The Woodhouse Partnership Ltd Asset Management Processes & Tools

ASSET MANAGEMENT
John Woodhouse
The Woodhouse Partnership Ltd

1 What is “Asset Management”?

Another catch-phrase, another ‘management initiative’ or just re-working of good old
common sense?

We have certainly been managing assets for years, and the financial services world
has long used the term to mean “getting the best return from their investments”.
Nowadays, however, it is also being used to describe the professional management of
physical infrastructure, of data and information, of people, public image, reputation
and other types of asset. Oil companies, power and water utilities and other industries
have recognised that, despite all their cost-cuttings, reorganisations, new technology,
productivity and quality initiatives, the picture is fragmented. Inefficiency and
conflicting objectives, lack of coordination and missed opportunities are still plentiful.

This is where Asset Management methods are needed – making sure that the jigsaw
puzzle is complete and the bits fit together. Asset Management is the set of processes,
tools, performance measures and shared understanding that glues the individual
improvements or activities together. Or rather, since it is a very dynamic and self-
adjusting set of techniques, it is the lubricant that keeps all the cogs from grinding
against each other.

“Asset Management”
philosophy & framework The What
& Why
Maintenance
Operation &

Materials &
Investment

Resources
& renewal

The Who
& How

Asset Management enablers

(risk mgmt, asset register, work mgmt systems, education etc)

Figure 1. Building a single structure, where all the bits fit together

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The Woodhouse Partnership Ltd Asset Management Processes & Tools

Of course there are many types of asset – but the principles of best value-for-money
are common to all of them. Physical Asset Management, Knowledge Management,
financial responsibility and even the care of public reputation, customer impression
and goodwill require good understanding of value, priorities, short-term versus long-
term trade-off and risk exposures. The language varies a little, but the central
concepts are constant. When applied to physical assets, for example, a general
definition of Asset Management is:

“The set of disciplines, methods, procedures & tools to optimise the Whole
Life Business Impact of costs, performance and risk exposures
(associated with the availability, efficiency, quality, longevity and regulatory/
safety/environmental compliance) of the company’s physical assets.”

From this we can see that it affects all areas of the business – operations, projects,
engineering, maintenance, safety, compliance etc etc. It is only possible to achieve
such “whole life optimal impact” if everyone pulls together. Key performance
measures must be coordinated, not conflicting. We need a clear understanding of
relative importance: is it worth spending more to raise performance or reduce risks
further – if so, how far do we go? Such questions are hard to answer: the available
evidence (data) is patchy and often speculative; risks and consequences are uncertain;
attitudes and traditions sometimes get in the way; the impact of change can take time
to emerge. Even the understanding of the language is a problem – getting everyone to
agree on what “optimum” means. It is certainly not the ‘balancing point’ where costs,
risks and production impact are equal (the crossing point of the Direct and Penalty
lines in Figure 2 below): just because costs and risks are equal does not mean that
they are small! The true optimum is where the combination of costs, risks and
performance shortfall is of minimum total impact. This is the best compromise
between conflicting component objectives of, for example, reducing downtime or
keeping maintenance costs down.

What do we mean by “optimal”?

Optimum
combination
Total impact

Risked Costs

Preventive Costs
Maximum
Reliability Minimum
maintenance
cost

© The Woodhouse Partnership Ltd 1999

Figure 2. Optimising the combination of costs and risks

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The Woodhouse Partnership Ltd Asset Management Processes & Tools

Understanding the conflicting factors, and putting appropriate numbers on them, is a

substantial task. A few of the challenges include:

• Data collection – focussed on data that is actually needed and used.

• Getting projects to take whole-life view (as opposed to the
‘cheapest/quickest’)
• Condition-based maintenance wherever technically possible/economic (instead
of fixed interval work)
• Quantifying risks and building them into all the decision processes

These issues have been comprehensively addressed in a 5-year cross-industry

collaboration programme in Europe (the Eureka MACRO 1 project EU1488). This
project has yielded some startling results. A suite of ‘best practice’ procedures and
decision-support tools has now been published and the workshop tomorrow will cover
some of the resulting material.

2 Where has Asset Management come from?

The UK, Australia and New Zealand are leading the world in such an holistic
approach to Asset Management. Where the commercial or safety impact of failure is
high, it is clearly vital to find the right combination of risk, performance and cost. So
airlines, oil & gas, power and process industries have tended to develop, test and
implement the most sophisticated reliability and performance optimisation tools.
However Asset Management is mostly about people – shared understanding, cross-
functional collaboration & teamwork, problem-solving instead of repeated fire-
fighting etc.

The relevant Asset Management disciplines and procedures have generally emerged
from the highly structured or regulated industries – initially the armed forces, airlines
and nuclear sectors but now rapidly spreading to power, water and other utility
sectors. Supply Chain initiatives, Quality Management, Total Productive
Maintenance and Reliability Centred Maintenance are examples. Their industrial
usage has sometimes suffered from poor adaption or implementation, but the
underlying common sense (in properly managed introductions) is self-evident.

More recently, the Institute of Asset Management (IAM) was launched in the UK and
now has around 300 members. This year the IAM has entered into a joint
arrangement with the IEE and relocated to London in response to the growing demand
for standards, education support, experience-sharing etc. The first MSc degree course
in Asset Management also now exists (based in Aberdeen) and regional, industry-
specific versions have been developed.

1
See website www.twpl.co.uk (MACRO page) for more details

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The Woodhouse Partnership Ltd Asset Management Processes & Tools

3 Making it all work together

3.1 Coordinated objectives

The first and crucial task in establishing an Asset Management regime is to make the
objectives clear to everyone. There are many interests to satisfy, and some of them
are naturally conflicting (e.g. maximum reliability and minimum cost in Figure 2
above). The regime must ensure that all business objectives are considered, and
minimise the inherent clashes between key performance indicators:

Figure 3. Some of the links between competing objectives

3.2 Linking the activities, processes & responsibilities

The overall map of Asset Management processes is very complex. Figure 4 below is
just a view of the main links. Underpinning all of these activities are some vital
‘enablers’ – without which the individual activities grind together, and we would end
up back where we started (lots of well-meaning, but silo-based and sometimes
conflicting local interests).

Some Asset Management enablers:

• Organisation alignment: agreed objectives, shared understanding,

excellent leadership and communication.
• Integrated data, information and knowledge management: the right
data collected, to the appropriate quality/detail, available to those who
need it in a timely and appropriate form, based on the actual business
(decision) needs for that information.
• Risk awareness and acceptance: building risk evaluation into normal
decision-making.

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The Woodhouse Partnership Ltd Asset Management Processes & Tools

• Long term-ism: taking account of long term repercussions in short-

term actions and decisions (e.g. Life Cycle Cost analysis).

Figure 4. Asset Management Processes – the big picture

4 The Asset Management Toolkit

4.1 Data, Work and Resource Management systems

Sometimes (wrongly) referred to as an “Asset Management System”, the IT support

must include:

Asset Register – this may range from a simple coded equipment list to a fully fledged
technical information database with GIS diagrams, technical specifications and even
video clips of the equipment and how it works. However simple or sophisticated, a
comprehensive list of what the assets are, where they are and what they do is
essential.

Work Order (planning & control)

A systematic and consistent scheduling system is vital to make sure that the right job
is performed on the right assets, at the right time, with the right materials etc. This is
the core of a work management system and another ‘must’. Many companies are on
their 4th or 5th generation of such systems (often without really questioning what work
is worth doing in the first place!).

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Condition assessment & monitoring

Core to the improvements of Asset Management is a shift towards condition-based
activity: only doing work when the assets need it. Inspections, condition assessment
and monitoring systems need to drive maintenance, renewals and modification
decisions. There has been considerable over-selling of on-line condition monitoring,
however; the Asset Management approach considers the ‘crude but cheap’ options of
operator monitoring or visual inspection quite objectively in comparison to the high
technology (and high cost) approaches.

Performance and Maintenance History Data

In the past, data gathering has often been a weak link in the chain. There is usually no
real incentive to provide the data (“nobody seems to use it”). To break this vicious
circle, Asset Management methods address the decision-making steps first (why do
we need the data, and how would we use it?), then identify what data is needed to
support such decisions. Once the usage is clear, we have a much better chance of
gathering the right data in the first place - and maintaining enthusiasm for its
continued collection.

Further important ‘modules’ of an integrated Asset Management regime include

• Resource Management (materials, contractors, tools, facilities)

• Safety, Risk & Environmental Management (compliance, risk identification
& prioritisation etc)
• Project Management (planning, logistics, document management & change
control)
• Financial Management (budgeting, reporting).

4.2 Decision support & continuous improvement

It is business-based decision-making that really makes the difference. There are three
key stages to better targeting of resources and getting better risk/performance value-
for-money:

What are the problems and opportunities?

Key Performance Indicators, trend analysis, suggestion schemes and quality
management activities (e.g. Balanced Scorecard, where personal objectives are linked
directly to the business drivers). Asset Management challenges even a ‘balanced’
scorecard – what is the right balance?

Why is there a problem, and what can be done about it?

Various systematic techniques (e.g. Failure Modes & Effects Analysis and Root
Cause Analysis) are needed to investigate problems and identify feasible solutions or
improvements. Asset Management requires a ‘culture of asking “why?”’.

What is worth spending, when?

Cost/risk/performance evaluation of the possible options, and best blending
(optimisation) of the chosen solution. This brings us back to the starting point – what
comprises the best combination of costs, risks and performance, with a whole-life
view of the infrastructure? Here the Asset Management toolkit is rapidly expanding

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to include “what if?” analysis, system performance simulators, cost/risk trade-off

calculators, project life cycle costing and investment prioritisation tools. Like most
areas, however, the technology is not the limiting factor – it is our input,
understanding and correct implementation that will determine the degree of success
that is achieved.

5 Conclusions

So, Asset Management is an umbrella for bringing a lot of existing good practices
together, and for filling some of the remaining gaps. It aligns what we do to clear
business goals, and ensures that the component activities operate in harmony. It
requires some sophisticated technical solutions but the most important element of all
is the human one – shared understanding, motivation, trust and collaboration to find
the best combined outcome, rather than local and short-term self-interest. There is no
real doubt that integrated “Asset Management”, or whatever it may be called in the
future, is becoming a vital business discipline. Yet there is a significant gap between
those who “think they already do it”, and those who realise the challenges and
rewards of the integration/alignment step (and are investing heavily in the merger of
new technical solutions, management processes and the human factors).

Those companies that have had the vision and faith to adopt such an approach have
universally recognised the tangible benefits – in some cases this has ensured
continued company survival, in others it represents their key competitive edge in the
next phase of global performance pressure

For more information I suggest the following sources as a starting point:

An MSc degree course in Asset Management has been running in Aberdeen

(Robert Gordon Univ.) for 4 years now, and is being spread to multi-industry,
modular and in situ delivery for 2001. http//univation.rgu.com
Various commercial organisations (including The Woodhouse Partnership Ltd)
are offering short courses in the component techniques. http//www.twpl.co.uk
The Institute of Asset Management has matured from a 250-strong group of
enthusiastic individuals into a significant professional body (now endorsed and
hosted by the IEE). http//www.iam-uk.org

John Woodhouse
Newbury, UK
7th March 2001
[email protected]

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