John Woodhouse, Experts Panel chairman at the Institute of Asset Management and TWPL managing director, says raising standards is pushing up performance
There is growing international interest, debate and development in the more disciplined, value-maximised management of business assets over their life cycles. This is yielding surprises, some very big opportunities and an increasing consensus about what needs to be done.
Leading organisations are eliminating up to 30 per cent of the “total cost of ownership”, raising performance, reducing risks and extending asset lives considerably – and such opportunities do not seem to be limited to specific industries or asset types.
Improved standards in asset management should, therefore, be regarded as a business imperative – a competitive edge in a commercial environment, and a core feature of responsible governance and transparent good sense in the public sector.
However, there is still a lot of confusion about the subject: there are many different views on what comprises an asset and what asset management involves. Financial asset management, for example, is widely recognised as a juggling of capital-worth, yield, risk and sustainability in cash, stock and other investment options.
The management of industrial or infrastructure assets, in contrast, is seen by some in terms of portfolio acquisitions and disposals, and by others as a matter of engineering, technical and operational challenges. And there are significant groups for whom asset management means just the maintenance of equipment or the identification and location tracking of moveable items.
Assets are assets by virtue of their actual or potential value. Assets exist in many forms, such as people, equipment, reputation, data, contracts and cash, and they provide value in different ways, including financial returns, service levels and customer satisfaction over various time-frames.
Also assets are often highly interconnected; their value may be realised through their combined performance within complex systems, such as electricity networks, manufacturing processes or transport systems. What’s more, they present different decision-making challenges and requirements for investment, utilisation, maintenance and renewal or disposal during the different phases of their life cycles.
The hard evidence of results is greater than many would have believed possible
Seeking the optimal mix of value-for-money from individual assets, while optimising systems performance and maximising whole portfolio value, is thus a complex business.
In addition to this complexity, asset management has to consider the dynamic nature of stakeholder expectations, asset risks (their performance, reliability and degradation), the volatile economic environment, uncertain supply chains, climate change and workforce competency or demographic concerns. So this is why the development of guidance and standards during the last 15 years has been useful in sorting out what needs to be done.
Aside from the long-established financial services community, the disciplined, risk-based and whole life cycle-optimised approach to asset management has emerged from two primary sources: the North Sea oil and gas sector in the 1990s, and the public services sector in Australia and New Zealand during the same period.
In both cases, a “perfect storm” of financial crises, safety incidents and changes to legislation forced a fundamental rethink about existing siloed departmental behaviours and short-termism. The subsequent transformations in planning, cross-disciplined collaboration, risk management and sustained performance were remarkable.
In 1994, the Institute of Asset Management (IAM) was formed to share and spread the good practices, leading in 2004 to publication of the first publicly available specification (PAS) for the optimal management of physical assets. PAS 55 defines 28 key requirements for achieving maximum net value through a joined-up approach to asset management.
Taken up initially by the UK power and water utilities, the PAS 55 standard is now a worldwide success, translated into six languages and being adopted in railway networks, mining enterprises, food manufacturers, airports, pharmaceutical companies, local governments, hospitals, petrochemical plants and facility management services.
It has consistently helped to organise priorities, co-ordinate resources and provide better transparency on what needs to be done, when and why to deliver better value for money.
Building on the successes of PAS55 and following two-and-a-half years of consultation with 26 participating countries, a full ISO (International Organization for Standardization) standard is shortly to be published.
This provides the necessary rigour and independent validation mechanism for assuring and demonstrating good asset management. It is designed to integrate with existing management systems, such as ISO 9000, ISO 14000 and OHSAS 18000, and it is safe to assume that it will rapidly become an expected competency for any asset-managing organisation.
So what does a management system for asset management look like? A clear “line of sight” has to be established between business goals and execution of day-to-day activities. Those responsible for practical asset management tasks need to understand the why as well as the how.
Vested interests, budget protectionism and short-termism all damage value. So conflicting priorities and departmental silos have to be broken down. This often involves significant culture change, and new performance criteria to encourage proactive, collaborative behaviours instead of fire-fighting and point-scoring.
Better and more consistent, risk-based decision-making is also a key feature of good asset management. Many organisations chase greater efficiency, sometimes even to the extent of doing the wrong things faster, cheaper, better. Leading asset management organisations can demonstrate what is worth doing, when and why, and can quantify the impact of deferment or not doing things.
The outcomes of concerted efforts towards better asset management, taking all the challenges into account, have been remarkable. The hard evidence of results is greater than many would have believed possible.
The prizes are clearly large and the lessons shareable. There are many blind alleys, however, and it is easy to slip backwards if, for example, senior managers change or people believe that a technology-led “solution” will solve all the problems. Maturity development in asset management is a subtle, multi-faceted roadmap, but the prizes are huge and the evidence of what needs to be done is increasingly available.
One of the best-known experts in integrated asset management, John Woodhouse is author of Managing Industrial Risk, and lecturers around the world at conferences and through university and in-house management training programmes.