Beginners Guide to AM

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An Introductionto AssetManagement

A simple but informative introductionto the management of physical assets

By Robert Davis

Recommended

The Institute of

Asset Management


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Published by blah d blah design ltdSubsidiary of EA Technology Ltd

Capenhurst Technology ParkCapenhurst

Chester

CH1 6ESwww.eatechnology.com

Copyright Robert Davis

978-0-9571508-3-6


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Foreword

As the serving President of the Institute of AssetManagement, I am delighted to recommend thisshort book.

As a past President of the IAM, Robert brought tothe subject of Asset Management his wealth ofexperience in business management and marketing.This helped enormously in developing the IAMand the field of Asset Management, from a purely

engineering and technical focus to one thatrecognises the need to engage across disciplines.Asset Management is increasingly well understood bythe business community as a strategic and businessled discipline, where the value of assets is theircontribution to achieving explicit business objectives.

If you are encountering Asset Management for thefirst time, this book should be a helpful introductionto the key topics. It should also highlight the benefitswhich are there to be gained by understanding andapplying the fundamental principles. Of course, ifyou become interested or need to know more thereis a great deal to be explored and I look forward towelcoming you into our community!

We are very grateful to Robert for making his bookfreely available and we would encourage you to passit on to anyone you think might benefit.

Stephen MorrisPresident of the Institute of Asset Management

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An Introduction toAsset ManagementA simple but informative introduction

to the management of physical assetsBy Robert Davis

We are all asset managers. The last time you hadyour car serviced or decorated your house, you weremanaging an asset!

This book explores the discipline of AssetManagement and demonstrates how it can be usedto make better investment decisions.


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Do you work for a company that owns ormanages physical assets? Would you like towork for a utility? Or have you just heard theexpression Asset Management and want toknow more about it? If the answer to any of

the above is Yes!, then this book is for you.Why does Asset Management matter? Why isit useful? How does it improve organisationaleffectiveness? How will it help me as an engineer,accountant, operational manager or director?This book will address these issues and signpost

you to sources of information which can deepenyour understanding and help you on your AssetManagement journey.

In writing this book, I have benefited from thewonderful intelligence and experience shared with

me during my years as President of the Institute ofAsset Management by a number of world leadingexperts in the field, as well as drawing on my twentyyears plus experience of managing property, plantand equipment assets.

I am indebted to the people who have generouslygiven their time to edit this document, including PaulBarnfather, Tom Elner, Madi and Deb Davis andJo Parker.

For more information on the Institute of Asset

Management, go to www.theIAM.orgI can be contacted via:[email protected]


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Contents

Page

5. Introduction

6. What do we mean by physical asset?

7. What Asset Management is.and isnt

10. Why is Asset Management important?

11. The asset life cycle

13. Understanding risk

15. So what does an asset manager do?

17. How good do you need to be?

19. More detailthe subject areas

21. Glossary of Asset Management terminology

25. Where to next?


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Introduction

The management of physical assets is like any otherevolving management discipline. It suffers fromterminology overload. The newcomer to the subject

may struggle to understand the basics. This is partlybecause of the unfamiliar context, but also becausethere are still relatively few people around to ask!This book will give newcomers a starting point fromwhich to develop their knowledge. For those justpast the starting point, it might give some structure

to their understanding. For the well-seasoned assetmanagers out there, I hope it provides either a feelingof satisfaction, or better still, grounds for a gooddiscussion!

Managing assets effectively for utilities is not optional

these days. Across the globe, every society is facedwith a significant asset management challenge:

Emerging economies are trying to identify thelowest cost / highest return investments toachieve maximum immediate benefit

Rapidly developing countries are faced withunderstanding the life cycle costs of theirinfrastructure

More mature economies are trying to find waysof extending the life of their infrastructure and

also meet major global challenges like climatechange

Asset management thinking can provide structureto assist in all of these scenarios. It can improve thequality of life for millions of people. It is an importantcog in the big machine of our evolving civilisation.

Done well, it impacts positively on the well-being ofthe planet and everything on it.


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What do we mean byphysical asset?

1. Dictionary Definition of Asset

Any item of economic value owned by anindividual or corporation

2. Why physical asset?

We AREreferring to items such as buildings,utility infrastructure such as electrical cables,water pipes, rail lines and metro tunnels, andindustrial assets such as oil rigs, chemical plantsand process plant conveyors

We are NOTtalking about financial assets,human assets or personal assets, as referred toin their normal context but we may be talkingabout non-physical things that affect thesephysical assets: skills, data, systems and software,for example

3. Other features of a physical asset include

Its value may be represented on acorporations balance sheet

It may be listed in a register (asset repository,see glossary)

Its value normally depreciates over time

Its condition normally deteriorates with timeand / or use

It is likely to benefit from good stewardship

It plays some role or has a function in thedelivery of a process or service

There are often lots of similar items aroundthe globe which can benefit from similarmanagement


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What Asset Managementis.and isnt

1. Asset Management:

Is a mind-set which sees physical assetsnot as inanimate and unchanging lumps ofmetal / plastic / concrete, but as objects andsystems which respond to their environment,change and normally deteriorate with use,

and progressively grow old then fail / stopworking / die!

Isa recognition that assets have a life cycle

Is as important for those working in financeas it is for engineers

Is an approach that looks to get the bestout of the assets for the benefit of theorganisation and/or its stakeholders

Isabout understanding and managing therisk associated with owning assets

One of the challenges with managing an asset is

that it is not sentient. It does not keep managementedicts. It does not respond to the economy or politics.But it does respond to how it is treated and used.This creates a challenge for management. How doyou get the right behaviour from an entity that wontlisten?


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A key principle in Asset Management is LINE OF

SIGHTthat means:

An approach within an organisation thatlooks to line up the work that is donedirectly on assets with the objectives of thatorganisation

A discipline which recognises,accommodates and aligns the risk of owninga particular asset with the goals of theorganisation that operates the asset

Some Examples

Eg.1.A good asset management decisionmight be to purchase an expensive, high

specificationstainless steel piping system withinan industrial process. Whilst the initial cost ishigher, the maintenance costs may be lowerand the expected life 3 times longer, the risk of

disruptive failure may be lower and thereforethe risk to the organisation from a performance,health & safety and environmental perspectiveconsequently much lower. The total life cyclecosts, therefore, may be lower and the total riskto the organisation through purchasing the more

expensive piping system therefore represents agood asset management decision.

Eg.2.A poor asset management decision mightbe to reduce the frequency of maintenanceactivity on an asset without appreciating the full

impact of doing so.

Whilst there may be a short term financialbenefit, the long term cost to the organisation,if the asset prematurely fails, might substantiallyoutweigh this benefit. Of course, maintenance

is recognised as a means of introducing failures,so proper investigation may prove that reducingmaintenance frequency is a net benefit to theorganisation!


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2. Asset Management:

Is notjust about maintenance. Maintenanceis part of the stewardship of assets, butso is design, procurement, installation,commissioning, operation, etc. See adescription of the Asset Life Cycle later

Is nota substitute for quality management.Asset Management, like other managementprocesses, should be subject to scrutinythrough a quality process to ensure rigour

Is nota project management system

Is notjust for engineers. Everyone workingin a company that owns or operates assetsshould be interested. This includes thoseworking in procurement, finance, personnel,service, planning, design, operations,

administration, leadership, marketing andsales

Is notjust an accounting exercise. Whilst itmay help you understand the deteriorationand hence depreciation of an asset, it is ofinterest to every part of the organisation

Is nota purely academic discipline. Whilst itis a worthy subject for academic review andadvancement, it is primarily a pragmatic,hands-on subject


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Why Asset Management isimportant

Asset Management is important because it can help

organisations to:

1. Reducethe total costs of operatingtheirassets

2. Reducethe capital costsof investing in theasset base

3. Improvethe operating performanceoftheir assets (reduce failure rates, increaseavailability, etc)

4. Reducethe potential health impactsofoperating the assets

5. Reducethe safety risksof operating theassets

6. Minimisethe environmental impactofoperating the assets

7. Maintain and improvethe reputationof

the organisation

8. Improvethe regulatory performanceofthe organisation

9. Reduce legal risksassociated withoperating assets

The key to good Asset Management is that itOPTIMISESthese benefits. That means that assetmanagement takes all of the above into account anddetermines the best blend of activity to achieve thebest balance for all of the above for the benefit ofthe organisation.

Asset Management is explicitly focussedonhelping organisations to achieve their definedobjectives and to determine the optimal blendof activities based on these objectives.


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3. Operate

This is normally the bulk of the life cycle for an assetduring which it provides the function for which itwas designed. During this period the asset shouldbe subject to appropriate monitoring, maintenance,refurbishment and potential upgrade to meet any

change in condition or operational requirement.For many assets, this phase is decades long. It mayeven be centuries. It is the phase that many engineersare most familiar with.

4. Dispose

This is often the most overlooked phase. Assets canlast beyond a human lifetime and it can be difficultto consider asset disposal when it is so far into thefuture. Asset Management teaches us that we ignoreany stage of the asset life cycle at our peril.

This is a key period within an assets life. With someassets, e.g. in the nuclear industry, this can be anextended and highly critical period. Key activitiesduring this period include the effective removal ofthe asset from operation; the disposal or recyclingof the asset or its components; and the feed in

to the planning for the replacement asset (if areplacement is required) to determine the operationalrequirements based on the effectiveness of operationand the failure modes encountered.


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Understanding risk

1. Dictionary definition of risk is:

(Exposure to) the possibility of loss, injury, or

other adverse or unwelcome circumstance; achance or situation involving such a possibility.

2. The management of risk within assetmanagement is critical. Why? Because assetmanagers are responsible for OPTIMISINGoutcomes for the good of their organisation, and

therefore need to make judgements about whichactions best achieve the right blend of outcomesbased on organisational objectives.

To make these judgements, they need to predicthow their actions will impact on the future

performance of the assets. They need to quantifyboth the probability of their actions (or inactions)causing a change in performance and then theyneed to determine the impact or consequencesof that change in performance.

Risk = ProbabilityXConsequence(of failure) (of failure)

3. For example an asset manager is responsible formaintaining the building which houses somecritical electrical equipment. Water ingress intothe building would result in certain failure ofthe equipment and the consequence would bethat several thousand people would be withoutpower for a period of 24 hours. How does theasset manager quantify the riskassociated with

water ingress? How does he/she determine thebest way to minimise the cost to the organisationwhile maintaining performance?

continued...


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Two forms of potential water ingress exist:

Leakage of rain water through the roof

Flooding from a nearby river

Roofs of the type on the building have a design life of25 years and its current condition suggests that it is

likely to leak in the next 5 yearsThe consequencein each failure mode is the same.The probabilityof the roof leaking is 25 timeshigher than the probability of the river flooding. Theriskassociated with the roof leakage is therefore 25times higher. So the optimal mitigation to reducethe risk of failure of the electrical plant as a result ofwater ingress is to repair the roof! Easy!

In the real world, we tend to focus on one solutionto manage risk: either manage the probability ormanage the consequences. These solutions often

rest with different departments, different budgetsor even different organisations. The optimumreduction in risk comes when we identify where therisk is coming from and invest in and manage boththe probability and the consequences accordingly.Correctly addressing this challenge is at the heart of

asset management discipline.


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So what does an assetmanager do?

Drawing on the Institute of Asset Managements

Competences Framework, 2008 as a reference point,there are seven key activities that asset managers getinvolved in. It is important to understand that all ofthese activities overlap:

1. Developing Policy

The Asset Management Policy is the linkbetween the Organisational Plan (that is thetop level business plan in a company) andthe Asset Management Strategy. It is typicallya set of principles or guidelines to steerAsset Management activity to achieve the

organisations objectives. It specifically covers thewhat and the why.

2. Developing StrategyThe Asset Management Strategy directs theorganisations Asset Management activity; it willdetermine the high level Asset Managementobjectives that are needed from the activity todeliver the organisations objectives; it will definethe approach to planning that will be taken.

3. Asset Management PlanningAsset Management Planning looks at considering

all the options for activities and investmentsgoing forward and then putting together a setof plans which describe what will be done whenand by whom. The asset manager ensures thatthe plan delivers what is required of it by thestrategy.

4. Delivering the PlansThis is the bit where work is actually done on theassets, whether assessing or monitoring them,maintaining or repairing them, refurbishing or


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replacing them. This activity clearly needs to

include the appropriate controls to ensure thework is done efficiently and that informationgathered is fed back into the strategy andplanning activities.

5. Developing People

This activity is specifically about developing theskills and competences of people to better deliverAsset Management activities. It spans from theboard room to the tool box and also throughthe supply chain. As well as individual skills, itlooks at the culture within an organisation and

how change can be managed to achieve optimalresults for that organisation.

6. Managing RiskUnderstanding risk is a critical concept in AssetManagement and is a key function and area of

competence. Its focus is on being able to assessthe risk of action or inaction on the performanceof assets in the context of the organisationscorporate objectives.

7. Managing Asset InformationCollecting and collating the right information to

inform Asset Management decisions is crucial toachieving Asset Management success. Too muchdata confuses the picture and costs money tocollect. Too little data results in decisions made inthe dark (or at best the twilight!).

Ensuring that the right people have the rightinformation to make the best decisions is key.


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How good do you needto be?

Asset Management Maturity

Compliancewith BSI PAS 55

Limit of knownAsset

ManagementBest Practice

Innocent

Learning Applying Embedding Integrating Optimising

Aware Developing Competent Aspiring Exellent

Beyond BSI PASS55

The Institute of Asset Management describes arange of maturities of asset managers. It capturestheir skills, experience and level of development andtheir level of maturity compared to the BSI PAS 55

standard, as shown in the diagram above.


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8. Good Asset Management practice advises thatyou should only be as sophisticated as you needto be. In other words, high levels of maturity inAsset Management practices for an asset basewhich is of low complexity and low criticality will

attract unnecessary cost. Conversely, immatureAsset Management practices on complex orcritical asset bases introduces huge risk to anorganisation.

This concept is captured in the diagram below:

Low

AssetComplexity

Asset Criticality

High

Competent

Competent

Sophisticated

Simplistic

(PAS55)

(PAS55)

(Enterprise System)

(Paper Based)

Low High


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More detailsthe subject areas

The Institute of Asset Management has identifieda range of subject areas that justify furtherdevelopment and focus.

Not every organisation will require excellence inevery one of these areas. Nevertheless, this is a veryuseful checklist and asset management organisationsshould, at the very least, consider what level of

competence is appropriate. Where necessary, skillsand expertise can be developed in the areas deemedcritical for a successful outcome.

Asset Management Strategy and Planning

Asset Management Policy Asset Management Strategy Demand Analysis Strategic Planning Asset Management Plans

Asset Management Decision-Making

Capital Investment Decision-Making Operations & Maintenance Decision-Making Life Cycle Cost and Value Optimisation Resourcing Strategy and Optimisation Shutdowns & Outage Strategy and Optimisation Ageing Assets Strategy


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Lifecycle Delivery Activities

Technical Standards & Legislation Asset Creation & Acquisition Systems Engineering Maintenance Delivery

Reliability Engineering and Root Cause Analysis Asset Operations Resource Management Shutdown/Outage Management Incident Response Asset Rationalisation & Disposal

Asset Knowledge Enablers

Asset Information Strategy Asset Knowledge Standards Asset Information Systems Asset Data & Knowledge

Organisation and People Enablers

Contract & Supplier Management Asset Management Leadership Organisational Structure, Culture, Roles &

Responsibilities Competence & Behaviour

Risk & Review

Criticality, Risk Assessment & Management Contingency Planning & Resilience Analysis Sustainable Development Weather & Climate Change Asset & Systems Performance & Health

Monitoring Asset & System Change Management Management Review, Audit and Assurance Accounting Practices Stakeholder Relations


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Glossary of AssetManagement terminology

AcquireBuy an asset based on proper understanding of its lifecycle

AgeingGetting old, specifically beyond the design life of theasset

Asset RegisterA central database of information about your assets

Asset RepositorySame as Asset Register

Asset Information Systems

Can be paper based, but normally a software systemfor ensuring the right asset information gets to theright people

Asset Management PlanA coordinated approach within an organisation todefine and deliver a set of actions towards achievingthe objectives set out in the Asset ManagementStrategy

Asset Management StrategyThis defines the objectives of the Asset ManagementPlan in the context of the Organisational Plan, the

Asset Management Policy and the approach that willbe adopted within the Asset Management Plan toachieve these objectives

Asset Management PolicyA set of guiding principles which steer the Asset

Management activity at a high level. It describes thegeneral approach to Asset Management, illustratingwhat is important to an organisation


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Bath Tub Curve

Assets fail early in life or later in life, and not sooften in the middle

Balanced Score CardA standardised approach to assessing the value to anorganisation of different activities, e.g. maintenance

BenchmarkingComparing performance, often between companiesin similar sectors

BSIPAS55This is a publicly available specification seeking

to define a standard approach to the AssetManagement discipline. Available from BritishStandards Institute or the IAM

Capital ExpenditureMonies spent on equipment or plant which normally

feature on a balance sheet as capitalCondition MonitoringAssessing an asset to understand how it is likely toperform in the future

Consequence

This is the outcome or impact of an AssetManagement decision

DefectA fault in specification or performance of an asset

Depreciation

A reduction in value of an asset based on its age orcondition

DisposeRemove asset from service and ensure it isappropriately recycled, buried, etc

Fault Tree AnalysisA graphical means of finding all of the potentialcauses of a fault


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Failure

The point at which an asset stops performing thefunction for which it was designed

Failure ModeA way in which an asset stops functioning

FMEA (Failure Mode Effects Analysis)A means of assessing how assets can fail and theimpact failure can have on the operation of the plant

Health IndexA single number which describes the overallcondition of an asset

Infant MortalityThe occurrence of failure early in an assets life

InterventionMaintenance, refurbishment, repair or disposal ofan asset

Key Performance IndicatorsThose performance criteria against which the successof an activity is measured

Life CycleThe stages of an assets involvement with a company,

from acquisition through commissioning andoperation to disposal

MaintenanceAn intervention on an asset to improve its operationor ensure its continued good operation

Operational ExpenditureMonies spent on activity which cannot be capitalisednormally associated with the servicing, conditionmonitoring and maintenance of an asset or service

Physical Asset

A tangible, man made object that has a specificfunction, normally within a broader system

Plan Do Check ActA systematic process which seeks to ensure quality aswell as continued improvement


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Preventative Maintenance

An intervention on an asset taken in advance of afailure to reduce the chances of failure

RCMReliability Centred Maintenance is an approach whichtargets intervention on assets based on the known

historic performance of that or similar assetsRepairAn intervention on an asset taken after it has failed

Repair, renovate, refurbishAn intervention which improves the performance and

condition of an asset to upgrade or retain desiredperformance

ReplaceSee Dispose above

Risk

The potential for an adverse circumstance to arise

Risk FactorsThe categories or types of risk that may occur,e.g. relating to performance, health and safety,environmental, etc

Root Cause AnalysisA thorough assessment of all of the factorsinfluencing the occurrence of a fault or failure

Shutdown / OutageA period, either planned or otherwise, during which

asset interventions occurTime Based MaintenanceIntervention on an asset based on a prescribed timeperiod during which the work is to take place

Whole Life Costing

An understanding of the full economic impact ofowning an asset, covering all stages of its life cycle


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Notes..


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Notes..


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About the IAMThe Institute of Asset Management (IAM) is the independent, not-for-profit, membership organisation for those involved in acquisition, operation and care of physical

assets, particularly critical infrastructure; and professionals dedicated to furthering knowledge and

understanding of Asset Management.Membership benefits Conferences, seminars and social events with discounts to

partner events Assets magazine FREE to Members Personal learning and Continuing Professional Development

(CPD) Projects to develop standards and guidance on best practice

and assessment Endorsement of Training Providers and PAS55 Compliance

Assessors Advancement and promotion of knowledge and

understanding of Asset Management everywhere Promoting the development of external qualifications Directories and advertising on our website and Member-Only

access to downloads and Knowledge Centre Professional recognition (MIAM, FIAM accreditation for

Members and Fellows respectively)

Our Objectives Advance the science and practice of Asset Management for

the public benefit Promote and recognise high standards of practice and

professional competence Generate widespread awareness and understanding of the

discipline.

Who should join?Professionals in any discipline who are involved in promoting anddelivering more effective Asset Management whether in thepublic, private or academic sectors.Successful Asset Management requires a combination of skills,

techniques and knowledge, particularly finance and we welcomeengagement and collaboration with other expert bodies andinterested individuals.

Join UsYou can join as an Individual Member, and your company ororganisation can join as a Corporate Member. Membershipoptions, criteria and application details can be found on the IAMwebsite:

Please visit us at www.theIAM.org

the professional body forwhole life management of

physical assets

The Institute of

Asset Management


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Call EA Technology on

0800 028 7243

Outside the UK +44 (0) 151 347 2394and ask for Robert Davis, or email

[email protected]

ASSESSOR

Want to Develop yourAsset Management Skills?

Asset Management Specialists

For Over 45 Years


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