Overview
This topic covers:
Organizations are recognizing the importance of their asset stocks as part of their business.
Accrual accounting together with other regulations and similar standards in the corporate sector have meant that more attention is being paid to life cycle asset management.
Corporate law has more succinctly identified the custodial responsibilities of directors, while in the public sector job descriptions for senior executives and directors have made them more accountable for the performance of their assets.
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.
Recognizing Asset Management Importance
Accrual accounting has enabled us to recognize the current value of our assets in both replacement and written replacement cost terms and this has enabled many organizations to recognize the immense value of their assets stock.
In the public sector, the following can apply:
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State and Local Government
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$10,500 per head
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Utilities
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$14,000 per head
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Federal Government
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$28,000 per head
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In most cases these assets form a key element of any service delivery, be it through manufacturing, tourism or public services.
In many cases over 70% of the organization's expenditure and effort will be directed at the management of these assets.
Therefore, there is a critical need to coordinate the approach required to manage these assets to ensure an appropriate uniform approach throughout the organization with the two key areas being:
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Vertical integration - between corporate and the workforce activities to insure a permanent link between corporate objectives and the actual activities that are undertaken by the workforce.
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Horizontal integration - when the organization treats all of its business units and different asset groups uniformly so that an appropriate activity is undertaken for all assets and not just some.
In recognizing the importance of asset management to their organization many groups have concluded that there is a need for an asset management team (AMT) or coordinating group to insure that the work is undertaken in the most appropriate manner.
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 organizations renewal and maintenance costs to the level where customers begin to complain about the level of service provided. Productivity, effectiveness and efficiency of the organization's 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 costs/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.