Improving asset utilization with an Asset Investment Planning and Management methodology

Making decisions around asset investments, replacements, refurbishments and retirements is complex. Many factors need to be considered, and significant financial and resource constraints often limit the leeway of decision-makers. Yet decisions must be made every day, often on the basis of scarce information. This has led industry experts worldwide to start collecting and promoting sound asset management best practice, culminating with the recently released ISO 55000 standard. One of the key themes is the need to elevate asset management to a company-wide challenge and discipline. Strong organizational alignment is required for a holistic approach where multiple stakeholders contribute to better asset management and decision-making.

The various internal stakeholders in a corporation look at asset management from the perspective of their own needs, using their own data, processes and systems. Yet no single department or system has access to all the data and knowledge necessary to make effective asset investment decisions. This means that, in addition to functional and data alignment, consideration needs to be given to integrating all the IT systems, which each hold some of the decision-making data. Effective decision support solutions draw on data from multiple existing departmental and enterprise IT systems to develop a full picture of all assets, of the challenges attached to them and the financial consequences of each decision (or lack thereof).

Such solutions are increasingly being referred to as Asset Investment Planning solutions, or, if they include a continuing performance management component, Asset Investment Planning and Management (AIPM) solutions.

Both PAS-55 and ISO 55000 stress the importance of asset-related risks as key factors in decision-making, complementing traditional life-cycle cost analysis. As an asset's condition degrades, the probability of failure and associated risks increase. The risks should typically be mitigated before they become unacceptable. If the asset is already subject to an appropriate maintenance regime, this means that it needs replacing or refurbishing, or that some other redesign action must be undertaken to reset its condition to a higher level and reduce the probability of failure.

Most corporations mitigate risk by investing in assets presenting unacceptable levels of risks or degrading general performance in the short term – e.g., within 3 to 5 years. Investment in this case could mean asset replacement, redesign, partial change or refurbishment, an asset swap, or ‘soft’ investments such as retraining staff to operate the asset differently.

As specific assets come closer to the need for investments, their owners convert the suggested investments resulting from Asset Analytics into full business cases. These are usually only part of the set competing for funds and resources. There might also be investment needs arising from maintenance, operating or regulatory requirements, or from growth objectives or function changes for particular assets. Prioritization becomes the key when too many investments compete for limited resources (finance, labor, tools, inventory, etc.).

Optimization of a portfolio of competing investments is typically achieved by evaluating the contribution of each candidate investment, using value functions. These are meant to reflect the asset-owner's strategic objectives and to evaluate the various investments’ benefits using specific metrics aligned with corporate goals (e.g. safety, uptime, ROI).

Once optimization is understood and implemented fully, different scenarios can be evaluated – e.g., on the basis of financial constraints set by management. Different scenarios could be run using relaxed or reduced budgets, and sensitivity analyses performed. This might trigger budget constraint revisions based on the potentially better outcomes under specific scenarios. Scenarios also offer a convenient mechanism to track changes over time: a first scenario might reflect the original budget, a later, updated version, might be produced based on revised costs and/or financial constraints. If such scenarios are recorded they can be recalled and compared later – enabling variance analysis, for instance. Ideally all options and scenarios are logged so that it can be shown that due diligence was properly performed at every stage of budgeting and execution.

Typical projects are changed during execution. More urgent work might require resource redirection, materials might be delivered late, budgets might change, etc. Often, however, budgeting and project approval are so complex that investment portfolios are not reviewed outside the formal, annual budget review. The accumulation of changes and slippages caused by this can lead to under-execution, often reducing the original investment execution target by as much as half.

By regularly combining and analyzing all variances in a portfolio, it is often possible to reallocate funds or resources, and improve on the project execution rate. Monthly or quarterly portfolio review meetings, where variances are analyzed and plans adjusted, take advantage of changes from the original plan. This enables execution rates to be improved quite significantly. In effect, the asset investment plans are systematically adjusted to the actual situation, and thus become more useful and credible.

When an investment is fully executed, it is important to understand what really happened as opposed to what was planned and promised. This is true for individual investments and full portfolios. Regulators, investors and other stakeholders want to know if resources were optimally applied and if results are in line with what was ‘sold’ to them. All decisions and changes must, therefore, be tracked, enabling full audits, strengthening internal and external credibility, and allowing the lessons learned to be applied in the next budgetary cycle.

Application of the AIPM methodology yields a holistic and dynamic asset investment plan covering all time frames. AIPM enables the development and maintenance of a defensible, well documented asset investment plan built around actual asset, risk and financial data that can be used confidently with internal and external stakeholders.

If well executed, such a solution offers a clear vision between strategic objectives and imperatives, and asset condition, the risks attached to each asset and the investments planned to mitigate risks, and asset degradation. It helps in the maximization of asset value and corporate alignment with asset management standards like ISO 55000.