they came to the end of their lives. In an attempt to raise cash, the more profitable parts of the company such as pharmaceuticals and specialty chemicals were sold off but this was not sufficient and ultimately a company which was once referred to as the bellwether of the UK economy was completely broken up.
Given that we all wish to avoid disaster and poor performance what are the features of asset management which will ensure success? The first thing to recognise is that asset management is an enabler: we don’t do it for its own sake; we do it because it is needed for our organization to achieve its objectives. ISO 55,000 puts it very well when it says:
- Assets exist to provide value to stakeholders
- Asset management transforms strategic intent into decisions, plans and actions
- Leadership & workplace culture are determinants of value realization
- Asset management provides assurance that assets fulfil their required function
In other words assets need to be put to work effectively in order for us to achieve our business objectives.
No doubt we have all heard the joke: the operation was a complete success but the patient died. In other words, everyone was focused on the process and not the outcome. Processes are indeed vitally important in asset management but they need to be backed up with enlightened leadership, a positive work-based culture and by focusing on outcomes.
The starting point for asset management must always be the organisation’s business strategy document and what this requires the assets to do. For example, a low-cost airline might require its aircraft to turn around at an airport within 20 minutes. This will have implications for the size of the ground crews, the amount of fuel carried and the maintenance strategy, etc.
Therefore starting with the business strategy we can envisage a flow such as this. The business strategy dictates what the assets must do – the objectives – and the rest of the asset management system is about delivering these objectives in the most cost-effective way. This delivery process for asset management should follow the tried and testing Deming cycle of plan, do, check, act. The process of asset management planning can be streamlined by the adoption of carefully considered asset policies and strategies. Hence our flow now looks something like this:
Business strategy à asset policies & strategies à asset plans à verification that plans have been done and were effective
It may be convenient to group our assets within different families which have similar characteristics with respect to asset management. For example, the Oil & Gas industry manages its assets in four broad families:
- Rotating equipment
- Static equipment
- Electrical distribution
- Instruments, control and computers
Asset policies, strategies and plans need to cover all stages of the lives of assets from initial selection and design through installation, commissioning, operation & maintenance, life extension and eventual renewal. These activities will be spread across a number of different departments such as business management, design, operations, maintenance, inspection, asset management, etc. Indeed some activities may be out-sourced so different organizations may be involved as well. This means that good communication and effective team working are very important aspects of asset management.
Communication is aided by the use of a common currency and the common currency of asset management is risk. Given that the whole asset management system is set up to deliver the asset objectives required by the organisation’s business plan, it would be a good idea to know what is the risk of the assets not doing what is required. The system for assessing and managing asset risk is the glue which holds together the entire system. Risks need to be assessed and then mitigated. The assessment is aided by using a risk matrix and has to be fully consistent with the corporate one so that ultimately the residual risk of the assets not doing what is required is a line item in the corporate risk register. Without that link to the corporate risk register, asset management activities might be subject to arbitrary cuts without the full implications being known.
Risk can be used as a factor for deciding project timings and investment priorities. It can also be used as a factor for setting up maintenance, inspection and refurbishment programmes. For instance re-painting would need to be more frequent in coastal locations. Four main types of failure need to be considered for asset risk:
Deterioration – which is combatted by maintenance, testing and inspection programmes
Changes causing problems – mitigated by a rigorous change control programme, assurance of suppliers and service providers
Wrong design – combatted by design review and user requirements specifications
Human error – mitigated by minimum manual intervention, effective training, and error proofing of procedures
We have looked at team work and risk as important features of asset management. Which others are also important?
Most business situations are very complex with a mixture of different stakeholders who probably have conflicting requirements. For example customers, suppliers, regulators, banks, etc. Therefore the asset management system needs to take these needs into account and reconcile them as much as practicable. The buzz words here are an optimised and holistic approach.
The world’s resources are finite and running out so the asset management needs to consider long-term stewardship and sustainability.
Asset management requires complex decisions to be made throughout the lives of assets. These should be based on evidence and not just on gut feel or historical precedents. In other words asset management needs to be systematic.
Stakeholders will expect the achievement of best value for money so decisions based on optimising life costs will be needed.
We will need to be pragmatic and make the best use of available time and resources which are available.
Finally we need to keep ahead of the competition so rigorous improvement mechanisms need to be in place.
All of these key features of asset management were used in formulating the asset management standard ISO 55,000.
When we pass our driving test we are only qualified to practice driving on our own. Accreditation to one of this standard should not be seen as an end in itself – but merely as a licence to practice asset management and get better at it.