An Introduction to Asset

Management
A simple but informative introduction to the management of physical
assets
By Robert Davis
Recommended The Institute of Asset Management
Published by blah d blah design ltd
Subsidiary of EA Technology Ltd
Capenhurst Technology Park
Capenhurst
Chester
CH1 ES
www.eatechnology.com
Copyright ! "obert #avis
$S%& '()*+*',(1,+)*+*,
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Foreword
As the serving President of the $nstitute of Asset-anagement. $ am delighted to
recommend this short book/
As a past President of the $A-. "obert brought to the sub0ect of Asset -anagement his
1ealth of e2perience in business management and marketing/ This helped enormously in
developing the $A- and the field of Asset -anagement. from a purely engineering and
technical focus to one that recognises the need to engage across disciplines/ Asset
-anagement is increasingly 1ell understood by the business community as a strategic and
business led discipline. 1here the value of assets is their contribution to achieving e2plicit
business ob0ectives/
$f you are encountering Asset -anagement for the first time. this book should be a helpful
introduction to the key topics/ $t should also highlight the benefits 1hich are there to be
gained by understanding and applying the fundamental principles/ 3f course. if you
become interested or need to kno1 more there is a great deal to be e2plored and $ look
for1ard to 1elcoming you into our community4
5e are very grateful to "obert for making his book freely available and 1e 1ould
encourage you to pass it on to anyone you think might benefit/
Stephen -orris
President of the $nstitute of Asset -anagement
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An Introduction to Asset
Management
A simple but informative introduction to the management of physical assets
By Robert Davis
We are all asset managers. The last time you had your car serviced or decorated your
house, you were managing an asset
This boo! e"#lores the disci#line of Asset Management and demonstrates how it can be
used to ma!e better investment decisions.
#o you 1ork for a company that o1ns or manages physical assets7 5ould you like to 1ork
for a utility7 3r have you 0ust heard the e2pression 8Asset -anagement9 and 1ant to kno1
more about it7 $f the ans1er to any of the above is 8:es49. then this book is for you/
5hy does Asset -anagement matter7 5hy is it useful7 Ho1 does it improve
effectiveness7 Ho1 1ill it help me as an engineer. accountant. operational manager or
director7 This book 1ill address these issues and signpost you to sources of information
1hich can deepen your understanding and help you on your Asset -anagement 0ourney/
$n 1riting this book. $ have benefited from the 1onderful intelligence and e2perience
shared 1ith me during my years as President of the $nstitute of Asset -anagement by a
number of 1orld leading e2perts in the field. as 1ell as dra1ing on my t1enty years plus
e2perience of managing property. plant and e;uipment assets/
$ am indebted to the people 1ho have generously given their time to edit this document.
including Paul %arnfather. Tom Elner. -adi and #eb #avis and <o Parker/
=or more information on the $nstitute of Asset -anagement. go to www.theIAM.org
$ can be contacted via>
asset.management@eatechnology.com
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Contents
$ntroduction
5hat do 1e mean by 9physical asset97
5hat Asset -anagement is@/and isn9t
5hy is Asset -anagement important7
The asset life cycle
Anderstanding risk
So 1hat does an asset manager do7
Ho1 good do you need to be7
-ore detail@the sub0ect areas
Blossary of Asset -anagement terminology
5here to ne2t@7
Introduction
The management of physical assets is like any other evolving management discipline/ $t
suffers from terminology overload/ The ne1comer to the sub0ect may struggle to
understand the basics/ This is partly because of the unfamiliar conte2t. but also because
there are still relatively fe1 people around to ask4
This book 1ill give ne1comers a starting point from 1hich to develop their kno1ledge/ =or
those 0ust past the starting point. it might give some structure to their understanding/ =or
the 1ell*seasoned asset managers out there. $ hope it provides either a feeling of
satisfaction. or better still. grounds for a good discussion4
-anaging assets effectively for utilities is not optional these days/ Across the globe. every
society is faced 1ith a significant asset management challenge>
C Emerging economies are trying to identify the lo1est cost D highest return investments to
achieve ma2imum immediate benefit
C "apidly developing countries are faced 1ith understanding the life cycle costs of their
infrastructure
C -ore mature economies are trying to find 1ays of e2tending the life of their infrastructure
and also meet ma0or global challenges like climate change
Asset management thinking can provide structure to assist in all of these scenarios/ $t can
improve the ;uality of life for millions of people/ $t is an important cog in the big machine of
our evolving civilisation/
#one 1ell. it impacts positively on the 1ell*being of the planet and everything on it/
What do we mean by physical asset?
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1/ #ictionary #efinition of Asset
FAny item of economic value o1ned by an individual or corporationG
6/ 5hy 8physical9 asset7
5e AR referring to items such as buildings. utility infrastructure such as electrical
cables. 1ater pipes. rail lines and metro tunnels. and industrial assets such as oil rigs.
chemical plants and process plant conveyors
5e are !"# talking about financial assets. human assets or personal assets. as
referred to in their normal conte2t but 1e may be talking about non*physical things that
affect these physical assets> skills. data. systems and soft1are. for e2ample
?/ 3ther features of a 8physical9 asset include
C $ts value may be represented on a corporation9s balance sheet/
C $t may be listed in a register Hasset repository.see glossaryI/
C $ts value normally depreciates over time/
C $ts condition normally deteriorates 1ith time and D or use/
C $t is likely to benefit from good ste1ardship/
C $t plays some role or has a function in the delivery of a process or service/
C There are often lots of similar items around the globe 1hich can benefit from similar
management
What Asset Management is$.and isnt
%. Asset Management&
C Is a mind*set 1hich sees physical assets not as inanimate and unchanging lumps
of metal D plastic D concrete. but as ob0ects and systems 1hich respond to their
environment. change and normally deteriorate 1ith use. and progressively gro1 old
then fail D stop 1orking D die4
C Is a recognition that assets have a life cycle
C Is as important for those 1orking in finance as it is for engineers
C Is an approach that looks to get the best out of the assets for the benefit of the
organiJation andDor its stakeholders
C Is about understanding and managing the risk associated 1ith o1ning assets
3ne of the challenges 1ith managing an asset is that it is not sentient/ $t does not keep
management edicts/ $t does not respond to the economy or politics/ %ut it does respond to
ho1 it is treated and used/ This creates a challenge for management/ Ho1 do you get the
right behaviour from an entity that 1on9t listen7
A key principle in Asset -anagement is 'I! "F (I)*#@that means>
C An approach 1ithin an organiJation that looks to line up the 1ork that is done
directly on assets 1ith the ob0ectives of that organiJation/
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C A discipline 1hich recognises. accommodates and aligns the risk of o1ning a
particular asset 1ith the goals of the organiJation that operates the asset
Some E2amples
g.%. A good 8asset management9 decision might be to purchase an e"#ensive, high
s#ecification stainless steel piping system 1ithin an industrial process/ 5hilst the
initial cost is higher. the maintenance costs may be lo1er and the e2pected life ?
times longer. the risk of disruptive failure may be lo1er and therefore the risk to the
organiJation from a performance. health K safety and environmental perspective
conse;uently much lo1er/ The total life cycle costs. therefore. may be lo1er and the
total risk to the organiJation through purchasing the more e2pensive piping system
therefore represents a good asset management decision/
g.+. A poor asset management decision might be to reduce the fre;uency of
maintenance activity on an asset 1ithout appreciating the full impact of doing so/
5hilst there may be a short term financial benefit. the long term cost to the
organiJation. if the asset prematurely fails. might substantially out1eigh this benefit/
3f course. maintenance is recognised as a means of introducing failures. so proper
investigation may prove that reducing maintenance fre;uency is a net benefit to the
organiJation4
+. Asset Management&
C Is not 0ust about maintenance/ -aintenance is part of the ste1ardship of assets.
but so is design. procurement. installation. commissioning. operation. etc/ See a
description of the Asset Life Cycle later/
C Is not a substitute for ;uality management/ Asset -anagement. like other
management processes. should be sub0ect to scrutiny through a ;uality process to
ensure rigour
C Is not a pro0ect management system
C Is not 0ust for engineers/ Everyone 1orking in a company that o1ns or operates
assets should be interested/ This includes those 1orking in procurement. finance.
personnel. service. lanning. design. operations. administration. leadership.
marketing and sales
C Is not 0ust an accounting e2ercise/ 5hilst it may help you understand the
deterioration and hence depreciation of an asset. it is of interest to every part of the
organiJation
C Is not a purely academic discipline/ 5hilst it is a 1orthy sub0ect for academic
revie1 and advancement. it is primarily a pragmatic. hands*on sub0ect
Why Asset Management is important
Asset -anagement is important because it can help organiJations to>
1/ Reduce the total costs o, operating their assets
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6/ Reduce the capital costs of investing in the asset base
?/ Impro-e the operating per,ormance of their assets Hreduce failure rates. increase
availability. etcI
E/ Reduce the potential health impacts of operating the assets
,/ Reduce the sa,ety ris.s of operating the assets
/ Minimise the en-ironmental impact of operating the assets
(/ -aintain and impro-e the reputation of the organiJation
)/ Impro-e the regulatory per,ormance of the organiJation
'/ Reduce legal ris.s associated 1ith operating assets
The key to good Asset -anagement is that it "/#IMI(( these benefits/ That means that
asset management takes all of the above into account and determines the best blend of
activity to achieve the best balance for all of the above for the benefit of the organiJation/
Asset -anagement is e0plicitly ,ocussed on helping organi1ations to achie-e their
de,ined ob2ecti-es and to determine the optimal blend o, acti-ities based on these
ob2ecti-es.
Asset li,e cycle
#he Asset 'i,e Cycle
Ac3uire Commission "perate 4ispose Ac3uire dst
Anderstanding that assets have a life cycle is a key concept 1ithin Asset -anagement and
is therefore 1orthy of scrutiny/
There are doJens of different 1ays of representing the life cycle. but the diagram above
captures a simple representation of it/ The arro1s don9t represent the length of time spent
in each phase4
%. Ac3uire
This covers everything the goes into planning. designing and procuring an asset/ Some life
cycle diagrams capture Planning as a separate function/ Proper application of these
activities ensures that the asset is fit for purpose/
+. Commission
This covers the activities of installing D creating or building the asset and ensuring that it is
fully functional/ $t is a recognised fact that there is a higher incidence of failure after first
installation D building of an asset H$nfant -ortality. see glossaryI/ This is reflected in the
need for the commissioning stage in the life cycle to oversee the initial operation of the
assets/

5. "perate
This is normally the bulk of the life cycle for an asset during 1hich it provides the function
for 1hich it 1as designed/ #uring this period the asset should be sub0ect to appropriate
monitoring. maintenance. refurbishment and potential upgrade to meet any change in
condition or operational re;uirement/
=or many assets. this phase is decades long/ $t may even be centuries/ $t is the phase that
many engineers are most familiar 1ith/
6. 4ispose
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This is often the most overlooked phase/ Assets can last beyond a human lifetime and it
can be difficult to consider asset disposal 1hen it is so far into the future/ Asset
-anagement teaches us that 1e ignore any stage of the asset life cycle at our peril/
This is a key period 1ithin an asset9s life/ 5ith some assets. e/g/ in the nuclear industry.
this can be an e2tended and highly critical period/ Ley activities during this period include
the effective removal of the asset from operationM the disposal or recycling of the asset or
its componentsM and the feed in to the planning for the replacement asset Hif a replacement
is re;uiredI to determine the operational re;uirements based on the effectiveness of
operation and the failure modes encountered/
7nderstanding ris.
%. 4ictionary de,inition o, ris. is&
FHE2posure toI the possibility of loss. in0ury. or other adverse or un1elcome
circumstanceM a chance or situation involving such a possibility/G
+. The management of risk 1ithin asset management is critical/ 5hy7 %ecause asset
managers are responsible for 3PT$-$S$&B outcomes for the good of their
organiJation. and therefore need to make 0udgements about 1hich actions best
achieve the right blend of outcomes based on organiJational ob0ectives/
To make these 0udgements. they need to predict ho1 their actions 1ill impact on the
future performance of the assets/ They need to ;uantify both the probability of their
actions Hor inactionsI causing a change in performance and then they need to
determine the impact or conse;uences of that change in performance/
"isk N Probability O Conse;uence
Hof failureI Hof failureI
5. =or e2ample an asset manager is responsible for maintaining the building 1hich houses
somecritical electrical e;uipment/ 5ater ingress intothe building 1ould result in certain
failure ofthe e;uipment and the conse;uence 1ould be that several thousand people
1ould be 1ithout po1er for a period of 6E hours/ Ho1 does theasset manager ;uantify
the ris. associated 1ith 1ater ingress7 Ho1 does heDshe determine the best 1ay to
minimise the cost to the organiJation 1hile maintaining performance7
T1o forms of potential 1ater ingress e2ist>
C Leakage of rain 1ater through the roof/
C =looding from a nearby river
"oofs of the type on the building have a design life of 6, years and it9s current condition
suggests that it is likely to leak in the ne2t , years
The conse3uence in each failure mode is the same/ The probability of the roof leaking is
6, times higher than the probability of the river flooding/ The ris. associated 1ith the roof
leakage is therefore 6, times higher/ So the optimal mitigation to reduce the risk of failure
of the electrical plant as a result of 1ater ingress is to repair the roof4 Easy4
$n the real 1orld. 1e tend to focus on one solution to manage risk> either manage the
probability or manage the conse;uences/ These solutions often rest 1ith different
departments. different budgets or even different organiJations/ The optimum reduction in
risk comes 1hen 1e identify where the risk is coming from and invest in and manage both
the probability and the conse;uences accordingly/ Correctly addressing this challenge is at
the heart of asset management discipline/
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(o what does an asset manager do?
#ra1ing on the $nstitute of Asset -anagement9s Competences =rame1ork. 6++) as a
reference point. there are seven key activities that asset managers get involved in/ $t is
important to understand that all of these activities overlap>
1/ 4e-eloping /olicy
The Asset -anagement Policy is the link bet1een the 3rganiJational Plan Hthat is the
top level 8business plan9 in a companyI and the Asset -anagement Strategy/ $t is
typically a set of principles or guidelines to steer Asset -anagement activity to achieve
the organiJation9s ob0ectives/ $t specifically covers the 81hat9 and the 81hy9/
6/ 4e-eloping (trategy
The Asset -anagement Strategy directs the organiJation9s Asset -anagement activityM
it 1ill determine the high level Asset -anagement ob0ectives that are needed from the
activity to deliver the organiJation9s ob0ectivesM it 1ill define the approach to planning
that 1ill be taken/
?/ Asset Management /lanning
Asset -anagement Planning looks at considering all the options for activities and
nvestments going for1ard and then putting together a set of plans 1hich describe 1hat
1ill be done 1hen and by 1hom/ The asset manager ensures that the plan delivers
1hat is re;uired of it by the strategy/
E/ 4eli-ering the /lans
This is the bit 1here 1ork is actually done on the assets. 1hether assessing or
monitoring them. maintaining or repairing them. refurbishing or replacing them/ This
activity clearly needs to include the appropriate controls to ensure the 1ork is done
efficiently and that information gathered is fed back into the strategy and planning
activities/
,/ 4e-eloping /eople
This activity is specifically about developing the skills and competences of people to
better deliver Asset -anagement activities/ $t spans from the board room to the tool
bo2 and also through the supply chain/ As 1ell as individual skills. it looks at the culture
1ithin an organiJation and ho1 change can be managed to achieve optimal results for
that rganiJation/
/ Managing Ris.
Anderstanding risk is a critical concept in Asset -anagement and is a key function and
area of competence/ $ts focus is on being able to assess the risk of action or inaction
on the performance of assets in the conte2t of the organiJation9s corporate ob0ectives/
( Managing Asset In,ormation
Collecting and collating the right information to inform Asset -anagement decisions is
crucial to achieving Asset -anagement success/ Too much data confuses the picture
and costs money to collect/ Too little data results in decisions made in the dark Hor at
best the t1ilight4I/
Ensuring that the right people have the right information to make the best decisions is
key/
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*ow good do you need to be?
Asset Management Maturity
Hgambar ttg Asset -anagemenmt -aturityI
The $nstitute of Asset -anagement describes a range of 8maturities9 of asset managers/ $t
captures their skills. e2perience and level of development and their level of maturity
compared to the %S$ PAS ,, standard. as sho1n in the diagram above/
)/ Bood Asset -anagement practice advises that you should only be as sophisticated as
you need to be/ $n other 1ords. high levels of maturity in Asset -anagement practices
for an asset base 1hich is of lo1 comple2ity and lo1 criticality 1ill attract unnecessary
cost/ Conversely. immature Asset -anagement practices on comple2 orcritical asset
bases introduces huge risk to an organiJation/
This concept is captured in the diagram belo1>
'ow
More details$the sub2ect areas
The $nstitute of Asset -anagement has identified a range of sub0ect areas that 0ustify
further development and focus/
&ot every organiJation 1ill re;uire e2cellence in every one of these areas/ &evertheless.
this is a very useful checklist and asset management organiJations should. at the very
least. consider 1hat level of competence is appropriate/ 5here necessary. skills and
e2pertise can be developed in the areas deemed critical for a successful outcome/
Asset Management (trategy and /lanning
C Asset -anagement Policy
C Asset -anagement Strategy
C #emand Analysis
C Strategic Planning
C Asset -anagement Plans
Asset Management 4ecision8Ma.ing
C Capital $nvestment #ecision*-aking
C 3perations K -aintenance #ecision*-aking
C Life Cycle Cost and Palue 3ptimisation
C "esourcing Strategy and 3ptimisation
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Competent
(Pass 55)
Sophisticated
(enterprise
system)
A
s
s
e
t

c
o
m
p
l
e
x
i
t
y
Asset criticallity
Simplistic
(Paper Based)
Competent
(Pass 55)
C Shutdo1ns K 3utage Strategy and 3ptimisation
C Ageing Assets Strategy
'i,ecycle 4eli-ery Acti-ities
C Technical Standards K Legislation
C Asset Creation K Ac;uisition
C Systems Engineering
C -aintenance #elivery
C "eliability Engineering and "oot Cause Analysis
C Asset 3perations
C "esource -anagement
C Shutdo1nD3utage -anagement
C $ncident "esponse
C Asset "ationalisation K #isposal
Asset 9nowledge nablers
C Asset $nformation Strategy
C Asset Lno1ledge Standards
C Asset $nformation Systems
C Asset #ata K Lno1ledge
"rgani1ation and /eople nablers
C Contract K Supplier -anagement
C Asset -anagement Leadership
C 3rganiJational Structure. Culture. "oles K "esponsibilities
C Competence K %ehaviour
Ris. : Re-iew
C Criticality. "isk Assessment K -anagement
C Contingency Planning K "esilience Analysis
C Sustainable #evelopment
C 5eather K Climate Change
C Asset K Systems Performance K Health -onitoring
C Asset K System Change -anagement
C -anagement "evie1. Audit and Assurance
C Accounting Practices
C Stakeholder "elations
)lossary o, Asset Management terminology
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Ac3uire
%uy an asset based on proper understanding of its life cycle
Ageing
Betting old. specifically beyond the design life of the asset
Asset Register
A central database of information about your assets
Asset Repository
Same as Asset "egister
Asset In,ormation (ystems
Can be paper based. but normally a soft1are system for ensuring the right asset
information gets to the right people
Asset Management /lan
A coordinated approach 1ithin an organiJation to define and deliver a set of actions
to1ards achieving the ob0ectives set out in the Asset -anagement Strategy
Asset Management (trategy
This defines the ob0ectives of the Asset -anagement Plan in the conte2t of the
3rganiJational Plan. the Asset -anagement Policy and the approach that 1ill be adopted
1ithin the Asset -anagement Plan to
achieve these ob0ectives
Asset Management /olicy
A set of guiding principles 1hich steer the Asset -anagement activity at a high level/ $t
describes the general approach to Asset -anagement. illustrating 1hat is important to an
organiJation
;ath #ub Cur-e
Assets fail early in 8life9 or later in 8life9. and not so often in the middle
;alanced (core Card
A standardised approach to assessing the value to an organiJation of different activities.
e/g/ maintenance
;enchmar.ing
Comparing performance. often bet1een companies in similar sectors
;(I /A(<<
This is a publicly available specification seeking to define a standard approach to the Asset
-anagement discipline/ Available from %ritish Standards $nstitute or the $A-
Capital 0penditure
-onies spent on e;uipment or plant 1hich normally feature on a balance sheet as capital
Condition Monitoring
Assessing an asset to understand ho1 it is likely to perform in the future
Conse3uence
This is the outcome or impact of an Asset -anagement decision
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4e,ect
A fault in specification or performance of an asset
4epreciation
A reduction in value of an asset based on its age or condition
4ispose
"emove asset from service and ensure it is appropriately recycled. buried. etc
Fault #ree Analysis
A graphical means of finding all of the potential causes of a fault
Failure
The point at 1hich an asset stops performing the function for 1hich it 1as designed
Failure Mode
A 1ay in 1hich an asset stops functioning
FMA =Failure Mode ,,ects Analysis>
A means of assessing ho1 assets can fail and the impact failure can have on the operation
of the plant
*ealth Inde0
A single number 1hich describes the overall condition of an asset
In,ant Mortality
The occurrence of failure early in an asset9s life
Inter-ention
-aintenance. refurbishment. repair or disposal of an asset
9ey /er,ormance Indicators
Those performance criteria against 1hich the success of an activity is measured
'i,e Cycle
The stages of an asset9s involvement 1ith a company. from ac;uisition through
commissioning and
operation to disposal
Maintenance
An intervention 1hich improves the performance and condition of an asset to upgrade or
retain desired performance
Replace
See #ispose above
Ris.
The potential for an adverse circumstance to arise
Ris. Factors
The categories or types of risk that may occur. e/g/ relating to performance. health and
safety. environmental. etc
Root Cause Analysis
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A thorough assessment of all of the factors influencing the occurrence of a fault or failure
(hutdown ? "utage
A period. either planned or other1ise. during 1hich asset interventions occur
#ime ;ased Maintenance
$ntervention on an asset based on a prescribed time period during 1hich the 1ork is to
take place
Whole 'i,e Costing
An understanding of the full economic impact of o1ning an asset. covering all stages of its
life cycle
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