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The Business of Asset Management - Part Two

In the previous article, the Investment Planning (Needs and Feasibility Assessments for Assets) and the Project Definition (Design of Assets) phases of an asset's lifecycle were discussed as illustrated in Figure 1. This article begins with the construction, acquisition, or enhancement of an asset.

3. Construction, Acquisition, or Enhancement of Assets

In this phase of an asset's lifecycle, it is actually created, produced, or acquired. The initial construction/ acquisition cost is actually incurred at this time. If the asset is constructed internally, all of the design documents, capacity studies, reliability and maintainability specifications, regulatory requirements, etc., are utilized to construct an asset that will provide the company with the maximum Return on Assets (ROA)/ Return on Invested Capital (ROIC) for their shareholders/stakeholders. This is the case, whether it is a building, a process, or a production line that is being constructed.

If the asset is to be purchased, all of the same design documents, capacity studies, reliability and maintainability specifications, regulatory requirements, etc., are provided to the vendor constructing/providing the new asset. The company will audit the delivered asset against the specifications to insure the proper asset has been supplied by the vendor.

If existing assets are to be redesigned/modified to meet the business plan, then all the same specifications that would have been developed for a new asset (whether constructed internally or purchased externally) are used during the modification of existing assets. At the end of the redesign or modification, the assets should be capable of delivering their design capacity at specified costs.

4. Project Execution of the Asset

In this phase of the asset's lifecycle, the asset, whether it is built, purchased, or retrofitted, is installed in the plant or (if a building) actually built. This is a construction or installation project. There is some divergence, based on the philosophical leaning of the author, professor, or practitioner. The following Equipment Life Cycle Phases diagram is used by Professor Ben Blanchard in his Engineering Masters program.

The diagram rolls the construction, acquisition and installation of the asset into one phase. However one chooses to combine or separate these phases, the project phase involves the installation of the equipment or construction of the building. This phase is critical since poor installation/ construction practices can diminish the design reliability and maintainability of the asset. For example, poor foundations under equipment can make it virtually impossible to achieve its reliability and maintainability design specifications.

During this project phase, commissioning also occurs. In a building setting, the final inspection and walk-through occurs before the asset ownership transfers from the builder to the company purchasing the building. In an equipment setting, all of the asset's capacities are tested to insure they meet all the design specifications.

Once the commissioning component is achieved, the asset ownership now passes from the supplier (internal or external) to the company. All documents, manuals, drawings, etc., are transferred to the company. In many cases, all documentation is provided to the company electronically. This also may include the requirement for the supplier (internal or external) to enter all the data for the new asset into the company's CMMS/EAM system. At this time, the asset moves into the maintenance/operations phase of its lifecycle.

5. Operations and Maintenance Phase of Asset Lifecycle

This phase is where the asset actually starts providing the business service or production it was envisioned to provide back in the first phase of its lifecycle. It involves much more than allowing occupants into a building or pushing a button to turn on a production line/process. It is ensuring that it delivers the design specifications. There are two aspects to this - Operations and Maintenance.

From an operations perspective, whether the asset delivers the design capacity/capabilities is evaluated. For example, using the building example, these questions are explored: Can it hold all the occupants it was designed to accommodate? Is the HVAC adequate to keep everyone comfortable? Do the restrooms provide satisfactory service? Is the lighting sufficient? If any of these systems fall short, the capacity of the building is diminished. From an equipment perspective, the questions that need answering include: Does it achieve the design capacity? Does it produce at the rate for which the original design specified? Does the asset meet the "operability" that was specified in the initial design documentation? From a maintenance perspective, the asset was designed with certain reliability and maintainability parameters. Questions designed to measure these parameters include: Does the equipment achieve the designed mean time between failures (MTBF) - reliability - and the designed mean time to repair (MTTR) - maintainability? If not, why? Do the specified maintenance policies and procedures ensure that the design specifications can be achieved? If not, why? It was mentioned previously that up to 90 percent of the asset's lifecycle cost will be incurred during this phase of the asset's life. These costs are commonly divided into labor costs, materials costs and contractor costs.

Some companies try to reduce these maintenance expenditures to a level where the asset is not properly maintained. When this occurs, the asset either fails to produce the design reliability or the maintainability. In some cases, catastrophic failures occur, creating a negative image of the company (and financial penalties have involved numerous companies lately). Due to insufficient maintenance expenditures, paticularly in buildings, an asset will fail to achieve its full design life. This leads to premature major overhaul/refurbishing or even decommissioning expenditures. In these cases, the original ROA/ROIC that was promised to shareholders/ stakeholders will never be achieved. Eventually share prices in the company's stock will likely suffer.

In this phase of the lifecycle, information management is critical. Tracking all of the data in a CMMS/EAM system guarantees that the proper level of maintenance activities are being performed on the assets to ensure they deliver their design functions at the designed costs. This data is essential in a later phase of the lifecycle if any business improvements related to the assets are to be achieved.

6. Rehabilitation or Retrofitting of Assets

Some texts, professors, companies, etc., will break this section out as a separate lifecycle phase, while others incorporate it into the maintenance and operational phase. The activities surrounding shutdowns, turnarounds and outages are focused on restoring deteriorated assets to an acceptable baseline to ensure that the original design capacities can be achieved. In the cases of buildings, they are refurbished to bring any deterioration to an as-new condition, assuring the structure is fit to purpose. There are also certain thought leaders that will move reengineering or retrofits of existing assets into this phase of an asset's lifecycle. Others will include it in the maintenance and operations phase. This activity is to take an older asset and reengineer it to upgrade it to current market standards. It may be to meet new building codes or new production specifications.

If the asset needs to be replaced, it moves into its final lifecycle phase.

7. Decommissioning, Retirement, and/or Disposal of Assets

In this phase of an asset's lifecycle, it is time to decommission and dispose of it. In some cases, decommissioning is nothing more than writing it off the books and gradually selling off components of the process/manufacturing line. In some situations, when a process/manufacturing line is decommissioned, it is "cannibalized" for similar parts for other assets that are still operating somewhere else in the plant or facility. When this occurs for a time period, the remaining components will eventually be sold off for scrap.

Selling the asset to another company is another popular option for disposing of an asset. This occurs frequently when a company has decided to divest a certain product or a certain part of its current market. Another company will purchase the asset, may retrofit it and continue production of the product or a similar one.

In most cases, it is unlikely that a facility (such as a building) is "cannibalized" for parts, but rather it is sold off as a method of disposal. Often, vacant structures quickly become a legal liability. This encourages a company to sell the asset rather quickly.

Depending on the asset, there also may be regulatory considerations when it is decommissioned. If it was part of an environmentally hazardous process, then there will be regulations that must be met. Depending on the country in which the asset is located, the range of remediation activities will vary dramatically. In the United States, there are OSHA, EPA and other state and local regulations that must be met.

Eventually, through whatever process a company has in place, the asset is decommissioned, written off the company register and finally disposed.

8. Performance Management

This aspect of an asset's lifecycle is often overlooked. However, if you refer back to Figure 1 in this article and its center circle, performance management is critical throughout the life of the asset. While there are many different aspects of performance management, if a company does not measure the performance of an asset, it cannot be improved in the next generation of asset evolution.

Performance management is key in many aspects. For example, each company asset was originally conceived (as part of the asset base to provide a new product or service) and designed to perform a task in the plant or facility. Some performance measures must audit the installed and operating asset against what it was conceived and designed to perform. Whether it was a building that was supposed to house 500 people for 8 hours a day, 5 days a week for 40 years, or a pump that was supposed to provide 100 gallons of flow per minute for 24 hours per day, 7 days a week for 15 years, the question must be asked, "Did it achieve that level of design performance?"

If it did, then the performance was satisfactory. If it did not, then why? This is where a typical CMMS/ EAM system is used to monitor performance. A typical system will track MTBF and MTTR. It tracks the labor and material costs (whether internal, contractors, or a combination) that the asset requires to keep it at design performance.

Without getting into high level specifics, there are multiple aspects that need to be measured during asset life to enable future improvements. After this information has been tracked through the lifecycle, it is fed back into the "conceive" and "design" phases of the next generation of assets for the company. Any weaknesses in the prior assets are corrected in the new design or specifications for the next generation of assets. Without this performance measurement feedback loop, companies will not be able to improve their competitive positions in their respective marketplaces.

The following Life Cycle Decisions diagram is another way to look at questions to be asked during an asset lifecycle.

Based on Life-Cycle Cost and Economic Analysis - Benjamin S. Blanchard Professor of Engineering-Emertius at Virginia Polytechnic Institute and State University


Why is this information important to any organization considering or pursuing certification with an asset management standard? The first is the point made at the beginning of the article in the last issue of Uptime magazine: "They 'line of sight' and connect the benefits of achieving a standard to the business needs of a company." If a company is to be realistic, there are literally thousands of standards (worldwide, ISO, ASTM, etc.), yet how many of them are widely adopted and used by companies? There are some that are specifically focused on a certain process, industry, or facility that have acceptance in that particular business. However, an asset management standard is different. In fact, the closest standard to an asset management standard for all inclusiveness and worldwide impact is the ISO-9000 series. This connection is realistic, since most ISO-9000 certified companies have assets that enable them to achieve certification.

Lessons can be learned from the history of the ISO-9000 series or standards. At first, quality as an important business process did not gain wide acceptance, despite the fact that quality gurus W. Edward Deming, Joseph Juran, Phillip Crosby and others had been pontificating about the business benefits that almost perfect quality allowed a company to achieve. It was not until it became a business requirement, mainly driven by European companies, when supplying certain companies with a product. It continued to grow in acceptance until it caught on in the U.S. automotive industry (all suppliers included). U.S. automotive companies initially had their QS standards, but eventually adopted the ISO standards. Now, almost every company is ISO-9000 compliant.

There is a similar pattern developing with an asset management standard. There have been individuals and organizations pontificating about asset management (or at least one of the component phases) for over a decade. However, it was not until PAS-55 (a British asset management standard) came along before the whole effort began to get traction.

PAS-55 started connecting asset management practices and policies to the financial benefits that were achieved by complying with the standard. This started to get the attention of many executives, particularly in the U.S. utility industry. This "line of sight" approach will resonate with most executives. However, acceptance of any asset management standard is not a given in the worldwide business community. If there are components of the standard that do not lead to financial benefits, executives will be slow (if ever) to adopt any asset management standard. Crosby said one did anything about Quality until someone figured out what was the cost of non-Quality." Companies will not develop a serious asset management policy until they realize what the lack of such a policy is actually costing them.

Unless an asset management standard becomes a requirement to do business (like ISO-9000), no asset management standard will be widely accepted. While many asset management professionals worldwide are involved in an effort to develop an international asset management standard, if they fail to achieve a "line of sight" approach that connects top line to bottom line, the effort will not be successful. After all, the goal should be trying to produce a standard that helps the business community become more competitive, not to negatively impact their financial condition.

Terry Wireman, CPMM & CMRP, Senior Vice about President Vesta Partners, LLC ( has authored dozens of books, including the new Maintenance Strategy series published by and sold at:

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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