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Why Asset Management Doesn’t Work in the Mining Industry and How to Fix It

by Grahame Fogel and Stefan Terblanche

Analysis of the data from the results of asset management assessments, from over 50 mines shows that only a few in the mining industry are attaining results equivalent to industry averages.

Leadership within a number of major mining companies have published visionary statments regarding the role of asset managment that demonstrates a level of understanding of its importance to operating and financial success. Our study shows that, in general, there is a misalignment between the executive vision and execution at the operational level. Further, our results show that improving the execution of asset management to a level performed at many other asset intensive industries will yield major operational and financial improvements. A first step is demonstrating to operational management that asset management is an area worth investment. We propose the notion that operational management within the mining industry is, in general, accustomed to living with sub-optimal asset performance and therefore may be reluctant to depart from the familiar to address the challenges around creating optimized asset performance.

This data indicates a number of key findings.

Firstly, there is a great opportunity to improve asset managment maturity and performance to standards achieved by other asset intensive industries. Even the top 5% of performers within the mining industry, which need to be acknowledged for their achievements, could gain by attaining the performance equivalent to a well run and efficiently managed power plant or refinery.

Secondly, and of significant importance, the study identifies a few key enabling processes that drive asset performance within the mining industry. Investment in these processes will lead directly to increased asset contribution with corresponding operating and financial benefits.

Finally, and more controversially, the findings show that there is no clear correlation between increased investment in further investment in IT and computer systems, and asset performance. This is illustrated in Figure 2, which shows the poor correlation betwen Information Managment investment and asset perfomance.

These results are illustrated in Figure 1.

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Figure 1: Illustrating the results of the survey across 57 mines

 

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Figure 2: Illustrating the poor correlation between information management and asset performance

What is the data telling us?

Asset management maturity and the resulting yield in asset performance have been surveyed at 57 mines across the globe. Analysis focused on 17 key performance areas, as illustrated in Figure 1.

The results show a strong correlation between increased investment in improved process capability and performance in five key enabling processes.

These are:

  1. Strategy Management
  2. Asset care plan development (development optimized maintenance tactics, including condition monitoring)
  3. Work Planning and Control
  4. Operator Asset Care
  5. Focused Improvement

These are illustrated in Figure 3, and clearly show that they lag behind in terms of general asset management maturity.

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Figure 3: The key enabling processes

Why hasn’t the mining industry mastered asset management?

The last 20 years of experience in the mining industry have provided clear and unambiguous evidence of the valuable contribution of good asset management. Within industry there is clear evidence that asset managment contributes to:

  • Improved capital productivity
  • Improved recovery rates
  • Improved decision making
  • Optimized life cycle costs
  • Better managed asset related risk
  • High levels of predictability
  • Reduced energy use
  • Improved safety and environment
  • Improved labor productivity
  • Greater shareholder value.

Yet, this set of results, which is representative of the mining industry, shows the low level of maturity of asset management in the mining industry.

Compounding the problem, if we review where the key enabling processes plot on Figure 1 we see that these are performed at a particularly low level of maturity.

On top of this, leading voices within the mining industry often advocate the value of good asset management. There is an obvious disconnect that deserves further analysis. We conclude that this disconnect (from the obvious of what is in place) is due to an overemphasis on the operational activities where such a bias pushes the role of asset management and other operational excellence activities away from any central management theme.

As such, asset management is made the responsibility of a disempowered function buried low within the hierarchy of operations, which hasn’t the budget, influence, authority or elevation to create anything but marginal influence.

Consequently, we observe the symptoms of a partially managed function at play. These include:

  • Significant year–to-year cost increases (well above inflation).
  • High asset related risk exposure, leading to cost deviations and safety incidents.
  • Poor asset performance not being addressed at the source, instead buying solutions with high cost, capital replacement strategies.
  • Operational managers are more comfortable dealing with the discomfort of the issues surrounding poor performance instead of addressing the problems.
  • Having an organizational focus that is maintenance-centric based on repair, rather than that of asset performance in alignment with organizational business requirements through the life of the asset.
  • Having organizational designs that are biased towards repair rather than a systemic approach to asset performance.
  • Creating responsibility for asset performance from a disempowered position within the organization, which does not have sufficient authority to create cross-functional coordination.
  • Low accountability and inaccurate measurements for KPI’s that reflect asset performance.
  • A low literacy and knowledge base within the operational context of the individual mines regarding the role function and benefit of investing in asset management.
  • The lack of a clear model of how to create an accountable road to benefits that has high credibility.
  • A readiness to invest in further IT system enhancements with the thought that better information control will create an accountability for fostering improved asset performance.

At an investor level, this ultimately leads to a proportion of the investment community to conclude that this is not a well managed business endeavor. This is indicated by an investment pattern where values rollick in good times, but there is a flight of investment from the mining industry during times when the commodity cycle is soft, despite record distributions. This is clearly illustrated by Figure 4, which shows the underperformance of mining compared to global indices despite record distributions.

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Figure 4: Illustrating the recent underperformance of the mining sector

The threat of regulation

In a high risk, often politicized operating environment, regulation is always a first response of authorities. In our experience, regulation is the false friend of performance. Essentially, it is a clinch much like boxers get into when they can’t move forward. In boxing terms, a clinch means to hold your opponent’s body and arms in order to prevent or hinder punches. Regulation of safety and environmental issues may be necessary, but being subjected to regulation of a core business process, such as asset management, will significantly affect an area that is ripe for performance optimization.

This will result in the clinch of a conformance mindset. Regulators would have won a battle of cheap moralization but undermined the opportunities surrounding a significant performance frontier. Regulation will become a real issue in the next decade as specifications such as the new ISO 55000 (ISO Standard for Asset Management), become more prominent and management will lose yet another freedom to choose which path they wish to follow.

Creating clarity for driving asset performance

This study clearly indicates that asset performance can be driven by creating high levels of process maturity in the areas of strategy management, asset care plan development, work management, operator asset care and focused improvement. We refer to these as the key enabling performance drivers.

Taking the lead from the Kaplan and Norton balanced scorecard approach to strategy, we put forward a structure for the mining industry that drives performance in a programmatic manner, as shown in Figure 5.

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Figure 5: Proposed execution structure

Within this structure we suggest an execution framework that has four domains.

The first domain has the fundamental goal of driving through life asset performance in alignment with organizational goals. By positioning this as the primary imperative, we orientate all supporting activities towards a measurable and organizationally central outcome.

Supporting this preeminent anchoring commitment is the development of a supporting strategy and strategy execution plan. This plan is clearly aligned and supported by the key enabling performance criteria of work management, operator asset care and the development of an optimized reliability base created from supporting tactics together with focused improvement.

These are the powerful enablers that, as this study indicates, create asset performance.

As any experienced asset manager will testify, the vital contribution of organizational change, sponsorship, governance, and skills and competencies are supported within the fourth domain.

Created within this structure is a clear line of sight between organizational objectives and how to create the supportive asset performance.

We conclude that the key proven asset performance enablers, if executed (in place and in use), will not only drive asset performance, but additionally create the basis for enhanced asset-related risk management.

Furthermore, this will comply with the basis of ISO 55000 and form a platform for establishing an asset management system that will comply with ISO 55000.

References:

  1. Kaplan, Robert S. and Norton, David P. Strategy Maps: Converting Intangible Assets into Tangible Outcomes. Boston: Harvard Business Review Press, 2004.
  2. Kaplan, Robert S. and Norton, David P. The Balanced Scorecard: Translating Strategy into Action. Boston: Harvard Business Review Press, 1996.
  3. ISO 55000 (Draft): Asset Management – Overview, principles and terminology
  4. Pragmatic Implementation of PAS 55 – Grahame Fogel
  5. Mine The Growing Disconnect – PWC publication on the state of the global mining industry.


Part2Grahame Fogel is an Asset Management Consultant with experience covering 25 years around the world. He has been associated with many of the recognized benchmark programs, such as U.S. Steel, Pfeizer Pharmaceuticals, PJB Power, Boeing, and others. He has a depth of experience in the power, pharmaceutical, mining and chemical process industries. More recently, he has been on the forefront of implementing PAS-55. www.gaussian.co.za

Part2Stefan Terblanche is currently Partner Consultant of Pragma and heads up the Projects and Training Division in Africa. He has extensive experience in asset management consulting in the mining and heavy process industries. www.pragmaworld.net


Comments (1)

  • Thank you gentlemen for this detailed, intelligent and inspiring article. The more of this type of information I find, the more confident I am that the future looks better every day as more organizations adopt this level of asset health care. Witnessing firsthand and reading about so many more plants and fleets still held hostage by decision makers with sub-standard maintenance awareness can be frustrating and stressful but your article helps a lot. I hope every manager and owner sees this.

    1) Posted 1:18 pm, 06 March 2013 by Mark O'Brien

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