Asset Management: Buzzword or VALUE Creator?
Asset Management: Buzzword or VALUE Creator?
by Ramesh Gulati and Lynn Moran
Asset management is the science of making the right decisions and optimizing the delivery of value.
Introducing Asset Management
Is asset management (AM) a new buzzword or a “flavor of the month” management initiative? AM is becoming a frequently used term in the industry around the world. It is a term being used more frequently by engineers, designers, facility planners and regulators, as well.
Unfortunately, the term is developing the initial symptoms of becoming a buzzword. This tendency is dangerous in several respects. First, asset owners and managers may view it as something new and, therefore, a potentially costly additional task they may be required to perform. Secondly, and perhaps more importantly, the concept loses cogency and impact as a buzzword. It becomes just another annoying fad that will hopefully go away. Neither could be further from the truth. AM is neither something new nor, hopefully, a temporary fad. It’s a reality, a real value adder if done right. Asset management is the science of making the right decisions and optimizing the delivery of value.
Also, it has been noted that the majority of companies who used to be in the equipment maintenance and reliability field now have become asset management companies or have added AM in their name. If you search asset management, you get over 101,000,000 hits, with 90 percent of those sites related to financial companies or finance related service providers.
So, what’s asset management? Why are so many ignorant about AM and, at the same time, why are some vigorously trying to join the AM bandwagon? This article will help you understand asset and asset management and how it can be a value adder.
AM is not something new and there are tangible benefits to be realized, both short- and long-term, by the adoption of a coordinated AM strategy.
Asset, as defined in the online BusinessDictionary, is something valuable that an entity owns, benefits from, or has use of, in generating income. It could be physical, such as cash, machinery, inventory, land and buildings. The Uptime® ElementsTM Dictionary for Reliability Leaders and Asset Managers defines an asset as “an item with a potential value that an organization owns and has a use for to create value and has the responsibility to take care of it. The value could be tangible or intangible, financial or non-financial.” The asset management standard ISO55000 established by the International Organization for Standardization (ISO) defines an asset as “a thing, item, or entity that has potential or actual value to an organization.”
The Institute of Asset Management (IAM) states that asset management involves the balancing of costs, opportunities and risks against the desired performance of assets to achieve the organizational objectives. This balancing might need to be considered over different time frames. AM enables the application of analytical approaches toward managing an asset over the different stages of its lifecycle. 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 in this decision-making.
Performance vs. Value-Based Strategy
In the past, the maintenance strategy has been to manage equipment (assets). You perform preventive maintenance (PM) on assets to reduce failures or get them repaired quickly when they break. Also, you try to use condition-based maintenance (CBM) wherever it’s feasible. The goal in this strategy is to ensure that equipment keeps performing. Some call this a “performance” based strategy. You keep fixing equipment at whatever it costs to ensure it keeps producing products or provides services. In reality, this is challenging and may be expensive.
Figure 1: Performance versus value based
If your maintenance reliability tribe gets involved early in the machine (asset) development, meaning the asset acquisition phase, they could provide valuable input in writing specifications and support design to ensure assets are designed from a reliability, availability, maintainability, safety and sustainability (RAMS 2) perspective. They could also get involved in the asset build, installation and commissioning phases. Operators and maintainers need to be engaged and appropriately trained before assets become operational. They need to know how to operate or maintain assets properly (i.e., in the right manner) and have a good understanding of what not to do to damage or misuse the asset when being operated.
Studies have indicated that over 40 percent of asset failures are caused by operational errors/omissions. A good understanding of how asset functions can reduce these types of failures to a minimum is necessary. The important thing is to create a culture of asset ownership. With this concept, the operator becomes the “owner” of the machine/asset he or she is operating. This creates a different mindset, caring for the equipment as if they own it. Equipment is maintained from a lifecycle cost perspective. This concept or strategy of managing equipment is called asset management (AM).
Asset management is a systematic process of deploying, operating, maintaining, upgrading and disposing of assets in a cost-effective manner. ISO55000 defines AM as “coordinated activities of an organization to realize value from assets.” This is a value-based strategy. It means you try to do the right things to assets from concept to disposal so you get more value out of them during their lifespan. You design, build, operate, maintain, etc., them right so they cost less during their whole life. Whereas in old strategies, you did things on an asset based on performance at whatever it cost, mostly during O&M phase. Operators may have abused an asset to produce more to meet production requirements, or you may have experienced more failures from poor design, bad installation, etc.
Figure 2: 10 rights of asset management
To implement a good asset management strategy on assets, you should deploy a 10-point plan called 10 Rights of Asset Management as shown in Figure 2. This 10-point plan includes:
|Specify It Right – provide the right requirements and specifications;|
|Design It Right – design it with RAMS2 to minimize failures and O&M costs;|
|Source It Right – purchase best value components and equipment (assets);|
|Build It Right – fabricate and assemble the asset with quality workmanship;|
|Install/Commission It Right – install with precision quality;|
|Operate It Right – operate with care and safety within its design limits;|
|Maintain It Right – perform the right maintenance;|
|Improve It Right – apply the right tools and practices to improve;|
|Dispose of/Decommission It Right – dispose of it in an environmentally safe manner;|
|Manage It Right – ensure the right skill and talent available at every role to do all 10 Rights right.|
But, you must not only recognize the right things to do; you must daily: encourage, educate, remind and embrace these 10 rights and be on the lookout for efforts where they have not been considered and be the champion in the use of AM science.
Implementation of the 10 Rights of Asset Management ensures a robust AM process that results in:
- Low/minimum failures and high reliability;
- High uptime and availability;
- Low injury rates and safe operation;
- Process repeatability;
- Lower overall lifecycle cost of ownership;
- High morale;
- Very satisfied stakeholders.
AM is not a buzzword or fad. The implementation of the 10 Rights of Asset Management will help to improve a company’s bottom line. They will also support and put the company in compliance with the ISO55001 standard. The 10 Rights of Asset Management process will engage the stakeholders and workforce, encourage teamwork and become a value creator by making or supporting the right decisions.
- Gulati, Ramesh and O’Hanlon, Terrence. 10 Rights of Asset Management: Achieve Reliability, Asset Performance and Operational Excellence. Fort Myers: Reliabilityweb.com, April 2017.
- Davies, Rhys and Humphrey, Danielle. ISO55000 Asset Management – A Biography. Fort Myers: Reliabilityweb.com, December 2016.
- Gulati, Ramesh. Uptime® Elements™ Dictionary for Reliability Leaders and Asset Managers, Second Edition. Fort Myers: Reliabilityweb.com, March 2017.
- Gulati, Ramesh. Maintenance and Reliability Best Practices, Second Edition. New York: Industrial Press, August 2012.
- The Institute of Asset Management (IAM), https://theiam.org/
- The International Organization for Standardization (ISO), https://www.iso.org/home.html