Lecture 1

Asset: something that has actual or potential value to the organization

Asset management: coordinated activities to realize value from assets involving balancing
cost, risk, opportunity, and performance (CROP)

Asset classes:
- Tangible assets → operations and productions such as plants, infrastructure, technology,
facilities, real estate)
- Intangible assets → goodwill IP, human assets

Assets are usually→complex, expensive, engineered to order, technology intensive or service

intensive, support core operations ex. Machine

Assets can be managed as (hierarchies):

- Individual unit
- Systems
- Systems of a system

Questions for asset managers

- Do you understand the risk profile of your asset?
- Do you know the consequences of reducing the maintenance budget?
- Can you justify your assets to the external stakeholders?
- Do you know the importance level of each project?
- Do you have the appropriate data of the assets to support decision making?
- Do your people have the right capabilities to manage the assets?
- Do you know which AM activities to outsource?
Asset management aims:
- Maximize productivity and accuracy
- Minimize cost per unit produced, risk in terms of productivity and environment
- Prevent safety hazard for employees
- Follow national and international regulations

Asset management lifecycle

Example: creating a kitchen in a house
1. Investment decision
2. Design, engineer, and purchase the assets
3. Building the assets
4. Operation and maintain the assets
5. End of life

Important aspects of AM lifecycle management

1. Interdisciplinary coordination
- None of the phases of an asset is dominant therefore need to work and integrate
at the same time.
- Different phases are carried out by different parties.
- Different parties: suppliers, maintainer, and user/owner
- Therefore, feedforward and feedback loops are needed across the lifecycle
2. Life cycle costs
- Operational costs are as significant as investment costs therefore the investment
decision needs to take into account TCO not just the acquisition phase

Additional to interdisciplinary coordination

- Servitization of AM: the process of shifting from manufacturing to services
- Maintaining assets
 - Contracting in maintenance phase: principal agent problem
- Principal→asset owner/the user
- Agent→service provider
- Principal-agent problem deals with the optimal contract offered to an agent
- The best type of contract:
1. Lump sum (fixed price before its begin)
2. Work packages (work broken down into smaller components)
3. Performance based (based on the performance of the agent
- The best contract is always combination of lump sum and performance based

Value driven AM (Marquez et al 2020)

- Value obtained by acquiring assets to fulfill strategic objectives

- The realization of values include balancing crop (cost, risks, opportunities, and
performance)
Assumptions of value realization:
1. Each organization has to define its own conception of value
2. Managing value requires dealing with conflicting objectives
3. A whole life assessment should be considered
Requirement of proper value based AM implementation:
Objectives should be clearly identified and should be SMART (specific, measurable, achievable,
realistic, and timely)

Transforming stakeholder requirements into value metrics:

1. Identification of key stakeholders
2. Definition of stakeholders requirement
3. Conversion of stakeholders requirement into value drivers and metrics

Value drivers → characteristics of asset perceived by stakeholders

Value metrics→ performance measures used

Value based AM
Focus on complete portfolio of an asset and not just a single units of an assets, which means
the decision and the value delivered should be in the system/network level
 - Focus on CROP (cost, risk, opportunity, and performance)
- Maximizes performance while satisfying budget constraints
- Involving all stakeholders
- Explore innovative approaches
- Focus on system/network level

Value realization at system/network level

Presences various interactions and dependencies among components. 3 categories of
dependencies:
1. Economic dependence → maintenance of components affects the overall expense
2. Stochastic dependence→failure of interaction among components
3. Structural dependence→intervention of a components requires other components at the
same time
- Technical dependence→certain components restricted by other components
- Performance dependence→failure of a components affect the overall systems
performance

Whole life value realization

Whole Life Value(WLV): consists of CROP (costs, risks, opportunities, and performance/benefit)
in the whole life-cycle.
Enhance the identification and quantification of cost and value to evaluate the total cost and
value of assets throughout their lifecycle
→ go beyond only consideration of CAPEX and further evaluate OPEX, also TVO and WLV to
support decision of complete asset lifecycle

- Three stage lifecycle model

- Design & Build, Operations and maintenance, Decommissioning

Lecture 2
Front end Loading
- Is a conceptual development of projects that can address TECCO and commit
resources to maximize success
- Significantly investing effort in the phases that contribute to Final Investment Decision
- Mostly considers asset owner’s perspective

Summary: Front End Loading is crucial for maximizing project success by addressing critical
aspects such as TECCO early on, focusing on the asset owner's perspective, and ensuring that
a comprehensive approach is taken towards planning and resource allocation.

Decisions needed and need to be taken on issues such as:

- Business needs, stakeholder needs, asset type, asset location, which technologies, what
type of organization, capabilities, costs, etc.

Potential problem at the front end

 1. Relying on assumptions
2. Many uncertainties
3. Requires different sources
4. Various stakeholders not involved
Timing of decisions
- 75% of all life cycle cost are locked after designing and before building
- Life cycle OM cost can be up to 20 times initial cost after building
- Best moment to decide?

Front-end development:
Provide the asset owner with the complete image of business opportunities, to decide whether it
is worth investing in

Opportunity stage gate process

Evaluate in between steps to ensure you can go to other steps/ need proper decision making to
go through gates. Evaluate two questions:
1. Is the opportunity ready to proceed?
2. Do we want to proceed?

Causes project failure

1. Lack of clearly defined scope
 2. Lack of potential solution analysis
3. High complexity
4. Incomplete design
5. Unrealistic plan
6. Unrealistic budgets
7. Wrong contracting strategy
8. Lack stakeholders aspiration understanding
9. Lack risk management

All these failure could have been prevented in Front end phase

Long Term Asset Planning (LTAP)

A business plan for asset based on clear assumption, developed by management that include
TECCO risk management in order to determine resource allocation over the lifecycle

General features of planning:

- What will be done and why
- What resource will be required
- Who will be responsible
- How will the results be evaluated

CAPEX midway the lifecycle

Decision making that understands LCC nad risk to determine point of overhaul/renew

Model to develop LTAP → remaining useful life mush consider economic and technical point of
view

Understand how assets fail

- Root Cause Analysis (Fishbone)
- Failure patterns
- Predictive maintenance
- Proactive maintenance
- FMECA

Cost Ingredients of LTAP

Total Cost of Ownership (TCO): all the expense over the life cycle
Tradeoffs→ balance between acquisition and disposal cost

LCC or TCO → optimizing value for money of asset by taking into account all cost during its
operational life. Which will result into optimal long term decision

Objectives
- Enable investment options
 - Consider impact of all costs
- Assist in effective management
- To facilitate choices between alternatives

TCO benefits:
- Performance measurement
- Decision making
- Communication
- Insights/Understanding
- Continuous improvement

LCC vs TCO
- TCO considers indirect cost, LCC only direct
- TCO is more to technological/IT industry, LCC physical asset
Woodward (1997)
Elements of LCC
1. Initial capital costs
2. Life of the asset
a. Functional life
b. Physical life
c. Technological life
d. Economic life
e. Social and legal lige
3. The discount rate
4. Operating and maintenance costs
5. Disposal costs
6. Information and feedback
7. Uncertainty and sensitivity analysis

Cost trade off: higher capex = higher asset availability = lower maintenance costs

Essential information of LCC analysis → reliability, capacity utilization, maintenance procedures

Appraisal of AMT
AMT → Improving competitiveness
Benefits : reduced labors, improved product quality & flexibility, enhanced time efficiency and
shortened time to market

Investment appraisal techniques:

1. Strategic evaluation
2. Economic evaluation
3. Analytic evaluation
Lecture 3
Asset Integrity

Drivers of Asset Integrity

- Society pressure → regarding sustainability, local and international guidelines
- Asset stakeholders push → good corporate governance
- Corporate principle and culture supports → sustainability and CSR framework
- Regulations pull → trade agreements, reporting

Definitions of Asset Integrity

1. Set of practices and policies to keep asset in appropriate state to perform its function
and reduce risk to life and environment, while minimizing LCC
2. Continuous process of knowledge in lifecycle to manage risk of failure
3. Ability of an asset to perform its function while safeguarding environment

Aim: balance stakeholder demand on financial, asset, and integrity performance

TECCO risks and issues to manage:

› Technical (Technical, Operational, Safety, Health, Environment, Sustainability)
› Economic (Financial, Economic)
› Commercial (Customer relations, Quality, Reliability, Markets, Reputation)
› Compliance (Legislation, Permits, Society, Authorities)
› Organisational (Employees, Capabilities, Structure)

Asset integrity component

1. Design integrity → assure design for safe operations
2. Technical integrity→maintain the hardware against failure
3. Operating integrity→work within the operational barriers

Key to manage integrity

1. Consider HSE in all stages
2. Analyze hazards
3. Proactively prevent and control undesired events
4. Evaluate personnel competency
5. Monitor performance

How is asset integrity accomplished

- Set of practices and policies
- Manage risks of failure

Asset integrity is a part of risks management

- Risk → uncertain condition that if occurs can create impact to the asset objectives
- Issue → known problem that can affect asset objectives if not managed
 - Uncertainty → unknown problem due to the lack of information/knowledge

Risk Management System

Components
1. Process
- Identify
- Assess
- Plan Improve
2. Tools
- Risk matrix
- Report
- Handbook
- Protocols
3. Organizational Framework
- Roles and Responsibilities
- Risk assessment matrix

Risk management process

Since asset integrity is multidisciplinary, it is necessary to take into account all TECCO aspects

Risk matrix→ semi quantitative tool to assist in communication between stakeholders

Bow tie → risk evaluation method that can analyze causal relationships in high risks scenario
Best practice of risk strategy
1. List asset
2. Analyze the most critical
3. Modeling of consequence

Hazard→ any source of potential damage under certain conditions at work

Risk → probability that a person/environment will be harmed if exposed to hazard

How far should you go in reducing risk?

ALARP (As low as reasonably practicable) → involves balancing reduction in risk against the
time, trouble, difficulty and cost of achieving it

ALARP means the point where the balance of TTDC if go below this it will give additional risks

The process should be transparent with all stakeholders involved

Lecture 4
Operations and Maintenance
- Operations:
operating the asset to achieve its required function
- Maintenance, repair, overhaul (MRO):
All actions which have the objective of retaining or restoring an item in or to a state in
which it can perform its required function.
Actions include the combination of all technical and corresponding administrative, managerial,
and supervision task

Maintenance is important because an engineered structure can degrade or deteriorate

Strategic aspects of OM
1. Coherent → unifying and integrating different elements of strategy
2. Align with manufacturing, corporate and business strategies
3. Determines organizational purpose
4. Define the nature of economic and non economic contribution
OEE → overall equipment effectiveness
An important and widely used performance measurement
Key parts: availability, performance, quality

Maintenance concepts
an infrastructural decision to implement maintenance strategy
- the general decision structure for both maintenance actions and policies
- the set of various maintenance (policies) and the general
structure in which these interventions are foreseen

Often: 3-letter acronyms, e.g., TPM, RCM, BCM

Concept development framework

Customized framework
Waeyenbergh & Pintelon (2002)
1. Start-up and identification of objectives and resources
2. Identification of most important systems (MIS)
MCDA, broad or narrow focus
Criteria e.g. repair cost, safety, bottlenecks, redundancy
3. Identification of most critical components (MCC)
4. Maintenance policy decision step
5. Optimization of the policies
6. Performance measurement and continuous improvement
Dependencies (Olde Keizer et al., 2017a)

Multi-unit system = complex system

In complex systems, various dependencies can be observed
that affect maintenance planning:
1. Structural dependence
2. Stochastic dependence
3. Resource dependence
4. Economic dependence

Structural dependence: considers the structural, static

relationships between different components
- Technical dependence,
- Maintenance restriction: maintenance on a certain component can require or
prohibit maintenance on other components or
- usage restrictions: maintenance on a component can have consequences for the
execution of activities on other components P
- Performance dependence
- maintenance of one component affects system performance, which may affect
overall maintenance policy
- Stochastic Dependence
- the deterioration or failure processes of components are (partially) dependent
- Resource dependence
- Maintenance can only be scheduled if the required resources are available
 - Economic Dependence
- Maintaining several components simultaneously leads to lower or higher
costs than maintaining them separately

Servitization and Contracting

Outsourcing maintenance can be interpreted as a principal-agent problem

Principal→ asset owner/operator
Agent → service provider

principal-agent problem deals with the optimal contract offered to an agent, given that
- The principal cannot observe the agent’s efforts
- Only outcomes can be measured (and cannot be used to infer efforts)

Common in agency theory (Eisenhardt, 1989)

1. Moral hazard: lack of effort (of an agent)
2. Adverse selection: the misrepresentation of the abilities of the agent

Murthy and Jack (2014)

Moral hazard
The service provider only exerts some bare minimum effort to keep an asset running
Example: the service provider cares more about other customers, while polishing the asset
doesn’t raise current revenues

Adverse selection
The service provider claims it has high maintenance capabilities
Example: the SP says it is highly knowledgeable in asset health monitoring and signals it has
access to some latest technology

Hong et al. 2016

Adverse Selection
The owner knows under which adversarial conditions the asset will be used (and requires
insurance because of that)
Example: Helicopter engines and their maintenance needs are affected by operating conditions
(e.g., temperature, sand) and operator behavior (e.g., thrust, vertical acceleration). The owner
has private information about these aspects at the time of contracting. The owner may think it
benefits from a more comprehensive service contract.

Moral Hazard
› The owner may engage in activities that increase asset deterioration and maintenance needs
Example, taxiing on one engine (common among operators) saves fuel for the owner but
prevents the other engines from warming up completely and can be less than ideal for the cold
engines during take- off. This may be hard to detect, not contractible or not enforceable.