What is Asset Management?
In many communities, assets are increasingly stressed from over-use, under-funding, and aging.
Public sector managers have been managing assets for decades.
However, it is becoming clear that what we have been doing in the past will not be sufficient to address the growing and increasingly complex challenges that lie ahead.
Practical, advanced techniques for better managing physical assets have been developed and refined over the past several decades around the world.
These techniques - a blend of processes and practices - have been slowly integrated into a holistic management framework over the past two decades.
The question "what is asset management?" is really comprised of five interrelated questions as shown below:
Let's briefly examine each question to get a better understanding of just what asset management is all about.
What is the "Asset Management Framework"?
Asset management is first and foremost a way of management thinking, a way of seeing the "infrastructure world". It is as much a "paradigm" and conceptual framework as it is a definition.
Asset management is:
A management paradigm and a body of management practices
That is applied to the entire portfolio of assets at all levels of the organization
That seeks to minimize the total cost of acquiring, operating, maintaining and renewing the assets
Within an environment of limited resources
While continuously delivering the service levels customers desire and regulators require
At an acceptable level of business risk to the organization.
The Asset Management "Paradigm"
- The capacity to produce output of value to our customers is directly related to sustained performance of our assets using the process of triple bottom line evaluation of the services provided utilizing environmental, social and economic analysis.
- Failures in the asset base directly affect system performance.
- Sustained system performance is the result of successfully managing failure within the asset base.
- The management of failure in the asset base is highly constrained by cost; that is, customers are not typically willing to pay for zero likelihood of failure.
- Different assets have different probabilities of failure, as determined by age, materials and assembly processes, operating environment, demand/usage and maintenance.
- Failures vary substantially in their consequence to the organization, that is, in terms of the production of valued output to the customer.
- Investment in assets (their acquisition, operation, maintenance, renewal and disposal) should be guided by the likelihood of failure and its consequence to the customer and regulator.
- The more we understand about our assets - the demand for our assets, their condition and remaining useful life, their risk and consequence of failure, their feasible renewal options (repair, refurbish, replace) and the cost of those options - the higher the confidence we can have that our investment decisions are indeed the lowest life cycle cost strategies for sustained performance at a level of risk the community is willing to accept.
The AM Framework - Four Views
Think of asset management as an object with multiple faces. Each face presents a different view of the logical framework of asset management. We present four distinct views here; there are conceivably many others.
1 A "Quality Elements Framework" View
Asset management can be seen as an interaction of seven core organizational "quality elements".
Quality elements are fundamental components of an organization's business model that drive its sustained success.
Within the seven elements are "world's best practices" that inform the practitioner as to how best to proceed in strengthening each element. These best practices are under continuous development and refinement, lifting the industry or organization that incorporates them to higher levels of performance.
A successful long-term asset management program is a continuous balancing of these seven elements, built around continuous learning - "the more we understand about our assets, the better we can manage them."
The Quality Elements framework perspective forms the heart of SIMPLE.
2 A "Management Systems" View
To be viable, asset management must drive real results "to the bottom line" - that is, it must make business sense to the organization.
This view is closely related to the question "why do asset management?"
The concepts embedded in this view are:
- Asset management is about creating a management framework that leads to sustained performance at the lowest life cycle cost (while meeting requirements of stakeholders at a level of risk acceptable to the community).
- To achieve the lowest life cycle cost, we must understand how our assets are likely to fail (the failure "mode") and which AM processes and practices to deploy to appropriately manage those failure modes.
- These processes and practices are "bedded down" and supported by good data derived from an integration of asset management information sources.
- This framework drives the production and constant revision of an asset management plan, which is a dynamic strategic framework similar to the agency' s budget.
- The Total Asset Management Plan, in turn, drives two things:
- Specific "projects" with declared objectives, resources and timelines that are intended to change or strengthen organizational processes or to solve asset-related problems
- The annual CIP and operating budget.
This framework is shown below:
3 A "Five Core Management Questions" View
Successful management can be said to start with asking the right questions. Only by starting with the right questions can we efficiently find good answers.
Asset management's "tool bag" is comprised of literally hundreds of techniques.
This view poses five core questions that all managers of assets should be constantly confronting with their management teams. The questions help impose order on the extensive "tool bag" of techniques, assisting the manager to select the relevant processes and practices that help manage the assets.
The five core questions and their associated techniques are shown below. This view is developed extensively in a wastewater module in Interactive Training.
||Associated Technique / Output
1. What is the current state of my assets?
- What do I own?
- Where is it?
- What condition is it in?
- What is its remaining useful life?
- What is its economic value?
- Asset registry/inventory
- Data standards / asset hierarchy
- System maps
- Delphi approach to locating other sources of data
- Process diagrams
- "Handover" procedures
- Condition analysis
- Condition rating
- Valuation techniques
- Optimized renewal / replacement cost tables
2. What is my required sustained Level of Service?
- What is the demand for my services from my stakeholders?
- What do regulators require?
- What is my actual performance?
- Customer demand analysis
- Regulatory requirements analysis
- Level of service statements; LOS "roll-up" hierarchy
- "Balanced scorecard"
- Asset functionality statements
- AM Charter
3. Which of my assets are critical for sustained performance?
- How do my assets fail? How can they fail?
- What is the likelihood of failure?
- What does it cost to repair?
- What are the consequences of failure?
- Failure analysis ("root cause" analysis; failure mode, effects and criticality analysis; reliability centered analysis)
- Risk / consequence analysis
- Asset list by criticality code
- Failure codes
- Probability of failure
- Business risk exposure
- Asset functionality statements
- Asset "decay curves"
- Asset unit-level management plans and guidelines
- Asset knowledge
4. What are my best minimum lifecycle cost CIP and O&M strategies?
- What alternative management options are there?
- Which are most feasible for my organization?
- Optimized renewal decision making
- Life-cycle costing
- CIP development and validation
- Condition-based monitoring plans and deployment
- Failure response plans
- Capital "cost compression" strategies
- Operating "cost compression" strategies
5. Given the above, what is my best long-term funding strategy?
- Over-arching financial impact analysis
- Optimized financial strategy
- Total Asset Management Plan
- Telling the story with confidence
4 A "Core Processes and Practices" View
Finally, asset management can be viewed as a set of systematic steps that lead to specific deliverables, the most fundamental deliverable being the Total Asset Management Plan.
Certain "best practice" processes and techniques relate directly to the execution of each of these steps.
To successfully execute the steps, an organization must master the basics of the associated practices and processes.
The graphic below shows the core steps along with the basic techniques that support them. This view is developed extensively in a wastewater module in Interactive Training. The Guidelines section of SIMPLE describes the steps and associated processes and practices in considerable detail.
Why do Asset Management?
Asset management must drive real results "to the bottom line" - that is, it must make business sense to the organization.
Over the past two decades, considerable attention has been focused within the private and public sectors in a number of countries on improving financial performance by applying asset management processes and practices. The returns in both cases have been substantial, with asset management becoming a basic strategic competency in such organizations as General Motors, Coors and British Petroleum and in large utilities of all types (water, gas, electricity) throughout Australia and New Zealand. The British Isles, France and increasingly Canada and Europe have widely embraced the approach.
At least 85% of a typical organization's total annual expenditures are associated with two areas - its operations and maintenance personnel and its capital budget.
Three fundamental questions drive most of the expenditure decisions:
- What work should my operations and maintenance crews be doing, where, and why?
- Which capital projects to undertake, when, and why?
- When to repair, when to refurbish, and when to replace?
While no "scientific" studies appear to be available to document the fiscal impact on the financial condition of organizations of pursuing asset management, many practitioners suggest an impact on the bottom line of 15 to 40% over the past decade.
In some cases these numbers represent actual reductions in expenditures, in other cases a reduction over where the organization feels it would have been had it not pursued an AM strategy.
In short, AM has shown to be a powerful tool on two separate fronts:
- Effectively allocating resources on a day-to-day basis
- "Telling the story" to decision/policy makers in the form of a business case to drive investment in operations, maintenance, and capital spending.
What are typical "Deliverables"?
While an asset management program can produce a wide range of outputs or "deliverables", the most fundamental is the Total Asset Management Plan.
Several things should be noted about this plan:
- The plan is as much a dynamic framework as it is a physical document. Similar to the organization's annual budget, the Total Asset Management Plan is both document and process. Updates and modifications are continuous, but accomplished within the context of the Plan.
- The plan is made up of components that, taken separately, are important and useful "deliverables" themselves.
The following graphic shows a typical Plan:
Other typical deliverables include:
- An Asset Management Plan for selected assets
- A "rationalized" Strategic Maintenance Plan
- For all assets
- By class of assets
- For high risk/consequence assets
- A validated Capital Improvements Program
- A strategic (long-range) funding strategy.
How to "do" Asset Management?
As in any management paradigm, there are arguably as many ways to "do" asset management as there are practitioners.
Asset management itself began as a loosely organized set of practices, most notable perhaps being those focusing on "failure analysis" and the relationship between preventive maintenance and jet fighter failures in the US Air Force at the start of the Korean War.
Over time, the perspective expanded from the development of narrowly focused techniques by separate groups of engineers and materials scientists to the integration of those techniques into a conceptual framework that could drive management decision-making.
This integration into a framework has led to a consensus process that has, over time, proven to be highly cost effective.
This process is shown in the "Core Processes and Practices" View.
How Do I Deploy an Asset Management Program?
Moving an organization's culture away from an "operations-centered" culture (that is, a "traditional" culture) towards an "asset-centric" management paradigm is a distinctly different challenge from "doing" asset management.
Here, people and organization become paramount (as opposed to the other "quality elements" as depicted in the "Quality Element Framework view"), if the effort is to be successful.
Change management becomes a key to success.
We have identified five major strategies that an organization might pursue in institutionalizing asset management. No one approach is inherently superior to another; the best approach is the one - or the blend of several - that fits the unique circumstances of the organization. In all cases, however, experience indicates that:
- The effort should be driven by a work plan toward identifiable objectives
- Progress should be measured periodically through benchmarking.
- Ongoing training and mentoring programs to maintain knowledge and consistency.
The graphic below illustrates the five strategies for getting started on an asset management program. It should be noted that one solution does not fit all and there are many ways of starting an AM program. It needs to be structured, but it can start wherever the most critical need is today, so long as the structure is recorded and value added as the program develops.