While considerable progress has been made by many municipalities with respect to developing and implementing asset management plans, there are still quite a lot to accomplish. A few years ago we were hit with the blitz of ISO 55000. Since then there has been lots of buzz in the asset management field.
Now there is another blitz coming – the regulation of asset management planning.
The Province of Ontario, Canada has recently proposed an Asset Management Planning Regulation. The draft of the proposed regulation is in its final stage after a final round of call for feedback and comments. .
Asset Management regulation is not new. In New Zealand AM legislation has been in place since 1996 at the Local Government level. In Australia state-based utility regulators expect best practice AM techniques and require regular audits and reporting. In Britain the regulation of national infrastructure is a bit different.
In Ontario, Canada it is a first, even though great asset management practices are in place in different provinces across the country.
So what is the purpose of this upcoming asset management planning regulation?
The main reasons are to introduce new requirements in order to:
We all know very well that “A plan remains a plan unless it is put in action”, i.e. unless it is operationalized.
In the proposed regulation draft it clearly stipulates that “while municipalities have made excellent progress in asset management planning, significant differences exist among municipalities in the completeness, level of detail, and methodology and assumptions used to develop the plans. The plans also vary widely in the degree to which they are being used to inform decision making”.
Operationalizing by definition means setting something up (your asset management plan), so that it can be used, used not only by a few functional areas but across the whole organization.
This is where HPAM comes into the frame - not holistic approach from an asset whole lifecycle perspective only, but from a whole- organizational perspective as well. This means having all functional areas dealing with assets in one way or another to fully understand, endorse and implement the AM plan in their respective areas. As you can imagine, this is not an easy feat because we are now dealing with an Enterprise-Wide Asset Management Program.
How well is your asset management plan understood, endorsed and implemented in the different functional areas of your organization?
.There is this ongoing discussion about asset management in the public sector and the private sector. The debate is about who is doing the “real” asset management stuff and where can we find the best practices. The topic is even more prominent now, especially with its global magnitude. It is being discussed in various conferences, training programs, publications and messages from consultants/vendors. Is one doing asset management and the other doing strategic asset planning? Is one better than the other?
At the end of the day in my opinion this is a futile discussion. If we look closely at both, the public and private sectors, they are both doing their part the best they can within their respective organizational context.
Rather than getting into the debate of who is doing better, we should be focusing more on how each of these sectors can share and improve their processes to achieve a more holistic asset management approach. Maybe the strategic portion is in place (top down approach), but not the tactical portion (bottom up approach) or vice versa - vertical alignment. Maybe organizations are doing the right things but in functional silos with poor collaboration – horizontal alignment.
Ultimately, what really matters most is how well the approaches/activities are aligned and coordinated. Of course there will always be areas of misalignment or weaknesses (constraints) that will need to be revisited. Of course there will always be gaps in processes, which are great opportunities for improvement.
What is the difference then, and why the ongoing debate?
In the public sector asset management planning is traditionally performed by the asset management/finance function with council endorsement. Engineering and public works take care of the asset management tactics in the form of refurbishments and routine maintenance.
In the private sector where the organizational context is different, asset management planning is usually done by senior management and endorsed by the shareholders or executive boards. Engineering and maintenance & reliability execute the asset management tactics.
So what does that mean?
Well in the private sector strategic asset planning is done at the board level and is pushed down to staff to execute the strategic direction, e.g. the board decides to expand the plant by next year in order to launch a new product. Market research and analysis have been completed, funding has already been arranged and decision has been made to stop manufacturing the old product, with all the related assets identified for disposal. All the related tactical projects need to be executed as per the approved plan and business priorities to generate maximum returns. In this case the tactical portion is very visible, while the principal-agent discussion is conducted behind closed doors. Hence we have the perception that “asset management planning” does not exist or is not carried out.
In the public sector it is actually a different approach. Council discussion and decision is public information – meaning we not only get to see more of the “asset management planning” and budgeting process, but we can also have our say and input. There are more open debates at the planning stage because of the political nature and impact of projects. Once decisions have been reached, then the actual execution is passed over to engineering/public works.
So both, the public and private sectors practice asset management based on their existing organizational context. As stated in ISO 55002, understanding the organization and its external and internal context is key in defining the scope of an organization’s asset management system, which will be used to set out the approach to enable the delivery of the organizational objectives.
With the changing landscape in asset management globally, organizations are now required to take a more holistic approach to manage their assets – both from a whole lifecycle perspective as well as enterprise-wide. So let us share and learn more from each other to make it happen.
In several asset management literatures I have been seeing terms such as demand analysis, demand management and need analysis being used. I was a little curious to understand how these terms relate to Asset Management, the difference and linkages between them and most importantly when to use them. A good place to start is to understand what each term exactly means.
A quick search on the internet gave the following definitions:
• Demand Analysis: Research into the desire of consumers for a particular product or service. Demand analysis is used to identify who wants to buy a given product, how much they are likely to pay for it, how many units they might purchase, and other factors that can be used to determine product design, selling cost, and advertising strategy for a product. http://www.investorwords.com/16338/demand_analysis.html#ixzz4nBkb8TEB
• Demand management: Demand management is a planning methodology used to forecast, plan for and manage the demand for products and services. This can be at macro-levels as in economics and at micro-levels within individual organizations. https://en.wikipedia.org/wiki/Demand_management
• Needs Analysis: Need Analysis is the process of identifying and evaluating needs in a community or other defined population of people. The identification of needs is a process of describing “problems” of a target population and possible solutions to these problems. Some people use the related term “needs assessment” or “needs identification”.
A need may be different from such related concepts as wants (“something people are willing to pay for”) or demands (“something people are willing to march for”). (McKillip, 1987) https://extension.arizona.edu/evaluation/sites/extension.arizona.edu.../files/.../needs.pdf
It can be pretty confusing when you consider needs, wants and demands.
From an article by Walter White - Needs, wants and demands are all marketing concepts and play a vital role in terms of marketing management. They help us build a strong relationship with the customer – customer level of service.
How does all this apply to asset management? For example when I implement asset management do I start with demand analysis or need analysis? Why there is no need management, while we do have demand management?
Let us start with needs. Needs are all the basic minimum requirements that have to be achieved to meet certain agreed upon level of service as defined by the organizational strategic objectives or by a type of legislation. For example: The need for safe roads, which are achieved by having clear road markings, functional traffic lights, minimum potholes, etc.
Since needs may be presented as fait accompli, there is no timing options (meaning it must be fulfilled right away or when it is actually due in the near future). It is the core requirements as listed in any AM Plan to maintain a certain level of service at a certain cost to a certain level of risk.
A need analysis may have been carried out to help find different ways of meeting those needs.
Demand is more about raising expectations and setting higher levels of service. For example there are demands to improve traffic congestion on this regional road by adding another lane. In this case there are timing options and the demands may not be fulfilled right away before a thorough demand analysis is carried out.
A demand analysis will help explore what is needed in the short-term and in the long-term, the different options, their feasibility, how much it will cost and the risks associated with each option. Through the demand analysis it may come up that the demand can be managed without adding another lane. Demand management is an effective tool in influencing the need for a service (to improve traffic congestion) and is an essential part of any effective asset management process in assessing options for the provision of a service. Depending on the types of assets and service being delivered, it may be possible to increase, decrease or contain demand. Different demand management techniques can be applied such as pricing differentiation, market education and service/product differentiation among others.
Whenever we use needs, demands or wants we must understand the full context. As a matter of fact in ISO 55002 under the Section "Understanding the needs and expectations of stakeholders" it clearly says that stakeholders are likely to make judgements about the organization's asset management outputs and outcomes based on their perceptions, which can vary due to differences in values, needs, assumptions, concepts and concerns.
So next time think about whether you will start with need analysis, demand analysis or demand management in your asset management planning process and in what context.
By now we know that the HPAM Value Chain consists of primary and secondary functions, critical to realize value from physical assets over their entire lifecycle. Organizations need to be aware that it is not just the functions that have to be considered in the HPAM Value Chain, but also the linkages between those functions. The linkages are key elements in the chain that contribute to realize value. Each link can be broken down into processes/sub processes so as to identify and map the value producing activities.
In many organizations there are several factors that can heavily impact those activities, and hence limit the realization of maximum value. Each link of the value chain are sources of constraints. The biggest challenge faced by organizations is to identify those constraints and find ways to deal with them. Different approaches such as continuous improvement efforts, lean thinking, six sigma methodology, etc. are used with varying degrees of success.
You may have heard of TOC - Theory of Constraints, an overall management philosophy introduced by Eliyahu M. Goldratt in his 1984 book titled The Goal that is geared to help organizations continually achieve their goals.
The theory of constraints (TOC) is a management paradigm that views any manageable system as being limited in achieving more of its goals by a very small number of constraints. There is always at least one constraint, and TOC uses a focusing process to identify the constraint and restructure the rest of the organization around it. TOC adopts the common idiom "a chain is no stronger than its weakest link." This means that processes, organizations, etc., are vulnerable because the weakest person, part or functional area can always damage or break them or at least adversely affect the outcome.
TOC consists of Five Focusing Steps:
At the end there will always be a constraint in the system, so organizations need to choose wisely which one to act on first. Eventually the constraint should be stabilized. One caveat is that the process should not endorse frequently shifting constraints. This can create chaos and confusion on policies, procedures and people.
TOC is applied widely in many industries and processes, such as manufacturing, project management, service industry and even personal life.
So why not apply the same TOC concept to the HPAM Value Chain in your organization?
What are the weakest links in your HPAM Value Chain? What are the constraints to the value realization process?
Are they – awareness of asset management, organizational culture, shortage of skill sets, lack of resources, funding limitation, poor lifecycle management activities, inadequate governance & leadership, etc.? The more you drill down in the HPAM Value Chain of your organization the more constraints can be uncovered within the different functions, the linkages between them and further down.
For example in my book Physical Asset Management - An Organizational Challenge, I identified one fundamental constraint causing bottleneck in the implementation process of holistic asset management - functional silos.
Can you recognize the functional silo(s) in your organization?
To get a good understanding of how to realize value from physical assets organizations need to understand what the value chain is in HPAM. But first let us see what "value chain" means.
A value chain is a high-level model developed by Michael Porter in his book "Competitive Advantage" to describe the activities within and around an organization and evaluates which value each particular activity adds to the products or services. Porter distinguishes between primary activities and support activities – those that are directly concerned with the creation or delivery of products or services and those that help to improve effectiveness or efficiency.
In HPAM the value chain is no different.
There are primary functions that are directly related to creating value from physical assets, such as operations, maintenance, project management, and secondary functions which support the primary functions in achieving their goals – procurement, finance, information technology, etc. The key element in the value chain is how these functions are linked to each other via their different activities, and how well these activities are coordinated.
To have good linkages and coordination, first of all the functions must be aligned with each other, with proper collaboration and flow of information. This will determine the extent of added (or non-added) value within the HPAM Value Chain.
For example, only if maintenance function does an effective job in maintaining and repairing physical assets will the operations function be able to maximize its production capacity.
In many organizations the HPAM Value Chain will consist of different functional areas structured and linked differently based on the type, size, and complexity of the business activities, as illustrated in my book (Chapter 4, Fig 4.2 & 4.3).
Do you know what the key components of your HPAM value chain are? Do you know how well-oiled is your HPAM Value Chain? Have you identified the areas where there are opportunities for improvement?
What is stopping you to realize maximum value from your HPAM Value Chain?
How do you find out what are the roadblocks, what are the existing constraints, and how do you deal with them?
Welcome back everyone after some period of hibernation. In this blog we will talk about “value”. In my last blog on paradigm shift I mentioned that one of the stumbling blocks that can be experienced in HPAM is “defining value”. In HPAM value is the main focus and it is befitting to spend some time understanding what value is and how it can be realized.
Organizations design, build, own, operate and maintain physical assets to obtain value from them over their full economic life. Value can be in the form of goods or services, usually produced from the interaction of the 3 Ps – people, plant and process (Ref. Fig. 2.1 in Physical Asset Management-An Organizational Challenge, October 2016)
Realizing value from physical assets is the mantra of asset intensive organizations embracing HPAM. As a matter of fact ISO 55000 makes reference to 'value' and 'realize value' in its definitions of asset and asset management respectively.
For example, asset is defined as “item, thing or entity that has potential or actual value to an organization”.
While asset management is defined as “the set of coordinated activities that an organization uses to realize value from assets in the delivery of its outcomes or objectives. Realization of value requires the achievement of a balance of costs, risks and benefits, often over different timescales.”
The key questions to ask ourselves are:
What does value means to us, organizations, and asset management practitioners?
Most importantly what are we doing to realize value from our physical assets?
First and foremost we must differentiate between value of physical assets and value from physical assets. Value of physical assets is the financial value, while value from physical assets is the asset management/HPAM value.
HPAM value can be tangible or intangible, financial or non-financial and will depend on the organizational objectives, the nature and purpose of the organization and the needs and expectations of its stakeholders.
So, how do we define value in HPAM? Is it value to customers, value to stakeholders, or value physical assets contribute to achieve organizational objectives? How are these values quantified, measured and tracked to support the overall system?
Do we have a process in place to actually visualize the activities contributing to the realization of value? Is it a simple list of tasks, or projects that need to be done? Or should it also include a list of activities, or things that we should stop doing?
To get a good understanding of how to realize value we need to understand what the value chain in HPAM is.
Do you know your HPAM Value Chain?
But seriously, if you look around in the physical asset management field, a paradigm shift is desperately needed. In my last post, I mentioned that it is required for a successful execution of HPAM. It is required to ensure the activities/practices/business approaches of the organization are well coordinated and integrated.
By definition "paradigm shift" means "a fundamental change in approach or underlying assumptions". I agree that the word "paradigm" has been a corporate buzz word for many years, but in its simplest form it means "doing something differently".
Paradigm shift has been the catalyst and cornerstone of many inventions, innovations, evolution and progress and has stood the test of time.
Doing things differently" has changed the world we live in completely as attested by the following quotes:
"Edison's electric light did not come about from the continuous improvement of the candles."
"Insanity: doing the same thing over and over again and expecting different results."
In physical asset management too, the choice is ours:
Do we want to do the same things over and over again? Do we expect the same results or different results? If it is the latter, then from what we have seen above, we must start doing things differently.
In maintenance and reliability in the late 1970s, we witnessed the power of paradigm shift. Significant improvement took place in the aviation industry with the adoption of reliability-centred maintenance approach, which completely changed the maintenance management philosophy.
Of course the paradigm shift did not take place overnight. It took many years for other industries to follow suit and to achieve different results, but they all had to do things differently.
In physical asset management, we are all expecting different results in the form of better infrastructure, improved service level, longer service life, availability of more funds, economic development, etc. But are we doing things differently enough to achieve those results?
Many of the pieces of the puzzle to achieve great results are in place, but we need to start changing a few things in little matters within ourselves, within the organization.
We must create a new ideal, a new model with a different pattern. We must look at things through different functional areas' lenses to reframe our thoughts, change our behaviour and get rid of some old ways of thinking.
So what are the stumbling blocks that can be experienced for a paradigm shift in HPAM?
Here are some examples:
Defining value, organizational silos, conflicting priorities, politics, and principal-agent problems.
Can you think of any others?
I leave you with this short video:
Together let us challenge the way we do things. Only then we will be able to see different results!
In my previous post I mentioned that Physical Asset Management is the business discipline for managing physical assets over their entire lifecycle to achieve a desired level of service, while minimizing the lifecycle costs within an acceptable level of risk.
The definition of asset management has come a long way since it was first formulated by Australian economist Dr. Penny Burns in 1984. At around the same time there has been some significant development in the field of physical asset management across the globe from Australia and New Zealand to the United States of America and through Europe and the United Kingdom. Different approaches, principles, standards and conceptual models were developed to illustrate the breadth and depth of activities required to manage physical assets.
The best asset management practices are outlined in the International Infrastructure Management Manual first published in 2000 with input from the public and private sector industry of Australia, New Zealand, United States, South Africa and the United Kingdom.
PAS 55 Standard, developed by Institute of Asset Management (IAM) came along in 2004 and defined Physical Asset Management as "the systematic and coordinated activities and practices through which an organization optimally and sustainably manages its assets and asset systems, their associated performance, risks and expenditures over their life cycles for the purpose of achieving its organizational plan".
In 2009, the Canadian National Asset Management Working Group of the National Round Table on Sustainable Infrastructure (NRTSI) developed an Asset Management Governance Framework for Canada, which defines asset management as “an integrated business approach involving planning, finance, engineering and operations to effectively manage existing and new infrastructure to maximize benefits, reduce risk and provide satisfactory levels of service to community users in a socially, environmentally and economically sustainable manner”.
In 2011, the Global Forum of Maintenance and Asset Management (GFMAM) published the Asset Management Landscape, which include the subjects and fundamentals (39 subjects) that depict the discipline of asset management.
In 2014, the International Organization for Standardization (ISO) produced the ISO 55000 series of standards, which defines physical asset management as "the set of coordinated activities that an organization uses to realize value from assets in the delivery of its outcomes or objectives. Realization of value requires the achievement of a balance of costs, risks and benefits, often over different timescales".
Why do we have to go through the evolution and above definitions of physical asset management?
Well the main objective is to see how successful we have been in implementing physical asset management.
STRATEGY + EXECUTION = SUCCESS
We all know that strategic thought and planning are very important, but we must recognize that execution of the strategy is the key to achieving success.
How well are we executing physical asset management in our organizations?
To answer this question I want to highlight two key sets of words in the above quoted definitions:
Let's first look at the activities/practices/business approach.
These are the:
Is the “activities/practices/business approach” a sign of successful execution of Physical Asset Management in your organization?
What about being “coordinated/integrated”?
Is the “activities/practices/business approach” of Physical Asset Management well coordinated and integrated in your organization?
For a successful execution of Physical Asset Management or HPAM as I like to call it, your organization may need a Paradigm Shift!
HPAM - Holistic Physical Asset Management means applying the physical asset management discipline with a holistic approach. What does that really mean?
We all know that Physical Asset Management is the business discipline for managing physical assets over their entire lifecycle to achieve a desired level of service, while minimizing the lifecycle costs within an acceptable level of risk. In a next post we will elaborate further on this topic.
For now let's try to understand what “holistic” means in HPAM.
By definition holistic means “characterized by comprehension of the parts of something as intimately interconnected and explicable only by reference to the whole”*. In philosophy, the holistic principle emphasizes priority of a whole over its parts.
The discipline of managing physical assets over their entire lifecycle (from cradle to grave as it is more commonly described) actually corroborates with the holistic principle. However that argument begs the question of whether the full potential of HPAM is achieved by focusing only on the asset lifecycle. Is the holistic approach only applicable to the physical asset lifecycle? What about the management process of the lifecycle? Shouldn't it be holistic as well?
In organizations, physical assets are managed throughout their whole lifecycle by many different functions dealing with different portions of the lifecycle – operations operate, maintenance maintain, project management does the design, etc. How interconnected are these functions when it comes to a holistic approach and what are their priorities with reference to the organization's objectives?
On one side we have the physical asset lifecycle requirements and on the other the conflicting priorities of different functional areas of the organization. To successfully fulfill the potential of HPAM will entail aligning and coordinating the activities of all functional areas over the entire life of physical assets to achieve common organizational goals.
How well is your organization applying HPAM on physical assets over their whole lifecycle? Are there gaps in the management process? Are there conflicting priorities among functional areas?
HPAM stands for Holistic Physical Asset Management - another one of those acronyms!
Physical Asset Management- An Organizational Challenge is the title of my first book published October 2016 by FriesenPress. There are two main reasons why I wrote a book specifically with this title:
Having worked in a few countries in both the public and private sectors, in different industries and most importantly in different functional areas I have experienced first-hand how physical assets are managed from different perspectives. Over the years I have seen how organizations struggle with the conflicting priorities inherent in managing physical assets to balance cost, performance and risk.
It is time to reach out to all the asset management practitioners including the maintenance & reliability professionals, and everyone else in the organization who deals with physical assets in one way or the other – to the project manager who delivers capital projects, to the operator who operates the asset, to the decision maker who makes investment decisions, to the financial analyst who prepares the capital budget, to the accountant who put together the physical asset valuation report and to others.
It is time we bring everyone together to understand the holistic approach of managing physical assets over their entire lifecycle; to understand how our action/inaction or decision can impact the effectiveness of the process; to understand how working together will make better use of the resources at our disposal, and to understand how harmonization can help make better decisions.
In the Year 2017 I will be launching a series of blog posts to share my thoughts and philosophy on HPAM and the organizational challenges as outlined in my book.
The goals of the posts will be to:
Stay tuned on LinkedIn and Twitter for updates.
Together, we can drive the change needed in organizations to create the required synergy and harmonization. In the meantime the question I have for you is:
How can you help your organization with the HPAM philosophy irrespective of your job function?