Assets / Operations
Asset Life Cycle Management
Most organizations have physical assets of some kind that leaders are expected to manage or get the best from. These may be relatively small amounts of purchased raw materials or minor equipment (such as photocopier machines, laptops and printers for example) at one end of the scale, all the way to whole buildings, vehicles (small and large) and large-scale plant. But the main task in managing assets of any kind is not so much the assets themselves. Rather, it’s the value that the particular asset delivers to the enterprise over the whole of its life or what is more commonly called the “asset life-cycle”.
Taking a “whole of life” approach to asset acquisition means moving away from the often transactional or one-off purchase approach that is so often taken (we need an asset like a new machine so let’s invite quotations to supply it or just buy one and be done with it) to an approach which sees the acquisition as a multi-step process to be done slowly and properly. This includes:
- Careful Need identification (talking to the people who will be operating or using the asset)
- Planning what is expected from it once acquired
- Design effort (to see what minimum purchase specifications should be or any design additions perhaps)
- Procurement or purchasing based on the previous three steps
- Commissioning or properly installing to make sure that the business gets everything promised in the purchase contract
- Operating, maintaining and monitoring the asset on a continual basis
- Modifying the asset or upgrading it if possible and if this makes good commercial sense
- Decommissioning or retiring/disposing of the asset so that it can be appropriately replaced
Apart from appreciating all eight of the above iterative steps, there are three important concepts in understanding asset life cycle management:
- Asset management is not a “general” approach but one in which every important asset is managed on an asset-by-asset basis and over its whole life from pre-purchase to disposal.
- In order to maximize the value of the assets, the organization needs to track the activities related to the assets throughout their life cycles, to make sure they align with the organization’s ongoing strategic and operational objectives.
- In that context, a total asset management life cycle approach is a tool to track the activities of each asset, provide the data for the organization to analyze the use of that asset and compare the data gathered against the intended goals.
So to return to the eight asset life phases above, every asset should be considered over each phase of its life as follows:
- Need identification: Here, an assessment needs to be made of what types of assets are available and what they will deliver by way of returns on the investment made in them. What kind of asset is needed, and should it be bought, leased or rented are all important considerations at this phase.
- Planning: At this phase a selected asset is carefully evaluated in terms of its planned utilization, meaning that the acquiring team needs to plan exactly how the asset is to be used and what goals for utilization need to be set.
- Design: Any modification to the standard design of a given asset are determined at this phase by the acquiring team, which are often much more cost-effective here than trying to make modification after the purchase and commissioning phase.
- Procurement or Acquisition: At this phase the asset is either purchased or leased/rented and installed/built/delivered to its intended location. This is also the point at which any cost negotiations can take place, including any guarantee, warrantee or other contractual terms that may be important.
- Commissioning or Implementation: Some assets may be complete and ready for use when delivered/assembled but many will need installation or commissioning (especially if they are large or complex). In this phase the organization makes sure the asset is fit-for-purpose and that any installation does not damage the asset or install it incorrectly or ensures that it is not missing some of its promised features.
- Operation and Maintenance: At this phase the asset is used or operated and then maintained as necessary (and costs are collected to ensure the full life cycle costs are being properly captured). Depending on the asset, this phase may go from months to years or even decades and the business therefore needs to have a very planned use and maintenance approach.
- Modification or upgrade: During their life it may be possible for some assets to be upgraded or modified to make them faster, cheaper, better quality producing etc. (computer equipment with new hard drives are an example for a small asset here). This is often cheaper than replacing the asset completely although eventually a new version of an asset will prove to be the better overall option.
- Decommissioning and Disposal: At the end of their useful life or when the cost of operating or maintaining them becomes too high, assets need to be planfully retired and properly disposed of. This should be done in an organized way and overlapping with a new asset being acquired.
Given the above, an asset management system should not only record the acquisition cost, but also record all the subsequent costs, including planning, pre-specification and selection, installation, maintenance, any upgrades, and disposal over the whole of its life, however long this may be. The asset management system should therefore allow the organization to keep a detailed record of each asset so as to keep abreast of true operational costs, frequency of use and overall performance or how much productive use and value we may be getting from the asset. In ideal circumstances asset management activities should also allow the organization to track some common key performance metrics, such as asset utilization rate, maintenance cost, performance reliability, to determine how you are operating against the organization’s peers.