03 August 2015
I was given some advice by my father many years ago when I was considering what to do in my career. He suggested that I study engineering, then qualify as an accountant before following a career doing neither. He may have been pointing me toward a career in asset management.
But surely you have to be an engineer to be an asset manager? It's all about maintenance isn't it? Or, integrity management? Well it includes both of these essential approaches, but asset management is more than that. It is an approach to business specifically aiming to realise value from assets. That, of course, involves maintenance management and effective integrity management. They are essential to ensure safe operation, that assets continue to operate when required and failures are minimised. So why is that not the whole asset management story?
Asset Management addresses a wider scope. The new ISO 55001 standard launched in 2014 builds on global good practice in Asset Management and specifies a management framework applicable to any organisation aiming to realise value from its assets. As described in ISO 55001, Asset Management starts at the concept stage, long before design work starts, going right through the design, build, operation and disposal phases. The disposal may mean the point at which the asset is decommissioned, or simply when it is sold onto the next owner/operator. Asset Management is just as applicable to the second or third owner of the asset - considering the full value the asset can generate for the business, including its terminal value, as part of the asset acquisition decision.
Over the period where an organisation has an asset, an asset management approach will seek to balance costs with the achievement of the required performance. That trade off must take account of risk - recognising that the organisation is prepared to accept certain risks and not others. This organisational awareness of "risk appetite" is fundamental. Practices such as whole life costing are central to determining the right balance, considering not just the initial purchase or build cost, but what the asset will cost to operate over the whole ownership period, compared to the value it generates for the business. Making these decisions requires the organisation to understand and define the decision making criteria such as what levels of risks are acceptable; what cost of capital should be used, what is an acceptable period for a return on investment; when should work be contracted out and when done in house; what is an acceptable level of working capital and spares holding levels and so on.
The point is that decisions need to be repeatable, and aligned to the needs of the organisations stakeholders. And perhaps most important - the activities we are performing must align to the delivery of the organisations objectives, reflected in the corporate plan or business plan. Another obvious point? You would think so, but very often there is a disconnect between the activities at the engineering level and the direction the organisation wants to take. We might be focused at the operational level at maintaining assets in an excellent condition, capable of full capacity operation. At the board level, the perception may be that the business environment may have changed, so that an asset capable of working at 80% capacity is adequate, with the potential for works to be done later to recover the position when the environment improves. It requires a change in thinking - asset management is not about creating or maintaining the best assets. Asset Management is about getting the desired value required from them - sustainably and safely.
That understanding of business, the understanding of the technical aspects and the fundamental interactions between finance and engineering is crucial to effective business delivery.
My father may have had a point.