What is Asset Management?
We use the term in the meaning provided by the British Standards Institution PAS 55 Standard, namely the:
“Systematic and coordinated activities and practices through which an organization optimally and sustainably manages its assets and their associated performance, risks and expenditures over their life cycles for the purpose of achieving its organizational strategic plan”.
This is quite a complex set of characteristics but, in simple words, it describes the organisation and processes required to acquire, use and look after physical assets over their whole life cycles to achieve the best possible total value for money.
The assets themselves can be as simple as the equipment owned by a small business such as a garage, or as complex as all the infrastructure of a railway network or an international portfolio of diverse manufacturing facilities. It is NOT, however, just the “maintenance of equipment”, or the management of a portfolio of financial assets, stock and shares. Asset Management has evolved to be a very inclusive, holistic way of identifying sources of value and of maximising that value within the limits imposed on any organisation (such as regulatory framework, license or ownership responsibilities).
Where did Asset Management come from?
Asset Management has been evolving for perhaps 20 years as a recognised management discipline, but its roots are much older. It can probably be best recognised as evolving in the oil and gas industry during the 1980s in response to increasing pressure to reduce the costs of production while managing safety, but it can be argued that the aerospace and defence industries have also provided pioneering work.
Many of the techniques now being gathered into Asset Management are financial and engineering best practices including reliability-centered maintenance (RCM), whole life costing, performance measurement and risk management. The defining characteristic of asset management is the holistic approach where the whole business and the whole asset base is considered for the long term – it is the bringing together, the joining up and aligning of the silos and initiatives for the best overall result.
Isn’t asset management just a fancy name for maintenance?
No – although a few have hijacked the term inappropriately (with some caveats!). Asset Management has as much to do with renewal and planning. Maintenance is generally the term used to describe activities carried out during the operational life of an asset. Asset Management considers the whole life of the asset ‘cradle to grave’ from concept and design through to the eventual disposal – and describes not only the organisation and techniques for optimizing the management of the various elements such as maintenance, but the combination of activities such as maintenance and renewal to ensure that the mix of strategies are right.
In some parts of the world and in some industries, the term ‘maintenance’ or ‘capital maintenance’ is actually used to include renewal – as a result some of the best practitioners internationally use the term ‘maintenance’ to cover a very wide variety of activities. This can result in confusion with some first entering into the ‘asset management’ world – asset management should not be considered as only relating to maintenance as more commonly understood and described at the beginning of this paragraph.
What business benefits am I likely to see by applying asset management?
Asset management aims to ensure that the way the assets are operated is totally aligned with the organisation’s business objectives and delivers best possible value for money. In many organisations, however, different functions are performed in silo’s and there are conflicting expectations placed on different departments. This makes it difficult to optimize across the whole expenditure, risk and performance picture. Better integration and coordination, therefore, avoids duplicate working, waste and communication problems. Decisions get made on net value and total business impact rather than localised self-interests.
Businesses that are applying asset management methods see a combination of significantly reduced costs (often 20-40% total sustained reductions in operating expenditures), greater customer service and performance (ranging widely from 3%-25%) and, most importantly, much greater transparency and credibility in their activities – giving improved confidence in stakeholder (e.g. regulator) relations and much greater employee commitment and motivation.
What are the main principles of good practice asset management?
The principles of good practice asset management connect together the worlds of finance, operations, customer service and engineering. In high level terms they involve:
- Establishing transparent linkages between the organisation’s strategic/business plan right the way down to specific asset investment, operations and maintenance plans and activities.
- The ‘closing of the loop’ in capture and usage of information to support the optimisation of decisions across an asset or system lifetime.
- Recognising and optimizing the relationships between capital expenditure and operating costs, risk, asset performance and asset life expectancy/sustainability.
- Cross-disciplinary collaboration in the determination of problems, priorities and optimal decisions (which nearly always involve compromise and trade-offs, often with incomplete information).
- Actively managing risks and uncertainty, and incorporating them into decision-making processes.
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