AAM for Larger Organizations
This topic has a brief overview and covers:
Service organizations have been implementing asset management for many years to different degrees of sophistication. Engineers, technicians, accountants and other staff have managed assets over the years using combinations of experience, "gut feelings" and value judgments. It is obvious that this has been done reasonably effectively (in most cases) because there has been no great evidence of critical failures or customer dissatisfaction. However the increasing number of assets, their age, and the sheer complexities of the problems to be analyzed requires a new approach. Advanced Asset Management is the answer.
Organizational structures need to be updated to deal with the issues of life cycle asset management and their impact on the organization's business.
Service authorities will be expected to show that they are providing an acceptable level of service for an acceptable cost in an efficient and effective manner. The critical issues will be level of service and cost of service.
Performance will be ultimately judged by benchmark comparisons against other similar authorities on a "world’s best" target, usually related to only "cost of service". Deviations from target benchmarks will need to be justified to governments and customers.
Comparisons of the level of service will be more difficult to determine, and how authorities handle the aging asset problem and the associated risk of failure will be critical to their business viability.
From a business point of view this commercial environment ultimately amounts to reducing the organization's renewal and maintenance costs to the level where customers begin to complain about the level of service provided. Productivity, effectiveness and efficiency of the organizations activities will be paramount in the area of recurrent expenditure.
From a corporate point of view, the rational allocation of reduced resources (recurrent and capital expenditure) between competing divisions and/or business unit will require true cost/benefits to be reviewed between diverse asset groups.
In the area of capital investment, effectiveness will be based on an acceptable cost/ benefit or return on capital, with new investment being made as late as possible (just in time). If the organization delays investment in the area of renewal then they can expect greater numbers of failures. This constitutes a risk cost or loss to the business. Risk management (loss reduction) will become a critical activity for all organizations.
This new environment will require more flexible asset operations, faster rectification of failures, and other effective Asset Management strategies. Being able to predict likely future asset performance problems, quantify them in terms of cost, and take the necessary action to address them are critical to any organization's future.
From an asset management viewpoint, the critical issues in this capital/recurrent expenditure reduction battle become staff endeavor (productivity), effectiveness and efficiency. More specifically:
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Work hard (productivity).
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Work smart (effectiveness).
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Work wise (efficiently).
Having a clear picture of the assets that provide the services, their current condition, their future decay, and the rehabilitation or replacement required to meet the minimum level of service acceptable to their customers, is essential to any organization's mission.
Human endeavor (productivity) has delivered considerable improvements through organizational restructuring, commercialization, and threat thereof. However, the next major gains to be made will require the analysis of detailed information to produce effective strategies to match the key issues revealed by the organization's business objectives.
Better Integrated Business Systems will be required to achieve the organization's objectives and mission.
Effective life cycle asset management is the key issue for both level of service and cost. Therefore, it should be a key performance monitoring area for all service authorities or major asset owners.
Although the actual responsibility for the management of individual assets may be delegated to Divisions or Business Units, there are corporate needs which must be addressed, namely:
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Information needs
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Coordination of activities
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Strategy development.
Life cycle asset management involves specialist activities that cover most technical management areas, some financial or economic areas, and elements of social and political risk.
Following reviews of many major public sector authorities and large private enterprise organizations, it has been found that asset management is often:
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Fragmented and not effectively coordinated
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Given different emphasis by different asset stewards or divisional managers, resulting in radically different asset condition and performance
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Not fully economically justified, on an identified benefits (needs) or risk reduction basis to the business of the organization.
The asset management function needs a focus within most large service organizations. For that reason, an Asset Management Team (AMT) should be formed within the organization with clear responsibility to an asset management executive sponsor to manage any work in this area.
This should be done to:
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Ensure coordination of any programs undertaken
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Assist the long-term effectiveness of the asset management programs likely to be generated and their "ownership" by the organization.
The needs and objectives of the organization will change all the time and the asset management team need to reflect this.
The main phases of the AMT will involve:
Awareness Raising Phase (6 — 12 months)
Convincing the organization that asset management is a critical area.
Strategy Plan Development Phase (6 — 12 months)
Developing a detailed plan for the adoption of advanced asset management techniques and systems (the Needs Analysis Project Evaluation phase).
The Implementation Phase (1 — 5 years)
Including training, processes and policies, system acquisition, data capture, pilot schemes, commissioning etc.
The Operational Phase (3-5 years onwards)
Operating the systems, optimizing procedures and activities, reviewing the outputs, development of more appropriate strategies, policies setting etc.
The Continuous Improvement Phase (Year 5 Onwards)
This phase represents the stage following the production of the first total asset management plan (TAMP) and involves the identification of potential areas of benefit, and the processes for implementing them.
The AMT membership, skills and outputs need to reflect these changes.
In some organizations the complexity and diversity of the assets make it difficult if not impossible for executive managers to effectively evaluate the competing claims for resources between the various divisions, business units or asset groups that make up the organization.
Many aspects of asset management can be effectively delegated or contracted to business units or private contractors. However there are some decisions that are difficult for "autonomous or independent" business units to make, such as:
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Shutting themselves down
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Diverting their funds to support other corporate activities.
The structure should be such that the AMT reports directly to the Executive or Corporate Management Team (CMT) through their corporate sponsor. It has a constitutional role determined to suit the organization.
The AMT should play a long-term role within the organization with responsibility to include:
Formal Role
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Enunciating and developing corporate policy, objectives and guidelines
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Debating new systems/procedures
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Coordination of maintenance and renewal practices
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Reviewing budget allocations and priorities for asset management issues and arbitration on same between units competing for resources
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Completing detailed economic evaluation of critical practices and renewal decisions
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Assembling and assessing strategic asset management data
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Assisting internal review section reviews of asset management practices
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Working with other committees (finance, information technology, etc.) in providing information to EMT
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Reviewing the AMT functions and responsibilities and adapt same to meet the changing needs of the organization
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Undertaking studies or programs determined necessary by EMT
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Completing special programs at the request of individual business units within the organization.
Informal Role
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Producing a regular newsletter and project sheets and creation of a communication network throughout the organization
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Passing on innovative practices/disseminating information/training etc.
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Reviewing existing practices/regimes/systems
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Overviewing the progress of individual asset management projects including studies, information technology system implementation, data capture etc.
Like all good business practices the role of the AMT should evolve and change to meet the needs of the organization. The initial role (strategy plan development) will change as some asset management programs enter the implementation and operational phases. The AMT role and members need to reflect or to respond to these changes.
To ensure the AMT functions effectively, it would be desirable to have a permanent officer acting as coordinator of the AMT, convening meetings on a regular basis and providing the work outputs required for the roles and responsibilities listed previously.
Depending on the size and workload involved some organizations will require the AMT to be supported by a small work unit under the direction of the coordinator e.g. 6-10 people.
The AMT and the coordinator should operate under the Director of a corporate division with the overall AMT activities responsible to the Board of Management.
In the future, a second tier of similar AMTs should be formed within each division or business unit to perform similar activities for their specific task e.g. Generation.
This may currently exist in an informal way in your organization. This should be formalized and expanded to include all critical asset managers and associated staff.
The key players in the AMT should have demonstrated expertise in:
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Engineering/technical
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Financial/economic
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Information systems
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Asset management.
The following sections expand on the individual roles and responsibilities of the key AMT members.
One senior member of the Asset Management Team needs to have technical qualifications. This team member needs to be a senior engineer and (if at all possible) should hold a deep interest and/or experience in life cycle asset management of the assets owned by the organization.
This member needs to have a clear view of the corporate objectives (from a technical perspective) and needs to provide leadership in all technical aspects.
This person needs to become the organization's resident expert on asset management, being responsible for the overall co-ordination of asset management principles, practices and necessary support systems throughout the organization.
This needs to be supplemented by a raised awareness of:
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Life cycle asset management process including ORDM
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Asset management information systems
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Maintenance issues and maintenance analysis
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Asset accounting and economics.
This member needs to act as a "general practitioner" in these areas and recognize when "specialist expertise" is required.
It is important that this member gains a good appreciation of asset accounting and economics and the key technical inputs that relate to these issues, e.g.:
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Valuation types and techniques
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Written down values
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Effective lives
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Depreciation rates
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The costing of infrastructure services
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The financial outputs required to effectively manage assets including:
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Maintenance analysis and optimization.
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Optimized renewal decision-making.
They should have a thorough understanding of the financial system including the general ledgers and chart of accounts.
This person will liaise between the financial group and the technical asset managers to ensure the most appropriate information system outputs are derived in the most cost effective manner.
Another key player is the senior financial member of the team.
This member needs to provide the pivotal inputs from an asset accounting and economics:
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Asset accounting and reporting regulations
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Asset cost centers and activity based costing applications
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Asset valuations and depreciation
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Financial outputs required for corporate objectives
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Economic evaluation techniques
It is vital that this member gains an appreciation of the technical inputs required to derive these outputs.
It is also desirable that this team member gains an understanding of the inputs and the co-ordination required to derive the necessary cost inputs for:
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Life cycle costing
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Condition based depreciation
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Average annual annuities
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Maintenance costing and analysis
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Optimized renewal decision making (ORDM)
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Financial physical thresholds
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General ledger/chart of accounts
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Program accounts
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Sub-program accounts.
The Information Systems staff's roles and responsibilities on the Asset Management Team will vary as the project progresses.
They will be deeply involved in the early strategy development in looking at:
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The costs involved in implementing the different system options (hardware and software)
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Deciding on the most logical way to improve or enhance software functionality
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Advising on integration and system hardware aspects.
The IT staff will provide direct input in the following areas:
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IT system specifications
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Development of hardware requirements and implementation strategies
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Evaluations of software
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Purchase of software.
Once the overall strategy has been adopted, the IT representatives will be directly responsible for:
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Enhancements to existing software systems
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The introduction of new modules or applications into the system
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The integration of these modules including the required interfacing of sophisticated life cycle asset management systems
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The purchase and installation of all the necessary hardware required as part of the strategy
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Specialist assistance in developing techniques to reduce the cost of data capture and inputting e.g. Data transfer subroutines
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The training of staff in the use of these new systems, from a software/hardware perspective. (This needs to be coordinated with AAM training).
One of the factors evident in successful implementation programs is the depth to which IT staff members become familiar with the overall issues of asset management and the way in which the systems need to operate to achieve the key aims.
It is recommended that the IT group appoint one officer who participates throughout the implementation program and is responsible to ensure that all IT services in software, hardware and training are delivered to ensure the success of the overall program.
The IT Coordinator should be responsible to the AM Steering Committee Chairperson and the Corporate Coordinator/AM Project Manager.
The key elements in the latter stages of the implementation program will involve:
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Training in how to use the software. This must be coordinated with suitable training that shows why we need to use the software
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Ensuring that adequate hardware access and response times are available for the critical data capture phase
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Monitoring the overall usage of the system and ensuring appropriate response times are maintained especially in the operational phase with significant use of the GIS, maintenance management, and job management systems.
This is particularly important in the data capture phase. The need to provide access for data input staff or contractors are vital to ensure the programs keeps to the timetable.
The introduction of fully integrated advanced asset management means a radical change for most organizations.
It will require the spread of accessibility to the system by the outside workforce. Often, the system (terminals) is only available to the key managers or engineers.
It is common for the expansion of the system to support:
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Superintendents
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Foremen/leading hands
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Facility managers etc.
This results in the need for a large number of additional terminals and associated support hardware and communication systems.
This will result in:
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Increased Computer Time
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A greater degree of job and work planning is undertaken, including the query and use of the following modules:
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GDMS/GIS Digital Mapping Systems
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Asset Register Modules and Life Cycle Models
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Maintenance and Job Management Systems
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Budget/Costs etc.
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Purchasing.
To ensure adequate response times, this usage will require additional CPU, communication and file server-type facilities.
This usage rises as the system becomes more useful to staff. It is likely to double in the four years after implementation.
The IT staff representative or the AMT needs to plan for and oversee these issues.
This will be provided together by the Asset Management Coordinator and the Project Manager along with the Asset Management Consultant.
Both these players will provide advice to the Asset Management Executive Team (AMET).
They will provide the key advice and overview of the asset management activities and will be members of AMT.
The Asset Management Team can provide a co-ordination for training throughout the organization however, a second valuable role involves the aspect of senior management development training.
There are often weaknesses in the senior management area in the knowledge and skills required for advanced asset management. Transient positions in the asset management team for senior personnel can assist this process immensely.
Middle and senior managers with asset management responsibilities can transfer on short periods e.g. 2 or 3 months, to work with the asset management team on an issue that is related to their asset responsibilities.
By working in this dedicated environment, skills and expertise transfer can take place far more quickly resulting in:
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Quickly raising the awareness of the individuals to the organization's asset management activities and to the skills and expertise required
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Complete some aspect that has direct relevance to the transient employee and their asset responsibilities
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Completes a valuable on the job change management exercise.
The implementation of an integrated business systems approach to asset management is a complicated process involving many thousands of individual tasks.
It is highly desirable that the asset management engineer or coordinator introduces a suitable project management program to assist them to:
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Identify and record all the tasks involved
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Determine the connectivity between individual tasks
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Match these tasks to the outputs required of the timeframe required
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Identify critical paths and ensure that appropriate resources are applied to complete the program on time
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To monitor and assess progress more effectively
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To indicate the necessary resources that need to be applied and to assist in budget preparations for the various individual asset programs
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Allocate resources to suit staff/contractor roles.
This method of continuous improvement or change management involves the piloting of advanced techniques and approaches in selected test areas.
The organization selects an area for which they believe improvements can be made and then pilots these changes in that part of the organization where they believe the greatest benefits and the most exhaustive testing will be required.
By carrying out these blueprints as pilot schemes the organization can:
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Identify the problems associated with bringing in the change
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Identify the costs and benefits derived
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Optimize the process by which this activity can be implemented into other areas of the organization.
By organizing the change in one area and by verifying its success, the organization can then use this group as the "champion" to assist in encouraging change throughout the organization.
All major service authorities and asset owners need an AMT to act as a coordinating/filtering body.
Structural options could be to make the AMT responsible to one of the following divisions, e.g.:
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Finance
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System Operations
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Strategic Planning
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Internal Review
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Corporate Support Services.
The work carried out by the AMT primarily impacts on Corporate Strategy. It has many similarities with the Strategic Planning Group although it should also play an informal advisory role.
The corporate ownership of assets needs to be clearly recognized by the organization's business units or delegated asset stewards.
The delegated roles and responsibilities of the corporate management, individual divisions, business units and facility groups need to be clarified with respect to life cycle asset management.
Many issues related to the life cycle management of assets are clearly a corporate responsibility. These issues fall into two categories:
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Formal (critical) issues
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Informal (non-critical) issues.
To enable the competing resource interests of different divisions and asset stewards to be resolved or debated there is a need for a review group to assess the relative merits of each business unit before presentation to the Executive Management Team (EMT).
The major formal role of the AMT will involve corporate strategy development. This role would logically fall into the division of Corporate Planning.
The informal role relates to that of a "User Group" whose prime function is to disseminate information and arrange training/workshops etc. on issues related to life cycle asset management throughout the organization.
The AMT should be independent of the main divisions of operations and finance. To be able to perform the coordinating, reviewing function effectively, the group should be seen to be outside the major participant divisions.
In some cases, this can be effectively achieved by the AMT being operated as a Support Service to the organization, or even part of the Internal Review or internal control/review system.
It should be recalled that we are discussing the corporate AMT, and not those teams that should be formed within each business unit - however those teams still need to operate in a similar way.
The AMT coordinator should be a specialist in life cycle asset management and should work with either the Strategic Planning Group, or as an independent support services group, and have a direct access to the EMT.
The AMT group should concentrate on life cycle issues to bring together the skills of the organization, and also provide an opportunity for people to pass through the asset management team's environment, gain experience and broaden their perspective on all issues in relation to asset management.
The AMT should play an overview and monitoring role of the performance of the individual groups that are given accountability for carrying out asset management programs. Milestones and targets need to be set up and adhered to by the groups responsible. This could be considered as an internal review role.
An often-expressed feeling is "that the activities of the AMT (as corporate representatives) will infringe the autonomy of the individual divisional or business unit responsibilities". This cannot be regarded as valid, once corporate obligations are fully considered and accepted by delegated stewards.
By including representatives of each asset group or business unit (asset stewards or managers) within the AMT, together with other corporate divisions that have an interest in asset management issues (e.g. Finance, EDP, Risk, Human Resources) the holistic "corporate view" should prevail.
By forming the AMT from this "peer group" within the organization, this should reduce the fears of individual asset stewards that the AMT will infringe unduly on the autonomy of the independent business units.
However there is a need for an independent external review of all technical management activities, especially asset management roles. This will become compulsory under full privatization and should become a common practice for all public sector authorities in the near future.
An internal review role can be carried out by the AMT (by assisting the organization's internal review team).
Modern management techniques have identified service units as the most efficient form of service delivery.
By putting the clear responsibility for the delivery of certain services or products to that business unit the organization can clearly identify responsibility and accountability issues.
In the case of major service authorities that have a single service or product, various regions or areas are often created and individual business units given responsibility within that region for effective service delivery. Creating a competitive environment between these regional business units makes further efficiency gains.
As organizations move further down the path of commercialization, many divisions will be semi corporative. The management of these units is often based on a commercial contract.
These structures tend to create a concentration on the year-to-year performance of these business units with regard to performance indicators for financial and service delivery.
In the area of infrastructure management with long-lived, capital-intensive assets, short-term financial gains can be achieved over quite long periods through the reduction of maintenance and renewal budgets at the expense of the overall asset condition.
These business units are really the custodians or stewards of the assets. The ownership clearly resides with the corporate organization. Therefore, it is vital that the corporate organization play a watchdog or overview role to ensure that their interests as the asset owner are clearly met.
From the corporate perspective the other key issue involves horizontal uniformity. Where the organization provides a range of diverse services through business units (e.g. community health, roads, water supply etc.) it is essential that Corporate have the ability to judge the relative merits of each business unit and weigh this against the overall resources of the organization as a total business.
This can only be done where a uniform approach is taken to asset management and that the information brought forward by each group, in justification of its business case, is framed in such a way that relative comparisons can be made.
Many studies into infrastructure service providers have indicated that these structures were working extremely well in most areas of service delivery except that some showed:
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A lack of responsibility shown to the overall life cycle of the assets
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The concentration of effort on short term gains
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A lack in the uniformity of approach
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A sense that the business unit owned the asset.
Many senior executives and review staff have also recognized these issues. It is considered that problems do exist to some degree in most organizations.
Where these individual business units had been given high degrees of autonomy the key success factors included:
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A clearly defined and understood role and relationship between the asset steward (business unit) and the asset owner (corporate)
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A specialist corporate unit that provided:
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Specialist advice on asset management to the individual business units
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The co-ordination and responsibility for all systems or processes that have a corporate wide application
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A performance review function of each business unit from a corporate perspective.
In general the best practice management structures appear to be those where the business units have a clear responsibility for their service delivery function. These units act in a role similar to a medical model in which they play the "general practitioner", responsible for the child's health, but answerable to the parent (corporate owner) in carrying out their responsibilities in the knowledge that they may need to call on "specialist" assistance and advice in some areas of their service delivery responsibilities.
Having decided to include a specialist asset management group within their corporate structure, many organizations then find difficulty in deciding where the asset management team should be located and to whom should it be responsible.
This question is dependent on the decisions that have been made with respect to corporate responsibility for asset management. If one of the executive directors has been made responsible for all corporate assets, then it would seem prudent that the asset management team should be part of that director's responsibility and should therefore fit within that division or department.
The role of the asset management team will change from the initial stages of developing strategies and implementing the necessary asset management programs through to one of system maintenance, analysis and continuous improvement. Therefore, it is important that this group is located in the area which makes the greater sense from its ultimate role - that of analysis, Total Quality Management and CIP.
At this operational/analysis stage the individual business units within this corporate framework will carry out the actual day-to-day activities of asset management.
The asset management teams main roles will involve:
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Detailed analysis
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Specialized strategies for individual asset types and asset groups
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Developing overall total asset management plans for corporate
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Providing quality assurance overview to individual work groups
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Coordinating and implementing corporate systems
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Project managing continuous improvement program activities
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Identification of cost reduction opportunities
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Optimized renewal strategies.
The individual business units will be responsible for:
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Day-to-day operations and maintenance activities
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The identification and adoption of renewal strategies
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Capacity and augmentation analysis
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Asset creation and handover activities
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Data maintenance and updating.
There are two distinctly different models for large organizations:
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Organizations that provide a multitude of services to customers (e.g. the municipal model)
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Organizations that provide a single service to customers (e.g. water supply, electricity etc.).
The most appropriate location for such a group is in the strategic planning and future strategy area, for it is in this corporate area that the group will have its greatest influence.
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LOCATIONS
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PRIORITIES
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Implementation Stage
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Operational Stage
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Planning & Strategy Division
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3
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1
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Technical Services Division
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1
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2
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Special Projects Division
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2
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3
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Corporate Services Division
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4
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4
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LOCATIONS
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PRIORITIES
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Implementation Stage
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Operational Stage
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Planning & Strategy Division
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3
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2
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Chief Operations Officer Division
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2
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1
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Corporate Services Division
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1
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3
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Internal Review Division
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4
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4
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Each organization needs to assess their individual roles and responsibilities and determine the most appropriate location for the asset management team.
As with all management structures, it is not so much the structural details but more the people involved, the relative roles and responsibilities and the overall expertise and skills or interest level that is shown, that determines the relative success or failure of these activities.
The asset management groups have been located in every area including Internal Review. The success has not been dependent so much on its location but on the way in which the various stakeholders contribute to the business as a whole.
It is recommended that the organization:
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Appoints a single management executive as Corporate Sponsor with overall corporate responsibility for asset management across all assets
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Formalizes the roles and responsibilities of the Asset Management Steering Committee and decides on the need for membership of Asset Management Executive Team and its location within the structure
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Appoints an asset management coordinator with responsibility for convening and organizing the asset management activities within the roles and responsibilities determined and decide on any staffing issues related to these responsibilities
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Assigns delegated responsibilities for individual asset types or facilities to a single executive within each business unit or facility
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Defines the internal and external review role of the AMT
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Determines the roles and responsibilities of staff involved.