New standard for managing assets

January 2014 saw a milestone in the evolution of recognised best practice for asset management. The first international standard for asset management, ISO 55000, was published after three years of collaboration, debate and consensus-building between 31 countries, as David McKeown, chief executive of the Institute of Asset Management, explains

The management of ageing assets is one of the most critical issues facing industry and government. In the UK, more than £250 billion needs to be spent over the next five years in addressing overdue renewals, and both government and industry are struggling with competing priorities, constrained resources and the difficulty of justifying what to do and when.

Assets have always been managed. Often this has been done well and consistently by far-sighted leaders, but “the way we do things around here” has not always survived changes. Sometimes, for example, in Victorian times, there was a prevailing ethos that saw the long-term view as good business management.

In today’s complex and fast-moving commerce and industry, organisations are often subject to very different contexts and huge pressures to perform. Individual companies may be operating in many time zones and/or 24/7. They may have long and indirectly controlled supply chains or they may have outsourced much of their activity. More and more, people are starting to recognise short-termism as a real distraction – or worse. But what is this and how can it be avoided?

Then, there is the relentless pressure of quarterly results, often in public. These are real constraints and even government, particularly in the West, has adopted a commercial business approach to much of its activity and assets. The use of the “triple bottom line” is an attempt to use measures other than cash only.

One of the reasons that many people misunderstand asset management is that it is not about the assets. It is about managing assets so as to derive value for the organisation. ISO 55000 defines an asset as an “item, thing or entity that has potential or actual value to an organisation”.

Asset management translates the organisation’s objectives into technical and financial decisions, plans and activities

An element that really differentiates ISO 55001 from other management systems is the need for a long-term view. Evidence shows that up to 30 per cent of the total cost of ownership can be avoided by better decision-making at the design/procurement /renewal points. Yet, despite the criticality and urgency of the situation, current decision-making practices in this area are often subjective, inconsistent and based on technical arguments rather than robust business-case justifications.

The right rules prevent initiative overload and allow the organisation to see why and how investment decisions have been made. So asset management increases the focus on transparent and consistent decision-making. This is turn requires appropriate information or actionable data. Some organisations have entirely separate records – or even incompatible computer systems – for financial and other asset data. So it is no surprise when they and their departments disagree.

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A key principle of asset management is the “line of sight”. Asset management translates the organisation’s objectives into technical and financial decisions, plans and activities.

This theme is effectively captured in a thread running through ISO 55001, but the phrase “line of sight” itself did not translate very well into some languages, so it has been renamed “alignment”.

The underlying theme of asset management, and the return on your investment in good management, is the assurance that your assets will fulfil their purpose in all respects and deliver the intended value.

As Ingo Agthe at McKinsey & Company says: “ISO 55000 will drive a new level of awareness for asset management and create a pull for new capability profiles in the job market.”

The diagram, used in ISO 55000, helps many people understand quickly how the defined asset management system is only a part of asset management.

People do asset management. Without an appropriate culture and leaders who convince staff that they are committed to it, asset management cannot deliver its promise. This is why the Institute of Asset Management (IAM) is committed to developing people who have the necessary knowledge, understanding and tools to help their organisations thrive.

Perhaps the most important benefit of ISO 55000 is the consensus achieved by the participation of 31 countries, but those familiar with PAS 55 will find many familiar themes.

Sadly, many organisations will encounter asset management merely as a matter of compliance, perhaps because they wish to supply governments or asset owners that appreciate the real value of doing asset management. They will see it as a burden or cost and gain little or nothing.

But investors and asset owners are increasingly valuing companies not only using the balance sheet-profit and loss approach, but also the state of their assets and governing processes. So evidence of good asset management will soon be a routine input to due diligence, market-marking and share price.

We are already seeing early adopters gaining disproportionately, and we expect to see many blue-chip and world-class organisations strategically developing their expertise in order to distinguish themselves for excellent asset management and not mere compliance.

Asset management, done properly, is not additional work – it is the way you do your work.

Asset management has been widely acknowledged to have very significant financial, performance and sustainability benefits. The UK is proud to be at the forefront of this unfolding discipline, which emerged from the IAM’s development of PAS 55 through BSI (British Standards Institution).

Well-managed organisations are now identifying benefits for themselves and this will increase rapidly.

Yet there are still many organisations that continue to work in functional silos, suffer from expensive short-termism or persist in confusing priorities and conflicting performance measures. Which are you?

As Keith Hamer at Sodexo says: “ISO 55000 can be a game-changer for both supplier and client, and not only for asset intensive organisations.”

ANALYSIS

KEEPING UP STANDARDS

Nearly every organisation needs or wants to achieve more with its assets. Not only how to minimise downtime or lost production, but also how to spend money well to deliver value for the purpose of the organisation.

This is, perhaps, more obvious for physical assets, but government, investors and corporate decision-makers in every sector are increasingly subject to scrutiny of stakeholders – and reputation and brand are also assets.

Asset management is what organisations actually do in order to exploit their assets or realise value from them.

A long time ago, the Institute of Asset Management identified the need for a common language to help any organisation do this, balancing risk, cost and performance in a structured way. The outcome was PAS 55, first published ten years ago. BSI PAS 55:2008, the revised version, became a “best-seller” globally.

True international consensus has been achieved with the publication of the ISO 55000, 55001 and 55002 standards. ISO 55000 was introduced to meet real demand and defines the requirements, processes and framework for an organisation to achieve competence in asset management.