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The Strategic Importance of Asset Management Part One: Changing Attitudes

Written By: Daryl Mather
Published On: December 18 2003

Introduction

As a result of a handful of events, 2003 has been a benchmark year in the discipline of asset management, the implications of which are reverberating around the world. All of these events were, in some manner, due to a failure of physical assets.

  • The Colombia Space Shuttle disaster

  • The New York blackout, the London blackout, and the blackout in Italy

  • Six people, responsible for the management and maintenance of the rail lines, were charged with manslaughter regarding the Hatfield train disaster in the United Kingdom


The global reaction to these events has been the culmination of a continuous series of changes in this area since the early 1970s. These changes have encompassed attitudes within society, heightened levels of understanding as well as the competitive market forces acting on the function of physical asset management.


This is Part One of three-part note.

Part Two discusses the implications for asset management.

Part Three presents a new framework for asset management.

Changing Attitudes

Society has become increasingly intolerant of industrial incidents, particularly in the areas of safety and environmental integrity. It is no longer considered acceptable to cause harm to either the environment or to people and the communities that they live in.

In the past ten years this has been reflected in various changes in legislation and regulation in countries around the world. Some of the recent developments in these areas include:

  • Changes to the regulations governing electricity providers in the United Kingdom—now providing a high degree of focus on risk management and mitigation.

  • Wide ranging fraud legislation by the federal government of Canada in response to the Westray disaster

  • Legislation in response to the Longford disaster in Australia

It is becoming obvious that in the future those responsible for the management of physical assets will be more likely to be called to account when there is a failure, and as can be seen by recent history, it is likely that it will not be companies but individuals.

In extreme cases incidents can also mean irreversible damage to a company's public image. Think of such disasters as the Exxon-Valdez environmental incident, the Union Carbide disaster in Bhopal in India or more recently the linking of Powergen to the New York blackout. All of these incidents have remained chained to these companies in the public mind.

Heightened Level of Understanding

The publication of the report Reliability-centred Maintenance, prepared by Stan Nowlan and Howard Heap, has enabled a quantum leap in the way in which we understand how maintenance should be managed.

Many of the findings of this report fly in the face of long-held, "common-sense" type beliefs and have exposed the true complex nature of asset management. They also force companies to look at their physical asset base in an entirely different manner. At a high level these can be summarized in the following points:

  • Changes to our understanding of how maintenance contributes to a company's strategic advantage

  • Changes to the way in which we understand equipment failures

  • The maintenance department alone is not capable of developing a sustainable and adequate maintenance strategy regime

  • Maintenance is not about preventing failures, it is about preventing the consequences of failure

  • An understanding of the ability of operational maintenance to drive capital expenditure

  • More protection is not necessarily better

  • An understanding of new ways of maintaining items, particularly those that don't fail according to long-held views

  • Extensive data is not required to take decisions on maintenance policies


Many of these new ways of thinking have challenged long held industry views. So much so that they are often difficult for industry professionals to easily assimilate. They are even less likely to be understood by those outside of the field of asset management.


As we move into the 21st century many are beginning to look towards asset management as a source of strategic advantages. To achieve this the organization will need to have a deep understanding of these issues, and others like them, integrated into their thinking and corporate cultures.

Competitive Market Forces

One of the key elements of the increasingly open global competitive environment is pressure on costs. There are pressures to increase profit margins, or in worst case scenarios retain profit margins under lowering retail prices.

As one of the largest elements of both operational and capital spending, asset management is often an obvious target for reductions in this area.

Maintenance costs are high, in some cases artificially high. Not only are they high but there is increasing pressure on maintenance costs to rise. Areas such as increased regulation, complex and automated machinery, as well as the rising costs of physical assets themselves are pushing maintenance operators to the wire. Pressures to do more are increasing while the pressure to spend less is greater than it has ever been.

One of the major factors behind this trend is that we are more dependent on machinery than at any time in the past. Where previously we would use people to do work, today we use machinery.

This conflicting situation of pressures to increase the work done combined with pressures to reduce the costs of doing that work, has been one of the principal drivers behind many of the vast range of product and service "solutions" that have appeared over the past three decades. These have generally been focused on appealing to this management concern over rising direct costs.

This situation has unfortunately led to more poor decisions and misunderstandings in asset management than any other influencing factor. The results of decisions based on these concerns alone, while often bringing some short-term gains, are rarely sustainable and can even be dangerous in the medium to long term.

Ad-hoc or isolated cost cutting often leads to the eradication of skills or activities that assist in achieving production goals. In worst case scenarios they impinge on the safe operating environments of assets.

This does not mean that direct cost reductions are not achievable in asset management.

Much of the maintenance that we do today either achieves very little, or is actively counter productive. As such there is always scope for reducing areas of redundancy. Added to that are other areas of inefficiency such as planning and scheduling, stores management, and other key areas.

The concept of direct cost reduction needs to be replaced with the focus on reducing maintenance unit costs. This requires a redirection of costs from the present activities towards activities that we truly must do to achieve adequate performance levels. Any increase in attention, no matter where it comes from, is of course welcome. However it needs to be reinforced with knowledge of the true nature of asset management, as well as the strategic importance to many facets of corporate activity.

This may include regulatory and legislative compliance, safety and environmental integrity as well as the standard economic requirements of quality, production and efficiency.


This concludes Part One of three-part note.

Part Two discusses the implications for asset management.

Part Three presents a new framework for asset management.


About the Author

Daryl Mather is an author, speaker, and management consultant from Australia currently living and working in the United Kingdom. He specializes in assisting companies to achieve strategic advantages within the areas of physical asset management. After beginning in Australia he has enjoyed a career in over fifteen countries around the world. He can be reached at darylm@klaron.net or go to www.strategic-advantages.com

 
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