When it comes to asset management, stick to the plan

April 5, 2006
Financial pressures often force companies to make hasty short-term changes, like cutting costs in maintenance and consulting. David Berger says in his monthly Asset Manager column that it's best to maintain focus and stick to a capital asset management plan.

When a company first anticipates financial pressure to cut costs, there are two favorite targets — maintenance and consulting. By holding back on capital expenditures or dollars spent on engineering design consulting, management can reduce costs temporarily. Unfortunately, this is a short-term strategy at best. If budget restrictions continue for years, there can be serious consequences in terms of failing infrastructure that is expensive to fix or replace. In the years following an economic downturn, there can be a shortage of supply and inflated prices when companies start spending again.

Pay me now, or pay me more later. Ignoring your capital asset plan (or not developing one in the first place) is an expensive proposition. Furthermore, there’s a lot of money to be saved by ensuring a smooth transition from engineering design, to job estimating, to project management and finally to maintenance of capital assets.

Typically, there are huge gaps along the various stages of this transition. Asset-intensive industries in particular can waste millions of dollars by treating each phase separately, or using information systems that don’t integrate well. Several modern CMMS packages can handle the transition from planning and design to maintenance, but unfortunately, few companies take full advantage of the functionality.

Capital asset planning

Although some standalone software packages specialize in capital asset planning, some of the same features are available within a CMMS package. One of the key software elements is multi-year, long-term planning and budgeting capability. Depending on the industry and the type of capital asset, this might be as long as many decades or only a few years.

Before loading such a long-term plan, it’s necessary to baseline the capital assets for current conditions using internal or external resources. From an information systems requirement, you need to be able to define the asset portfolio to be tracked, then enter the condition assessment data.

For buildings, the Facility Condition Index (FCI) is the industry standard benchmark for assessing the condition of a building asset. It’s defined as the ratio of renewal cost in a given year to the asset’s replacement cost, converted to a percentage. If the facility is in good condition, the FCI is less than 5%. If it’s in critical condition, the FCI is greater than 20%. By baselining your building assets using the FCI, you can facilitate the process of planning capital requirements over the short- to long-term.

The typical time horizon for capital asset planning is 10 years to 25 years. With such a long time, the many assumptions that must be made can affect the model significantly. For example, a small difference in interest rates over a 25-year planning horizon will have a significant affect on the predicted capital funds required to manage the asset renewal. It’s for this reason that the software should be capable of developing forecasting models for asset renewal, including what-if analysis on variables such as interest rate, rate of asset deterioration and so on. Another useful feature is the ability to conduct what-if analyses for restoring and maintaining a targeted level of asset condition.

Engineering design

Unfortunately, few CMMS vendors are able to track an asset throughout its life cycle. This includes tracking major and minor revisions from “as designed,” to “as installed,” to “as modified” from cradle to grave. These changes should be tracked, whether they’re temporary or permanent, including changes to the asset’s configuration. In some cases, changes can affect parent or child equipment and these, too, should be tracked. Any affected documents and objects such as active work orders should be managed. Finally, the software should be capable of synchronizing affected activities for data integrity.

By the time capital assets are operational, and the maintenance department assumes responsibility for maintaining them, there needs to be an accurate record of what assets are installed where, with what hierarchy of parent/child components and standard spare parts, and what the maintenance department requires to manage them effectively. Unfortunately, maintenance typically has to sort things out from scratch, using old and inaccurate drawings, and wasting time entering reams and reams of data that could have come from engineering if the systems were integrated. Additionally, maintenance might have to use a trial-and-error approach for several years to overcome the lack of proper engineering documentation.

Job estimating

Another critical software tool for managing the smooth transition of capital projects and new construction through to the maintenance phase is a design estimation capability. Here, too, only a few CMMS vendors offer comprehensive functionality. One of the more critical features is the ability to develop initial estimates, including materials, resources, permits, contracts and other costs associated with building a given capital asset. Another key feature is integration from the design estimate to the work order, for tracking and analyzing the “as designed” versus the “as planned” versus the “as built” variances. This is an important planning aid.

Equally important is integration with other key modules such as the materials catalog and e-procurement module to simplify estimating minimum material costs, integration with asset lifecycle accounting for facilitating repair/replace decisions, and integration with graphic design and engineering tools for an accurate, visual record of what assets should look like.

A few CMMS vendors offer specialized functionality for some of their target industries, such as the transmission and distribution business, which provides a more comprehensive job estimating capability. Key features include

  • A configurator to allow users to build compatible units or standard jobs from parts, equipment and labor, as well as assemblies from compatible units.
  • A costing function for compatible units and assemblies through integration with the work order system and inventory control modules.
  • Accommodation of cost variations such as intended function of the unit and degree of difficulty in doing the work.
  • Reconciliation of costs comparing “as planned” and “as built” parts usage.
  • Integration with any regulatory accounting required.

Project management

Most CMMS packages carry some level of project management capability including tracking budget costs versus actual costs for internal and external labor, material and other expenditures associated with a given project. This is accomplished simply by referencing a project code on a work order or purchase order, and through the budgeting module. More sophisticated CMMS packages use project scheduling optimization algorithms such as Program Evaluation and Review Technique (PERT) and Critical Path Method (CPM). Other packages have developed a sophisticated interface with third-party project management software packages such as MS Project or Primavera. Still others give you a choice of either internal or external tools, or both.

Regardless of how well a capital project is budgeted and managed using the many features of a CMMS, the real opportunity lies in managing the entire asset life cycle, from engineering design to maintenance. Clearly, this isn’t simply a systems integration issue. To get at the big savings, do what you can to foster greater communication and integration of the silos represented by engineering design, procurement, external contractors and maintenance.

E-mail Contributing Editor David Berger at [email protected]

About the Author

David Berger | P.Eng. (AB), MBA, president of The Lamus Group Inc.

David Berger, P.Eng. (AB), MBA, is president of The Lamus Group Inc., a consulting firm that provides advice and training to extract maximum performance, quality and value from your physical assets, processes, information systems and organizational design. Based in Toronto, Berger has held senior positions in industry, including for two large manufacturers, and senior roles in consulting. He has written more than 450 articles on a variety of topics such as asset management, operations management, information technology, e-commerce, organizational design, and strategy. Contact him at [email protected].

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