ASSET MANAGEMENT DECISION-MAKING

JOHN WOODHOUSE, The Woodhouse Partnership Ltd

June 2001

1 Introduction – to an “Asset Manager”

An Asset Manager has to be all things to all people. He or she is the point of contact between
business objectives and the considerable complexities of technical and human issues. With business
performance accountability and technical responsibility, the Asset Manager is a professional
translator – converting options such as new technology opportunities, maintenance strategies, design
changes or asset replacement decisions into business or economic language, often with little or no
hard data to work with. The newly emerging management science of Asset Management is trying to
deal with these requirements; equipping engineers to become businessmen, and introducing some
structured methods for handling reliability, performance, maintenance, safety, environmental impact,
customer & public image, staff motivation and other headaches.

Using the skills & dividing the responsibilities

Best contribution Competitive

to best practices edge skills

Operators & Maintainers Attention to detail

HOW to do & quality, Teamwork,
the right things Improvement creativity

Life Cycle analysis,

WHAT is worth doing, Engineers & Technical Cost/risk/performance
& WHEN Specialists optimisation, Business &
communication skills

Business
Clear directional vision,
WHERE we are going, Managers Trust in empowerment,
& WHY Visible & sustained commitment

New hybrid:
“Asset Manager”

Figure 1 Division of responsibilities

2 An “Asset Management Regime”

An “Asset Management Regime” is being adopted by a number of organisations to integrate Best
Practice in all aspects of designing, building, operating, maintaining and disposing of physical
infrastructure. The relevant business disciplines include Life Cycle Costing, alignment of strategies to
business objectives, cost/risk/performance optimisation and empowerment of staff and contractors.
This comprises a challenging mix of technical issues, business awareness and personnel management
and it takes considerable skill to combine them into an effective and self-sustaining programme. Only
a few UK companies have fully succeeded in such integration but many are currently trying…
 Asset Management Decisions
3 Why is “Asset Management” difficult to implement?

From our work in hand-holding organisations in this area, we have observed most of the common
constraints; they include:

‘Silo’ thinking – departmental or regional barriers, preventing collaboration and shared solutions.
Usually due to previous poor experience of organisational change, strong local management
personalities and/or badly structured performance/reward mechanisms.
Short-termism – especially in outsourced or project work, where success is often measured as
‘on time’ and ‘on budget’, irrespective of subsequent performance and value.
Conflicting Performance Measures – one group can only succeed at the expense of another:
even ‘balanced scorecards’ can reinforce such competing priorities.
Business skills for engineers/facilities managers – they do not traditionally speak the
same language as the finance director!
Risk Evaluation – the rational and consistent identification, quantification and management of
commercial, technical, safety or customer/public perception risks.
Fire-fighting – in two respects: the reactive workload is too great to allow ‘time to think’, and/or
‘competence in a crisis’ is recognised and rewarded (even at the expense of avoiding the fires in the
first place).
Data – too much of it, not enough of it, inadequate quality or the wrong sort: and what is it used for
anyway?

There are common threads in several of these problems – in particular, the lack of structured, fact-
based decision methods. Clear and auditable processes are needed to show what data is needed
and how it should be used, take appropriate consideration of risks, financial and non-financial
business objectives, short- and long-term consequences, and the inevitable ‘trade-offs’ that occur.
These were the target of the recently-completed Eureka MACRO project; a 5 year multi-industry
collaboration programme, supported by the EU and the DTI. The project and its deliverables are
described in the appendix to this paper.

4 Strategy versus Delivery

One of the first key distinctions to be made is that between directional decisions (where we are
going, and what we need to do to get there) and administration efficiency (how we organise what has
to be done). While both are needed to correctly manage the assets, they do so by very different
routes. Attention to the latter without addressing the former can result in “doing the wrong work
10% quicker/cheaper” – not a guarantee of better total performance!

There has been disproportionate attention applied to the administration areas (the solid ovals in
Figure 2 below) over the last 10 years. Tens of millions are spent on creating master asset registers,
customising and implementing work management systems and in supply chain initiatives. Computer-
assisted generation of work orders, assembly of relevant resources and communication with
craftsmen (radio links, hand-held terminals etc.) are all aimed at getting the jobs done more
efficiently. Now it is time for a more balanced view, considering what work or investments are
worthwhile in the first place.

Simple but robust techniques for investment and project evaluation are needed by engineers and
facilities managers. Maintenance strategy has to move from the old time-based routines to condition-

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and usage-drivers wherever appropriate. Cost, risk and performance pressures must be considered,
quantified and optimised. These are the areas where the big ‘lost opportunities’ are being wasted at
present. It is the top (capex & opex strategies) and right hand (continuous improvement) sections of
Figure 2 that holds the greatest scope for quantum improvement. In contrast to the successful
implementation of a new Computerised Maintenance Management System (CMMS), which might
pay for itself in 18-30 months, an appropriately targeted cost/risk review of projects and
maintenance requirements will typically achieve net payback in 3-6 months.

Figure 2. Asset Management Processes

5 Decision Support – the story so far

A number of disciplines and procedures have emerged over the last 20 years, mostly from the highly
structured or regulated industries - the armed forces, airlines and nuclear sectors. The developments
of Integrated Logistics Support and Reliability Centred Maintenance are good examples: both
started in the ‘70s in earlier guises but are being widely adopted as standard ways of applying
sensible logic without needing to be an expert. Their cross-industrial applications have often suffered
from poor implementation, but the underlying rigour and logic is undeniable.

Another significant source of methods and understanding lies in the manufacturing sector. Here,
particularly from the Japanese motor industry, the team-working, shared responsibility and
continuous improvement processes have emerged. Total Productive Maintenance and Total Quality
Management offer help in one of the most intangible of Asset Management responsibilities – the
attitude, motivation and performance of the workforce.

6 The next generation of thinking

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The decisions about project investments, operating, maintenance and resource strategies are at the
core of Asset Management. These are particularly acute when large sums are being considered, yet
available data is scanty and speculative. The decisions break into two fundamentally different
families: the ‘one-off’ investments (projects, constructions, modifications) and the ‘cyclic’ activities
(periodic renewal, inspection, maintenance, shutdowns etc). In the first case, decisions involve
identifying, quantifying and influencing the levels of performance, costs, risks etc. The second group
deals with the further complication of degradation or changing performance, costs & risks. In both
cases, the decision criteria can be broken down into structured checklists of the questions that need
to be asked, and the range-estimation methods that are suitable if hard data is not available. In the
MACRO project, these have been abbreviated to the (holy) RELiCS, covering all aspects of
potential benefit for investment or expenditure:

Reliability/Risk (specific events, such as equipment failures or safety incidents,

comprising frequencies/probabilities x consequences)
Operational Efficiency (performance while operating, such as energy/materials
consumption and volumes or quality of output)
Life Expectancy (deferment of capital expenditure, ‘cost of money’ etc.)
Compliance (regulatory, safety, environmental)
‘Shine’ factors (public and customer impression, employee morale etc)

However quantified, these components often compete for attention – there is are trade-off’s between
performance and risk, for example, or between Reliability and Efficiency. This introduces the need
for ‘optimisation’ – finding the right blend of costs, performance, risks etc. Decision support tools
must assist in finding this optimal combination (and move away from the partial view of ‘minimum
cost’ or ‘maximum reliability’).

Optimum
combination

Minimum
maintenance
cost
Maximum
Reliability

© The Woodhouse Partnership Ltd 2000

Figure 3. Cost/risk trade-off: the meaning of ‘optimum’

6.1 Data uncertainty

A common concern with such optimisation concepts, is the lack of quality data. The ‘garbage in –
garbage out’ maxim certainly holds true, and asset management information can be very rough
(especially in the project phase, when no operating experience exists). The solution comprises two

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methods: range-estimating and sensitivity-testing. These techniques reveal a) the corresponding

range for the optimum position and b) the significance of data uncertainty (i.e. what it could be worth
to improve the data).

Cost of
data
uncertainty

Range for
optimum
decision

Figure 4. Analysing data uncertainty

6.2 Project Investments & Life Cycle Costing

The first major applications of such thinking are in the evaluation of discrete projects or investments.
Various levels of sophistication exist, ranging from simple cost/benefit screening, to cashflow
projections, financial discounting methods and whole system simulation and life cycle modelling.
Two in particular need greater clarity of targeting:
a) the systematic evaluation and prioritising of minor projects (the ‘small and many’)
b) whole life costing of options, often having dissimilar life expectancies.

Screening & prioritising minor projects

In the first of these, the challenge is to get greater consistency and business discipline in the face of
wide variation in project types, data quality, time available and capital expenditure constraints. The
MACRO project approach has invested heavily in psychology – how to ask the right questions, how
to get the originator of the idea to self-screen his or her proposal for RELiCS impact, how to
determine if additional data is really needed and so on. The resulting methodology is a highly user-
configurable evaluation tool (“APT-PROJECT”), with hand-holding guidance on company-specific
generic or historical data (such as labour cost rates, production impact values, incident frequencies
etc). It calculates all the usual cost/benefit attributes (NPV, IRR, payback etc) plus the ‘premium
paid for compliance’ for those project that will go ahead despite inadequate tangible benefits. This

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allows all sorts of projects to be individually screened (for cost/benefit and data sensitivities) and then
ranked by objective criteria.

The results have been gratifying – in one case, 400 projects where evaluated by just two people in 3
weeks, showed immediate savings of over £2.5 million. In another (the biggest oil refinery in the
world), all change proposals are screened in this way, reducing the average evaluation time from 8
hours to just 30 minutes, with greater consistency and auditability.

Life Cycle Analysis

This tackles the combined evaluation of initial capital costs with future performance, operating and
maintenance implications, life expectancies and eventual disposal or replacement. It opens up a big
can of worms for performance and reward criteria, data uncertainties and long-term versus short-
term priorities. In addition, there are technical challenges in correctly handling risk for various
possible failure modes, and in the comparative analysis of options with different lifespans (where
NPV techniques cannot be used).

The MACRO project has broken substantial new ground in this field – developing the numerical
techniques as well as the analysis procedure for such evaluations. Not only can the evaluations take
account of the usual capex and opex, but they can include various competing degradation
mechanisms, the impact of non like-for-like replacements, and the optimal timing for renewal,
refurbishment or disposal actions.

Figure 5. APT-LIFESPAN evaluation of optimal renewal/modification timing

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6.3 Maintenance Strategies

Next let us consider the directional decisions about “what maintenance to do and when”. Rule-based
procedures such as the civil aviation MSG-3 and its multi-industry progeny, RCM, use key
characteristics to choose between fixed-interval, inspection- or continuous condition-based
maintenance and 'design out' options. The present enthusiasms and vast expenditures however, are
undoubtedly due for some ‘rationalising’ (one large UK company has spent $12 million on Reliability
Centred Maintenance studies over the last 5 years). Similarly, Total Productive Maintenance (TPM)
from the Japanese motor industry tackles parts of the problem: the operator/maintainer interface,
overall equipment effectiveness (OEE) measure and the “Cleanliness is next to Godliness” attention
to detail. However it is unlikely that a single mechanism could ever exist to handle the variety of
industrial operating constraints, reliability and efficiency characteristics, maintenance requirements
and responsibilities, and cost/benefit evaluation of appropriate strategies. A blend of techniques will
nearly always be needed.

MACRO has revealed that the appropriate tools, and levels of analysis effort that is worthwhile,
should be based on the criticality of the plant & processes involved. Assigning such a criticality
measure is not a trivial exercise. It must combine and merge safety priorities, performance factors
(reliability, efficiency, quality etc), compliance obligations, public and customer perception measures.
The resulting ‘overall importance’, however, is a direct reflection of the consequences of mistakes, or
the importance of getting the right strategy. So it can be used to determine the depth and
sophistication appropriate to find those right strategies.

Typically such an approach yields three bands of treatment: the top 5-10% ‘vital few’, for whom
quantitative analysis is vital, and an optimal blend of preventive, predictive and contingency plans are
needed. The next band typically covers between 30 and 60% of systems and equipment; the ‘core’
of the business but sufficiently large in volume to need templates and structured rules to determine the
appropriate management techniques. The remainder comprise 'low criticality' items, individually not
even worth even an FMEA study, but collectively responsible for large parts of the overall budget –
here some ‘structured common sense’ filters can be used to make significant savings without the
costs of a more rigorous, zero-based approach.

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1. Functional Analysis

2. Criticality Assessment & FMEA

a) System level
Typically 40%

b) Asset/Failure mode level

Typically 10% Typically 50%

Manufacturer’s
Cost/Risk Rule-based Analysis Recommendations
3. Optimisation e.g. RCM, RBI or Current Practice
Performance

Equipment Failure Mode Consequence M’tce Method

“Reverse RCM”
filter
Risk

Intervals worth tasks > reasons

cost/benefit & intervals
calculating
Optimum
reaction points Design
Designchanges
changes
Preventive
Preventivetasks
tasks
Detective
Detectivetasks
tasks
Corrective
Correctivetasks
tasks
Construct optimal
4. groupings & schedule

Opportunities
Cost & & Constraints
Risk
Impact

Task combinations
Copyright 1994 The Woodhouse Partnership Ltd

Figure 6. Combination of tools for “what maintenance & when?”

Functional analysis & mapping, criticality analysis, FMEA and several rule-based methodologies
have been around for many years – it is the combined usage of them that is required for a successful
implementation. MACRO has filled a few gaps in the total toolbox, namely:
cost/risk/performance optimisation methods

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 Asset Management Decisions

cost/benefit evaluation of RCM- or RBI-derived tasks,

a ‘Reverse-RCM’ filter of existing or recommended work programmes
the final optimisation of task groupings, schedules and shutdown/possession plans.

These represented the final bottlenecks to a fully integrated and auditable approach to maintenance
strategy development/justification. The results of such a ‘mix-and-match’ philosophy have been
staggering; typically 25-40% reduction in maintenance requirements for a given system
integrity/performance, the right amount of shifting towards condition-based and predictive/preventive
strategies and multi-million pound savings in shutdown/possession scheduling. The technical solutions
contributed by MACRO include:

APT-INSPECTION; evaluates condition monitoring & functional testing strategies to find the
optimal inspection intervals, condition reaction points etc.
APT-MAINTENANCE; optimises the blend of preventive, corrective and condition-reactive
maintenance, including analysis of multiple parallel degradation mechanisms.
APT-SCHEDULE; uses genetic algorithms to explore different bundles & timing of shutdowns
or possessions. Finds the optimal work programme (blend of performance/ risk/cost impact for
individual task timings and shared downtime advantages).
APT-SPARES & APT-STOCK; evaluation of contingencies, supply chain options, inventory
levels and purchasing strategy.

7 Continuous Improvement
The on-going requirement for decision support covers the cycle of problem identification and
interpretation, the selection and evaluation of possible solutions, and the corresponding adjustment of
strategy and resources.

7.1 Problem finding & investigation

At one level, the problem identification methods are well established. Top-10 reports of failure
rates, total maintenance cost, downtime or spares consumption have been providing useful pointers
to problem areas for many years. The advent of computers has been of great help, correlating failure
types, producing rapid ranked lists and even allowing 'drill down' into whatever history has been
recorded in the search for clues about root causes. In general, the technology has only succeeded in
identifying where the problems lie, not in the nature of the problem or the reasons for it. A good
example of this difference lies in the use of Mean Time Between Failures as a reported statistic:
MTBF is very useful indeed for seeing where the problems are, and how big they are, but is it quite
useless in determining why the failures are occurring and what, therefore, could be done to prevent
them. For the latter decisions, it is the pattern of risk (how it changes with time/use/???) that
matters. This is a whole order more difficult to establish from historical data - so engineering
knowledge/experience, expectations, inference and range-estimating are the prime sources of
information. Happily there are now some clever ways to a) ensure that the right questions are asked
in the first place and b) use range-estimates and other approximate opinions.

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7.2 Evaluation of Solutions

Most interpretation is still based on human judgement, using the basic logic/tools of root cause
analysis and common sense. The same has been true for the next, quite separate activity - the
cost/benefit evaluation of possible solutions (where the MACRO project has been focussed).
Historically, decisions have rarely been able to consider the effects of changing maintenance intervals
or condition reaction points upon system reliability or the total cost of ownership. The relationships
are poorly understood, the mathematics are too nasty, and the available raw data is usually
inadequate. However, much as changed through the MACRO project. Now there are techniques
with wide practical applicability:
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Equipment upgrades X X X
Process changes X
Procedure changes X
Technology updates X X X
Efficiency improvements X
Problem priority/urgency X
Problem-solving efforts X
Investment paybacks X
Compliance requirements X
Public image/morale activities X
Life Cycle & Asset Replacement
Equipment selection X X
Vendor comparisons X X X
Capex/Opex trade-off X
System configuration X
Repair vs Replacement X X
Life extension projects X
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Optimum efficiency profiles X X
Optimum run lengths between shutdowns X
Reliability, efficiency & longevity combinations X X
Preventive Maintenance
Optimum PM intervals X
PM task evaluation X
PM opportunities X
Time vs usage based PM X
Optimum shutdown interval X X
Repair vs Replace options X X
Predictive/Condition Monitoring
Inspection & CM intervals X
CM cost/benefit justification X
CM methods & performance X
Function testing intervals X
Failure finding inspections X
Safety risk exposures X
Work Scheduling & Shutdowns
Optimum timing and intervals X
Work groupings X
Evaluation of Opportunities X X X
Scheduling and task alignment X
SSp
paarreess &&MMa atteerriia
allss
Insurance/slow moving spares
Stock holding levels X
Whole units vs components X
Shared or dedicated X
Supplier A vs Supplier B X
Pooled access contracts X
Supplier held spares X
Spares criticality X
Optimum availability X
Consumables, stock, materials
Optimum stock levels X
Min/Max stock levels X
Reorder quantities X
Reorder cycles X
Supplier A vs Supplier B X
Pooled access contracts X
JIT/Supplier-held stock X
Optimum availability X
Storage requirements X

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Figure 9 Decision types and MACRO guidance

8 Putting the components together
Taking a step back, any integrated implementation of Asset Management must consider a mix of
techniques, tools and strategies, customised for the profile of assets to be managed, the culture of the
workforce and industry, the historical ‘baggage’ of previous successes and failures, and the degree
of flexibility needed to cope with ongoing rates of technical and commercial change. To develop
such a customised route-map, however, requires a) a good understanding of the current corporate
strengths and weaknesses and b) a very broad awareness of what can be achieved in which areas, at
what rate and with what benefit. Such a master plan can only be developed with strong management
leadership, a perceived imperative to improve (survival or profit threats, technology or market
changes etc) and some specialist expertise to navigate the over-familiar trees and woods.

The Woodhouse Partnership has recently developed an Asset Management version of the popular
EFQM Business Excellence model – to help assess a company’s present position, priorities and
scope for improvement, and the integrated routemap for the creation and implementation of an Asset
Management Regime.

This usually emerges as a 2-tier plan – a short-term realisation of known opportunities and “quick
wins”, often obtained by rationalising and coordinating existing fragmented good practices, and a
longer-term programme of fundamental change (typically a 3-5 year or longer horizon). Maintaining
momentum along this path is only possible if the short-term benefits are redeployed to deliver the
long-term big prizes. Yet the payback for those who succeed is vast – ranging from company
survival to substantial service/competitive advantage. The North Sea oil and gas sector has 10 years
lead in this – and has cut production costs/increased safety enormously as a result. In the last 5
years, Australia and New Zealand public sectors have embraced the concepts extensively, with
considerable service and cost benefit. In a similar timeframe, UK utility and transport industries have
been developing such an holistic approach, and generally expect Asset Management to be one of the
decisive factors in survival, regulatory treatment and company performance.

6. Conclusions
So, where do we stand? Much development has occurred, particularly in the IT area and multi-
flavoured ‘methodologies’ (RCM, TPM etc). Computer systems have certainly wheedled their way
into the foreground, and 'asset information’, ‘work management’ and ‘condition monitoring’ systems
are generally recognised as necessary and valuable.

The front-line areas of innovation are those of condition monitoring, life cycle and reliability/
maintenance strategy analysis. In these fields, the techniques, tools and understanding are moving
fast – in fact the technology is no longer the limiting factor. Simulation, cost/risk optimisation tools
and sophisticated reliability modelling aids can handle almost any level of sophistication likely to be
needed. It is now the understanding and the use of such techniques that are the limiting factors. The
education gap is large and, if anything, growing. To meet this need, and the obvious mismatch
between traditional engineering courses and the modern business requirement, the first signs of hope
are emerging.

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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. It is the first course to be approved for the Engineering Council’s new “SARTOR -
Matching Sections” scheme. See: http://univation.rgu.com
Various commercial organisations (including The Woodhouse Partnership Ltd) are offering short
courses in the component techniques. See: 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). See:
http://www.iam-uk.org

Nevertheless, we need to increase the spread of understanding, of successes, failures and

innovations at a greater rate. The business demands can only get greater, so all of us are under
increasing pressure to improve professionalism, discipline and cost/benefit accountability. We cannot
afford to reinvent the wheels individually or learn by trial and error - it takes too long and is too
expensive. Just as importantly, however, we have also got to be interested in the methods for
improvement, and to enjoy our jobs. Asset Management is complex and affects all parts of the
business, but it hold massive opportunities and, providing we can keep our heads above the water, is
good fun!

J.Woodhouse
June 2001
e-mail: [email protected]

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9 Appendix: The MACRO project

Cost/risk/performance trade-off in asset management decisions

Acrobat Document

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