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Critical Issues in Asset Management

A number of issues were raised in committee discussions during the development of the standard. Since this committee was broadly representative of the asset management community, it can be assumed that these discussions will be repeated in many organizations and in many forums as the standard becomes more widely known. These issues do not fit neatly into any one of the requirements, but cut across all elements of the management system. It will be helpful to an asset manager to be aware of these issues and to be proactive in addressing them.

Performance vs. Value

This concept is absolutely critical to asset management under the standard, yet the distinction is by no means obvious to most asset managers who have been conditioned to look at asset performance as the bottom line.

In simple terms, performance is measured by output/input, while value is measured by contribution to mission. Performance is one component of value, but a production line that is running very efficiently and producing the wrong product at the wrong time or for the wrong market is not very valuable. This concept is emphasized in the introduction to the standard.

Asset management does not focus on the asset itself, but on the value that the asset can provide to the organization. The value (which can be tangible or intangible, financial or non-financial) will be determined by the organization and its stakeholders, in accordance with the organizational objectives. 38

Consider a basketball player who scores 20 points in a quarter. Are 20 points in the first quarter of a blowout game the same as 20 points in the last quarter of a come-from-behind victory? Is the player who consistently delivers in the first situation as valuable as the one who consistently delivers in the latter situation?

There are two common approaches to conceptualizing value in an organization. The value stream, which is a lean operations concept, focuses on customer satisfaction. The value chain, which is a strategic concept, focuses on competitive advantage. The asset manager should be familiar with both.

Optimizing performance without regard to value can be a trap. In some cases, such as infrastructure, the asset and its performance are major contributors to the value stream. And this is what we are assuming when we equate effective asset management with optimized asset performance. But this assumption is always open to question. Technologies change, markets change and fashion affects demand and therefore value. In the food industry, consumer demand for local and organic has changed the value of some highly efficient methods for producing processed food.

A railroad operating trains from station A to station B, is concerned with the condition of its tracks and rolling stock as contributors to customer satisfaction. On-time performance, comfort, aesthetics, safety, etc., may all be influenced by asset condition. A transportation system, however, is concerned with moving people from area A to area B. The collection system and the transfer system needed to get passengers on the train may be more expensive, time-consuming and complex than the train itself. Ticket purchase and schedule information are also important parts of the system. The value stream portrays all of these elements in terms of their contribution (positive or negative) to customer satisfaction.

In the consumer packaged goods industry, the distribution chain may be the most critical aspect of competitive advantage, and manufacturing excellence will be assumed. Asset contributions to value occur in many places along the value chain.

Figure 8: A value chain view of asset management

In strategic terms, performance is backward looking, while value is forward looking.

  • Assets provide leverage, which may be more important than performance;
  • Assets provide opportunity, which can be a large contribution to value;
  • The location of a physical asset may outweigh its current performance;
  • Risk avoidance provides value, even if the stated risks never materialize;
  • An asset in a production situation may not be very efficient, but if it is only used occasion-ally and is available when needed, it provides value.

In general, managers look at performance, while executives look at value, but the new asset manager needs to become fluent in both, and monitor the role of each major asset system in the organization’s value chain.

Tip from  The (New) Asset Management Handbook Revised: A Guide to ISO55000

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