I recently ran into two curious opinions regarding asset management that created a great deal of frustration. In one case, a top utility executive bluntly stated, “We will never implement an asset management strategy; it doesn’t work.” In another case, I saw the assertion, published online by a reputable industry magazine, that asset management can be proven to deteriorate distribution reliability. So, my response is to ask if those individuals would really choose not to manage assets. Isn’t that what they are saying? What would the alternative be?
The first individual is probably demonstrating some lack of understanding, and the second individual may have seen the results from failed attempts at asset management. However, few utility managers would raise their hands in a room full of peers, or in front of their bosses, if asked to confirm that they do not manage the company’s assets. In reality, every utility is managing its assets; the important issue is how effective they are in their implementation.
In our business, companies have a large percentage of their value tied up in assets that are deteriorating, will become obsolete or will not serve their designed purpose indefinitely, all of which are heading toward some form of end of life. And it is irresponsible not to actively manage those assets with the best practices available. Simple choices exist between managing the life of an asset as compared to the more expensive “experiencing” the life of an asset. The cost of not actively managing the entire life cycle of an asset, from selection to disposal, is just too high. That being said, asset management methodologies are collectively the wrong tool for the job if the job is cost-cutting. Asset management is, at its heart, about optimizing.
What is an asset? The best practice is to take a very broad view when defining assets. Assets are not just equipment. An asset is anything that, if it were to go away or loose functionality, would decrease the value of the company, such as systems, intellectual property and people. A broad view is necessary because all of these things interact: equipment provides valuable service to customers; people perform asset management and operate, repair and replace equipment; information systems collect data and inform managers for decision making; and intellectual property sets the methods by which people manage assets and makes a company better at what it does. Asset management works best if it is an enterprisewide endeavor.
Why formalize asset management? Asset management is about optimizing risk. It is all about managing the risk! Utilities are notoriously — and justifiably — risk averse in decision making. The justification for being risk averse comes from the real world we live in, where utilities are exposed to tremendous risk through normal operation, customer demands, weather events, changing public policy, economic conditions, costly capital and hundreds of other outside influences. Internal risks grow unchecked without focused attention as equipment deteriorates and institutional knowledge atrophies. On the other hand, investors and regulators want to know that significant risk is being managed. In trying to manage risk, it is quickly noticed that risk comes in many flavors, including financial risk, customer satisfaction risk, risk of not making technical targets or performance goals, and regulatory risk. Making a decision to add risk to a company portfolio is tricky business that must balance understanding the existing risks and determining appropriate levels of acceptable risk. Not making a decision to manage risk is even trickier. It is difficult to address all of those issues without a well-defined, comprehensive asset management system in place.
What does it look and feel like? Most companies have bits and pieces of the system in place but few have the whole package. With the whole package in place, a company will have an integrated system of asset management where they know the company’s risks and business consequences of those risks. They will also have appropriate risk tolerances clearly articulated and appropriate risk mitigation in place, know the right capital and maintenance programs are being executed at the right time, know that the correct skilled workforce is in place, and have coordinated programs for planned life extension or replacement of important assets.
How do we get there? Gathering up the processes that exist today in priority order and building on them to become a fully integrated process is complicated, hard work that sometimes takes years. It requires a clear, step-by-step plan to track and measure risk, manage to risk tolerances, clearly stated goals and desired outcomes, implement cultural change, invest in appropriate enabling technology, and, ultimately, put in place the appropriate information and knowledge systems. The
article in this issue titled “Coming Next: Dynamic Asset Risk Management” addresses the next step that some utilities are taking in that small but important information and knowledge systems slice of the asset management process.
Mike Hervey (firstname.lastname@example.org) has 32 years of experience in investor-owned and public utilities. He currently leads the T&D group in Navigant’s Energy Practice in the areas of process improvement and emerging technology.