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Asset Management: concepts & practices

Article · January 2003

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 Asset Management concepts & practices

Asset Management: concepts and practices

John Woodhouse, Managing Director, TWPL

Competing interpretations and definitions

Even a superficial survey of uses for the term “Asset Management” reveals some
fundamental differences in interpretation and usage. There are three distinct families
of common current use:

Equipment maintainers & software vendors have used the term to gain
greater credibility and corporate ‘voice’ for their activities or products. As
maintenance has for so long been treated as a ‘necessary evil’ and low on the
budgeting priority list, perhaps calling it Asset Management sounds more
positive? But this often results in Asset Management being seen as just
another label for a technical discipline – looking after the hardware.

The financial sector, meanwhile, has long used the phrase to describe the
management of stocks and investment portfolios – trying to find the best mix
of capital security/growth and interest rates/yield. In this case, the focus is on
value and risks, with buying and selling being the Asset Management
activities.

Increasingly, physical-asset-intensive organisations (in many sectors) are

now recognising and describing ‘Asset Management’ is part of their core
purpose – creating/acquiring, exploiting, maintaining and renewing their
infrastructure, equipment and facilities to deliver good value to various
stakeholders. This multi-dimensional vision incorporates both of the previous
viewpoints, adds many more, and is the focus of this article.

Optimised, Whole Life Cycle Asset Management

The last definition above constitutes the basis for the significant performance
improvement opportunity available to almost every company in every industrial
sector. If we broaden the scope to describe not just physical assets, but any core,
elements of significant value to the company (such as good reputation, licenses,
workforce capabilities, experience and knowledge, data, intellectual property etc),
then the optimised, integrated Asset Management represents the best mix of:

Asset creation/acquisition
Asset exploitation (i.e. use of the asset to meet some corporate objective)
Asset care (i.e. maintenance, risk management and sustainability)
Asset renewal/disposal (including residual liabilities)

The ‘best mix’ is whatever yields the highest total value (as defined by the degree of
satisfying the organisation’s various competing objectives). This is significantly more
comprehensive than the popular “Balanced Scorecard” view of corporate
performance, which is promoted to consider both short term results and longer term
sustainability (but has no ‘balancing’ mechanism even for this)! And, in fact,
‘balance’ is not what we are looking for anyway: balance involves equality of impact

© The Woodhouse Partnership Ltd 2003 Page 1

 Asset Management concepts & practices

or significance. Similarly, the common and attractive-sounding ‘maximum benefits at

minimum cost’ language does not help either: it merely observes the conflicting goals,
and does not identify what is the best compromise.

“Optimisation” is the correct word for defining this best-value mix. Unfortunately,
however, the word has become grossly overused and misused by salesmen, and now
few people really understand what it means in practice. It is not, for example, the
point where risks start to exceed costs, or where a portfolio of investment projects is
‘rationalised’ for resource constraints. To demonstrate that we are delivering optimal
value over the asset life cycle, we need to understand what ‘value’ means, to whom,
and then be able to quantify it in consistent terms (usually financial, and we must not
forget or underestimate the ‘intangibles’ of reputation, morale and customer
satisfaction!). The multiple competing goals of any organisation need to be converted
into ‘scales of significance’ – this provides a coherent basis for defining criticality,
priorities and decision-making (including trade-offs and ‘optimisation).

This is illustrated best by the ‘Shamrock’ diagram1 (Figure 1) in which the inner ring
of five core dimensions reflects the methods available to quantify economic
significance for any combination of the outer subjects. The three dimensions most
difficult to quantify (and therefore the most important to do so for greater alignment
on priorities and decision-making) are risk, sustainability and the ‘shine’ factors (the
intangibles such as reputation, morale and customer satisfaction).

Figure 1. The Shamrock diagram.

11
The Shamrock diagram was developed by the international MACRO project (EU1488), researching
best practices in asset management decision-making.

© The Woodhouse Partnership Ltd 2003 Page 2

 Asset Management concepts & practices

Optimisation in asset management involves trying to find the most attractive

combination of conflicting elements - where the total positive value is maximised (or
the total negative impact of all the bad stuff, such as life cycle costs, risks and losses,
is minimised). Conceptual graphs are often drawn to illustrate this concept, but only
few organisations can demonstrate they deliver this, with quantified scales, to support
their chosen ‘optimal’ strategies (see figure 2).

Figure 2. Searching for the right goal: optimum = best value = ‘minimum total cost/risk/impact’

This optimisation is difficult because there are significant practical challenges in

identifying and quantifying the various factors, and then in finding and demonstrating
the best mix. Uncertainties about asset behaviour, future requirements, performance,
costs and risks all contribute to make the lines ‘fuzzy’. Furthermore, we tend to
organise ourselves into groups of functional specialism so that we do not see the
whole picture anyway (see figure 3). Departments are set up to design/build the
assets (“engineering”), exploit them (“operations” or “production”), or to care for
them (“maintenance”). Only the top boss has the combined interest in optimising the
combination – unless “Asset-based Management” has been adopted, with delegated
whole-life cycle performance and value-for-money responsibilities. Organising
ourselves by ‘activity type’ may be administratively convenient, but it creates silos
and prevents those working within such departments (and those most knowledgeable
about the assets) to see the big picture.

© The Woodhouse Partnership Ltd 2003 Page 3

 Activity/functional organisation Asset Management concepts & practices

Separate budgets and performance indicators

Customer Design/ Production/ Materials/

Service Engineering Operations Maintenance Purchasing

Some Service Level Agreements & negotiated relations

Figure 3. Traditional functional or activity-centred organisation: silos with conflicting priorities

Silos, habits and other barriers

Departmental tribalism is not the only challenge that we face in trying to establish
optimal whole life cycle management;
• Conflicting priorities evolve from top management confused messages –
reflecting the competing expectations of different stakeholder groups.
• Short termism is common, either from management turnover, each leader
wishing to make a distinctive mark during their tenure, and/or from investor
expectations of quick returns, and cycles of political or regulatory scrutiny.
• A significant education gap has also developed: we are good at training people
how to perform pre-determined activities, but not good at teaching them why
such tasks are valuable (yet this understanding has a profound effect on
motivation and productivity). And increased functional specialisms have
occurred at the expense of understanding the wider business context.
• Information technology projects and expenditures often run out of control,
losing sight of the end-user needs and capability to exploit the information (the
‘tail is wagging the dog’).
• We are a habit-forming species: resistance to change is natural and engrained.
It is easier not to think, just do what you are told, yet Asset Management
forces us out of our comfort zones (at least initially) and stimulates lateral
thinking, innovation and new forms of collaboration.
• Risk-based decision-making is much harder than blinkered “fact-based”
decisions, which rely on observable evidence only. Yet most correct asset
management decisions will need to incorporate uncertain assumptions,
forecasts and risk estimates.

All these issues need to be addressed if we are to establish a more integrated,

optimized and sustainable way of delivering the organisation’s goals. And this multi-
dimensional challenge has resulted in over 40 years of development in systematic
approaches.

© The Woodhouse Partnership Ltd 2003 Page 4

 Asset Management concepts & practices

The origins of modern Asset Management

The roots of modern, asset life cycle management are found in the 1970’s, with the
British ‘Terotechnology’ standards. However a real acceleration in recognised value
and impact came from the North Sea oil & gas sector following the wake-up calls of
the Piper Alpha disaster and oil price crash in the late 1980’s. These forced a
fundamental reappraisal of the business models – and the recognition that big
companies, while holding a number of strategic advantages and economies of scale,
were losing the ‘joined-up thinking’ and operational efficiency and agility that smaller
organisations naturally enjoy (or need, to survive). So asset-centred organisation
units emerged, employing multi-disciplined teams to find the best way forward in
development, exploitation and care for each part of the portfolio, with a whole life
cycle, value maximisation focus. The results were spectacular, yielding massive
improvements in productivity, reductions in safety incidents (e.g. 75% reduction in 4
years) and very significant direct economic (30-40% total cost savings) and service
level benefits (big uptime and performance gains). It also created more transparently
good governance and the ability to show not only what needed to be done, but also
why.

Similar discoveries and conclusions also emerged in the public sector in Australia
during the 1990’s, and in some early guidance for transport infrastructure in the USA.

One key feature of these developments was the recognition that…

Accountability for asset (system) performance/output

and
Responsibility for life cycle expenditure/inputs

… need to be much more closely linked. A big increase in value-for-money is

available if we delegate authority much closer to where the performance is generated.

The person who is expected to deliver results therefore needs to be given appropriate
freedom to determine what must be done to achieve them - rather than the common
situation of inputs determined in one department (such as projects, engineering or
maintenance) and outputs made the responsibility of another (operations/production).
This places the value-for-money decision-making much closer to the assets, where the
knowledge of characteristics, risks and opportunities lies. Any shared services or
obligations that apply to all assets or all activities (e.g. policies, risk appetites, data
and KPI structures) were treated and evaluated as enablers or consistency/governance
aids. And the central ‘overhead’ departments that provide such shared elements,
such as HR, IT and Finance, had to compete with the open market for their value-
adding contributions and funding justification.

Documenting the common sense

The most significant subsequent acceleration in understanding and adoption of good
asset management practices is associated with the development of the BSI PAS 55
‘Publicly Available Specification’. This was developed as a collaboration between
the Institute of Asset Management (IAM) and British Standards (BSI) in 2004, with a
significant update in 2008 and subsequent translations into many languages. BSI has

© The Woodhouse Partnership Ltd 2003 Page 5

 Asset Management concepts & practices

reported that it is their fastest ever selling ‘standard’, overtaking even the well-known
ISO 9000 quality management requirements. To this day, and despite the subsequent
publication of the more generic ISO 55000 series, organisations are finding that the
PAS 55:2008 documents are extremely useful sources of pragmatic guidance about
what represents good asset management practice (and then using the corresponding
ISO Standard for their validation/certification). PAS 55 provided a structured set of
requirements to cover both the ‘horizontal’ integration of life cycle stages, and the
‘vertical’ integration of corporate purposes with asset management and individual
asset intervention activities (Figure 4).

Figure 4. Hierarchy of assets and scope of an asset management system

The ISO 55000 family, published in February 2014, comprises three documents,
covering concepts and terminology, the requirements for a management system, and
guidance for the application of such a management system. This ‘system for asset
management’ provides the joined-up governance, value focus and alignments
necessary to ensure that organisational objectives are converted into appropriate asset
management strategies, plans and delivery, with continual improvement processes and
enablers (such as resources, competencies, information etc). Figure 5 shows the main
elements of an asset management system.

© The Woodhouse Partnership Ltd 2003 Page 6

 Asset Management concepts & practices

Figure 4. Primary elements of an Asset Management System

Asset management is not just a system of governance

With the existence of ‘standards’ for asset management, it is tempting to think that
better asset management is just the implementation of a joined-up management
system. However, while this will indeed stimulate better practices and deliver
significant performance improvement, the management system is just part of a more
fundamental transformation – in culture, behaviour and thinking. This wider
‘discipline’ of asset management is described in the GFMAM Asset Management
‘Landscape’2 and IAM ‘Anatomy’ of Asset Management3. In this article, I only
summarise (below) some of the learning points for successful and sustained corporate
transformations in this area.

The human factors

Even a quick comparison between the skills needed to deliver optimal life cycle
management of assets, and the typical training or education background of most staff,
will reveal a major misalignment. How many engineers have sufficient business,
financial understanding and communication skills? Why do we continue to see/treat
operators & technicians as (skilled) hands, rather than also having brains and very
sophisticated sensor capability? Ask any experienced Asset Manager where most of
their improvements have come from and a very clear answer comes back – from the

2
www.GFMAM.org
3
www.theIAM.org

© The Woodhouse Partnership Ltd 2003 Page 7

 Asset Management concepts & practices

workforce! We hear that “people are our greatest asset”, but often see evidence of the
opposite. The disillusionment and scepticism resulting from temporary initiatives and
oscillating management fashions mean that there is much credibility to be rebuilt.
Just another re-badging exercise is not going to be enough. An effective asset-
managing organisation listens to the those in the best place to contribute knowledge
and make decisions – and this is often involves ‘inverting the pyramid’ (Figure 6).

Figure 6. Inverting the pyramid

Leadership, priorities and performance measures

To really absorb asset management as a core part of the business model (and yield the
‘big prizes’), a greater understanding of the subject is certainly needed at Board of
Directors (VP or C-suite) level and in industry regulators. Clarifying roles in terms
of ‘Asset Owner’, ‘Asset Manager’ and ‘Service Provider’ is not enough – a good
start, but not enough. Greater risk awareness, whole life cycle planning and
‘optimising’ the capital investment programme are also not enough, although they too
are important elements. At the top or the organisation, a shift in behaviours and
language is often needed, converting the nice-sounding goals of keeping everybody
happy (“we will be safe, environmentally responsible, high performing, customer-
centric, employee-caring and cost-careful”) into much more useful messages of risk
appetite and quantified criteria for decision-making and prioritisation. Performance
measures need to shift from localised ‘efficiency’ indicators (such as budget
compliance or conformance with plans) to include value measures of results, risk,
sustainability and ‘effectiveness’ indicators. It is often the most difficult things to
measure that are also the most important ones to monitor, yet there is a common bias
towards easily collectable, short-term evidence.

© The Woodhouse Partnership Ltd 2003 Page 8

 Asset Management concepts & practices

Toys, tools and techniques

There is a strong, and dangerous, temptation to drive asset management
transformations through the introduction of new, bigger and more comprehensive
information systems. But many such well-intentioned programmes have failed, due to
over-expectation and under-delivery. The commonest reasons for failure are probably
over-ambition (a monster project that gets out of control) or inadequate consideration
of the human factors, such as motivation, competency, behaviour and culture change.
Without strong leadership and real workforce engagement, there is a significant risk
of the ‘tail wagging the dog’.

The technologies, methodologies and ‘tools’ can also be very confusing. The toolkit
is fast growing and continually evolving, wrapped in jargon and acronyms such as
LCC, RCM, TPM, RBI, RCA, CBM, ERM, ERP, CMMS/EAM, GIS, CRM and
many more. And, while many of these will have a part to play, the real challenge lies
in understanding which bits of which to use, in what circumstances, and to what level
of detail/granularity.

One common gap in the toolbox, however, is often encountered in converting

technical knowledge of problems, opportunities or proposed solutions into
business/financial/value language. While there are many aids to diagnosing issues
and asset characteristics, and even determining what interventions are technically
appropriate, the skills and tools for justifying what to do, when and why (building the
business case) has been a persistent challenge. This subject was first explored
rigorously by the European MACRO Project (EU 1488) and expanded more recently
by the international SALVO4 collaboration programme, which has yielding some
remarkable insights into the necessary mix of psychology, decision-making
disciplines and quantified ‘what if?’ evaluations.

A preliminary AM checklist
Getting the whole jigsaw puzzle sorted out is a major challenge, therefore. We
certainly cannot solve all the problems simultaneously. However there are some
valuable pointers to the establishment of the right environment, and foundation stones
that help to build a robust total structure. The following is a set of observations
gained over the last 20 years of working with successful Asset Managers and seeing
what seems to be the minimum underlying set of enablers:

> A clear choice of ‘granularity’ for defining an asset (not the whole company
and not the individual equipment components): a level of composite system
whose measurable performance boundary is clear, big enough to justify a life
cycle management plan and demonstrate value-for-money. The most obvious
use of asset = equipment unit is where most people start, but the entity that
best fits for value optimisation is the system unit, such as production line,
network route or other combination of elements that clearly and directly
contributes to the organisation’s service.
> Life Cycle Activities (design, purchase/construct, operate, maintain, renew,
decommission – the things we do to assets) may be how different task types

4
See www.SALVOproject.org

© The Woodhouse Partnership Ltd 2003 Page 9

 Asset Management concepts & practices

and resources are organised within delivery departments, but it is the cross-
functional collaboration mechanisms, decision-making processes and
performance criteria that make the value difference; and these need to be
based on total life cycle cost, performance and risk.
> All secondary business functions (i.e. support activities such as HR, IT,
Finance etc) and shared or occasional specialist resource requirements are
organised as internal service providers, with dual roles of ‘enabler’ and
‘policeman’. Scopes and funding of these shared, secondary resources need
to be aggressively challenged for their value added (compared to outsourcing)
and/or compliance and consistency motivations (in line with non-negotiable
policies and standards).
> The ‘umbrella’ image and language (e.g. ‘Asset Management’ or ‘Operational
Excellence’ - it does not matter as long as it is clearly defined and explained)
has to be prominent and consistent in Company, Departmental & Personal
objectives, house literature, training plans, stakeholder relationships etc. This
requires evident top management sponsorship, and multi-year sustained
reinforcement.
> ‘Missed opportunities’ and asset downtime events are monitored and costed –
this is where most of the big improvements will come from (rather than just
cost cutting). Unless a price is put on asset non-performance, it is almost
impossible to justify or optimise what is worth spending to improve it.
> Problem/opportunity identification, investigation, business case (decision-
making) & change implementation processes are all linked together and part
of normal, daily life – including closing the loop and realising the benefits!
> Don’t create an ‘Asset Management Department’ – it provides an excuse for
the rest of the organisation to say it is not their responsibility! Asset
management is the sum of what everybody is doing, together. It may need
some dedicated resources as ‘lubricators’, but these are facilitators or
policemen to promote good practice, break down barriers and ensure
alignment.
> Education: organisations need urgently to identify and address the big gaps
and backlog at a) senior management, b) technical/professional and c)
workforce levels. ‘Sheep-dip’ consistency of basic concepts training, and good
induction processes for new staff are needed to maintain the message.
> Twin track corporate planning: “quick wins” (benefits within 12 months)
deliverable are visibly used to ‘pay for’ sustained commitment to the larger
goal, typically 3-5 years away (the timescales of ambition needed to achieve
core behavioural/process changes). This is a self-adaptive, cumulative
improvement path, and contrasts greatly with strategies based on typical
benchmarking, audits and ‘blue skies visioneering’ (which tend to generate an
intimidating wish-lists and, at best, temporary enthusiasms).

© The Woodhouse Partnership Ltd 2003 Page 10

 Asset Management concepts & practices

Figure 6. Top-down desires meet bottom-up realities.

Joining it all up for the big prize

The real test of integrated, value-optimised Asset Management is found when the top-
down directional messages, managerial expectations and performance targets meet the
bottom-up realities of assets, resource capabilities, business processes and asset-
related opportunities. This is where negotiation, compromise and reprioritising is
encountered. But it is also where the management egos, departmental tribalism and
conflicting personal agendas are encountered. And this is therefore where adequate
focus on human factors becomes so critical (every organisation that has established a
big performance gain through asset management will acknowledge that this was the
most critical factor). The tools and techniques, reorganisations and performance
measures all help to make things possible, but it is people that make them happen and
make them sustainable. So the lesson is clear: don’t take short-cuts on education,
communication, leadership consistency (walking the talk) and cross-functional
teamwork!

And, if we get this right, the prizes are enormous. The growing pool of reported
results and case studies shows just how big an impact is possible:

• Hong Kong Mass Transit Railway: 20% reduction in operating costs, 3x

improvement in train reliability
• Sodexo facilities management: 40% reduction in corrective maintenance costs
• Nuon electricity network: 30% reduction in ‘total cost of ownership’
• Sasol petrochemical refinery: 60% reduction in renewal expenditure on
‘obsolete’ instrumentation and control systems
• Scottish Power generation: 22% increase in plant availability, with 20%
reduction in costs
• SABIC production: doubling the intervals between planned shutdowns.

© The Woodhouse Partnership Ltd 2003 Page 11

 Asset Management concepts & practices

These are just a small sample of the emerging evidence. And to find out more about
the subject, how to get started, maturity assessment and roadmapping, education and
professional development, there is a growing range of available resources, courses
and help available.

John Woodhouse
Managing Director, TWPL
Chair of Panel of Experts, IAM
john.woodhouse@twpl.com

Further reading and information sources:

Institute of Asset Management www.theIAM.org

Global Forum for Maintenance & Asset Management www.GFMAM.org
Australian Asset Management community www.amcouncil.com.au
Further materials from the author:
www.ISO55000.info
www.assetmanagementacademy.com
www.twpl.com

© The Woodhouse Partnership Ltd 2003 Page 12

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