The Fundamentals of Asset Management

Executive Overview
A Hands-On Approach
Emerging utility business conditions
z Increasing demand for utility services
z Diminishing resources
z Leveling of production efficiencies
z Increasing restrictions on output
z Aging infrastructure

Result: increasingly expensive treatment options

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Emerging utility business conditions
z Aging customer base
z Diminishing technical labor pool
z Larger and more sophisticated facilities
z Loss of knowledge with personnel retirements
z Public resistance to rate increases

Result: increasingly complex management environment

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Changing utility business environment
z Demand to do more with existing resources
z Need to make every dollar work – to better use capital
and operating budgets
z Move from reactive to proactive work environment

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A paradigm shift…

z Transition from building and operating to managing

assets
• Extending asset life
• Optimizing maintenance and renewal
• Developing accurate long-term funding strategies
• Sustain long term performance!

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Infrastructure is the foundation to sustained
quality of life

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Consequences of asset failure can be severe

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Asset management improves…
Decision making throughout the life cycle of the asset
z Acquisition

z Operations

z Maintenance

z Renewal

Resulting in lowest total cost of ownership

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This training describes…
z What is asset management?
z Why do it?
z What deliverables do I get from it?
z What are the steps?
z How do I move my organization forward?

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Views on asset management
z Life cycle
z Conceptual framework
z Charter principles
z Asset management plan

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What is asset management (AM)?
z Systematic integration of advanced and sustainable
management techniques into a management paradigm
or way of thinking, with
z Primary focus on the long-term life cycle of the asset
and its sustained performance, rather than on short-
term, day-to-day aspects of the asset

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Views on asset management – a framework
z Asset management can
be thought of as an
object - a box or
framework
z Following is a brief
characterization of 8
different views on asset
management
z These views make up
the framework

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View 1: Definition - asset management
z Management paradigm and body of management
practices
z Applied to the entire portfolio of infrastructure assets at
all levels of the organization
z Seeking to minimize total costs of acquiring, operating,
maintaining, and renewing assets…
z Within an environment of limited resources
z While continuously delivering the service levels
customers desire and regulators require
z At an acceptable level of risk to the organization

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View 2: Life cycle business processes

Plan
Support processes
• Demand management
• Knowledge of assets
Dispose Acquire • CIP validation
Core • Accounting & economics
• Condition & performance
Processes monitoring
• Business risk exposure
Renew Operate • Works resource
management
• Review & continuous
improvement
Maintain

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View 3: Core AM program elements
Information
Systems

Lifecycle
Data &
Process &
Knowledge
Practices
Total Asset
Management
Plan
Organizational People
Issues Issues

Commercial
Tactics

Sustainable, best value service delivery

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View 4: Management framework

Asset Management
Business Processes

Asset Management
Plans

Strategic Initiatives

Annual Budgets

Operating Budget Capital Budget

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View 5: Five core questions
1. What is the current state of my assets?
z What do I own?
z Where is it?
z What condition is it in?
z What is its remaining useful life?
z What is its remaining economic value?
2. What is my required level of service (LOS)?
z What is the demand for my services by my stakeholders?
z What do regulators require?
z What is my actual performance?
3. Which assets are critical to sustained performance?
z How does it fail? How can it fail?
z What is the likelihood of failure?
z What does it cost to repair?
z What are the consequences of failure?
4. What are my best O&M and CIP investment strategies?
z What alternative management options exist?
z Which are the most feasible for my organization?
5. What is my best long-term funding strategy?
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View 6: AM plan 10-step process

Determine
Develop Assess Determine Set Target
Live Cycle &
Asset Condition, Residual Levels of
Replacement
Registry Failure Modes Life Service (LOS)
Costs

Determine Optimize Optimize Determine

Build AM
Business Risk O&M Capital Funding
Plan
(“Criticality”) Investment Investment Strategy

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View 6: AM plan 10-step process
System Layout; Condition Demand Anal.;
Expected Life
Data Hierarchy, Assessment Valuation; Life Balanced
Tables;
Standards, and Protocol; Rating Cycle Costing Scorecard;
Decay Curves
Inventory Methodologies Perform. Metrics

Determine
Develop Assess Determine Set Target
Live Cycle &
Asset Condition, Residual Levels of
Replacement
Registry Failure Modes Life Service (LOS)
Costs

Determine Optimize Optimize Determine

Build AM
Business Risk O&M Capital Funding
Plan
(“Criticality”) Investment Investment Strategy

FMECA; Confidence Level Asset Mgmt Plan;

Root Cause;
Business Risk Rating; Strategic Renewal Policies and
RCM; PdM;
Exp.; Delphi Validation; Annuity Strategy;
ORDM
Techniques ORDM Annual Budget

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View 7: Seven principles of asset management
1. The “Value Added/Level of Service” Principle—assets exist to deliver
services and goods that are valued by the customer-stakeholder; for
each consumer-stakeholder there is a minimum level of service below
which a given service is not perceived as adding value.
2. The “Life Cycle” Principle—all assets pass through a discernable life
cycle, the understanding of which enhances appropriate management.
3. The “Failure” Principle—usage and the operating environment work to
break-down all assets; failure occurs when an asset can not do what is
required by the user in its operating environment.
4. The “Failure Modes” Principle—not all assets fail in the same way.
5. The “Probability” Principle—not all assets fail at the same time.
6. The “Consequence” Principle—not all failures have the same
consequences.
7. The “Total Cost of Ownership” Principle—there exists a minimum
optimal investment over the life cycle of an asset that best balances
performance and cost given a target level of service and a designated
level of risk.

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View 8: Enterprise asset management plan
Executive
Summary

State of the Assets Levels of Service Growth & Demand

Section - 1 Section - 2 Section - 3

Lifecycle Management
Section - 4

O&M Renewal Augmentation

Management Financial Planning

Risk Profile
Strategies Section - 7
Section - 5
Section - 6

Business Improvement Plan

Section - 8

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The enterprise asset management plan

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Example of organizational AM strategies

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 24

Level 3
Level 2
Level 1
Condition Assessment
Business Risk Exposure
Inside the AM framework

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Level 3
Level 2
Level 1
Condition Assessment
Business Risk Exposure
Inside the AM framework

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Level 3
Level 2
Level 1
Condition Assessment
Business Risk Exposure
Inside the AM framework

Fundamentals of Asset Management

Three fundamental management decisions
1. What are my work crews doing, where are they doing
it—and why?
2. What CIP projects should be done—and when?
3. When should I repair, when should I rehabilitate, and
when should I replace?

These decisions typically account for over 80% of a

utility’s annual expenditures

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Understanding how our assets fail
Yin-yang of asset failure

Resistance
Stress
to Stress

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Understanding how our assets fail
Pipe failure

Soil characteristics, groundwater

Galvanic action
Physical loads

Internal corrosion Pipe attributes

Bedding condition

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Understanding how our assets fail
Managing asset deterioration
Excellent

Initial design capability

Managed asset
Performance

deterioration curve
Management
zone

Minimal performance level Inherent asset

deterioration
Poor

curve

Decreasing Increasing
Time
“Failure is…the inability of any asset to do what users want it do to.”
John Moubray

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Understanding how our assets fail
Monitoring performance is a key to reliability
Excellent

Decay curve
Performance

Vibration
Oil loss

Noise

Heat
Poor

Failure
Decreasing Increasing
Time

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Understanding how our assets fail
Experience indicates…
z Failure can be subjected to systematic study – a
science
z 30-70% of equipment maintenance activity is typically
misdirected – it is not cost effectively deterring failure

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Understanding how our assets fail
From the science of failure - tools for proactive
management
z Root cause analysis

z Failure mode, effects, and criticality analysis (FMECA)

z Condition-based monitoring, failure/survival curves

z Predictive maintenance (PdM)

z Proactive maintenance (zero breakdown, reliability

centered maintenance, total productive maintenance)
z Reliability centered management (design, O&M)

AM is all about managing the potential to fail

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Our investment toolkit
z Maintenance
z Renewal:
• Repair – repair beyond normal periodic maintenance, relatively minor
in nature, anticipated in the long-term operation of the asset; no
enhancement of capabilities; typically funded by operating budget
• Refurbish/Rehabilitate– replacement of a component part or parts or
equivalent intervention sufficient to return the asset to level of
performance above minimum acceptable level; may include minor
enhancement of capabilities; typically funded out of capital budgets
• Replace
• Without enhancement – substitution of an entire asset with a new
or equivalent asset without enhancement of capabilities
• With enhancement - substitution of an entire asset with a new or
equivalent asset with enhanced capabilities
z “Augmentation”

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Failure mode-based management logic
Failures

Some Are Some Are Not

Significant Significant

Cannot Be Prevented Can Be Prevented Prevention

by Maintenance by Maintenance Effective?

Yes No

Redesign, Replace, Schedule for

Repair & Monitor
Overhaul Maintenance

Run to Failure,
Repair

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Determining significant failures
What is probability of failure? What is consequence of failure?

High
B High probability-
low consequence D High probability-
high consequence
Probability

Business risk drives work

program (O&M, CIP)
A Low probability-
low consequence
C Low probability-
high consequence
Low
Low High
Consequence

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The big picture

Risk-Con- Growth (New Assets)

LOS
sequence Augmentation

Customer Capital System Renewal

Cost of System Improvements

Service (Environmental, LOS)

O&M Maintenance Program

Operations and
Administration

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AM-oriented structure
Customer Service Demands

Sustained Performance

Executive Management

AM Thinking
(AM Steering Committee)

Engineering Operations Maintenance

Finance IT AM Tools

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AM-based decisions produce real savings
From assessment of Australia’s advanced management
practices, 20-30% future life cycle cost savings
typically is achievable for US water and wastewater
utilities

Where savings develop from…

z Efficiency gains

z Cost avoidance (defer, eliminate, reduce)

z Cost effectiveness and redirection

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Making business case for AM

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AM payoffs
z Reduced life cycle costs
from better-focused The right work,
(redirected) resource use the right investment,
z Better value-per-dollar at the right time,
spending for the right
z Confidence in decision- reasons.
making

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Realistic expectations for AM

z Takes several years of

detailed, nitty-gritty
work to fully deploy
z Requires eventual buy-
in commitment of the
whole organization
z Needs upfront
investment to get
started, with hidden
returns for initial years

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AM is a business model…
z What we do
z Why we do it
z How we do it
z Where we invest
z What our costs are
z What our return is

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Tom’s bad day…

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Tom’s spreadsheet

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Integration of 5 core questions with 10-step process

2. What is my required
1. What is the current state of my assets? level of service?
Determine
Develop Assess Determine Set Target
Live Cycle &
Asset Condition, Residual Levels of
Replacement
Registry Failure Modes Life Service (LOS)
Costs

Determine Optimize Optimize Determine

Build AM
Business Risk O&M Capital Funding
Plan
(“Criticality”) Investment Investment Strategy

3. Which assets 4. What are my best O&M and 5. What is my best long-term
are critical CIP investment strategies? funding strategy?
to sustained
performance?

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The Bear and the Butterfly

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