Creating an Effective Asset Management Delivery Model
Creating an Effective Asset Management Delivery Model
by Grahame Fogel, Jacques Stander and Dean Griffin
Asset intensive organizations face numerous challenges, one of which is the need to create an accountable methodology and delivery model for risk managed performance that reinforces organizational objectives.
This is made even more challenging when organizations choose to focus on short-term operational performance. Overcoming this hurdle requires big picture thinking combined with an intimate knowledge of the asset management (AM) enablers. Furthermore, to align effort to outcomes, one must have a strong understanding of how an organization defines and measures value.
This article provides insight and a proven blueprint for implementing an effective asset management solution. Ultimately, it provides managers and decision makers with an execution model for structuring a performance driven asset management solution.
The first step toward this clarification is understanding the known knowns of asset management, from which the implementation blueprint will be built.
Understanding the Known Knowns
To understand the known knowns or what you know, you first need to understand your historical journey as a professional discipline.
The discourse over the last 20 years has surrounded two themes. First is the profusion of embarrassing claims in the marketplace, normally from vested interests, about what creates asset performance. Second is from those involved at the forefront of implementing solutions, where there is a real challenge to create long-term sustainability in programs that result in ongoing performance.
One must look hard for documented, peer reviewed evidence of what creates asset performance. The abundant claims that exist are at best anecdotal and not substantiated with hard evidence. Through multiple decades of experience, it has been noted that most improvements are temporary, vulnerable to any of the dynamics that occur in the corporate world.
Over the years, literature and other sources of information, such as conference proceedings and organizations’ individual experiences, have been carefully tracked to gain insight and real evidence to help in understanding what creates asset performance.
Foundational to this understanding is the 1994 pioneering work by Winston P. Ledet at DuPont. Ledet undertook a detailed modeling exercise on how and why maintenance initiatives had failed to meet expectations within DuPont. In summary, he concluded that point solutions (i.e., individual solutions applied in isolation) were only partially successful and that, in some cases, asset productivity decreased if applied inappropriately. The key learning gained from this foundational study was that there were key enablers to an asset management system and their integrated effects created an alignment that drove performance. The key enablers Ledet listed are shown in Figure 1. Further, the study assumes some underlying information management system that supports the above, but interestingly, that it is not considered a performance driver.
The second key issue is the role of the computerized maintenance management system (CMMS) or enterprise resource planning (ERP) system in driving performance. With large budgets and vested interests, market players in this area have made exaggerated claims with regard to the ability of these systems to drive asset performance. This is supported by benchmark data; surveyed data from over 50 industrial sites finds no perceivable correlation between continued investment in CMMS/ERP systems and asset performance.
While having a well-structured information system is foundational to the modern industrial enterprise, its role and usefulness must be put into context as to where it enables value to be derived. Yet, vendors are quick to sell upgrades and increase licensing fees, adding to the overall cost of the management system which, in turn, simply cannibalizes scarce budget and manpower resources. This calls for a clear reevaluation as to where scarce resources should be invested if one wishes to drive asset performance.
In a 2013 major study of benchmark and assessment data by Fogel and Terblanche, 17 key performance areas from over 50 asset intensive organizations were analyzed in detail to understand the relationship between increased maturity (i.e., investment) in the enabler and whether and how much this increased asset performance (see Figure 2). Results show strong correlations between strategy management (i.e., the execution of asset management strategy), the development of asset care plans, the management of work through planning, scheduling and work close out, the involvement of operators in first-line maintenance, and structured strategic focused improvement. There was little to no correlation with the remaining 12 enablers.
Fogel and Terblanche further examined the ongoing investment in information systems, which indicated a weak correlation to improved performance. This means the claims of further investment in information systems must be very carefully reviewed with what the organization is trying to achieve.
Further reinforcement of an integrated approach comes from comprehensive comparative studies performed by the Aberdeen Group and published in 2012. They, too, present no single solution silver bullet, but a multivariate contribution to enterprise asset management, with the key driver being cross functional collaboration within an organization.
The Value Paradigm: What Constitutes Organizational Value?
There has been an increasing and more focused discussion in recent years surrounding what constitutes organizational value. Within the professional community, the thinking has been refined from a purely, yet important, financial dimension to a broader understanding of stakeholders and their value expectations. This is built on the belief that organizations exist to satisfy their stakeholders. The value discussion has been sharpened by the excellent work done within the technical committees that developed the ISO55000 and 31000 international standards. These standards should be used as normative references when evaluating the value from assets and value of assets.
In a presentation by Fogel and Kemp at the 2016 Institute of Asset Management (IAM) annual conference, an asset management value model (see Figure 4) was developed in a single representation. In this model, value is some variable that changes with time as the organization meets differing trading circumstances and challenges. The model indicates this dynamic tension, which is under continual review to adjust it strategically to a differing business environment. Fogel and Kemp advocate that leadership teams need to clarify exactly what the value goals are in terms of creating a performance outcome. Implementation teams can then align priorities and activities to these value definitions. The organization then requires a nimble strategy to adjust to changing priorities.
Over the last decade, the thinking with regard to creating an implementation structure for creating an effective asset management delivery model has been refined and sharpened.
The goal is to create a delivery model that is easy to explain, clearly understood and aligns with both international standards and accessible bodies of knowledge. Moreover, the model needs to be adaptive to both different industries and maturities within organizations. Furthermore, it needs to be flexible enough to respond to changing value requirements. Overall, the goal is to make it pragmatic and useful to asset management professionals to communicate a simple solution vision for delivering sustainable value. It should also go beyond the general guidelines in ISO55000 to a pragmatic implementation framework, both from an assessment perspective and to allow a clear implementation road map to be modeled.
The end result is an effective asset management delivery model or the delivery model.
Introducing the Effective Asset Management Delivery Model
The delivery model can be best encapsulated as the key enablers, which work together to ensure effective asset management. Figure 5 shows the diagrammatic representation of this delivery model.
The model incorporates the knowledge created in the historical journey. It is backed up by benchmark data and aligned to both international standards and existing bodies of knowledge. Real-life performance data that substantiates the relevance of such an approach also is presented.
In summary, the model is made up of a top-down (i.e., strategic) and bottom-up (i.e., foundational) approach that is aligned to the delivery of value. The blocks represent a set of interconnected and interrelated value drivers referred to as enablers. In most cases, the enablers or a subset of enablers are in place and it is their interconnectivity and integrated presence that creates the model. This interconnectivity, as illustrated in Figure 6, builds on what was uncovered by Ledet at DuPont.
The various enablers of the delivery model are briefly described in Table 1.
|Asset Data Configuration||The initial and continued process of ensuring data is of the correct quality and configuration to enable asset management activities||Data, which is credible, provides the basis for evidence-based decision-making Data and data configuration in alignment with overall strategic informational needs|
|Understanding Risk & Opportunity||The identification, assessment and prioritization of risks followed by the coordinated and economical application of resources to minimize, monitor and control the probability and impact of the risk; It is also the tool to maximize the realization of opportunities||Risk directed application of effort and resources|
|Establishing a Reliability Basis||A set of activities, processes, skills, use of technology and methodologies to ensure systems meet the reliability expectations to achieve business objectives||Incorporates the development of maintenance reliability tactics, which effectively create the ability to have systems available within acceptable cost and risk parameters when needed; May include such activities as reliability-centered maintenance (RCM), condition monitoring, reliability analytics, etc.|
|Condition Management||Management of the condition of critical or important systems so they are positioned high up on the P-F curve, minimizing the risk of unannounced failure||The ability to timely deal with failure mechanisms in critical and important systems so they are risk and cost managed|
|Integrated Planning||Planning processes and activities that integrate across multiple functions within an organization to maximize value||Provides a coordinated ability to create organizational focus across organizational boundaries|
|Managed Focused Improvement||The process of applying systematic problem-solving methods to improve system performance||Risk and performance based effort directed toward value creation|
|Managing Financials||Efficient and effective management of money (i.e., funds) to accomplish the objectives of the organization||Includes core activities, such as budgeting, capital planning and financial performance management|
|Risk Driven Decision-Making||Maximizing opportunity while managing unwanted outcomes||Realizing new value within the organization while reducing value loss from unwanted risk events|
|Whole Lifecycle Decision-Making||Decisions made that impact total cost of ownership of an asset or system over its life||Balances short, medium and longer term decision-making to ensure sensible and aligned cost of ownership|
|Value Realization||Monitoring, managing and reporting on the total value realized||Provides the necessary indication of the return on effort|
|Organizational Readiness||The organization’s preparedness and shared resolve to implement a strategic change; A measure of a shared belief and collective capability to implement such a change||Measures the organization’s ability to transform toward its strategic goals|
|Competency Development||Development of skills, behaviors and attitudes that workers need to perform their roles effectively||Ensures the skills and motivation to achieve objectives|
|Translating the Strategic Plan||The ability to communicate the organization’s goals and the actions needed to achieve those goals; Within ISO55000 configuration, this is divided into policy, strategic asset management plan (SAMP) and AM execution plan||The ability to coordinate the set of implementation actions that deliver stakeholders’ expectations of value|
The delivery model provides organizations with structure, enabling a methodical approach linked directly to asset performance. Structuring an asset management system this way provides both form and flexibility, ensuring that nothing is missed when creating an asset management solution. The model is not prescriptive on how those enablers are achieved, or at what maturity level the enabler should be positioned.
The model is also aligned to other contextual inputs, such as the International Organization of Standardization’s ISO55000, ISO31000, ISO8000 and ISO9000, industry bodies of knowledge (e.g., IAM’s asset management anatomy) and accepted regulations (e.g., IFRS’s accounting standard). This is illustrated in Figure 7.
An important aspect that goes hand in hand with implementing an asset management solution is being able to measures its value.
Measuring the Asset Management Value Contribution
The professional community has been searching for a meaningful measure of asset management value contribution. While measuring leading metrics, such as the ratio of planned to unplanned work or the traditional reliability metrics, such as mean time between failures (MTBF) and mean time to repair (MTTR), are important in monitoring asset performance, they do not reflect a satisfactory measure of tangible business value.
Over the years, American business magnate and investment guru Warren Buffet has provided a strong argument that return on invested capital (ROIC) provides the most illuminating understanding of whether a management team is adding or eroding value to an organization. The ROIC metric is directly aligned to the asset management value contribution and should be used as a measure of asset value contribution. Recently, ROIC has been used to benchmark several programs and organizations around the world, providing a significant body of experience in understanding how asset contribution affects ROIC, which will be the subject of a future Uptime article.
Furthermore, many management teams and senior executives have their compensation packages linked to ROIC and when talking about ROIC as the golden asset management metric, it serves as a pathway to discussions about a much more strategic approach to asset management.
By measuring and comparing ROIC on a period to period basis, a management team has the clearest measure of whether it is adding or eroding value to the organization. ROIC cascades directly down to the asset management delivery model and how the specific enablers are contributing to the business.
Results of Using an Integrated Solution
The results from one organization that has been on a multiple year journey demonstrate year on year sustainable gains in performance. Figures 9 and 10 show improvements within the organization over a four-year journey. This organization had a strong commitment from leadership that drove the implementation of the delivery model. In addition, the sustainability basis was due to the ongoing integrated approach. The benefits are obvious, with a strong decline in the replacement asset value and a steady increase in production. These benefits were echoed by the shift from reactive maintenance tactics to more predictive and preventative tactics.
As the organization matures on its asset management journey, it is now focusing more on defining the linkages between effort and capital investment linked to business value to drive further gains.
The effective asset management delivery model is the culmination of years of experience, research and analysis. It has been created for managers and practitioners to help in delivering an effective asset management solution within their organization. It incorporates inputs from the latest international standards and bodies of knowledge to ensure a complete and dependable model. Throughout its creation, there were core considerations, such as the need to be method agnostic, as well as driving value. The concept of value for an organization has been a hot topic in recent years. The delivery model considers the outcomes of these discussions and achieves stakeholder value over and above pure asset performance.
While the effective asset management delivery model is method agnostic, it offers a structured approach to implementing an asset management solution. This ensures that asset managers around the world can be certain in their efforts.
- Ledet, Winston P. The Manufacturing Game. Goal/QPC TQM Conference, Boston, MA, 1994.
- Aberdeen Group. Enterprise Asset Management in 2012: A Data Driven Predictive Approach to Maintenance. Aberdeen Group, 2012.
- Fogel, G. and Kemp, T. The Role of Asset Management in a Constrained Economy. IAM Annual Conference, Edinburgh, Scotland, 2016.
- Schipper, J. The real value added by asset management: Benefits as Defined by Twenty Utilities. UMS Group, 2017.
- Fogel, G. and Terblanche, S. “Why Asset Management Doesn’t Work in the Mining Industry and How to Fix It.” Uptime Magazine, February/March 2013.
- Fogel, G. Reliability-Based Maintenance as a Breakthrough Strategy in Maintenance Improvement. Cape Town: PN Books, 1995.
- Fogel, G. and Swanepoel, S. “Declaring Value from an Asset Management Investment.” The (New) Asset Management Handbook. Fort Myers: Reliabilityweb.com Press, 2014.