The discipline of physical asset management is rapidly evolving as companies rush to understand the market implications of this newly released standard on asset management. Each business has their own particular reasons, but they tend to all arrive at the same question: will the commitment to establishing an asset management system provide a sustainable competitive advantage? If businesses use an asset management system to optimize cost, risk and performance across the asset lifecycle, will they achieve the necessary value from their assets?
Another question that needs to be asked is, “Can we afford not to do it?” In 2010, 11 people lost their lives in an explosion on an oil rig that sank to the bottom of the Gulf of Mexico and leaked an estimated 4.9 million barrels of oil. Two years later, a blast and fire in California, caused by faulty welds in a 54-year-old underground gas-transmission line, killed eight people, injured 66, and destroyed 38 houses.
To evaluate whether implementing a system is worth it, it’s necessary to understand the key components to an asset management system. From an ISO 55000 perspective, leadership, policy and strategy are overarching elements necessary for establishing the organization’s commitment to an effective asset management system. These elements define governing principles and describe how asset management will contribute toward meeting organizational goals and objectives.
Overview of the ISO 55000 Standard
The ISO 55000 series establishes a global standard for asset management systems. The overarching framework is defined within four documents of the asset management system described in ISO 55001:
- Asset management policy
- Asset management objectives
- Asset management strategy
- Asset management plans
This article presents a methodology for implementing all elements of the ISO 55000 standard, a methodology that is drawn from experienced reliability professionals who have implemented all of the elements of this standard for organizations in many industries around the globe. It is also important to understand that this is the first management system standard to use ISO/IEC Directives, Part 1, Consolidated ISO Supplement – Procedures Specific to ISO as its foundation. This “Annex SL”, as it is more commonly referred to, is the former ISO Guide 83. Standard components include Context, Leadership, Planning, Support, Operation, Performance Evaluation and Improvement. All future management standards, such as the ISO 9000 series due out next year, will follow this format.
Core themes of the British Standards Institute’s PAS 55 on asset management remain in ISO 55000: aligned objectives, transparent and consistent decision making, and the use of risk and consideration of long lifecycle issues in making decisions (see Figure 1).
Asset management: Overview
Asset management is the systematic and coordinated process through which an organization optimally and sustainably manages its assets and asset systems, performance, risks and expenditures over asset lifecycles.
Policy and strategy define the direction of an organization. The golden thread connecting organizational strategy to asset management policy, strategy and objectives justifies all asset management activities; shares understanding of critical goals; and sets and communicates direction.
There is evidence that the view of asset management has generally broadened to include the whole lifecycle, and has moved up to a portfolio view of asset systems. Coordinating, communicating, implementing and designing a management system for managing assets requires an integrated framework such as Life Cycle Engineering’s Asset Management System Implementation Framework (see Figure 2), which establishes the critical linkages between the important elements of an asset management system.
It is a requirement of the organization to define the scope of the asset management system, so start small and create a system that is scalable. There are different levels at which assets can be managed, ranging from discrete equipment items to complex functional systems, networks, sites or diverse portfolios. This hierarchy brings challenges at different levels. For example, discrete equipment items may have identifiable individual lifecycles that can be optimized whereas asset systems may have an indefinite horizon of required usage. A larger organization may have a diverse portfolio of asset systems presenting different performance challenges and risk.
Also, priorities may differ at different levels. You cannot manage the risk to your value stream until you understand how your asset portfolio contributes to that value stream. Risk ranking the impacts of assets and their functional failures to the value stream is a method to prioritize assets based on their impact to reputation, production, environment, health and safety.
Asset management: Policy
The asset management policy is a short statement that sets out the principles by which the organization intends to apply asset management to achieve its organizational objectives. The asset management policy should be authorized by top management and thereby demonstrate commitment to asset management.
Policy documents contain the following:
- Purpose statement
- Applicability and scope
- Effective date
- Policy statements
Top management must establish an asset management policy that:
- Is appropriate to the organization
- Provides a framework for setting objectives
- Includes commitment to satisfy applicable requirements
- Includes a commitment to continuous improvement of the asset management system.
The asset management policy must:
- be consistent with the organizational plan
- be consistent with other relevant organizational policies
- be appropriate to the nature and scale of the organization's assets and operations
- include compliance as a commitment
- be available as documented information
- be communicated within the organization
- be available to stakeholders, as appropriate
- be implemented and be periodically reviewed and, if required, updated
It is not necessary for the policy to be captured in a discrete document; it can be contained in other high-level organizational policies or documents. The important point is that it is communicable to the organization. If this can be demonstrated, a separate asset management policy document may not be required.
Asset management: Objectives
Asset management objectives are essential links between the organizational objectives and the asset management plans. These objectives are established at relevant functional levels. Objectives, which are performance targets, may be set for the asset management system, asset management activities, and the performance or condition of asset systems or assets.
The asset management objectives should be tailored to suit each organization's needs, which may include addressing subsets of objectives (e.g. for the asset management system, asset portfolios, the asset system and at asset level) and can vary for different functions carried out to meet stakeholder requirements. The organization should consider information or data from sources internal and external to the organization, including contractors, key suppliers, regulators or other stakeholders.
Asset management objectives should be specific, measurable, achievable, realistic and time-bound (i.e. "SMART" objectives). They can include both quantitative and qualitative measurements. Also, you cannot define your asset management objectives without knowing the risk management expectations of internal and external shareholders. The business owners along the Gulf of Mexico and the home owners in San Bruno were certainly external stakeholders of the asset management systems for the rigs and pipelines within their localities.
The organization should consider the monitoring, measuring, analyzing and evaluating needed to drive and support its decision making on improvement actions. When deciding what to measure, how to measure, and what to analyze, it is important for the organization to understand what type of behavior and actions it wants to achieve from the asset management objectives before implementing them. The asset management objectives should be aligned to the organizational objectives and should promote collaboration with stakeholders.
There are six anchor points for asset management objectives:
- Asset productivity
- Asset sustainability
- Regulatory compliance
- The asset life cycle
- Cost and capital rationalization
- Measurement and learning
Some examples of SMART objectives include:
- Asset output: OEE – Maintain greater than 85% OEE per shift
- Asset input: Idle time – No more than 10% idle time per given month
- Compliance and integrity: Critical analysis – An annual quantitative analysis of systems and processes will be accomplished and results updated in SAP
- Asset life time: End of life determination – Define end of life criteria for the top 20% of assets by year end
- Innovation and improvement: Leverage technology to provide a more cost-effective mitigation of failure modes of one asset type per quarter
Asset management: Strategy
The asset management strategy defines how organizational objectives are to be converted into the asset management objectives. It should define what the organization intends to achieve from its asset management activities and by when. This must cascade throughout the organization.
When developing the asset management strategy, these are good questions to ask:
- Is it consistent with organizational strategy?
- Risk – does it prioritize activities relative to criticality?
- Lifecycle – does it consider the lifecycle?
- Framework – does it set out a clear framework for developing objectives?
- Does it include all stakeholders?
- Does it identify present and future functional and performance condition requirements?
- Is continual improvement regularly reviewed and changes made, if necessary
- Does it consider a change management strategy
Catchball is a method of strategy development that uses a participative approach to decision-making in which information and ideas are thrown and caught back and forth, up and down throughout the organization. Line of sight implies that the importance of asset management is recognized at the top and this recognition is conveyed downward through policy and plans. It also implies that those actually handling the assets are able to convey their ideas and activities back up to top management.
Asset management: Plans
An asset management plan should be documented at a level that is appropriate to the organization and the degree of sophistication in its asset management approach. There is no set formula for what should be included or how it should be structured. However, it is common practice for an asset management plan to contain a rationale for asset management activities, operational and maintenance plans, capital investment (overhaul, renewal, replacement and enhancement) plans and financial and resource plans, often based on a review of earlier achievements. For some organizations, this may be captured in a single document, while for other organizations, multiple asset management plans may be appropriate.
Asset management plans should be developed to appropriate time horizons for the organization. The time horizons should meet the organization's needs and take account of the organization's period of responsibility and the life of its assets.
In order to achieve its planned objectives it is important for the organization to commit the necessary resources that are identified in the asset management plans. Implementation of the asset management plan(s) is an iterative process that involves resolving conflicts between what is planned and what can be afforded considering financial constraints.
Asset management plans should be reviewed periodically to ensure continual alignment with the asset management objectives. A risk ranking process can determine which critical assets have a significant potential to impact the achievement of the asset management objectives. Figure 3 is model of risk based asset management plan development, execution and improvement.
How important is the role of leadership in implementing an asset management system? Asset management leadership can be demonstrated by top management through positively influencing the organization. Top management may appoint an individual to oversee the development, implementation, operation and continual improvement of an asset management system. However, it is important that ownership and accountability for asset management remains at the top management level.
Key aspects of top management’s responsibility are to:
- Ensure that the assets are managed effectively in respect to corporate business objectives
- Ensure business processes are developed to manage assets from the needs analysis in through disposal or recapitalization
- Provide resources to effectively execute the plan
- Provide clear and transparent messaging and communication on the importance of the plan’s execution
- Ensure effectiveness of the plan
- Ensure collaboration throughout the enterprise to promote continuous improvement
- Ensure that the enterprise’s value stream and the risks to value creation are identified and the risk is appropriately mitigated through proactive risk management
- Provide an organization with roles, responsibilities and authorities that will ensure the effectiveness of the asset management system
Activities across the lifecycle involve many functional organizations and silos, thereby complicating the asset management activities. It is a requirement that leadership collaborates within a framework like that defined in BS 11000-1:2010, Collaborative business relationships.
Benefits of asset management
In sum, asset management supports the realization of value while balancing financial, environmental and social costs, risk, quality of service and performance related to assets. The benefits of asset management can include:
- Improved financial performance: improving the return on investments and reducing costs can be achieved while preserving asset value and without sacrificing the short or long-term realization of organizational objectives.
- Informed asset investment decisions: enabling the organization to improve its decision making and effectively balance costs, risks, opportunities and performance.
- Managed risk: reducing financial losses, improving health and safety, good will and reputation, minimizing environmental and social impact, can result in reduced liabilities such as insurance premiums, fines and penalties.
- Improved services and outputs: assuring the performance of assets can lead to improved services or products that consistently meet or exceed the expectations of customers and stakeholders.
- Demonstrated social responsibility: improving the organization's ability to, for example, reduce emissions, conserve resources and adapt to climate change, enables it to demonstrate socially responsible and ethical business practices and stewardship.
- Demonstrated compliance: transparently conforming with legal, statutory and regulatory requirements, as well as adhering to asset management standards, policies and processes, can enable demonstration of compliance.
- Enhanced reputation: through improved customer satisfaction, stakeholder awareness and confidence.
- Improved organizational sustainability: effectively managing short and long-term effects, expenditures and performance, can improve the sustainability of operations and the organization.
- Improved efficiency and effectiveness: reviewing and improving processes, procedures and asset performance can improve efficiency and effectiveness and the achievement of organizational objectives.