What about future changes?
As the operation progresses through the various stages in its life cycle there will inevitably be changes that occur. The demands on load, production or throughput have a habit of growing with time putting additional stresses on assets. Electrical utilities see increases in load and loss of cool-down time because people are now paying attention to time of use to save on their electric bills. Market demand for products will change – up or down, and change the way you use your assets. In slack markets an operation that was designed for continuous operation may now experience a downtime shift daily. In other markets demands increase and continuous operation goes into overdrive with assets more heavily loaded and stressed than originally expected.
Failure frequencies forecast in early RCM analysis may change, become understated or even overstated. New unanticipated failure modes may appear. Failures of equipment will occur and occasionally maintainers will make changes to improve on reliability. Continual improvement of job plans may change or create additional parts, tool or support equipment demands. Manufacturers and suppliers may begin to supply updated parts, software patches, hardware updates, changed part numbers, etc. All of these changes in physical configuration, parts’ or materials’ specifications, software, firmware, hardware, documentation, drawings, etc., can create problems in the long term.
Keeping up to date on changes
Each change is done for a good reason but if it is only done once and no information about it is updated, there is a risk that the change will become undone at some point in the future. Imagine a new firmware install that fails and is replaced by an older version of the same firmware or a redesigned part that is replaced during maintenance with a part of the old design. Imagine a repair being done in accordance with repair procedures that were not updated with the last change to equipment hardware and configuration. Imagine getting a repair part and it won’t fit. Imagine a part that is used in two machines that is changed in one of them but not the other, then the spares inventory is updated for both machines instead of just one. Whenever a change is made it must be done in a way that ensures all related supporting information and / or physical provisions are updated too.
You really have three plants – one physical and two “shadows”
Any productive physical asset (e.g.: a plant, a factory, a mine, a fleet of vehicles, etc.) has a parallel supporting infrastructure (the support plant) and a parallel set of documentation (the information plant).
The “Support Plant” includes all the skills, knowledge and ability of your workforce as well as the physical supporting infrastructure (i.e.: shops, tooling, transport, IT systems, storeroom, parts’ inventory and other facilities for training, etc.).
The “Information Plant” includes all the documents you need to support the physical plant (i.e.: technical drawings, loop diagrams, process and instrument drawings, technical manuals, parts lists, bills of materials, procedures, etc.). These can be thought of as “shadow plants” that will follow the physical plant so long as it exists.
The diagram below depicts the asset life cycle, where RCM is used to define work and support requirements up front, where it comes into play once the assets have entered service and the parallel Support and Information Plants. Together, the physical plant, the support plant and the information plant constitute the Capital Asset.
It is that collection of related tangible and intangible assets that combines to produce a single sustained and successful result – productive capacity to deliver a product or service. The Capital Asset is what an organization invests in initially (calling it a capital investment) and it includes much more than just the physical plant.
All of this requires management – Capital Asset Management, throughout the process. Airlines, the military and nuclear power have management provisions for it. Some other utilities have it, often put in place out of necessity to justify costs at regulatory rate hearings. Few other organizations even consider this big picture let alone provide for it. Recently we’ve seen the introduction of international standards for Asset Management (ISO 55000, 55001 and 55002). Interest in those has started the dialogue and people are now beginning to think in terms of “life cycle”, but there is a long way to go for many of them.
Piecing it together.
The physical plant and support plant begin their lives during detailed design. Prior to that there is a preliminary phase of concept development and preliminary design where analyses are used to help steer the design and support infrastructure direction. Decisions made early in the process can have significant impacts on actual design and installation of both the physical and support plants. Those decisions have far reaching financial and risk impacts.
Ensuring those decisions are optimal requires more than traditional design engineering analyses. Those analyses are, by their nature, limited to design and build concerns with an aim to delivering a specified productive capacity. Ask any maintainer about the assets he / she maintains and you will hear that the design could have considered maintainability and support much better than it did. Maintainers and operators have a wealth of experience and knowledge that can supplement that of the designers in making sure the design is more operable, maintainable and supportable. Yet few organizations invest in this up front.
Some organizations have good load or demand forecasting. Forward thinking municipalities, utilities and those responsible for major infrastructure works are often good at defining future requirements. Those requirements are estimated and then go to another group for financing. Often there is political meddling in this process because these are the type of assets used to curry the favor of voters. In the end, this combined output from three separate efforts – forecasting, financing and political is handed over to an engineering, procurement and construction group to “make it happen”. Along that journey from concept to reality, each group that has been involved spent money, gathered information, carried out studies, analyzed, looked at options, dithered and finally decided. In many cases, each sit on its information, passing on only the bare minimum believed necessary for the next group in the process. Then that next group creates its own.
In time, the engineering work is done, contracts are let and assets are built. Once completed, the project is over, the politicians have their day in the sun and the job of sustaining the asset falls to groups of operators and maintainers who are often forgotten or pressed for cost cuts – until something goes wrong.
While many organizations carry out all or most of the activities in the life cycle “management” of capital assets, they often do them in dis-jointed ways completely lacking in any form of coordination. That can show up in simple yet dramatic ways.
How often have you seen brand new road ways cut open to install underground utilities or sensors for a new traffic control system? The patches that show up at the stop lines at virtually all intersections with traffic lights are a testament to this lack of coordination in municipalities, and that is despite their planning departments! New subdivisions are built yet major access roadways are forgotten and traffic in and out is horrendous. Water and sewage systems are built for the new parts of expanding cities but the water treatment and waste handling plants are not upgraded to accommodate future demands. We find out we are in trouble when raw sewage must be pumped regularly into waterways! Electric utilities and process plant operators install low quality equipment to keep capital costs down then budget more than they might otherwise need to for ongoing maintenance. Some carry out Life Cycle Cost studies to justify their purchases but fail to account for the replacement cost because it occurs long after the asset has been fully depreciated for tax purposes. Future replacement costs are ignored even though the original investment was intended to provide some needed functionality that will last longer than the asset itself.
Municipal and other governmental asset managers are not the only ones who leave a legacy of poor coordination. Plants and factories are undersized due to poor demand forecasting. Substations designed for an initial load can’t keep up with the demands of an expanding market and increased production levels that often exceed design levels. Maintainers cannot keep up with breakdowns because no one thought to provide the spares they need. Purchasing departments are a drag on productivity as they follow archaic and cumbersome rules design to ensure that their activities appear to be fair while ignoring the very real demands for expediency. Mines require huge capital investments and their justification often relies on forecasts that will take years to prove as correct. The capital costs are minimized but future maintenance costs are high – a situation that can be avoided.
There is a need to look at the whole picture and manage capital assets as well as the processes needed for management of their life cycle. We need to get beyond the barriers of silo organizations and thinking. Instead of looking at the life cycle cost of an asset we need to look at the life cycle cost of the function it provides.
A good start is to stop thinking of capital projects as providing only a physical product. They provide a function and they must also provide a “support plant” and an “information plant”. Then we must consider that all three of those plants require upkeep and maintenance throughout their useful lives. Our Opex budgeting must allow for all of them, not just the bare bones minimum to fix the physical plant when it breaks. In time, that bare bones minimum will in fact become far more than the minimum you really could get away with paying because you will be doing it all reactively whenever things go wrong. We need to consider replacement costs unless the asset will expire when the need for the functionality disappears.
Consider that some capital assets have lasted thousands of years and still function – parts of Hadrian’s Wall in Britain are examples of this. They were built to provide a long lasting and needed function. They were built to last. Today’s physical plant and infrastructure are usually built to provide a short term payback, not to last. Future returns are considered to be a given once the asset’s original capital costs have been depreciated to zero – but that’s when maintenance costs tend to climb and replacement costs begin to dominate discussions. We can do better.
Asset Management is described in the new international Standards, ISO 55000, 55001 and 55002. The requirements stated in ISO 55001 are the minimum you need to have in place to be effective at asset management. ISO 55002 offers guidelines on how to do it.
For those who are confused by it all, or wondering whether it is worth doing, consider that the cost of getting it wrong is always high. Many of us know this and struggle with it daily but we have consistently failed to make the case for getting it right. Short-term thinking dominates the business environment, private and public sectors alike. In the private sector it’s all about short term gains, return on investment and shareholder returns. We sacrifice long term sustainability for a quick win. In the public sector the assets are longer lived and more “visible” so the thinking is a bit more long term, but it is fraught with political meddling which is also short term driven by an election cycle and its timing. At least those cycles are longer than the quarter to quarter perspective that many private traded companies follow or our civil infrastructure would be in far worse state than it is today.
The business case – getting it wrong is costly.
Capital projects are financially justified at some point after the design concepts are defined, physical and design costs are estimated and payback has been determined on the basis of forecast usage of the assets. Marginal projects may not be built if they consider all the costs of the support plant and the information plant up front. Yet those shadow plants will exist anyway and without them the physical plant will not work well. Ignoring the costs of the shadow plants up front is folly. Those costs will show up later anyway in terms of:
- lower reliability,
- less output,
- less profit,
- increased maintenance and repair costs,
- operating problems,
- stores bloated with the wrong parts, and
- Squirrel or Magpie stores hidden in repair shops and off the books, etc.
Other costs of failing to do the job right up front can include:
- increased risks to operational performance,
- safety and the environment,
- fines and higher workers compensation insurance premiums,
- less predictable output with greater variation in capacity and quality,
- unpredictable financial results, and
- Increased costs of borrowing and insurance due to the higher than anticipated risks that will become evident as the operation matures.
Operations in this condition appear to outsiders in the know and insiders like your employees and managers as being poorly managed. That can translate into recruiting and retention problems and even into labor unrest if problems that effect work life balance, safety and health are not addressed. Operations in this condition are forced to deal with these problems reactively and often at much greater cost than had they avoided the problems in the first place.
Getting it right.
Moving from a reactive mode to a stable mode requires that an organization become proactive in its maintenance. Reframe what maintenance does. It isn’t there to repair it is there to “sustain” operations. The two are not the same. Repair follows breakdown. Sustaining avoids the breakdowns or at least the undesirable consequences that come with them. That requires a whole new approach – planning for success.
The costs of managing failure consequences and keeping out of the break-then-fix mode of operating are actually about 30% or more less of a burden to the organization. The additional benefit of having the improved availability and utility of the asset it often many times greater than that cost savings. It is in fact cheaper to run reliably and deliver functionality more consistently and for longer periods of time. Doing that requires working smarter, not harder.
There are two things to consider. The initial setup for success as described in “Providing Life Cycle Support for your Capital Assets”. The sustaining activity that follows is described in this report, “Sustaining the life cycle support for your capital assets”. Asset Management as presented in the International Standards is described in our separate e-book on the topic.