10695 IAM Beginners Guide Low 9

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An Introductionto AssetManagement

A simple but inormative introductionto the management o physical assets

By Robert Davis

Recommended

The Institute of

Asset Management


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Published by blah d blah design ltdSubsidiary o EA Technology Ltd

Capenhurst Technology ParkCapenhurst

Chester

CH1 6ESwww.eatechnology.com

Copyright Robert Davis

978-0-9571508-3-6


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Foreword

As the serving President o the Institute o AssetManagement, I am delighted to recommend thisshort book.

As a past President o the IAM, Robert brought tothe subject o Asset Management his wealth oexperience in business management and marketing.This helped enormously in developing the IAMand the eld o Asset Management, rom a purely

engineering and technical ocus to one thatrecognises the need to engage across disciplines.Asset Management is increasingly well understood bythe business community as a strategic and businessled discipline, where the value o assets is theircontribution to achieving explicit business objectives.

I you are encountering Asset Management or therst time, this book should be a helpul introductionto the key topics. It should also highlight the benetswhich are there to be gained by understanding andapplying the undamental principles. O course, iyou become interested or need to know more thereis a great deal to be explored and I look orward towelcoming you into our community!

We are very grateul to Robert or making his bookreely available and we would encourage you to passit on to anyone you think might benet.

Stephen MorrisPresident o the Institute o Asset Management

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An Introduction toAsset ManagementA simple but inormative introduction

to the management o physical assetsBy Robert Davis

We are all asset managers. The last time you hadyour car serviced or decorated your house, you weremanaging an asset!

This book explores the discipline o AssetManagement and demonstrates how it can be usedto make better investment decisions.


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Do you work or a company that owns ormanages physical assets? Would you like towork or a utility? Or have you just heard theexpression Asset Management and want toknow more about it? I the answer to any o

the above is Yes!, then this book is or you.Why does Asset Management matter? Why isit useul? How does it improve organisationaleectiveness? How will it help me as an engineer,accountant, operational manager or director?This book will address these issues and signpost

you to sources o inormation which can deepenyour understanding and help you on your AssetManagement journey.

In writing this book, I have beneted rom thewonderul intelligence and experience shared with

me during my years as President o the Institute oAsset Management by a number o world leadingexperts in the eld, as well as drawing on my twentyyears plus experience o managing property, plantand equipment assets.

I am indebted to the people who have generouslygiven their time to edit this document, including PaulBarnather, Tom Elner, Madi and Deb Davis andJo Parker.

For more inormation on the Institute o Asset

Management, go to www.theIAM.orgI can be contacted via:[email protected]


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Contents

Page

5. Introduction

6. What do we mean by physical asset?

7. What Asset Management is.and isnt

10. Why is Asset Management important?

11. The asset lie cycle

13. Understanding risk

15. So what does an asset manager do?

17. How good do you need to be?

19. More detailthe subject areas

21. Glossary o Asset Management terminology

25. Where to next?


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Introduction

The management o physical assets is like any otherevolving management discipline. It suers romterminology overload. The newcomer to the subject

may struggle to understand the basics. This is partlybecause o the unamiliar context, but also becausethere are still relatively ew people around to ask!This book will give newcomers a starting point romwhich to develop their knowledge. For those justpast the starting point, it might give some structure

to their understanding. For the well-seasoned assetmanagers out there, I hope it provides either a eelingo satisaction, or better still, grounds or a gooddiscussion!

Managing assets eectively or utilities is not optional

these days. Across the globe, every society is acedwith a signicant asset management challenge:

Emerging economies are trying to identiy thelowest cost / highest return investments toachieve maximum immediate benet

Rapidly developing countries are aced withunderstanding the lie cycle costs o theirinrastructure

More mature economies are trying to nd wayso extending the lie o their inrastructure and

also meet major global challenges like climatechange

Asset management thinking can provide structureto assist in all o these scenarios. It can improve thequality o lie or millions o people. It is an importantcog in the big machine o our evolving civilisation.

Done well, it impacts positively on the well-being othe planet and everything on it.


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What do we mean byphysical asset?

1. Dictionary Denition o Asset

Any item o economic value owned by anindividual or corporation

2. Why physical asset?

We ARE reerring to items such as buildings,utility inrastructure such as electrical cables,water pipes, rail lines and metro tunnels, andindustrial assets such as oil rigs, chemical plantsand process plant conveyors

We are NOT talking about nancial assets,human assets or personal assets, as reerred toin their normal context but we may be talkingabout non-physical things that aect thesephysical assets: skills, data, systems and sotware,or example

3. Other eatures o a physical asset include

Its value may be represented on acorporations balance sheet

It may be listed in a register (asset repository,see glossary)

Its value normally depreciates over time

Its condition normally deteriorates with timeand / or use

It is likely to benet rom good stewardship

It plays some role or has a unction in thedelivery o a process or service

There are oten lots o similar items aroundthe globe which can benet rom similarmanagement


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What Asset Managementis.and isnt

1. Asset Management:

Is a mind-set which sees physical assetsnot as inanimate and unchanging lumps ometal / plastic / concrete, but as objects andsystems which respond to their environment,change and normally deteriorate with use,

and progressively grow old then ail / stopworking / die!

Is a recognition that assets have a lie cycle

Is as important or those working in nanceas it is or engineers

Is an approach that looks to get the bestout o the assets or the benet o theorganisation and/or its stakeholders

Is about understanding and managing therisk associated with owning assets

One o the challenges with managing an asset is

that it is not sentient. It does not keep managementedicts. It does not respond to the economy or politics.But it does respond to how it is treated and used.This creates a challenge or management. How doyou get the right behaviour rom an entity that wontlisten?


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A key principle in Asset Management is LINE OF

SIGHTthat means:

An approach within an organisation thatlooks to line up the work that is donedirectly on assets with the objectives o thatorganisation

A discipline which recognises,accommodates and aligns the risk o owninga particular asset with the goals o theorganisation that operates the asset

Some Examples

Eg.1. A good asset management decisionmight be to purchase an expensive, high

specifcation stainless steel piping system withinan industrial process. Whilst the initial cost ishigher, the maintenance costs may be lowerand the expected lie 3 times longer, the risk o

disruptive ailure may be lower and thereorethe risk to the organisation rom a perormance,health & saety and environmental perspectiveconsequently much lower. The total lie cyclecosts, thereore, may be lower and the total riskto the organisation through purchasing the more

expensive piping system thereore represents agood asset management decision.

Eg.2. A poor asset management decision mightbe to reduce the requency o maintenanceactivity on an asset without appreciating the ull

impact o doing so.

Whilst there may be a short term nancialbenet, the long term cost to the organisation,i the asset prematurely ails, might substantiallyoutweigh this benet. O course, maintenance

is recognised as a means o introducing ailures,so proper investigation may prove that reducingmaintenance requency is a net benet to theorganisation!


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2. Asset Management:

Is not just about maintenance. Maintenanceis part o the stewardship o assets, butso is design, procurement, installation,commissioning, operation, etc. See adescription o the Asset Lie Cycle later

Is not a substitute or quality management.Asset Management, like other managementprocesses, should be subject to scrutinythrough a quality process to ensure rigour

Is not a project management system

Is not just or engineers. Everyone workingin a company that owns or operates assetsshould be interested. This includes thoseworking in procurement, nance, personnel,service, planning, design, operations,

administration, leadership, marketing andsales

Is not just an accounting exercise. Whilst itmay help you understand the deteriorationand hence depreciation o an asset, it is ointerest to every part o the organisation

Is not a purely academic discipline. Whilst itis a worthy subject or academic review andadvancement, it is primarily a pragmatic,hands-on subject


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Why Asset Management isimportant

Asset Management is important because it can help

organisations to:

1. Reduce the total costs o operating theirassets

2. Reduce the capital costs o investing in theasset base

3. Improve the operating perormance otheir assets (reduce ailure rates, increaseavailability, etc)

4. Reduce the potential health impacts ooperating the assets

5. Reduce the saety risks o operating theassets

6. Minimise the environmental impact ooperating the assets

7. Maintain and improve the reputation o

the organisation

8. Improve the regulatory perormance othe organisation

9. Reduce legal risks associated withoperating assets

The key to good Asset Management is that itOPTIMISES these benets. That means that assetmanagement takes all o the above into account anddetermines the best blend o activity to achieve thebest balance or all o the above or the benet othe organisation.

Asset Management is explicitly ocussed onhelping organisations to achieve their defnedobjectives and to determine the optimal blendo activities based on these objectives.


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Asset lie cycle

The AssetLife Cycle

Acquire

Dispose

Commis

sio

n

O

perate

Understanding that assets have a lie cycle is a keyconcept within Asset Management and is thereoreworthy o scrutiny.

There are dozens o dierent ways o representingthe lie cycle, but the diagram above capturesa simple representation o it. The arrows dontrepresent the length o time spent in each phase!

1. Acquire

This covers everything the goes into planning,designing and procuring an asset. Some lie cyclediagrams capture Planning as a separate unction.Proper application o these activities ensures that theasset is t or purpose.

2. CommissionThis covers the activities o installing / creatingor building the asset and ensuring that it is ullyunctional. It is a recognised act that there is a higherincidence o ailure ater rst installation / buildingo an asset (Inant Mortality, see glossary). This isrefected in the need or the commissioning stage inthe lie cycle to oversee the initial operation o theassets.


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3. Operate

This is normally the bulk o the lie cycle or an assetduring which it provides the unction or which itwas designed. During this period the asset shouldbe subject to appropriate monitoring, maintenance,reurbishment and potential upgrade to meet any

change in condition or operational requirement.For many assets, this phase is decades long. It mayeven be centuries. It is the phase that many engineersare most amiliar with.

4. Dispose

This is oten the most overlooked phase. Assets canlast beyond a human lietime and it can be dicultto consider asset disposal when it is so ar into theuture. Asset Management teaches us that we ignoreany stage o the asset lie cycle at our peril.

This is a key period within an assets lie. With someassets, e.g. in the nuclear industry, this can be anextended and highly critical period. Key activitiesduring this period include the eective removal othe asset rom operation; the disposal or recyclingo the asset or its components; and the eed in

to the planning or the replacement asset (i areplacement is required) to determine the operationalrequirements based on the eectiveness o operationand the ailure modes encountered.


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Understanding risk

1. Dictionary defnition o risk is:

(Exposure to) the possibility o loss, injury, or

other adverse or unwelcome circumstance; achance or situation involving such a possibility.

2. The management o risk within assetmanagement is critical. Why? Because assetmanagers are responsible or OPTIMISINGoutcomes or the good o their organisation, and

thereore need to make judgements about whichactions best achieve the right blend o outcomesbased on organisational objectives.

To make these judgements, they need to predicthow their actions will impact on the uture

perormance o the assets. They need to quantiyboth the probability o their actions (or inactions)causing a change in perormance and then theyneed to determine the impact or consequenceso that change in perormance.

Risk = ProbabilityXConsequence(o ailure) (o ailure)

3. For example an asset manager is responsible ormaintaining the building which houses somecritical electrical equipment. Water ingress intothe building would result in certain ailure othe equipment and the consequence would bethat several thousand people would be withoutpower or a period o 24 hours. How does theasset manager quantiy the risk associated with

water ingress? How does he/she determine thebest way to minimise the cost to the organisationwhile maintaining perormance?

continued...


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Two orms o potential water ingress exist:

Leakage o rain water through the roo

Flooding rom a nearby river

Roos o the type on the building have a design lie o25 years and its current condition suggests that it is

likely to leak in the next 5 yearsThe consequence in each ailure mode is the same.The probability o the roo leaking is 25 timeshigher than the probability o the river fooding. Therisk associated with the roo leakage is thereore 25times higher. So the optimal mitigation to reducethe risk o ailure o the electrical plant as a result owater ingress is to repair the roo! Easy!

In the real world, we tend to ocus on one solutionto manage risk: either manage the probability ormanage the consequences. These solutions oten

rest with dierent departments, dierent budgetsor even dierent organisations. The optimumreduction in risk comes when we identiy where therisk is coming rom and invest in and manage boththe probability and the consequences accordingly.Correctly addressing this challenge is at the heart o

asset management discipline.


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So what does an assetmanager do?

Drawing on the Institute o Asset Managements

Competences Framework, 2008 as a reerence point,there are seven key activities that asset managers getinvolved in. It is important to understand that all othese activities overlap:

1. Developing Policy

The Asset Management Policy is the linkbetween the Organisational Plan (that is thetop level business plan in a company) andthe Asset Management Strategy. It is typicallya set o principles or guidelines to steerAsset Management activity to achieve the

organisations objectives. It specically covers thewhat and the why.

2. Developing StrategyThe Asset Management Strategy directs theorganisations Asset Management activity; it willdetermine the high level Asset Managementobjectives that are needed rom the activity todeliver the organisations objectives; it will denethe approach to planning that will be taken.

3. Asset Management PlanningAsset Management Planning looks at considering

all the options or activities and investmentsgoing orward and then putting together a seto plans which describe what will be done whenand by whom. The asset manager ensures thatthe plan delivers what is required o it by thestrategy.

4. Delivering the PlansThis is the bit where work is actually done on theassets, whether assessing or monitoring them,maintaining or repairing them, reurbishing or


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replacing them. This activity clearly needs to

include the appropriate controls to ensure thework is done eciently and that inormationgathered is ed back into the strategy andplanning activities.

5. Developing People

This activity is specically about developing theskills and competences o people to better deliverAsset Management activities. It spans rom theboard room to the tool box and also throughthe supply chain. As well as individual skills, itlooks at the culture within an organisation and

how change can be managed to achieve optimalresults or that organisation.

6. Managing RiskUnderstanding risk is a critical concept in AssetManagement and is a key unction and area o

competence. Its ocus is on being able to assessthe risk o action or inaction on the perormanceo assets in the context o the organisationscorporate objectives.

7. Managing Asset InormationCollecting and collating the right inormation to

inorm Asset Management decisions is crucial toachieving Asset Management success. Too muchdata conuses the picture and costs money tocollect. Too little data results in decisions made inthe dark (or at best the twilight!).

Ensuring that the right people have the rightinormation to make the best decisions is key.


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How good do you needto be?

Asset Management Maturity

Compliancewith BSI PAS 55

Limit of knownAsset

ManagementBest Practice

Innocent

Learning Applying Embedding Integrating Optimising

Aware Developing Competent Aspiring Exellent

Beyond BSI PASS 55

The Institute o Asset Management describes arange o maturities o asset managers. It capturestheir skills, experience and level o development andtheir level o maturity compared to the BSI PAS 55

standard, as shown in the diagram above.


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8. Good Asset Management practice advises thatyou should only be as sophisticated as you needto be. In other words, high levels o maturity inAsset Management practices or an asset basewhich is o low complexity and low criticality will

attract unnecessary cost. Conversely, immatureAsset Management practices on complex orcritical asset bases introduces huge risk to anorganisation.

This concept is captured in the diagram below:

Low

AssetComplexity

Asset Criticality

High

Competent

Competent

Sophisticated

Simplistic

(PAS55)

(PAS55)

(Enterprise System)

(Paper Based)

Low High


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More detailsthe subject areas

The Institute o Asset Management has identieda range o subject areas that justiy urtherdevelopment and ocus.

Not every organisation will require excellence inevery one o these areas. Nevertheless, this is a veryuseul checklist and asset management organisationsshould, at the very least, consider what level o

competence is appropriate. Where necessary, skillsand expertise can be developed in the areas deemedcritical or a successul outcome.

Asset Management Strategy and Planning

Asset Management Policy Asset Management Strategy Demand Analysis Strategic Planning Asset Management Plans

Asset Management Decision-Making

Capital Investment Decision-Making Operations & Maintenance Decision-Making Lie Cycle Cost and Value Optimisation Resourcing Strategy and Optimisation Shutdowns & Outage Strategy and Optimisation Ageing Assets Strategy


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Liecycle Delivery Activities

Technical Standards & Legislation Asset Creation & Acquisition Systems Engineering Maintenance Delivery

Reliability Engineering and Root Cause Analysis Asset Operations Resource Management Shutdown/Outage Management Incident Response Asset Rationalisation & Disposal

Asset Knowledge Enablers

Asset Inormation Strategy Asset Knowledge Standards Asset Inormation Systems Asset Data & Knowledge

Organisation and People Enablers

Contract & Supplier Management Asset Management Leadership Organisational Structure, Culture, Roles &

Responsibilities Competence & Behaviour

Risk & Review

Criticality, Risk Assessment & Management Contingency Planning & Resilience Analysis Sustainable Development Weather & Climate Change Asset & Systems Perormance & Health

Monitoring Asset & System Change Management Management Review, Audit and Assurance Accounting Practices Stakeholder Relations


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Glossary o AssetManagement terminology

AcquireBuy an asset based on proper understanding o its liecycle

AgeingGetting old, specically beyond the design lie o theasset

Asset RegisterA central database o inormation about your assets

Asset RepositorySame as Asset Register

Asset Inormation Systems

Can be paper based, but normally a sotware systemor ensuring the right asset inormation gets to theright people

Asset Management PlanA coordinated approach within an organisation todene and deliver a set o actions towards achievingthe objectives set out in the Asset ManagementStrategy

Asset Management StrategyThis denes the objectives o the Asset ManagementPlan in the context o the Organisational Plan, the

Asset Management Policy and the approach that willbe adopted within the Asset Management Plan toachieve these objectives

Asset Management PolicyA set o guiding principles which steer the Asset

Management activity at a high level. It describes thegeneral approach to Asset Management, illustratingwhat is important to an organisation


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Bath Tub Curve

Assets ail early in lie or later in lie, and not sooten in the middle

Balanced Score CardA standardised approach to assessing the value to anorganisation o dierent activities, e.g. maintenance

BenchmarkingComparing perormance, oten between companiesin similar sectors

BSIPAS55This is a publicly available specication seeking

to dene a standard approach to the AssetManagement discipline. Available rom BritishStandards Institute or the IAM

Capital ExpenditureMonies spent on equipment or plant which normally

eature on a balance sheet as capitalCondition MonitoringAssessing an asset to understand how it is likely toperorm in the uture

Consequence

This is the outcome or impact o an AssetManagement decision

DeectA ault in specication or perormance o an asset

Depreciation

A reduction in value o an asset based on its age orcondition

DisposeRemove asset rom service and ensure it isappropriately recycled, buried, etc

Fault Tree AnalysisA graphical means o nding all o the potentialcauses o a ault


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Failure

The point at which an asset stops perorming theunction or which it was designed

Failure ModeA way in which an asset stops unctioning

FMEA (Failure Mode Eects Analysis)A means o assessing how assets can ail and theimpact ailure can have on the operation o the plant

Health IndexA single number which describes the overallcondition o an asset

Inant MortalityThe occurrence o ailure early in an assets lie

InterventionMaintenance, reurbishment, repair or disposal oan asset

Key Perormance IndicatorsThose perormance criteria against which the successo an activity is measured

Lie CycleThe stages o an assets involvement with a company,

rom acquisition through commissioning andoperation to disposal

MaintenanceAn intervention on an asset to improve its operationor ensure its continued good operation

Operational ExpenditureMonies spent on activity which cannot be capitalisednormally associated with the servicing, conditionmonitoring and maintenance o an asset or service

Physical Asset

A tangible, man made object that has a specicunction, normally within a broader system

Plan Do Check ActA systematic process which seeks to ensure quality aswell as continued improvement


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Preventative Maintenance

An intervention on an asset taken in advance o aailure to reduce the chances o ailure

RCMReliability Centred Maintenance is an approach whichtargets intervention on assets based on the known

historic perormance o that or similar assetsRepairAn intervention on an asset taken ater it has ailed

Repair, renovate, reurbishAn intervention which improves the perormance and

condition o an asset to upgrade or retain desiredperormance

ReplaceSee Dispose above

Risk

The potential or an adverse circumstance to arise

Risk FactorsThe categories or types o risk that may occur,e.g. relating to perormance, health and saety,environmental, etc

Root Cause AnalysisA thorough assessment o all o the actorsinfuencing the occurrence o a ault or ailure

Shutdown / OutageA period, either planned or otherwise, during which

asset interventions occurTime Based MaintenanceIntervention on an asset based on a prescribed timeperiod during which the work is to take place

Whole Lie Costing

An understanding o the ull economic impact oowning an asset, covering all stages o its lie cycle


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Where next..?

1. The web site o the Institute o AssetManagement is a great place to start:www.theIAM.org

2. BSI PAS55:2008. This is a publicly availablespecication which denes a standard approachto the Asset Management discipline. Availablerom British Standards Institute or the IAM

3. Asset Management Competences Framework.

Available to members via the IAM website

4. Asset Inormation Guidelines. Available tomembers via the IAM website

5. BSI PAS55:2008 Assessment Methodology.Available to members via the IAM website

6. Books:

Asset Management: Whole-lie Managemento Physical Assets, Chris Lloyd, et al

Strategic Asset Management, the Quest or

Utility Excellence, Clive Deadman7. Asset Management Council, Australia. Excellent

glossary o asset management terms andevolving body o knowledge on their website


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Notes..


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Notes..


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About the IAMThe Institute o Asset Management (IAM) is the independent, not-or-prot, membership organisation or those involved in acquisition, operation and care o physical

assets, particularly critical inrastructure; and proessionals dedicated to urthering knowledge and

understanding o Asset Management.Membership benefts Conerences, seminars and social events with discounts to

partner events Assets magazine FREE to Members Personal learning and Continuing Proessional Development

(CPD) Projects to develop standards and guidance on best practice

and assessment Endorsement o Training Providers and PAS55 Compliance

Assessors Advancement and promotion o knowledge and

understanding o Asset Management everywhere Promoting the development o external qualications Directories and advertising on our website and Member-Only

access to downloads and Knowledge Centre Proessional recognition (MIAM, FIAM accreditation or

Members and Fellows respectively)

Our Objectives Advance the science and practice o Asset Management or

the public benet Promote and recognise high standards o practice and

proessional competence Generate widespread awareness and understanding o the

discipline.

Who should join?Proessionals in any discipline who are involved in promoting anddelivering more eective Asset Management whether in thepublic, private or academic sectors.Successul Asset Management requires a combination o skills,

techniques and knowledge, particularly nance and we welcomeengagement and collaboration with other expert bodies andinterested individuals.

Join UsYou can join as an Individual Member, and your company ororganisation can join as a Corporate Member. Membershipoptions, criteria and application details can be ound on the IAMwebsite:

Please visit us at www.theIAM.org

the professional body forwhole life management of

physical assets

The Institute of

Asset Management


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Outside the UK +44 (0) 151 347 2394and ask for Robert Davis, or email

[email protected]

ASSESSOR

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10695 IAM Beginners Guide Low 9