Economic Evaluation

The above economic evaluations are used and described in the International Infrastructure Management Manual (International Edition 2006). The manual also describe the use of Benefit Cost Analysis (BCA) and Multi-criteria Analysis (MCA) to support Optimised Decision Making.

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Information System

Asset Management Information System

Asset Management Information System is defined as the use of information and communication technology, which include data acquisition and processing, software, and hardware that are necessary to provide an essential support system for an effective asset management in an organization.

The use of electronic based system has become more apparent in a big and widespread organization, which need real-time, online and future information for optimized decision-making. The need to have an electronic based information system will depend on the following factors:

1. The cost of development
2. The cost of acquisition and maintenance
3. The expertise needed
4. The benefits that will be derived from the information system

The information system will be a non-physical asset except for the hardware and have to be managed in line with asset management principles. However, in the United Kingdom’s asset management requirements as in PAS 55-1, the information system is a pre-requisite to an effective asset management as defined below:

4.3.1 Asset Management Information System

The organization shall establish and maintain (an) asset management information system(s). The system(s) shall be designed and maintained to provide an adequate support and information to the organization in meeting all of the requirements set out in clause 4 of this specification. It shall include provision to support the development and implementation/achievement of the asset policy, strategy, risk identification, assessment and control, objectives, targets, plans. It shall also support all of the requirements related to the implementation and operation, checking and corrective actions and the management review.

The information shall be accessible to all relevant employees and other relevant third parties including contractors as appropriate.

Where separate asset management information systems exist, the organization shall ensure that the information provided by these systems is consistent.

However, the requirements do not specify specifically an “electronic-based system” or a computerized system, but the current technology is on using a computerized system that will enable online and real-time information.

To have an excellent information system, the ingredients are as follow, that is:

1. Be able to perform basic functionalities in asset management and fit for purpose
2. Be able to interface with existing and future systems
3. Having excellent data management
4. Having basic or advance analytical tools
5. Must be enterprise wide

System Functionality

The information system must be able to, as a minimum, to have the functionalities listed in the diagram below:

The organization must also develop an asset identification system to allow a unique identity to each individual asset in the organization. Without an asset registry, there will be no asset management, as we do not know what asset to manage. This is the first function of an information system that needs to be fulfilled before proceeding on to other systems as in the diagram above.

A simple audit will suffice to determine the current position of the organization in the asset management information system maturity model. From this model, a strategic framework on asset management information system will be developed in conjunction with the strategic framework on asset management of the organization.

System Interfacing

The information system must be able to interface with the existing manual or computerized system that is in existence in the organization. During the development phase, decision has to be made to either upgrade or interface with the existing system. This is crucial and the decision has to be made using asset management principles.

It is also worthwhile to look in newer technologies such as Geographical Information System (GIS), Global Positioning System (GPS), real-time condition monitoring system or even Remote Identification System using radio frequency identification device (RFID) and incorporate these technologies in the information system.

The organization has also to look at interfacing of field data from third parties or proprietary equipments/software especially on condition assessment equipments, off site or field measuring equipments, mobile field scanners, hand-held inputting device and so forth.

An information system without interfacing capabilities will be not be an effective system.

Data Management

The integrity of data must be ensured at all stages of collection and inputting of data. Introduction of a specific process in data collection and input will ensure the following, that is:

1. Correct data is collected and inputted
2. The data has economic value to the system and organization
3. Accurate data at all times.

The integrity of data is important and the organization must ensure at all times the data integrity is maintained at all stages of the data recognition, collection and inputting into the system. The best information system will fail if the data collected has no value and inaccurate, as the information system will give false reports and hence, false information. By having a specific process to handle data, the information system is ensured to have the level of data accuracy as desired.

The organization will also have to make a decision on the level of details that the organization needs, as every data is specific to each organization. Nevertheless, external factors also will determine the extent and depth of the details needed. The external factors are:

1. Legal compliance
2. Clients requirements
3. Government requirements

The above requirement can be done through an in-depth study of the external factors and the impact it has on the information system. Beside this, it is equally important to undertake a study on the user requirement before proceeding to the next phase of development of the proposed information system. These two (2) studies have to be done simultaneously in order to have the highest impact on the proposed information system

Analytical Tools

An information system without any analytical generated reports will only be a data reporting system and not an information system. Having this in mind, amongst the basic analytical tools to be incorporated in the information system are as follows:

1. Benefit-cost analysis
2. Life cycle costs
3. Net present value
4. Current and Future Trends
5. Graphical presentations
6. Modeling tools based on mathematical expressions

The more advanced analytical tools, amongst others are as follows:

1. Condition monitoring
2. Economic models
3. Decay models
4. Predictive models

By having all the analytical, data can be turned into useful information and key performance indicators can be monitored effectively. Hence, the performance of the organization can be displayed as a graphical and meaningful dashboard to be at every level of the organization.

Enterprise Wide

Lastly, the information must be at enterprise wide and be able to be accessed by all levels of staff involved in asset management. The level of use will have a bearing to the effectiveness of the information system, as the competency on the information system would differ at every level of the organization. In a learning organization, the level of use is not a problem for the organization, as the competency, role and responsibility are clearly specified and documented.

Conclusion

Information system is crucial in providing information for, as follows:

1. decision making
2. performance management
3. continual improvement
4. corrective and preventive actions
5. management review
6. knowledge management

The use of asset management principles is necessary in developing and procuring the asset management information system as the asset management information system is a non-physical asset (which include physical asset such as hardware) that has a service potential to the organization.

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Performance Management

Performance Management in Asset Management

Introduction to performance management

Much has been said about performance management where an organization has to measure its progress towards achieving its goals and objectives. In fact, most successful organization put much emphasis on performance management as one of the major management tools. Performance management has evolved from a mere financial reporting tool to become a major decision-making tool. Much of its success comes from the fact that organizations have become so big and widely dispersed all over the country and the board of directors needs to know the well-being of its company fast and real-time. Furthermore, performance management has become the most effective system in creating a goal-oriented culture in government agencies.

Performance management involves establishing data collection system, analytical tools, periodic or regular monitoring and reporting, communicating the performance, continual improvement programme and lastly, using suitable indicators. Even the display of the periodic monitoring and reporting mechanism, has evolve from a mere paper-based report to a more sophisticated online or real-time electronic system, which is predominantly known as dashboard. Some would say that performance management is only meant for the chairperson, board of directors or the head of an organization, but this is not the true scenario now. Performance management is a must for any dynamic and learning organization.

Performance is measured at every level and unit, which is the cascading approach in performance measurement. This is because that in every level and unit, the unit’s performance will reflect back on the overall performance of the organization and the unit must be aligned to the organization’s objective(s). Their performance indicator is not the key performance indicator of the organization, but their indicator merely shows the unit’s contribution to the overall performance of the organization. It shows their commitment and involvement in realizing the organization’s objective(s).

Nevertheless, the top-to-bottom cascading nature of indicator(s) in an organization is an important fundamental element in performance management. Rightfully, the lowest of the personnel must know the key performance indicator of the organization because their involvement is important to the success of the organizational performance management and for the organization to be able to see the actual big picture of its performance.

Performance management is not only meant for an organization but it is also meant for products and services rendered. It also focus on the effectiveness of the organization’s delivery system and aligning the whole organization towards achieving its goals and objectives. This is done by having a performance management plan (which incorporates the processes, systems and communication plan) and suitable key performance indicators.

The benefits of using performance management are as follows:

1. A systematic measurement system for the organization
2. True understanding of the organizational behavior
3. Enabling a continual improvement program
4. Allow benchmarking against other related organization or industry players
5. Creating a performance based culture in the organization

What are indicators?

There are three (3) types of indicators, which commonly known as:

1. Key Performance Indicator
   A measurement for the performance and progress of achieving the organizational business goals and this is the main performance indicator for the organization
2. Performance Indicator
   Measurements for activities or initiatives that are complementing the critical activities of the organization
3. Result Indicator
   Measurements of output from processes

Performance Management Process

In balanced scorecard concept, vision and objective are important input to measures. Hence, there are four (4) perspectives that need to be considered when putting up measures. The four (4) perspectives are as follows:

1. Financial
2. Learning and growth
3. Business processes
4. Customer

When identifying the key performance indicators, organization must reflect the above perspective(s) besides fulfilling the SMART requirements, otherwise the indicators are either results or performance indicators. The two (2) indicators will however demonstrate the overall picture of the organization, but not its performance.
(SMART: S= specific, M= measurable, A= attainable, R= realistic, T= time-bound or timely)

In establishing the key performance indicator, the top-down is more commonly used rather than bottom-up process. An illustration of this approach is shown below.

Typically, the performance management process specifically for asset management is as follows:

It is a simple process to implement, but the fundamental of this process is that key performance indicator directly relates to the objective(s) of the organization.

Preferably, various management tools should be used to identify the key performance indicators. The tools, amongst others are as follows:

1. Benchmarking
2. Scenario analysis
3. Brainstorming
4. SWOT analysis
5. PESTLE analysis
6. Gap analysis

Using Key Performance Indicators in Asset Management

In asset management, service level is an important aspect of measurement, which measures the ability of the asset to provide service. Amongst the key performance indicators in asset management are:

1. Facility condition
2. Deferred maintenance
3. Customer satisfaction
4. Sustainability
5. Whole life cycle
6. Maintenance norms or operating and maintenance cost
7. Reliability
8. Response time

A few key performance indicators above can be used, but a word of advice, it is far better for the organization to establish its own key performance indicators. The involvement of the whole organization in establishing and implementing a performance management system is ultimate goal of any organization. This is due to the fact that the whole workforce of the organization will be aligned to the same objective(s).

Resources:

1. Department of Public Works, Queensland Australia
2. The Balance Scorecard Institute

Topics of interest

(Please follow the links to read the topics)

Asset Management Tools

1. System Thinking in Asset Management
2. Risk Management
3. Whole Life Cycle Costing

Asset Management Fundamentals:

1. Asset registry
2. Roles and responsibility
3. Asset objectives
4. Service criteria
5. Asset condition and performance
6. Asset life cycle
7. User expectations
8. Asset stakeholders
9. Asset management objectives
10. Asset planning

System Thinking in Asset Management

What is a system?

The late Austrian Biologist Ludwig von Bertalanffy wrote “A system is an entity which maintains its existence through the mutual interaction of its parts”.

Therefore, a system is an interconnected items or dynamic activities performing as a single unit or entity whereas system thinking is simply the art of organizing the interactions between the interconnected and interdependent activities or items. In the case of a building, every item in the building contributes to a proper functioning and the building is a system. As such, every item is interconnected and interdependent of each other.

We have to look at building as system rather than as a rigid object. The item in a building is a subsystem of the building system and that building is a sub-system of a complex of buildings, and that building complex is a sub-system of a commercial hub, and so forth. If any of the sub-system failed, it will create a chain reaction to the sub-system and the system as a whole.

Furthermore, the earth is a system by itself and therefore we must look at system. To do that, we must possess system thinking. Fritjof Capra said that "the property of network is its nonlinearity as it goes in all directions. It may travel along a cyclical path and becomes a feedback loop".

The important concept of system thinking is that system thinking looks at multiple perspectives and emphasizing on the behavior as a whole not the parts, focusing on goals and performance not the output.

In asset management, we have to look at the asset as a whole and also, as a system. Every major activity in an asset life cycle is a system and it becomes a sub-system to the asset. We look at all angles, crossing disciplines and knowledge and we look beyond the fundamentals. Furthermore, community is a living system and assets are a sub-system to the living system.

As such, system thinking is fundamental and important ingredient to an excellent asset management.

How do we use system thinking approach in asset management?

1. Firstly, we must look at the asset as a system or maybe a sub-system to a bigger system
2. Then, develop a pattern of behavior for the asset, which is basically the asset life cycle (never use a single perspective of the asset, look at multiple perspective crossing boundaries and discipline)
3. Develop a model behavior of the asset
4. Simulate the behavior of the model
5. Develop an alternative approach
6. Simulate the alternative approach
7. Develop feedback loop

By simulating, we are asking questions about its behavior as a whole and we are looking beyond the fundamentals, and that is the beauty of system thinking.

Reading material:

1. http://www.systems-thinking.org/index.htm
2. http://www.fritjofcapra.net/index.html
3. http://www.thinking.net/
4. http://www.systemdynamics.org

Risk Management

Asset Risk Management

Risk can be defined as the combination of the probability of an event and its consequences (ISO/IEC Guide 73) and the possible effect can be either negative or positive. Nevertheless, risk management is focused on the management of the prevention and mitigation of the risks. Gone are the years when flipping a coin will give you a decision, now risks are identified at an very early stage. Hence, risk management is just a state being prepared for the worst, which we are always on top of it.

To manage an asset, there a number of risks involved that need to be assessed, such as:

1. External risk
2. Internal risk

A simple asset risk management model is shown below:

Risk Identification

External risk comes from external factors such financial risk, strategic risk, operational risk and hazard risk. Internally, the risks are nearer to the organization such as information systems, work force, internal financial control and so forth. The risk must be identified all activities and processes of an asset life cycle. There is risk in human behaviour such as unexpected behaviour and misinterpretation of instruction, which can categorized in any of the external and internal risk.

A simple template or even a questionnaire such as the figure below will assist in identifying all risks.

Risk Analysis

Once the organization has identified all risks that will be encountered, the risks are rated according to the probability of occurrence, criticality, impact and importance. All risks must rated to determine its mitigation priority, and it is done systematically by first looking at its probable effect to the asset. For example, unexpected human behaviour will cause rapid deterioration to the asset due to, such as, uncontrollable anger towards the asset. Another example would be that changes in customer would make the asset obsolete in shorter period, which new asset need to be planned and this mean capital expenditure.

A sample template is shown below:

Risk Evaluation

Risk evaluation involves processes to establish the costs, compliance to legal requirements or even environmental factors. This is done after risk analysis, which involve primarily rating the risk. There are a few factors that need to be considered in proposing a treatment such as the cost of mitigation, the effectiveness of treatment and compliance to existing legal environment.

Furthermore, risk evaluation involves decision-making on the risk and the impact of the risk to the organization and the asset concern whether to accept the risk without treatment or with the proposed treatment. Once the decision to treat the risks is accepted, the next step would be to treat the risk.

Risk Mitigation and Treatment

Risk mitigation and treatment is the process to reduce or even nullify a risk using the appropriate or proposed method. The process needs to be constantly monitored and communicate back to the stakeholders on the treatment effectiveness.

Risk Review

Risk review is a process of monitoring of the risk mitigation/treatment and emergence of new risks. Risk review also will highlight the effectiveness of the treatment, any issues in implementation of the mitigation measures and so forth. These reviews will be the basis of effective risk mitigation and treatment whilst acting as a knowledge database.

Risk Reporting

The risk management team shall generate and distribute periodic reports to stakeholders on implementation of the risk management program. The stakeholders need to know that the risk is effectively treated and the actual cost the organization has to bear.

Risk Management Plan

At the end of the day, the organization will have a risk management plan comprising of the above topic. The plan shall contain amongst others the structure for risk management, risk management policy, role and responsibility, monitoring frequency and so forth.

Publication

1. The Institute of Risk Management
2. Australian Standard 4360 Risk management portal

Whole Life Cycle Costing

Whole life cycle costing

Whole life cycle cost is the total costs of the asset throughout its life cycle from its acquisition until disposal, amongst others includes:

1. Capital costs
2. Operating costs
3. Maintenance costs
4. Risk exposure costs
5. Rehabilitation costs
6. Administrative costs
7. Depreciation and disposal costs
8. Insurance and tax costs (if relevant)

Whole life cycle cost is important in order to determine the actual cost that will be incurred in the future, the benefits that will be derived, the cost of operation and maintenance, the capital expenditure needed and so forth. Previously, we would be satisfied if we only know the capital cost as it is the easiest to do, but it is not the true cost of the asset.

Cost of the assets relates to the design and shape of the asset, the equipment employed, the type of material used, type of operation and maintenance deployed and so forth. Before making justifiable and the right decison, an organization needs to know all costs, which become future liabilities. These liabilities would cut into the profit margin and the organization will be non-profitable for the asset it holds. This scenario is not a good business case if the organization needs to venture and explore new business areas.

Nevertheless, if an organization acquires the predicted costs of actually having the asset, then a predicted cast flow is known throughout the asset life span, which can span more than 25 years. A good business decision is ensured and the decision to acquire the asset is well justified.

Capital cost

Capital costs, amongst others, include:

1. Design and supervision cost
2. Cost of acquiring or purchasing land
3. Interest and funding cost
4. Construction or installation cost inclusive of all electrical
   and mechanical facilities, incidental equipments and others
5. Cost of permits, levies and approval from local authorities
6. Project management costs
7. Consultation cost

Operating cost

Operating costs are cost incurred when operating or using the building, amongst others, include:

1. Telecommunication bills or usage
2. Electricity bills or usage
3. Gas, Water and sewerage bills or charges
4. Chilled water bills or usage
5. Tenancy fees or charges
6. Local authority or central government taxes or duties relating to the
   property
7. Insurance and tax costs (if relevant)

Maintenance cost

Maintenance costs are costs incurred to ensure that the building functions as designed and costs to upkeep the building, such as:

1. Custodial and up keeping
2. Routine maintenance
3. Unplanned or breakdown maintenance
4. Planned or scheduled maintenance
5. Security services
6. Unplanned or planned inspection and assessment costs
7. Special arrangements

Risk exposure cost

1. Increase in insurance, mortgage or interest rates
2. Mitigation costs

Rehabilitation costs

1. Installing new technologies within its functional life
2. Major maintenance works to meet new customers’ demands

Administrative costs

1. Management cost
2. Direct and indirect costs relating to the management of the
   asset and et cetera

Depreciation and disposal costs

1. Renewal cost inclusive any design, demolishing, and et cetera
2. Disposal costs
3. Replacement cost
4. Depreciation cost

Typically, a whole life cycle cost curve will look lik this:

Fundamentals of asset management

To understand asset management, we must understand the fundamentals in asset management. The fundamentals are as follows:
(Please follow the links to read the topics)

1. Asset registry
2. Roles and responsibility
3. Asset objectives
4. Service criteria
5. Asset condition and performance
6. Asset life cycle
7. User expectations
8. Asset stakeholders
9. Asset management objectives
10. Asset planning

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13.0 Asset planning

13.1 An objective is not meant to be just a visionary or an eye-catching phrase, but it must be realized in order to indicate the approach and the path undertaken is the right undertaking and the right strategy. Therefore, an asset management plan must be formulated containing the policies, strategies, objectives, performance measurements (such as service levels) and all activities in the asset life cycle.

13.2 Over-planning is a mystic phrase where an organization plans towards an objective, which is impossible to achieve. Thus, planning must be flexible enough to meet changes, to be able to detect risks and changes over the asset life cycle. A comprehensive plan will achieve the desired outcome, but planning without having an inbuilt performance measurement and reporting system will always fail as the organization would not know whether it has achieved what is set for. Nevertheless, organization must not over plan.

13.3 In asset management, these plans are called Asset Management Plans, which contains the minimum items such as:

a. Purpose of the plan
b. Asset management policies, strategies and policies
c. Asset life cycle management plan
d. Future demands
e. Service levels
f. Monitoring and improvement plan
g. Operating and maintenance plan
h. Renewal, replacement and disposal plan
i. Financial Management Plan
j. Asset Management Practices

With these plans, the organization shall be able to ensure that the service delivery is optimized and efficient to meet community and stakeholders demands.

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12.0 Asset management objectives

12.1 The need of asset management objective is clearly stated in PAS 55-1 from the Institute of Asset Management, United Kingdom and the statement is shown below:

“The organization shall establish and maintain documented asset management objectives at relevant function and level within the organization. The objectives shall derived from and consistent with the asset management strategy.”

12.2 It is very clear that emphasis is on a single asset management objective throughout the organization and the organization shall disseminate or establish asset management objectives to all staff at various levels in the organization. No single unit/sections in an organization shall have an objective deviating from the main objectives. This is necessary if any asset management policies, strategies or operational tasks need effective executions.

12.3 In realizing the asset management objectives, the organization shall consider:

a. Legal, regulatory and statutory requirements
b. Technological advancements
c. Financial, operational and business requirements
d. Related risk in asset management
e. Views for appropriate stakeholders

12.4 The above requirements are important so that the objectives developed are always relevant and in the context of the organizational business environment. In this respect, every activity and data gathering will be streamlined throughout the organization resulting in a shared vision, improved and effective information and decision-making. As such, the organization shall be able to meet service delivery objectives efficiently and effectively.

12.5 As a result, the organization would be able to plan, formulate and implement strategies and, lastly measure its performance. It is also important that a communication plan be established so that the objectives can be communicated effectively to its stakeholder, customers, users, key suppliers and so forth ensuring formulating of a set of reasonable objectives and successful delivery of service.

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11.0 Asset stakeholders

11.1 Stakeholders are person, group, or organization that has direct or indirect interest in the asset. In infrastructure assets, the person, group, or organization who used the asset are basically the stakeholders of the asset and their quality of life will be determined and influenced by the asset. On the other hand, the government or the person that funds and owns the asset is the key stakeholder of the asset.

11.2 It is good practice to involve in the planning for new asset, those who are concerned directly or will be affected by the asset. Their inputs are important to successful delivery and the benefits realization of the asset. This is what we call good governance of the asset.

11.3 In this respect, the organization who manage the asset, service providers and the construction community have roles to play and hence, be responsible to achieve the asset’s objective(s). They have the responsibility to create and manage the asset. Each of the organization, service providers and the construction community has different roles and responsibility in the asset life cycle. Their actions are inter-related and have considerable effect on each other when realizing the asset. They must instill good governance in order to have an asset that fulfills its objectives.

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1o.0 User expectations

1o.1 When assets are constructed or installed, these assets are meant to be used or utilized. As such, the asset must be able to continuously provide services to the community. Subsequently, asset owners will derive benefits from the assets whilst the public or the users of the assets will enjoy a better environment and quality of life.

10.2 On the other hand, a user of the asset does not expect much from the asset used but when they relate it to quality, quantity, availability, safety and responsiveness, questions will be raised by the user when there is a drop in the level of service of the asset. Hence, the organization must act accordingly to the questions raised as it has an impact on its organization’s service delivery. Though it is impossible to have zero gripe from users, efforts must be made to minimize any discomfort to the users thus minimizing complaints from users.

10.3 To do this, organizations must take a proactive stand and constantly thrive to understand user expectations through regular interaction with users. By having regular interactions, the level of satisfaction can be determined. There are various methods to implement the assessment or survey and the most common method is by street, online or a general survey. Nevertheless, focus groups may be employed at an earlier stage before implementation to gauge the fulfillment of the asset objective.

10.4 Examples of user expectations are:

1o.5 From the above table, user’s expectations relates to the amount of money the user have contributed through statutory taxation to the government or the local authority. As such, user will expect value for money. Likewise, the organization also expects the asset to function as specified in order to realize the organization service delivery within whatever constraints or limitations the organization has. To match the two (2) expectations, the logical thing to do is by giving the asset a service level, hence satisfying both the organization and the user.

10.6 By assessing the condition and performance of the asset in conjunction with periodic and customary customer satisfaction surveys, CSS in short, the organization will be able to gauge the achieved service level of the asset and appropriate the amount of funds to asset if the achieved asset’s service level is lower than the stated service level. If gaps arise between the actual and and the intended service of the asset, measures must be taken such as renewal to ensure that the asset will continue to deliver its sevice during it functional life.

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9.0 Asset life cycle

9.1 We do sometimes just fix the asset after it breaks down because it is the easiest way to maintain assets. It might be the right strategy but it is the best option and relative easy to undertake. In doing so, the cost of maintenance might not be justified and there is no value for money. There is also high probability that the cost is more than expected and the maintenance is sometime “overdone” and repeatable. Nevertheless, without proper planning, design and construction or acquisition, the asset may cease to have value to the organization. By doing this, the asset has become a liability and a burden to the organization. With asset management, these practices are things of the past as asset management starts from the inception of the asset until the end of the asset life, which is the life cycle of an asset and giving prominence to the operation and maintenance of the asset. Asset life cycle does not start from the day it is operating or maintained, but it starts from its inception and asset life cycle is an important element in asset management. Control starts from the inception stage, making its way up to end that is the disposal. Some would say that we must design to maintain rather than design to build which is easier.

9.2 Any asset would have a typical and simplistic life cycle, that is:

a. Initiation

Initiation involves such activities as planning and designing. This is the most crucial activity for it involves monetary decision such as is the type of funding, the benefits that can be derived, cost of the asset, the operational and maintenance cost, and most of all, the value of the asset at disposal. This stage is actually a major business decision for an organization.

b. Procure or acquire

This stage will usually involve activities such as constructing the asset, installation, or even buying an asset. Construction or installation activities will also involve sub-activities such as supervision of the works including formulating and implementing procurement strategies.

c. Operate and maintain

Once we acquire or complete the construction/installation of an asset, we need to maintain and operate the asset. The life span of an asset is the longest at this stage, which is usually at the range of 90% of the life cycle period and 80% of the whole life cost of the asset. At this stage, the asset is vulnerable to the lack of maintenance resulting in a low disposal value.

d. Dispose or renew

As the asset reaches its lifespan, an organization must make a decision whether to dispose or making a complete renewal of the asset. If the asset is disposed, the organization will have to start to plan for a new asset, if the need arises.

9.3 For infrastructure assets, a more comprehensive and detailed life cycle must be developed to reflect the actual activities an stages of the asset such as buildings or roads. The figures below llustrate typical examples:

9.4 Briefly, every activity that is pre-requisite to materialize an asset (no matter what asset it is) is detail out in sequence in order to manage and control the output of each activity including measuring the outcome of each activity. In this context, the output of each activity must reflect back the asset intended objective. If the asset does not meet its objective, the asset’s specification needs reviewing, amendment or even a total revamp, to ensure the asset’s objective is met in all the activities. This is the importance of an asset life cycle. The life cycle ensures reviews and allows immediate amendments or modifications to its specification before any preceding activities to proceed.

9.5 The above statement is in line with the previously stated asset definition, that is:

a. An item/physical component/facility that have a distinct value to the organization; and/or

b. An item/physical component/facility that enable services to be provided

In order for the asset to give service well within the designated objective, we must manage and control the activities at its infancy that is during the inception phase and up to its disposal or renewal or even upgrade.

9.6 At the end of the day, whatever asset that is constructed or installed, the asset is what the organization wants in order for the organization to realize its service delivery.

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8.0 Asset condition and performance

8.1 Asset condition is the physical state of the asset at the material time of assessment whilst asset performance is the ability of the asset to provide the required level of service. We understand that every physical asset will deteriorate due to normal wear and tear or through other factors such environmental degradation and so forth. In this respect, some assets will deteriorate faster from other assets and vice versa. As such, we must assess the asset periodically in order to have a quantifiable physical condition of the asset. Furthermore, the condition of the asset relates to the degree of performance of the asset and performance of asset relate to achieving its service level. At the end of day, we will have a database of asset condition, which will allow the organization to make a strategic decision on the asset. The figure below illustrates a typical performance cycle of an asset.

8.2 There are numerous ways to assess the condition of asset and the most common method is by visual inspection. However, visual inspection will only give the apparent deterioration but not the physical attributes of the assets such as material strength and so forth. Therefore, a far better and comprehensive method of assessment need to be formulated. As such, a good assessment will give the organization an overall and accurate picture on the physical condition of its assets.

8.3 For a typical condition assessment, the methods used are:

a. Documentation and desktop review
b. Visual inspection
c. Sampling for laboratory testing
d. Analysis on the present and future rate of deterioration

8.4 It is important that the necessary documentation depicting the details of the asset and record of maintenance works must be available for a conclusive assessment. If no documentation is available, the organization must start from zero base, build up the documents especially as-built plans, and so forth. Hence, by accepting asset management, the organization will be building an excellent documentation system.

8.5 It is also equally important to have a rating or a grading condition system to identify the physical state of the assessed asset. With this rating or grading system, the organization will at anytime know the physical condition of the asset and the funds needed to maintain the assets. The combination of the physical condition and performance will be the basis to determine the actual service level of the asset at that particular time. With further analysis, the economic life span can be determined at different scenarios and the expected performance of the asset in the future.

8.6 In general, asset performance is the ability of the asset to provide the required level of service and can be measured in terms of reliability, availability, capacity and meeting customer needs.

8.7 The assessment of asset condition and performance must be a cyclic programme either yearly or frequency determined by the organization, based on condition of the asset or maintenance cost. If the resources to implement the assessment are readily available, the assessment must be on a regular interval. Without this assessment programme, a number of outputs, which are important inputs to the organization’s decision making process, will not be known amongst others such as:

a. The residual life,
b. The maintenance or renewal cost ,
c. Prediction of asset failure,
d. The rate of consumption,
e. Failure pattern and so forth

Nevertheless, due consideration must be given to short and long-term benefits to the organization when implementing an assessment programme.

8.8 Without these assessments, the organization will be back to the normal maintenance programme and doing things without having a justifiable and value for money programme that is fixing asset when it breaks down. By doing so, the asset will continue to fail and dysfunction prematurely resulting in the deterioration of asset performance and customer’s expectations as shown in the figure below.

Fundamentals of Asset Management - 5

Asset Management Fundamentals - continuation

7.0 Service criteria

7.1 Service criteria are a set of guiding principles defining the standard of quality of service provided by an asset or assets. Amongst the generic service criteria are:

a. Quality
b. Quantity
c. Availability
d. Safety
e. Responsiveness

7.2 Even though the above generic criteria encompass all that the organization need to formulate service criteria, the other important factors to include are legislative, user, availability of funds and the organizational strategic requirements. With all these criteria and linking it to the asset’s objective, the asset’s service criteria can be developed and implemented by the organization. The figure below shows the formulation of asset criteria, asset service level and asset performance.

7.3 It is simpler to define the service criteria for a single asset compared to a network of assets such as road, buildings and so forth. This is because a road will have a multiple service in terms of the items in a road such as road signage, pavement, drainage, street lighting, road markings and so forth. It is the same for a building, which consists of air conditioning system, elevators (or lifts in some part of the world), lightings, signage, water supply system, sanitary and so forth. The building is, basically, a system of assets working in tandem to provide a service.

7.4 Each of the assets mentioned have its own service criteria and maybe, multiple level of service for each of the assets. For example, a road pavement has multiple service level, but it can be consolidated into a single service level for the road pavement. Furthermore, a level of service is the defined quality of a particular service area in which measurements of performance or compliance can be made. In this case, the road pavement provides a smooth riding quality but signage and drainage will have a different service criteria and service level.

7.5 It is important for the organization to determine the current service level of the asset in order to see whether the asset is within the service criteria set forth and to enable the gap closed between current service level and the newly defined service level. If the asset is below the service criteria and the defined service level, the asset need to be renewed, upgrade or disposed of. This method also allows the gap determination between customer expectations and the service provided.

7.6 The above figure illustrate two (2) gaps to closed and once, the two (2) gaps are closed the actual service delivery will be the same as the customer’s expectations. The closing of gaps will sometimes involve capital expenditure or it could just inform the customer the value for money for having that level of service. Nevertheless, it most cases, the organization has to disburse funds for modifications or renewal of the assets in order to elevate the current level of service towards customer’s expectation. This exercise could take years depending on the availability of funds. For a local council, the funds are limited and usage of the limited funds must be prioritized on assets which in a poor condition. This is the most important aspect of using service criteria, which can help an organization to manage its financial needs and spending.

7.7 The diagram below shows the relationship between the individual service level and ultimate service level of a network of assets:

7.8 Lastly, every asset must have a service level and sometimes, an asset consist of numerous assets acting in a system to provide a service. The determination of service level is important, as the organization will be able to demonstrate to its customer the performance of the assets to their expectations.

Fundamentals of Asset Management - 4

Asset Management Fundamentals - continuation

5.0 Roles and responsibility

5.1 In any management system, role and responsibility is important and given due recognition as one of the leading factor of a successful management system. Hence, the key success factor is always the clarity of role and responsibility in an organization. Without this clarification, everyone in an organization will assume a role but will not assume the responsibility. In such case, we have organization full of people but none is doing tasks or activities towards the organization’s objectives.

5.2 In asset management, the organization must know:

a. What is the role and responsibility of each person or unit sections;
b. Why the role and responsibility is formulated in such a way;
c. When to execute the role and responsibility;
d. Who is the custodian of the assets;
e. Who is responsible for the operation and maintenance of the asset;
f. How to execute the role and responsibility;

5.3 Once the organization has established the roles and responsibilities in the organization, the role and responsibility must be properly documented and maintained. As mentioned earlier, the role and responsibility in an asset management system is utmost important, as it will determine the successful implementation of an asset management system.

5.4 Even though it is not a necessity to create a new unit, but an asset management team must be in place either using an existing manpower or outsourcing the expertise. The asset management team will necessitate qnd implement an asset management system in the organization with emphasis on review, coordinating and monitoring asset management activities.

5.5 At the end of the day, the organization will be accountable if the asset fails to deliver the desired or the expected service delivery.


6.0 Asset objectives

6.1 It is a norm that an asset acquisition’s proposal must be accompanied with reasons and objectives of acquisition or creation. One does not build, acquire or construct an asset without any justifiable reasons or objectives unless the organization has surplus funds, which the organization does not know what to do with it. An asset will become a liability if it ceases to function and perform its primary objective. Therefore, it is necessary that an objective(s) be attached to an asset.

6.2 Clearly, all assets must have a defined objective(s). By having an objective, the asset is created with a purpose. With this objective, service criteria for the asset can be created and the asset performance can be measured and monitored. Typical assets’ objectives are:

Fig. 6.2: Typical asset objectives

6.3 At the initiation and acquisition stage, the asset’s objectives are in general adequate and justifiable. If the users’ expectations on the service provided change during the asset operational life, then the objectives of the asset must be renewed or modified to reflect the change. Cases such as this would entail a modification, a renewal or even an upgrade of the existing asset(s). There are other factors that affect the current asset’s objective such as obsolescence, technology changes, environmental changes and lastly, legislative changes. If these factors do affect the existing asset, modifications to the existing assets must be made to ensure that the asset continue to provide the necessary service and not becoming a liability.

6.4 By having assets’ objectives, the service criteria and the service levels can be determined. With these service levels, the organization can informed the public, determine the assessment rates need to be paid by the taxpayers, the budget needed to maintain the service levels and so forth. This action creates transparency and justifiable measures to the customers and the organization as a whole.

Fundamentals of Asset Management - 3

Asset Management Fundamentals

4.0 Asset regisrty

4.1 These are a few questions that an organization need to ask or answer about their assets:

a. What assets are owned or owned by others
b. When the assets are acquired;
c. When the last date repaired?
d. Why the assets are acquired;
e. Where the assets are (that is the location of assets);
f. Who is the custodian of the assets
g. How the assets are maintained;
h. How much is the cost of acquisition and maintenance of the assets

4.2 If the organization has all the answers for the above questions, the organization has a good asset registration system, which is a pre-requisite to a good management system.

4.3 If the organization is able to only a few of the questions, it is high time now to start registering all the assets acquire, owned or leased by the organization. The asset register must be able to answer the basic questions whilst a more advance asset register will be able to do analysis and data drilling. The assets to be registered must comply with the two (2) requirements listed below or whatever the organization policy.

4.4 Once we have done the asset register, the organization now has a complete picture of the organizational assets. It is easier to say than doing it, but the task is needed before anything else.

4.5 Earlier, we have defined an asset as:

a. An item/physical component/facility that have a distinct value to the organization; and/or

b. An item/physical component/facility that enable services to be provided

4.6 1.1 The above criteria are the basis of an asset register. When setting up an asset registry, we must also realize that assets have generic or similar characteristics between other assets in the organization. As we know that physical assets deteriorates with time through normal wear and tear or even technology changes, these factors must be incorporated in the asset registry especially on its designed or intended life.

4.7 Usually, an asset has these generic, familiar and typical characteristics, that is:

a. Design life;

Design life is the period from acquisition to a time determined by the designer, which the asset expected to work or function within the specified design parameters.

b. Economic life;

Economic life is the period from acquisition to a time when the asset becomes a burden or too costly to operate and maintain the asset to a particular level of service (that is ceases to be the lowest cost alternatives in delivering its service)

c. Functional life;

Functional life is the period from acquisition to a time when the asset ceases to perform the function specified

d. Operation and Maintenance regime;

Operation and maintenance regime are planned activities necessary to retain the assets as near to its original condition or function. The planned activities includes operating the asset, doing repair works, and so forth. Maintenance may come as planned maintenance, routine maintenance or even breakdown maintenance

e. Service provided or its function;

The service provided is meant by the performance or function expected from the asset during its life span and characterize by either quality, quantity, availability or safety. The service provided always relates or links to the strategic objectives of the organization.

f. Dynamic or passive assets;

Asset is ether a dynamic or a passive asset. Dynamic assets have moving parts while passive assets have none.

4.8 To relate the design, economic and the functional life of an asset, the figure below explain in a graphical form the relationship between those three (3) live spans.

Fig. 4.8 – relationship between design life, economic life and functional life


4.9 Once we have known our assets and an asset registry, we can go to the next fundamental that is role and responsibility.

Fundamentals of Asset Management - 2

2.0 Definition of Asset Management

Asset Management Definition

2.1 Asset management is commonly defined as:

a. Systematic and coordinated activities and practices through which an organization optimally and sustainably manages its assets and asset systems, their associated performance, risks and expenditures over their life cycles for the purpose of achieving its organizational strategic plan; or

b. A systematic process of maintaining, upgrading and operating physical assets cost-effectively;

2.2 In short, asset management is a systematic approach in managing assets in order to realize the asset stated benefits and service provision. Most management system will have two (2) separate management system that is the procuring stage and the maintenance stage of an asset, but in asset management, it encompasses the two (2) stages, as the acquisition stage will have a deep effect on the maintenance stage.

2.3 We can generally say that asset management is to ensure that all our assets will continue to provide reliable services.


3.0 Asset Management Fundamentals

3.1 To understand asset management, we must understand the fundamentals in asset management. The fundamentals are as follows:

a. Roles and responsibility
b. Asset registry
c. Asset objectives
d. Service criteria
e. Asset condition and performance
f. Asset life cycle
g. User expectations
h. Asset stakeholders
i. Asset management objectives
j. Asset planning

3.2 It is important to understand the above fundamentals in order to formulate and have an excellent asset management system in the organization. In addition, we must embrace system thinking and furthermore, asset management is a multi disciplinary.

In the next post

3.3 In the next post, I will try explain in detail, each of the fundamentals above

Fundamentals of Asset Management -1

1.0 Definition of Assets

Asset Definition

1.1 Before we embark on the fundamentals of asset management, we must actually understand the meaning of assets. An asset is usually defined as:

a. An item/physical component/facility that have a distinct value to the organization; and/or

b. An item/physical component/facility that enable services to be provided

1.2 Most organizations would have a minimum monetary value or economic life before the item can categorized as an assets. These criteria differ from one organization to the other based on its business activities (either on the type of trade or services provided). In a government environment, the minimum criterion would usually be base on a monetary value rather than economic life. This is true because in a government environment, the government provides multiple services and they have abundant resources to fund their development projects or buying items or assets. Now, the trend is that most government is accepting and implementing asset management rather than maintenance management. For instance, Government in Australia, United Kingdom and New Zealand has implemented asset management and other countries are following suit.

1.3 When we talk about asset (s), we usually talk singular, but truthfully, asset(s) comes in various tangible and intangible forms. One must remember that the most important thing is that assets are sometimes a network of assets such as buildings or roads, or as a standalone such as land (for example a vacant land), or a system consisting of network of roads, water supply system, bridges and buildings in a community. Moreover, most of the time, it is a system consisting of many assets functioning together, providing a service.

Asset Category

1.4 Usually, the assets mentioned above is categorized into two (2) categories that is:

a. Current assets; and

· These assets are investments, cash in hand, assets sold or consumed.

b. Non-current assets

· All assets other than above, including assets held, assets intended for use in its business activities and physical resources (not manpower)

1.5 The figure below shows the difference between current and non-current assets.

Fig. 1 – Typical assets in an organization

1.6 1.1 Figure 1 shows some basic information on the type of assets under each category of assets. Some countries or organizations have a well-registered and detailed assets category even to the smallest item in the organization. Basically, registration of assets must be based on the two (2) criteria as mentioned in paragraph 1.1. If asset registration takes into account assets that do not meet the two (2) criteria mentioned, then the exercise would be futile and fruitless as some of the assets are actually an inventory or consumables, which is not an asset.

1.7 Due care must be taken to define the assets that have a distinct value to the organization and satisfy the two (2) criteria as mentioned whilst putting those assets in the correct category.

1.8 By defining the organization’s assets and having a definitive asset registration system, the organization is making a giant leap towards implementing an asset management system.
Asset Life Cycle

1.9 All assets must have a life cycle which runs from:

a. Initiation;
b. Procure;
c. Maintain; and
d. Dispose or Renew

1.10 The method, in which we initiate, procure, maintain or even dispose of assets, is different in each category and sometime, the sub category of assets. Nevertheless, the system used would be the same but the process or approach would be significantly different for each category of asset.

1.11 Generally, asset has a single life cycle or multiple life cycles such as roads or even buildings.

Asset Depreciation/Appreciation

1.12 The other important that we need to understand is that asset depreciates or appreciates in terms of monetary value or condition over a period. In this aspect, investment or livestock do not depreciate, but physical assets will definitely depreciate over a period depending on the type of asset. The rate of depreciation will depend on several factors such as economic value, environment and so forth. For example, heritage building depreciates, but when a heritage building is preserved, there will be an extension of its depreciation period.

In the next post

1.13 To explain the meaning and the fundamentals of asset management, I would concentrate only on the physical assets only (which is under the category of non-current assets) especially on infrastructure assets.

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Perspectives in Asset Management

The Government's Perspective

The biggest asset owner in any country is always the government. When a country needs to grow, the main emphasis would be to have the best and a complete infrastructure. Each year, the government will create and dispose of assets. Most of the time, the creation of an asset is always justifiable but sometimes, it is not.

The Malaysian Government spends nearly RM 20 billion a year just to operate and maintain the asset. That figure does not include expenditure by local councils and other statutory bodies. If we take into account the private sector expenditure, the amount could be well over RM 100 billion a year.

In Malaysia, asset management is in an implementation stage but in other parts of the world especially Australia, Great Britain, United States of America, asset management has been in practice and numerous manuals and guidelines in asset management are available to the public.

Asset management is important to the government as 98% of government assets are infrastructural assets, which include roads, public utilities, and government buildings. These assets are for the proper delivery of government’s policies and services. If we do not manage the assets properly, whatever government services provided will be affected or in jeopardy. The service delivery will not reach the desired level as promised to the public. The public expects the government to deliver or provide a service and the government must ensure that the delivery of the service level.

For your information, the service level varies from one asset to the other based on the criteria set for that asset. For instance, safety for the road users must be the most important criteria for all roads but the service level of a road (this service level is not the same as the level of service in the geometric design of a road) would be different for each category of road for example a secondary, tertiary, or a primary road. There is also a possibility of roads having the same service level whether the road is located in the countryside or in a town area if safety the only criteria. However, bear in mind, a road in the countryside does not need to have street lightings, sidewalks or even landscape when compared to a road in a town area.

Service level sometimes construed as the functionality of the road based on its geometric design and pavement design. Nevertheless, at the end of the day, the service level we need to provide on a road must based on certain criteria whether it is functionality (which include safety, accessibility and mobility), condition, utilization or intervention period, is the most important factor and this is what the public needed and to be informed.

With the same principle, service level must be determined for all assets, be it park and recreation facilities, buildings, water supplies, waste and sanitary facilities and so forth.

This is the fundamental of asset management.

The Public’s Perspective

When the public facilities lack some of its basic functions or it frequently breakdown, the public would express their feelings towards that public facilities or would oppose the creation of that facilities.

We must ponder on these frequent questions about the public; that is:

a. Why should the public have all these opinions?
b. Why should the public show their dissatisfactions?

It is all because the public are contributing for services provided by the government, for example transportation system, parks and recreation facilities and so forth.

It is also because the public want a good quality of life for the contribution they have made. They want a sustainable environment even though developments are in progress. They want a better environment. They want value for money from our assets. Without all these, human would not have a desired level of liveability.

These assets provide essential services for providing people with the acceptable quality of life. If the assets failed in providing out the service, then, they do not have want they want, that is an acceptable quality of life.

Therefore, it is imperative that the government need to adopt a good asset management system in order to ensure all our valuable assets will continue to provide reliable public services.

The coming post.

Next, I will briefly explain the fundamentals of asset management.

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The Frequent Asset Management Questions?

The Frequent Asset Management Questions?

1. Is it a new management system?
2. My assets are functioning properly even though occasionally it breaks down (which is manageable).
3. My assets are working properly and if it breaks down, I will repair it.
4. As long as it does not cost a bundle, I will replace the asset.
5. I maintain my assets regularly so I do not need an asset management in my organization.
6. I have a good asset maintenance program and I do not need an asset management.
7. Why I should bother about asset management when I only used it?
   

These are amongst questions frequently asked regarding asset management. Whether you are the public or the asset owner, we are, somehow or rather, will associate to the assets. The roads that we travel in, the buildings that we do our business, the buildings that will be our home or the parks in which we rest our tired bodies are all assets.

In the next post, I will try to explain the government and the public perception on asset management.

Also, I will also try to explain what is asset management and the fundamentals of asset management.

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Why Do We Need Asset Management?

Definition of asset

To the average person, an asset is a property/item purchased and owned by a person, which can sometimes be a necessity but most of the time; that person need the asset to function in his/her community or in other words, providing a service. Typically, a person might own a house, a car and a piece of land and these are his assets.

When a person owns a cat, can we categorize the cat to be an asset to that person? Is our existing and future environment an asset?

Well, the cat is not an asset to an average person so is the environment. But, the environment will be affected when we procure and dispose of our asset.

Generally, an asset is plant, machinery, property, buildings, vehicles and other items that have a distinct value to the organization. The distinct value always relate to the provision of service by the organization. In other words, the assets are for the proper functioning of the organization in delivering its services.

The need for asset management

We cannot run away from expressing an asset as something that has value to us, whether it is monetary or not. The irony is that by creating an asset, we destroy some of our existing environment and possibly our future environment.

We need trees to build houses. We use raw materials to create anything that we need or want to use. We use natural resources to operate our assets. In a way, what we use now meant for our children, our great grandchildren and so forth.

We must manage the way we create an asset in order to sustain our vulnerable environment. We do not simply just dispose and recreate assets to satisfy our undying needs for material richness.

In short, we must manage the creation, operation, maintenance and disposal of our existing and future assets, not because we have to but it has become a necessity. The relationship between man, asset and the environment has always been in place but most of us tend to ignore it. When man creates an asset, the creation has an impact to the environment. Likewise, the environment will also determine the choice of asset. Man, asset and the environment must complement each other and co-exist in a sustainable environment. I once heard from an asset practitioner a phrase befitting this that is “We’re living in our children’s time”. We must ensure nothing will affect our environment now and forever.

Finally

At the end of the day, we need asset management principles to manage our assets and a good asset management will sustain today and the future environment besides deriving economic benefits from the assets.

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