Setting a good standard

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.