Asset Management summaries

Table of ContentsLecture week 1.......................................................................................................................................2

Hicks & McGovern – Product life cycle management in ETO industries...........................................2

Schuman & Brent – Asset life cycle management: towards improving physical asset performance in the process industry............................................................................................................................3

Lecture week 2.......................................................................................................................................9

Fabrycky & Alsem – Estimating cost and economic elements...........................................................9

Chan – Investment appraisal techniques for advanced manufacturing technology (AMT): a literature review...............................................................................................................................................12

Kumar et al. – An investment decision process: the case of advanced manufacturing technologies in Canadian manufacturing firms.........................................................................................................15

Woodward – Life cycle costing: theory, information acquisition and application............................17

COT Case Conclusions.....................................................................................................................20

Lecture week 3.....................................................................................................................................21

Archer & Ghasemzadeh – An integrated framework for project portfolio selection.........................21

Ratnayake & Markeset – Asset integrity management for sustainable industrial operations: measuring the performance..............................................................................................................24

Lecture week 4.....................................................................................................................................26

Muchiri & Pintelon – Performance measurement using OEE...........................................................26

Muchiri et al. – Development of maintenance function performance measurement framework and indicators..........................................................................................................................................27

Waeyenbergh & Pintelon – A framework for maintenance concept development............................32

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Lecture week 1

Hicks & McGovern – Product life cycle management in ETO industriesThe markets for ETO products are mature and cyclical with supply often exceeding demand. Demand has shifted from specific items of plant towards turnkey contracts and through life solutions. Some ETO companies start alliances to share risks and benefit from existing complementary assets to meet customer requirements.

ETO companies are divided in four ideal types:

1. Vertically integrated2. Design and assembly (with component manufacturing outsourced)3. Design and contract (all physical processes outsourced)4. Project management (with all physical processes and design outsourced)

There are three stages of interaction between ETO companies and their customers:

1. Relationship marketing that enables market trends, technical and non-technical requirements and individual customer’s evaluation criteria to be identified

2. Tendering after an invitation to tender has been receiveda. The cost of producing a tender may be very substantialb. Typically 85-90% of cost is committed at the tendering stagec. The tendering success rate was often less than 30%d. Companies have a limited tendering capacitye. Selecting which contract to tender for is an important strategic choice, which is

informed by the relationship marketing activity3. Activities after the contract has been awarded: project planning, detailed design,

procurement, manufacturing, assembly, construction and commissioning. In some cases, there are subsequent activities relating to operations, maintenance and decommissioning activities.

The committed cost associated with a design rises steeply during the early stages of design, although the incurred cost is low. Errors, ambiguities or misunderstandings in requirements definition at the design stage can commit substantial costs, which are realized during manufacturing and later stages of the product life cycle. The effective management of the specification and design processes is crucial because 75-80% of avoidable total costs are controllable at the requirements definition and design stages. Due to the competitive nature of tendering, design configurations that result in excessive costs are unlikely to be successful.

Managing specifications is important for defining requirements in terms of technical attributes and performance. A specification will typically contain sections relating to:

Technical, performance and quality requirements Project management Contract and commercial conditions

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Specifications determine the power balance between customers and suppliers and are used by customers to mitigate and manage risk. As specifications are developed early in the design process they have a large influence on product performance, risk and capital and operating costs.

Design activities have two forms, incremental innovation – which involves product development through the modification or customization of existing products to meet customer requirements – and radical innovation – which involves the creation of new types of product. The last has limited amount of knowledge and the level of risk and uncertainty is high.

Design changes arise when the specifications are uncertain or when customer requirements change. The design of complex systems requires considerable interaction between business functions. Failure to manage change effectively is a primary cause of project failure.

Stage-gate systems recognize that product innovation is a process that can be managed. This is important to minimize risk, design change and project failure. The gates are built in as quality check points that ensure that project leaders and teams meet the required level of execution. The five phase are:

1. Feasibility2. Selection3. Definition4. Execution5. Operations

Capability maturity models are used to assess the capability of an organization to perform the key processes required to deliver a product or service. CMM is used as a framework for managing Engineering, Procurement, Construction and Maintenance processes for companies managing multiple projects. Three typical capabilities of EPCM companies are:

Functional capabilities: include engineering, procurement, planning, configuration and change management, quality assurance and control.

Integrated capabilities: cross-functional, goal dependent and important for a significant part of the ETO life cycle

Learning capabilities: include functional and cross-functional learning

Schuman & Brent – Asset life cycle management: towards improving physical asset performance in the process industryQuestion from lecture slide about this article:

1. Explain the specific characteristics of the Asset Life Cycle Management (ALCM) approach.2. Discuss advantages and challenges of the ALCM approach.

Core message – The ALCM model proposed in this paper, guides decisions made during the early stages of a project in the process industry in order to increase the long-term performance of assets at reduced life cycle costs (LCC). However, this model cuts across all strategic,

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operational and tactical levels and a distinction between these levels must be recognized from an overall management perspective.

Asset management - A strategic, integrated set of comprehensive processes (financial, management, engineering, operating and maintenance) to gain greatest lifetime effectiveness, utilization and return from physical assets (production and operating equipment and structures).

(Process) Asset life cycle phases – To gain even greater value, the asset management process should extend from design, procurement and installation through operation, maintenance and retirement. This is over the complete life cycle of an asset. The figure below presents the (process) life cycle phases of asset systems:

Question 2 Challenge: The challenge in managing the entire asset life cycle effectively lies in the fact that costs are isolated and addressed in a fragmented way through the various stages.

Acquisition phase: During the acquisition phase, the emphasis is on implementing a technology within the boundaries of the approved budget and prescribed time frame, while ensuring that the facility conforms to the technical specifications. Responsible department: R&D or technical department.Utilization phase: The primary drivers of the utilization phase are the associated costs of product distribution, spares and inventory, maintenance, training, etc. Responsible department: operations department.

Question 1: Characteristics of the asset life cycle management (ALCM)

Goal of paper – This paper therefore proposes a holistic asset life cycle management (ALCM) model for physical assets in the process industry by aligning and integrating the relevant elements of project management, logistics engineering, systems engineering, maintenance management and life cycle costing. This ALCM model optimizes the maintenance prevention process during the acquisition phase, thereby reducing maintenance costs during the utilization phase. The proposed ALCM model for the process industry integrates 3 different frameworks. These are

The asset life cycle

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Project Management framework Operational reliability framework

The asset life cycle framework is described above; hereafter the project management framework and the operational reliability framework will be described.

Project management framework - A basic project management framework, which is practitioner-oriented and follows the described straightforward approach to technical project life cycles serves as the foundation of the proposed ALCM model. The framework divides a project into different “stages”, which are separated by “gates”. How this is implemented in the ALCM will become clear in the ALCM model.

Operational reliability - A flexible process that optimizes people, processes and technology, and thereby enabling companies to become more profitable by maximizing availability and value addition of producing assets. It is based on the following four key elements that should be addressed jointly to ensure long-term continuous improvement towards optimization:

1. Human reliability2. Equipment reliability3. Equipment maintainability4. Process reliability

The four elements are summarized in the following figure:

ALCM performance measures - Performance measurements that will be used during the operation and support phase of an asset’s life cycle will determine decisions during early stages of the asset project. It is, therefore, very important to identify the measures to be used and the applicable targets and benchmarks as accurately as possible. As the project progresses and more information on asset details become available during the detailed design stage, the expected maintenance cost should be re-calculated more accurately based on reliability strategies.

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Proposed ALCM model – The proposed ALCM model is given in the appendix, so that it can be kept next to the explanation because of its size. The description of the proposed ALCM model is explained based on the asset life cycle phases.

Phase 1 – Identify needs for assetsThe focus during this project stage is on investigating and evaluating the process requirements and there is very little detail on the actual assets.

Phase 2 – Conceptual and preliminary design(1) At this early stage, concerns are addressed and practical obstacles removed as production and maintenance viewpoints are allowed to influence decisions. Initial assumptions are made regarding future human capacity and the skills required for operating and maintaining the facility.

(2) The process flow diagrams (PFDs) developed during this stage are an important facet of process reliability as it illustrates the basic flow of the process. The maintenance approach is developed during this stage and includes assumptions on the levels of maintenance support required and basic responsibilities for support.

(3) A high level system breakdown structure (SBS) is derived from the PFDs to visualize the functional position of a piece of equipment according to the process in which it operates. The first round criticality ranking is drafted, based on the process functions of major systems or equipment.

Phase 3 – Detail design and development(1) The PFDs are further developed into mechanical flow diagrams (MFDs) that graphically illustrate all equipment and interconnecting piping, materials, design and operating data, location of instruments and pressure relieving devices.

(2) All levels of the SBS are completed and the criticality ranking revisited to include all equipment not yet covered in the previous stage. Equipment identified as critical are subjected to a failure mode effect analysis (FMEA) to identify possible failure modes.

(3) RCM logic is followed, whereby preventive and predictive maintenance tasks are identified that will detect, mitigate or prevent the anticipated failure modes from occurring.

(4) If it is found that it may not be cost-effective to operate specific equipment within the expected reliability parameters, alternative solutions should be considered. Trade-offs between initial capital expenditure and operation and maintenance costs should be analyzed and the best solution selected.

(5) The reliability strategy results in schedules and task lists that can be entered into the computerized maintenance management system (CMMS). Although it is not always possible

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to populate the CMMS at this stage, the intention should be to do it as early as possible, as it is the easiest way to quantify the reliability strategy.

Phase 4 – Construction and/or production(1) As the physical plant nears completion, the operating and maintenance personnel become fully involved.To facilitate human reliability, operating and maintenance personnel are trained during this stage.

(2) It is good practice to conduct cost-risk studies to assist in deciding on whether and how many expensive, slow moving spares should be kept. Ideally, all spare parts must be on site prior to start-up to prevent any unnecessary downtime. Standardization and interchangeability are considered to reduce the amount of stock held and the number of maintenance procedures.

(3) Specialized tasks, required for the future maintenance of the equipment, are identified and special tools procured or constructed during this phase to ensure that all equipment can be properly maintained after start-up. As part of the human reliability component, the necessary maintenance training should also be completed during this stage.

(4) Another emerging trend is to enter into a service contract with a supplier whereby the supplier is held responsible to maintain the equipment.

(5) At the end of the stage all equipment should have a suitable reliability strategy and the CMMS must be fully populated to implement the strategies directly after start-up.

Phase 5 – System utilization and life cycle support(1) Operating the plant within the design parameters supports process reliability during system utilization. During the previous stages these parameters were defined and used to develop reliability strategies. It is now required to operate the plant within these parameters.

(2) Work management plays an important role in reducing mean time to repair (MTTR), the prime measurement for equipment maintainability (See operation reliability framework)

(3) The reliability strategies that were developed and entered into the CMMS during the previous stages are implemented during the system utilization and support phase.

(4) An important aspect during this stage is the collection of failure data. The operators gather the data on the plant and feed it into the CMMS in order to build the foundation for reliability analysis. This data is used to evaluate whether the reliability strategies are effective or needs to be revised. It is also the source data for conducting root cause failure analysis with the aim to eliminate defects.

Phase 6 – Retirement

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During all stages of the system development, possible (partly) retirement should be kept in mind, and the system should be designed such that, if required, it can be disposed of at minimum cost in the most environmentally responsible manner. If the retired system needs replacement, the complete project management framework and corresponding system development steps are followed again.

Conclusion - Within an increasingly competitive global economy that enforces the maximizing of cost savings with subsequent profit increases, successful companies have demonstrated an understanding and commitment to two key issues that have been identified: increased productivity and growth.

It is proposed that both of these objectives can be achieved if new projects are identified and executed while simultaneously focusing on optimizing the value from assets over the life cycle of a facility in the process industry.

Limitations - The ALCM model must be further tested within the process industry to determine if the holistic approach does overcome the disadvantages that cause the maintenance models not to address PM adequately in the acquisition phase of assets.

Also, in its present form, the ALCM model focuses on the total maintenance costs only. Additional aspects of corporate sustainability must be considered in terms of asset performance and the model must be revised accordingly.

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Lecture week 2

Fabrycky & Alsem – Estimating cost and economic elementsEstimating in the physical environment approximates certainty in many situations. Much less is known with certainty about the economic environment within which life-cycle costing must be done.

Cost estimating methods

A cost estimate is an opinion based on analysis and judgment of the cost of a product, system or structure. Can be arrived at in formal or informal manner by several methods, which all assume that experience is a good basis for predicting the future. This however depends on the situation.

Estimating by engineering procedures

Estimating by engineering procedures involves an examination of separate segments at a low level of detail. It begins with a complete design and specifies each task, equipment and tool need, and material requirement. Costs are assigned to each element at the lowest level of detail. These are then combined into a total for the product and system. This may however require more hours than are likely available. Also, combining thousands of estimates into a whole can be wrong, as it often turns out to be greater than the sum of its parts. You can’t include activities that are unknown, and often there are labor elements which are factored in as a percentage of the detail estimates. Thus small errors can lead to large errors in the total cost estimate. Another source of error can be the significant variability in the fabrication of successive units.

Estimating by analogy

Useful when entering into a new activity. Difference between macro level (whole new market/product cost estimate) and micro level (e.g. labor hours for a similar job).The basis for the estimate is the similarity that exists between the known item and the proposed part. Major disadvantage is the high degree of judgment required. However as costs of this methods are low, it can be used to check on other methods. Besides it’s often the only method available in a preliminary stage of development.

Parametric estimating methods

Finds a functional relationship between changes in cost and the factor upon which the cost depends such as output rate, weight etc. Utilizes statistical techniques ranging from simple graphical curve to multiple correlation analysis. Is often the preferred method, but the needed data is not always available.

Application of estimating methods

Industry wide labor and overhead rates can be obtained from statistical publications and used to give a rough cost estimate for a given item. As more information is known, more specific

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data can be used. During the early planning stages, available data is limited (use parametric cost estimating). As the system design progresses, more information becomes available (analogous cost estimating). As the system design becomes firm, design data are produced which allow for detailed estimates (estimate by engineering procedures) (figure 1).

Developing cost data

In developing cost data for a life-cycle cost analysis, all possible data sources to determine what is available for direct application in support of analysis objectives should be investigated. If required data is not available, parametric cost estimating techniques may be appropriate.

Cost data requirements

It is important to acquire the right type of data in a timely manner, in a manageable format. Too few or too much data can result into poor decisions. Definitions of goals and guidelines, combined with the identification of specific evaluation criteria, will normally dictate the data output requirements for the lifecycle cost analysis.

Sources of cost data

Figure 2 shows sources of cost data.

Existing data banks

Existing information on similar systems may be used. Often adjustment factors are necessary to compensate for differences in technology, configuration, projected operational environment

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and time frame. Including in this data standard cost factors which have been derived from historical experience can be applied to specific functions or activities.

Total cost of ownership in practice

Table 1 summarizes the advantages of limitations of the various cost estimation techniques. Cost is a measure of resource usage, it never includes all possible elements but must include the most important (Barringer 1998). The cost factors considered depend on the stage in which a model is used, kind of information extraction, data input and the asset being designed. The object of maintenance and operation in question, i.e. component level, aggregate level, process unit, factory , determines to a high degree the extent to which level of accuracy a cost estimate is possible and which method is practical. However, there is a contradiction. In the conceptual design phase the stakes are highest because decisions have a larger impact and about 70-80% of the costs are committed (figure 3). This generates the thought that the extent of a TCO should be in balance with the criticality of decisions and that room must exist for lighter versions of TCO estimates. It is also depending on who the stakeholder is for the estimate, the designer looking for cost effective solutions, or the cost estimator looking for accuracy. The relationship between cost information and decisions is therefore important.

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Chan – Investment appraisal techniques for advanced manufacturing technology (AMT): a literature reviewAim: To provide an overview and guidance for manufacturing companies which are planning to invest AMT. Next to that, it reviews literature of implementing AMT projects and it explores the use of appropriate evaluation methodologies from the strategic an economic points.

View of managers: AMT contains high investments and longer payback period.

The achievement of the desired benefits from AMT requires systematic and integrated planning rather than the adoption of a new system.

Four major steps in adopting AMT: 1. Strategic planning

1.1. Objectives identification Identification of corporate strategic goals

and objectives Point out the problems hindering the goals. Point out the contribution of the proposed

AMT.1.2. Organization infrastructure supporting

The choice of a suitable manufacturing system The attainment of an organizational infrastructure which will offer maximum

support to the chosen system. The firm should put a great effort into the organizational and operational planning

activities such as:o Announcing the possible impact of AMT to all staff

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o Stressing teamwork and group activitieso Providing pre-installation training for all project participantso Forming multi-disciplinary planning and implementation teamso Considering likely impact on customers and suppliers

1.3. Management commitment and supervision Commitment is crucial Top management should be aware not only of operational benefits such as

flexibility improvement, but also of marketing and strategic advantages as well. All departments concerned can identify their expectations form the technology,

and seek to determine the time period within which these expectations should be met.

o Multifunctional steering committees and interdisciplinary multi-skilled teams.

o Champion is important in AMT implementation1.4. Performance variables assignation

The timing of the establishment of the performance measures and the performance benchmarks. If the performance variables can be established in good time, the plant will be better able to monitor progress during and after installation of the AMT and make adjustments to project goals and objectives.

o Performance; Cost; Flexibility; Quality; Delivery; Innovativeness1.5. Technologies identification

Stand-alone systemso Computer adied design (CAD), Computer aided process planning (CAPP)o Frabricating/ machine and assembly technologies: NC/ CNC or DNC

machines, Materials working laser (MWL), Pick-and-place robots Intermediate systems

o Automatic storage and retrieval systems (AR/RS) and Automated material handling systems (AMHS)

o Automated inspecting and testing equipment (AITE) Integrated systems

o Flexible manufacturing cells/ systems (FMC/ FMS)o Computer-integrated manufacturing (CIM)o Just-in-time (JIT)o Material requirements planning (MRP)o Manufacturing resources planning (MRP II)

2. Justification2.1. Strategic justification approach

Less technical than economic and analytic methods Advantage: direct tie to goals Disadvantage: possibility to overlook the economic and tactical impact of the

project. Strategic approaches:

o Technical importance

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o Business objectiveso Competitive advantageo Research and development

2.2. Economic justification approach Formula approaches for economic justification of equipment:

o Payback (PB); ROI; IRR; NPV; Discount cash flow (DCF) techniques Loopholes:

o They support decisions that are sensible when viewed in isolationo They do not always indicate the best action within an inter-related set of

decisionso They are inherently incremental so that long-run survival cannot stop.o sensitivity analysis

Hybrid financial and strategic appraisal approaches are better.2.3. Analytic justification approach

Largely quantitative and more complex than the economic techniques. Several commonly used approaches:

o Analytic hierarchy process Advantage: describe the priority changes and its effects in different

levels; provide a great detail of information on the structure and activity of a system in the lower levels and give and overview of the actors and their purposes in the upper levels; and natural systems assembled hierarchically.

Flaws: the absence of a theoretical framework to model decision problems into a hierarchy; the pairwise comparisons are based on subjective judgements; the estimated relative weights are set by the eigenvector method; and without formal treatment of risk.

o Linear additive modelo Profile charts and symbolic scorecardso Programming models: Goal programming; Linear programming technique.o Risk analysis. Main risks:

The probability of variance in the cash flows which are initiated by the project

The probability of variance in the time taken before such cash flows occur, and in the case of the development of some new technologies. Whether they would be feasible, acceptable and suitable.

3. Training and installation Training and education. Complete skill assessment of the workforce. Support is needed at all stages.

4. Implementation of the selected technology There may be some strategic changes that arise from environmental alternations, such

as technology, economy, customers and competition, after installation of AMT.

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Kumar et al. – An investment decision process: the case of advanced manufacturing technologies in Canadian manufacturing firmsAdvanced manufacturing technologies (AMT) such as robots, FMSs, computer aided design and manufacture are recognized as necessary for improving productivity and quality, while expanding the product mix. AMT investment decisions are seen as crucial to the long term success of an organization so it is important that a proper decision making process is used. Based on a literature review and interviews with 22 manufacturing firms that have invested in AMT, Kumar et al (1996) came up with an AMT investment decision process consisting of 5 steps: (1) stimulus (2) solution identification (3) detailing (4) evaluation and (5) authorization. There are four possible reasons why firms may decide to omit a specific stage. The first one is the scope of the investment (cost), large scale investments are forced through a more rigorous decision process. The second one is the size of the firm because the size of the firm is possible related to the thoroughness of the decision process. For example, large firms need authorization for each step whereas smaller companies go through the process with less extensive analysis. The third one is the managerial style of the firm. Formalized management rules require a more rigorous decision process than less formalized organizational structures. Finally, the fourth one is the degree of experience in AMT investments that a firm has. The figure of the process is given below and it is important to mention that it is not necessarily a linear process, companies may decide to return to previous stages if a more detailed analysis of that is required.

Stimulus

This first stage is about recognizing the need or opportunity for an AMT investment. This recognition can be stimulated by a combination of internal and external factors. Possible internal stimuli are meeting customer demands, capturing opportunity, reducing labor costs, increasing flexibility and top management commitment. External factors are the availability of AMTs and the degree of competition. Internal stimuli are seen as more important than external stimuli. A decision made based on these stimuli, can have different forms. Namely, opportunity decisions (initiated voluntarily to improve a relatively stable manufacturing environment), problem decisions (stimulated by manufacturing inefficiencies that do not require immediate action but that must be addressed in the near future) and crisis decisions (initiated from a response to intense manufacturing problems requiring immediate action). AMT investment decisions are made to capture marketplace opportunities of rectify manufacturing problems but not for crisis situations.

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Solution identification

This step is comprised of three different stages: (1) managers must recognize the problem, opportunity or crisis (2) a diagnose is made by founding a solution to the problem or opportunity and (3) the solution recognition phase that may identify AMTs as a possible solution but it can also be possible that AMTs are not the solution for this particular problem. The solution identification is initiated when the internal and external stimuli reach a certain level. The authors found that some companies omitted the diagnose and the solution recognition phase and this may lead to an inaccurate initial assessment of the opportunity or problem.

Detailing

Detailing includes preliminary authorization and AMT search activities. This preliminary authorization comes from upper level management and serves as a toll gate in the process. This search stage involves method used to gather information on the proposed manufacturing technology. Five types of searching techniques are described and can be found in the table below. The majority of the firms that were interviewed used a combination of techniques like active + professional and trap + organizational.

Technique DescriptionPassive searching Involves waiting for unsolicited suppliers to appearOrganizational searching Involves the use of past experience to identify suitable

suppliersProfessional searching Entail the hiring of consultants to gather information

and/or attending trade shows and conferencesTrap searching Involves letting suppliers know that the firm is looking

for equipmentActive searching Consists of direct visits to suppliers and other

manufacturing firms to assess the technology first hand

Evaluation

This stage is crucial because in this state the decision is made to invest or to reject to proposed AMT. This stage is comprised of two components: screening and justification. Screening narrows down the available alternatives and identifies the most appropriate AMT investment. Two possible techniques can be used: (1) the objective weighted scoring of AMT benefits and (2) screening through subjective judgment. The second component is the justification of the AMT. The authors found that the literature increasingly stressed the importance of factoring the strategic benefits into the traditionally quantitative justification process. The most popular quantitative methods include return on investment (ROI), payback periods and discounted cash flow. The qualitative methods include the compatibility of the strategic direction with the proposed AMT, improvements in the long term competitiveness and the strategic benefits gained through improved product quality. One interesting point to make is that large and small sized firms rely more on the qualitative methods and the mid-sized companies rely more

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on the quantitative methods. The authors think that mid-sized firms focus more on the quantitative methods because the middle layer management focusses heavily on return on investment calculations.

Authorization This last stage is often a formal presentation of the investment analysis, including the justification, prepared for upper management approval. Management can then approve the acquisition or reject the proposal.

Woodward – Life cycle costing: theory, information acquisition and application Increasingly competitive business environment, dwindling resources and an ever

increasing need to obtain value for money= essential to use resources optimally. Physical assets form the basic infrastructure of all businesses, essential to monitor

their entire life cycle. Life cycle costing: optimizing value for money in the ownership of physical assets by

taking into consideration all the cost factors relating to the asset during its operational life.

LCC Analysis: o Cost elements of interest- all the cash flows that occur during the life of an

asset.o Defining the cost structure- grouping costs to identify potential trade-offs.o A cost estimating relationship- the cost of an item or activity as a function of

independent variables. (usually historic data to create estimates)o Establishing the method of LCC formulation- an appropriate methodology to

evaluate the assets LCC. Objectives of LCC:

1. Enable investment opportunities to be more effectively evaluated.

2. Consider impact of all costs3. Assist effective management4. Facilitate choice of alternatives

Elements of LCC:

Initial Capital Costs1. Purchase Costs2. Acquisition/Finance Costs3. Installation, Commissioning, Training

Costs Life Of the Asset

1. Functional Life- need of asset2. Physical Life- asset will last3. Technological Life- technical obsolescence4. Economic Life- economic obsolescence

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5. Social and Legal Life- human desire or legal requirements Discount rate Operating and Maintenance Costs

1. Regular planned maintenance2. Unplanned maintenance- responding to faults3. Intermittent maintenance- major life refurbishment

Disposal Cost Information and Feedback- it is the data capture and info feedback which closes the

control loop and will be the governing factor in success or failure of LCC Uncertainty and Sensitivity Analysis- LCC highly dependent on assumptions and

estimates. Becoming more widely practiced as a direct result of computer software developments. Major sources of uncertainty:

1. Difference between actual and expected performance2. Changes in user activities3. Technological advances4. Resource prices5. Error in estimation relationships

Cost Trade Offs

The possibility of trading-off initial capital costs against subsequent revenue savings is one of the underlying principles of LCC analysis.

Examples of trade-offs:1. Devote resources to R&D to increase reliability thus reduce maintenance costs.2. Increase efficiency (involving high development costs) to reduce scrap.3. Spend more on automation to reduce manning costs.4. Buy a more expensive machine with longer life.

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Information for LCC Analysis

Distinguish between expenditure-routine maintenance, scheduled overheads, component failure etc. - illustrates the cause/reason for work.

Provide the basis for cost estimates of new equipment (because new equipment is rarely revolutionary)

Imperative to keep accurate records of all data- LCC analysis can only be as good as the input data.

Data Sources

Essential to have knowledge of reliability, capacity utilization and maintenance procedures, leading to an understanding of the relationship between the capital costs of specification, design, acquisition and disposal, and the revenue costs of operation and maintenance.

Absence of data collection system leads to manual searches of unsuitable records to the vagaries of human memory, notoriously unreliable if the person in question feels that the correct answer may reflect unfavorably on his abilities.

Forecasting LCC

The essence of the LCC approach is to obtain, record and use data on current activities but for the benefit of future acquisition decisions. The feedback of LCC experience to equipment manufacturers is, for example, of crucial importance.

COT Case Conclusions‘Old’ situation: employees have to check every item for the right tools when drilling. 98% of the time products just lie there. 54 tools are used, but could be reduced to 15-20 with standardization.

‘New’ situation: SX700, “huge savings”, improved setup and processing times (only measured aspects), not precise enough, not the right machine for large parts.

Scope from articles:

Decision making process (Kumar et al.) AMT implementation props (Chan)

o What specific strategic, organizational and technological issues should be considered?

o Short term operational decisions instead of long term strategic

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Lecture week 3

Archer & Ghasemzadeh – An integrated framework for project portfolio selectionThis paper simplifies the project portfolio selection process by developing a framework which separates the work into distinct stages. Each stage accomplishes a particular objective and creates inputs to the next stage.

Project portfolio selection and the associated activity of managing selected projects throughout their life cycles are important activities in many organizations. There are usually more projects available for selection than can be undertaken. There are many divergent techniques that can be used to estimate, evaluate and choose project portfolios. Objective of this paper:

1. Evaluate briefly current state of the art in project portfolio selection methods and to develop a number of related propositions for effective portfolio selection.

2. Suggest an integrated framework to provide decision support for portfolio selection3. Describe a decision support system which can embody this framework

Project portfolio selection is the periodic activity involved in selecting a portfolio, from available project proposals and projects currently underway that meets the organizations stated objectives in a desirable manner without exceeding available resources or violating other constraints. It consists of three phases: Strategic considerations, individual project evaluation and portfolio selection.

1. Strategic considerations phase: Involves considerations of both external and internal to the firm, including the marketplace and the company’s strengths and weaknesses. The strategic direction of the firm must be determined before individual projects can be considered for a project portfolio; many firms do extensive preparation and planning of strategy before considering individual projects.

2. Project evaluation phase: The benefit derived through project evaluation methods is measured in terms of each project’s individual contribution to one or more portfolio objectives (ROI). Evaluation on an individual basis includes methods as: Economic return (IRR, NPV, RIO, RAI, PBP, EV), benefit/cost techniques, risk (probability of an event and the consequences associated with that event) and market research. The use of specific project evaluation techniques is situation dependent. Measures used may be qualitative or quantitative, but regardless of which techniques are used to derive them, a set of common measures should be used so projects can be compared equitably during portfolio selection.

3. Portfolio selection phase: Portfolio selection involves the simultaneous comparison of a number of projects on particular dimensions in order to arrive at a desirability ranking of the projects. Classes of available selection techniques include: (1) Ad hoc approaches such as (a) profiles where limits are set and any project that feels to meet the requirements and (b) interactive selection where interaction exists between project champions and responsible decision makers until a consensus is reached. (2)

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Comparative approaches: pairwise comparison where weights are given to different objectives and then the projects are ranked. The decision makers start at the top project and work their way down until the resources are exhausted. (3) Scoring model, (4) portfolio matrices and (5) optimization models.

Multiple and often conflicting (or criteria) may be associated with portfolio selection, and projects may be highly interdependent. This makes it difficult if for instance projects A and B have to be finished before C can be started.

An integrated framework for project portfolio selection suited to decision support system (DSS) application is described in the following section.

The major stages are represented by the heavy outlined boxes. The ovals represent pre-process activities. Post-process stages (that follow the portfolio selectin process) are also shown in the lightly outlined boxes for completeness.

1. Portfolio adjustment: The end result is to be a portfolio which meets the objectives of the organization optimally or near-optimally. An important aspect is to achieve some form of balance among the projects selected.

2. Optimal portfolio selection: Interactions amongst the various projects are considered. Two steps: 1. Relative total benefit is determined for each project. 2. All project interactions, resource limitations and other constraints should be included to optimize the portfolio.

3. Screening: The purpose is to eliminate non-starters and to reduce the number of projects to be considered simultaneously. Care should be taken to avoid setting thresholds which are too arbitrary.

4. Individual project analysis: A common set of parameters required for the next stage is calculated separately for each project.

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5. Pre-screening: Uses manually applied guidelines developed in the strategy development stages and ensures that any project being considered for the portfolio fits the strategic focus of the portfolio.

Decision support system application: from figure 1, in all process stages the decision makers would interact with the system. Provision for continuous interaction is required because: (a) it is extremely difficult to formulate explicitly in advance all of the preferences of the decision makers (b) involvement of decision makers in the solution process indirectly motivates successful implementation of the selected projects and (c) interactive decision making has been accepted as the most appropriate way to obtain correct preferences. If this model is to be supported by a computer based system a module is required to manage the related techniques/models to support the data needs figure 2.

The proposed framework (figure 1) is basically an attempt to simplify and organize the project portfolio selection process. It matches considerations which are important to decision makers who need to make portfolio selection decisions. Since decision makers should be directly involved with the selection process at each of its stages, support tools (either manual or computer based) will be essential to implement each technique used, and the framework leaves the choice of specified techniques up to the decision makers. This generic approach

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also allows each technique chosen to be integrated into a decision support system which provides far better and more acceptable project portfolios than those which can be generated by any single technique we have discussed.

Ratnayake & Markeset – Asset integrity management for sustainable industrial operations: measuring the performanceDefinition 1 (Asset): An asset is defined as any physical core, acquired (i.e. the organization has either the possession or the custody of the asset) elements of significant value to the organization, which provides and requests services for this organization’.

It is vital to view physical assets in relation to other categories of assets such as financial, human, information and intangible assets. This requires effective and efficient organization and management processes.

Effective Asset Management is not only maintenance, capital investment, life cycle cost analysis or risk but also balancing financial and non-financial metrics.

Asset Management is facilitated by IT software.

Definition 2 (Asset Management): The set of disciplines, methods, procedures and tools derived from business objectives aimed at optimizing the whole life business impact of costs, performance and risk exposures associated with the availability, efficiency, quality, longevity an regulatory/safety/environmental compliance of an organization’s assets.

Integrity is essential when an organization is surrounded by conflicting stakeholder demands: searching for a balanced and optimal performance especially when the organizational values and interests are mutually exclusive.

Breaches of integrity cost money and honorable practices increases goodwill.

Definition 3 (IM): The application of qualified standards, by competent people, using appropriate processes and procedures throughout the plant life cycle, from design through decommissioning.

Definition 4 (AI): The ability of the asset to perform its required function effectively and efficiently whilst safeguarding life and the environment.

The sub-categories of overall AI include:

Definition 5 (Design integrity): Assurance that facilities are designed in accordance with governing standards and meet specified operating requirements.

Definition 6 (Technical integrity): Appropriate work processes for inspection and maintenance systems and data management to keep the operations available.

Definition 7 (Operational integrity): Appropriate knowledge, experience, manning, competence and decision-making data to operate the plant as intended throughout its life cycle.

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The management of these three categories of AI should lead to safe processes and securing the overall AI of an asset-centric organization. Management of AI is necessary throughout the life of the asset.

The necessity of Asset Integrity Management (AIM) arises when the internal expectations are not aligned with stakeholder expectations, resulting in a harmful atmosphere to the company or its operational environment leading to breaches of integrity. Bridging the gap between both expectations could be done by improving three types of relationships from the AI point of view:

The relationship between the organization and its stakeholders through the refinement of plant strategies, policies etc.

The relationship between the workforce and the organization by bridging the awareness gap between the workforce’s understanding and organizational expectations.

The functional relationship between workforce and activities.

Definition 8 (AIM): The means of ensuring that the people, systems processes and resources which deliver the integrity, are in place, in use and fit for purpose during the asset’s life cycle.

AIM should focus on the creation of conditions within which an organization-wide consciousness-raising effort and internal interaction can take place. This will reduce the variability and consequently improve the assets’ performance.

The Analytic Hierarchy Process approach has the ability to synthesize data, experiences, insights and intuitions in a logical and thorough way for making the optimum decision. This approach is the framework for measuring AI performance. Four different dilemmas for developing the hierarchical structures for critical investigation of AI have been identified:

Formal expectations Informal expectations Stakeholder expectations Conflicting expectations

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Lecture week 4

Muchiri & Pintelon – Performance measurement using OEEThe Overall Equipment Effectiveness (OEE) measurement tool was developed from the Total Productive Maintenance (TPM) concept. The goal of TPM is to achieve zero breakdown and zero defects related to equipment. Its consequence is:

Improvements in production rate Reductions in costs Reductions in inventory Increases in labor productivity

The TPM concept puts much attention on production equipment, since they have a high influence on quality, productivity, cost, inventory, safety and health, and production output.

OEE is defined as the degree to which equipment is doing what it is supposed to do. Its three measures are availability rate, performance rate and quality rate. It is used to track and trace improvements or decline in equipment effectiveness over a period of time. In addition, it is designed to identify activities that absorb resources but create no value. There are either small and hidden (chronic) disturbances or more obvious and quickly occurring (sporadic) disturbances. It is a bottom-up approach.

Six big losses have to be eliminated:

1. Equipment failure2. Setup & adjustment3. Idling & minor stoppage4. Reduced speed5. Defects in process6. Reduced yield

OEE = A x P x Q

The OEE measurement tool has its strength in the way it integrates different important aspects of manufacturing into a single measurement tool. The perspectives integrated in the OEE tool are the maintenance effectiveness, production effectiveness and quality effectiveness.

The OEE is only limited to productivity behavior of individual equipment. Because no machine is isolated, the gains in OEE are sometimes called insufficient. This insufficiency has let to modification and enlargement of the original OEE tool to fit a broader perspective in the manufacturing systems. Modifications of OEE have led to modified formulations that are limited to effectiveness at the equipment level (PEE and TEEP) and at the factory level (OFE, OTE, OPE, and OAE). The difference between these terminologies or tools is based on the type of production losses.

The differences in the measurement of equipment’s effectiveness leads to two important questions: What needs to be measured and how will it be measured? The first question seeks

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to determine the various factors that need to be monitored. The second question includes issues as the measurement scale, the data source and the frequency of measurement.

A framework (OAE tool) is made for identifying different types of losses and categorizing them depending on the cause of loss. The benefit is that attention can be given to the relevant causes and it gives a standard way of measuring asset effectiveness. The following production-loss categories are defined. Losses due to external reasons:

Commercial demands Logistic problems Environmental regulations Natural causes

And losses due to internal reasons:

Business-related losses:o Internal logistics problemso Organization problemso Environmental, health and safety problemso Capital projects

Operation-related losses (chronic and most regular losses):o Six major losseso Scheduled downtime

OEE is defined as a measure of ability to run equipment without failure, at the designed speed and with zero defects. Only the production losses related to equipment should be used to calculate the OEE, so scheduled downtime should not be used in OEE calculation.

How to measure OEE is an important aspect that addresses the scale and frequency of measurement and the data source. The validity and usefulness of OEE measure are highly dependent on the data collection and accuracy. To measure production losses using OEE, two units can be used: production output loss and production time loss. Quality and speed losses are calculated using production output while availability is calculated using downtime. Without accurate data, the OEE measure can easily lead to a lack of credibility, so time and money need to be invested to improve data collection.

Muchiri et al. – Development of maintenance function performance measurement framework and indicatorsPurpose of the paper demonstrate that performance indicators are not defined in isolation, but should be the result of a careful analysis of the interaction of the maintenance function with other organizational functions, most evidently with the production function.

Maintenance is a combination of all technical and associated administrative activities required to keep equipment, installations and other physical assets in the desired operating condition or restore them to this condition.

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The maintenance function

Good maintenance assumes that maintenance objectives and strategies are not determined in isolation. The maintenance functions has to:

1. Define the five maintenance objectives are given in figure 12. Decide which maintenance needs to be done, when to do it, and how often it can be

done3. Translate maintenance needs to maintenance actions, maintenance policies and

maintenance concepts.4. Manage maintenance work, i.e. manage preventive, predictive maintenance and

failures

Maintenance performance measurement review

Performance indicators support the identification of performance gaps between current and desired performance and provide indication of progress towards closing the gaps. It’s a link between strategy and management action.

Good performance indicators should: Support monitoring and control of performance; Help identification of performance gaps; Support learning and continuous improvement; Support maintenance actions towards attainment of objectives; and

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Provide focus of maintenance resources to areas that impact manufacturing performance.

Approaches of measuring maintenance performance: System audit approach is measuring the performance of maintenance system

contribution to organizational success called value-based performance management. Balanced scorecard Weber & Thomas’ framework defines the key performance indicators for managing

the maintenance function based on physical asset management requirements and asset reliability process. The framework consists of maintenance planning, process improvement, and maintenance control.

Different categories of maintenance measures: Strategic, tactical and operational Overall equipment effectiveness (OEE), production cost and production quality Economic indicators, technical indicators, organizational indicators

Literature proposes lists of KPI’s but lacks a methodological approach of selecting or deriving them.

Developing a basis of maintenance performance measurement

Maintenance performance conceptual framework proposed in the paper is given in figure 2. Maintenance performance conceptual framework identifies key elements and processes that drive the maintenance function towards delivery of performance demanded by manufacturing objectives. The conceptual framework advocates alignment of maintenance objectives with the manufacturing and corporate objectives (section maintenance strategy formulation) and thus directs the maintenance efforts towards attaining the required performance and continuous improvement of the production equipment performance.

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Leading indicators are the indicators related with the maintenance process, where maintenance processes are the determinant of the maintenance outcomes and results, see figure 3.

Part of the leading indicators section is: Work identification deals with identifying the right work to be performed at the right

time by the maintenance staff based on maintenance objectives Work planning develops procedures and work orders for the maintenance activities

identified. Work scheduling evaluates the availability of all resources required for the work and

the time frame for executing it. Work execution ensures the scheduled activities are carried out within the allocated

time and through effective use of resources.

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Lagging indicators are indicators that are only know when a certain period of time has passed or a certain event happened, see figure 4.

Maintenance results identify the performance gaps and support continuous improvement of equipment’s performance.

Conclusions

The conceptual framework provides a generic approach of developing maintenance performance measures with room for customization with respect to individual company needs. The aim is to ensure that the key maintenance processes that lead to desired results have been carried out and evaluated.

Waeyenbergh & Pintelon – A framework for maintenance concept developmentA maintenance concept can be defined as the set of various maintenance interventions (corrective, preventive, condition based etc.) and the general structure in which these interventions are foreseen. The maintenance concept forms the framework from which installation-specific maintenance policies are developed and is the embodiment of the way a company thinks about the role of maintenance as an operations function. As a consequence, it influences every part of the maintenance activities in the company. The maintenance concept

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should be customized to the needs of the company. Since industrial systems evolve rapidly, the maintenance concept has to be reviewed periodically to take into account the changing environment. So the maintenance concept has to be structured and flexible, allowing feedback and improvement.

The recognition of maintenance as a potential profit-generator is a recent development as well as the realization that interrelationships with other operating functions cannot be denied. Maintenance becomes more and more part of the integrated business concept. Regarding the future, there is a growing trend towards outsourcing (external partnerships). There is also a shift from failure-based to use-based maintenance and increasingly towards condition-based maintenance. Greater emphasis is put on the availability, reliability and safety of the production facilities. Highly qualified personal and computer support are demanded.

Three important factors can be pointed out as critical success factors of a maintenance concept:

1. Thorough knowledge of maintenance technology2. Management skills regarding planning and control of maintenance tasks as well as

HRM3. Flexibility to exploit opportunities and trends

A few important maintenance concepts are:

Reliability Centered Maintenance (RCM) Business Centered Maintenance (BCM) Total Productive Maintenance (TPM) Life Cycle Cost (LCC) approaches

Some advantages and disadvantages are:

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RCM wordt gezien als de best practice voor het opstellen en optimaliseren van het preventieve onderhoudsprogramma van een technisch (deel)systeem met als doel een zo hoog mogelijke beschikbaarheid tegen zo laag mogelijke kosten te realiseren, rekening houdend met de eisen die vooraf aan het systeem gesteld worden. RCM heeft niet als doel om het optreden van storingen te voorkomen, maar om de gevolgen van die storingen binnen de grenzen te houden die vooraf als acceptabel worden gesteld.

RCM II has three steps, an information worksheet, a decision diagram and a decision worksheet. Its disadvantages are its complexity and its price.

BCM’s aim is towards maximizing the contribution of maintenance to profitability. It identifies business objectives, which are translated into maintenance objectives. Disadvantages are its complexity and the amount of information needed.

TPM is an approach to continuously improve the performance-effectiveness as well as efficiency of certain industrial activities, and in the first place of maintenance. The goal of TPM is maximum equipment effectiveness and the OEE is used as a measure. To achieve an overall workshop improvement, TPM strives for the development of optimal human-machine conditions. To achieve this, the TPM model is based on five pillars:

1. Individual equipment improvements to eliminate the six big losses2. Autonomous maintenance3. Planned preventive maintenance4. Maintenance/operations skills training5. Maintenance plan design and early equipment management

TPM is incomplete as a maintenance concept because cost and profits are not taken into account in the calculation of the OEE.

Maintenance concepts that are based on the idea of optimizing total maintenance cost over the equipment life cycle are:

Terotechnology Capital Asset Management Integrated Logistic Support Logistic Support Analysis

In the development stage of a maintenance plan, data is one of the most important requirements and gathering it is one of the most difficult jobs. A distinction is made between first level data, which is recorded as part of the system installation, and second level data, which is recorded during the life cycle. First level data is relatively easy to obtain from the supplier of the installation, while second level is in the head of people or on paper and computer files. Companies divide knowledge in explicit and tacit knowledge. Step-by-step gathering of knowledge and the development of the database will be an engine for continuous improvement. Accessibility of the database by each worker is of major importance. These are the steps:

1. Start-up and identification of objectives and resources

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2. Identification of the most important systems3. Criticality analysis4. Maintenance policy decision

a. Two types of questions, technical as well as economic. If a certain policy is technically feasible, the economic implications have to be regarded.

b. Failure Based Maintenance (FBM): maintenance is carried out only after a breakdown

c. Design Out Maintenance (DOM): improvement of design to make maintenance easier

d. Detective Based Maintenance (DBM): detection by operatorse. Condition Based Maintenance (CBM): condition monitoring techniquesf. Used Based Maintenance (UBM): maintenance is carried out after a specified

amount of timeg. If this last option also seems not justified, there should be a review of the

criteria or a collection of additional information.5. Optimization of the preventive maintenance policy

a. Block-based maintenance policy: constant-interval maintenance, while corrective maintenance is done when needed.

b. Age-based policy: maintenance when total operating time since previous maintenance action exceeds a limit, corrective maintenance is done when needed and resets the operations clock to zero.

6. Performance measurement and continuous improvementa. Efficient performance reporting systems support continuous improvementb. Most of maintenance performance indicators are ratios measuring

effectiveness, efficiency or productivity.

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