By Scott Sidney, asset management expert
Most energy and water utilities are adept at managing their engineering assets. They plan and apply technical solutions to asset and system problems as the need arises. The drawback of this approach is that, while it addresses the challenge of maintaining the utility’s physical infrastructure, it fails to take account of the business’s broader and longer-term goals.
Is there a different way of managing assets that enables utilities to do more than plan and execute an efficient maintenance programme? Can utilities use asset management to help them meet key challenges such as managing an ageing infrastructure, meeting rising customer expectations, investing in new technologies and meeting regulatory scrutiny? The answer is ‘yes’.
By adopting an approach that focuses on the value assets deliver rather than on the assets themselves – and by linking this value to enterprise-level ambitions – utilities can use asset management to support their most pressing business objectives: higher performance, lower cost, less risk and sharper customer focus.
In our experience, organisations that implement a value-based approach on an enterprise-wide scale have been able to achieve annual savings in capital and O&M combined of around 15%.
Think beyond engineering assets
Within the new ISO 550001 requirements, any and all assets can be included under the asset management umbrella and absorbed into a business model focused on the value different assets deliver. These assets most often include physical components such as generation, transmission, distribution, fleet, property and facilities. However they can also include IT hardware and software, data, people, and intellectual property.
The asset-value business model can even extend to external resources, such as external service providers. It requires utilities to clearly calculate and compare the cost of developing and retaining core competencies and skills in house and the cost of acquiring them from outside sources. This is especially important for energy and water companies as they struggle to retain knowledge and capability against high attrition and retirements.
Define work processes for cost, performance and risk
Developing a model to get full value from all assets across the business involves defining processes in three key areas: cost, performance and risk:
- Cost – Adopting a lifecycle strategy will allow the utility to manage the cradle‐to‐grave costs for all types of assets under a single, integrated framework. The core concepts include managing net present value based on initial cost, lifetime O&M spend, residual and salvage value, and funding options. It encompasses the initial decision on where to invest in assets, why the investment is justified, and the financial mechanisms (equity/debt) that support the decision. This comprehensive approach allows the entire organisation to collaborate on consistently extracting full value from its assets.
- Performance – Performance goes to the heart of what most energy and water utilities see as effective asset management. Maintenance optimisation, when incorporated into an overall asset-value business model, governs how assets are maintained in line with the utility’s business, market demands and customer expectations. It bases decision on whether and when to repair, replace, rebuild, retire and run‐to‐fail on rigorous data collection, analysis of risk and the level of service for which customers are willing to pay.
- Risk – The process for meeting standards must also be tied to the overall asset-value business model. This process determines the specifications for planning, designing, and building the system infrastructure. This includes capacity, reliability and redundancy planning; material specification; electrical and mechanical design criteria; and construction specifications. These decisions support an appropriate risk emphasis and enable leaders to understand how to mitigate the exposure appropriately.
Build the right framework
To support an asset-value business model, most utilities will need to implement a new organisational structure as well as establish new data collection processes and systems. Data processes must be integrated into operations so that financial, risk, and performance information can be channeled into decisions about how assets are acquired, used and retired in support of the overall business strategy.
Another key task is to develop risk profiles for individual assets and asset groups. These should be linked to assets’ financial and operational performance and integrated with ongoing budget requirements.
Utilities aiming to adopt an asset-value business model will need to embrace collaboration and standardisation. It will no longer be possible for functions to be insular. They must be ready to exchange information openly and usefully across functional lines and take decisions from a system‐wide standpoint. Leaders at all levels will need to be committed to adopting and embedding the new approach.
Capturing value over the long term
Transitioning to an asset-value business model can often require a short-term increase in both capital and O&M spending. Although utilities may resist making these kinds of expenditures when money is tight, it is often the only way to ensure asset value is captured and sustained over the long term. The point, after all, is to extract full value from assets, not to avoid immediate costs or to overwork assets past their useful life. Adopting an asset-value business model across the enterprise is therefore fundamental to a successful asset management approach.