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

Decision Making_lead image
Decision Making_lead image
Decision Making_lead image

Asset management is concerned with the total cost of ownership and a corresponding long view. Many decision-makers do not think this way nor do they allocate resources in this manner. Trusted advisers must understand what is meant by a decision, the different types of decisions, and the external influences on decision-making in the presence of complexity and uncertainty. Asset managers must properly evaluate their problem-solving and communication approaches if they are to be successful.

The Anatomy of a Decision

Let’s take a look at a not so uncommon conversation.

“Jim changed his mind!” exclaimed an excited voice on the other end of the phone. “I had a gut feeling he would go back on his decision! He would not sign the purchase order for the long-lead equipment! It is just too much money and he is too worried that he has made the wrong decision!”

“So, Jim finally had the purchase order in front of him and he refused to sign it?” Paul asked calmly from 400 miles away.

“Yes, that is correct,” replied Jim. “Almost two years of work, he wanted to do this, and the board authorized him to do it. He just backed away from his decision. Something is wrong with him!”

“No, there is nothing wrong with him," Paul replied calmly. "There is something wrong with us. You see, I knew this day was coming. Jim had never decided to do this.”

“I think you have lost your mind, too! You call him! I am done!” responded Jim, just before the phone went silent.

Figure 1: Asset management requires a long view that is not intuitive for most decision-makers (Illustration: JD Solomon)

Decision Defined

Ronald A. Howard, considered the father of decision analysis, defines a decision as “an irrevocable (or irreversible) choice among alternative ways to allocate resources.” In other words, you do not have a decision until you allocate resources. All other forms of agreement are an “intended course of action.

There is not a decision until there is a commitment of resources. An agreement without committed resources is merely an intended course of action.

In the prior conversation example, Jim liked the idea of replacing the old equipment with a new, dynamic version that would fundamentally change all the major processes in his production facility. He had made some decisions about planning for it, like dedicating specific staff time to exploring it and hiring a consultant to develop preliminary plans. However, the decision to transform the plant would be defined when he made the irrevocable decision to sign the purchase order for the long-lead (and very expensive) equipment.

The Anatomy of a Decision

Decision-making is closely tied to the way humans think. Behavioral psychologists describe two major thought patterns: System 1 and System 2. System 1 is categorized as intuitive, common sense and based on prior experience. The many decisions you make each day in your life and in conducting business are largely System 1.

System 2 is categorized as analytical, statistical and complex. System 2 is characterized as the one or two life-altering or strategic decisions that some of you make once per week, but most make maybe once per month. In the domain of System 2, planning is performed over the long term and involves both people and numbers. The allocation of resources associated with System 2 is significant.

In Jim's case, allocating resources related to committed staff time and hiring a consultant for a phased assignment was consistent with operational decisions. However, the commitment to purchase expensive long-lead equipment that would change the plant’s core processes was a strategic one.

Asset Management Decisions

According to the Institute of Asset Management, “asset management involves balancing costs, opportunities and risks against the desired performance of assets to achieve an organization's objective. Asset management is the art and science of making the right decisions and optimizing the delivery of value. A common objective is to minimize the whole life cost of assets (emphasis added), but there may be other critical factors, such as risk or business continuity, to be considered objectively in this decision-making.”

Since asset management is largely concerned with minimizing the whole life costs of assets or the total cost of ownership, most asset management decisions require a long view. The long view requires predicting the behavior and performance of complex systems with meaningful amounts of uncertainty over the asset’s lifecycle. Asset management requires making decisions (allocating resources) that are strategic and require System 2 thinking.

Asset management’s focus on whole life costs creates long view decisions with meaningful levels of complexity and uncertainty.

Asset management also requires many incremental decisions along the journey. These allocations of resources are more operational and require System 1 thinking. One issue concerning asset management is that operational decisions need to be aligned with strategic decisions, with their long-term focus based on System 2 thinking. Another less obvious issue is that most operational decisions are based on the decision-maker's beliefs concerning the likelihood that uncertain future events will happen. Prior beliefs and experiences, whether in the form of desirable expertise or undesirable biases, are unfiltered in System 1 thinking.

Back to the conversation example, Jim was caught between his past experiences and intuition (System 1 thinking) and the planning, lifecycle analysis and reasoning (System 2 thinking) that had been performed. He did not want to harm the people or the organization. And Jim felt he needed to pull the trigger. However, this decision was a bigger and longer-term allocation of resources that he had seldom made.

Complexity, Uncertainty and Human Behavior

Paul Schoemaker, an expert in strategic management and decision-making, believes that individuals simply have too many information processing biases and physical limitations to solve strategic problems by themselves. A cross-functional group is the best way to ensure quality decision-making. There are other compelling social reasons for group cooperation, including reinforcement through group involvement, that are also very important to most individual decision-makers when coping with uncertainty and complexity.

One example of the power of group reinforcement is loyalty. Loyalty assures that the values and objectives of the leadership team are preserved, and conceptually assures that the organization survives. However, loyalty among the inner circle also makes change difficult. Loyalty is just one example of why a group’s conclusions are more important than individual preferences when evaluating strategic decisions with complexity and uncertainty.

Jim’s hesitancy to make an irrevocable allocation of resources may have been driven by his own intuitions or fear of harming others, despite what all the logic was telling him. Or, his hesitancy may have been driven by group influences and trying to please his inner circle, although the numbers showed that the new way was better than the old way.

Implications for Asset Management Decision-Making

You will know a decision by an allocation of resources. If you are not given a specific amount of time to work on a project or a specific commitment of funds, then a decision has not been made. Without allocating resources, there is merely an intended course of action or someone simply likes the idea of doing something. Understand at all times where you are on the decision-making continuum.

Most asset management approaches are based on foregoing some short-term benefits at the prospect of bigger, long-term rewards associated with minimizing the total cost of ownership. Many decision-makers do not think this way, in part because they will not be in the same role to benefit from the long-term rewards. Understand every issue in terms of whether the decision-maker is predominately thinking long or short.

Group dynamics are more important in strategic decision-making than individual behaviors. It is one reason why the overworked term culture is so important in asset management decision-making. More practically, the decision-maker’s inner circle should be included, involved and accounted for in the asset management approaches.

Communication is equally important to problem-solving approaches when it comes to asset management decision-making. System 2 thinking, which involves analytics and accounting for a complex and uncertain future, does not come easy for most decision-makers or their inner circle. Seek to involve the decision-maker and the inner circle in the process rather than advocating to an uninvolved group at the end.


Howard, Ronald A. “Decision Analysis: Applied Decision Theory.” Hoboken: Wiley-Interscience, 1966.

International Organization for Standardization. “ISO 55000:2014, Asset management — Overview, principles and terminology.” Geneva: International Organization for Standardization, 2014.

Kahneman, Daniel. “Thinking, Fast and Slow.” New York: Farrar, Straus and Giroux, 2013.

Schoemaker, Paul J.H. “Implications of Decision Psychology for Classical Notions of Rationality.” New York City: Public Affairs Press, 2009.

JD Solomon

JD Solomon, PE, CRE, CMRP, is the founder of JD Solomon, Inc, a company focused on project development, asset management, and facilitation for facilities, infrastructure, and the environment. His technical expertise includes probabilistic analysis, root cause analysis, risk management, and systems engineering. JD's past senior leadership roles include Vice President at two Fortune 500 companies, Town Manager for a unit of local government, and Chairman of a state environmental rulemaking commission. JD is the author of the book “Communicating Reliability, Risk, and Resiliency to Decision Makers: Getting Your Boss’s Boss to Understand.” His new book, “Communicating with FINESSE,” will be released in the Fall of 2022. JD’s education and technical credentials include a BS In Civil Engineering, an MBA from the University of South Carolina, and a professional certificate in Strategic Decisions and Risk Management from Stanford University.

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