Blog 1: Why asset management should be this year’s … · Blog 3: To optimize asset management, define assets as systems, not components (Getting Ready for ISO 55000 – Part 3

Blog 1: Why asset management should be this year’s

obsession for CEOs

(Getting Ready for ISO 55000 – Part 1 of 10)

Insights from the "Asset Management for the 21st Century - Getting Ready for ISO

55000" Seminar, May 2013, Calgary: This blog is based on a series of interviews with

John Woodhouse from The Woodhouse Partnership (TWPL), who delivered this well-

received seminar. John Woodhouse is CEO and Managing Director of asset

management consulting firm TWPL, is a founder member of the Institute of Asset

Management. He chaired the development of the PAS 55 standard and is UK Principal

Expert in the development team for the ISO 55000 standard.

CEOs are the agenda setters who decide what is important and what can wait. This year, for industries large

and small, improving asset management would be a good addition to the top of the strategic agenda. The

reason? Asset management can yield many benefits in terms of cost savings, operational efficiencies, investor

confidence and business agility.

While it is nothing new to ask everyone to squeeze out costs, asking them to think about how to manage assets

in a more thorough and sophisticated way can have a much higher return because it spurs creativity in how to

think about assets, the value obtainable from them, and how to re-engineer processes to release that value.

The sad truth is that most industries have a large stock of assets of one kind or another that are neither well

understood nor optimally employed. In addition, technical and business knowledge about the assets is not

being captured and tends to walk out the door as employees leave.

Asset management is the term for the emerging management science that sorts this out. The asset

management practices that work are no longer a mystery: they have been standardized in a Publicly Available

Specification (BSI PAS 55:2008, one of the fastest selling ‘good practice checklists’ around the globe). Over the

last two years, these practices have been refined into the ISO 55000 standard, slated to be published before

the end of 2013 (see www.ISO55000.info for details).

Companies seeking to increase return on their assets should be urgently exploring the science of asset

management as a way to address the following challenges:

• Organizational silos. Many C-suite executives won’t admit this openly, but they are actually aiding and

abetting a silo mentality by protecting their turf. A silo mentality is also reinforced by the way we

measure and record localized successes without considering secondary consequences. Key

performance indicators for different groups are often competing rather than collaborative: one part of

a business advances at the expense of another, which further exacerbates the internal fighting rather

than achieving real value. Asset management enables a macro-analytic view that delivers

optimizations that are hidden by siloed thinking.

• Short-termism. Executive leadership often takes the “short-termist” view to look good or meet

immediate priorities. But this often causes false economies and deferred pain. Day to day decision-

making must consider longer-term consequences and opportunities, even though future impacts carry

greater uncertainty and deferred responsibilities. Big benefits come from looking at the combined

picture, including the pricing of risk and uncertainty.

• Looking at assets individually, and in combination. On a day-to-day, practical level, assets are dealt

with individually, but their benefits are derived from working in combination – in functional systems.

New levels of optimization can be achieved by looking at assets in their systems context, to be

managed for total, sustained value for money.

• Temporary enthusiasm. Good ideas become a temporary enthusiasm or just a flavor-of-the-month for

several reasons. The first is the churn rate of leaders and managers. Each new manager introduces his

or her own idea, wanting to make a mark while downgrading momentum on previous initiatives. The

second is that we like new things, but when they become part of our day job, enthusiasm wanes. The

third factor is that we add tasks and responsibilities but never give anyone (including ourselves)

permission to stop doing the old stuff. To sustain real improvement in asset management, we have to

fight these tendencies and persevere to the point where improved practices become the new normal.

The bottom line: Asset management is becoming a mature management science, one that can be used to

transform an organization. Major improvements are being achieved in many sectors all over the world. CEOs

should invest time on asset management because it is a proven path to massive ROI.

Blog 2: Asset management requires both assets and

management









Too often, asset management programs focus on asset information systems and a few sets of narrow work

management processes that surround those systems. That’s not asset management; it’s asset maintenance or

asset information management. Asset management is not a software tool—it’s a system of how we manage

things (assets) and also encompasses the way we work and the mechanisms of coordination, governance,

control, and value creation. To make progress in asset management, you have to operate at two levels of

thinking at the same time: establishing good processes for what needs to be done to the assets (buy, build,

operate, maintain, renew, dispose etc.), and processes for improving the management practices and

capabilities.

According to the PAS 55 definition, asset management is “systematic & coordinated activities and practices

through which an organization optimally manages its physical assets and

their associated performance, risks and expenditures over their lifecycles for

the purpose of achieving its organizational strategic plan.” ISO 55000

defines asset management as, “the activity to realize value from assets.”

Put these together and you realize that asset management is a structured

approach for aligning the business direction (which defines what ‘value’

represents) with the best whole life cycle combination of acquiring, utilizing,

maintaining and renewing/disposing of assets to deliver that value. In other

words, seeing asset management as just asset maintenance leaves out the

most important parts, such as choosing the right assets in the first place,

using them in the best way, or knowing when (and how) to get rid of them.

To reap the benefits of asset management, the processes used to manage assets must be improved and better

coordinated to find the optimal mix of costs, risks, and performance over the whole life cycle. For example,

taking a life cycle view in the design stage would consider options for designing out the need for maintenance

or designing in greater operability or asset life.

The list of asset management guidance and documentation is too detailed to include here. But it can be found

in PAS 55 and ISO 55000 standards, as well as on the Institute of Asset Management (IAM)’s website.

Appropriate practices are highly variable from one sector to another—and even within a business—for critical

assets compared to less critical assets and at different stages in organizational maturity. Knowing which

practices to apply and when is a core asset management competence.

In essence, a skill that you will learn as you increase your asset management competency is how to select

methods and management approaches appropriately to solve the particular problems your organization faces.

Remember: it’s not just about assets; it’s about management and improving your asset management

capabilities.

Blog 3: To optimize asset management, define assets as

systems, not components









Asset management can make a significant impact when companies start thinking about the systems (the

collections of assets that provide value) and stop focusing on maintenance of individual components.

Too often in asset management programs, the physical equipment units are used to define the assets. This

leads to local optimization of say, a pump and its costs, performance, and reliability, rather than looking at

the pumping system and how it contributes to plant performance. Most of the effort goes into maintaining

pumps, but the benefits of healthy pumps are only measureable at the system performance level—where

the sum of many parts yields lower total costs or increased performance and sustainability.

For example, a well maintained, pump in good condition is of limited value if the operating environment

cannot exploit the pump’s capability, the upstream fluid sources are erratic, or the electrical power system

is unreliable. Pump management must be coordinated with the management of “pumping” as a system,

which must in turn be managed with plant-level performance, plans, and priorities.

Sometimes it is even better to define the functional systems themselves as the assets and individual

equipment items as just components. That way it is far easier to optimize operational costs, risks, and

performance in line with the plant or organization’s objectives. This higher-level perspective is reflected in

the PAS 55 standard for asset management, as shown in the following figure.

Coordinating Asset Management

The graphic above describes the different concerns at different levels of asset management. Near the top

is managing a portfolio of assets to achieve business results in line with a corporate strategy and

stakeholder expectations. The next level down is where systems come in: portfolio performance is

achieved by managing various types of systems, delivering their required performance at the lowest cost

and level of risk. This is the level where many optimizations take place, such as between short-term

opportunities and longer term consequences. And within asset systems, the individual assets are in turn

managed for lowest total life cycle cost.

One implication of this structure is that objectives cascade downwards and performance information can

roll back up. The life cycle characteristics of each asset influence how the asset systems perform and

should be managed. The needs and capabilities of each system then determine what can be expected in

terms of business results.

In this way, a mature asset management process provides a clear line of sight from organizational strategy

all the way down to what gets done to an individual asset, and back up the process in terms of what can be

achieved by the assets being managed. This line of sight alignment, when commonly understood across the

organization, is the backbone for rapid and sustainable progress.

Blog 4: Why are we surprised by catastrophes ?









Chernobyl, Three Mile Island, Bhopal, Texas City, Piper Alpha, Macondo. After traumatic and tragic events,

people often exclaim “How could this have happened?” and “It must never be allowed to happen again!”

Tragedies and catastrophes like these come with direct, indirect and societal consequences that cannot be

accounted in any conventional system. Nothing can prepare us for them in a human sense, and no amount of

preparation can help us recover from them easily. Nonetheless, we must do the best we can to preconsider

and prepare for such events, in the rigor of our preventive efforts and in contingency plans or emergence

response. It is part of responsible asset management to think about the ‘unthinkable’.

As much as we would like to, we can’t eliminate risk: there’s no such thing as ‘zero risk’ in operating and

managing complex systems. And, unpleasant as it is to consider and discuss such possibilities, we have to

include low probability, catastrophic consequence events in our risk management strategies. Risk management

is a core part of asset management, and a professional, disciplined consideration of rare, catastrophic events is

part of this responsibility.

But remote probability events are hard to envisage, and even harder to quantify. Similarly, the scale of

consequences of major incidents is difficult to consider, and many people simply choose not to think about it.

But there is a way of dealing with the subject: of considering the scales of risk and the appropriate asset

management implications.

In the UK, the Control of Major Accidents and Hazards (COMAH) legislation includes a requirement for

“disproportionality” in risk management. This forces the extra degree of conservatism needed when assessing

and managing rare event risks.

Let me explain what I mean.

If we estimate an incident as having a 1 in 10 chance of occurring, and the event consequences as $100,000,

then the level of risk is 1/10 x 100,000 = $10,000 and a preventive action (or insurance policy) costing less than

this would be justifiable.

If, however, the event were rarer, say a 1 in 10,000 chance, with consequences that could be as high as $10

million in impact, a “proportionate” risk assessment would say the risk was the same (1/100000 x 10 million

also equals $10,000). However, the rarity of the very rare event means that the quality of our knowledge or

estimate is much poorer, and so is our ability to predict potentially massive consequences. To reflect this

weaker information, we have to inflate the fear in case we are wrong. This is “disproportionality” and it

requires a deliberate non-linearity in probability scales and in consequence scales. Rare, catastrophic events

must be assessed as if they were less rare, and have even greater catastrophic consequence, than we would

directly estimate. Asset managers must show that this conservatism is built into their risk management

processes in determining how to control such risks, and to what degree.

We will never eliminate all risk but we can manage it to the best of our ability. And a head-in-the-sand reliance

on simply complying with rules and procedures is not an adequate or acceptable practice.

Blog 5: Why ‘lust to dust’ should replace ‘cradle to grave’ as

the vision of an asset’s life cycle









A popular metaphor in asset management is managing assets from “cradle to grave.” At first blush, this

sounds compelling. But it is actually an incomplete vision. It is better to begin the management process

when the assets are being designed or selected—indeed from the first identification of need or

opportunity.

Functional requirements, design, and appropriate asset selection are where some of the biggest prizes are

to be had in getting better life cycle value for money. By the time the asset is in the cradle, it’s too late—

the ‘DNA’ is already determined, along with 80% of the cost and performance characteristics of the asset

over its whole life.

A better metaphor for asset management is from “lust to dust.” In this way, we include the important

“desire and conception” stage. Then, we have a better chance of getting the right assets in the first place.

And the metaphor goes right through to decommissioning, recycling, or disposal. This backend of the life

cycle is fuzzier than you might think. “Grave” implies that an asset simply dies and has to be put in the

ground as a unit. But there are usually possibilities of life extension, recycling, re-sale or alternative usage.

You could have a situation where the only thing that remains is the nameplate. An asset could have

infinite life through the constant replacement of all of the individual components (look at the number of

old VW bugs still on the roads today!).

Another dusty aspect of the backend of the life cycle is associated with residual liabilities. Even when

you’ve decommissioned an asset, you need to be aware of any risks or liabilities that exist beyond that

point because they’re part of the cost of ownership. The nuclear sector is an obvious example, or the

environmental cleanup responsibilities of chemical process plants. In the construction world, architects

have a 20-year personal consequences liability, even after they’ve finished their design job.

Even when we extend our management of asset life cycles to cover lust to dust, there are complexities and

blurred realities to consider:

1. Defining life stages. The life stages may not be clear-cut; the asset may go through cycles of

creation, usage, disposal, new acquisition, re-usage, modification, partial decommissioning and

recycling again, passing through different functions, configurations and ownerships.

2. Possibility of infinite asset life. An asset could have an infinite life if it is defined at a functional

system level (rather than as an independent and disposable unit). It may be possible, for example,

to sustain a system-level asset indefinitely through maintenance and renewal of the component

elements.

And what if the responsibility for managing the asset is split across organizational boundaries, either in

different life cycle stages (construction by one company, sold for usage by another, and maintained by a

third)? What if it forms part of a bigger system that has part-ownership and management responsibility

by different organizations (train operators and track infrastructure companies)? How should the

responsibility, costs, and risks for the asset life cycles then be apportioned?

In practice, I believe the most useful interpretation is to be selfish—defining life cycles only from the

viewpoint of organization’s ownership or contractual responsibility (and therefore asset management

obligations and value realization opportunities). This is also the position taken in the ISO 55000 standard

for asset management which defines the life cycle as “the stages involved in the management of an asset”,

where an asset is “an item that has potential or actual value to an organization”. After all, asset life cycle

management is complex enough already.

Documents

Blog 1: Why asset management should be this year’s … · Blog 3: To optimize asset management, define assets as systems, not components (Getting Ready for ISO 55000 – Part 3