The Strategic Importance of Asset Management Part Three: A New Framework

As the level of understanding of these areas begins to rise, so too do the expectations that managers and companies will be able to meet modern requirements.

In the past, maintenance strategy has frequently been treated in a highly reactive manner. Maintenance regimes are often created in response to machine breakdowns or incidents. Often, in the aftermath of disasters, there are public statements made demanding, or promising, "more intensive maintenance."

While the intention is laudable, the result of such reactive actions is often either non-effective or counter productive. Either way it is too late to stop the original incident from having occurred.

Managing assets needs to be done in a truly proactive approach, one that ties the management of physical assets to the corporate objectives.

A modern approach to asset management can be visualized as a series of dominoes. Each domino needs the momentum from the previous area, and then proceeds to pass this momentum to the next domino in the line. Starting at any point other than the beginning will leave some dominoes standing.

Modern asset management can be seen in the same way. Each of the dominoes represents one of the decision-making areas that are required to adequately manage assets.

The initial momentum to begin the sequence comes from the vision of a future state. This needs to clearly represent the corporate objectives and goals, and expressing how asset management can play a part in achieving these goals.

This energy is then carried forward to impact on the remaining areas of decision-making. As with the dominoes, a decision to begin in the middle of this chain reaction will omit areas important to the end result.

The EAM/ERP Market

Asset management, or enterprise asset management as it is often referred to within this industry, is one of the areas where there has been a definite decay in the decision-making process.

Although this area is by far the most expensive of the current range of solutions in asset management, it is easily the most misunderstood and counter-productive in many cases.

Prior to 2003 many maintenance systems were implemented as a result of an ERP implementation. A logical follow on to what has been considered the "main game" (often financial, supply chain, or information technology related). Decisions within this area have frequently been taken, or managed, by people with little or no true depth of knowledge in the asset management arena.

Even in organizations where the importance of asset management is understood those with a background in IT or finance, or other unrelated disciplines, are often responsible for these types of projects. As well as the decisions involved in executing the projects.

As has been explained earlier, the area of maintenance management is an area that is complex and not guided by recognized "common-sense" judgements. It is not an area that is easily nor rapidly understood by those outside of the discipline. While the use of quasi-experts may be sufficient in other areas of corporate activity, in asset management the stakes are simply too high.

Even in the most cavalier of boardrooms the corporate risk associated with this dangerous practice is becoming recognized. In the years that follow 2003, as accountability continues to be a marked factor of asset management, previous decisions will increasingly need to be revisited by those with the knowledge and depth of experience to do so.

This marks a dramatic change in the structure of this market sector. Decisions regarding selection, implementation, and post-implementation management must become more focused on the true areas of asset management.

Previously "requirements" were attached to processes currently in place, or more often a proposed future state of processes. As we move forward, this will become driven more by the requirements that companies have of their physical asset base, in order to achieve strategic advantages within their markets.

The Strategic Importance of Asset Management Part Two: Implications

The changing attitudes, understandings of physical assets, and market conditions bring a broad array of implications for those responsible for asset management. The majority of these can be explained as "new accountabilities." Many of these are accountabilities leveled at, or within, corporations themselves. However many will also be directed at the individuals taking or overseeing these decisions, often with daunting consequences for failure.

New Levels of Accountability

As previously highlighted, asset managers are beginning to find themselves increasingly called to account for the decisions that have been taken.

Decisions will increasingly be judged against:

* Higher standards for legislative and regulatory compliance

* Increased understanding of the role of assets in areas of productivity, cost, and quality

* Risk of damage to the corporate image of the company

* Failures to adequately understand production needs

* Failure to accurately determine capital planning requirements, based on current physical assets and future requirements

This leads to two conclusions. Firstly those responsible for taking decisions regarding physical assets need to have a deep understanding of all of the issues and implications of those decisions, as well as the necessary authority to act on them.

Secondly it will require the ability to adequately defend decisions taken. Not only in terms of considerations internal to the company, but also in terms of defence in the case of potential legal actions. It is this second conclusion that has the most impact for maintenance managers of the future.

The ability to state that asset management decisions are defendable is paramount. This means that they have been taken by qualified and experienced people; in a manner that is in line with internationally accepted standards on the issue; and in a manner that provably complies with the first two premises. That is to say, a manner that is totally auditable.

Although these may stretch into many areas of corporate management, there are three "in vogue" elements of today's market that are particularly of concern.

They are:

* ERP/EAM decision making and management

* Outsourcing of asset management functions

* The use of call centers as viable asset management tools

Competitive Market Forces

One of the key elements of the increasingly open global competitive environment is pressure on costs. There are pressures to increase profit margins, or in worst case scenarios retain profit margins under lowering retail prices.

As one of the largest elements of both operational and capital spending, asset management is often an obvious target for reductions in this area.

Maintenance costs are high, in some cases artificially high. Not only are they high but there is increasing pressure on maintenance costs to rise. Areas such as increased regulation, complex and automated machinery, as well as the rising costs of physical assets themselves are pushing maintenance operators to the wire. Pressures to do more are increasing while the pressure to spend less is greater than it has ever been.

One of the major factors behind this trend is that we are more dependent on machinery than at any time in the past. Where previously we would use people to do work, today we use machinery.

This conflicting situation of pressures to increase the work done combined with pressures to reduce the costs of doing that work, has been one of the principal drivers behind many of the vast range of product and service "solutions" that have appeared over the past three decades. These have generally been focused on appealing to this management concern over rising direct costs.

This situation has unfortunately led to more poor decisions and misunderstandings in asset management than any other influencing factor. The results of decisions based on these concerns alone, while often bringing some short-term gains, are rarely sustainable and can even be dangerous in the medium to long term.

Ad-hoc or isolated cost cutting often leads to the eradication of skills or activities that assist in achieving production goals. In worst case scenarios they impinge on the safe operating environments of assets.

This does not mean that direct cost reductions are not achievable in asset management.

Much of the maintenance that we do today either achieves very little, or is actively counter productive. As such there is always scope for reducing areas of redundancy. Added to that are other areas of inefficiency such as planning and scheduling, stores management, and other key areas.

The concept of direct cost reduction needs to be replaced with the focus on reducing maintenance unit costs. This requires a redirection of costs from the present activities towards activities that we truly must do to achieve adequate performance levels. Any increase in attention, no matter where it comes from, is of course welcome. However it needs to be reinforced with knowledge of the true nature of asset management, as well as the strategic importance to many facets of corporate activity.

This may include regulatory and legislative compliance, safety and environmental integrity as well as the standard economic requirements of quality, production and efficiency.

The Strategic Importance of Asset Management Part One: Changing Attitudes

Society has become increasingly intolerant of industrial incidents, particularly in the areas of safety and environmental integrity. It is no longer considered acceptable to cause harm to either the environment or to people and the communities that they live in.

In the past ten years this has been reflected in various changes in legislation and regulation in countries around the world. Some of the recent developments in these areas include:

* Changes to the regulations governing electricity providers in the United Kingdom—now providing a high degree of focus on risk management and mitigation.

* Wide ranging fraud legislation by the federal government of Canada in response to the Westray disaster

* Legislation in response to the Longford disaster in Australia

It is becoming obvious that in the future those responsible for the management of physical assets will be more likely to be called to account when there is a failure, and as can be seen by recent history, it is likely that it will not be companies but individuals.

In extreme cases incidents can also mean irreversible damage to a company's public image. Think of such disasters as the Exxon-Valdez environmental incident, the Union Carbide disaster in Bhopal in India or more recently the linking of Powergen to the New York blackout. All of these incidents have remained chained to these companies in the public mind.

Heightened Level of Understanding

The publication of the report Reliability-centred Maintenance, prepared by Stan Nowlan and Howard Heap, has enabled a quantum leap in the way in which we understand how maintenance should be managed.

Many of the findings of this report fly in the face of long-held, "common-sense" type beliefs and have exposed the true complex nature of asset management. They also force companies to look at their physical asset base in an entirely different manner. At a high level these can be summarized in the following points:

* Changes to our understanding of how maintenance contributes to a company's strategic advantage

* Changes to the way in which we understand equipment failures

* The maintenance department alone is not capable of developing a sustainable and adequate maintenance strategy regime

* Maintenance is not about preventing failures, it is about preventing the consequences of failure

* An understanding of the ability of operational maintenance to drive capital expenditure

* More protection is not necessarily better

* An understanding of new ways of maintaining items, particularly those that don't fail according to long-held views

* Extensive data is not required to take decisions on maintenance policies


Many of these new ways of thinking have challenged long held industry views. So much so that they are often difficult for industry professionals to easily assimilate. They are even less likely to be understood by those outside of the field of asset management.