As a domain for which the International Organizations for Standartization released a whole family of standards (ISO 55000, ISO 55001, ISO 55002), asset management begins with some basic concepts that we will cover in this article.
They provide a unified understanding of the components of the plan and the management system for strategic asset management, ensure their successful implementation and facilitate the combination with relevant sector or asset type-specific standards and technical specifications.
Let’s explore the role of 20 of the main terms in asset management and what value they bring to the organization.
Term 1: Asset – the heart of the system
An asset is an object that has potential and/or realized value to the organization that owns it.
Examples of physical assets are equipment, inventory, property, machines, and infrastructure. An organization can own, lease, or use them on the “as-a-service model”. Intangible assets are non-physical assets, like leasing, brands, digital assets, usage rights, licenses, reputation, and more.
Depending on how you classify your assets, your company can manage them in groups or separately. There are three main classification approaches, depending on these dimensions:
• Convertibility: How easy is it to convert assets into money?
• Physical existence: Are they tangible or intangible?
• Usage: What is the purpose of their business operation?
Added value is a fundamental attribute of assets. It can be potential if the business has not yet extracted it or realized if the asset’s capabilities are being exploited and providing an output. On the other hand, it can be:
• tangible or intangible
• financial or non-financial
It can also be positive or negative at different stages in the asset lifecycle. It is the second characteristic of an asset.
The lifecycle is the period from the generation of demand for an asset to the disposal stage. It does not necessarily coincide with the period during which an organization owns an asset and can bring potential or actual value to several businesses.
Term 2: Obtaining value through Asset Management
The management of physical assets is a coordinated activity aimed at tapping into their full potential at every lifecycle stage. The organization can achieve this by managing and balancing:
Effective asset management turns organizational objectives into detailed plans supporting their achievement. It shows how to leverage the value and capabilities of the assets. Some factors influence the type of assets an organization requires to achieve its goals:
- its operational context
- needs and expectations
- the type and purpose of the organization
- financial constraints and regulatory requirements
Term 3: Principles of Asset Management [an overview]
Principles are rules or laws that are permanent, unchanged, and universal. Asset management is based on four such.
The first principle is Output Focus. That is your focus on achieving results and being guided by the organizational objectives.
The following are Asset Capabilities. They are a measure of the ability of an entity (department, organization, person, system) to achieve the target results. Capabilities are inherent in both organizations and assets. At the heart of asset management is not the physical asset itself but the abilities and value it provides.
Level Assurance is the third principle of asset management and represents the degree of confidence that an asset will fulfill the set goal. That is where risk levels have an influence. Risk management provides a level of assurance that asset systems will provide the necessary measurable and tested capabilities.
The final principle is the Learning Organization. Such one is adaptive, strives to improve its products and services, and seeks knowledge. It develops an asset management approach to support decision-making and process management. They strive for continuous improvement. The focus is on the people and their understanding of the roles in the organization.
Term 4: Fulfilling objectives through Output focus
Organizations rely on the first principle of the Concept Model – Output focus – to respond to the question: “What is this asset serving for?” Objectives set out in agreements dictate how the business can utilize its assets to achieve target results.
Term 5: Realizing value with Capabilities
Both organizations and assets have inherited capabilities. Stakeholders determine the use case for each asset and the capabilities they will utilize. There are three aspects of capabilities:
- The power of the stakeholders to determine what capabilities to utilize
- The people within the organization, their competencies, and skills
- The assets and the business possesses
Term 6: Guaranteeing success with Level Assurance
The Level of Assurance responds to this question: “What is the likelihood that an asset (will) fail to meet organizational goals under certain conditions while maintaining the balance between risk, financial resource, value, and quality?”
The level of assurance is associated with risk. The probability that when X happens, Y will follow. Some of the risks that affect asset productivity are:
- Financial markets
- Regulatory constraints
- Unplanned downtime
- Natural disasters
- Manual mistakes
Term 7: Growing as a Learning organization
The Learning Organization is the most influenced principle of the four by workplace culture and management style. It is a by-product of the business management approach and aspirations that transforms the assets from disintegrated equipment and processes to connected tools in the hands of the employees.
Members of a learning organization are always looking for a way to:
- increase productivity
- improve the process
- provide a higher quality of the product they produce
Term 8: The Fundamentals of Asset Management
The fundamentals of asset management enable a transition to integrated asset management. They look to connect advanced and sustainable management techniques into a management paradigm. The attention is on the end-to-end lifecycle of the asset and its sustained performance.
Term 9: Value
An asset carries potential and realized value for an organization. It (the value) may be tangible or intangible, financial or non-financial. The organization and its stakeholders determine what type they want to get from different assets. We explore the topic in more detail in the following article.
Term 10: Alignment
The people engaged in developing and applying an asset management approach should align it with the corporate plans and strategies. That makes it possible to contribute toward achieving organizational objectives through asset management activities. In other words, asset management transforms business goals into:
- Technical and financial solutions
- A Strategic Asset Management Plan
- Focused activities for each lifecycle stage
Term 11: Leadership
Leadership and workplace culture could facilitate realizing or suppressing asset value. Commitment from all stakeholder levels is essential for the successful establishment, operation, and improvement of the asset management system.
Roles and responsibilities should be defined, employees have to get educated and consulted on asset management to keep up with the trends and take care of enterprise development.
Term 12: Assurance
The purpose of asset management is to ensure that the assets fulfill specific goals and bring value to the company. The need for assurance stems from the need for effective management of an organization.
Term 13: The Strategic Asset Management Plan (SAMP) – A foundation for success
As per ISO 55000, the Strategic Asset Management Plan (SAMP) specifies how organizational objectives translate in the context of asset management. It lays out the approach for creating internal alignment and demonstrates the role of the asset management system in achieving the set of goals.
The Plan guides the people inside the company in developing lower-level objectives and detailing how to achieve them.
“The principles by which the organization intends to apply asset management to achieve its organizational objectives should be set out in an asset management policy. The approach to implementing these principles should be documented in a strategic asset management plan (SAMP)” (ISO 55000:2014 p8).
The people who use the SAMP most regularly are:
- Executives and higher management
- Technical experts
- Asset managers
- Team leads/managers of other departments (e.g., administration, finance, human resources, procurement, etc.)
Part of the content in the Strategic Asset Management Plan includes:
- Executive Summary
- Outline of the Asset Management System
- Asset Management
- Forecast levels of performance
- Strategic Initiatives
- Targets and measures
- Relative priorities
- Resource Summary
- Operating Expenditure Forecast
- Capital Expenditure Forecast
- Manning Requirements
- Resource Summary
Term 14: Bring alignment with the Asset Management System
An asset management system is a collection of the organizational elements connecting them and enabling interaction between one another. It coordinates and controls the asset management activities, provides better risk control, and assures consistent achievement of organizational objectives. Through the System, the company coordinates the contribution and interaction between the functional units. It can link its management system and predefined technical requirements set out in the ISO standards, as well as in international, regional, and national regulations.
NOTE: Some asset management activities can’t be formalized through an Asset Management System.
Term 15: Asset management objectives
Asset management is a coordinated activity that aims to maximize asset value for the organization. It is challenging to translate business objectives into meaningful asset management goals for the teams operating across the different business units. The objective is a desired and planned result. They may fall into one of four levels:
To define precise asset management goals:
- Align the different types of goals to the job functions within the organization
- Implement the objectives through specific asset management processes
Term 16: The stakeholders determine the focus
The stakeholders encompass and influence all asset management activities. They build up the organization and determine the needs and constraints of the business. In terms of asset management, stakeholders in the organization may be internal or external:
- local governments
- state governments
- private personas
They set requirements for guidance to meet organizational goals. Stakeholders’ expectations can find a place in a “Statement of stakeholder needs” and must address all mandatory requirements and the needs of different stakeholder groups. For example:
- criteria for decision making
- safety and environmental issues
- profit and financial needs
- community expectations
- volume and quality of the product
Term 17: Utilize the framework of the asset management models
The model is a graphic representation of ideas, making them easier to understand. The Asset Management Council (a membership-based, non-profit organization) has created three models to explain:
- The ‘why’ of asset management
- The ‘what’
- And the ‘how’
These three Council models represent the three levels of asset management:
The Concept Model introduces strategic decision-making. The System Model is dedicated to tactical decision-making. The Capacity Delivery Model is concerned with operational decision-making.
Term 18: The fundamental model: The Concept Model
The Concept Model of asset management represents mainstream thinking in the industry. It shows how to handle the complexity of the discipline by separating it into related parts. The model serves as a framework for identifying, documenting, and connecting the elements of asset management.
The stakeholders’ influence places the Concept Model in the ‘stakeholder circle’. It’s the regulator of all decisions and actions taken by the organization.
Term 19: Integrate through the Asset Management System Model
The Asset Management System Model integrates the strategic activities and job functions that would otherwise operate in isolation. The requirements for the asset management system model described in ISO 55001 are grouped in a manner consistent with the fundamentals of asset management:
- Context of the Organization
- Performance Evaluation
Term 20: “Plan-Do-Check-Act” cycle: A journey towards continuous improvement
The Concept Model of asset management displays four processes as part of a continuous improvement cycle – the “Plan, Do, Check, Act” Cycle. Each process is bound by one of the principles of asset management – Output Focus, Capabilities, Level Assurance, and Learning organization.
The first step of the cycle (Plan) identifies the need to improve a single process or several processes. At this stage, an analysis of the available data brings out what indicates that a change is needed. Information should be acquired from all available sources (staff, customers, stakeholders, etc.).
In phase ‘Do’, the organization should carry out the change. A record of the executed activities would bring value if it later turns out a certain activity proves to be crucial for the success or failure of this change.
By the end of the ‘Do’ phase, the business should be able to explain how it made the change – what was the plan, what were the vital decisions, and did challenges occur.
Phase ‘Check’ is dedicated to monitoring the change. Teams need to keep track of the progress and effectiveness of the change. Then, compare the data and see whether they fit the criteria for success. We recommend comparing the data received after the change with the one used during the ‘Plan’ stage. Answer these questions:
- Have we achieved our organizational goals?
- Did we do what was required of the plan to enable a smooth transition and improvement?
- Are there any expected/unexpected consequences of the change?
- What did we achieve and learn?
- What recommendations can I give to management?
The last part of the PDCA process is the ‘Act’ phase. That is a template company can apply to facilitate the process:
- Evaluate the results after the change
- Edit the initial plan if necessary
- Decide whether to:
- Make another change
- Stick with the current one
- Reverse parts of the change
- Organize all available data for future use
- Repeat the PDCA cycle
The ‘Plan-Do-Check-Act’ cycle requires continuous improvement of one process until all variations in results are minimized. Organizations that manage assets well plan, check and act on deviations. On the other hand, those that fail usually forget about the planning part of the analysis.
By knowing the building blocks of asset management, you can consciously use them to build the practices in your business. Think about what information from the article you can use to update your plans and what examples will help you begin to more easily discover the relationships in a real-life environment.