Module 3 Learning Guide

The Learning Guide is designed to provide direction and guidance for your learning. It includes guidance on
learning activities, including resources that you will need to complete assigned learning tasks.

Site: Moodle
Unit: ENMM20023: Introduction to Asset and Maintenance Management (HT1, 2017)
Book: Module 3 Learning Guide
Printed by:Roza Baker
Date: Monday, 5 October 2016, 11:40 AM
Table of contents
3.1 Definition of Asset Management

What is asset management?

Asset life cycle

3.2 Asset Management Function

Asset management strategy

Risk management

3.3 Summary
3.1 Definition of Asset Management
3.1.1 What are Assets?
PAS 55-1, one of the publically available Specification on Asset Management (2008), defines assets as:
‘plant, machinery, property, buildings, vehicles and other items and related systems that have a distinct and
quantifiable business function or service and includes any software code that is critical to the delivery of the
function of the asset’
The term ‘Assets’ refers to ‘physical’ assets being different from financial assets and human assets.

3.1.2 PAS 55 & ISO55000 – Asset Management

Standards
According to the British Standards Institution, 2013:
PAS 55 defines asset management. The internationally recognized specification outlines best practice for
managing your assets in line with the rest of business.
PAS 55 provides clear guidance on building an asset management system that brings strategy and day-to-day
action together, allowing the running of business to be much more efficient.
The specification applies to any organization where physical assets are central to business. As such it has been
adopted by many industries worldwide, including utilities, mining and manufacturing.
PAS 55 is divided into two parts:
Part 1 - provides specifications for managing physical assets; and
Part 2 - gives guidance on applying the specification to business.
Benefits of PAS 55
The benefits associated with PAS 55 include:

 Use of a 28-point checklist for better overall long-term planning

 Monitors and improves the way you manage your physical assets
 Achieves legal and regulatory compliance and better customer service
 Increased support for risk and sustainability management
 Prepares for the full lifecycle with more control over costs

ISO 55000 (lauched in 2014)

A international standard covering the management of physical assets.
The ISO55000 series comprises of three standards:
ISO55000 is an international standard providing an overview of asset managment and the standard terms and
definitions.
ISO55001 is the requirements specification for an intergrated, effective management system for asset
management.
ISO55002 provides guidance for the interpretations and implementation of an asset management system.
3.1.3 Five Types of ‘Organisational’ Assets
PAS 55-1 (2008), identifies the five types of ‘Organisational’ assets as:

1. Physical Assets (including software applications)

2. Human Assets
3. Financial Assets
4. Information Assets
5. Intangible Assets

Physical Assets – Core asset where organisations depend on such assets to achieve required outputs/outcomes
Financial Assets – are the life cycle costs, capital investment criteria and operating costs
Human Assets – are motivation, communication, roles & responsibilities, knowledge, experience, skills,
competence, leadership and teamwork
Information Assets – are condition, performance, activities, cost and opportunities
Intangible Assets – are reputation, image, morale, constraints and social impact
The ‘assets’ and their relationships within the business environment is shown in Figure 3-1 below. Some typical
interfaces between the physical assets and each of the other asset types are listed.

Figure 3-1 – Pas 55-1 Assets Model

(BSI PAS 55, 2008)

Physical assets are at the core of this model when an organisation depends on such assets to achieve their
outcomes/output. Surrounding these asset-related activities is the business environment with its vital context of
business objectives, polices, regulation, performance requirements and risk management.
Each supporting asset class (eg; human, financial etc.) has an important interface with the core function as
shown in figure 3-1.
According to Mike Sondalini, from ‘Lifetime Reliability Solutions’ (2004), these principals interface with the
physical asset, ensuring the important relationship between those who operate the assets and those who
safeguard their ongoing availability.
To achieve an organisation's strategic plan theses five interfaces have to be managed holistically, where
EVERYBODY in the organisation has a part to play in the sustainable availability and utilisation of the physical
assets.
Learning activity 3.1

3.1 For your reflection

Can you identify the different types of assets in your organisation? What types of assets does your department
maintain?

3.1.4 What is Asset Management?

According to Hastings (2010, p.4) Asset Management is a set of activities associated with

 'identifying what assets are needed,

 Identifying funding requirements
 Acquiring assets,
 Providing logistic and maintenance support systems for assets,
 Disposing or renewing assets

so as to effectively and efficiently meet the desired objectives.'

This is a much broader set of activities than 'maintenance' which is predominately concerned with the
preservation of existing equipment.
Other definitions of Asset Management include:
PAS 55-1, the publically available Specification on Asset Management (2008), defines asset management as:
'...systematic and coordinated activities and practices through which an organisation optimally and sustainably
manages its assets and asset systems, their associated performance, risks and expenditures over their lifecycles
for the purpose of achieving its organisational strategic plan.'
Furthermore, the asset management council of Australia also defines asset management as 'The life cycle
management of physical assets to achieve the stated output of the enterprise'
All these definitions share the same concept - that asset management has two main purposes:

1. the application of technical and financial decisions coupled with good management practices in
determining what is the most suitable asset required to meet the overall business objectives.
2. Acquire and sustainability of the asset over the whole of life through to disposal (Cradle to grave
approach)
Learning activity 3.2

3.2 Check your knowledge

Identify key words or phrases that you associated with the term 'Asset management' within your organisation.
This glossary will be useful to keep handy for the rest of your program.

READING 3.1

3.1 READING
Read the Journal article "Gladstone Power Station Turnaround: Transforming Performance and outcome
through asset management" by Ernst Krauss, 2013 (page 6). Go to:
'Gladstone Power Station Turnaround:...through asset management'
AMJ- Issue 2, Volume 7, published on May 2013.

3.1.5 Why do we need Asset Management?

According to Hastings (2010), Asset management function is needed to provide asset knowledge in order to provide sufficient and accurate
information and capacity for management decisions and support activities within the context of business.
There are two main areas of consideration. These include:

1. Capital planning and Budgeting where the following generally takes place:

 Asset development planning and implementation

 Asset continuity planning and implementation
 Logistic support facilities development and management

2. Operating Budget where the following generally takes place:

 Procurement planning and management

 Organisation wide, asset related systems and procedures
 Development and management of maintenance outsourcing
 Awareness and management of regulatory compliance
3.1.6 Asset Management in a Quality Framework
Initially, all approaches to asset management require the development of an 'asset management plan.' These
plans must be derived from the organisation's overall business plan and include sufficient planning information
to achieve the business objectives. Therefore effective asset management must be combined with a quality
management system, embracing the continual improvement system and the methodology of Plan - Do - Check -
Act.
That is:

1. A set of plans are created (PLAN) linking the business intent with a series of long and short term
strategies and timelines
2. Those plans are then implemented (DO)
3. The results of those plans are checked (CHECK) and assessed for opportunities for improvement
4. The decisions resulting from that assessment are then linked back into the planning process and
appropriate changes (ACT) made

READING 3.2

3.2 READING
Read the Asset Management Journal article "Asset Management in a Quality Framework - Demand
Management' 2013 (page 40-41). Go to:
'Asset Management in a Quality Framework-Demand Management'
AMJ-Issue 1, Volume 5, published on May 2011.

3.1.7 Asset Life Cycle

In the words of Lewis Caroll (2001):
‘If you do not know where you want to go then any road will do – otherwise you will end up somewhere else if
you walk long enough.’
Where we wish to go, can often be defined in models. They provide a communication medium for our
principles and ideas. Such models can be refined to produce detailed processes that implement directly the intent
of the model.
Asset management can therefore be defined through a series of models beginning with the various stages of the
asset life cycle.
The Asset Life cycle model defines a commonly known ‘cradle to grave’ responsibility for measuring and
managing a physical asset’s useful life. The framework provides a structure to help asset owners determine and
manage the Total Ownership of the Asset in order to acheive the organization’s overall business objectives.
The life cycle of an asset can be described in the Model of Figure 3-2.

Review
Needs
and
Identification
Disposal

Utilisation Justification
ASSET
LIFE
Commissioning
CYCLE Specification

Installation/
Procurement
Construction

Figure 3–2: Asset life cycle

(Source: CQUniversity ENMM20010, 1996 )
The various stages of the asset life cycle are described as follows.
Needs identification
Needs identification is the phase that commences the life of a new asset. A need for an asset is identified on the
basis of a replacement for an existing item or an opportunity for a new item for a new purpose.
Justification
Justification for the purchase of the item. This ensures that the cost of obtaining the item can be justified in
business terms. Examples of justification for an asset include:

 additional income generated

 reduced costs
 improved reliability
 improved safety.

The justification phase can include feasibility studies for larger assets such as new processes or plants.

Specification
Specification refers to the definition of the attributes of the asset for purposes of purchasing or construction. In
addition to technical specification for capacity, size, power etc., this can also include aspects of the reliability
and maintainability of the asset. This may include preliminary or detailed design for large assets.
Procurement
Procurement refers to the actual purchase of the item. This is the stage of awarding the purchase to the
successful supplier or awarding a contract to the successful tenderer.
Installation/construction
Following the awarding of the purchase to a successful vendor there may follow a period of installation or
construction. The extent of this phase will depend on the size and type of the asset.
Commissioning
Commissioning refers to the phase where the installed equipment is test run and checked against its original
specification.
Utilisation
Utilisation refers to the useful life phase of the item. This is the phase where the asset is used for its intended
purpose. This phase includes aspects of operation and maintenance of the asset.
Review and disposal
Review and disposal refers to the stage where the assets performance (cost and effectiveness) are reviewed. It
also includes the disposal of the asset which refers to the scrapping or selling of the asset. The implication of the
model is that the life cycle commences again for a new asset following the disposal of the old one.

Learning activity 3.4

3.4 For your reflection

Consider the asset life cycle model in Figure 3.2.
Can you relate the various stages of the cycle to your own recent acquisition of an asset (e.g. house, car, boat,
etc)? Which stages of the cycle did you spend most time on? White stages did you omit? Do you think that you
could have spent more time on a particular stage?

3.2 Asset Management Function

According to Hastings (2010), the purpose of ‘Asset Management Function’ is to provide resources and
expertise to support the acquisition, in-service support and disposal of physical assets required by the
organisation.
Typically, a central asset management function is required at company level in order to provide:

 input to asset planning

 play a major role is asset acquisition
 systems and facilities needed to support assets throughout their life cycle.

Asset management therefore is distinct from ‘operations’ and ‘Maintenance’ however the technical service
functions that support maintenance, are a part of asset management.
3.2.1 Asset Knowledge
The degree to which assets are managed are very much dependant on knowledge about the organisation’s assets,
including both current equipment, business objective of the asset and the future prospects.
It is important to have a practical knowledge of the assets as well as a systematic management of changes to
equipment (such as technical upgrades and regulatory compatibilities) in order to be able to make sound
business decisions in regard to the future of the assets.
For example, for a truck fleet, we would need knowledge of the years of remaining effective life of vehicle, and
of the lead time for acquisition of replacement, so that a suitable replacement strategy can be put in place. This
knowledge combined with future requirements of the business, developments in the type of vehicles available
from manufacturers, will enable the asset manager to make sound and timely decisions within the constraints of
business risk (Hastings, 2010)
Table 3-1 below, provides a summary of key points of knowledge which an asset manager may need to have in
making asset replacement decisions.

Table 3-1- Asset Management Knowledge Key Points

Asset Management Knowledge

1 What assets have we got
2 Where are they located
3 What is the business significance of our major assets
4 What is the profit and loss position of our major assets
5 What is our asset utilization including peak loads and seasonal factors
6 Are there gross imbalances- ie: major shortage, surplus of equipment/personnel
7 What is the condition of each major asset
8 Are reliability or availability issues significant
9 How much longer can specific assets last
10 Are there significant risks
11 Are maintenance costs a significant factor
12 What asset related development and market opportunities exist
13 What has the market got to offer in terms of assets that we might want to acquire
(Adapted from Hastings N, 2010)
3.2.2 Asset Management Policy
According to Hastings (2010), ‘A policy is a statement of the overall aims or principles adopted by an
organisation.’
PASS-55, the Asset Management specification calls for an organisation to have an asset management
policy. Some typical points generally covered in such policies may include (Hastings N 2010, pg 19)):

 purpose of policy
 · Adoption of whole-of-life approach to acquisition , operation, performance, maintenance and disposal
of assets
o Legislative compliance in acquisition, operation, risk management, maintenance and disposal
of assets
o Pursuance of world’s best performance of asset management
o assurance that people involved in management of assets are appropriately selected, developed
and trained
o Application of continuous improvement to managing assets

Learning activity 3.5

3.5 For your reflection

 Does your organisation or previous organisation you may have work for, have an
Asset Management Policy?

 What are the key points outlined in your organisation’s Asset Management Policy
and how well are they communicated/known by the personnel in key roles of asset
management?

3.2.3 Asset Management Strategy

A strategy is a broad level plan set by senior management and a guide to how an organisation intends to achieve
its aim.
The main elements to an asset management strategy as shown in Figure 3-3 include:

 Strategic Planning
 Acquisition
 Operation and maintenance
 Disposal
Figure 3-3- Elements of Asset Management Strategy
(Australian National Audit Office, 2013)
A number of plans usually support an asset management strategy. These typically include:

 an acquisition plan- This is the key document for the acquisition of all major assets and links
program delivery requirements to assets required. It will be concerned with life cycle cost, maintenance
strategies etc.
 a maintenance plan - Maintenance is a critical activity in the life-cycle of an asset. Major maintenance
activities require long-term planning to allow critical assets to be taken off-line for extended periods of
time. It will be concerned with quality, reliability, maintainability and availability and life plan of an
equipment.

 an operations plan - An operations plan complements the acquisition, maintenance and disposal plans
and details the operational aspects of an asset on the basis of its life-cycle. It will be concerned with
performance, profit, return on investment of the asset

 a disposal plan - A disposal plan should be an integrated part of an asset management strategy in that
it leads into the planning process for new or replacement assets and is a powerful management tool in
assessing why the performance of certain assets may not have worked as intended.

READING 3.3

3.3 READING
Read the article "A framework for the engineering asset management system" by John Khaled El-Akruti and
RIchard Dwight, 2013. (Journal of Quality in Maintenance Engineering, Vol. 19 Iss: 4, pp.398-412) Go to:
http://ezproxy.cqu.edu.au/login?url=http://dx.doi.org/10.1108/JQME-01-2012-0002
Click on 'view PDF' link on the right hand side of the page.
3.2.4 Business Strategy and Asset Strategy
Asset strategies must be responsive to business objective. Therefore changes in business strategies, will impact
on the asset strategy. Some of the changes that may occur in business require asset strategies to be modified
include: (Hastings N, 2010):

 change in demand for product or service

 change in revenue and costs
 technological developments
 new business developments
 acquisitions
 changed operating practices
 equipment replacement
 outsourcing or in-sourcing of services

Learning activity 3.6

3.6 For your reflection

Watch the YouTube videon on 'The Salvo Project'
The video defines best practices in the asset management decision-making. In particular it has addressed the
common problems encountered in the management of aging assets; decision-making in the face of risk and data
uncertainty, and how to quantify 'intangibles' and value realization. Go to:

3.2.5 Asset Risk Management

All physical assets that form part of a plant have inherent risks or the potential for failure. In addition, they have
the potential for off-specification operation that could result in poor product quality, lower output or increased
production costs. These risks must also be clearly understood and managed to assure cost-effective business
continuation.

In addition to the inherent risks of catastrophic failure, risk management must also consider the relative
importance, e.g. criticality, of each asset on the plant’s ability to meet delivery commitments and the business
plan.
According to Kieth Mobley (2011) this type of risk cannot be resolved solely by applying preventive or
predictive maintenance technologies. Too many of the risks are the result of inherent design deficiencies, mode
of operation and operating practices. Therefore, risk management must address all forcing functions and triggers
that would result in risk

3.2.6 Risk Management Plan

Mobley (2011) describes the ideal risk management as a prioritization process whereby the risks with the
greatest loss and the greatest probability of occurring are handled first, then risks with lower probability of
occurrence and lower loss are handled in descending order. In practice the process can be very difficult, and
balancing between risks with a high probability of occurrence but lower loss versus a risk with high loss but
lower probability of occurrence can often be mishandled. In addition to those risks that can be easily identified,
an effective risk management plan must address:
Intangible risk: Intangible risk management identifies a new type of a risk that has a 100% probability of
occurring but is ignored by the organization due to a lack of identification ability. For example, when deficient
knowledge is applied to a situation, a knowledge risk materializes.
Relationship risk: Relationship risk appears when ineffective collaboration occurs. Coordination between
engineering, procurement, production and maintenance is the primary source of these relationship risks.

Process-engagement risk: Process-engagement risk may be an issue when ineffective operational procedures
are applied. These risks directly reduce the productivity of knowledge workers, decrease cost-effectiveness,
profitability, service, quality, reputation, brand value and earnings quality. Intangible risk management allows
risk management to create immediate value from the identification and reduction of risks that reduce
productivity.
Risk management also faces difficulties allocating resources. This is the idea of opportunity cost. Resources
spent on risk management could have been spent on more profitable activities. Again, ideal risk management
minimizes spending and minimizes the negative effects of risks.

The International Organization for Standardization (ISO) in ISO 31000 identifies the following principles of
risk management:

Risk management should:

 Create value
 Be an integral part of organizational processes
 Be part of decision-making
 Explicitly address uncertainty
 Be systematic and structured
 Be based on the best available information
 Be tailored
 Take into account human factors
 Be transparent and inclusive
 Be dynamic, iterative and responsive to change
 Be capable of continual improvement and enhancement.

It must be noted that risk management is not limited to catastrophic failures of assets or processes. To be
effective, risk management must acknowledge that risks takes many forms and that all must be clearly
understood and effectively managed. Do not become fixated on asset-related risks—they are important, but have
much less impact on overall performance than less spectacular failures in the business and work processes that
dictate your ability to meet market, financial and overall business goals. Business success and continuation
depends on your ability to recognize and manage these less visible risks.
3.3 Summary
In this module we have considered the definition of asset, the function and benefit of PASS 55 Standard as well
as what is meant by asset management within the modern industrial organisation. An overview of different
organisational assets has been discussed as well as why we need asset management within business. The asset
management concept has been looked in a quality framework based on the PDCA cycle. Also the asset life
cycle has been outlined with all stages of the asset life cycle discussed briefly.
The function of asset management has been detailed in looking at the need for asset knowledge, asset
management policies and the need for asset management strategies.
The information contained in this module provides an introductory concepts for asset managers.
Useful websites

 Reliabilityweb.com

 Amcouncil.com.au (asset management council)

 theiam.org (the institute of asset management)

 emeraldinsight.com (Journal of Quality in Maintenance Engineering)

References
Asset Management Council, Asset Management in Quality Framework – Demand Management (issue 07501),
Viewed 3 December 2013, http://theasset.amcouncil.com.au/issues.htm
Australian National Audit Office, The Practical Application of a strategic management framework, Viewed 3
December 2013,
http://www.anao.gov.au/bpg_assets2010/HTML/3_1_Document_an_asset_management_startegy.html#figure-3-
1
British Standards Institution (BSI), PASS 55 Asset Management, Viewed 5 December
2013, http://www.bsigroup.com/en-GB/PAS-55-Asset-Management/
Carol L, Lewis Carol Quotes, Viewed 5 December
2013, http://www.brainyquote.com/quotes/authors/l/lewis_carroll.html
Hastings, N 2010, Physical Asset Management, Springer, London
Khaled El-Akruti & Richard Dwight, A framework for the engineering asset management system, Viewed 12
December 2013, http://www.emeraldinsight.com/journals.htm?issn=1355-
2511&volume=19&issue=4&articleid=17098282
Krauss, E Gladstone Power Station Turnaround:Transforming Performance and Outcome Through Asset
Management (issue 0702), Viewed 29 November 2013 http://theasset.amcouncil.com.au/issues.htm
Mobely K What is risk management, Viewed 10 January 2014,
http://www.lce.com/What_is_Risk_Management_430-item.html
Salvo, Salvo – Strategic Assets: Life Cycle Value of Optimization, Viewed 5 December
2013, http://www.youtube.com/watch?v=75ctn9y_sBg