CRL 1-hr: 9/26 Introduction to Uptime Elements Reliability Framework and Asset Management System

ISO 55000 standard for asset management

ISO standard for asset management

Reliabilityweb.com

Currently, there is an international effort to develop an updated ISO 55000 standard for asset management. While various committees work through the details surrounding the standard, it is necessary to review the business reasons that led to the need for an asset management standard. First, it would be beneficial to review the reasons that other standards, particularly ISO-9000, came into existence.

For any standard to receive wide acceptance by the international asset management community, it has to have a positive impact on overall business. Otherwise, it will be a standard that some can point to, but senior executives will not worry about compliance. The only reason ISO-9000 standards gained worldwide acceptance was because compliance became a business requirement. Once senior executives realized the importance the standards had to their continued profitability, they mandated that their companies become compliant.

This is why "line of sight" for any business is so important. Line of sight is basically organizational alignment to achieve a goal. For asset management, line of sight is connecting a company's business processes to accomplishing the company's overall business objectives. This could be compliance to governmental regulations, which is important to many organizations. However, for most companies, it is going to be profitability. For these organizations, it will be the answer to the question: "How will achieving an asset management standard help my company become more profitable?"

For profit-oriented companies, their line of sight could be illustrated by a diagram such as Figure 1, which illustrates a sample line of sight.

Increasing shareholder value is the reason companies are being measured by indicators like Return on Invested Capital (ROIC) or Return on Assets (ROA). Both of these indicators (in the simplest terms) are profits divided by the investment in assets required to provide the profit, which most shareholders are interested in seeing. The investment in the assets is why an international asset management standard is going to be important to most companies. True asset management means to manage the asset through the entire lifecycle. Many companies over-invest in assets and literally have spare process/production lines in their plants/facilities just in case the primary line breaks down. One can quickly see what this business model will do to a company's ROIC or ROA indicator. An MIT study has shown that there are over two trillion dollars in under-utilized assets in the United States alone. One has to wonder what that number would be worldwide?

Other companies will design and install equipment/assets that do not meet the current business needs. When entering the operations and maintenance phase of the equipment/assets lifecycle, if it does not meet production/utilization demandscompanies will push it beyond its design capacity. This results in the equipment/asset being unreliable, breaking down more frequently and wearing out prematurely. This also has a severe impact on the ROIC or ROA indicators. Capital dollars are then reinvested in rebuilding the equipment to bring it back to an acceptable baseline for some measure of the rest of its (now shortened) lifecycle.

This should highlight the fact that when a company uses the line of sight term, they have to be focusing on achieving business objectives, which for the majority of organizations is going to be increasing shareholder value by increasing profitability. When organizations examine the benefits of implementing an asset management standard, almost all of the existing data shows that the majority of the financial benefits are derived from improving maintenance and reliability practices. If a company focuses on achieving an asset management standard, it should steer the company in a direction that improves business; otherwise there is no business reason to adopt it.
Asset Lifecycle Management and Asset Management Standards

Why is the asset lifecycle terminology so important to the development of an asset management standard? If companies are going to adopt an asset management standard that has any real meaning, it has to be built on the documented science of asset management. There are literally scores of facility management, plant management, engineering design, etc., textbooks that discuss this topic. There are scores of engineering courses taught worldwide on this topic. If an asset management standard does not contain accepted engineering principles, the acceptance of the standard will be diminished by the business communities that will benefit the most from accepting the standard.

Figure 2 highlights the main phases of an asset lifecycle.

Proper understanding of asset management requires a review of each of the major phases of an asset's lifecycle. This will highlight the potential business benefits of improving each phase of the asset lifecycle.
1. Investment Planning (Needs and Feasibility Assessments for Assets)

This phase of an asset's lifecycle begins with the discovery that there is (1) a new product or service that can be produced and sold, (2) a greater demand for an existing product or service, or (3) another facility location required to meet customer needs. The demand for new assets may also relate to meeting increased regulatory requirements for existing assets. The investment planning may involve:

A. Strategic Planning

The company direction is to diversify, expanding into new markets.
The company direction is to expand their share of an existing market.

B. Customer Needs

The customer demands modifications or enhancements to existing products or services that requires new assets.

C. Regulatory Requirements

There may be new regulatory requirements that require extensive modifications (new assets) to existing buildings, facilities, processes, equipment, etc.

2. Project Definition (Design of Assets)

In this phase of an asset's lifecycle, the scope of the asset(s) is defined. For the asset to meet the demand (identified in Phase 1), it will need to meet certain requirements. There are certain reliability (how long the equipment operates in between maintenance periods), maintainability (how long it takes to restore the equipment to service), projected life and total cost of ownership (TCO) requirements that all assets need to meet to support the business requirements identified in Phase 1. For example, how long will the company occupy the facility? How many people will occupy the building? What is the volume of air the HVAC system must move to make the building comfortable? What is the thermal load the HVAC equipment must be able to handle during the four different seasons? The list can be quite extensive. (Note: There are a considerable number of books written on this topic. One is Facilities Operations & Engineering Reference published by RSMeans in 1999).

In addition to facility concerns, there are others that need to be considered. For example, what business need is met by a new production line? A new process? These assets will also have certain design reliability, maintainability, projected life and TCO requirements that all assets will need to meet in order for them to support the business requirements identified. What is the production volume that must be achieved to meet the business need identified in Phase 1? Will the assets be required to perform in 24/7 operations or will it be a 24/5 schedule? Reliability and maintainability are critical to the decision on capacity of the asset and the profitability (ROIC or ROA) of the new product/service.

This leads to the cost-benefit analysis. Will the company specify a facility building that is designed for 500 people when the businesplan requires 100 employees? Conversely, will the company design a building for 500 people when the business plan requires 1,000? Both mistakes will be expensive. When considering production assets, if the assets need to produce, for example, 1,000 bottles of beer per hour, will the company design a line that produces 10,000 bottles of beer an hour? Or will it design a line that is only capable of producing 500 bottles of beer per hour? Any mistakes in designing assets, where the design is not based on the company's long-range strategic plan, will result in extreme financial penalties for the company.

It must be kept in mind that the asset at this phase of its lifecycle is still only a document, a drawing, or a blueprint. There have been no major costs (other than studies) done to this point. In fact, dozens of books written on lifecycle costing show that up to 90% of the lifecycle costs are specified (knowingly and unknowingly) by the asset design engineer. However, the same 90% of asset lifecycle costs are not incurred until the asset is in its operational and maintenance phases of the lifecycle. However, most companies overlook this fact and fail to achieve the profitability projections in the Phase 1 business study.

There are three calculations that a design engineer will focus on during the design of an asset. They are:

Reliability - A design specification that determines the period of time an asset will perform its intended function without failure. This is typically measured by the Mean Time Between Failure (MTBF) calculation.
Maintainability - A design specification that determines the length of time it takes to restore an asset to its functional state once a failure has occurred. This is typically measured by Mean Time To Repair (MTTR) calculation.
Cost-Benefit Analysis - A design study that shows the profits required from an asset versus the cost the asset will incur throughout its lifecycle. It may be measured by ROIC or ROA calculations.

How does the asset move from the drawing board to the plant floor? How do these calculations impact the asset during the rest of its life? How does a company maximize their return on investment in the asset? These and other questions will be answered in the second part of this article in the next issue of Uptime Magazine (Dec11/Jan12).

Terry Wireman, CPMM & CMRP, Senior Vice President Vesta Partners, LLC (www.vestapartners.com) has authored dozens of books, including the new Maintenance Strategy series published by Reliabilityweb.com and sold at www.mro-zone.com.

Terry Wireman

Senior Vice President, Strategy
Vesta Partners

Terry is the senior vice president of strategic development. He leads Vesta’s maintenance and reliability seminars and training, and provides strategic guidance to help the firm shape its market strategy and long-term direction. For over four decades, Terry has been specializing in the improvement of maintenance management and reliability.

He helps customers develop “best-in-class” maintenance and reliability policies and practices. As an international expert in maintenance/asset management, he has assisted hundreds of clients in North America, Europe and the Pacific Rim to improve their maintenance and asset effectiveness.

In addition, he has authored twenty four textbooks and scores of white papers and articles related to maintenance management process and technology.

Terry is currently a member of the US Technical Advisory Group working on producing the ISO-55000 standard. Terry is committed to keeping Vesta on the forefront of thought leadership pertaining to maintenance and reliability strategies.

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