The Fundamentals Of Asset Management - The Water Research Foundation

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The Fundamentals of Asset Management Executive Overview A Hands-On Approach

Emerging utility business conditions z z z z z Increasing demand for utility services Diminishing resources Leveling of production efficiencies Increasing restrictions on output Aging infrastructure Result: increasingly expensive treatment options Fundamentals of Asset Management 2

Emerging utility business conditions z z z z z Aging customer base Diminishing technical labor pool Larger and more sophisticated facilities Loss of knowledge with personnel retirements Public resistance to rate increases Result: increasingly complex management environment Fundamentals of Asset Management 3

Changing utility business environment z z z Demand to do more with existing resources Need to make every dollar work – to better use capital and operating budgets Move from reactive to proactive work environment Fundamentals of Asset Management 4

A paradigm shift z Transition from building and operating to managing assets Extending asset life Optimizing maintenance and renewal Developing accurate long-term funding strategies Sustain long term performance! Fundamentals of Asset Management 5

Infrastructure is the foundation to sustained quality of life Fundamentals of Asset Management 6

Consequences of asset failure can be severe Fundamentals of Asset Management 7

Asset management improves Decision making throughout the life cycle of the asset z Acquisition z Operations z Maintenance z Renewal Resulting in lowest total cost of ownership Fundamentals of Asset Management 8

This training describes z z z z z What is asset management? Why do it? What deliverables do I get from it? What are the steps? How do I move my organization forward? Fundamentals of Asset Management 9

Views on asset management z z z z Life cycle Conceptual framework Charter principles Asset management plan Fundamentals of Asset Management 10

What is asset management (AM)? z z Systematic integration of advanced and sustainable management techniques into a management paradigm or way of thinking, with Primary focus on the long-term life cycle of the asset and its sustained performance, rather than on shortterm, day-to-day aspects of the asset Fundamentals of Asset Management 11

Views on asset management – a framework z Asset management can be thought of as an object - a box or framework z Following is a brief characterization of 8 different views on asset management z These views make up the framework Fundamentals of Asset Management 12

View 1: Definition - asset management z Management paradigm and body of management practices z Applied to the entire portfolio of infrastructure assets at all levels of the organization z Seeking to minimize total costs of acquiring, operating, maintaining, and renewing assets z Within an environment of limited resources z While continuously delivering the service levels customers desire and regulators require z At an acceptable level of risk to the organization Fundamentals of Asset Management 13

View 2: Life cycle business processes Plan Dispose Acquire Core Processes Renew Operate Maintain Fundamentals of Asset Management Support processes Demand management Knowledge of assets CIP validation Accounting & economics Condition & performance monitoring Business risk exposure Works resource management Review & continuous improvement 14

View 3: Core AM program elements Information Systems Lifecycle Process & Practices Data & Knowledge Total Asset Management Plan Organizational Issues People Issues Commercial Tactics Sustainable, best value service delivery Fundamentals of Asset Management 15

View 4: Management framework Asset Management Business Processes Asset Management Plans Strategic Initiatives Annual Budgets Operating Budget Fundamentals of Asset Management Capital Budget 16

View 5: Five core questions 1. What is the current state of my assets? z z z z z 2. What is my required level of service (LOS)? z z z 3. z z z How does it fail? How can it fail? What is the likelihood of failure? What does it cost to repair? What are the consequences of failure? What are my best O&M and CIP investment strategies? z z 5. What is the demand for my services by my stakeholders? What do regulators require? What is my actual performance? Which assets are critical to sustained performance? z 4. What do I own? Where is it? What condition is it in? What is its remaining useful life? What is its remaining economic value? What alternative management options exist? Which are the most feasible for my organization? What is my best long-term funding strategy? Fundamentals of Asset Management 17

View 6: AM plan 10-step process Develop Asset Registry Assess Condition, Failure Modes Determine Residual Life Determine Live Cycle & Replacement Costs Set Target Levels of Service (LOS) Determine Business Risk (“Criticality”) Optimize O&M Investment Optimize Capital Investment Determine Funding Strategy Build AM Plan Fundamentals of Asset Management 18

View 6: AM plan 10-step process System Layout; Data Hierarchy, Standards, and Inventory Condition Assessment Protocol; Rating Methodologies Expected Life Tables; Decay Curves Valuation; Life Cycle Costing Demand Anal.; Balanced Scorecard; Perform. Metrics Develop Asset Registry Assess Condition, Failure Modes Determine Residual Life Determine Live Cycle & Replacement Costs Set Target Levels of Service (LOS) Determine Business Risk (“Criticality”) Optimize O&M Investment Optimize Capital Investment Determine Funding Strategy Build AM Plan FMECA; Business Risk Exp.; Delphi Techniques Root Cause; RCM; PdM; ORDM Confidence Level Rating; Strategic Validation; ORDM Renewal Annuity Asset Mgmt Plan; Policies and Strategy; Annual Budget Fundamentals of Asset Management 19

View 7: Seven principles of asset management 1. The “Value Added/Level of Service” Principle—assets exist to deliver services and goods that are valued by the customer-stakeholder; for each consumer-stakeholder there is a minimum level of service below which a given service is not perceived as adding value. 2. The “Life Cycle” Principle—all assets pass through a discernable life cycle, the understanding of which enhances appropriate management. 3. The “Failure” Principle—usage and the operating environment work to break-down all assets; failure occurs when an asset can not do what is required by the user in its operating environment. 4. The “Failure Modes” Principle—not all assets fail in the same way. 5. The “Probability” Principle—not all assets fail at the same time. 6. The “Consequence” Principle—not all failures have the same consequences. 7. The “Total Cost of Ownership” Principle—there exists a minimum optimal investment over the life cycle of an asset that best balances performance and cost given a target level of service and a designated level of risk. Fundamentals of Asset Management 20

View 8: Enterprise asset management plan Executive Summary State of the Assets Section - 1 Levels of Service Section - 2 Growth & Demand Section - 3 Lifecycle Management Section - 4 Renewal O&M Management Strategies Section - 6 Risk Profile Section - 5 Augmentation Financial Planning Section - 7 Business Improvement Plan Section - 8 Fundamentals of Asset Management 21

The enterprise asset management plan Fundamentals of Asset Management 22

Example of organizational AM strategies Fundamentals of Asset Management 23

Inside the AM framework Level 3 Level 2 Level 1 Condition Assessment Business Risk Exposure 24 Fundamentals of Asset Management

Inside the AM framework Level 3 Level 2 Level 1 Condition Assessment Business Risk Exposure 25 Fundamentals of Asset Management

Inside the AM framework Level 3 Level 2 Level 1 Condition Assessment Business Risk Exposure 26 Fundamentals of Asset Management

Three fundamental management decisions 1. 2. 3. What are my work crews doing, where are they doing it—and why? What CIP projects should be done—and when? When should I repair, when should I rehabilitate, and when should I replace? These decisions typically account for over 80% of a utility’s annual expenditures Fundamentals of Asset Management 27

Understanding how our assets fail Yin-yang of asset failure Stress Fundamentals of Asset Management Resistance to Stress 28

Understanding how our assets fail Pipe failure Soil characteristics, groundwater Galvanic action Physical loads Pipe attributes Internal corrosion Bedding condition Fundamentals of Asset Management 29

Understanding how our assets fail Initial design capability Managed asset deterioration curve Management zone Minimal performance level Poor Performance Excellent Managing asset deterioration Decreasing Time Inherent asset deterioration curve Increasing “Failure is the inability of any asset to do what users want it do to.” John Moubray Fundamentals of Asset Management 30

Understanding how our assets fail Excellent Monitoring performance is a key to reliability Performance Decay curve Vibration Oil loss Noise Poor Heat Failure Decreasing Fundamentals of Asset Management Time Increasing 31

Understanding how our assets fail Experience indicates z Failure can be subjected to systematic study – a science z 30-70% of equipment maintenance activity is typically misdirected – it is not cost effectively deterring failure Fundamentals of Asset Management 32

Understanding how our assets fail From the science of failure - tools for proactive management z Root cause analysis z Failure mode, effects, and criticality analysis (FMECA) z Condition-based monitoring, failure/survival curves z Predictive maintenance (PdM) z Proactive maintenance (zero breakdown, reliability centered maintenance, total productive maintenance) z Reliability centered management (design, O&M) AM is all about managing the potential to fail Fundamentals of Asset Management 33

Our investment toolkit z z z Maintenance Renewal: Repair – repair beyond normal periodic maintenance, relatively minor in nature, anticipated in the long-term operation of the asset; no enhancement of capabilities; typically funded by operating budget Refurbish/Rehabilitate– replacement of a component part or parts or equivalent intervention sufficient to return the asset to level of performance above minimum acceptable level; may include minor enhancement of capabilities; typically funded out of capital budgets Replace Without enhancement – substitution of an entire asset with a new or equivalent asset without enhancement of capabilities With enhancement - substitution of an entire asset with a new or equivalent asset with enhanced capabilities “Augmentation” Fundamentals of Asset Management 34

Failure mode-based management logic Failures Some Are Significant Cannot Be Prevented by Maintenance Some Are Not Significant Can Be Prevented by Maintenance Prevention Effective? Yes Redesign, Replace, Overhaul Schedule for Maintenance No Repair & Monitor Run to Failure, Repair Fundamentals of Asset Management 35

Determining significant failures What is probability of failure? What is consequence of failure? High B High probabilitylow consequence D High probability- Probability high consequence A Low probability- Business risk drives work program (O&M, CIP) low consequence Low Low Fundamentals of Asset Management Consequence C Low probabilityhigh consequence High 36

The big picture Risk-Consequence Growth (New Assets) Augmentation LOS Customer Capital System Renewal System Improvements (Environmental, LOS) Cost of Service O&M Maintenance Program Operations and Administration Fundamentals of Asset Management 37

AM-oriented structure Customer Service Demands Sustained Performance Executive Management AM Thinking (AM Steering Committee) Engineering Operations Finance Fundamentals of Asset Management Maintenance IT AM Tools 38

AM-based decisions produce real savings From assessment of Australia’s advanced management practices, 20-30% future life cycle cost savings typically is achievable for US water and wastewater utilities Where savings develop from z Efficiency gains z Cost avoidance (defer, eliminate, reduce) z Cost effectiveness and redirection Fundamentals of Asset Management 39

Making business case for AM Fundamentals of Asset Management 40

AM payoffs z z z Reduced life cycle costs from better-focused (redirected) resource use Better value-per-dollar spending Confidence in decisionmaking Fundamentals of Asset Management The right work, the right investment, at the right time, for the right reasons. 41

Realistic expectations for AM z Takes several years of detailed, nitty-gritty work to fully deploy z Requires eventual buyin commitment of the whole organization z Needs upfront investment to get started, with hidden returns for initial years Fundamentals of Asset Management 42

AM is a business model z z z z z z What we do Why we do it How we do it Where we invest What our costs are What our return is Fundamentals of Asset Management 43

Tom’s bad day Fundamentals of Asset Management 44

Tom’s spreadsheet Fundamentals of Asset Management 45

Integration of 5 core questions with 10-step process 1. What is the current state of my assets? 2. What is my required level of service? Develop Asset Registry Assess Condition, Failure Modes Determine Residual Life Determine Live Cycle & Replacement Costs Set Target Levels of Service (LOS) Determine Business Risk (“Criticality”) Optimize O&M Investment Optimize Capital Investment Determine Funding Strategy Build AM Plan 3. Which assets 4. What are my best O&M and are critical CIP investment strategies? to sustained performance? Fundamentals of Asset Management 5. What is my best long-term funding strategy? 46

The Bear and the Butterfly Fundamentals of Asset Management 47

Fundamentals of Asset Management 20 View 7: Seven principles of asset management 1. The "Value Added/Level of Service" Principle—assets exist to deliver services and goods that are valued by the customer-stakeholder; for each consumer-stakeholder there is a minimum level of service below which a given service is not perceived as adding .

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