HPAM and TOC
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?
Do you know your HPAM Value Chain?
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?
Are we realizing value with HPAM?
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 – What is this all about?
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 NEW YEAR 2017!
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?
For the last few years we have seen the emergence of Asset Management in many industries from the private to the public sector. Many organizations have been successful in getting started with Asset Management and embracing the new paradigm shift. The use of PAS55 and more the recently the availability of ISO 55000 suites have further ramped up the momentum of Asset Management on the global stage. It has become the trending topic in the industry and has created a sort of shakeout similar to what reliability did years ago. Without doubt organizations fully understand the importance of asset management and the benefits they can gain from it. There is no question that organizations are willing to shift gear and implement asset management. The major stumbling block is finding the right organizational approach. We are witnessing lots of organizations stuttering and getting confused when it comes to embracing and implementing Asset Management. Questions such as "How should I structure my organization to fit in Asset Management? How will that impact the other functional areas? How will they all coexist and interact with each other? What should be done to manage that paradigm shift? Most importantly are we not already practising asset management?
Dharmen Dhaliah, P.Eng, MBA, PMP, CAMA, MMP, CMRP