Asset Management Fundamentals

First master the fundamentals

Basketball Olympic Gold Medallist Larry Bird

The industrial world today is abuzz with a lot of terminologies and jargons mainly stemming from today’s technological advances in the areas of sensors, data, communication and electronics. Each day brings in something new for the Asset Owners from the service providers who claim that their technology, product or service is ‘unique’ and has been ‘never seen before’. While a lot of these offerings are innovative in many aspects, the real question lies in how do they fit within the ‘fundamentals of the Asset Management’?

The need to seek the answer to this question lies in the reality that Asset Management is a vast field which requires a holistic view of the entire horizon and no single technology, product or service can meet its requirements on their own. Whether it is Predictive Maintenance (PdM), Condition Monitoring, Industrial Internet-of-Things (IIoT), Digitalization and Enterprise Asset Management (EAM) solutions; they alone cannot be the answer to your Asset Management vows.

Fundamentals, fundamentals, fundamentals. You’ve got to get the fundamentals down because otherwise the fancy stuff isn’t going to work.

Randy Pausch (professor of computer science, human–computer interaction and design at Carnegie Mellon University)

The industry needs to realize that Asset Management requires a ‘system-based’ approach. It cannot be dealt with a bits and pieces approach. Unfortunately the basic building blocks of Asset Management are missing from most organizations. However, luckily the realization of the issue is also gaining momentum. A lot of research and study is being done on the subject of Asset Management and the recent updates of ISO 5500x series of standards has further boasted the efforts of developing common understanding of the Asset Management concepts.

What asset owners really need to do is go through the fundamentals of Asset Management, develop a better understanding of these concepts and apply them within their organizations.

So, what are these fundamentals of Asset Management? 

They are:

1. Value
2. Alignment
3. Leadership
4. Assurance

Let’s examine these fundamentals in detail.

VALUE:

Let’s first understand that Asset Management is more about the ‘value’ provided by an asset rather than the asset itself. If an asset does not provide value (financial or non-financial, tangible or intangible) there is no point in even calling it an asset because an asset itself is defined as ‘an item, thing or entity that has potential or actual value to an organization’.

So simply put; if an asset doesn’t provide any value, it is not even an asset.

Now, who defines this Value? The organization itself has to define value to be derived from its assets.

And how exactly will the organization define value?

This definition should be driven by the organizational objectives which in turn account for all the stakeholders which may include investors, customers, employees, regulators and potentially affected communities.

It is important to note that the organizational objectives may change over time and therefore the definition of an asset’s value may also change. For example, a particular asset may be of a higher value for the organization today, however down the line if the organizational objectives change in a way that business diversification of any sort might be considered the same asset may lose its value.

The value of an asset also changes with its different life stages. Value at the acquisition or design stage of an asset will be different from its disposal stage. Therefore, it is important to use a life cycle management approach to define and update the definition of an asset’s value.

Value definition should be subjected to a decision-making process that is consistent, optimal and transparent. Since value encompasses multiple stakeholders’ expectations therefore an organization can use a multi-attribute decision-making method with appropriate weighting methodology.  Another way to establish a robust and yet simple decision-making process is to base it on cost, risk, opportunity and performance. A process that focuses on reducing cost, minimizing risk, taking advantage of opportunities present and enhancing performance of an asset to realize value out of it can be used to define value.

An important issue encountered while defining an asset’s value is the fact that many times it is lot easier to visualize the value if individual assets are connected together as an asset system or a portfolio. This is one of the reasons that ISO 5500x series also talks about grouping of assets.

Most organizations could not take off in their pursuit of Asset Management because they have no definition for what actually is Value related to their assets.

ALIGNMENT:

Just, as a badly aligned machine does not serve its intended purpose in an efficient manner; an organization that lacks alignment within its strategic objectives, policies, procedures and guidelines does not serve well to Asset Management.

Alignment in the backdrop of Asset Management means that the Asset Management objectives are aligned and consistent with organizational objectives. This in turn translates into the Asset Management policy, Strategy and Plans that are all geared towards achieving the organization’s strategic objectives.

This also includes all the support functions of an organization like Human Resource Management, Quality Management, Data Management, Finance, Information Technology, Health, Safety and Environment related practices at all levels of the organization. This cross-functional and across-the-hierarchy alignment is necessary to integrate Asset Management within the organization.

In many cases Asset Management processes also need to be integrated with other operational and support processes. For example existing operating procedures for an asset might need to be revisited and updated once an in-depth analysis is carried out on it from the point of view of its Configuration Management. This will require a ‘Management of Change’ procedure to be undertaken.

The significance of alignment is evident from the fact that the recent release of ISO 55002 in 2018 has an annexure dedicated to the relationship and alignment of financial and non-financial functions in Asset Management.

Alignment ensures that all Asset Management initiatives ultimately help the organization in realizing its overall organizational objectives and pursuing the strategic direction it has identified for itself.

LEADERSHIP:

Just like any organizational initiative Asset Management cannot be successful without visible commitment from the organization’s leadership. Leadership and commitment at all organizational levels set up a conducive environment where Asset Management can take roots as a system.

A strong and committed leadership entails:

• Setting up clearly defined roles, responsibilities and authorities
• Creates an awareness about Asset Management in the employees and improves their competencies 
• Adopting a consultative approach with all stake holders regarding Asset Management

Ironically Leadership in many organizations today lack the clarity of roles and responsibilities along with the necessary skills required to motivate and lead the organization. 

Leadership also plays an important role in supporting Asset Management through cross-functional (financial, human, IT etc.) resource allocation, resolving any potential conflicts and developing a clear communication at all levels regarding the significance of Asset Management.

The fact that ISO 5500x requires the top management to be responsible for developing the Asset Management policy and objectives and for aligning them with the organizational objectives clearly indicates that Asset Management will remain a distant dream without a committed and involved leadership.

This also means that any initiatives for example Predictive Maintenance taken at the functional levels will not deliver long-term sustainable results until and unless they are aligned with the strategic direction provided by the top leadership. 

ASSURANCE:

Assurance with regards to Asset Management is a combination of monitoring and auditing practices that confirm that the system and its components are operating as intended. These practices essentially keep the organization on track to make sure that assets fulfil their purpose and the Asset Management activities are carried out in a way that organization achieves its objectives consistently over a long period of time.

The assurance framework for Asset Management includes the policies, plans, procedures and support systems that monitor the effectiveness of Asset Management system and provide auditing function to ensure that non-conformities are duly identified and rectified.

Continual improvement is an integral part of assurance which ensures that the Asset Management practices are not stagnant and any issues arising out of the different asset life-cycle stages are handled properly.

Assurance also provides the leadership and other stake-holders with tools to monitor and measure the effectiveness of the Asset Management system and to take corrective actions to keep the Asset Management ship on course to its intended journey.

Unfortunately Assurance is most often replaced by ‘Control and Monitoring Measures’ aimed at reactive and punitive actions. This not only halts any progress made on towards achieving the desired results but also has a bearing on the organization’s culture.

SUMMARY:

To summarize it is suffice to say that fundamentals don’t change. No matter the amount of efforts made, if the basic fundamentals are missing it will all be a futile effort in chasing the dream of Asset Management.

Just as the famous golfer Jack Nicklaus says ‘Learn the fundamentals of the game and stick to them. Band-Aid remedies never last’. Any new technology, buzzword or methodology you pursue without understanding and adopting the basic fundamentals of Asset Management will only be a Band-Aid remedy to a potentially chronic illness.