International Case Studies In Asset Management.pdf

International Case Studies in Asset Management

Copyright © ICE Publishing, all rights reserved.

Copyright © ICE Publishing, all rights reserved.

International Case Studies in Asset Management

Edited by

Chris Lloyd Copyright © ICE Publishing, all rights reserved.

Published by ICE Publishing, 40 Marsh Wall, London E14 9TP. Full details of ICE Publishing sales representatives and distributors can be found at: www.icevirtuallibrary.com/info/printbooksales Also available from ICE Publishing Asset Management. C. Lloyd. ISBN 978-0-7277-3653-6 People and Organizational Management in Construction, Second edition. S. Naoum. ISBN 978-0-7277-4151-6 Art and Practice of Managing Projects. A. Hamilton. ISBN 978-0-7277-3456-3 www.icevirtuallibrary.com A catalogue record for this book is available from the British Library ISBN 978-0-7277-5739-5 # Thomas Telford Limited 2012 ICE Publishing is a division of Thomas Telford Ltd, a wholly-owned subsidiary of the Institution of Civil Engineers (ICE). All rights, including translation, reserved. Except as permitted by the Copyright, Designs and Patents Act 1988, no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying or otherwise, without the prior written permission of the Publisher, ICE Publishing, 40 Marsh Wall, London E14 9TP. This book is published on the understanding that the author is solely responsible for the statements made and opinions expressed in it, that no endorsement or criticism is implied and that its publication does not necessarily imply that such statements and/or opinions are or reflect the views or opinions of the publishers. Whilst every effort has been made to ensure that the statements made and the opinions expressed in this publication provide a safe and accurate guide, no liability or responsibility can be accepted in this respect by the author or publishers. Whilst every reasonable effort has been undertaken by the author and the publisher to acknowledge copyright on material reproduced, if there has been an oversight please contact the publisher and we will endeavour to correct this upon a reprint. Associate Commissioning Editor: Victoria Thompson Production Editor: Imran Mirza Market Development Executive: Catherine de Gatacre

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Contents 01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Preface List of contributors

ix xi

Introduction

1

Section 1: Introducing asset management

7

Case study: Wessex Water 1.1. Background and context 1.2. How asset management evolved at Wessex Water 1.3. Strategic direction shaped by relationships with stakeholders 1.4. Conclusions Discussion questions References

9 9 11 18 19 20 20

Case study: Dublin Airport Authority 2.1. Background 2.2. Restructuring around asset management 2.3. Approach Box 2.1 Extracts from the DAA asset management terms of reference document 2.4. Outcomes and conclusions Discussion questions Reference

29 37 38 38

03 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Case study: Arts Victoria 3.1. Background and context 3.2. The requirements 3.3. The situation 3.4. What was done – functional spaces 3.5. What was done – service levels 3.6. Conclusions Discussion questions Reference

39 39 40 41 42 43 45 47 48

04 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Case study: South West Water 4.1. Background and context 4.2. Effective planning 4.3. Investment optimisation 4.4. Conclusions Discussion questions References

49 49 52 53 55 56 56

05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Case study: City of Calgary 5.1. Background and context 5.2. Introduction of asset management 5.3. Performance measures

59 59 59 64

02 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21 21 22 24

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5.4.

Conclusions Discussion questions References

65 65 65

Case study: Scottish Water 6.1. Background and context 6.2. Multiple strategies within a defined framework 6.3. A structured hierarchy for strategies and plans 6.4. Conclusions Discussion questions References

68 77 78 78

Section 2: Becoming an asset management organisation

81

07 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Case study: Grand Port Maritime du Havre 7.1. Background and context 7.2. Requirements 7.3. Development process 7.4. Prediction of performance over time 7.5. Prediction of future maintenance requirements 7.6. Prioritising maintenance interventions 7.7. Outcomes and conclusions Discussion questions References

83 83 83 84 94 96 96 98 98 98

08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Case study: Network Rail 8.1. Background and context 8.2. Laying the foundations 8.3. Establishing asset management processes 8.4. Conclusions Discussion questions References

99 99 101 102 105 106 106

09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Case study: ScottishPower Generation 9.1. Background and context 9.2. The Operational Transformation Programme 9.3. Stage 1: create a vision and strategy 9.4. Stage 2: establish leadership 9.5. Staff awareness and communications 9.6. Conclusions Discussion questions References

109 109 110 111 116 117 117 119 119

10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Case study: City of Cambridge 10.1. Background and context

121 121

06 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

vi

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67 67 67

10.2. 10.3. 10.4. 10.5. 10.6.

Information and knowledge management Business process improvement Technology adoption The capital planning process Conclusions Discussion questions Reference

122 123 125 126 127 129 129

11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Case study: London Underground 11.1. Background and context 11.2. Asset management and the PPP contracts 11.3. Integrating asset management 11.4. Conclusions Discussion questions References

131 131 132 134 138 139 139

12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Case study: RailCorp 12.1. Background and context 12.2. Conclusions Discussion questions References

141 141 144 144 144

Section 3: Value and performance improvement

145

13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Case study: SP AusNet 13.1. Background and context 13.2. Impact of PAS 55 13.3. Conclusions Discussion questions References

147 147 149 152 154 154

14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Case study: City of Hamilton 14.1. Background and context 14.2. The analysis 14.3. Generational differences 14.4. Intergenerational fairness 14.5. Putting a price on fairness 14.6. Uneven asset bubbles that move through time 14.7. Social policy – whose responsibility is it? 14.8. Level of service for long-term care facilities 14.9. Important Related Initiatives 14.10. Conclusions Discussion questions References

155 155 156 157 157 158 159 160 161 162 163 163 163

15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Case study: Rio Tinto 15.1. Background and context

165 165 vii

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15.2. 15.3. 15.4. 15.5. 15.6. 15.7. 15.8.

Aims and scope of the AMPDP Strategy for programme development Identification of learning partners and responsibilities Programme design Managing engagement across the business Measuring performance Conclusions Discussion questions

166 167 167 168 170 170 173 174

16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Case study: Euroports 16.1. Background 16.2. Introducing asset management planning 16.3. AMP2 changes and improvements 16.4. AMP2 report template 16.5. Conclusions Discussion questions Reference

175 175 175 177 179 183 185 185

17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Case study: KPMG 17.1. Background and context 17.2. Quality of financial–technical asset data 17.3. Initial harmonisation of technical data and accounting data 17.4. Accounting purchase price excluding added values and client interventions 17.5. Conclusions Discussion questions Reference

187 187 189

18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

viii

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190 190 199 200 200

Section 4: Observations – Investment, risk and returns

201

Observations – Investment, risk and returns 18.1. Introducing asset management 18.2. Becoming an asset management organisation 18.3. Value and performance 18.4. Conclusions References

203 204 206 208 210 212

Index

213

Preface

This book is the result of another. Two years ago, when I was working on Asset Management: Whole Life Management of Physical Assets, which Thomas Telford published in 2010, it quickly became obvious that the follow up would need to be a book of case studies. Where the earlier book sought to reposition asset management as a powerful new logic for building value and generating better returns from asset-intensive businesses, this one looks at how a variety of organisations operating in different sectors have embraced asset management thinking and best practices, how this has affected them and what has been learned from this. These case studies will serve as a historical record of how asset management has matured in conception and practice since it first emerged in the 1980s. They offer insights into how asset management is being used to prioritise capital investment, increase operational efficiency, manage risk, and change how organisations position themselves in the market and account for their actions to customers, investors, banks, regulators and others. The book is written for investors seeking insights into the management and performance of major infrastructure businesses; the directors and managers of organisations new to the opportunities presented by asset management, in the early stages of adopting it or looking to refresh their approach; and people studying for asset management qualifications or taking short courses and their teachers. Each of these audiences will find something of value in the case studies – approaches to reflect on, problems to solve, concrete examples, practical solutions and new ideas. The number of potential case studies that did not make it into this book is enough to fill another. Some emerged too late, others were not completed and a few could not be published for commercial reasons or because they were too obviously promotional. There is a thin line to tread between publishing what organisations want to read about themselves and publishing what the asset management audience wants to read about, one that I hope I have managed to tread successfully. In years to come, I would not be surprised if it became more difficult to put case studies into the public domain as the connections between asset management and competitiveness become more explicit. ix

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My acknowledgements go to Hugh Harford of CAS, whose support and suggestions have been invaluable; to my colleagues at CAS who thrived during my absences; and to all those who contributed ideas, documents and/or drafts for the case studies – the list of contributors reads like a who’s who of asset management. Finally, because I moved house while working on this book, its publication will be a lasting testament to the talents, energy and forbearance of my wife. Chris Lloyd Director, CAS

x

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List of contributors

Chapter 1 J Hayes Wessex Water Chapter 2 D Marsh OaRisk Ltd C Moran Dublin Airport Authority P Chambers Dublin Airport Authority Chapter 3 P Burns Editor, ‘Strategic Asset Management’ C Ahern Arts Victoria C Moritz Sinclair Knight Merz Chapter 4 B Ward Aecom S Gee Aecom A Selby Aecom P Rennie Aecom D Gracie Aecom S Rosser South West Water Chapter 5 R Sykes City of Calgary Chapter 6 T Newell Scottish Water L Petch Scottish Water Chapter 7 C Gauthier Grand Port Maritime du Havre C Vercoglio Oxand J Boero Oxand Chapter 8 R Edwards AMCL A Newby Network Rail Chapter 9 M Sedgwick ScottishPower A Wands Amor Group Chapter 10 Y Shah City of Cambridge M Hauser City of Cambridge Chapter 11 R Moore London Underground Chapter 12 R Wallsgrove TKJ Partners xi

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Chapter 13 J Allen SP AusNet A Sharp AMCL Chapter 14 T Quinn City of Hamilton S DuVerney City of Hamilton A Dalziel Stantec L Gohier Dynamix Inc. Chapter 15 M Hodkiewicz University of Western Australia G West Rio Tinto N Bartlett Rio Tinto S Tapsall AIM-UWA Business School Executive Education Chapter 16 J Walker Euroports Holdings s.a.r.l. H Harford CAS Chapter 17 D Pairon KPMG

xii

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International Case Studies in Asset Management ISBN 978-0-7277-5739-5 ICE Publishing: All rights reserved http://dx.doi.org/10.1680/icsiam.57395.001

Introduction All truths are easy to understand once they are discovered. Galileo Galilei

Where everything connects Around the world, infrastructure businesses and other organisations that rely heavily on the availability and reliability of physical assets for their success are reaching similar conclusions about needing to be more strategic and efficient in the way they manage their assets. Asset management offers them, their investors and other stakeholders a rational set of principles for defining how corporate goals can be achieved and how the value of a business can be confirmed. This book provides evidence that it is helping to shape a new way of organising the relationship between services, assets and capital. This is based on the economics of high-value-adding asset management systems through which businesses focus on services rather than engineering and reduce their exposure to risk at the same time as they reduce operating costs and capital spending. Writing about asset management means writing about how money is spent, risks are managed and returns are made; about how value is created and accounted for; about how organisational cultures can impede or facilitate change; and, about how easy it is to mistake the management of assets or facilities or capital spending or operating costs for the broader goals of asset management. One aim of this book is to demonstrate the interrelatedness of asset management and business strategy. Another is to build an appreciation that asset management strategy, planning and impact need to be analysed from a number of different perspectives, and that there are many alternative, and no definitive, off-the-shelf answers. While definitions of asset management have converged since the Publicly Available Specification on asset management (PAS 55) was first published in 2004, there remain various perceptions of what it means in practice. It is seen by some as a pervasive approach that affects all parts of an organisation, and by others as a specialised activity, requiring the attentions of a dedicated department or function. So, the way 1

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International Case Studies in Asset Management

an organisation perceives asset management will have an important effect on its ability and willingness to undertake the changes needed to engage it fully in the service of its corporate objectives. This variation between organisations also owes much to the external pressures they are responding to, existing cultures and structures, and the conventional wisdom of senior managers.

Structure of the book This book presents 17 case studies featuring leading global and national companies, state-owned firms, municipal authorities and government agencies from seven different countries. Each case is specific to the context and aspirations of a particular organisation, and between them they give broad and detailed coverage of asset management in practice. Table 1 provides an overview of the range of themes explored by the case studies. The case studies are organised into three sections, as follows. g

g

g

Section 1 is concerned with the introduction of asset management, although this theme continues on through the subsequent sections. The six case studies describe how three water companies, one municipal authority, a government agency and an airport authority have set about harnessing asset management principles to their objectives and what has caused them to do this. Section 2 switches the attention to the task of becoming an asset management organisation. It is concerned not just with process and methods but also with the challenges that asset management poses to established hierarchies, functions and cultures. The six case studies feature three railway businesses, a state-owned roads and transport authority, a power company and one municipal authority. Section 3 focuses on the importance of corroborating corporate value and performance. The emphasis here is on demonstrating good governance, delivering better earnings and cashflows through capital expenditure reductions and operating efficiencies and linking technical, operational and financial data. Leading international businesses from the gas and electricity, ports, mining and accountancy sectors are featured, along with a municipal authority.

The cases vary in length, but they all follow the same basic structure. Each starts by giving some background information on the organisation and setting its relationship to asset management in context. The middle sections describe the organisation’s goals, approach and achievements. Each ends with some conclusions and a short set of questions that may help readers reflect on their own situations, formulate ideas, focus their studies or organise learning events. The book concludes with Section 4, which presents a number of observations on the contents of and themes apparent in the case studies. These are intended to amplify the discussion questions at the end of each case study. 2

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Introduction

Table 1 Main themes of the case studies Section 1

2

3

Case

Location

Organisation

Theme

1 2 3 4

UK Ireland Australia UK

Wessex Water Dublin Airport Authority Arts Victoria South West Water

5 6

Canada UK

City of Calgary Scottish Water

A company-wide approach Changing the mindset Service-oriented asset management Risk-based management and rehabilitation of aged assets Service levels on public amenities Structured decision-making for the medium and long term

7

France

8 9

UK UK

Grand Port Maritime du Havre Network Rail ScottishPower Generation

10

Canada

City of Cambridge

11

UK

London Underground

12

Australia

RailCorp

13

Australia

SP Ausnet

14 15 16

Canada Australia Lux

City of Hamilton Rio Tinto Euroports

17

Belgium

KPMG

Reducing capital and operating expenditures Best-practice reviews Integrating process safety and asset management Information and knowledge management Embedding asset management thinking Leadership through organisational change Continuous improvement and organisational change Intergenerational fairness Global competence and learning Transparency and performance improvement Financial and technical data alignment

What the case studies are telling us Between them, the case studies offer a plethora of ideas, innovations, reflection, critical success factors, insights, methodologies, models, process descriptions, system specifications and templates. They present organisations which are in various stages of development and maturity but share a common interest in some or all of the following. g g

Understanding the full impact of their assets and making sure this impact is consistent with their missions and strategies. Quantifying the relationships between the asset base and financial risk, and using this knowledge to structure internal controls, risk management and evidence trails. 3

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International Case Studies in Asset Management

g

g g g g g

Modelling lowest possible average costs over the lifecycle, and putting a value on asset availability and failure that takes into account the cost of capital and financing. Making good decisions in an environment where most things are uncertain and a future context where things are even more uncertain. Delivering required outputs for the available funding in a sustainable way. Tailoring the asset management approach to the needs and capabilities of their organisations. Finding ways of countering low enthusiasm for asset management with compelling evidence. Improving the quality of information underlying asset management decisions because this is what drives improved understanding of the cost, risk and benefit trade-offs, the value of the asset, the impact of its failure and the return on investment.

In every organisation, what makes sense at one time is often displaced by something that appears better adapted to new times and new demands. And while some organisations adapt themselves readily to new ways of thinking or practices, others try and fail or leave it too late, while a substantial few just sit and wait, perhaps hoping it will all go away. Readers will draw their own conclusions on the perspectives and approaches of the organisations featured. Not all have been successful straight away. All of them know that you cannot treat asset management like a piece of software – buy one, install it and move on to the next problem. Many important messages emerge from the organisational experiences and knowledge in this book – that it is the business purpose that provides the rationale for asset management; that it would be a mistake to regard asset management as a cure for all corporate ills; that success calls for a movement from information to communication at all levels; that the perception of asset management as a function or department rather than as a strategic approach or way of thinking is a serious limitation; that it is only when organisations view asset management as a collectively coordinated activity that its benefits can be fully realised; that asset management is not about empowering engineers, although engineers have a key role to play; and that greater efficiency and more certainty around capital spending forecasts are the key deliverables whether the organisation is privately or publicly owned. There are some very challenging ideas too, including the following. g

Asset requirements need to be classified and aggregated in a similar way to existing assets in order that the organisation can be structured around its future needs rather than just its existing asset base.

4

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Introduction

g g

g g

Establishing asset management as a department or function will limit its strategic potential. Technical, operational and financial data need to be harmonised if the impact of asset management on the corporate performance and value is to be understood and demonstrated. Asset-related risk needs to be understood in its full business context, and not simply from an engineering or safety dimension, including lost opportunity. Despite the growing number of frameworks and templates that are available, and international standards such as BSI PAS 55 (BSI, 2008) and the impending ISO 55001, there is no single, predetermined formula that takes asset management into an organisation, and each organisation must decide and justify its own path.

Culture change Culture change, that is, the alignment of people’s attitudes and beliefs, behaviours and performance with the organisation’s goals, is a major aspect of embedding asset management strategy, planning and systems. In particular, effective asset management calls for functions and disciplines to coalesce and for people to cross personal and career boundaries in ways they never have before in many organisations. Asset management is a new way of thinking, so it goes without saying that people practising it have to think in a new way about the situation their organisation is in and how to improve it. Time and time again, the case studies describe asset management as a systematic process, an opportunity even, for bringing together people from different functions and disciplines and stakeholders with different self-interests. And their decisions and activities need to be informed in a new way by detailed inputs on the current and future capacities, criticality and condition, costs and values, risks and performance of assets. Whether it be the engineering manager challenging the commercial department to sharpen its levels of service definitions; the operations manager requiring future demand forecasts from the business development team; or the finance manager calling for product lines or processing capacity to be cut because margins are eroding and the money would be better spent elsewhere, business-like behaviours at all levels are not an implication of asset management, they are a prerequisite to the sightlines that are so important to good asset management. The issues that asset management raises – whether to do with strategic direction, harmonisation of technical and financial data, demand forecasting or cultural change, etc. – are multifaceted and interrelated. A change in policy or in one part of the system may have ramifications throughout. In considering the discussion questions that are posed at the 5

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International Case Studies in Asset Management

end of each case study, the interconnections between the components of asset management, as illustrated in the case studies, need to be taken into account. REFERENCE

BSI (2008) PAS 55:2008. The specification for the optimised management of physical assets. Parts 1 and 2. British Standards Institution, London.

6

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International Case Studies in Asset Management ISBN 978-0-7277-5739-5 ICE Publishing: All rights reserved http://dx.doi.org/10.1680/icsiam.57395.009

Chapter 1

Case study: Wessex Water 1.1.

Background and context

Wessex Water is a regional water and sewerage business serving an area of the south west of England, covering 10 000 square kilometres. Since 2002, the company has been owned by the Malaysian power company YTL Corporation. It is recognised by the industry economic regulator Ofwat as having consistently delivered the best levels of customer service of any water and sewerage business in the sector. Over the last 20 years since privatisation, Wessex Water has invested more than £3 billion in improving and maintaining services (Figure 1.1). There have also been capital and operational efficiencies that Ofwat’s 2008–09 annual report (Ofwat, 2009a) estimated have resulted in average annual household bills being approximately £100 lower than they would otherwise have been. The investment has taken an uneven cyclical pattern largely due to the interruptive nature of the 5-yearly periodic regulatory reviews in 1995, 2000 and 2005. The main aim of developing improved asset management capabilities in the company was to maintain its high levels of service even more cost-efficiently without increasing risk. Given the age of most of the UK’s water infrastructure, decisions on the size of the investment needed to maintain service levels has a major bearing on business performance. Asset management is fundamental because it offers the methodology for making the right decisions. In the last 10 years, Ofwat has put pressure on companies to g

g

improve their understanding of the ability of their assets to maintain service levels (serviceability) and knowledge of the impact and likelihood of service risk demonstrate that full account is taken of asset criticality and condition deterioration in the planning and prioritisation of asset repair and replacement (capital maintenance).

Asset management initiatives in the sector undertaken by UKWIR (UK Water Industry Research) have been as follows. 9

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International Case Studies in Asset Management

Figure 1.1 Wessex Water’s capital investment since privatisation Courtesy of Wessex Water

Total capital expenditure: £ million

250.0

200.0

150.0

100.0

50.0

0.0

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

g

g

The Capital Maintenance Planning Common Framework (CMPCF), which used risk-based analysis of past performance and future scenarios (UKWIR, 2002). The Asset Management Planning and Performance Assessment Process (AMPAP), which provided a method for companies to self-assess their capabilities in asset management planning, including leadership, processes, systems and reporting (UKWIR, 2007). Ofwat (2009b) subsequently developed its own version of this, named Asset Management Assessment (AMA), which was used to rate each water company as part of its 2009 price review to determine capital maintenance expenditure for 2010–15.

The creation of an asset management focus in Wessex Water has led to an improvement in the company’s capabilities, and has enabled g g g g

a long-term strategic business direction risk-based prioritisation of investments the integration of business systems and processes improved operation of its networks and treatment processes.

It has also sparked a concerted effort by the company to shape the industry’s long-term direction. The company is currently engaging stakeholders in a debate about the benefits of regulatory incentives for holistic sustainable solutions which draw on asset management best practice. 10

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Case study: Wessex Water

1.2.

How asset management evolved at Wessex Water

The increased levels of investment that followed privatisation also gave rise to sharp increases in maintenance expenditure. Many of the company’s assets are complex, and meeting tighter quality standards incurs significant energy costs. They also have relatively short asset lives, and some, which were installed 20 years ago, have now reached or are approaching the point of replacement. Wessex Water recognised these issues in its 2004 price review (PR04) submission by developing proposals for improving the management of its asset base aimed at extending the functional life of these deteriorating assets. This was described as ‘sweating the assets’ and contributed to an alignment between the company’s initiatives and Ofwat’s perspective on the company’s capital maintenance plans. Alongside the regulatory requirements, there was a growing understanding in the company of the value to be gained by applying the principles promoted in the CMPCF. These led to asset management being seen as core to the future success of the business, and a belief that if sound asset management principles were applied successfully then the regulatory aspects of price setting would fall into place naturally. In 2006, the company undertook a root and branch review of its asset management capabilities, to identify where and how these needed to be developed. It was understood that the development of these capabilities would be an evolutionary process and drive change in the business. The review led to the launch of five major initiatives g g g g g

the creation of an asset management function the development of a strategic vision the use of risk management for maintenance and investment decisions PAS 55 certification to act as a roadmap for maturity investment in new work and asset management systems and learning.

1.2.1 Creation of an asset management function The company’s organisational structure, conventionally arranged around maintenance and operations, was changed to one that focused on optimising the management of assets (Figure 1.2), with the emphasis on achieving a deeper understanding of their requirements and the ability to find the right balance between performance, costs and risk. A new asset management directorate (AMD) was created, which was tasked with establishing the department at the core of the organisation’s long-term direction and developing an integrated approach that could be implemented across the company. The main initial objective for the AMD was to identify proposals for the periodic regulatory review in 2009 (PR09) that could subsequently form ‘business as usual’ processes. Key to the directorate’s success was to ensure there was a commitment 11

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International Case Studies in Asset Management

Figure 1.2 Wessex Water’s organisational structure Courtesy of Wessex Water

Operational services

Support services

Non-regulated services

Asset management

Engineering and construction services

Retail services

Continuing service to customers

from the whole company to achieving strategic objectives, and this involved developing close working relationships at the outset with the in-house engineering, construction and operational parts of the business. 1.2.2 A long-term strategic vision Water companies’ objectives need to be directed by long-term environmental objectives and customers’ needs. In December 2007, as part of the periodic review process, Wessex Water published Water – The Way Ahead (Wessex Water, 2007), a statement of its strategic direction that set out the future challenges for the water industry in the UK and how the company planned to deliver services over the next 25 years. This included a commitment to operate and maintain the capacity and condition of the asset base for current and future generations by g

g g g g

enhancing assets to meet long-term projections of customer demand, to achieve quality obligations and to plan for the impact of the future being different from the past (e.g. effects of climate change, and urban creep) maintaining stable service levels (serviceability) delivering industry-leading standards of service optimising capital enhancements and operational maintenance interventions planning the management of interventions to minimise disruption to communities.

12

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Case study: Wessex Water

1.2.3 Risk-based prioritisation A focal point in the development of the company’s asset management capabilities has been risk-based prioritisation of maintenance and investment. The objective was to improve understanding and management of risks to service associated with operational activity and external factors. An iterative approach was taken that built on external initiatives from environmental regulators, such as water protection plans (risk-based plans for managing water supply compliance), and water distribution networks’ operational and maintenance strategies (DOMSs). Modelling and analytical tools were developed to prioritise operational maintenance response and investment, by allowing g

g g

a consistent way of assessing the impact and likelihood of service failure across all the company’s physical assets at an operational, tactical and strategic level a review of all emerging customer, environmental, legal and regulatory risks reporting to senior management and the board on strategic high-level risks and mitigation measures.

These processes and tools use an extensive risk and value approach that has been central to the company’s strategic work to support the delivery of its 2010–15 (AMP5) programme. They are now cited by external auditors as examples of asset management best practice. The ‘heat map’ report (Figure 1.3) allows a simple representation of the company’s aggregated risk position by using colour (green, low; red, high) to show the severity of the risk position for the company’s service standards and industry drivers (Sx). The relative positions on the map are based on probability assessments of performance, condition, potential hazards and predictive modelling; and the likely financial, customer, environmental, regulatory, and health and safety impacts. These are summarised as scales of very low (1) to very high (5). 1.2.4 Certification to BSI PAS 55 To help it achieve its objectives, Wessex Water has used the BSI PAS 55:2008 asset management specification (BSI, 2008) as a road map for developing its maturity. The company believed the requirements were more accessible and far reaching than those developed within the sector for capital maintenance planning and self-assessment, and that gaining external certification to the standard would also be more effective in facilitating the changes required. In preparation for this, in 2007 the company engaged an independent risk management and systems certification organisation, Lloyds Register, to undertake a gap analysis, which identified pockets of good practice and weaknesses in some business processes and systems, and in the quality and sharing of information and data. 13

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International Case Studies in Asset Management

Figure 1.3 Example of a risk management ‘heat map’ report. (The actual map uses colour, with the background changing from green in the bottom left to red in the upper right, to give a visual indication of risk) Courtesy of Wessex Water

It was recognised that improvements in these areas could strengthen the company’s asset management capabilities, and in the process contribute to business efficiency. Wessex Water was the first water and sewerage business to obtain PAS 55 certification in March 2008, and continued assessment by Lloyds has added value by helping with the development of business processes, skill levels, and the establishment of collaborative company-wide improvement initiatives. Historically, business processes in the company had been managed by separate departmental ISO 9001-certified quality management systems. A new interactive asset management framework (Figure 1.4) has provided a clear line of sight and coherence 14

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Asset plans

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Asset strategies

Business objectives

Asset group plans

Boreholes Springs Water treatment works Service reservoirs Booster pumping stns Meters

Asset group plans

Impounding reservoirs Raw water aqueducts Trunk mains Distribution mains Service pipes

Sewers (including siphons combined sewer overflows and tunnels) Rising mains Sea outfalls

Asset group plans

Sewerage Infrastructure

Sewage pumping stns Sewage treatment works Sludge treatment centres

Asset group plans

Sewerage Non-infrastructure

Transport Information systems Laboratory equipment Property Control and monitoring

Asset group plans

Management and general

Controls Contingency plans, structure, training, communication, information systems, risk management Implementation Investment planning, capital investment, operation and maintenance

Water Non-infrastructure

Cross-functional EMI maintenance Carbon (energy, waste)

Asset management strategy

Risk and asset management policies

Vision/SDS (strategic direction statement)

Water Infrastructure

Courtesy of Wessex Water

Figure 1.4 Wessex Water’s asset management framework

Case study: Wessex Water

15

Assessment and review Performance and condition, compliance investigations, audits/management review

International Case Studies in Asset Management

between the company’s vision, asset management strategies and plans, and the operational maintenance and capital investment performance measures and controls in place to meet standards and to reduce the likelihood of service failure. The framework has also allowed the opportunity for a bottom-up as well as top-down approach to strategy development to emerge. The establishment of a company management systems group and end-to-end business processes allows cross-business governance, with audits targeted at identifying improvements, most notably to the quality and timeliness of asset information and its communication across departments. Key elements of any management system are performance assessment and review. Based on the company’s past experiences, it was keen that these activities were used to facilitate collective learning rather than focusing solely on compliance. These are now targeted at capturing asset knowledge to identify cost savings and improvements in operations and maintenance, standards and technology. Lessons learned are shared across the company, and a forum has been created to increase the profile of innovation in the business. This forum manages projects and trials for asset optimisation and the introduction of new technology, and incorporates a reward scheme (Eureka) for ideas that create savings and/or improvements, and collaboration with UK water industry bodies such as UKWIR, the Water Research Council (WRc), universities and manufacturers. 1.2.5 New work and asset management systems In parallel with these initiatives, in 2006 a benefits case was prepared for the introduction of new work and asset management systems to improve functionality in operation and maintenance, and asset performance and condition data. Historical investment in IT systems had meant that work scheduling, asset data and other business information were held separately at a disaggregated level. New systems have been introduced that integrate information held on assets (failure, condition, etc.) with the systems used for work management: maintenance scheduling; the availability and skills of operators; customer enquiries; cost accounting; and investment planning (Figure 1.5). As well as creating improved capabilities in areas such as risk management and the development of new integrated systems, there have been separate programmes in the business to improve operational skills and leadership. An up-skilling programme was implemented to increase work quality and productivity by allowing skills transfer across equipment at operational sites, networks and processes. Future asset managers are also being identified as part of a company succession planning initiative, with training based on the requirements of the Institute of Asset Management Competences Framework (IAM, 2008). 16

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Courtesy of Wessex Water

Figure 1.5 The integrated work and asset management systems

Case study: Wessex Water

17

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1.3.

Strategic direction shaped by relationships with stakeholders

Wessex Water is committed to delivering its vision, which is reviewed continually through consultations with its stakeholders. In 2010, the company undertook a review to consider regulatory changes before any reforms proposed in UK government White Papers are embedded in the way Ofwat sets prices in 2014 and beyond. A consultation paper, Water – Delivering the Vision (Wessex Water, 2010), highlighted the need to promote more innovative and environmentally sustainable solutions that use asset management best practice to improve efficiency and keep customers’ bills down. The company is currently lobbying for the regulatory framework to provide better incentives for holistic asset management solutions that deliver environmental and economic objectives. This includes working towards becoming carbon neutral in ways that reduce costs, and advocating that investment proposals are presented in the context of long-term asset management strategies. Energy use has increased markedly in the water industry over the last 10 years – a 33% increase in Wessex Water’s case. Major energy efficiency savings will be needed simply to stand still on costs in the coming years, and historically, to guarantee that regulatory requirements on water quality are met, investments in continuous high-tech automated processes such as ultraviolet disinfection and membrane filters have been needed. This trend seems likely to continue if the EU Water Framework Directive (EC, 2000) and Priority Substances Directive (EC, 2008) are applied in a way that requires absolute standards for the removal of phosphorus in sewage works’ discharges and nitrates in groundwater and river flows. Wessex Water believes that what is required is a collaborative approach to deliver sustainable rather than capital-intensive asset management solutions. Table 1.1 compares the key features of these solutions. To help achieve its strategic environmental aims, as part of developing its future proposals, Wessex Water is applying asset management principles to demonstrate best value for money within a constrained funding regime. The company is proposing a risk-based approach to environmental compliance and a right to earn a margin on the operating costs associated with new obligations. It believes that in order to promote a holistic approach to asset management in the industry, lower capital expenditure solutions that balance incentives for operational and capital expenditure should be introduced. At present, capital expenditure is incentivised if companies believe they can make savings in the delivery of their capital programme relative to the cost of capital allowed for in the 5-year regulatory review. By contrast, there is no long-term incentive that encourages companies to deliver operational solutions, as increases in operational expenditure 18

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Case study: Wessex Water

Table 1.1 Comparison of capital-intensive and sustainable solutions Capital-intensive solutions g g g g g g

High carbon footprint Standard solutions High certainty of delivering standards Minimal compliance risk Higher capital costs Long-term operational costs with high-energy and chemical consumption

Sustainable solutions g g

g g g g g

Lower whole-life costs More opportunity to investigate the causes of problems and to develop proportionate risk mitigation Greater operational and compliance risk Increased operational costs More community involvement Longer period to realise outcomes Less energy and chemical consumption

currently make a company appear less efficient, resulting in tougher efficiency targets and lower revenues at future price reviews. The UK water industry already avoids some capital investments that are disproportionate to environmental and public health risks. But if there is an insistence on guaranteed solutions to stringent absolute standards, this will inhibit the adoption of risk-based sustainable operational solutions. Wessex Water is seeking to influence regulators to consider both the opportunities and risk of trade-offs. As an example of what can be achieved, the company is implementing improved catchment management in conjunction with local farmers as a solution to problems caused by pesticides in drinking water. This avoids the need to build additional treatment processes, reduces the carbon footprint and, if extended to incentives for operational costs associated with new standards, could drive more sustainable and cost-effective solutions across the industry.

1.4.

Conclusions

Improved asset management capabilities have delivered significant benefits for Wessex Water. Critical to this success has been a strategy that has focused on the form of organisational structure, knowledge and systems required to achieve long-term business objectives. This approach has created more of a ‘network’ form of organisation that can capitalise on the company’s values and its core competences. This has led to a greater understanding of assets and transparency of risk through improved information on performance and condition, and an integrated company-wide approach to business processes and learning. Improved decisions on asset interventions have increased levels of certainty about both the resilience of current service and the company’s ability to deliver expected future needs. The company is concerned that future water quality directives may drive another wave of capital- and resource-intensive solutions, focused on end-of-pipe standards, and that not enough consideration is being given to alternative solutions. It believes that significant 19

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environmental and cost benefits can be achieved by adopting a sustainable approach that uses asset management principles, and it is working with its stakeholders to demonstrate how these can be delivered.

Discussion questions Why would periodic regulatory reviews result in an uneven cyclical pattern of investment? 2. What are the main risks to service associated with operational activity and external factors in your organisation? 3. In practice, how would a bottom-up as well as a top-down approach to strategy development be organised? 4. What do you think the right balance would be? 1.

REFERENCES

BSI (2008) PAS 55:2008. The specification for the optimised management of physical assets. Parts 1 and 2. British Standards Institution, London. EC (2000) European Union Water Framework Directive 2000/60/EC of the European Parliament and of the Council of 23 October 2000 establishing a framework for community action in the field of water policy. European Commission, Brussels. EC (2008) European Union Priority Substances Directive 2008/105/EC of the European Parliament and of the Council of 16 December 2008 on environmental quality standards in the field of water policy. European Commission, Brussels. IAM (2008) Asset Management Competences Framework, Parts 1 and 2. Institute of Asset Management, Bristol. http://theiam.org/content/download-competences-framework (accessed 10/02/2012). Ofwat (2009a) Asset management assessment and baseline setting (AMA), PR09/23. Ofwat, Birmingham. http://www.ofwat.gov.uk/pricereview/pr09phase2/pr09phase2 letters/ltr_pr0923_amabaselinesetting (accessed 10/02/2012). Ofwat (2009b) Annual report 2008–09. Ofwat, Birmingham. UKWIR (2002) Capital Maintenance Planning: A Common Framework (CMPCF), 02/ RG/05/03. UK Water Industry Research, London. http://www.ukwir.org/ukwirlibrary/ 80474 (accessed 10/02/2012). UKWIR (2007) Asset Management Planning Assessment Process – a methodology for self assessment (AMPAP), 07/RG/05/18. UK Water Industry Research, London. http://www.ukwir.org/ukwirlibrary/91803 (accessed 10/02/2012). Wessex Water (2007) Water – The Way Ahead. Wessex Water, Bath. http://www. wessexwater.co.uk/publications/ (accessed 10/02/2012). Wessex Water (2010) Water – Delivering the Vision. Wessex Water, Bath. http:// www.wessexwater.co.uk/publications/ (accessed 10/02/2012).

20

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International Case Studies in Asset Management ISBN 978-0-7277-5739-5 ICE Publishing: All rights reserved http://dx.doi.org/10.1680/icsiam.57395.021

Chapter 2

Case study: Dublin Airport Authority 2.1.

Background

Dublin Airport Authority plc (DAA) is an airport management company. Its principal activities are the management, operation and development of Dublin, Cork and Shannon Airports in Ireland, domestic and international airport retail management, and airport investment. DAA is a state-owned organisation that is fully commercially funded. Dublin Airport is regulated by the Commission for Aviation Regulation, an independent public body under the auspices of the Irish Department of Transport. The principal function of the commission is price regulation, that is, setting the maximum level of airport charges at Dublin Airport and air traffic control charges at Dublin, Cork and Shannon Airports. All airports in Ireland are regulated by the Irish Aviation Authority (IAA) for air traffic safety. The IAA also provides air traffic management at each airport. DAA airport asset management activities are covered in this case study. Its interests in retail, commercial activities and investment other than Dublin, Shannon and Cork Airport operational assets are not. DAA owns and manages substantial areas of land and property at its three airport sites. Its core activities are associated with aircraft operations and passenger logistics. Its key assets comprise airfields, runways, taxiways, aprons, stands, terminal buildings, energy centres and piers, with all of their associated components and infrastructures. There are also car parks, roads, campus and utility infrastructures. DAA has spent roughly €1.2 billion over recent years modernising Cork and Shannon Airports with new terminals, and upgrading the capacity of Dublin Airport with new infrastructure and a second terminal building. Its net asset value at the time of writing is €1.8 billion, and the replacement value or modern equivalent asset value is estimated to be €5 billion. The recent major investment programme was developed and committed during a long period of financial growth in Ireland that also saw a 7% increase in air traffic 21

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between 2005 and 2009. This was the latter part of a period when Ireland was widely known as the Celtic Tiger. The capital programme was aimed at addressing historic under-investment at Dublin Airport and also at improving the passenger experience at all three airports. When the worldwide economic downturn began to be felt in Ireland, a major long-term investment programme was in full swing. A new terminal had been recently completed, and construction of Dublin Terminal 2 was moving into its second year. In 2009, DAA launched a major cost recovery programme that reduced costs in both payroll and non-payroll areas, and included agreed pay reductions for all staff and a voluntary redundancy scheme.

2.2.

Restructuring around asset management

Early in 2010, the DAA executive team set out a plan to restructure the organisation. Up to then, it had been a typical semi-state organisation focused on the operations, project engineering and property departments. The plan was to adopt a new functional structure made up of five main functions, namely operations, property, commercial, corporate, and asset management and development (AMD). The new AMD function comprised design, projects, maintenance and asset management plus a new commercial business section. The major shift was to bring asset lifecycle management under one banner. However, when the organisation embarked on this restructuring in 2010, significant focus was still on delivering Dublin’s new terminal, all associated infrastructure and the major operational changes associated with a major build project, its commissioning phases and the ‘go live’ transition. The overall airport performance in terms of efficiency and value is comparable with other airports across Europe, as is evident from airport performance benchmark data (Table 2.1). However, with renewed focus on cost, further reassurance that all reasonable efforts were being made to provide and demonstrate good value was required. The economic downturn led to reduced passenger numbers at Dublin, Cork and Shannon Airports during 2010, although DAA remained profitable overall. However, following the Dublin Terminal 2 ‘go live’ in late 2010, around €600 million of new investment costs moved within the DAA asset register from ‘assets under construction’ to ‘live assets’, which resulted in much higher levels of depreciation being shown in the profit and loss account. While DAA reported a profitable operational financial outcome in 2010, it needed to continue to reduce its costs. Shannon and Cork Airports are currently operating at a financial loss and draining reduced profits made by Dublin Airport and overseas interests because 22

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Copyright © ICE Publishing, all rights reserved. €14.02

€14.02

€365 337 961

21.95%

€1 778 733 148

€500 091 982

€2 278 825 131

26 067 233

Year end12/10

€16.70

£14.63

£40 434 000

20.88%

£136 215 000

£35 944 000

£172 159 000

2 763 708

Aberdeen

Year end 03/10

€11.71

£10.26

£87 957 000

40.44%

£319 344 000

£216 831 000

£536 175 000

8 572 398

Birmingham

Year end 03/10

€1320

£11.57

£374 720 000

27.21%

£1 732 840 000

£647 760 000

£2 380 600 000

32 397 000

Gatwick

Year end 12/09

€1101

£9.65

£179 200 000

21.83%

£1 406 800 000

£392 900 000

£1 799 700 000

18 573 592

Stansted

Year end 12/09

€23.94

£20.98

£1 382 100 000

19.73%

£10 066 900 000

£2 474 600 000

£12 541 500 000

65 881 660

Heathrow

Year end 03/10

€14.04

£12.30

£294 000 000

36.43%

£1 210 000 000

£693 500 000

£1 903 500 000

23 900 000

MAG

Exchange rate € to £: 0.87627 as at 28/07/11, 11:00 h Note 1: Gatwick costs adjusted from a 15 month to a 12 month average due to a change in the accounting year end date from December to March 2009–10 Note 2: operating costs are full airport operational costs, not just those directly associated with managing airport assets, as this is the cost of delivering the service Note 3: passenger numbers fell significantly from 2009 to 2010 due to global recessionary and Icelandic volcano ash cloud impacts

Opex £ > €

comparison

Conversion to € for

€1561

€15.61

Operating expenditure

(opex) per passenger

€353 039 308

22.30%

€1 948 264 173

€559 123 466

€2 507 387 639

22 612 080

DAA group

Operating costs

useful life)

Depreciation (used

Net book value

Depreciation

Cost

Tangible fixed assets

Passengers

Year end 12/09

DAA group

Year end 12/10

Table 2.1 DAA benchmarking data (sourced from public annual reports on-line)

Case study: Dublin Airport Authority

23

International Case Studies in Asset Management

g g g

passenger numbers remain low compared with 2008–09 base operating costs are higher than can be supported in the long term fixed asset depreciation rates are not all in line with true meaningful lives.

Asset management cannot make significant changes to passenger traffic numbers, but it can make a real contribution to addressing the second and third of these problems. The main challenges to AMD in its cost reduction project were to g g

g

baseline current performance determine what improvements to asset management processes and performance and what profitability could be achieved across all three airports over a 4 year period agree targets and an overall strategy to achieve them with the executive team.

An asset management audit, structured around the requirements of BSI PAS 55:2008 (BSI, 2008) was undertaken in 2010. While it found that AMD processes had been well managed with regard to airport operational services and safety, it also concluded that these were not sufficiently integrated in terms of bottom-line business efficiency and value. Therefore, DAA set out to fully map, integrate and improve its assetrelated business practices to improve process, performance and profit. The audit results were adopted as the baseline for asset management performance, and the resulting gap analysis and roadmap were applied within the overall initiative. The profitability element was regarded as a separate issue from the main drive to achieve compliance with PAS 55. Focusing on compliance was seen as an opportunity to create short-term impetus for the asset management agenda, whereas maturing beyond compliance was seen as the route to longer-term efficiencies. In the circumstances, the need to increase profitability could easily have been interpreted as a need to cut costs in the short term until passenger numbers increased. The temptation was to reduce staff, contract out essential work to lowest-cost bidders and rely on new assets not to fail, at least in the short term. However, the DAA executive team was committed to the principles and requirements set out in PAS 55 and also conscious of high-profile asset failures that had followed rapid cost-cutting initiatives in other industries. Delivering an asset-management-driven solution was believed to improve the chances that performance and profit increases would be sustainable and that assets were being managed safely.

2.3.

Approach

The DAA’s starting point was its mandate, which reads: 24

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Case study: Dublin Airport Authority

The DAA has a number of statutory obligations (the Air Navigation and Transport (Amendment) Act, 1998 and the State Airports Act 2004) that can be summarised as follows: g To manage, operate and develop the airports. g To provide the services and facilities necessary for the operation, maintenance and development of the airports. g To take all proper measures for the safe and secure operation of the airports. g To operate in a commercial manner. The next key element is the strategic plan that sets out a number of corporate goals, of which four have been identified as the key drivers for asset management, as follows. Maintain airport infrastructure to a high standard and in an efficient and costeffective manner. 2. Align people and processes to deliver the best results. 3. Continue to develop the airports in a sustainable, environmentally friendly, safe and secure manner, consistent with the efficient operation and development of the airports. 4. Deliver effective cost management. 1.

For each of these goals, a set of key objectives and activities has been defined as follows: 1.

Maintain airport infrastructure to a high standard and in an efficient and cost-effective manner. Objectives/activities g Asset lifecycle cost, performance and risks captured by asset health reviews. g Apply asset condition, serviceability, criticality scoring to improve asset information, investment and asset care needs. g Risk-based maintenance schedules developed (using failure mode, effect and criticality analyses), and applied to get the right maintenance at the right time and price. g Implement a cohesive three-airport computerised maintenance management system (CMMS) and asset register, and align/map this with the fixed-asset register. g Develop a pavement management system (runways, taxiways, aprons and stands). g Apply CMMS processes to airport pavement management. g Document standard CMMS codes, actions and a report suite to provide key performance indicator (KPI) reports. g Map the data architecture within CMMS and financial systems. 25

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International Case Studies in Asset Management

Figure 2.1 DAA asset lifecycle management Courtesy of Dublin Airport Authority

Business objectives

Funding

Strategy

Detailed design

Plan

Act Benefits case

Programme management

Option analysis Project delivery

Asset management system

Health review

Contingency and logistics planning

Risk governance

Inspect/analyse

Check

Do

Maintenance planning

Operate and maintain – assets in action

Figure 2.1 visualises the asset lifecycle that the above activities create. Historically, a recurring situation across the DAA portfolio was that projects divisions would work with external developers and engineering consultants to design, build and commission new assets, at which point their lifetime care was handed over to the internal maintenance function. Levels of consultation between projects and maintenance divisions varied widely, and this led to some significant inefficiency. In other words, maintenance was an afterthought, often carried out according to manufacturers’ recommendations. Similarly, spares were offered, procured and stored according to manufacturers’ recommendations. While these recommendations might be a good place to start specifying requirements, adopting them verbatim can prove costly, and was not always appropriate to the operating environment. To overcome this problem, DAA adopted the failure mode, effect and criticality (FMECA) approach to develop maintenance schedules that apply to similar assets across its six asset care business units in Dublin Terminal 1, Terminal 2, Airfield and Campus, Shannon Airport and Cork Airport. Based on these schedules, risk-based maintenance bills of materials are developed that list the materials that should be stocked internally, vendor managed or itemised but not stocked. Maintenance schedules 26

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Case study: Dublin Airport Authority

are also used to identify projected, planned and reactive maintenance needs as well as costs. The challenge is to achieve the required levels of maintenance through an optimised balance of insourcing and outsourcing of work based on delivered value. Before these schedules were developed, senior managers had presumed that outsourcing was generally cheaper than insourcing. This belief has been disproved, and, where skills or staff shortages mean that the internal option is not available, being well informed about scope, requirement and projected costs has proved beneficial when negotiating with external service providers. Data and information have been identified within DAA as key enablers of good asset management. A new asset manager was appointed with specific accountability for asset data and information, which is now treated as an asset in its own right. Work is also underway on a CMMS, a unified asset register and a common approach to coding, time reporting, working practices and reporting. Figure 2.2 visualises the asset data and information lifecycle in the context of the assets in action process – this is concerned with how assets earn their keep. The only time they are adding value in the asset lifecycle is when they are operating to provide service. It is an important part of DAA’s vision for asset management that

Figure 2.2 The asset data and information cycle Courtesy of Dublin Airport Authority Drivers

Analyse

Check Monitor Level of service metrics – SQM/KPIs Safety Environmental Availability Reliability Maintainability Cost performance Performance tests Condition Serviceability

Regulatory/customer Technology/intelligence Policies/funding

Act

Asset health Service health Performance versus cost and risk exposure

Asset strategy Strategic objectives – Issues prioritised by cost, benefit and risk

Business plan – € risk balance Capital expenditure Acquire Build Rehabilitate

Do

Operating expenditure Operate Inspect Maintain

Plan Assets in action

Assets delivering services to meet business objectives

27

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performance data, including input operational costs, maintenance costs, running costs, materials/inventory consumed, output quality, quantity, reliability, maintainability and downtime, are collected for analysis and continuous improvement. 2.

Align people and processes to deliver the best results. Objectives/activities g New key roles to comprise design leads and asset managers. g New positions to include an asset care pavement manager and an asset care property manager. g Develop new role profiles for all people within AMD. g A new management team to be announced, with a communications road show to explain their roles. g Clear terms of reference to be agreed for key roles within AMD. g The asset management policy to be published, communicated, promoted and included within the hierarchy of DAA policies. g AMD strategy and objectives alignment followed by a communications plan and road show. g Mandate asset management processes across AMD – communicate, validate, audit and review. g Detailed planning of front-line structures, including team leads, technicians, stores personnel, planners, operators and administrators. g Communications road show by location, shift and teams, to promote and explain the changes. g Board communications to feedback progress and potential issues/blocks. g Engagement with trade unions and negotiation of new structures, rosters and working practices. g Training needs analyses, development of skills matrices, definition of competence requirements and training plans to align with planned organisational structures. g A support network and change management team established.

An organisational restructure is being undertaken at DAA to support the introduction of a whole new method of working. During the asset management audit in 2010, a common response to questions about ‘who is accountable for these assets or this process?’ was ‘there is joint responsibility’, followed by a long list of the people and departments that were involved. This demonstrated a lack of clarity and ownership for different aspects of the asset management process. DAA has now developed an asset management terms of reference document that outlines the overall scope of asset management and the four key roles, and clarifies what individuals in these roles are accountable for and what responsibilities they have (Box 2.1). Figure 2.3 shows the four key roles and their key asset management transactions. 28

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Case study: Dublin Airport Authority

Box 2.1 Extracts from the DAA asset management terms of reference document The Asset Manager is a Business Management role with a primary function of optimising the medium to long term service and cost performance by ensuring efficient investment in company assets and services without compromising safety and regulatory compliance. Asset Managers are accountable for g

g g g

g g

g

g

g

g

g

g

g g

g

assurance of condition, serviceability and funding for the assets within their defined accountability managing asset related Business Risks within acceptable levels providing assurance of good risk management practices to insurers developing and maintaining Asset Management plans (including the through life investment profile for the assets) developing Business Cases for Investment agreeing investment, operation and maintenance policies for the group of assets under their guardianship challenging design criteria to drive best whole life cost and service performance challenging maintenance regimes to ensure they are appropriate for operation, lifecycle and design maximising the return on asset investment by applying asset management techniques such as predictive modelling, business risk management, and investment decision making ensuring safety levels are maintained or improved by monitoring medium to long term asset and system performance, and providing funding for resources and/or capital investment to achieve this outcome determining the required investment in asset sustainment and optimisation based on the Asset Management Plans and the results of the Asset Health Reviews conducting Asset Health Reviews to ensure asset performance meets the requirements contained within the AM Plan driving sustainable improvements to asset performance acceptance (sign off ) of a new asset from Projects to trigger acceptance as a Fixed Asset providing annual and periodic AM reporting information to meet regulatory and business management requirements.

The Design Lead role is an engineering one accountable for design and development of DAA assets. It is primarily concerned with providing suitable designs that meet the operational functionality and serviceability requirements of Airport Operators 29

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International Case Studies in Asset Management

& Airport Services. The Design Lead also provides a consultative role within their expertise. Design Leads are accountable for g g g g g

g

g

g

g

g g

g

g

g

specifying the physical design of the assets within their defined accountability ensuring the asset design is fit for the purpose approval of detailed asset design approval of Contract technical content supporting Asset Managers regarding Engineering Design in developing Investment Business Cases defining project deliverables and supporting Work Package between Programmes and Design Leads liaising between Project Teams and all Asset Stakeholders for the duration of a specific project of their design providing expert engineering advice and guidance on the assets for which they are accountable providing expert engineering advice to support Asset Care Managers in providing an operational service providing design solutions to engineering occurrence recommendations design assurance approval for new assets and design changes (safety and non safety related) subject to Governance process advising Asset Maintainers on the provision of logistics support (maintenance requirement and spares provisioning) for their assigned assets including supporting procedures supporting through-life asset performance monitoring (safety, service, and cost) for variation outside of design specification to enable timely intervention support Asset Managers regarding routine Asset Health Reviews.

The Asset Care Manager role is scoped to manage, operate and maintain technical services and systems throughout their operational lives for the purposes of passenger service management at Airports and their ancillary systems. Asset Care Managers are accountable for g g

g

g

maintaining and Operating assets to meet operational service requirements monitoring performance and condition for variation and projected variation outside of design specification to enable timely intervention supporting Asset Managers with operational information for Asset Health Reviews and Asset Management Planning supporting asset design processes by providing maintenance and operational experience during design development and project stage reviews

30

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Case study: Dublin Airport Authority

g

g

g

g

g

g g g

g g g g g

providing information to support and optimise Supply Chain/Procurement processes ensuring the required level of competence for all maintenance staff exists and is maintained ensuring assets are adequately Maintained to meet their safety and operational performance requirements assurance that work undertaken on operational assets and equipment is carried out in a safe manner control and validation of Contractors working on operational systems, assets and within operational areas within Maintenance accountability site acceptance testing and approval of new assets into operational service withdrawal of assets from operational service ensuring operational asset safety, efficiency and cost performance is managed within agreed parameters approval of any change to site/equipment/system configuration emergency management of operational assets, systems and services assurance of emergency and contingency preparedness operational spares inventory control operational and maintenance data recording and information management.

Project Managers are required to manage approved investment projects to meet specification of the Design Lead for new or enhanced assets for delivery to the Asset Operator within performance, cost and risk profiles required by the Asset Manager. This is an Engineering role scoped to manage a defined project for the sustainment or enhancement of components of the Engineered System. Project Managers are Accountable for g

g

g g g

g g g g g

development of different design/product options to meet business requirements gaining approval of option selection from Operations, Design Lead, Maintenance Manager and Asset Manager producing a project management plan producing a detailed design specification gaining acceptance of detailed design from key business stakeholders regarding design, lifecycle performance and costing, safety criteria and functionality managing the project within agreed scope setting and chairing interim phase reviews with key stakeholders proposing configuration management delivery of the Project to requirement within an agreed budget and timescale acceptance planning and delivery 31

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g g

planning transition of system/asset into operation delivery of asset lifecycle support documentation and data.

Provision of at least one financial year spares, materials and technical support until snagging list completed and retention released.

3.

Continue to develop the airports in a sustainable, environmentally friendly, safe and secure manner, consistent with the efficient operation and development of the airports. Objectives/activities g Apply a balanced approach to risk management, inclusive of service, safety, cost, society and environmental impacts – line of sight with corporate risk process. g Link the risk process with the cost of risk to be applied to investment cost– benefit analysis as investment drivers. g Improve the cost–benefit analysis prior to the investment gateway, and reinforce at each stage. g Train AMD staff in the application of cost–benefit analysis, investment prioritisation and their relationship with risk assessment. g Align safety risk measures across DAA with corporate risk-reporting procedures. g Develop a cost of carbon capability into the investment cost–benefit analysis process.

This goal could be summarised as sustainable development. An integrated approach is being developed within DAA to manage risks and opportunities in meeting operational service, safety, financial, societal and environmental objectives. The asset focus of this work spans several investment drivers, including growth, technological development, and political and environmental pressures, as well as maintaining the current infrastructure within design parameters. These all need to fit within the scope of risk, resilience and assurance. Figures 2.4 and 2.5 illustrate how the relationships between them are managed. When producing a business case for new investment within DAA, it is necessary to describe the risks involved. However, in the past, these have not always been scored or described in financial terms or the probability of impact. A typical example would be a statement to the effect that ‘these assets require replacing because they have exceeded their design life and there is a risk that they will fail’. DAA is now developing a new risk language and methodology that is linked to business investment drivers. The risk management system hierarchy structures the risk management and clearly identifies who requires training. 32

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SLAs Performance, cost and risk

Operate and maintain

Asset care manager

Asset health feedback on performance and design ARM, costs, materials obsolescence, condition, etc.

Request CMMS and BoM master data changes

Asset management business planning

Asset manager

Courtesy of Dublin Airport Authority

Figure 2.3 The four key roles in asset management

Delivery of new assets and systems – commissioning and handover to operational use

Delivery of new assets

Project manager

Asset and system specification and design requirements

Asset and systems design specification

Design lead

Work package to produce ‘As-built configuration, CMMS, BoM, O&M, contracts and logistical support needs for system, asset, equipment to meet life support requirements

Asset design proposals sustainment and modifications

Request review of asset design and options for improvement

Direction on asset structures, design performance requirements (ARM, etc.), spares and materials Request new equipment Nos as required Approve CMMS and BoM changes

Investment and change, requirements, design issues, technological opportunities and risks

Business cases for capital expenditure, including options analysis

Asset management plan investment approved to change, remove, add asset(s)

Case study: Dublin Airport Authority

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International Case Studies in Asset Management

Figure 2.4 Risk, resilience and assurance Courtesy of Dublin Airport Authority

Organisational and societal risk management and mitigation

Corporate level

Commercial risk management and mitigation Operational risk management and mitigation Design and operation management and mitigation

Board members Crisis planning

Interdependent services’ organisations’ resilience

Senior executives Emergency planning

Business and multi-departmental resilience

Department managers Contingency planning

Operational and technical resilience

Operational Engineering professionals level Incident planning

Achieve a safe and reliable operation

To ensure safety and environmental concerns are aligned with risk-based investment procedures, an integrated approach to impact and likelihood scoring, and the resulting numerical risk ranking is being produced. Carbon accounting is well developed for operational use but has not yet been developed into cost–benefit analysis or embedded carbon accounting within the project development stages of the asset lifecycle. Proposals on this are currently being considered. 4.

Deliver effective cost management. Objectives/activities g Alignment of AMD budgets to a new functional structure. g Ensure accountability is assigned to budget holders for all spend within the budget. g Financial systems to reflect business rules and budget accountability. g Streamline contracts and reduce repairs and maintenance requirements to reduce costs. g Ensure accruals are only applied at the year end for services/product delivered but not settled. g A depreciation rate review for all asset groups, and applied to new assets and recommended for assets with ‘significant’ life and value already entered in the fixed-asset register. g Capture and control the total costs of assets disaggregated from departmental budgets. g Benchmark asset management performance and costs with other airports across Europe.

34

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Create/ acquire

Hazard and operability studies

Reliability centred maintenance

Lifecycle risk process tools

Asset lifecycle Maintain

Risk based ROI investment business case

Security risk management system

Cost–benefit options analysis

Programme risk management system

Event root cause analysis

Sustain/ dispose

H&S risk management system

Corporate risk management

Consequence and probability analysis

Environmental risk management system

Asset health reviews

Asset risk management system

Bills of materials risk based analysis

Operate

Operations risk management system

Failure mode, effects and criticality analysis

IT risk management system

Courtesy of Dublin Airport Authority

Figure 2.5 The risk management hierarchy

Case study: Dublin Airport Authority

35

Courtesy of Dublin Airport Authority

Figure 2.6 Balanced scorecard asset health review

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Case study: Dublin Airport Authority

All key aspects of asset information are summarised within an asset health review, as shown in Figure 2.6. Asset health reviews are undertaken on each major asset group within each business unit annually. The review form is on a single page, designed to provide visualisation of asset performance, costs and the ability of the asset to continue to perform as required, over a minimum 5 year time horizon. The key elements within the review are integrated financial data and financial performance, service performance data, safety, people, risks, planned changes, criticality, condition and serviceability. In combination, these provide a look back at past performance, the current state and a prediction of future capability to meet requirement. A key element in the development of the CMMS and the asset register under objective 1 is the potential to align them with the corporate finance system. The asset hierarchy has been considered within the overall scope of data architecture and business objectives. It has been structured to enable operational performance, maintenance, condition, serviceability, criticality and risks to be amalgamated with operational and capital cost data in the future.

2.4.

Outcomes and conclusions

The asset management changes being undertaken at DAA mark a fundamental shift away from the traditional design–build–operate–maintain cycle to a fully functional asset management system, and include organisational structure alignment and fundamental changes to data architecture. Describing the ‘as is’ system, the ‘to be’ system and quantifying the benefits of change represents a major challenge. This is being met head on by communicating the vision, strategy and objectives at all levels throughout DAA, and then providing leadership to the changes. Asset data quality is a particular issue that, in turn, affects the supply of good asset information, without which the organisation will be over-reliant on partial information and local expert judgement. Change in this area is often interpreted by people as a challenge to their professional standing, and must be accompanied by carefully planned culture changes. Overcoming an ingrained belief that manufacturers and suppliers are best placed to determine how often and to what extent assets should be maintained and when they should be replaced is an uphill battle. It is commonly believed that to accept any other path could result in litigation if a failure occurred. Introducing risk-based evaluation is proving effective, but a high degree of reassurance is still required at all stages. 37

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Preconceived ideas relating to performance and value are being challenged using benchmark data to provide unequivocal statistical evidence. Breaking this down from the corporate level to the business unit level is not always easy because, historically, data have been aligned to departmental budgets, work groups, functions and disciplines, whereas, in future, they need to be aligned by business unit, service delivered, system and asset. Perhaps the most significant challenges relate to asset management language, philosophy, skills and competences. In these areas, the work has only just begun. For DAA to perform well at asset management, it needs to bring its people with it on a long journey that it expects will take at least another 3–4 years.

Discussion questions For what reasons might the introduction of asset management be interpreted by people as a challenge to their professional standing? 2. What is wrong with deciding that assets need to be replaced because they have exceeded their design life and there is a risk that they will fail? 3. What are the potential benefits of aligning the CMMS, the asset register and the corporate management system? 4. What are the main obstacles to achieving this? 1.

REFERENCE

BSI (2008) PAS 55:2008. The specification for the optimised management of physical assets. Parts 1 and 2. British Standards Institution, London.

38

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Chapter 3

Case study: Arts Victoria 3.1.

Background and context

For some time now, governments have favoured capital allocations above recurrent funding because the one-off nature of capital appears to allow greater control. There have been two major consequences: (1) asset portfolios have increased, but the means to maintain and operate them have not, and (2) budget petitioners – government departments and non-government organisations – have been encouraged to measure their value to the community in terms of their success in winning capital allocations. Capital funds have thus become an end in themselves rather than a means to improved performance. And, perhaps, nowhere is this truer than it is for organisations in the arts, where performance has always been recognised as being more than simply the number of visitors or the size of the audience, although pinning down exactly what services are being provided, and to whom, has proved elusive. Across Australia, measures are now being taken to change attitudes from ‘asset-centric’ to ‘service-centric’. Undoubtedly, the global financial crisis and its impact on government budgets is an important contributing factor to the level of interest in a service-centric approach. This case study illustrates the development and application of a ‘serviceoriented asset management’ framework to non-government organisations (NGOs) introduced by Arts Victoria. Based in Melbourne, Arts Australia is a division of the Victoria State Government Department of Premier and Cabinet. It is responsible for all state-owned cultural building and collections assets in accordance with the 1972 Arts Victoria Act. Among its responsibilities are the creation and implementation of policies, procedures and the asset management framework. The last ensures that building assets across the portfolio are aligned to service delivery outputs. Arts Victoria supports a number of not-for-profit arts organisations (NGOs) by providing facilities at peppercorn rental (‘in-kind’ support) as well as operational funding. The NGOs include two galleries, a modern dance company, a theatre company, a musical park installation, a youth theatre company and a circus. 39

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The cultural infrastructure team is responsible for asset management on behalf of Arts Victoria. The programming and innovation team is responsible for the funding of programs that support Victorian arts organisations. Both teams work together to ensure that Arts Victoria agrees with the services being delivered by the organisations and that asset management service delivery is within the required scope. A sharp reduction in state funding, generally, and a greater recognition by the Department of Treasury and Finance (the Treasury) of the need to focus on service outcomes rather than the past emphasis on capital acquisition has set the stage for a change.

3.2.

The requirements

The Arts Victoria Service Oriented Asset Management Framework guides and informs decision-making for compliance, maintenance, renewal and long-term development of arts infrastructure. It includes asset compliance and condition audits, and is intended to deliver a process of continuous auditing, monitoring and reporting for the ongoing management of the overall asset portfolio. The change in approach was instigated in 2009, as Arts Victoria recognised that it did not have the tools and resources to make effective and planned asset management decisions on facilities occupied by NGOs. Two previous facilities reviews had raised concerns that the facilities were not being well managed and maintained by the NGOs, and there was a lack of clarity and transparency in the funding procedures. The portfolio was facing increasing pressure associated with short-term rectification works being prioritised ahead of sustainable long-term planning for asset renewal. Arts Victoria realised it needed a structured and transparent basis for supporting NGOs and a consistent approach across the portfolio, as it was having difficulties in meeting its portfolio reporting requirements to the government. As always, in the absence of a formal approach, people who know how to work the system tend to get the most funding, maintenance backlogs were growing and services were suffering. The task was to develop a framework to assist Arts Victoria to improve day-to-day asset management, protect the facilities, enhance the services provided, and provide clarity and transparency in funding applications from NGOs. And this needed to be done in a way that engaged all stakeholders in the process. The framework was required to use a recognised established methodology acceptable to both Arts Victoria and the Treasury, one that would align with service delivery outcomes and take account of the complexities inherent in arts and cultural facilities. 40

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Case study: Arts Victoria

An additional requirement was that the framework should be capable of being scaled up to suit the needs of the larger arts agencies, such as the State Museum and Art Gallery, so that a common approach could be taken to all arts facilities. These agencies are semi-autonomous, and are supported, rather than controlled, by Arts Victoria, so the framework would need to be seen to deliver demonstrably good value to them if it was to be accepted. The framework was also required to guide and inform decision-making on compliance issues, maintenance, renewal and long-term development of arts infrastructure. Therefore, it needed to be adaptable to the day-to-day asset management decisions of the organisations as well as to their longer-term developmental needs.

3.3.

The situation

As mentioned, Arts Victoria and the Treasury required the framework to make use of recognised, established methodologies, which included lifecycle costing methodology and condition audits. The Treasury had, over a period of about 8 years, developed a lifecycle costing (LCC) model for the assets held by its major budget dependent agencies in education, public housing, police and healthcare. But this model required a large number of very similar assets to make possible the modelling of renewals using averages and the laws of large numbers, and its use was tailored to large-scale forecasting, analysis and financial planning by the Treasury rather than routine use by small organisations. Another limitation was that most LCC models are based on assets, asset lives and replacement costs, not on services and service levels. Condition audits were another commonly used tool, used to identify areas where facilities do not comply with regulations and to alert facility managers to issues that might affect the longer-term sustainability of the building, for example leaking roofs. In practice, condition auditors tend to go further and list improvements that, in their view, need to be made to the asset, such as painting. Typically, these improvements far exceed the financial ability of the organisation, which means they need to be prioritised. To do this, a fit-for-purpose assessment is needed, but the detailed knowledge of the service delivery requirements of each facility this requires is beyond most condition auditors, so it is rarely done. For these reasons, neither the traditional LCC model nor the condition audits were able to handle the requirement that the framework be aligned to service delivery outcomes, and so a new approach needed to be developed. Recognising that both LCC models and condition audits had their place, an audit of information held by both the NGOs and the larger arts agencies was conducted to 41

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establish the gap between what they had and what they would need for LCC modelling, and a condition audit of NGO assets was used to identify any serious issues of sustainability and compliance. However, the major part of the work involved developing a framework that focused on services and service levels. Most NGOs do not have facility managers, and they tend to focus on what the facilities can do, rather than on the facilities themselves. Few of them, and indeed few of the larger agencies, had mission statements that were in a form that could guide their asset management actions and help them define and measure success. Mission statements and the objectives of many NGOs were very broad, a typical example being to ‘enrich the lives of artists and audiences’. In the absence of clear performance success criteria, it was perhaps inevitable that the ability to secure capital funds was sometimes used as a proxy. Moreover, because of the limitations of recurrent funding, many sought other means, such as the hiring out of their facilities for non-arts purposes, which some came to see as a major function, even though it was not in their remit from Arts Victoria. One of the advantages of the new service-based understanding of their purpose was to help them take a different view of what they do and what success looks like and to be able to measure it, even if only in broad terms.

3.4.

What was done – functional spaces

The development of the Service Oriented Asset Management Framework started with a review of the main functions of each organisation in order to categorise the space around these functions. An art gallery may have several exhibition areas, in separate rooms or separate buildings, but together these serve a single function, that is, exhibiting artwork, so they can be viewed as one functional space. Alternatively, a section of one building may constitute a teaching area that, because teaching is a different function from exhibition, becomes a separate ‘functional space’, even though it may share a building or room with other functions. By this analysis, three exhibition galleries became one functional space, and, in another organisation, three theatres became one functional space. This perspective enabled the discussion to be shifted away from the need for capital enhancements to, say, a specific gallery or theatre, towards the realisation that functions may be able to be fulfilled by any theatre or gallery and that a service may not need to be delivered by each gallery or theatre. This shift in emphasis from specific assets serving a particular geography to functional space helped to focus discussions and decisions on services rather than assets. Without a group understanding of the importance of each functional area to overall service delivery, it was possible to become preoccupied with capital improvements to functions that actually contributed very little to overall service. The development of the service-oriented approach, therefore, placed emphasis on determining the relative 42

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Case study: Arts Victoria

importance of each functional space. Where organisations found this difficult, they were asked to think about what they would want to re-establish first if all their facilities were destroyed by fire. Functional priorities are determined by the organisation’s strategy, and only change when there is a major alteration to that strategy. Having determined the major functions, the next task was to identify the factors that drive those functions. Take, for example, a contemporary dance company whose stated purpose might be ‘to design, produce, present and tour new contemporary dance works of the highest quality and calibre’. It might define, say, five functional spaces, but, of these, three may contribute the bulk of the service delivery. Perhaps its performance studios may be considered to contribute the most, say 40%, with administration 25% and amenities 15%. For each of these important functional spaces, the major factors affecting success would then be identified. For example, for the performance studios it might be considered that the facilities interacted with service delivery outcomes in five ways: through support for innovative creation/design and production, rehearsal and performance under national and international conditions, safety of performers, comfort of performers and the ability of the organisation to grow. Functional spaces not only serve different service outputs, they also serve different interest groups. In preparing the templates, the NGOs were asked to think about the importance of each functional space in terms of g

g

g

the customer/patron experience, for example in theatres, auditoria, foyers, reception areas and galleries the provider experience, for example in administration areas, workshops and loading docks the whole of government experience, for example heritage aspects, long-term physical sustainability of the facilities, and environmental sustainability aspects such as energy and water usage.

Templates provided the basis for this assessment, but the whole of the government issues were also informed by the desktop study that examined information in the form of LCC profiles, condition audits and reports on environmental and heritage issues.

3.5.

What was done – service levels

For each identified functional space, the key factors affecting the contribution that the space makes to the total service outcomes were identified, as above, and then a fivepoint service performance scale, ranging from very poor to excellent, was used to examine each of these key factors in turn. The key to the service levels statements is that they are written as positive, ‘we’ statements, to reinforce the attitude that service levels are only partially determined by the 43

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nature of the physical asset and at least as much by the way it is used. This also encourages the use of non- or low-capital options to achieve higher service level ratings. Each service level is written deliberately as a narrative rather than as a quantitative statement, in order to encourage engagement by everyone in the organisation and to maximise innovative thinking. As an example, for the performance studios for a contemporary dance company, a level 5 statement may include statements such as ‘we are unlimited in our creative ability and can create for small-, medium- or large-sized performances’ (note that this does not imply that all of these abilities are necessarily to be found within the basic facility, and it may be that this is supplemented when necessary). A level 3 statement may include a statement such as ‘we can create a range of performances but have to be mindful that not all spaces have flexible theatrical and audiovisual equipment, although most do.’ A level 1 statement may focus more on the limitations, and include statements such as ‘the small size of available spaces restricts the range of possible productions’ or ‘the absence of sprung floors causes concerns for performer safety’. With the five grades of service levels prepared for each functional space and agreed by the organisations, each NGO was asked to assess where it felt it currently stood on each service scale and where it thought it should be aiming to be. Although the initial reaction of most was to claim a very low current status and to aim for 5 in every case, they, on reflection, were able to recognise that 5 was not necessary for every one of their functions and to adjust their initial assessment of current status. They were advised that Arts Victoria, as the investor, would also have a view as to the current status and the aspirational levels that they were able to support, and thus the NGOs’ assessments should be viewed as the basis for discussion rather than the ultimate outcome. The overall position of each organisation was determined by multiplying the importance of the space in terms of its contribution to service delivery by its current agreed service level. The reliability of the result was enhanced by asking the client manager for each NGO to verify the NGO self-assessment and then by bringing the NGO and the client manager together to reach agreement on a final result. By the end of the assessment process, Arts Victoria had a better understanding of exactly what performance outcomes each NGO wanted to achieve, and the NGOs themselves were clearer about what levels of aspiration the funding body was prepared to support at that point in time. Funding is not provided to help NGOs on this basis – that is determined project by project. The service levels are applied in three ways. 44

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Case study: Arts Victoria

g

g

g

As a basis for discussion – to engage all stakeholders (arts programmers, facility managers, finance, directors, etc., and Arts Victoria) in recognising the relationship between facilities and service delivery and to enable them to come to a common understanding as to the nature of the current service level and what level of aspirations could be financially supported. As a rationale for project proposals – any facility project proposal submitted must now show how, and by how much, the project will improve service delivery. In other words, how it will move them from the current to the agreed aspirational levels. As a measure of improvement – NGOs are required to show how they will know when they have been successful by identifying the key performance indicators they will use; and, to explain what alternative non-, or lower-level, capital strategies have been introduced or considered to address the need.

Figure 3.1 shows the process used to assess the current position of each NGO.

3.6.

Conclusions

The Arts Victoria Service Oriented Asset Management Framework integrates asset management with service outcomes and, by doing so, encourages a wider range of options to be considered than capital enhancement alone. It has now been embedded into funding application documents so that organisations need to relate their bids to service level improvements. It also provides the following. g

g

g

The vehicle for internal debate within the NGOs as to what were the most important contributing factors to service output – previously, there had been no explicit consensus on this, and so different executive members had pursued separate and incompatible goals. Only serious compliance and sustainability requirements are mandated on NGOs. Other requirements may be addressed within the next 2 years, or the next 3–5 years, depending on their importance. Other than these, all capital spending decisions were to be based on the contribution of the asset to service delivery outcomes. Arts Victoria with a way to assess contributions to each NGO against the level of performance improvement that could be achieved. A basis for discussion between Arts Victoria and the Treasury.

The recently published asset management framework service and asset strategy guidance (Department of Treasury and Finance, 2012) further consolidates the link between assets and services through capital and recurrent funding planning and reporting steps. The Treasury guidance document is useful for embedding service as central to securing funds, but it gives limited evidence to users and operators of sites as to how asset management can support, as opposed to inhibit, their abilities to deliver effective services. The 45

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Figure 3.1 Service-oriented asset management – a six-step assessment process

Tasks

Outputs

Step 1

Vision statement/ enabling legislation/ service strategy

Identify and agree organisations vision/mission

Service summary ‘What we do and why’

Step 2

Site plans, operations plans

Understand the functional spaces

List of functional spaces

Service/business plans

Document characteristics of each functional space required to meet the service need

Attributes list of each functional space

Service strategy/ business plans

Scale each space and its characteristics from very poor to excellent (on a 5 point scale)

Attributes present/ not present at each scale

Service strategy/ business plans/ vision statement

Document what service delivery can and cannot be met at each level

Services able to be offered at each scale

Step 4

Service strategy/ business plans/ vision statement

Weight the relative importance to overall service deliver of each space (total 100%)

Prioritisation/ weighting of spaces to service delivery

Step 5

Service strategy/ historic asset management plans

Score current performance and determine the aspirational level for each space

Current score, target score

Service strategy

Combine the weighting and score of each space, and total all spaces to gain an overall score of the assets

Overall asset current score and target score

Step 3

Inputs

Step 6

Courtesy of Arts Victoria

templates and approach, as developed for the NGOs, is the practical ‘hands-on’ document that will help Arts Victoria to apply the new Treasury guidance. Central to this guidance is the concept of how assets will help departments and agencies deliver to their agreed service objectives. The Treasury framework includes three key 46

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Case study: Arts Victoria

strategic planning components – the service strategy, asset strategy and multi-year strategy – which between them provide a view of long-term infrastructure investment needs and inform asset funding decisions. The main requirements of each of these documents are as follows. g

g

g

A department’s service strategy describes its current and future service delivery requirements to meet evolving community needs and expectations. A department’s asset strategy presents the preferred asset position required to support its current and future evolving service delivery requirements and strategies. The multi-year strategy should respond to the asset strategy, which in turn should respond to the service strategy.

The implication is that all asset decisions should be a direct function of the service strategy. A service-oriented approach supports the whole of government policy and practices being introduced and implemented by the treasury, and is expected to improve the capability and capacity to provide services and asset performance information, along with the increasing/evolving service reporting requirements. All government departments and agencies are now required to report on their service, asset and multi-year strategies annually. The appropriate reference to service benefit, impact or delivery must be included in forms and reports used for asset management in future. Funding applications must include key performance indicators with service improvement statements for each item of funding sought. For its part, by applying the framework, Arts Victoria expects to benefit from higher levels of transparency and consistency when delivering and reporting on asset management across the portfolio. Already, the greater clarity of requirements has enabled Arts Victoria to make an essential change to its administration schedules, to enable NGOs the time to provide information with minimum inconvenience to their rehearsal and performance activities.

Discussion questions What are the main implications of service-oriented asset management for the allocation of capital spending? 2. What are the main benefits of all asset decisions being a function of the service strategy? 3. Are there any problems with this approach? 4. What impacts would you expect a service-oriented asset management approach to have on operational efficiency? 1.

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REFERENCE

Department of Treasury and Finance, State Government of Victoria (2012) Asset Management Framework. http://www.dtf.vic.gov.au/CA25713E0002EF43/pages/ asset-management-in-the-victorian-public-sector-asset-management-framework (accessed 10/02/2012).

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Chapter 4

Case study: South West Water 4.1.

Background and context

Due to the age and neglect of the UK sewerage system, there is an increasing reliance on human intervention to ensure adequate service is delivered to the customer. An article published in the Guardian newspaper stated ‘Britain is under intolerable strain and in many areas is on the brink of collapse after decades of chronic neglect and under-investment. There are more than 186 000 miles of public sewers but only 241 miles of these were replaced or upgraded last year’ (Scott, 2003). In terms of equivalent life, this equates to the reliance on sewer assets to achieve an average age of 772 years prior to rehabilitation. Shockingly, the average equivalent age has in fact increased in 2010 to beyond 1000 years (Ofwat, 2010). Proactive sewer rehabilitation is known to reduce sewer collapse rates, and understanding asset condition is a fundamental step towards this. It is reassuring, therefore, that water companies have begun to report an increased level of critical asset condition inspections, using CCTV surveys, from a total of 637 km in 2001–02 to 1610 km in 2009–10 (Berardi et al., 2009; Ofwat, 2010). Most sewerage networks comprise ageing assets that are becoming increasingly more susceptible to failure. The failure rate, or collapse rate, within a network is one of the major indicators that a sewerage system is deteriorating. In their most recent asset management plan (AMP) submissions, nearly all of the UK’s ten water and sewerage utility companies have demonstrated a commitment to improve their sewerage asset failure rate (Ofwat, 2009). This is normally achieved by increasing the investment in sewerage asset maintenance. To make sure this investment returns the highest possible benefit, it is crucial that comprehensive sewerage rehabilitation strategies are developed and implemented over the next few years (Ward and Savic´, 2011a). Under the terms of the UK privatisation legislation, the 1989 Water Act, the water industry regulator, Ofwat, is given the responsibility for the operation of the industry price cap system. The price cap system currently involves a 5-yearly periodic review process to determine the price increase that all of the UK’s water and sewerage providers can apply to their customers. The process is based on the retail price index 49

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(RPI) þ K formula, where K is a value that reflects the companies’ need to finance investment to meet customer service requirements (Helm and Rajah, 1994). The K value is unique for each water company, and implicitly implies investment constraints. Therefore, at each 5-yearly periodic review, utility providers must demonstrate a comprehensive understanding of their asset stock and their future investment requirements, in order to justify price rises above the RPI. The capital investment requirement for underground assets is submitted to Ofwat in the form of 5-yearly AMPs. Following the privatisation of the UK water and sewerage provisions in 1989, AMP1 covered the period 1989–94. In 1994, the first price limit cap was established from the periodic review of 1994 (PR94). This process has continued to date, such that the periodic review of 2009 (PR09) has determined price limit rises for the capital investment period of 2010–15 (AMP5). South West Water (SWW), in partnership with AECOM, has developed a number of bespoke planning and investment tools that it uses to produce detailed specifications of its sewerage infrastructure investment needs, which is underpinned by a comprehensive understanding of asset risk. Two key sewerage infrastructure asset management methodologies have been fully implemented within SWW’s business as usual process to achieve this. g

g

The sewer location model (SLM) – this is a risk-based model that considers the likelihood of sewer collapse, through the use of a predictive deterioration and collapse model, and the ensuing consequence of failure. It was developed by AECOM to assist SWW meet the Ofwat requirement to ‘remedy the serviceability trend’ in sewerage infrastructure. The sewerage economic assessment model (SEAM) – this is an asset management process developed by AECOM to help SWW address flooding and pollution risk on its sewerage networks. SEAM is used to identify, quantify and assess failure risk leading to the scoping and costing of outline engineering interventions to address flooding and pollution problems. Aligned with the Capital Maintenance Planning Common Framework (UKWIR, 2002), SEAM was originally developed to facilitate the generation of SWW’s PR09 sewerage business plan, and helped the company achieve a positive final determination from Ofwat. SEAM has since been fully adopted as a SWW business-as-usual planning methodology, with outputs used to populate its AMP5 capital investment plan and support its PR14 business plan submission to Ofwat. Figure 4.1 shows the key stages of the SEAM process.

SLM and SEAM replace the traditional drainage area plans (DAPs). 50

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Case study: South West Water

Figure 4.1 The SEAM process flow – ‘business as usual’ Courtesy of Aecom and South West Water

Input Failure data SQL feed from Ellipse • Work orders • Flooding register • EA polution

Assessment

Developing the plan

Implementation

GIS hotspotting Identify flooding and pollution hotspots

Supply and demand • SWW S&D tools • Council LDFs Other data • SLM: collapse risk, CCTV, planned rehabilitation • Hydraulic model library: RPA • Capital/reactive works • Problem statements • SWMPs

Assess hotspots Using failure data Consider S&D issues

Identify problem locations Create ‘SIRF’ in GIS to gather failure data ‘Quertail’ analysis and risk reporting tool Pre/post intervention risk benefit cost (OPMs) Identify intervention options Capex/opex

Validate assessment Operations review

Cost interventions (FBP cost model)

Catchment interventions Cost and benefit

Coherence meeting • Strategic input and validation • Identify funding route

Clementine

RIOW Catchment summary report PR14 plan Feedback Intervention delivered and cost

Feed to investment manager

AMP5 Scoping and delivery

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4.2.

Effective planning

A fundamental requirement of any asset management system is an effective planning platform. There has been a plethora of guidance and key framework documentation that offers advice in this area to water service providers. Historically, planning approaches, particularly those used to underpin capital maintenance submissions to Ofwat, were inconsistent across water service providers, and the guidance provided by Ofwat itself was criticised (Heywood et al., 2002). Later, the Sewerage Risk Management (SRM) website (WRc, 2004) provided a detailed approach to sewerage management planning. This encompasses many of the principles contained in the capital maintenance planning document, and describes a step-by-step approach to sewerage management. The asset investment modelling approach, utilised in SWW’s sewer rehabilitation programme, draws heavily on this accepted guidance. SLM prioritises sewers for CCTV investigation, and is used to generate SWW’s sewerage capital maintenance submission to Ofwat. The SLM tool fulfils many of the requirements listed in the capital maintenance planning document and the SRM approach, including g g

g

a 25-year forward view of asset maintenance requirements suitable spatial unit definition, using procedures that can be readily adjusted and/ or updated to reflect changing priorities adopting a risk-based logic for decision-making.

SEAM is being used by SWW as a tactical tool to plan investment to address flooding and pollution issues. It represents a risk-based, cost-effective alternative to DAPs. The SEAM process, which is also aligned with the SRM approach, works as follows. g

g

g

Historic failure data are plotted in a geographic information system (GIS) environment (ESRI, 2012). A buffering process is used to identify hotspots representing areas at risk of failure. Failure thresholds are applied to avoid an overload of low-level risks. A desktop engineering study is completed for each catchment to assess flooding and pollution hotspots, quantify the associated risk and derive specific intervention options to address these risks. An automated risk reporting tool has been created in Microsoft Excel1 to draw selected failure data from GIS and enable the quantification of risk, based upon an assumed Poisson analysis of the failure modes. The risk model also calculates the associated financial benefit to SWW of resolving each specific flooding or pollution issue. The engineering assessment is validated at two stages. First, through a meeting with frontline operation staff, which is used to confirm the failure mode and risk, and that the intervention is reasonable. Interventions are then costed. Secondly, through a ‘coherence meeting’ with senior SWW staff, which is used to obtain

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Case study: South West Water

g

strategic input, agree the specific risk and interventions to pass forward, and identify potential funding routes for delivery. The output from each desktop engineering study is a set of flooding and pollution risks (effectively, future project objectives) with a projection of their financial benefits and costed outline intervention options (capital or operational expenditure). This information is used as a starting point for more detailed engineering evaluation of the interventions selected for delivery by SWW’s investment manager system, which is used by SWW to prioritise investments using cost–benefit criteria.

4.3.

Investment optimisation

Decision-making and planning for sewerage asset renewal is a process that seeks to evaluate the condition of an asset, its risk of failure and the cost of remediation (Halfawy et al., 2008). Typically, these objectives are in conflict, which implies that rehabilitation solutions that most improve the structural condition of an asset have the highest associated costs. Therefore, to facilitate effective planning and investment, it is important that decision-makers understand the cost–benefit trade-offs that exist between different rehabilitation solutions. An asset investment decision environment (aiDE) has been developed within Microsoft Excel1 to allow the application of a multi-objective optimisation tool to sewer rehabilitation planning. Engineers and planners are using this new approach to assist in the identification and delivery of SWW’s multi-million pound sewer rehabilitation programme. Within this programme, the tool acts as a quantitative mechanism for evaluating different work programmes and justifying rehabilitation programme decisions on the grounds of cost minimisation, structural condition improvement and risk aversion. aiDE capitalises on the availability of standardised CCTV condition grading information, which has been recognised as the single most important element of information used by planners, engineers, consulting engineers and contractors in helping to ascertain the condition of sewerage assets (Wirahadikusumah et al., 1998). The current method of sewer condition classification (MSCC4) is the most widely used and accepted condition grading format in the UK, and produces a computer-coded output tabulating the observed defects and their extent (WRc, 2004). The optimisation process, following the collation of CCTV survey data within InfoNet (Innovyze, 2012), is shown in Figure 4.2. The sewer rehabilitation optimisation model orientates engineers towards high-benefit– low-cost solutions that could not otherwise be identified. It is a decision support tool that enables a cost–benefit trade-off based solution evaluation for an array of various 53

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Figure 4.2 The sewer rehabilitation planning optimisation process Courtesy of Aecom and South West Water

CCTV database

User-defined filtering (or) grouping

Initial population

Structural condition improvement

Construction cost

Critical risk of failure

Optimisation environment

Optimal solution trade-off curves

rehabilitation solutions and combinations of solutions at the catchment level. Figure 4.3 shows a typical output from aiDE. Each result on the graph represents a unique solution to a problem, that is, which sewer assets to rehabilitate and the extent of rehabilitation for each asset. The aiDE output is used as a quantifiable means of selecting rehabilitation strategies, which are defined by a point on the graph. Each strategy has an associated investment cost and performance benefit that is plotted on the graph to form the trade-off curve. Therefore, the engineer uses the aiDE output to select one of the numerous strategies identified by the model by considering investment constraints or desired performance levels. For example, Figure 4.3 demonstrates that given a capital investment constraint of £40 000, the maximum total structural condition improvement score for the catchment, is slightly less than 20 000 units. This sewer rehabilitation optimisation model has been previously applied to two catchment case studies for SWW where a more detailed description of the methodology and scoring systems is provided. Ward and Savic (2011b) report cost savings in the region of 45–55% for two pilot catchments, when compared with the use of conventional engineering judgement in the development of catchment-wide rehabilitation programmes. 54

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Case study: South West Water

Figure 4.3 Typical output from the aiDE within Microsoft Excel1 Courtesy of Aecom

The SEAM process and study outputs are integrated into the asset planning and capital delivery process. Tactical outputs from the catchment studies are fed into the SWW investment manager system, which identifies high-priority SEAM interventions and passes them forward to the capital plan for AMP delivery. The remaining outputs will be used to support future business planning, including the periodic review.

4.4.

Conclusions

Infrastructure asset management is a dynamic and evolving process. It involves many groups of people with unique and varied skills, including planners, data analysts, statisticians, financial planners, procurement, GIS specialists and engineers, who must work together to achieve a common goal (Ward et al., 2011). Some areas of asset management have suffered from over complexity, and ‘there is currently a lot of discussion about criticality, risk management and risk-based decision-making, [and] there is still plenty of confusion’ (Woodhouse, 2011). It is important, therefore, that the key objectives of an asset management strategy are prominent, agreed, visible and attainable. Sewerage systems are an essential element of the urban water infrastructure system. The rehabilitation and maintenance work associated with these assets form a large part of SWW’s annual expenditures. As these infrastructure systems age, the pressure to effectively manage and rehabilitate these systems is also increasing. Accurate data are an essential prerequisite for effective asset management. Of equal importance is the platform on which that data are held. The platform needs to be centralised, accessible and consistent across the business. Software developers are in commercial competition, and while this is beneficial for creating new technologies and 55

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techniques for data storage and manipulation, there is a danger of data formats being unique to certain software. In some regards, sewerage asset management has historically lagged behind infrastructure asset management approaches in other industries, such as rail. This is due primarily to the consequence of failure. For rail, any failure is potentially catastrophic, with possible associated loss of life. This is not the case for sewers. However, more recent advances in sewerage asset management have been driven by a need to reduce costs and more effectively manage risk. Additional environmental concerns have also heightened the consequence of sewerage infrastructure failure, and now feature prominently in the costs of such events. By combining the use of SLM and SEAM, SWW can assess and manage the whole gambit of its sewerage service issues in a consistent, auditable and robust manner.

Discussion questions What does the average equivalent age of an asset signify? Why are businesses that are responsible for ageing infrastructures under increasing pressure to demonstrate that they are effectively managing and rehabilitating them? 3. What are the main sources of pressure and how would you rank them? 4. What is more important to ensuring that cost–risk–benefit decisions are robust, consistent and auditable – training, data accuracy or the decision support tools available? 1. 2.

REFERENCES

Berardi L, Giustolisi O, Savic´ DA and Kapelan Z (2009) An effective multi-objective approach to prioritisation of sewer pipe inspection. Water Science and Technology 60: 841–850. ESRI (2012) ArcGIS 10. http://www.esri.com/software/arcgis/arcgis10/index.html (accessed 10/02/2012). Helm D and Rajah N (1994) Water regulation: the periodic review. Fiscal Studies 15(2): 74–79. Heywood G, Lumbers J, Reid S, Ballance T, Chalmers L and Haywood Smith B (2002) Capital Maintenance Planning: A Common Framework, vol. 1. Overview. UK Water Industry Research, London. Innovyze (2012) InfoNet. http://www.innovyze.com/products/infonet/ (accessed 10/02/ 2012). Ofwat (2009) Future Water and Sewerage Charges 2010–15: Final Determinations. Ofwat, Birmingham. http://www.ofwat.gov.uk/pricereview/pr09phase3/det_pr09_ finalfull.pdf (accessed 10/02/2012). Ofwat (2010) Latest data. http://www.ofwat.gov.uk/regulating/junereturn/jrlatestdata/. 56

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Scott K (2003) The dirty bomb beneath our feet, thousands of miles of ageing sewers. The Guardian, 23/11/2003. http://www.guardian.co.uk/environment/2003/sep/23/ water.uknews (accessed 10/02/2012). UKWIR (2002) The Common Framework and Justifying Investment in ‘Management and General’ Asset Types, 11/RG/05/31. UK Water Industry Research, London. Ward B and Savic´ DA (2011a) A multi-objective optimisation model for sewer rehabilitation considering critical risk of failure. Proceedings of the 4th Leading Edge Conference on Strategic Asset Management, Mu¨lheim an Der Ruhr. International. Water Association, London. Ward B and Savic´ DA (2011b) Multi-objective optimisation for sewer rehabilitation investment planning. Proceedings of the 34th International Association for HydroEnvironment Engineering and Research World Congress, Brisbane. Engineers Australia, Barton. Ward B, Jorgensen J, Savic´ D and Rosser S (2011) Sewerage infrastructure asset management: an approach to encapsulate effective planning, investment optimisation, enhanced data availability and efficient solution specification. Proceedings of the CCWI International Conference, Exeter. Woodhouse J (2011) Value, risks and decision making. Assets: The Institute of Asset Management Magazine, May. WRc (2004) Sewerage Risk Management – Manual, 4th edn. Water Research Centre, Swindon.

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Chapter 5

Case study: City of Calgary 5.1.

Background and context

The Parks Business Unit is part of the Community Services and Protective Services Department of the City of Calgary in Canada. The Unit is the asset steward for over 700 km of multipurpose pathways, 7822 ha of parks and open space, and around 97 000 individual assets. Its net operating budget in 2012 will be in the region of C$78 million (City of Calgary, 2010a). The unit works within a framework of City of Calgary priorities and desired strategic results, of which the main areas that relate to the parks unit are g

g g

providing and maintaining great public spaces and places that enrich Calgarians’ lives and promote an attractive liveable city promoting a healthy and sustainable environment ensuring a sustainable city.

The portfolio of Parks Business Unit operations covers urban forestry (445 000 trees), open space and water management, pathways, pest management, day park user facilities, sports fields, playgrounds (over 1000), park benches (4800), picnic tables (1400) and wading pools. The unit’s activities include creation, maintenance, operational management and refurbishment. Parks mean many things to Calgarians, ranging from protected natural areas to multipurpose parks, sports fields or urban plazas. This diversity of spaces requires a careful balance of infrastructure development, biodiversity and usage. Parks are an important, cherished and freely accessible part of Calgary neighbourhoods, providing an important connection to nature both for respite and enjoyment as well as a place of discovery and education for children, bringing opportunities for physical activity within every community and helping to keep citizens active, healthy and balanced. Focusing on citizen expectations involves addressing emerging issues such as off-leash areas for dogs and community gardening. Citizens also want to easily access information about the Parks Business Unit services online.

5.2.

Introduction of asset management

The Parks Business Unit was prompted to adopt asset management practices when, in June 2006, the Canadian Public Sector Accounting Board (PSAB) passed PS 3150, 59

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federal legislation that requires all municipalities to report tangible capital assets (TCAs) on their statement of financial position (balance sheet) with effect from 1 January 2009. PS 3150 also requires a new format for municipal financial statements, and requires that tangible capital assets be amortised on the statement of operations (income statement), also with effect from 1 January 2009. In 2009, the Parks Business Unit implemented an asset management system called the Parks Asset Reporting and Information System (PARIS), a work order system designed to improve open space management that comprises two main software modules. g g

Oracle – work and asset management (WAM). ESRI – a geospatial information system (GIS).

PARIS has enabled the Parks Business Unit to keep up-to-date records of maintenance costs and activities for assets to be produced. It also provides the means by which compliance with PS 3150 requirements is achieved. By combining more accurate asset information and TCA reporting, the unit was able for the first time to deliver reliable and readily available technical and operational asset data to decision-makers. During 2010, the first full year of using PARIS, the Parks Business Unit was able to move away from multiple mapping and tracking programmes to one comprehensive system based on a GIS. PARIS provides access to information on more than 5000 individual land parcels and 97 000 assets. The data provided and decisions realised from PARIS will allow for greater efficiencies in the Parks Business Unit operations as well as improved financial and asset reporting. For example, the unit has commenced developing levels of service criteria that link to performance measures in the city’s assets with regard to water conservation, turf health, urban forestry, playgrounds and pathway safety. The next objective for the business units was to produce asset management plans (AMPs) and develop their asset management practices. Corporate Asset Management (CAM), a business unit within the Infrastructure and information Services Department, was tasked with creating the first organisation-wide AMP, which was to be supported by plans developed by each of the nine asset-owning business units. It was also responsible for creating an asset management framework and helping the other business units to develop their asset management practices in accordance with this. An important step towards these objectives was the establishment of an asset management planning programme that set out to g g g

increase knowledge and organisation capability develop and implement asset management tools establish key practices and processes.

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The importance of asset management was reinforced in July 2010, when the city published its asset management policy. Aligned with BSI PAS 55, this was intended to allow business units ‘the latitude to develop, implement, operate and continually improve asset management best practices for their particular asset types and businesses within a common framework and an asset management system’ (City of Calgary, 2010b). CAM collaborated with the Parks Business Unit to document levels of service and risk assessments and help it introduce asset management planning within the business unit. The resulting Parks Business Unit AMP and asset management practices improvement plan were delivered to CAM in 2010, and the information contained in them is helping CAM to develop the city-wide AMP. The Parks Business Unit focused on quantifying customer levels of service (CLOS) by developing a five-star rating system. This involves using a qualitative measure to evaluate the customer experience offered by each park, and assigning it a rating of one to five. Whereas some business units can measure customer experience using direct measures such as water pressure, water quality or water availability, measuring customer experience was much more difficult for the Parks Business Unit, and had to be done using indirect measures. Assets within a park are not there for their own sake. They form part of a system that is designed to create an experience. The CLOS rating is designed to measure that experience, and was developed as follows. A subject matter expert group (SME) was established, consisting of CH2M Hill consultants, IIS representatives and Parks Business Unit managers. 2. The SME group decided to arrange parks in three classes g regional (large parks, usually high profile with high customer expectations) g community (smaller parks that constitute most of the parks in Calgary) g natural (environmentally sensitive and protected land). 3. The SME group identified ten assessment criteria for regional parks, which relate to assets and the overall customer experience g access g signage g aesthetics (soft) g aesthetics (hard) g functionality – amenities g functionality – activities g functionality – seasonal/special events g pathways and trails g biodiversity g shine – cleanliness of the park. 1.

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All these criteria were considered to cover important aspects of the customer experience, but it was recognised that some were more important than others, so a pair-wise comparison was carried out by the SME in order to weight the criteria. In other words, criteria that have a higher impact on the overall rating given to each park would be assigned a higher weighting so as to increase their Table 5.1 Customer levels of service subcriteria Criterion

Subcriteria

Access

Parking lot provision and condition Lighting provision and condition

Signage

Provision and condition of directional and interpretative signs

Aesthetics (soft)

Provision and condition of trees and shrubs Provision and condition of turf Provision and condition of floral displays

Aesthetics (hard)

Provision and condition of parks furniture Provision and condition of decorative features such as public artworks Provision and condition of buildings

Functionality – amenities

Provision and condition of picnic areas Provision and condition of catering Washroom provision Washroom condition Washroom availability

Functionality – activities

Provision and condition of utility/sports areas Provision and condition of unstructured play areas (open spaces) Provision and condition of playgrounds Provision and condition of playground equipment Provision and condition of fencing

Functionality – seasonal/special events

Provision and condition of summer activities such as spray parks and wading pools Provision and condition of winter activities such as designated toboggan hills and skating rinks Provision and condition of special event infrastructure

Pathways and trails

Provision and condition of paved pathways Provision and condition of trails

Biodiversity

Inclusion of natural area

Shine: cleanliness of the park

Garbage bin emptying Graffiti removal Litter removal Security

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Courtesy of City of Calgary

Figure 5.1 Example output from the CLOS tool

Case study: City of Calgary

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impact on the overall rating. This would enable the Parks Business Unit to prioritise funding to higher weighted criteria that could be expected to produce a ‘bigger bang for the buck’ from park improvements. Once the weighted criteria were established, the set of subcriteria in Table 5.1 was developed to give a better idea of which asset type should be scored for each criteria. Each subcriterion is given a rating between 1 and 5, and these ratings are then combined to given a total asset score, as shown in Figure 5.1. 4. Five regional parks were selected to validate the CLOS rating process. On the basis of the results of this exercise, the SME group decided that it was producing an accurate representation of the regional parks concerned, and rating of all regional parks commenced. 5. The same process of selecting evaluation criteria and subcriteria for community parks and natural areas began in 2011.

5.3.

Performance measures

The Parks Business Unit has developed a suite of target performance measures combining customer and asset levels of service. Table 5.2 presents examples of these for playgrounds. Table 5.2 Example target performance measures for playgrounds Performance measure

Target

Methods of measurement

Comments

Recommendation for use

Customer level of service rating as affected by the following measures

85% rated 3 or higher

AMP – customer level of service rating

Adopt-a-park volunteers – possible representative sampling

External

Safe and in good repair: % of formal inspections of playground equipment conducted as per plan

100%

PARIS work orders – WAM query

Assessed condition rating: % of playground equipment in 1, 2, or 3 condition

100%

WAM query

Asset upgrade: Number of playground lifecycle upgrades completed

15 per year

PARIS work orders and GIS change requests – WAM query

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External

External

Case study: City of Calgary

Customer and asset data will be collected and analysed later in 2011 to produce the actual performance.

5.4.

Conclusions

The Parks Business Unit is currently developing formal asset performance procedures. The purpose of the asset management procedures is to identify operational asset requirements and, ultimately, to produce capital or operational funding requests focused on achieving target performance. The results of this work are feeding into a new benchmarking initiative to compare the performance of the Parks Business Unit against that of other Canadian and international municipalities.

Discussion questions 1. 2. 3. 4.

How would you assess the customer experience of a hospital? How could the reliability of the results be improved? How would you use the information to determine levels of service? How could customer experience data be factored into long-term asset management planning?

REFERENCES

City of Calgary (2010a) Parks 2010 Annual Report. Community Services and Protective Services Department, City of Calgary. http://www.calgary.ca/CSPS/Documents/ CSPS-Annual-Reports/Parks-2010-Annual-Report.pdf (accessed 10/02/2012). City of Calgary (2010b) Administration Policy: Asset Management, GN-001. Corporate Services, City of Calgary. http://publicaccess.calgary.ca/lldm01/livelink.exe?func= ccpa.general&msgID=YsrseqArsC&msgAction ¼ Download (accessed 10/02/2012).

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Chapter 6

Case study: Scottish Water 6.1.

Background and context

Scottish Water is a publicly owned company formed in 2002, answerable to the Scottish Parliament and the people of Scotland for the provision of water and sewerage services across the country. It is the fourth largest water company in the UK, covers a third of the UK land mass and serves 5 million customers in widely spread rural and urban communities. It has 10 000 operational sites and 100 000 km of buried infrastructure. Its asset stock is a diverse and ageing infrastructure, subject to ever more demanding service and efficiency targets. Historically, investment decisions were made to meet relatively short-term objectives within individual regulatory contracts. In the early days of the company, this was a successful strategy – operating costs were cut by 40% by 2006, and service improved by a similar margin by 2009. However, as targets became tighter other issues became more significant. Capital efficiency could be improved – the regulatory cycle created construction peaks and lulls; some sites had projects every period; infrastructure renewals were small and dispersed; and some designs were aborted, as higher priorities emerged late in the programme. Shortterm operational decisions were leading to medium-term investment issues. Scottish Water recognised the need for clear, robust and cohesive strategies, aligned to long-term national aims. This required a new structure to long-term planning: one that would grow robustly, and be open, well understood and based upon sound processes of decision-making.

6.2.

Multiple strategies within a defined framework

To manage service optimally from thousands of diverse assets requires strong and integrated asset management thinking. Scottish Water desired a visible line of sight from organisational vision right down to asset level interventions. It wanted to put customers at the heart of every decision and to optimise the management of its resources. As an aspiring leader in customer-focused asset management, Scottish Water has sought to align its approach to best practice, in the belief that this will enable achievement of its organisational aims. PAS 55 (BSI, 2008) sets out requirements, defined by the Institute of Asset Management, for the optimised management of physical assets. It calls for organisations to establish, document, implement and maintain a long-term asset 67

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management strategy (clause 4.3.1). The UK water industry has developed a method of self-assessment for company approaches to asset management planning (UKWIR, 2007). Recent regulatory comparisons (Ofwat, 2009) have placed particular emphasis on the following attributes g g g g

leadership policy and strategy stakeholder engagement systems, processes and data analysis.

The following sections discuss Scottish Water’s approach, which takes the form of multiple strategies within a defined framework. They also describe how stakeholders are engaged in strategy development and how the company ensures its strategies are underpinned by sound analytical thinking.

6.3.

A structured hierarchy for strategies and plans

With so many disparate assets and a wide variety of service measures, including water quality, pressure, environmental pollution and flooding, it was not appropriate to have one asset strategy that set the investment and operating direction for all assets. Instead, Scottish Water established an asset strategy framework containing multiple strategies. It is this framework (Figure 6.1) that provides the ‘golden thread’ from organisational vision down to front-line asset interventions. Figure 6.1 Scottish Water’s asset strategy framework Courtesy of Scottish Water Organisational vision Organisational strategies Asset management strategy

Water geographic strategies

System planning

Waste water geographic strategies

Pan-Scotland strategies

Asset master plans

System planning

Asset lifecycle plans Capital delivery

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Operational delivery

Case study: Scottish Water

6.3.1 Asset management strategy Scottish Water’s organisational vision is underpinned by six pillars, each supported by between four and six strategic business objectives. The asset management strategy sets out a further 40 asset-management-specific objectives that promote steady progression towards the vision. In particular, they state where the company wishes to be relative to its peers and how it intends its asset management culture to evolve over the next 25 years. Twenty-three strategic approaches are then outlined to achieve those objectives. The 40 asset management objectives range from practical measures to long-term aspirations. For example, under ‘serving the customer’ there are objectives around always understanding customer preferences for investment; ensuring all projects have a net positive impact on the customer; and the more aspirational, designing, building, maintaining and operating assets, to enable zero service disruption. The 23 strategic approaches are aligned with the asset management conceptual framework developed by the Institute of Asset Management as part of its work on looking beyond PAS 55 compliance (IAM, 2011). In these, Scottish Water chose to place particular emphasis on asset management decision-making and lifecycle delivery, which include approaches such as leading-edge asset and service risk analysis, lifecycle cost optimisation, whole-life cost efficiency in procurement and capital investment delivery, capital investment for the community, intelligent control centre and operational work optimisation. This high-level strategy, therefore, focuses on optimising asset management practice rather than setting out what should happen to the assets themselves, which is addressed in the next level of the framework. 6.3.2 Pan-Scotland strategies and geographic strategies Fourteen pan-Scotland, or portfolio, strategies set out the high-level, long-term approach to Scottish Water’s delivery of asset-related services, for example water quality, and functional requirements such as asset operational maintenance. Figure 6.2 provides an illustration of their structure. Alongside these sit geographic strategies – 26 for water and 14 for wastewater. These set out the long-term optimised approach to service delivery within specific and large integrated systems or regions. In so doing, with regulatory and ministerial involvement, they will shape the long-term future of water service and wastewater-related environmental protection in Scotland. Pan-Scotland strategies consider long-term scenarios in terms of political, economic, social, technological, legislative and environmental factors (commonly referred to as 69

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Figure 6.2 A pan-Scotland strategy example of translating a long-term organisational aspiration into asset management goals, strategic intents and actions Courtesy of Scottish Water

Organisational vision statement

Never disrupt our customers

Objectives and goals

Flexibility of water movement during extreme weather

Key strategic intents

Utilise supply demand balance (SDB) tools

Actions

Develop real-time dynamic assessment of SDB

Measures of success

Security of supply index

PESTLE analysis). Each factor has a varying degree of impact dependent on the strategy, for example environmental factors have a big impact on the asset resilience strategy, and technological factors have a big impact on the monitoring, control and automation strategy. They are also supported by long-term statistical analysis of demand and supply in growth and hydrological models, respectively. The latter are also addressed in the pan-Scotland strategies for growth and water quantity. Long-term optimisation of geographic strategies is achieved through asset lifecycle cost analysis of high-level site and catchment options, for example variations in usage, expansion, rationalisation and decommissioning. These options are assessed for robustness under various future operating scenarios, for example population growth, climate change and industry economics. The asset lifecycle cost analysis commences with a baseline assessment, followed by systematic calculation of generic asset design lives and regional application of long-term asset deterioration and risk models (more on these later). It is only with the pan-Scotland and geographic strategies working together that Scottish Water meets the asset management strategy requirements of PAS 55. For example, clause 4.3.1 of Part 2 of PAS 55 states that ‘the organisation shall establish, document, 70

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Case study: Scottish Water

implement and maintain a long-term asset management strategy which shall be authorised by top management’. In this regard g

g

g

the geographic strategies provide the high-level plan for converting asset management objectives across the whole asset portfolio (subclause a) the pan-Scotland strategies set out asset management objectives associated with procedures and functional specifications (subclause b) the geographic strategy development process requires the completion of an asset report card that assesses the overall physical condition, age profile, flexibility and suitability of the assets (subclause g, bullet 8).

6.3.3 Asset management objectives The full requirements for asset management objectives within PAS 55, Part 2, clause 4.3.2, are similarly only met when all strategy types work together. In accordance with that clause, it is the geographic strategies that ‘ensure objectives are achievable’ and ‘resolve any inherent conflict within them’. They do this by applying the pan-Scotland strategies to the asset stock, and feeding back cost, risk and service achievability of the principles therein. 6.3.4 Asset plans The next layer of the framework contains asset lifecycle plans. These are system plans (source to tap and sink to sea) that enact the asset strategies and enable the delivery of the asset management objectives. Scottish Water’s approach to asset lifecycle planning is undergoing significant enhancement at the time of writing. There are already 265 drinking water safety plans for hydraulically connected systems and 90 drainage area plans, with 244 studies, for wastewater catchments. These cover the vast majority of the population served. The new approach to planning will build on that work by going into greater detail. It will drive towards zero service failure, while pursuing the optimum balance of performance, risk and whole-life cost. The plans will set out lifetime capital investment, operation and maintenance regimes at appropriate intervention levels, for example water main relining, pumping station planned maintenance tasks or critical equipment replacement. Asset lifecycle planning will be partly informed by ‘asset master plans’. Asset master plans exist for each principal asset process type (e.g. water membrane filters). They provide guidance on planned operational activities, criticality engineering and process design standards. They also guide the age at which assets should be repaired, refurbished or replaced, to attain the lowest whole-life cost of ownership. They are informed by sound engineering knowledge, capital investment specifications and a developing set of statistical models that quantify asset risk over time. This asset-type segmentation 71

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enables intervention decisions for any one asset to be supported by data gathered from a wide selection of its peers across Scotland. 6.3.4.1 The use of maturity scales in stakeholder engagement Scottish Water first started applying maturity scales to its asset risk modelling, then extended the approach to strategy and plan development. The power of the approach came into its own in stakeholder engagement. Even before the challenge of engaging regulators and customers, Scottish Water has around 300 direct internal stakeholders planning or leading the operation of assets. As in any organisation, all of these people have both common and competing objectives. They also have differing experiences, opinions and preferred means of making decisions. The structure of the strategy framework aided consistency and understanding of what decisions needed to be made at each level of the value chain. But gaining consensus on those decisions requires considerable consultation. Early stakeholder engagement in a strategy or plan enables them to better understand and influence the principles upon which it is based. To keep them engaged, it helps to involve them with each step of technical development. Scottish Water, in conjunction with the UK Water Statistics User Group, has drafted a best practice guide to data analysis. A recent paper to the Institute of Asset Management (Murray and Gee, 2011) outlines the data analysis spiral, a seven-step iterative process for technical development and acceptance that is summarised in Figure 6.3. The process starts with capturing stakeholder requirements (top left quadrant), and progresses to ultimate acceptance and use of the results by those same stakeholders (clockwise progression back to the same quadrant). Stakeholders are kept informed of the maturity state, and are asked to accept early findings within the limitations of development to date. Full acceptance is only achieved after several iterations of maturity development. The appropriate number of iterations relates to the nature of the analytical application. The acceptance of model conclusions grows with the maturity of the model itself (a widening of the spiral). Planners in Scottish Water follow a similar approach for strategies, involving successive consultations and growing levels of maturity. Strategy development starts with basic direction and rudimentary costing, and ultimately incorporates more extensive data analysis. The steps to maturity progression are clearly laid out in advance to the stakeholders, so that ‘challenge for benefit’ is pertinent to the level of strategy advancement. 6.3.4.2 Appropriate tools for appropriate decisions Robust strategies and plans require mature analysis. The UK water industry uses a mixture of analytical processes, including 72

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Case study: Scottish Water

Figure 6.3 The data analysis spiral Murray and Gee, 2011

g g g g g

asset risk, service and organisational econometric data modelling engineering process and hydraulic modelling systematic failure mode and criticality analysis performance and condition monitoring standard logic trees.

To achieve optimisation, ideally, all decisions would be based on fully predictive risk analysis and high-quality data. However, since Scottish Water has so many diverse assets, and because extensive data maintenance can be an industry in its own right, it has to be realistic about what can be achieved. Indeed, there are many decisions for which expert judgement is more than adequate, or rudimentary monitoring and assessment will suffice. Three particular forms of risk analysis are operated in Scottish Water. g g g

Basic risk monitoring and management. Systematic assessment. Statistical analysis.

These influence medium- to long-term planning in a number of ways. 73

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6.3.5 Basic risk monitoring and management Basic risk management methodologies and processes are applied across a variety of asset management activities, for example, asset procurement, asset disposal, drinking water safety assessment and flood risk management. Scottish Water has developed an audit approach to test the robustness of each methodology, based upon PAS 55 and ISO 31000 (ISO, 2009). To fully meet the audit criteria, a risk methodology would: Encourage recognised and structured methods for risk identification, such as inspection check lists, FMECA and HAZOP studies and strategic assessments such as PESTLE. Q Use a consistent risk quantification or qualification approach, including a risk classification system to enable accumulation and aggregation of similar risks. E Ensure alignment between operational, planning, departmental and corporate risk registers, with escalation in accordance with predetermined governance levels. M Ensure risks are managed with appropriate responses (tolerate, treat, transfer, terminate), resources controlled, contingencies planned for, and risks reported, monitored and reviewed. C Ensure risks are only closed out under appropriate authority, with residual risks recorded and continuous post-appraisal-based feedback. I

Each methodology was judged against the above IQEMC criteria using a red, amber, green classification for process capability and consistency of application (Figure 6.4). An improvement plan was developed accordingly. Most of these basic methodologies focus on identifying current risk. They therefore inform day-to-day operational decisions and the early years of capital investment within an asset lifecycle plan. They have less influence on the long term, although similar approaches can be applied in the early maturity stages of an asset strategy. Consistency of application requires an element of systematic assessment. Figure 6.4 A typical risk methodology health assessment. (In practice, the shades of grey would be colours red (R), amber (A) and green (G)) Courtesy of Scottish Water

Method No. 1

I

Q

E

M

C

Capability

G

A

G

A

G

Application

G

A

A

G

R

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Case study: Scottish Water

6.3.6 Systematic assessment PAS 55, Part 2, clause 4.4.7.7, lists a variety of systematic risk assessment approaches. One of these concerns operational maintenance planning – termed risk-based maintenance (RBM). The first step that Scottish Water took towards RBM was to score asset sites for criticality, using criteria such as g g g g g

flow, properties served, or population equivalent plant size or rating standby capacity or storage availability plant complexity regulatory consents.

The sites were then designated as high, medium or low criticality. A high-criticality treatment works received a full RBM study. This involved a survey of the site by an experienced maintenance planner working in conjunction with operations staff to score every item of electrical and mechanical equipment for the consequence and likelihood of failure. The appropriate maintenance was then applied, with only the highest-criticality equipment receiving full reliability-centred maintenance. The outcome was a comprehensive maintenance plan that was reasonably cost/risk optimised. A medium-criticality treatment works, or a high-criticality pumping station, received a generic decision-tree-based maintenance plan. In this case, a series of decision tree diagrams allowed a study to be completed much more quickly. The remaining sites received generic plans based upon facilitated workshops for each principal asset type. The RBM approach is the primary basis for assessing the relative criticality of treatment works and pumping stations. The criticality feeds into geographic strategies. The decision trees and generic maintenance regimes inform asset master plans, and the statistical models that support them. The maintenance plans themselves are tested against capital investment options, as part of the developing asset lifecycle planning process. Scottish Water is building upon existing systematic assessments. In particular, it is supplementing investment planning approaches through water industry research projects and cross-industry initiatives such as the Strategic Asset Lifecycle Value Optimisation Project (SALVO, http://www.salvoproject.org), which is comparing rail, water, power distribution, mining and manufacturing approaches to the management of ageing physical assets. 75

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Even with systematic analysis, probability is difficult to judge because the consequence relationship between asset failure and service impact is not always the same, and risks change with time. This is where statistical analysis can assist. 6.3.7 Statistical analysis Scottish Water chose to build an in-house expertise to develop statistical methodologies. This decision, supported by the approach under asset plans, created an environment of open modelling evolution that takes people with it. To work at the forefront of analytical thinking, Scottish Water also chose to supplement the team with leading-edge research capability from the Universities of Edinburgh and Strathclyde, through the joint government-funded Knowledge Transfer Partnership scheme (http://www.ktponline.org.uk). To facilitate model development, Scottish Water broke its statistical methodologies down into discreet steps, internally referred to as ‘Lego bricks’, as shown in Figure 6.5. This enabled the team to develop each ‘brick’ in isolation at a pace that aligned improvements with other developments around the business. Figure 6.5 A structured approach to asset risk modelling – ‘Lego brick’ development Courtesy of Scottish Water

1. Select service measures 2. Select asset events that drive service

3. Model asset events

4. Model asset events to service

5. Model reactive costs

7. Quantify the customer cost of service failure

6. Model proactive intervention costs

8. Optimise trade-off between service and cost

9. Produce 25 year plan (asset strategy)

10. Produce 1–6 year plan (asset investment management)

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11. Produce 12 month plan (customer service delivery)

Case study: Scottish Water

Many different analytical methodologies can be applied to each of the bricks. These range in complexity from the very simple (e.g. each failure results in ten customer contacts) to the very complex (e.g. a fully deterministic model with the power to express every customer eventuality). The development approach was to start simple and grow complexity in those areas where maximum benefit could be realised. The initial full end-to-end version provided a stable platform from which enhancements grow at a pace to match organisational demand and capacity. At the time of writing, Scottish Water has advanced risk models for water and wastewater infrastructure assets, such as pipelines, and a number of process models by asset type for non-infrastructure assets, such as water treatment and pumping. The models form the core of capital maintenance investment predictions for regulatory submission, and are starting to be used internally for asset-specific investment plans and strategy validation and optimisation. Systematic engineering assessments, historic trends and standard design lives, summarised in asset report cards, enable a strategy or plan to reach a maturity level sufficient for initial stakeholder consultation. Where further justification is necessary, analytical modelling takes them to the greater levels of maturity and optimisation. At present, no model can consider all variables and asset-specific circumstances. So, it is important that the results of the analytics are kept within context of their own maturity, base assumptions, strengths and limitations.

6.4.

Conclusions

In long-standing organisations with large and diverse asset stocks, the development of asset management plans and the techniques that support them are rarely sequential. The use of a structured hierarchy for long-term planning supported by defined maturity scales enabled Scottish Water to logically, openly and consistently control the development of those plans. The successful application of risk management methodologies requires cultural embedment in the relevant parts of the organisation. In a large organisation of competing priorities this will always be a challenge, but the principles of IQEMC can provide a reference point for quality. Systematic techniques, such as Scottish Water’s RBM approach, ensure consistent risk assessment across short-, medium- and long-term asset planning. They are also important because they inform key assumptions in the development of asset risk models and provide focus for day-to-day risk management. The choices that Scottish Water makes on a daily basis impact communities and the environment in the long term. The further the company looks into the future, the less 77

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certain are events, actions and benefits. It also has to factor in varying predictions on changing climate and its effects. The future is probabilistic and susceptible to change. This is where statistics and mathematical modelling help. The longer the timeframes for decisions, the more likely the need for predictive analytic techniques. All of these approaches enable structured decision-making down the value chain, supported by a flexible blend of processes and tools. Understanding the key decisions to be made and assessing the appropriate analysis techniques, and their improvement needs, should come before assessing the need for information improvement. Scottish Water is on a journey. One that is structured, maturing and open. It has chosen to develop in-house capabilities. It is supplementing these with leading-edge thinking. And it is working to develop innovative approaches to asset management decision-making.

Discussion questions Consider the following value chain or equivalent for your organisation or industry. g g g g g

Organisational strategy. Asset management strategy. Asset lifecycle planning. Capital investment delivery. Asset operation.

What are the key decisions to be made at each level of the value chain? What processes and techniques can be used to make those decisions and how robust do they really need to be? 3. What depth of data analysis is necessary at each level? 4. How can your organisation maximise savings at the top of the value chain, preventing ‘re-invention of the wheel’ further down, but still encourage feedback back up? 5. Do you have a clear view of risk at each level, are you happy with the way those risks are managed and can you predict how they will change over time? 1. 2.

REFERENCES

BSI (2008) PAS 55:2008. The specification for the optimised management of physical assets. Parts 1 and 2. British Standards Institution, London. IAM (2011) Asset Management – An Anatomy. Institute of Asset Management, Bristol. 78

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Case study: Scottish Water

Murray RJ and Gee D (2011) Data Analysis in the Water Industry: A Best Practice Guide. UK Water Statistics User Group, London. ISO (2009) ISO 31000. Risk management – principles and guidelines. International Standards Organisation, Geneva. Ofwat (2009) Capital Maintenance and Asset Management Assessments (AMA) for Draft Determinations – Technical Note, PR09/32. Ofwat, Birmingham. UKWIR (2007) Asset Management Planning Assessment Process – A Methodology for Self-Assessment, vols I and II. UKWIR, London.

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Chapter 7

Case study: Grand Port Maritime du Havre 7.1.

Background and context

The Grand Port Maritime du Havre (GPMH) is one of the largest ports in Northern Europe. Each year, it manages more than 60% of all containers handled by French ports and 40% of all French crude oil. As a port infrastructure owner, GPMH is responsible for designing, operating and maintaining maritime access ways and port infrastructures covering 10 000 hectares (GPMH website). GPMH is committed to a long-term programme of developing major new infrastructure and improving the performance of the existing port infrastructure. In 2006, it set about rationalising and reorganising its maintenance function. One of the main objectives of this work was to embed asset management thinking in the business, starting with the development of a risk-based asset management tool for identifying and justifying the most suitable maintenance actions. GPMH worked with Oxand, to tailor and embed the risk-based asset management tool, SIMEOTM Port.

7.2.

Requirements

For port facilities to optimise the services they provide, an efficient flow of goods and machinery around the port is critical. For example, a ship entering port must be able to reach its dock quickly and easily, which often requires it to navigate through several basins, sluice gates and locks – all of which, therefore, need to operate reliably and efficiently. The maintenance master plan is essential to delivering an uninterrupted flow of goods and machinery around port facilities. At GPMH, funding constraints and an ageing asset base heighten the criticality of maintenance delivery, making it even more important that the maintenance master plan is tailored to the performance requirements of the asset base, based on predictions of the future performance requirements of the assets. The required outcomes were short-, medium- and long-term maintenance programmes and a fully costed, prioritised list of associated maintenance actions. This would provide the methodological framework needed for 83

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g g g

g

identifying failure modes for each asset predicting the effect of asset ageing creating a bank of survey and maintenance actions prioritised using consistent technical and economic criteria defining the maintenance actions needed and the consequences of not doing them.

Looking ahead, it could also provide decision-makers with g

g g

an overall vision of the risks affecting the asset base and the short- to long-term maintenance operating and capital costs for dealing with those risks that are deemed to be unacceptable an assessment of the main issues facing the asset base the use of risk, cost and performance quality assurance measures.

7.3.

Development process

The development of SIMEOTM Port involved eight main stages of work, as described below. 7.3.1 Preliminary analysis Development work started with a quantitative analysis of the GPMH asset base. This drew on the results of several previous smaller studies and on proprietary Oxand data on comparable infrastructure and the effects of ageing. The asset base was divided into a number of functional domains whose interactions make up the overall port infrastructure system, as shown in Figure 7.1. Data gathering was undertaken at GPMH to provide a context and key inputs to the risk-based asset management system. This included g g g

g

feedback from the GPMH port infrastructure owner on the maintenance strategy an inventory of structures an evaluation of existing data – schemes, history of maintenance, inspection reports and asset characteristics (function, material, construction date, component design, drawings, maintenance history, etc.) creation of a new asset database.

This information and data then combined with the proprietary Oxand data mentioned earlier. 7.3.2 Requirements analysis Reaching an understanding of the overall requirements of demand (volume, traffic, products) and how they relate to each individual asset was a key task that provided 84

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Case study: Grand Port Maritime du Havre

Figure 7.1 Functional domains of the port infrastructure system Reprinted courtesy of Oxand

Maritime activities (goods and/or passengers transport, fishing, sailing, military)

Tourist activities

Protection works (against swell)

Beaconage

Urban activities Access works

Naval construction and maintenance works

Berthing and mooring works

Retaining works

Open area, skid platform Transshipment and handling machines

Buildings (industrial, commercial, residential)

Warehousing, marine terminal Crossing works

Service sidings (roads, railways, inland waterways)

Industrial activities

fundamental inputs to the assessment of asset performance requirements. The volume requirement was, later in the development process, expressed as equivalent tonnage, in order to produce a level playing field for all the different types of products and material in transit and to enable this throughput to be expressed financially. Other key requirements at GPMH included the required availability of assets, the extent to which they can safely be used and respect for the environment. 7.3.3 Frequency (HI – hazard index) The initial step of this analysis was to establish an asset inventory. Assets were grouped into families based on their primary functions (see Figure 7.1) and into subfamilies based on technical criteria (construction techniques, material, etc.). For each asset (see the example in Figure 7.2 of a steel sheet pile seawall), a functional analysis was carried out to identify a list of structural components. For each structural component, a list of hazards (failure modes) was identified. In the case of the steel sheet pile seawall example, one possible hazard identified was ‘loss of mechanical resistance due to steel corrosion in marine environment’. 85

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Figure 7.2 Functional analysis of a steel sheet pile seawall Reprinted courtesy of Oxand

Steel sheet pile seawall

Main sheet pile wall

1

Anchor head

2

Tie rod

3

Sheet pile anchorage

4

Toe embedment

5

Backfill

6

Reinforced concrete capping beam

7

7 2

3

4

6 5

1

A hazard index (frequency) was assigned to each of the identified hazards, as described in the next section. This represents, for each failure, the type of failure and the predicted frequency of failure. The hazard index also includes an estimation of failure knowledge certainty. Each component and each failure mode of each asset was given a hazard index score. The hazard index defines the technical performance of a component, and uses three criteria. g

g

g

The probability of failure (likelihood of failure, from level 1 to 4). The component was considered in the context of the wider operating environment. The future degradation of every port asset was predicted using the Oxand ports asset database. This database is supported and enhanced by two streams of information: (1) feedback on asset failure and condition information from ports across Europe, and (2) age modelling of components under specific conditions. The type of failure (sudden or progressive). The type of failure is based on failure data in the Oxand ports asset database, and identifies in what ways the asset will fail. This is important when seeking to understand the impact of a failure. Identifiable progressive failures can be acted upon, whereas sudden failures require much more attentive and expensive predictive failure monitoring. Uncertainty (weak or high). The broad range of asset failure data held by Oxand was used to find a measure for how accurate the predictions on failure rate and type of failure were. Where levels of certainty were lower, failure models were

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Case study: Grand Port Maritime du Havre

reinforced through inspections, destructive or non-destructive testing, or document research at GPMH. The higher the hazard index obtained, the higher its level of criticality in the overall hazard mapping. The hazard grid in Figure 7.3 displays a classification example of the hazard probability of failure, the type of failure and uncertainty. 7.3.4 Definition of maintenance actions Each hazard for each asset was assigned a maintenance action, based on its hazard index. Each maintenance action was allocated a cost, and the internal or external resources required were specified. In this way, an action catalogue was defined for each asset family. This describes, from technical and economic standpoints, all envisaged actions needed to address all identified hazards. Seven categories of maintenance action were defined. g g g g g g g

Documentary research. Summary visits. Detailed inspections. Additional investigations. Preventive maintenance. Repairs. Reconstructions.

The cost of each category of action was worked out based on standardised unit costs and times. The costs of additional investigations were based on GPMH estimates. The costs of repair and reconstruction actions were based on the cost parameters shown in Table 7.1. At this stage, the maintenance action catalogue had been defined but no decisions had yet been taken on the implementation of maintenance actions. 7.3.5 Severity (SI – severity index) The overall requirements for a risk-based asset management approach played a pivotal role in understanding severity. The two main requirements of GPMH were asset base availability and safety. The impact on availability was quantified in terms of the potential loss of profit that would occur if the asset was unavailable for a certain period of time. The loss of profit is expressed as equivalent tonnage (indicated as the French acronym ‘TED’ in the figures), and this is reflected in the acceptable risk boundary shown in Figure 7.4. 87

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Structural members

Hazard grid

Reprinted courtesy of Oxand

120

130

4

12

Class 1

73

125

60

135

220

230

3

Class 2

16

9

225

235

320

330

5

1

Class 3

Reinforced-concrete caissons – HAZARD indexes

29

325

335

430

1 430

Nonconformities

Figure 7.3 Example classification of hazard probability of failure, type of failure and uncertainty

Occurrence level

2 3 5

Failure mode

– Uncertainty –

International Case Studies in Asset Management

Case study: Grand Port Maritime du Havre

Table 7.1 The scale of repair and reconstruction costs Data courtesy of Grand Port Maritime du Havre

Lower limit: €

Price code

Upper limit: €

>50 000 >250 000 >500 000 >1 000 000

A B C D E F

50 000 250 000 500 000 1 000 000 5 000 000 >5 000 000

The impact on safety was quantified in terms of the potential harm, which ranges from low-level property damage to fatalities. 7.3.6 Risk (RI – risk index) Risk indexing involved the combination of the severity and the frequency of failure. The resulting risk index is a graded from 1 (low level) to 24 (high level of risk), where risk ¼ probability of a loss of function (frequency of failure)
impact (severity of failure) All the hazards associated with each asset were assigned a hazard index, severity index and, finally, a risk index related to the impact of the failure. In this way, for each impact (on availability and safety), a risk mapping of all hazards for each asset family was completed. An example of risk mapping for safety and availability is given in Figures 7.5 and 7.6. The risk index is now used as a performance indicator at GPMH. 7.3.7 Ranking of maintenance actions GPMH now had a list of all maintenance actions detailed along with estimates of the financial and human resources these would require. The actions were prioritised based on risks associated with all structures and the cost of anticipated maintenance for the most critical structures and components. This enabled the port manager to produce a more accurate budget. As an example, Figure 7.7 lists the critical maintenance actions for a lock. In the figure, the thick line marks the acceptable risk limits that identify which actions have unacceptably high risk, based on the constraints of the port owner. 7.3.8 Elaboration of the maintenance plan To ensure that the maintenance plan achieved the correct outputs, a risk hierarchy was established for each requirement, using either the risk indices or by means of a global risk 89

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1. Conforms with standards

1

3

5

2

10

14

9 6

21

22

23

24

4: >100 000 TED

10

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12 8

7

4. Probable

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4

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20

17

5. Very probable (already observed on site)

3: 1001–100 000 TED

2: 10–1000 TED

1: <10 TED 15

3. Improbable (never observed but suspected) 2. Very improbable (never observed)

Availability – IRDC

3

1

6

14

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5

2

22

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12

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13

6. Almost certain

1. Conforms with standards

24

20

17

8

7

4. Probable

4: One or more deaths

3: Injury with long-term repercussions and/or major structural damage

Safety – IRSC 2: Injury without long-term repercussions and/or structural damage

4

11

3. Improbable (never observed but suspected) 2. Very improbable (never observed)

15

5. Very probable (already observed on site)

1: Minor structural damage

6. Almost certain

Reprinted courtesy of Oxand

Figure 7.4 Example of an acceptable risk boundary (thick line) for security and availability

Extreme

High

Medium

Low

Key:

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FREQUENCY → f(hazard index)

1. Conforms with standards

10

14 6

9

3

5

2 1

21 13

22 18

12 8

7

4. Probable

23 19

24

20

17 16

4: >100 000 TED

3: 1001–100 000 TED

2: 10–1000 TED

4

11

5. Very probable (already observed on site)

3. Improbable (never observed but suspected) 2. Very improbable (never observed)

15

1: <10 TED

Availability – IRDC

SEVERITY → Potential loss of profit: f(TED reference × duration of unavailability)

6. Almost certain

Reprinted courtesy of Oxand

Figure 7.5 Risk mapping for the availability requirement

Extreme

High

Medium

Low

Key:

Case study: Grand Port Maritime du Havre

91

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FREQUENCY → f(Hazard index) → f(Occupation level)

1. Conforms with standards

10

14 6

9

3

5

2 1

21 13

22 18

12 8

23

24 19

20

16

17

Extreme

High

Medium

Low

4: One or more deaths

Key:

Safety – IRSC 3: Injury with long-term 2: Injury without repercussions and/or long-termrepercussions and/or structural damage major structural damage

Severity → f(component, hazard)

4

7

4. Probable

3. Improbable (never observed but suspected) 2. Very improbable (never observed)

11

15

1: Minor structural damage

5. Very probable (already observed on site)

6. Almost certain

Reprinted courtesy of Oxand

Figure 7.6 Risk mapping for the safety requirement

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N2

– Cladding Cladding – – Infill Cladding Dredge line Cladding – Fundaments Fundaments – Coping beam Coping beam Infill Infill Claddings

N1

Slab Head Lock wall Lock Lock Lock wall Head Head Lock wall Slab Lock wall Head Lock Head Lock wall Head Lock wall Lock wall

Classification of works

Reprinted courtesy of Oxand

RISK KEY:

Work – Lock SSS – Lock EC1a

Failure caused by loss of mechanical strength Failure caused by loss of mechanical strength Failure caused by loss of mechanical strength Sliding Overturning Failure caused by loss of mechanical strength Failure caused by loss of mechanical strength Loss of global stability Failure caused by loss of mechanical strength Failure caused by loss of mechanical strength Failure caused by loss of mechanical strength Failure caused by loss of mechanical strength Overturning Failure caused by loss of mechanical strength Failure caused by loss of mechanical strength Failure caused by loss of mechanical strength Failure caused by loss of mechanical strength Failure caused by loss of mechanical strength

Hazard

Figure 7.7 Ranking of actions based on risk indexes

ID 325 325 235 235 225 225 135 135 125 125 225 225 225 225 225 225 225 125

VS3 VS3 VS1 VS1 Topo Bathy VS1 VS1 VS1 CND AR1 Topo Topo Topo VS1 VS1 Topo Topo VS2

Action

Low

18 12 12 13 13 9 9 9 8 9 6 6 6 5 5 5 5 3

IRDC

Medium

IRGO = 608

18 18 22 14 14 14 14 14 10 9 10 10 10 9 9 9 9 10

IRSC

High

36 30 34 27 27 23 23 23 18 18 16 16 16 14 14 14 14 13

IRGC

Extreme

Case study: Grand Port Maritime du Havre

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Figure 7.8 Risk index evolution over time for one projected scenario Reproduced courtesy of Oxand

4

Hazard class

3 2 1 0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Year

index, which made no distinction between the requirements when assigned monetary values. At this stage, regarding GPMH constraints, only prioritised maintenance actions to control risks considered unacceptable were considered. A set of coherent and realistic maintenance actions was now available for individual assets, asset families and the entire asset base. These took into account any specific intervention constraints (available annual budget, human resources, etc.), combined these and compared them with the required asset condition. SIMEOTM Port enabled risk-based decisions to be taken and plans based on the selected priorities to be generated automatically. A rolling 12 month maintenance plan was established that provides the basis for longerterm planning in the future. The risk index for each hazard is evaluated at regular intervals over the period under consideration. Asset condition forecasts are produced based on predicted volumes and expected maintenance actions. Figure 7.8 shows one output from this process.

7.4.

Prediction of performance over time

The main deliverables from the above development work included g

g

an inventory of the asset base incorporating a functional analysis of each asset family and hazard analysis for each asset and the overall system of assets risk grids for each asset based on its risk index. This allowed the identification of critical assets and the specific actions they require. An example of an availability risk grid is shown in Figure 7.9.

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Copyright © ICE Publishing, all rights reserved. 8 16

4

19 5 7

4. Probable

3. Improbable (never observed but suspected)

2. Very improbable (never observed)

1. Conforms with standards

1

2

4

7

11

15

Number of risks before maintenance actions associated with the hazards were performed

31

10

5. Very probable (already observed on site) 3

1

1: <10 TED

6. Almost certain

Availability – IRDC

Reproduced courtesy of Oxand

9

4

6

10

3

3

5

8

12

16

17

63

35

7

21

16

16

102

41

10

5

6

9

13

18

19

20

3: 1001–100 000 TED

Number of risks after maintenance actions associated with the hazards were performed

11

4

2

3

2: 10–1000 TED

Figure 7.9 Example of an availability risk grid before and after interventions for a given year

64

29

6

1

Risk index

40

27

7

9

12

5

10

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22

23

24

4: >100 000 TED

Extreme

High

Medium

Low

Key:

Case study: Grand Port Maritime du Havre

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Figure 7.10 Simulation capabilities and predictions of SIMEOTM Ports reduce visual inspections Reprinted courtesy of Oxand

7.5.

Prediction of future maintenance requirements

Inspections for some port structures are complicated and costly due to their g

g

visibility – many structural assets are either embedded in the ground or submerged in water availability – for some port structures, it is difficult to arrange underwater inspections because they are in almost constant use.

GPMH’s risk-based asset management approach incorporates all the technical parameters that need to be integrated into asset-ageing calculations. Comparisons are drawn with data from the Oxand ports assets data. SIMEOTM Port enables GPMH to make best use of breaks in operations to carry out inspections, the results of which are used to keep the asset inventory and risk indices up to date (Figure 7.10).

7.6.

Prioritising maintenance interventions

The new approach has greatly improved cargo handling by improving the reliability of GPMH port infrastructures. Although, GPMH cannot be precise about the remaining life of its assets, it is now able to target investigations of major structures such as 96

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Case study: Grand Port Maritime du Havre

Figure 7.11 Histogram of certain and probable maintenance costs Reprinted courtesy of Oxand

7500

Probable costs Certain costs

Euros (×1000)

5000

2500

28

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0 Year

quays in such a way that operations are not adversely affected. Better anticipation of investments needed to renew equipment and infrastructure allow concerns to be addressed before they become critical in terms of the level of risk. Risk-based asset management has integrated the complexities of port goods transit flow constraints and created a realistic operational and safety plan that can be updated at any time. It prioritises inspection and maintenance actions according to the evolution of risk levels over time for each particular asset, with a traffic light system of green, amber and red (see Figure 7.5). This enables capital and operational investments to be targeted on weak points in the system to ensure asset failures do not impede operations over the short, medium or long term. It also offers a basis for quantifying the implications of not investing or deferring maintenance actions. Figure 7.11 illustrates the evolution of maintenance costs, which it sorts into two groups g

g

those that are sure to proceed, for example, where there is a high degree of uncertainty, an action is taken to mitigate this, often a summary visit those that are probable and will only be carried out if the level of certainty has increased – these actions are often repairs or replacements and expensive. 97

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7.7.

Outcomes and conclusions

The introduction of risk-based asset management has helped GPMH to define its maintenance priorities more accurately. It is expected that, future spending can be reduced through targeting maintenance activities on structures that have the greatest impact on port performance. This has been achieved within a methodical framework that provides a consistent view of the risks to successful and safe port operation. The risk index performance indicator includes a costed equivalent of all failures, so that the total risk of maintenance intervention, or the decision against interventions, is understood both in the short and long term. The Oxand proprietary ports asset database gives a corroborated asset degradation prediction based on port assets across Europe that is combined with age modelling to minimise the effects on the budget of expensive – often subsurface and time critical – port structure maintenance. In this way, SIMEOTM Port has generated better longterm visibility of asset performance and the associated risk of failure. The new approach uses risk mapping to give a robust approach to reducing maintenance, renewal and replacement investment while also demonstrating reduced risks. The most significant immediate outcome of these developments has been the rationalisation of maintenance spending. Predictions based on the maintenance master plans give probable and certain maintenance costs that are also broken down by maintenance type. Resource planning is based on these outputs. Other key outcomes of the risk-based asset management process include long-term maintenance master plans that take into account the operating constraints of a port, and are used to model different short- and long-term asset strategies. Using the risk index as a performance indicator has been a success, providing a basis for categorising and grading future maintenance actions and asset data. The constraint-driven and automatically prioritised maintenance master plans use the risk index performance indicator as an output, and are used to justify investments and budget proposals.

Discussion questions 1. 2. 3. 4.

What What What What

are the main differences between maintenance and asset management? are the implications of reducing or deferring capex for maintenance? are the main business benefits of risk based maintenance? should GPMH do next?

REFERENCE

Grand Port Maritime du Havre (2012) See www.havre-port.fr.

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Chapter 8

Case study: Network Rail This case study is published on the understanding that the statements made and the opinions expressed in it are the sole responsibility of the author(s), and that no endorsement or criticism is implied. Every effort has been made to ensure that the statements and opinions are reflective of accurate and up to date information.

8.1.

Background and context

Network Rail is the not-for-profit company that in 2002 purchased the bulk of the UK mainline rail infrastructure and took over the role of asset steward from Railtrack plc following its collapse in 2001. The company has three main functions g g

g

to maintain and renew the rail infrastructure to develop and operate the train timetable, including responsibility for signalling and traffic control to carry out long-term planning and investment to improve the future capability of the rail network.

In its 2011 asset management strategy document (Network Rail, 2012a), Network Rail describes itself as one of the biggest asset management companies in the UK. It goes on to spell out the enormous scope and scale of its asset base and responsibilities, which include g g g g g g g

30 000 km of track 40 000 bridges and tunnels 2500 stations 8200 commercial properties being the largest private landowner in the UK being the third largest telecoms network in the UK being the largest purchaser of electricity in the UK, with the lowest transport carbon emissions.

This infrastructure is widely dispersed throughout England, Wales and Scotland. Historically, it has suffered long periods of low investment, but in recent years increased 99

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capital investment has largely dealt with the backlog of renewals to track, electrification and power, and signalling. Also, there are some specific challenges associated with safety (rail is classed as a high-hazard industry by the UK Health and Safety Commission, along with the nuclear industry, offshore oil and gas exploration, and chemical production and storage) and the complexity of the contractual and stakeholder relationships that have to be managed. In terms of investment, its asset management strategy (Network Rail, 2012a) describes Network Rail as being: comparable at a national level with the privatised water, gas and electricity companies in the UK. For example, its renewals expenditure, amounting to £12.5bn [during 2009–14] is approximately the same as the total equivalent investment by the 23 water and sewerage companies and is greater than the investment made by the 11 electricity distribution companies and National Grid’s UK electricity and gas transmission businesses – combined. Network Rail is a not-for-dividend company, without shareholders and financed by debt guaranteed by the UK government. The role of the Office of Rail Regulation (ORR) is to hold the company to account for its performance and to incentivise it to become more efficient. When the ORR sets the limits on fees that Network Rail can charge train operators for the use of tracks, stations and depots, it is, in effect, setting efficiency targets. The ORR has the power also to impose financial penalties, although, as recently reported to the House of Commons Committee of Public Accounts (2011), ‘the usefulness of this sanction is questionable as, by taking money away from investment in the railways, its impact falls mainly on passengers’. Network Rail’s obligations to provide asset management processes, policies and information are set out in the Network Licence, namely in Licence Condition 1, which states: 1.19 In complying with the general duty in condition 1.2, the licence holder shall; a. develop the policies and criteria it will apply in respect of the maintenance, renewal, replacement, improvement, enhancement and development of the relevant assets, which shall demonstrate how the licence holder will comply with the general duty in condition 1.2; b. apply those policies and criteria; and c. make appropriate information about those policies and criteria readily accessible to persons providing services relating to railways and funders, including potential providers and potential funders. 1.20 The licence holder shall maintain appropriate, accurate and readily accessible information about the relevant assets, including their condition, capability and capacity. 100

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1.21 ORR may permit the licence holder to exclude from the definition of ‘relevant assets’ assets of such description or classes as shall be provided to and approved by ORR. 1.22 The licence holder shall from time to time and when so directed by the ORR review and, if necessary, revise the policies and criteria provided for in condition 1.19 to ensure that they remain sufficient to comply with the general duty in condition 1.2.

8.2.

Laying the foundations

Between 2002 and 2004, Network Rail’s first priorities were to reverse a decline in network performance during Railtrack’s last 2 years in charge and to rebuild the reputation of rail as the safest mode of transport following a series of major accidents, including multiple fatality train crashes at Southall in 1997, Ladbroke Grove in 1999 and Hatfield in 2000. This meant restoring investment in assets to a more sustainable level – the average annual capital expenditure 2001–04 (Control Period 2) was almost double that in 1996–2001 (Control Period 1) under Railtrack (Edwards, 2010) – fixing some of the deficiencies of outsourced maintenance by bringing it in-house, and improving safety leadership and safety management systems across the industry. The ORR set the company a series of demanding output and efficiency targets, but there was much less emphasis then than today on the longer-term aspects of asset management in the regulation of the company. Instead, the focus was on tactical projects designed to close asset data gaps and put in place better business control, management review and audit processes. Lots of work was also done on technical training and management development and to increase the numbers of apprentices and graduates to the levels needed to deliver better stewardship of the railway. By 2004, Network Rail had started to restore performance (measured using the Public Performance Measure, which combines figures for punctuality and reliability to produce the percentage of trains ‘on time’ compared with the total number of trains planned, and is widely used in the UK rail industry) to the levels seen before the Hatfield accident. There were particular challenges relating to the organisational culture at this time. The major accidents experienced during the Railtrack years had ingrained in some quarters an aversion to risk, which made it difficult sometimes to challenge prevailing standards and practices and generally slowed up the adoption of cost– risk-based approaches to renewals and maintenance work or enhancements. In 2005, at the start of Control Period 3, the ORR and Network Rail introduced the role of Independent Reporter for Asset Management (the Reporter). The Reporter’s role is to examine Network Rail’s capabilities in asset management and to provide the ORR and Network Rail with a level of assurance that the tools, processes and asset information 101

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used to underpin Network Rail’s strategic business plan are fit for purpose. Initially, one of the main focal points of this work was asset information. This was because License Condition 24, which was introduced in 2001 to address the ORR’s concerns about the quality and extent of asset information, had yet to reach full compliance. Licence Condition 24 required Network Rail to: establish and maintain an asset register, the purpose of which was to ensure that they hold, and have appropriate access to and records of, knowledge of the relevant assets, including knowledge of their condition, capability and capacity, in the manner and to the extent and standard which best achieves: a. the maintenance of the network; b. the renewal and replacement of the network; c. the improvement, enhancement and development of the network; and d. the operation (including timetabling) of the network. In April 2008, the ORR accepted Network Rail’s evidence (audited by the Reporter) that it had achieved compliance with Licence Condition 24, although it noted ‘some residual concerns about how the new processes are being embedded throughout the organisation and becoming a natural part of Network Rail’s operational culture’. In April 2009, the ORR updated the network licence, and Licence Condition 24 was replaced by the requirements for asset information set out in the new asset management section of Licence Condition 1, as described above.

8.3.

Establishing asset management processes

Throughout 2005–06, Network Rail concentrated on delivering consistent maintenance practices, introducing the Governance for Railway Investment Projects (GRIP) process (Network Rail, 2012b), a uniform approach to programme and project management and completing the modernisation of the west coast London to Glasgow main line. During this time, the company started work on establishing an asset management process that linked long-term investment plans with activities actually undertaken. This was the aim of the asset policies that were taking shape at the time. Although the justification for these policies was restricted to an engineering rationale, they were beneficial in the sense that they introduced a consistent approach to maintenance and renewals. Network Rail did not have sufficient evidence to sufficiently justify some of its policies because it did not have the required understanding of the condition or deterioration of some of its assets, nor did it have some of the tools to develop this justification. An asset management assessment framework forms the basis of the ongoing best practice reviews carried out by the Reporter for Network Rail to help it comply with the asset 102

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management requirements of Licence Condition 1. This framework considers the company’s asset management performance, capability and maturity in six areas. g g g g g g

Asset management strategy and planning. Whole-life cost justification. Lifecycle delivery. Asset knowledge. Organisation and people. Risk and review.

In 2007, the findings and recommendations of the first best practice review were published (AMCL, 2007). The conclusion was that Network Rail’s asset management capabilities were at least on a par with other asset-intensive companies in the UK at the time. One of its key findings was that the asset policies that were driving expenditure on maintenance and renewals were not justified sufficiently in terms of whole-life costs to demonstrate that they were robust. In all, 44 recommendations were made on how Network Rail should improve its capabilities across the six areas listed above. The Reporter is responsible for maintaining and tracking the recommendations from the best practice reviews and other audits. It reviews progress against these on a regular basis to ensure that Network Rail is making progress on developing appropriate asset management systems and data for the business. 2007–08 saw the company consolidate the improvements it had made in its maintenance and renewal delivery processes and controls. In 2007, a director of asset management was appointed to its main board. A transformation programme was launched to prepare for the impending challenges of Control Period 4, which would begin in 2009. One of its main work streams set out to restructure the organisation around asset management. In December 2008, the ORR determined that Network Rail would need £26.7 billion in 2009–14 (Control Period 4) to enable it to operate, maintain, renew and enhance the railway network. According to the ORR, this was £2.4 billion less than the company had asked for. Of this £26.7 billion, £25.0 billion was expected to be recovered through track and station long-term charges and grants, with the remainder from other sources such as property sales and rental. The transformation programme was concerned with ensuring the organisation was focused on delivering Network Rail commitments for the funds available. This involved a review of asset policies to identify scope opportunities, which in turn led to the deferral of some scheduled works (primarily track work) from the earlier part of the control period, primarily to explore ways of delivering for less cost and then reworking its 103

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asset policy justifications in order to demonstrate that overall Control Period 4 work volumes and costs would be sustainable in the longer term. A further best practice review was undertaken by the Reporter in 2009, which concluded that 31 of the previous recommendations had been closed out or were being addressed by the transformation programme. The recommendations that were still open and six new ones were carried forward for progress monitoring and review. One of the outcomes from the transformation programme was to restructure the company around an asset management process delivery model. This was designed to improve asset management performance by aligning maintenance routes with route asset management teams to allow the development of integrated route asset management plans. At this time, the company was trying to produce expected outputs for the available money while at the same time trying to show that its decisions were also robust and sustainable over the longer term. To support this, it commissioned the development of an asset management improvement road map focused on Control Period 5 and beyond, which would set out the actions and milestones for achieving the appropriate level of asset management best practices. Network Rail used the road map to establish an asset management improvement plan for developing its asset management capabilities over the longer term. As it states in its 2011 asset management policy document (Network Rail, 2012a): Our aim is to meet our asset management obligations in a manner that is demonstrably world class, with asset management capabilities appropriately matched with the needs of ourselves and our industry partners. Our capability improvement programme has been developed to meet this aspiration. By the end of the current control period (March 2014) our commitment is to have developed capabilities in asset management that are demonstrably comparable with best practice elsewhere in Britain. Over the following five years we are committed to improving our business capabilities further, so that we provide the benchmark against which organisations throughout the world assess their own asset management capabilities. The results flowed through into the Industry Initial Plan that was submitted to the ORR in September 2011 (Network Rail, 2012a). Produced jointly by Network Rail, passenger and freight train operators and suppliers, the plan examines the key options facing funders in specifying the future outputs of the railway and the level of funding required. The plan is informing the UK government’s next High Level Output Specification 104

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(HLOS2) for the National Rail network, for the period from 2014 to 2019 (Control Period 5) and also its impending White Paper on controlling costs in the rail industry. The first assessments of Network Rail since the agreement of the 2009 road map was undertaken in late 2011 by the Reporter (ORR, 2011; AMCL, 2011). The findings confirm that the company is making good progress in developing its asset management capabilities but that it also has some significant challenges ahead if it is to meet the agreed capability maturity targets defined in the road map for the end of Control Period 4. Network Rail is now in the early stages of implementing a new organisational structure to devolve more decision-making away from the centre to the routes. The aim is to reduce the functional divides across the organisation and to make it easier to make decisions regarding the trade-off between investment in renewal versus maintenance or investment in one asset type over another. This devolution of responsibilities presents the company with a number of opportunities and risks relating to the fulfilment of its asset management strategy. The new organisational structure is expected to help reduce functional divides across the organisation and facilitate easier decisions regarding the trade-offs between different types of investment options. By the time its next strategic business plan is published in January 2013, the company should have full line of sight from the plan itself, through its asset management policy, asset management strategy, asset policies, and route asset and route delivery plans to work execution.

8.4.

Conclusions

It would not have been possible for Network Rail to have adopted a holistic asset management approach from day one. In its early years, it was difficult for Network Rail to adopt an asset management approach to drive cost savings while improving the network condition. Senior management were focused on simplifying a complex operation, improving asset information and facilitating change. For a long time, the company needed to focus on complying with short-term regulatory requirements as much as on improving the long-term performance of the railway. Successive major changes since the company was formed have made it difficult to establish, and follow through, a feasible, enduring asset management strategy, but this situation has improved in recent years. Network Rail asset management capabilities have matured, and the value of operating within an overall asset management framework is now recognised and shared across senior management. Performance improvement initiatives have started to be developed in this context, and so have stakeholder projects such as the recent Initial Industry Plan (see above). The company is beginning to benefit also in terms of identifying sustainable efficiencies. 105

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Asset management is now regarded as integral to the company’s ability to rise to the challenges it faces, namely continuing to achieve significant efficiency savings securing future funding in a harsh economic climate developing and implementing plans to improve value for money of the rail network accommodating high traffic growth taking the lead role in developing long-term national rail plans, including involvement in planning the high-speed rail network improving its ability to deliver significant investment to the rail network with reduced disruption to train services.

g g g g g

g

Because it needs to demonstrate that investments made by the UK government are generating the best possible returns, over recent years Network Rail has had to develop a much more sophisticated understanding of the short-, medium- and longterm impacts of its spending decisions, of the value of risk and of the consequences of the trade-offs it has to make between costs and risk. The lessons learned from Railtrack included the important realisation that the railway network is a value chain. The fact that this was not realised by Railtrack contributed to its collapse – maintenance contracts and renewal levels were not sustainable, although the introduction of minutes delay as a real financial incentive was a step in the right direction because it acknowledged the interrelatedness of the systems, activities and organisations underpinning network performance.

Discussion questions How are maturity assessments useful to organisations seeking to improve their asset management capabilities? 2. What are the main difficulties in justifying that these short-term decisions are sustainable in the longer term? 3. How can an organisation increase the likelihood that its asset management strategy will survive changes in the boardroom and in its structure? 4. What are the main implications for business leaders of centralised and a decentralised approaches to asset management? 1.

REFERENCES

AMCL (2007) Independent Reporter Part C Services Best Practice Review – Final Report Using the AMCL Excellence Model. Asset Management Consulting Limited, London. http://www.rail-reg.gov.uk/upload/pdf/exp-amcl-060207.pdf (accessed 10/02/2012). 106

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Case study: Network Rail

AMCL (2011) AMEM Assessment Version 1.1. A report to the Office of Rail Regulation and Network Rail, December 2011, Asset Management Consulting Ltd, London. Edwards R (2010) Regulating asset management. In Asset Management: Whole life Management of Physical Assets (Lloyd C (ed.)). Thomas Telford, London, ch. 9. House of Commons, Committee of Public Accounts (2011) Office of Rail Regulation: Regulating Network Rail’s Efficiency, Forty First Session of 2010–12. The Stationery Office, London. Network Rail (2012a) Asset Management Strategy, February 2011. Network Rail, London. http://www.networkrail.co.uk/documents/9812_Asset%20Management %20Strategy%20February%202011.pdf (accessed 10/02/2012). Network Rail (2012b) The GRIP Process. http://www.networkrail.co.uk/aspx/4171.aspx (accessed 10/02/2012). ORR (2011) Annual Efficiency and Finance Assessment of Network Rail 2010–11. ORR, London. http://www.rail-reg.gov.uk/upload/pdf/nr_annual_assessment_2010-11.pdf (accessed 10/02/2012).

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Chapter 9

Case study: ScottishPower Generation 9.1.

Background and context

ScottishPower Generation (SP) is part of the Iberdrola Group, responsible for operating 6.4 GW of power plants, including coal, gas and hydro stations across the UK. Iberdrola is a global company, publicly listed on the Madrid Stock Exchange, which has a 109 year history of contributing to the development of the energy sector and providing quality and security of supply. It is Spain’s number one energy group, one of the largest utilities in the world, a world leader in wind power and clean energy, and employs around 33 000 people in nearly 40 countries. SP was able to transform its organisation into a leading global exponent of process safety and asset management. In 2009, the company became the first power generator to be certified to BSI PAS 55:2008 (BSI, 2008); in 2010 the Institution of Chemical Engineers recognised the company’s achievements by awarding it first prize in the IChemE 2010 category of innovation in process safety; and in 2011 it became the subject of one of the first case studies to be published jointly by the UK Health and Safety Executive (HSE, 2011). A number of high-profile international incidents have demonstrated that concurrent failures in the areas of people, processes and plant can cause catastrophic plant safety failures. In response, the HSE developed an approach to process safety management to help organisations operating in hazardous sectors to demonstrate adequate risk control. SP embraced this approach through its Operational Transformation Programme (OTP), which aimed to make it an industry leader in process safety and asset management focused through the delivery of a ‘high-reliability organisation’ (Figure 9.1). SP implemented a fully integrated, comprehensive, process safety management system based on guidance published by the HSE on developing process safety indicators (HSE, 2006a) and drawing on lessons learned from the Texas City refinery explosion to address process safety at every level in the organisation. 109

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Figure 9.1 The ‘high-reliability organisation’ Courtesy of ScottishPower Generation

A ‘high-reliability organisation’ is one that produces its product relatively error free over a long and sustained period of time

The two main attributes of a high-reliability organisation are: Has a chronic sense of unease – it lacks any sense of complacency

Makes strong responses to weak signals – it sets its threshold for intervening very low

The project established a real-time monitoring system after systematically identifying the key leading indicators of every stage of the operational process at each location. This has enabled concerns to be addressed well before they become problems, and delivered improved safety and reliability as well as tangible bottom-line benefits. SP recognised asset management as the foundation for process safety. Its approach to integrating process safety and asset management is based on the findings of the Baker Report on the Texas City refinery explosion (BP US Refineries Independent Safety Review Panel, 2007), the HSE’s guidance on ageing plant (HSE, 2006b) and process safety indicators (HSE, 2006a), and BSI PAS 55. SP has realised significant improvements across the business in terms of asset management, production efficiency and bottom-line contribution, including g g g g

a a a a

9.2.

29% reduction in operations and maintenance costs 22% increase in plant availability 50% reduction in equivalent forced-outage rates reduction in its annual insurance premium.

The Operational Transformation Programme

The OTP received board approval in November 2008. Its key objectives were protecting people (public, employees and contractors), the environment and assets through the proactive management of risks that could lead to a catastrophic process safety event and by establishing best-in-class processes for power plant engineering, operations and maintenance – against a background of ageing assets. Figure 9.2 shows the relationships between these objectives and their key business drivers. 110

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Figure 9.2 OTP business case key drivers Achieving safety and environmental compliance Reducing the risk of catastrophic failures

Avoiding regulator interventions

Operational assurance Confidence that processes critical to the safe operation of assets are in place Meeting the challenge of ageing plant Strong handle on the risks that are inherent in assets that have been, or will be, life extended Demonstrating responsibility to stakeholders Clear strategy for managing the risks that key stakeholders are concerned about Maximising the return on investment Targeted investments based on solid information Underpinning commercial performance Minimising costs – driving out efficiencies Maximising revenue – through improved availability

SP recognised early that to achieve a best-practice process safety capability, a coordinated approach would be required to g

g g g

adopt a consistent approach to process safety across the business, based on sharing best practice forge strong leadership at all levels in the organisation establish common processes and systems across its 11 power stations exploit the transparency of these common processes to report a full suite of leading and lagging indicators in line with the HSE (2006a) indicators.

The OTP was designed to facilitate this coordinated approach. It consisted of seven workgroups spanning 19 projects, and empowered and supported over 70 staff in the business to lead and deliver sustainable changes that were fully embedded in processes and culture. A seven-stage model was developed for delivery, which is shown in Figure 9.3. This case study reviews the implementation of this, paying particular attention to the first two stages.

9.3.

Stage 1: create a vision and strategy

Significant business change was necessary, requiring each power plant to adopt standard process and systems. Historically, each plant had its own approach of delivering 111

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Establish integrated approach Develop business case

Create vision and strategy

Ensure business buy-in at CEO and senior leadership level Common level of awareness and understanding established

Establish leadership

Courtesy of ScottishPower Generation

Establish leadership

Establish leadership

Establish leadership

Follow HS3254 six-step approach Structured approach delivers comprehensive and rigorous analysis of hazards, risk control systems

‘Quick win’ implementation of dashboard based on manual KPIs Provides initial assessment of process safety performance and kicks off cultural change

Move to daily tracking of KPIs based on automated feeds Exploit drill down and trending to drive performance to next level

Pathway to a high-reliability organisation

Figure 9.3 The seven-stage delivery model

Establish framework for delivery of sustained performance and improvements Embed core decision-making tool

Establish leadership

Maintain sense of vulnerability through learning from others and challenging business as usual

Establish leadership

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Case study: ScottishPower Generation

business objectives, so it was important to make sure that all parts of the business were involved and took ownership, and that the changes made were embedded and sustainable. The first challenge was to get buy-in from directors, station managers, team leaders and staff, and to make sure everyone understood the OTP vision and strategy. This started with improving awareness of process safety through workshops using hard-hitting materials. These materials featured major incidents such as the Piper Alpha disaster of 1988, the Texas City refinery explosion of 2005 and the Sayano–Shushenskaya hydroelectric power station accident of 2009, and asked all staff the question ‘Could this happen here?’ This approach quickly built support for the programme and the approach being taken. Like most other businesses operating in major hazard industries, SP has focused a great deal of attention on the development and implementation of structured occupational health and safety management systems over the last decade. This has played and continues to play a substantial role in the reduction of occupational safety and environmental incidents. However, while these management systems have provided a good framework for improving performance, they rely heavily on experience-based responses to incidents and periodic audits to drive continual improvement. Furthermore, experience shows that while the industry has driven down occupational safety and environmental incident rates significantly, there is an opposing trend of catastrophic asset failures. Process safety has a key role to play in addressing this problem also. The objective of process safety is to identify and proactively manage hazards that have the potential to cause major incidents that hurt people (staff, contractors or members of the public), harm the environment or damage assets. Process safety incidents are characterised by their low frequency but high impact. They are often highly publicised, and this can have a significant long-term detrimental impact on the reputation and commercial performance of the organisations involved. In response to significant incidents such as the Texas City explosion, the Buncefield fire and the Gulf of Mexico oil spill, process safety has become a priority in the major hazard industries worldwide as well as for regulators such as the HSE in the UK and the Occupational Safety and Health Authority in the USA. SP has integrated process safety with other well-established behavioural, occupational and safe systems of work practices to create the concept of ‘total health and safety’. All practices share common themes such as leadership, culture, communication, training and the need for key performance indicators (KPIs). 113

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Total health and safety provided the vision and strategy for the OTP because, historically, health and safety programmes have been easy to sell across the business. This enabled rapid agreement to be reached that while the initiative was a combination of process safety and asset management, its health and safety component would be the key to successful delivery. A new brand was then developed for the project: ‘Process safety matters’. Successful process safety requires good asset management at all stages in the asset lifecycle from the initial concept and design phases, through construction, commissioning, operation and maintenance all the way through to decommissioning. SP adopted PAS 55 as the framework for its asset management system. It took a risk-based approach to managing assets through understanding the asset-related risks in the business and putting in place appropriate mechanisms to manage them. The integration of asset management and process safety principles in a unified approach (Figure 9.4) underpinned by the total health and safety concept enabled significant business change to be realised. PAS 55 was chosen because it focuses on the alignment of asset management policy, strategy and planning. By meeting its requirements, SP was able to align its business goals and objectives to the asset lifecycle through the development of g

g g

g

g

g g

g

an organisation model that facilitates the implementation of policy and strategy through clear direction and leadership staff awareness, competency, commitment and cross-functional coordination suitable integrated information and knowledge of asset condition and performance provision of a governance and audit framework using visible metrics to regularly review and improve performance from the board level to the plant level an integrated audit programme that independently checks processes and procedures against best practice audit observations that are proactively addressed through continual improvements a fully embedded integrated system for managing audits, actions, incidents, near misses and risks line of sight from business planning to the execution of policy, visibility of asset condition, capital spending control and asset performance.

The integration of asset management principles and process safety has provided a unique approach to the management of the asset lifecycle. While PAS 55 provides a robust framework for asset performance and governance, it relies on an audit framework to measure and improve; process safety, on the other hand, is focused more on near-time 114

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Courtesy of ScottishPower Generation

Figure 9.4 The integrated asset management and process safety approach

Case study: ScottishPower Generation

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Figure 9.5 The process safety dashboard Courtesy of ScottishPower Generation

measurement of control and mitigation barriers to prevent an asset failure. The approach adopted by SP provides a daily update of the performance of key processes and systems, which allows actions to be taken earlier, rather than relying on spot checks through the traditional audit approach. Fundamentally, this means developing a number of key leading performance indicators that are highly visible to the organisation from the board level to plant level. Figure 9.5 shows the KPI dashboard that is used to drive the business daily and also as part of the governance and review framework.

9.4.

Stage 2: establish leadership

For process safety to be embedded successfully, it needs to become ‘just part of the day job’ for all staff. To achieve this, the programme included a comprehensive leadership work stream aimed at raising awareness of process safety at all levels in the business and establishing strong leadership and governance. The OTP’s main objective was to protect employees and contractors and ensure that SP complies fully with the requirements of the HSE while achieving improved commercial performance. The OTP played a vital role in managing process safety across the business, providing visibility of risk areas for senior managers and supporting one of SP’s Big Goals: ‘Health and safety matters’. 116

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Two key developments were central to the delivery of safety, environmental, asset reliability and tangible bottom-line benefits, as follows. g

g

A reduction in the incidence of plant failures and downtime led to safer operations and fewer environmental incidents and generated commercial benefits through the avoidance of plant damage and production losses as well as lower insurance premiums for assets. At the start of the programme a ‘Process safety principles’ document was produced and signed by the CEO to demonstrate commitment and leadership from the top.

9.5.

Staff awareness and communications

A suite of DVDs, workshops, training materials, a survey and regular ‘tool box’ communications have helped to establish Process Safety Leadership in the company, supported by increased staff awareness of key hazards and risks. This has brought about a renewed focus on the processes, systems and competencies that support safe and reliable operations. A key aspect of this has been establishing a governance framework that enables leading and lagging indicators to be reviewed and reported on a monthly basis, beginning at the station level and ending, ultimately, with the board. A staff competence system was also developed that links key hazards to safety related tasks and roles. A suite of competency standards has been produced along with a new staff competence management system based on best practice guidance (HSE, 2007).

9.6.

Conclusions

The company’s process safety KPI dashboard was a key outcome from the programme. This monitoring and reporting tool was developed following rigorous, practical application of the HSE’s guidance on process safety indicators (HSE, 2006a), and delivers the following capabilities. g

g

g

g

Near-time visibility of leading indicators for key risk control systems across all power stations – providing ‘at a glance’ assessment of plant condition and the performance of key processes. Improved reporting of incidents and near misses, enabling information to be shared more widely and repeat incidents to be prevented. Provision of timely, accurate and comprehensive information to support the governance of process safety through early identification and proactive management of risks. A governance framework to ensure that performance and actions are reviewed on a monthly basis.

The dashboard provides the directors with information that had not previously been visible. Some staff felt uncomfortable that detailed information on processes in which 117

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they were involved had become so visible. Leading and lagging indicators are a major source of performance information, supplemented by other tools and information, including the asset risk framework, management reviews, audits (against business engineering standards: PAS 55, ISO 14001 and OHSAS 18001), accident and incident investigations, and benchmarking. The organisation had to work hard to respond constructively to some of the information that was being presented. The key outcomes were a better appreciation of the underlying causes of process safety issues and the action plans being put in place to resolve them; and a company-wide focus on tracking actions and seeing the performance improvements coming through onto the dashboard. It is this performance visibility and governance framework that has allowed leaders to own and drive the programme and to deliver business improvement. SP set up a governance schedule that drives regular reviews of process safety performance information at all levels in the business to identify trends and initiate the proactive actions required to prevent plant related incidents. Governance takes two forms. g

g

Formal governance – regular review meetings are scheduled at all levels in the organisation, from the facility level up to the SP board, to establish ownership and accountability for process safety management. The information that drives this process is fully transparent, so all staff can play their part in improving performance. Culture – alongside the formal governance process, all staff are required to understand the hazards and risks evident in everyday operations and to report and challenge any concerns they may have about process safety. This culture is described as maintaining a ‘chronic sense of unease’, to ensure people are always thinking about what could go wrong and are never complacent.

Following the successful implementation of the OTP programme in SP, the Iberdrola Group is now committed to rolling out a similar approach across all of its key generation assets worldwide, including nuclear, thermal and hydro power stations in Spain and Mexico. A new approach – operational integrity – has been developed that will include the roll out of PAS 55 as the global asset management standard and the adoption of the process safety principles using a set of key leading performance indicators from each site fed up to board level on a daily basis. A 3 year implementation plan has been developed for the Operational Integrity Programme, which will focus on the development of global processes and standards that can be adopted for both existing and new assets. This global rather than countryspecific approach is expected to drive significant cost savings by identifying synergies 118

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Case study: ScottishPower Generation

between, for example, IT systems. It will also make it easier for staff to work at, or transfer between, Iberdrola locations around the world. Looking further ahead, once PAS 55 has been rolled out across the group, the next stage in the development of asset management will be the development of global policies to serve the business as its operations grow and its territories expand.

Discussion questions In what ways can asset management systems improve health and safety and environmental performance? 2. What is the relationship between safety, reliability and asset management? 3. Why does successful process safety require good asset management at all stages in the asset lifecycle? 4. In your organisation, is health and safety more likely to gain people’s interest and commitment than asset management? If so, why? 1.

REFERENCES

BP US Refineries Independent Safety Review Panel (2007) The Report of the BP US Refineries Independent Safety Review Panel. BP, London. http://www.bp.com/ bakerpanelreport (accessed 10/02/2012). BSI (2008) PAS 55:2008. The specification for the optimised management of physical assets. Parts 1 and 2. British Standards Institution, London. HSE (2006a) Developing Process Safety Indicators: A Step-by-step Guide for Chemical and Major Hazard Industries. Health and Safety Executive. London. HSE (2006b) Plant Ageing: Management of Equipment Containing Hazardous Fluids or Pressure. Health and Safety Executive, London. http://www.hse.gov.uk/research/ rrpdf/rr509.pdf (accessed 10/02/2012). HSE (2007) Managing Competence for Safety-related Systems. Part 1: Key Guidance. Health and Safety Executive, London. http://www.hse.gov.uk/humanfactors/topics/ mancomppt1.pdf (accessed 10/02/2012). HSE (2011) Case Study: Scottish Power. Power Generation Company Gets to Grips with Process Safety. Health and Safety Executive, London. http://www.hse.gov.uk/ comah/case-studies/case-study-scottish-power.pdf (accessed 10/02/2012).

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Chapter 10

Case study: City of Cambridge 10.1.

Background and context

Cities are complex systems. The quality of service experienced by citizens, the effectiveness of city government and the value proposition of cities to businesses are critically dependent upon multiple agencies. Today’s economic climate is forcing cities to do ‘more with less’. For example, the average life of a city road is approximately 30 years while a life of a water pipe is 80 years. If the road department decides that a particular street needs a new road in the next 3 years, while the water department concludes that the water pipe should be replaced in next 5 years, it would be prudent for the two agencies to work together to coordinate the work and also involve other public and private agencies to ensure that all replacement, rehabilitation or maintenance work is done at once. This is critical given that each municipality is under tremendous budgetary pressure and cost savings from cross-coordination can potentially result in savings of between 10% and 20%. The City of Cambridge, located along provincial Highway 401 in southwestern Ontario, Canada, is part of the Regional Municipality of Waterloo. Cambridge is 112.8 km2 in size with a population of some 130 000 people, which is expected to reach 180 000 by 2031. The city currently serves 45 745 household units and over 7286 business tenancies, ranging in diversity from traditional textile manufacturing to leading-edge science and technology firms, including Toyota Motor Manufacturing Canada, ATS Automation Tooling Systems Inc., COM DEV International Ltd, Novocol Pharmaceutical of Canada Inc., Loblaw Companies East, Canadian General-Tower and Babcock & Wilcox. In 2003, senior management at the City of Cambridge recommended the creation of the Asset Management Division (AMD) within the Transportation and Public Works Department (TPW). In 2005, a director of asset management was appointed with a mandate to apply the asset management principles and framework set out in Ahead of the Wave: A Guide to Sustainable Asset Management for Canadian Municipalities (InfraGuide, 2002). The organisational structure was unique, as the AMD was created as an equal partner to the Public Works Operations Division and the Engineering 121

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Services Division, which proved to be a key factor in ensuring that asset management practices were fully adopted at all levels. The AMD’s primary objective is to maximise the serviceable life of assets in a costeffective manner, using knowledge-based decision support processes. It had three main areas of focus including g g g

information/knowledge management business process re-engineering technology.

10.2.

Information and knowledge management

From the outset, the AMD prioritised the development of a reliable and complete inventory of assets as the foundation for efficient decision support processes. Given the poor state of inventory and disconnected record keeping in 2005, a decision was taken to scrap all existing digital inventory records and to recreate them from existing as-built paper drawings. The existing corporate GIS technology was evaluated, and the decision was that it lacked the functionality and usability required to support the asset management implementation, in which the GIS would be the official registry of all assets and primary repository for asset related information. ESRI was chosen as the replacement GIS technology, and was later adopted as the new corporate standard. Initially, two temporary staff and one surveyor were assigned to digitise all as-built paper records to capture basic inventory data, including the source drawings and construction year. There were many missing, conflicting and incomplete drawings in the city’s records, and a great deal of work was put into tracking down missing drawings, creating an electronic registry of drawings and geo-referencing all existing and new drawings. As the information gathering progressed, an online web mapping tool, OnPoint (http:// www.rolta.com), was adopted to make the emerging asset inventory available to all city staff, who quickly found it useful and productive in their day-to-day decision-making, and began feeding back comments on incorrect and missing data. The online mapping system soon became a key reference for planning and building departments dealing with variances, building permit applications, demolition permits and site plan development. Colour map books were printed and made available to all operational field staff to encourage them to make the necessary inputs and corrections. It was vital to get the field staff to mark these maps and complete missing inventory elements and missing attributes such as the diameter, material and depth of manholes, etc. Some of the most senior and experienced field operators were given the task of walking the entire network with these map books in hand to confirm, correct and fill-in missing information, and to provide additional notes on known issues. In the case of the water system, the senior 122

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Case study: City of Cambridge

lead hand had maintained a personal set of drawings that was used to correct the information that had been obtained from historical as-built drawings on file. Additionally, a pilot project to test zoom camera inspection technology was successfully completed, and a contractor was hired to inspect 70% of the sewer and storm manholes and to take a quick view of all pipes coming in and out of these access points. Comments from field crews, along with zoom camera inspection records, confirmed vital attributes such as material, flow directions, combined sewer and storm manholes, manhole and pipe depths, the location of drop structures and problem areas. By December 2007, the inventory covered 99% of all major assets. Quality assurance and quality control database routines were developed and implemented to minimise data entry errors and to ensure consistency. Business rules were established to auto-populate some of the attributes based on spatial proximity of other assets and locations. Carefully planned and spatially aware data elements and objects were essential for delivering an effective, reliable and sustainable integrated decision support system. All assets were auto-populated with unique asset identifiers as well as the location reference. Having a location reference for all assets is fundamental to recording, monitoring, analysing and forecasting operational components of lifecycle activity and capital projects.

10.3.

Business process improvement

The new asset inventory enabled a compilation of information and data on operational activities – water mains and service break history, sewer blockage and back-ups, street flooding location – road condition assessments, zoom camera sewer inspections, reviews of water consumptions and sewer flows at treatment plants. This helped the AMD to address a number of key issues related to the major asset classes, as follows. g

g

g

g

A first state of the infrastructure report was presented to the city council in January 2007. Overall, assets were valued at C$1 billion using 2006 replacement costs, and a deficit of C$15 million in capital and operational funding was estimated. Correlations between sewer back-ups and the locations of common sewer and storm manholes (equipped with internal baffle separators) were established. This was important because during storm events the storm system overflows into the sewer system, resulting in sewer back-ups in private properties. Critical trunk lines, manholes and inspection chambers were located and mapped, and access to some of the manholes and drainage ponds was established. Ninety-eight per cent of the water main breaks were observed on thin-walled cast iron pipes installed in the 1960s and 1970s. Reactive work performed by operational staff had, over time, increased to about 80% as an effect of ageing infrastructure, and missing or reduced preventative 123

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g

g

g

maintenance programmes. The expansion of infrastructure assets had not been met with a corresponding increase in operational budgets and resources. It had been anticipated that operational efficiencies would offset the need for increased budgets. In practice, there was a vicious cycle – a sharp decline in preventative maintenance and a corresponding increase in reactive maintenance that made it more difficult to re-establish preventative maintenance procedures. A historical analysis of water consumption (treated water pumped into the distribution system) versus water metered at the delivery point (end users) estimated that water loss within the distribution system had grown to 20%. A historical analysis of water consumption and sewer volume measured at treatment plants had shown that inflow and infiltrations within the collection system had grown to 40%. Inflow and infiltrations are a major limiting factor on future development because sewage treatment plant capacity is capped by limited scope for expansion. A systematic approach to calculating asset replacement costs was adopted. Based on the compilation of various tenders from the previous year, the engineering division prepared a replacement cost matrix based on various asset attributes such as material, size, depth and location. This cost matrix was applied to all assets, and enabled a simple, annual valuation of each asset. This, together with condition-based remaining service life estimates, was used to produce forecasted revenue needs with a good level of confidence, and provided the ability to incrementally adjust investment rates to levels that supported the elimination of capital backlog and met ongoing capital and operational needs. This approach helped the production of a capital project estimate report directly from the GIS database and an overview of all assets and their replacement costs within project boundaries.

The asset inventory, made available through web mapping, also provided support and confidence to other departments, most notably finance. In June 2006, the Canadian Public Sector Accounting Board (PSAB) passed PS 3150, federal legislation that requires all municipalities to report tangible capital assets (TCA) on their statement of financial position (balance sheet), effective from 1 January 2009. PS 3150 also requires a new format for municipal financial statements and that TCA be amortised on the statement of operations (income statement), also in effect from 1 January 2009. The city’s PS 3150 implementation team used the inventory of assets to meet the requirements of TCA reporting. Individual assets were grouped based on asset class (road, storm, water and sanitary), asset category (asset material – concrete, PVC or steel) and, most importantly, asset location (assets within same block of road). Inter-departmental business 124

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Case study: City of Cambridge

processes for creating, replacing and disposing of assets were reviewed and adapted. From this business process review, the timely delivery of reliable as-built and as-recorded drawings from consultants was identified as a major challenge to maintaining a reliable asset inventory and timely reporting. Accordingly, the business process was re-engineered to ensure that the project and subdivision closure process mandated delivery and processing of as-built drawings before any security or warranty deposit is released to the developer, consultant or contractors. This adjustment, together with a project closure audit that included a financial review and a detailed asset inventory report that compares planned or committed activities, has resolved previous problems with missing drawings or projects that had unknowingly under-delivered or crept out-of-scope.

10.4.

Technology adoption

As mentioned, the first major technology to be implemented was GIS, because this was critical for collating and making use of asset inventory and related information. In conjunction with ESRI GIS, Oracle database technology was implemented, which significantly enhanced the ability to manipulate, query and introduce automation, quality control and quality assurance of information at the database level. A third technology was needed to migrate from day-to-day paper-based methods. Information on paper is less accessible and more difficult to make available to staff in operational, managerial, administrative and field roles. Further business process reviews of administrative activities enabled common and consistent workflow practices to be developed and documented. A request for proposals was then issued for a computerised work management system to support these activities and, in 2008, the IBM Maximo Enterprise Asset Management System (Maximo) was deployed to track all reactive and planned activities in the Public Works Operations Division, and to provide integrated call-centre functionality. Maximo was implemented with full-cost accounting, which provided more real-time financial information than could be made available through existing corporate financial systems (because of significant delays in cost recognitions) and a much richer management accounting perspective on all activities. This level of information provided new insights to resource utilisation, better knowledge of exactly what work was being done by staff and contractors, and identification of what work was not being done with available resources, contractors and budgets. The end result is near-real-time information about day-to-day activities and issues that is used in capital and resource planning and operations budget development. This new knowledge is improving the City of Cambridge’s ability to address operational deficits in preventative maintenance and inspection activities, repairs and accompanying budgets. Additionally, the new system has improved knowledge transfer and stopped the loss of knowledge that was experienced each time a staff member retired or left the organisation. 125

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Mobile computing devices are used for road patrolling, sidewalk inspections and other asset condition inspections. Tablet computers are deployed to provide digital infrastructure maps for field crews, and the implementation of a mobile work management system using Maximo is planned for early 2012. Response plans are developed and deployed for each defect or issue identified through the various asset inspection processes to enable more effective deployment of field crews. This has helped the city to defend damage claims resulting from pot holes and sidewalk trips or falls because records of inspection are now available for each road and sidewalk along with defects and their repair history. The functional specification for an asset lifecycle planning tool is also under development. It will provide integrated capital and operational plans for all assets based on remaining service life, asset condition, asset operation and maintenance cost.

10.5.

The capital planning process

As part of its work, the AMD defined and documented a formal process for performing capital planning, as shown in Figure 10.1. There are three key inputs to this process Figure 10.1 The City of Cambridge capital planning process Courtesy of City of Cambridge

Asset registry

Capital budget

Project repository

Predefined projects

Step 1: Assess asset condition individually for each asset class Step 2: Estimate asset remaining service life and potential prescriptions Step 3: Perform and block condition assessment

Project planning – engineering group Revisions based on Engineering group feedback

Needs assessment – asset management group

Step 4: Prioritise based on funding sources and block condition for 2, 5, 10 and 30 years

Feasibility analysis (August)

Feasible capital projects

Project budgeting (September)

Executable capital projects

Project bucketing (October)

Capital project plan

Revisions/’what if’? analysis Senior staff review (November)

Identified capital needs at the block level Deferred projects

Execution project

Project execution beings

Tender approval

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Tender notice

City council

Environmental assessment study, design, public review

Approved capital project plan

Case study: City of Cambridge

g g g

the asset inventory – as described above the capital budget – a budget for the next fiscal year a project repository – which contains information about potential projects arising from complaints from citizens, regional plans, utility plans, etc.

The capital planning process brings together two groups, namely the AMD and engineering. It starts with AMD performing a needs assessment. As part of this, the current condition of assets, estimates of remaining service life and potential interventions are analysed. A coordinated analysis is then performed on all above-ground and buried infrastructure in each block. This results in a set of ‘Identified capital needs at the block level’. The ‘Identified capital needs’ are then shared with the engineering group for project planning. The engineering group performs a detailed design evaluation of each project to develop cost estimates, and ascertain feasibility and engineering requirements. It then performs a bucketing for the projects – ‘bucketing’ is a process of organising (combining or separating) projects into manageable sets using multiple factors, including project type, cost, contractor capacity, congestion and alternative routing, the timeline of projects, the dependency between projects and seasonal constraints. The output of the bucketing process then feeds into the budgeting process. Budgeting is a complex process. The complexity arises from the following three dimensions of variability. g

g

g

The first is the funding source. Each asset can be funded by a multitude of funding sources such as city tax, usage tax, federal funding or revenue, for example the funding sources could be the water budget, sewer budget, tax levy on roads and sidewalks, development charges for sanitary, water, roads, federal funding (gas tax), provincial funding or cost sharing from developers. The second is the projects. As there are always more projects than funds, selecting the right projects is a challenge. Defining what is right and quantifying the right project poses a tremendous challenge. The third is the various external drivers of the capital plan, which include community requirements, criticality, asset needs and asset capacity.

When the budgeting process is completed, the budget is reviewed by senior managers before the final budget is submitted to the city council for review. The city council review may result in changes to the budget and plan before tenders are sent out and construction begins.

10.6.

Conclusions

A solid asset inventory and the means to maintain it, good data on current asset conditions, an approved and sustainable financial plan, GIS, work management 127

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systems and access to near-real-time operational information on all assets have created an environment in which decision-making and capital planning is being taken to new levels. Based on key issues arising and lessons learned during its first phase of introducing asset management, the City of Cambridge has identified, planned and executed a number of new projects aimed at delivering further successes, keeping strong momentum behind asset management, including the following. g

g

g

g

g

g

g

g

g

g

Geoff Mill Creek – improvement works to avoid significant street flooding and washouts on a regional road that gives primary access to a hospital. Ballantyne Street underground reconstruction, to separate the sanitary and storm system – to reduce sewage back-up to residential properties during rainfalls and to reduce the inflow of rain water to the sanitary system. The identification of common manholes where storm water was overflowing into the sanitary system – resulting in a reduced inflow of rain water to the sewer system and increasing the capacity of both the collection system and treatment plants. The initiation of system-wide flow monitoring on the sanitary collection system to identify potential sources of inflow and infiltration and also verification of sewage flow measurements at treatment plants as well as large water users – sewage flow monitors were strategically located to compare actual water consumption within a geographic area to sewage flow. Using this water-balancing approach to inflow and infiltration calculation helped quantify ground water infiltration. The initiation of system-wide, proactive leak detection on water mains and services to reduce water loss – this led to the discovery of several previously undetected water leaks directly flowing into the sanitary sewage system, collectively adding to inflow and infiltration and significant sources of water loss. The installation of a controlled bulk-fill station in the Public Works Operations Division – to measure all water used to meet the city’s operational needs and third-party water haulers and contractors. The establishment of a water meter replacement programme for all large water consumers – to reduce water distribution revenue losses due to inaccurate measurement of water consumption. The establishment of a prioritised CCTV assessment programme – to identify operational issues and to prioritise capital projects based on the condition of all assets within a block of road as opposed to the condition of any single asset. The development of proactive preventative maintenance and inspection programmes for the Public Works Operations Division. An increased ability to take advantage of federal, provincial and municipal stimulus funding sources to address the backlog of road renewal needs – early in

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Case study: City of Cambridge

g

g

2009, the federal and provincial governments announced stimulus funding for shovel-ready projects. The location-referenced underground asset inventory helped the city to quickly identify roads below average condition having all underground assets in good condition for a massive road resurface programme funded by stimulus funding. The city was able to substantially reduce the backlog on roads and to improve the overall road condition from 44% to 68% good roads (with a pavement condition index of 7 or more) between 2007 and 2010. This has further assisted in reducing reactive activities undertaken by operational staff, and is enabling them to refocus on proactive activities. The inspection of all sewer trunks (>600 mm diameter) and siphons to identify potential sources on inflow and infiltrations, to mitigate risk in the short term and improve long-term capital planning. The presentation of a revised infrastructure status report on the water and sewer system to the newly elected city council in December 2010 – a water and sewer rate study has also been adopted by the city council to mitigate the water system investment works and renewals backlog over the next 15 years and the sewer system backlog over the next 10 years. Additional funding is collected through a separate infrastructure renewal levy on water customers. In addition, the city council also approved a C$5 million debenture of funds over next 3 years to accelerate the water system rehabilitation programme.

Discussion questions Does asset management need to be established as a separate department or function? 2. What are the implications of doing this? And what are the alternatives? 3. Other than the provision of knowledge-based decision support processes, what other actions can help an organisation optimise the serviceable life of its assets? 1.

REFERENCE

InfraGuide (2002) Ahead of the Wave: A Guide to Sustainable Asset Management for Canadian Municipalities. Federation of Canadian Municipalities, Ottawa. http:// gmf.fcm.ca/files/Capacity_Building-Planning/sustainable_asset_management_guide. pdf (accessed 10/02/2012).

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Chapter 11

Case study: London Underground 11.1.

Background and context

London Underground Limited (LU) was set up as a distinct entity in 1985, but its history dates back to 1863, when the world’s first underground railway opened. The independent companies that built the Metropolitan, Circle, Northern and other lines were amalgamated in the London Passenger Transport Board in 1933. Over 1 billion passenger journeys are taken on the London Underground network (known as ‘the Tube’) each year. The organisation carried over 1.1 billion passenger journeys in 2010–11, and employs around 19 000 staff. The network is 249 miles in length, 45% of which is in tunnels. It has 270 stations, of which all but seven are owned by LU, and 1030 pumps. London’s busiest Tube station is Waterloo, with 57 000 people entering during the 3 hour morning peak and 82 million passengers per year. A total of 537 trains are needed to deliver the peak time service. LU is part of Transport for London (TfL), the organisation responsible for London’s transport system, and has a funded plan up to financial year 2014–15 (the current UK government spending period). Over this period (2011–12 to 2014–15), the total capital investment in LU will be £5.7 billion, and the operational expenditure will be £9.3 billion. Upgrades to the Jubilee, Victoria and Northern lines will provide 20–30% more capacity when they are completed. The upgrade of the sub-surface lines (SSLs) is the largest project currently underway in LU. On completion, the upgrade will provide around 65% greater capacity on the Circle and Hammersmith & City lines, and around a 25% increase in capacity to the Metropolitan and District lines, all compared with the service before the upgrade programme began. In short, the infrastructure is massive, the operational complexity of running trains in peak times of up to 33 trains per hour is daunting and passenger demand is forecast to continue to increase despite the challenging economic climate. The key challenges facing the organisation are increasing demand (Figure 11.1), keeping the ageing asset base operational, delivering increased capacity through line upgrades and maintaining the reliability of existing assets whilst making major changes. 131

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Figure 11.1 The forecast growth in passenger journeys Courtesy of London Underground Ltd

The asset management agenda is dominated by the need to develop joined-up thinking across the organisation and its supply chain to deliver high levels of customer service and reliability. To support this, LU is developing and building assets, measuring asset management capability, developing whole-life costs models, investing in condition measurement, improving asset information quality, and the way that data and knowledge are used.

11.2.

Asset management and the PPP contracts

LU’s long association with asset management dates back to the late 1990s, when the UK government announced plans to modernise the Tube using public–private partnership (PPP) agreements. Between December 2002 and April 2003, three separate 30 year PPP contracts were entered into, as follows. g

g

Tube Lines was given responsibility for the maintenance, renewal and upgrade of the Jubilee, Piccadilly and Northern lines. Metronet Rail BCV was given responsibility for the maintenance, renewal and upgrade of the Bakerloo, Central, Victoria (BCV) and Waterloo and City lines.

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g

Metronet Rail SSL was given responsible for the maintenance, renewal and upgrade of the SSLs: the Circle, District, Hammersmith & City, Metropolitan and East London lines.

The operating of the train and station services remained the responsibility of LU, which is publicly owned. Schedule 3.1 of the PPP contract (Transport for London, 2012) related specifically to asset management, the objectives of which were to g

g

g

g g

g

ensure that the infrastructure company (‘Infraco’), in carrying out the services (in particular its performance obligations and its obligations as the asset steward) improves the asset condition generally so as to minimise, both during the contract period and for a reasonable time thereafter, the risk to safety and of service loss ensure that, in so doing, the Infraco adopts efficient and economic whole-life asset management as established by reference to good industry practice ensure that the Infraco over time brings the assets to an overall state of good condition provide LU with assurance in relation to the above assist LU and the Infraco with the efficient coordination of their respective activities on the Underground network and the Infraco network promote confidence between the parties as to the way they will discharge their respective obligations in relation to the ‘delivery into service of new assets and facilities’.

There were major challenges to overcome as the PPP contracts came into force. Level of service requirements were increasing as passenger volumes rose, and the asset base was ageing following many decades of underinvestment. The PPP contract was to bring the assets to a stage of good repair in the first 22.5 years and then operate them in steady state for the remaining 7.5 years. The PPP contract provided the funding required to do this, and it was a key challenge of the contract that decisions were to be taken on a whole-life cost basis and to provide value for money. Although the PPP contracts were written for 30 year terms, with four quarterly reviews at 7.5 year intervals, in practice the Infracos treated them as 7.5 year contracts because each review was in effect an opportunity to renegotiate the contract. Under UK law, a company that is in severe trouble, but still with some hope of recovery, may be put into the charge of an administrator appointed by a court. Going into administration means the company cannot be wound up without the court’s permission. Metronet went into administration in July 2007 with a budget shortfall of £992 million, 133

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and this created a media and political furore. The UK National Audit Office (NAO, 2009) investigated the causes of the company’s failure, and its conclusions were damning. Among other things, it found that the ‘poor quality of information available to management, particularly on the unit costs of the station and track programmes, meant that Metronet was unable to monitor costs and could not obtain adequate evidence to support claims to have performed work economically and efficiently’. The legacy left by Metronet’s former shareholders was one of poor programme management and system integration, ineffective cost control, a lack of forward planning and inefficient financial management. During the period of administration, LU worked initially with the administrators, and then with former Metronet staff, to develop and drive an improved programme within the budgetary constraints of TfL affordability. Significant levels of efficiency were identified and incorporated into the BCV and SSL plans. Also, a number of key improvements to LU’s own processes were developed through the integration with Metronet. The PPP contract allowed for a periodic review of contract terms at 7.5 year intervals. As part of the periodic review, Tube Lines priced the contract at £5.75 billion, while LU’s assessment was £4 billion. In March 2010, the arbiter gave his final cost directions, stating that the contract should cost £4.46 billion. LU responded with a revised scope of work that could be afforded within TfL’s business plan. This did not close the funding shortfall, and discussions were held between TfL and the shareholders of Tube Lines, resulting in TfL reaching an agreement to acquire the shares in Tube Lines in June 2010.

11.3.

Integrating asset management

The failure of Metronet provided the opportunity to bring back, under one roof, both the business planning and delivery functions and to enable priorities to be optimised without contractual barriers. This facilitated more integrated and effective decision-making within LU, which was essential in reprioritising work in response to the UK government’s 2010 Comprehensive Spending Review (HM Treasury, 2010). Previously, the approach had been to set out asset management requirements through the PPP contract and require the Infracos to develop the detailed asset management strategy, planning and improvements against these requirements. The Infracos’ asset management capabilities were measured through a programme of capability maturity assessments. These identified key areas where capabilities should, and could, be improved, and were used to demonstrate how well the Infracos were delivering against their asset management requirements. When Metronet’s functions and much of its workforce were brought back into LU, a programme of reintegration took place, utilising many of the tools and techniques that Metronet had developed but streamlining the asset strategies and plans. 134

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Case study: London Underground

Figure 11.2 The LU asset management framework Courtesy of London Underground Ltd

LU has since adapted the tools and guidance produced by the Institute of Asset Management (IAM) to fit the circumstances of the business, with a key focus on business benefit at every turn. The IAM asset management framework was used to inform the LU asset management framework (Figure 11.2), and a bespoke version of the IAM 2008 Asset Management Competences Framework is now being developed to underpin the development of asset management competences and to support training and development plans and programmes. The decision to achieve BSI PAS 55 (BSI, 2008) accreditation is considered to have been instrumental in gaining a common, organisation-wide understanding of asset management, developing a clear understanding of the line of sight concept and focusing staff on the strategies and plans that affect them. The drive to achieve PAS 55 certification provided a momentum that supported the delivery of a number of cross-functional standards and working practices within very short periods. This showed how asset management principles and frameworks can be used to focus senior executives and to motivate staff to deliver organisational change quickly. The PAS 55 programme was 135

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Figure 11.3 Beyond PAS 55 – development areas Courtesy of London Underground Ltd

steered by The Management System (TMS) Programme Board, which brought the essential director level support and full alignment with wider management systems and strategic objectives. This also ensured that the asset management agenda was prioritised alongside other important strategic projects and had resources allocated accordingly. In June 2011, LU was certified against PAS 55 by Lloyds Register. Since then, a further gap analysis – structured using the IAM asset management conceptual framework and the related 39 subjects – has been carried out to identify the next steps in the development of its asset management capabilities. As a result, a number of improvement areas have been identified, and actions against them are now being managed as a programme (Figure 11.3). The programme reports into the TMS Programme Board, on which sit five directors. In addition, a steering group has been formed that comprises a number of senior staff, and provides pragmatic results-oriented advice to the improvement programme. The senior staff involved are expected to demonstrate commitment to the asset management agenda and its value to the business. 136

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Case study: London Underground

Figure 11.4 Organised to manage assets Courtesy of London Underground Ltd

The asset management projects are entered into ‘the plan’. The main TMS output details all the projects that will be carried out across the organisation each year, 50% of which are known as ‘hard’ projects, the other 50% as ‘soft’. The year 1 and year 3 visions for every project are defined, and, at all stages, projects must be justified in terms of the business benefit they are delivering. Between the projects and the TMS Programme Board there is a working group that advises, peer reviews and challenges the project leaders, and will play key role in implementing the plans produced by the projects. Figure 11.4 shows the integration of asset management within LU. Sponsor and delivery groups are responsible for the development and implementation of plans to move the business forward. The achievement of asset management objectives provides some of the core expected outcomes. Asset management is no longer a department as it once was but a set of activities that has been pushed out across traditional boundaries between functions and disciplines. No one owns it, everyone does it. Continual improvement, helping to establish clearly how everyone contributes to LU strategy and objectives and how this benefits the business, 137

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are key objectives as the organisation starts to move beyond the requirements of PAS 55. As and when ISO 55001 comes to market, LU will seek accreditation only if it is clear that this fits the needs of its business – the same as for any third-party standard. Indeed, it is possible to envisage reaching a level of maturity where the standard may no longer be relevant.

11.4.

Conclusions

Discussions about tangible benefits are much more open and honest than in the past. It is accepted that building an understanding of how performance and costs are linked is very complex, and there is no algorithmic solution. In terms of the benefits of asset management, there is an acceptance that these start not with savings made or earnings increased but with costs avoided by taking this path to performance improvement instead of another. It is difficult at this stage to put values on the impact of all this. There have been no big bang improvements as yet, but lots of small ones, including g g

g g g

a clearer line of sight and connections between different parts of the business a perception of accelerated improvement at all levels and a belief in senior ranks that considerable improvements have been made improved asset management planning is driving better business planning better understanding of the very complex relationship between costs and results the ability to align spending with criticality and to achieve better value from maintenance spending.

Asset management concepts and principles were explicit in Schedule 3.1 of the PPP contract, even if the implications were not understood fully at the time. They survived the collapse of Metronet, and have since gone on to occupy a central position in LU thinking. In many ways, asset management is more relevant today because improving the quality of information held on the asset portfolio and the reliability of capital and operating expenditure forecasts is now essential to any organisation that needs to make a case to the UK government for funding. In these difficult times, it is one thing to claim that many assets are nearing the end of their lives and need replacement, it is quite another to have the evidence needed to back this up. Where functions and disciplines used to disagree about the scope and purpose of asset management, now they are coalescing around it as a way of improving the contribution they make to performance across the business. Switching from internally created models and frameworks to those generated by the IAM, including PAS 55, helped to ensure that LU was tapping into good practice and focused on improving performance rather than developing models from scratch. Using an industry-wide approach to asset management helped gain the confidence of senior management that it was on the right path. 138

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Case study: London Underground

Crucially, asset management is no longer seen as a project or a one-off initiative. It has become an ongoing, continual improvement objective. It has proved a very resilient concept, and the new asset management framework has helped people understand where they fit it and how processes can be aligned. It is enabling them to do things that they have wanted to do for a long time but have been unable to justify in the right terms.

Discussion questions Are public–private partnership contracts incompatible with good asset management? 2. Can asset management be contracted out? If so, how, and what are the main implications? 3. ‘No one owns it, everyone does it’: what does this mean in practice? 4. Why would PAS 55 or ISO 55001 no longer be relevant if an organisation reached a certain level of asset management capability maturity? 1.

REFERENCES

BSI (2008) PAS 55:2008. The specification for the optimised management of physical assets. Parts 1 and 2. British Standards Institution, London. HM Treasury (2010) Spending Review. The Stationery Office, London. House of Commons Transport Committee (2008) The London Underground and the Public–Private Partnership Agreements: Second Report of Session 2007–08. The Stationery Office, London. NAO (2009) Department for Transport: The Failure of Metronet. The Stationery Office, London. Transport for London (2012) PP Contracts. http://www.tfl.gov.uk/tfl/corporate/ modesoftransport/tube/pppcontracts/0_0_0_0.asp (accessed 10/02/2012).

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Chapter 12

Case study: RailCorp This case study is published on the understanding that the statements made and the opinions expressed in it are the sole responsibility of the author(s), and that no endorsement or criticism is implied. Every effort has been made to ensure that the statements and opinions are reflective of accurate and up to date information.

12.1.

Background and context

The asset management journey for RailCorp – the Rail Corporation of New South Wales – started nearly 20 years ago. Of course, it was not RailCorp back in 1991: one important feature of its recent history is numerous reorganisations and name changes. But its commitment to asset management was very early, and impressive. Currently, RailCorp is responsible for managing the ‘heavy rail’ passenger train services and most of the rail infrastructure in New South Wales (NSW). Much of the heavy maintenance of the passenger trains is outsourced, and freight is privately run. The newest trains are privately owned and leased to RailCorp under a public–private partnership contract. Greater Sydney has nearly 4 million people, and – although not up there with New York, London and Tokyo – its commuter rail service is significant at just under a million journeys per day. The initial impetus for asset management in NSW Rail came from a recruit who already had been implementing smart train maintenance plans in Melbourne in 1990. Jim Kennedy had learnt his maintenance science working on fighter planes in the Royal Australian Air Force. When he got to what was then the NSW State Rail Authority, he caught the imagination of a very senior manager, Steve Maxwell, who committed the organisation to asset management. It is not clear if there was a business case for any of this, including the serious investment made in the asset information system. Things started well. A team of good-quality maintenance people worked for 2 years to ensure the processes and IT really met their needs with regard to optimising maintenance. The company put some of these people through a reliability master’s degree at nearby Wollongong. It is not clear what progress might have been made, however, because Steve Maxwell died suddenly in 1995. One of his memorials is the Asset Management Council’s Steve Maxwell Award for Leadership. 141

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When the organisation was split up in 1996 into an operating authority and a competitive, but still state-owned, track and other infrastructure maintenance company (originally called Rail Services Authority and then in 2001 the Rail Infrastructure Corporation or RIC), the commitment to asset management stayed in the latter. Train maintenance remained with operations, and day-to-day operations is often not a good place for the longer-term optimisation that is integral to asset management. In any case, much of the more technical train maintenance had been outsourced to a private company. When all parts of NSW Rail were remerged into RailCorp in 2004, the outcomes were pretty clear. Infrastructure maintenance, with its effective implementation of an enterprise asset management (EAM) system, had stayed in touch with asset management developments as they accelerated in the early 2000s. Jim Kennedy himself was president of the Maintenance Engineering Society of Australia, and oversaw its transformation into the Asset Management Council in 2006. The Infrastructure Group in RailCorp was headed up by a manager who had grown up under Jim Kennedy’s and Steve Maxwell’s commitment to asset management. Train maintenance, on the other hand, had lagged behind: it was working with only a limited information system, a limited idea of maintenance optimisation and questionable industrial relations, which had held back any major improvements in maintenance working procedures. Being left within operations and customer service, it was as though it had not moved on since the late 1990s. A report for the ex-RIC CEO, now the RailCorp Infrastructure Group General Manager, by Penny Burns and Ruth Wallsgrove (Developing a High-level Asset Management Function Strategy for RailCorp) summarised where RailCorp had got to by early 2005: The overall conclusion is that RailCorp Infrastructure has definite AM strengths including a long history of understanding and development of AM good practice, but has gone as far as is possible in the absence of strong AM leadership and an appropriate structure. This report by outsiders was part of a strategy to win the RailCorp board over to bringing train maintenance back into the fold, as well to keep control of the IT systems. One of the most interesting observations concerned the ‘chief engineers’ – named individuals who were (theoretically, at least) accountable for rail safety decisionmaking. The asset management champions at RailCorp had come to believe that this focus was working against good asset management practice, because how decisions were made was not spelled out and there was no explicit (or possibly even implicit) cost–benefit trade-off. Decisions were based on a single opinion. The chief engineers at RailCorp were highly experienced, knowledgeable and well intentioned – but the 142

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Case study: RailCorp

whole safety strategy meant that they were effectively unsupported individual decisionmakers. Asset management is more about repeatable, auditable decisions, following agreed lines of analysis, backed up by data and models. Its relationship to individual experts is complex, if not fraught in most environments. Engineering is rarely the seedbed of asset management in a company; engineering design even less so. Comparing RailCorp with UK rail in 2005, what stood out, apart from its useful EAM system, was its investment in shared understanding of asset management concepts and techniques. RailCorp had implemented a large-scale training programme, putting several hundred people in the Infrastructure Group through an in-house 5 day asset management course (which London Underground later adopted as best in class). What was not so impressive was the unclear structure, with maintenance split across two or more groups, chief engineers in charge of design and a lack of integrated decision-making processes. In particular, there was no discernible process for investment prioritisation in 2005. At that point, the board decided that creating an Asset Management Group that included infrastructure and trains, maintenance and capital projects, all under a senior-level asset management champion (the group general manager who had commissioned the report), would allow an integrated RailCorp once more to move forward. Further progress was made between 2006 and 2008, galvanised by the creation of a capital investment committee of general managers that assessed all new projects against a defined and semi-quantified set of criteria. RailCorp also adopted Lean Six Sigma, alongside its good-practice reliability processes, for analysis and justification of asset action. How far it got with rethinking engineering is not clear. It did not move forward on long-term asset strategies, hindered as it was by the lack of any long-term corporate strategy, and not helped by a switchback of rail policy reversals by the state government. Both North West Rail Link and Fast Metro were projects that were initiated, radically revised and then discontinued during this short period. The group general manager who had supported the integrated Asset Management Group, left the company. The Asset Management Group itself was split in two again, dividing maintenance from capital, in part because the board favoured an organisational structure that did not have everything to do with assets within one group. Following corruption trials and associated media attention, the Board preferred not to allow the Asset Management group to address the situation independently. The NSW state government took back direct control, and now RailCorp is about to be reorganised again. 143

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12.2.

Conclusions

So, what can be concluded from RailCorp’s long and chequered asset management journey? Did asset management make a difference? Perhaps the most telling evidence is that when Hong Kong railway MTR was brought in to benchmark the key areas of the business – train operations, customer service on stations, train maintenance and infrastructure maintenance – the best performing area was infrastructure. RailCorp might not have been set up or directed as effectively as it could have been, but asset management nevertheless helped the Infrastructure Group become reasonably competitive. And the Infrastructure Group was the only part of RailCorp that could make its case with the NSW Treasury. In the early 2000s, RIC had persuaded the state that it had to invest sustainably in track maintenance, or reap the consequences in poor performance, or worse. The ‘infrastructure death spiral’ paper (Kennedy and Boldeman, 2004) showed that, once behind on maintenance in rail, it might never be possible to catch up. After that discussion, the NSW Treasury never queried maintenance or replacement spending on track. And perhaps that says it all? With good leadership (Steve Maxwell) for a short while, a really good asset information system and world-class asset management training for its people, RailCorp was able to apply some good asset management. Its implementation of an EAM system, for example, has been an exemplar for other progressive Australian companies. But Sydney commuter rail was the subject of considerable intervention by the state government. There was never a long-term plan, or sustained leadership, and without those things it is hard to go beyond some smart, individual initiatives.

Discussion questions What are the principal differences between maintenance optimisation and asset management? 2. Is good asset management possible where corporate strategy and objectives are subject to regular changes? 3. What tensions might there be between asset management and individual experts, and how can these be overcome? 4. What are the main characteristics of good asset management leadership? 1.

REFERENCES

Kennedy J and Boldeman S (2004) Mathematics of the infrastructure ‘death spiral’. International Conference of Maintenance Societies, Sydney. Wallsgrove R and Burns P (2005) Developing a High-Level Asset Management Function Strategy for RailCorp. Unpublished document written for NSW Rail Corporation. 144

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Chapter 13

Case study: SP AusNet 13.1.

Background and context

SP AusNet is a leading Australian energy provider, managing electricity (transmission and distribution) and gas networks worth A$6.3 billion that service more than 1.2 million customers in south-east Australia. The company consists of two regulated energy network companies. g

g

SP Australia Networks (Transmission) Ltd, which is the sole electricity transmission network provider in the State of Victoria. SPI Electricity and Gas Australia Holdings Pty Ltd, which consists of SPI Networks (Gas) Pty Ltd and SPI Electricity Pty Ltd (the Electricity Distribution network).

SPI Electricity and Gas Australia Holdings Pty Ltd is the owner and operator of an electricity distribution network in north and eastern Victoria and a gas distribution network in western Victoria. The parent company and majority shareholder is Singapore Power, owned by Temasek Holdings, which owns and operates the direct investments of the government of Singapore. SP AusNet is listed on both the Australian and Singapore stock exchanges. SP AusNet was formed in 2005, when the newly privatised transmission business purchased the two distribution businesses from the American business TXU Energy. On acquisition, the cultures of these businesses were quite different. While both the transmission and distribution/gas businesses had a continuous improvement culture, each business came at it from a different direction. Transmission’s culture was based around the business excellence framework of the quality movement whereas the distribution businesses pursued the ISO quality management approach and were involved in the Electricity Safety Management Scheme and Gas Safety Case. This case study looks at how a commitment to quality and continuous improvement created the context for effective adoption of BSI PAS 55 (BSI, 2008) and asset management thinking across the entire SP AusNet business. 147

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PAS 55, with its emphasis on applying ‘plan–do–check–act’ and continuous improvement to asset management activities, is in many ways a natural extension of the Deming concept of total quality management that has been so widely adopted by world-leading businesses from the 1950s through to today. It is no coincidence that some of the leading proponents of asset management at SP AusNet spent their formative years in the state-owned electricity business under managers first responsible for embedding continuous improvement into that organisation. They saw PAS 55 as a good way of getting the organisation to focus on asset management as a core business activity, especially as it provided a holistic framework to integrate and link all components. It is also acknowledged that the Australian Energy Regulator was showing an interest in using PAS 55 to assist in regulation activities, as Ofgem had done in the UK. The approach to achieving these milestones has not only been very methodical but also pragmatic. The emphasis – which would be familiar to anyone who has worked with Kaizen or any other total-quality management techniques – is on improving in many small steps that can be more easily defined and executed, rather than taking giant leaps. Whether the changes are incremental or major, this approach creates firm foundations for improvements that everyone understands the reasons for. This is also in keeping with Deming’s (1993) view that The first step is transformation of the individual. The individual, transformed, will perceive new meaning to his life, to events, to numbers, to interactions between people . . . He will have a basis for judgment of his own decisions and for transformation of the organizations that he belongs to. There was a great deal of debate at all levels in the years leading up to PAS 55 certification about what asset management really meant and how it should be carried forward. Once the approach and subsequent strategy was resolved and implemented, it became rare to hear anyone question its relevance or value. Through this work, a cultural shift has occurred in the last 5 years where people now have a better understanding of the wider aspects of asset management, are much more focused on improvement opportunities and are now more comfortable when suggestions are made to them. SP AusNet has a disciplined approach to shaping its culture and improving its performance that flows through the way it selects, appoints, promotes and deploys its employees. Until recently, it has managed these processes without a defined focus towards asset management competence, depending instead on knowing who the right people are to fill key roles. However, plans are now being implemented to provide a more formal approach to the definition of competences and more proactive management of staff development and succession planning. 148

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Case study: SP AusNet

The investments the company is making in better asset management will sustain financial returns to investors by optimising capital expenditure profiles and delivering greater operational efficiency. They will also improve service to customers and make these improvements more sustainable across future generations. The pressure to deliver these outcomes is further intensified by the requirements of the Australian Energy Regulator, which proposed a series of rule changes in 2011 to the framework it uses for regulatory determinations. The main changes include g g g

more leeway for the regulator to set ‘efficient’ costs high penalties on applications for capital expenditure overspends process changes relating to submission of data and information by network providers.

The PAS 55 framework has been promoted by Energy Networks Australia (ENA) to the Ministerial Council of Australia forum as the basis for sound safety regulation for the energy supply industry. Energy Safe Victoria (ESV) adopted a framework similar to PAS 55 after the organisation recently reviewed the proposed SP AusNet electricity safety management schemes and gas safety case.

13.2.

Impact of PAS 55

SP AusNet Transmission was the first of SP AusNet’s networks (and the first organisation in Australia) to gain PAS 55 accreditation in 2008. Based on the success and strength this brought to the business, the two distribution networks of electricity and gas were also certified under the same asset management system in 2011. When AMCL carried out an initial gap analysis of SP AusNet’s Transmission network in 2008, the business scored quite highly on the PAS 55 ‘Structure, authority and responsibilities’ clause because top management was clearly focused on asset management. Indeed, there were no major gaps because management had already completed a lot of work to align with PAS 55 requirements. Effectively, they had carried out an internal gap analysis and closed the more significant gaps before AMCL was brought in to take the business through the assessment and improvement process, which led to certification. SP AusNet viewed its success in the certification to have come from using PAS 55 as a sound holistic tool for the management of its assets. It was not just an ‘add-on’ to what was being done but an integrated foundation for success. By 2011, SP AusNet had gone on to implement a single ‘asset owner’ structure, which was introduced 2 years previously. Bringing all three networks into the same asset management system paid dividends in terms of identifying the efficiencies across the three networks they were seeking, integrating the cultures of the businesses and achieving PAS 55 certification for the electricity distribution and gas businesses. 149

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These benefits stemmed from the recognition that asset management posed similar challenges to all three businesses, so encompassing them in the same system was likely to reveal major areas of overlap and common requirements where efficiencies could be made and best practices spread. These areas included the asset management policy the risk management framework and processes contingency planning human resources/competence frameworks the audit, performance monitoring and management review processes the management of change and improvement activities.

g g g g g g

The commitment to continuous improvement and sustainable outcomes is made clear in SP AusNet’s asset management policy, where the requirements that govern the way asset management is implemented and developed within the business are defined: The SP AusNet Asset Management policy supports our Asset Management vision and mission by providing the framework for delivering the design, construction, operation, maintenance and retirement of energy networks in an efficient manner which: g Delivers sustainable outcomes for safety, the environment and network performance g Informs and supports the business plan g Sets the direction for the Asset Management strategy g Complies with regulatory and legislative requirements, industry Codes and relevant Australian Standards To achieve this we will: Develop and maintain effective Asset Management Systems with commitment, accountability and involvement from all of the organisation g Apply a life cycle approach to Asset Management g Innovate, create and employ leading Asset Management practices g Continuously improve our Asset Management effectiveness g Benchmark our processes and practices g Review objectives and targets and conduct regular and rigorous monitoring, auditing and analysis of economic and technical performance g

The differences between the businesses only start to reveal themselves in the detail of each individual network’s asset management plan, detailed information systems and work practices. Line of sight between each business’s asset management plan and its asset management strategy is controlled by the asset management process, which spans all 150

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Case study: SP AusNet

Figure 13.1 The SP AusNet asset management process Courtesy of SP AusNet

1. SP AusNet business plan • Vision • Mission • Values • Objectives • Strategies and objectives

3. Network performance • Reliability • Quality • Safety • Utilistion/capacity

2. Business environment assessment • Network risk profile • Health, safety and environment quality • Demand • Compliance and stakeholder expectations • 25 year vision technology skills

5. Asset condition • Incidents and defects • Condition policies • Age profiles • Risk models

4. Network asset management strategy

6. Network planning 5–30 year plans

7. Customer requirements

8. Investment models

Policies Procedures

9. Capital expenditure 5 years plans

10. Operating expenditure 5 years plans

11. Integration prioritisation optimisation

12. Capital expenditure annual budget

13. Maintenance annual budget

Standards

Guidelines

14. Unscheduled maintenance

15. Plan execution

16. Execution and network performance monitoring Key

Input

Strategy

Plan

Execute

Monitor

three businesses and defines the core delivery mechanism for SP AusNet’s broader asset management system (Figure 13.1). Alignment with PAS 55 requirements involved bringing the core asset management documentation within SP AusNet into a common format. The content and depth of 151

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each business’ asset management strategy and plans are defined in a common template, which also meets the relevant regulators’ requirements. There is a significant amount of detail captured in these documents to meet various internal and external stakeholder requirements, distilled annually into a summary asset management plan for SP AusNet. This summary is authorised by the board as part of the annual business planning cycle. The criteria it uses to evaluate the asset management strategies and plans is derived in part from PAS 55 and in part from the longer-term needs of the business to meet its financial and service objectives and its regulatory and asset management obligations. In the very early stages of adopting PAS 55 as an improvement tool, an asset management committee (AMC) was established to oversee management and review of the system at the highest level. The AMC is chaired by the asset owner, and has seen the introduction of an overall AMS for all three businesses. The committee has a structured annual programme of activities to ensure the links are strong between the strategic and operational requirements of the three businesses and their regulatory control periods. Established in 2007, the AMC is relatively new but already looks effective, having overseen one regulatory cycle and having also commissioned and acted upon an assessment of its own performance. Key to this is the support it is getting at the highest level in the company and the recognition that asset management is what SP AusNet is about. The AMS is underpinned by the SP AusNet risk management framework (Figure 13.2). Based on ISO 31000 (BSI, 2009), this is proactively and consistently implemented throughout the organisation and hardwired with the AMS, most clearly through asset management strategies that establish the context for the risk assessments, as required by ISO 31000. The consistency of this approach means that risks are assessed and managed in a way that everyone understands. Risk assessments are shared with the safety regulator Energy Safe Victoria (such as the electricity safety management schemes or and the gas safety case), and are aligned with the risk management framework and, again, linked to the network asset management strategies.

13.3.

Conclusions

The latest milestone in the development of the asset management system is the establishment of the Programme Management Office (PMO), which brings programme and project management for all three businesses into a single process. Each project submitted to the PMO must have a business case that identifies work in the relevant 5 year network asset management plan. Capital expenditure is now prioritised consistently across SP AusNet, using fixed criteria related to the organisation’s overall strategic aims through the top-level business strategy theme of STEM (strengthen, transform, extend and modernise). The PMO is improving the accuracy and efficiency of the delivery of capital expenditure plans, with target expenditures now being consistently met and a fully economically justified pipeline providing a smooth flow of future plans. 152

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Case study: SP AusNet

Figure 13.2 The SP AusNet risk management framework Courtesy of SP AusNet

Step 2: Establishing the context

Step 3: Risk assessment

Risk identification Step 1: Communication and consultation

Risk analysis

Step 5: Monitoring and review

Risk evaluation

Step 4: Risk treatment

The PMO operates a core project lifecycle management process within an overall programme portfolio management system. Clear accountabilities and responsibilities are defined for all roles, with the key coordinating roles of PMO portfolio manager, project initiator and project sponsor driving the design and delivery of projects by a broader team. Defined stage gates for portfolio alignment, approval and release of individual projects provide the core discipline for programme and project delivery, while the specific ‘change control’ and ‘benefits’ realisation process overlays ensure both business (benefits) and asset management requirements are effectively managed and realised. In this way, the key PAS 55 requirement for ‘line of sight’ is achieved for SP AusNet’s capital expenditure asset management plans. SP AusNet has, arguably, been on a 16 year journey to establish and implement an effective asset management system, which had its origins in some very early exposure to the total quality management movement in the 1990s. Since the privatisation of the businesses (1994 and 1997), SP AusNet has continuously sought improvement in its asset management operations. The implementation of PAS 55 was a way-point on this journey, which has really only just begun for SP AusNet, with the business now moving 153

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its focus towards the pending ISO 55000 standard as another step in its continuous improvement endeavours.

Discussion questions In what ways are total quality management and asset management similar? What are the potential advantages and disadvantages of bringing more than one organisation into a single asset management system? 3. Why is a consistent approach to risk assessment considered so important to asset management? 4. What are the main differences between asset management policy, strategy and plans? 1. 2.

REFERENCES

BSI (2008) PAS 55:2008. The specification for the optimised management of physical assets. Parts 1 and 2. British Standards Institution, London. BSI (2009) ISO 31000. Risk management – principles and guidelines. British Standards Institution, London. Deming WE (1993) The New Economics for Industry, Government & Education. Massachusetts Institute of Technology Center for Advanced Engineering Study, Cambridge, MA.

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Chapter 14

Case study: City of Hamilton 14.1.

Background and context

The City of Hamilton in Ontario, Canada, owns and operates two long-term care facilities (Macassa Lodge and Wentworth Lodge), which have a total of 430 beds between them. These buildings have undergone redevelopment and expansion over time. Long-term care facilities provide numerous vital services and programmes, including nursing and personal care on a 24 hour basis, administration of medication, complete meal services, and assistance with activities of daily living for the city’s senior citizens and other individuals who may not be able to take care of themselves. All long-term care facilities are licensed by the Ontario Ministry of Health and Long-Term Care. Since the late 1990s, the City of Hamilton has been actively engaging in sustainable infrastructure asset management practices. In 2009, the city produced a lifecycle state of the infrastructure report on its Community Services Department (the SotI report: City of Hamilton, 2009). Unlike a traditional public works department, the Community Services Department provides what would be considered ‘soft services’: public housing, culture, recreation and long-term care facilities for seniors. Asset management studies are often limited to existing assets and their replacement in the future. This is akin to driving a car by looking into the rear view mirror only – it will not get you where you want to go or more importantly where you need to go, since society is not static. There is a need to incorporate projections on population growth, demographics and geographic distribution as well as cultural and other changes in the population profile in order to develop and align social policies with the bricks and mortar infrastructure to meet the community’s needs now and in the future. The difficulty is that data do not exist on the future, so reasonable and well-documented assumptions need to be made. This is a significant challenge for analysts who are used to dealing with hard data. This case study focuses on nursing homes or long-term care facilities managed by the City of Hamilton. It identifies the challenges of achieving inter-generational (as well as intra-generational) fairness in terms of access to service and expenditures for the 155

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community. These same basic principles apply to a wide range of other community services, from urban forestry to recreational facilities to roads, clean water and sewage removal and treatment.

14.2.

The analysis

14.2.1 Basic technical assumptions g The range of components – not just cost per square metre. The facilities were broken down into the following components, each with their own estimated useful life: site, architectural and structural, vertical movement, mechanical, electrical and, finally, beds. g The range of estimated useful lives: maximum, minimum and expected. For example, mechanical costs were estimated based on a useful life of 24, 14 and 19 years. g The range of growth: the status quo (assets do not grow), population based (assets grow at the same rate as the general population) and demographic based (assets grow with the seniors segment of the population). 14.2.2 Basic financial assumptions The true lifecycle cost: the financial analysis is based on the expected useful life of the various components of the asset rather than an artificially fixed budget timeframe such as 10 or 20 years. A 100 year financial projection was made in order to cover at least one replacement of the longest lifecycle items. g The range of construction costs: high, low and average (125%, 75% and 100%). g Two capital financing options: pay-as-you-go and debt financing. g Capital cost add-ons: engineering (15%), contingency (10%), and overhead and administration (12%). g Operations and maintenance add-ons: 10% (charges from support departments). g All estimates in 2008 dollars (CAD). g No discount rate or other time value of money adjustments. g A borrowing cost over 15 years of 6% (the city’s borrowing cost at the time). g No inflation was applied but interest gained on reserves was set at 4%: this was assumed to balance out the cost of inflation with proper and stable funding. g No grants, subsidies or any type of funding are anticipated from senior levels of government for capital works – so as to assess the true cost of service provided. g The total cost of service (TCS) approach: operating costs plus maintenance costs plus capital costs plus debt financing costs minus any sustained sources of revenues. g

This approach, combined with a range of useful lives for components, as well as a range of construction costs, allowed for the development of a more realistic multidimensional funding envelope. 156

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14.2.3 Basic population assumptions g Data from the 2009 SotI report: 1.07% per year overall increase in the general population (based on the city’s Growth Related Integrated Development Strategy report: City of Hamilton, 2003). Updated figures for this case study are based on Ontario Ministry of Health and Long-Term Care projections up to 2036 (IntelliHEALTH, 2010), and increased by 0.6% thereafter to 2108. g Canada’s population is ageing. Long-term care facilities are unique in that they are generally used only by older age groups. g Dynamic projections of service requirements were based on the existing proportion of people of 75 years of age or older currently in long-term care, that is, the existing level of service. There is an upward pressure on service demand and, therefore, on costs as demographics shift. Demand for long-term care services will grow faster than general population growth for at least the next 25 years. This is reflected in a detailed and dynamic demand model that projected these fluctuations over the next 100 years.

14.3.

Generational differences

Understanding the generations is important because they are who the city communicates with, serves and provides for. There is a need to know and understand the city’s audience and their distinct characteristics: how they think and behave, their values, their wants, their needs, their preferences and their life experiences. Table 14.1 shows what are typically regarded as the main generations (although some organisations recognise subsets of these) along with the city’s 2010 population figures for each of these. Future challenges are obvious from these.

14.4.

Intergenerational fairness

What does inter-generational fairness mean? Is it, and should it, be measured strictly on a financial basis, an asset per capita basis, an asset per client basis (accessibility) or some other measure? Should services be provided strictly on a user-pays basis or must the ‘public good’ be taken into account? If so, how and on what basis can the ‘right and fair’ social policies be developed? Another key question is whose needs and preferences

Table 14.1 2010 populations by generation Year: 1922 Traditionalists 81 000 people

1945

1964 Baby boomers 149 000 people

1980 Generation X 106 000 people

2001 Generation Y (millenials) 143 000 people 157

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take priority – the specific clients or users, the user generations or the community at large? Inter-generational fairness is fast becoming one of the most high-profile rallying cries against increases to tax rates or service user fees despite the significant infrastructure funding required for the present and the future. It is a highly emotive issue that often trumps other aspects of the debate. As both service managers and asset managers, it is imperative to fully understand the multidimensional aspects of this question in order to clearly communicate a response. In fact, intergenerational fairness may be impossible to achieve or unfair for a number of reasons. g g

g

g

g

g

g

g

The useful life of many assets is longer than one generation. On the other hand, many assets have components that last less than one generation. Operating and maintenance costs tend to increase as assets get older, so what is the fairest way of distributing these costs over the life of an asset? One generation might enjoy lower costs when the asset is young, while another generation might be saddled with higher costs as the asset gets older. The difference can be even more pronounced if one generation has to meet higher operating and maintenance costs as well as bearing the cost of replacing the asset. Currently, there is an infrastructure deficit that has been created over many generations. Who does it belong to and how can it be fairly apportioned? Inter-generational fairness has never been an issue before, so why should it be introduced now? Is it just another ‘Me-generation’ issue? After all, previous generations have always built for and invested in the future. Not doing so would be like building a sewer or water main that does not allow for growth. All generations have gained from the investments made by previous generations, just as future generations will gain from investments in health and education. Inter-generational fairness may be a red flag or a short-term outlook – what is needed is a sustainable whole-lifecycle approach. An asset has many lives – a physical life, a useful life and an economic life. Which of these lives should be used to apportion costs to different generations?

Because intergenerational fairness is a complex and emotive issue, it is not particularly attractive to elected officials or their staff. Tackling this issue starts with the recognition that the current situation is a result of past and present public policies and practices, or a lack of them.

14.5.

Putting a price on fairness

For the sake of simplicity, a 25 to 30þ year timeframe is often used as a generic definition of what constitutes a generation. Most infrastructure (in this case, the two residences for 158

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Case study: City of Hamilton

Figure 14.1 Cost increase by generation

Generation 4 Replacement

Cost

Generation 3 Rehabilitation Generation 1 Minor maintenance 35%

Generation 2 Major maintenance

50%

Life

Generation 5 Minor maintenance 70%

90%

seniors) lasts 2–4 generations, or 50–100 years. In reality, the actual services that these assets provide may well extend beyond the life of the hard assets themselves, and increase over time as entitlements grow and the search goes on for constant improvements to people’s lives. Figure 14.1 illustrates generically how costs increase significantly over time for a typical asset with a 100 year lifespan. Baby boomers are in the range of generation 3 to generation 4. Inter-generational fairness then involves costs to their parents/grandparents (generation 1 to generation 2) as well as to their children (generation 4 to generation 5). This is a dynamic and fluid concept, and the reality is that people only pay significant taxes during their working lives, say 35 years or so – a little over a generation’s worth. Generation 1 may have built the asset, but it has only minor maintenance to contend with. By contrast, generation 4 faces the highest costs of all to maintain service levels, and is also faced with the replacement cost of the asset. Once the assets are replaced, the low-cost cycle starts again. In other words, each succeeding generation faces exponentially higher costs as the asset ages, and at least two generations of taxpayers pay for most public assets, with more generations paying for longer-life assets. To complicate matters further, the community as a whole usually benefits from publicly owned or operated assets such as schools and hospitals, not just the users of that specific asset.

14.6.

Uneven asset bubbles that move through time

Figure 14.1 does not take into account the social value or the importance of assets in a community or their contribution to the public good. Nor does it take into account the sources of revenues, which may consist of user fees, general taxes or a combination of both. Furthermore, services along with the relevant assets to support them are always in a dynamic state. They change over time as a result of legislation, new demands or changing expectations. It is quite difficult to look at an asset in a vacuum, without considering the system as a whole or the community as an integration of many assets. 159

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Figure 14.2 Remaining useful life – by the number of facilities Courtesy of City of Hamilton

Trying to break down assets on a generational basis, in order to try to apportion costs to a particular generation, runs into significant problems because the amount of infrastructure varies considerably from one generation to the next. Since assets are not equal numerically or qualitatively across generations, costs cannot be equal across generations either. This is illustrated in Figure 14.2 for a number of community assets in the City of Hamilton. Finally, another source of complexity is that benefits from these services accrue from one generation to the next, without this being reflected in the amounts paid for these benefits or who pays it.

14.7.

Social policy – whose responsibility is it?

There are many professions involved in developing and managing infrastructure: engineers draft technical policies, planners draft planning policies, accountants draft financial policies and so on. Like asset management, social policy does not belong to any specific profession. Yet, the need for comprehensive and sustainable social policies is often understated or misunderstood – if it is even recognised – until the asset is built or, worse still, it needs to be replaced. This is particularly true for assets that provide what is commonly referred to as ‘soft’ services such as community halls, libraries, parks and recreational facilities, historic sites, public housing and long-term care facilities for seniors. The inter-generational fairness argument must be dealt with as part of the social policy development process. 160

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Case study: City of Hamilton

14.8.

Level of service for long-term care facilities

As mentioned, the city operates two long-term care facilities for seniors, while other similar facilities are run by the private sector, some for profit and some not. Revenues for the city’s two long-term care facilities come from the province of Ontario and from the residents themselves, with local taxpayers picking up the difference through their annual tax bills. Private long-term care homes, on the other hand, are not subsidised by the city. Level of service can be measured using at least three different standards. g

g

g

The status quo option: is absolute; that is, the number of long-term care beds the city provides does not change regardless of the demand or the growth in population. The population-based option: the number of beds increases as the general population increases; that is, the number of beds per capita remains the same. The demographic-based option: the number of beds increases as that demographic increase; that is, the current ratio of number of seniors receiving the service to the current number of seniors living in the city remains constant.

Deciding which metrics to use to determine the level of service is as important as determining the level of service itself, since that in turn will determine the level of ‘hard’ asset that will be required. Figures 14.3 and 14.4 clearly illustrate the difficulties

Figure 14.3 The number of long-term beds. Which one is the fairest option? To whom? Courtesy of City of Hamilton

1600

Demographic based = 1417 beds, or increase to 14 beds/10 000 people

1400

Number of beds

1200 1000

Population based = 787 beds, or maintain 8 beds/10 000 people

800 600

Status quo = 430 beds, or reduce to 4 beds/10 000 people

400 200 2108

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2066

2059

2052

2045

2038

2031

2024

2017

2010

0

Year

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Figure 14.4 The annual cost per capita. Which is fairest option? To whom? Courtesy of City of Hamilton

$40.00

Demographic based: increase to $37/capita/year

Cost per capita: CAD

$35.00 $30.00

Population based: maintain $21/capita/year

$25.00 $20.00 $15.00

Status quo: reduce to $11/capita/year

$10.00 $5.00 2108

2101

2094

2087

2080

2066

2073

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2052

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2038

2031

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$0.00

Year

and complexities in making these types of decisions, both from a financial perspective as well as from a level of service perspective.

14.9.

Important Related Initiatives

Around the same time as the SotI report was being produced, the City’s Community Services Department was completing a review of its recreation facilities (Monteith Brown Planning Consultants, 2008). The level of service and fairness issues faced by the long-term care facilities are also faced by Recreation facilities, with the added complexity of fairness across different neighbourhoods, age groups and family income levels. Based on demographics and geography, it was determined that providing an ‘equal’ provision of each type of facility – outdoor pools, ice arenas, senior centres, etc. – was unaffordable, would not provide the best possible level of service to local neighbourhood residents and, indeed, might satisfy no one. Service standards were then developed based on current and forecasted populations of specific age groups in a way that provided a service level range that reflected other demographic factors such as income, ethnicity and interest. Using this formula, inner city neighbourhoods, for example, would get fewer arenas but more pools than suburban areas with similar numbers of youth. Following the SotI report, the Community Services Department embarked on a human services planning initiative (HSPI) called The Playbook (City of Hamilton, 2010). One of 162

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Case study: City of Hamilton

the early efforts was to identify and map all of the human services provided by numerous agencies in the city. The next steps for the HSPI will be to identify existing service level standards for various services and highlight gaps in number, in service type and in geographic distribution. This will ensure that both the required hard infrastructure and human services are developed at the right times and in the right places for the local population.

14.10. Conclusions The SotI report marked a good first step in raising the issue of inter-generational fairness, identifying options and getting the internal discussion going. The road ahead will require the resolution of complex, sensitive and emotional issues because it involves the wants and needs of individuals, special-interest groups and the community as a whole. There are no scientific formulae, building codes or the like to assist this process, only broad principles that have to be fleshed out and made real to people, and even these are not the same for every service, asset or community. Importantly, the city has realised the need to get its ‘hard asset’ people and ‘soft service’ people thinking in an integrated manner and taking into account the generational issues and other demographic shifts that affect their worlds. This has led to improved dialogue between the various departments and professions engaged in asset management and with the public. But, in spite of increased sensitivity to the relationship between infrastructure and service levels and improved communications around this, the issue of inter- and intra-generational fairness is still outstanding.

Discussion questions Is inter-generational fairness possible to achieve? Is it even a desirable objective? 2. What unique benchmarks or service standards apply to community infrastructure? 3. How can community profiling be used to ensure that public-infrastructurebased services meet capacity and service level demands? 4. How might forecasted population growth rates influence the characteristics of public-infrastructure-based services? What are the asset management implications? 1.

REFERENCES

City of Hamilton (2003) Growth Related Integrated Development Strategy (GRIDS). Planning and Economic Development Department. http://www.hamilton.ca. City of Hamilton (2009) State of the Infrastructure Report, Community Services Department: Quality of Life Infrastructure. http://www.hamilton.ca/NR/rdonlyres/ 163

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7DC4EDE8-2E4A-4622-A339-79A0CE492CEB/0/SOTICommunityFacilities.pdf (accessed 10/02/2012). City of Hamilton (2010) The Playbook – A Framework for Human Services Planning in Hamilton. http://www.hamilton.ca/NR/rdonlyres/29573631-A3F1-4D7E-B35632987BB41235/0/HSP_Playbook.pdf (accessed 10/02/2012). IntelliHEALTH Ontario (2010) Medium Scenario. Ontario Ministry of Health and Long-Term Care, Ontario. Monteith Brown Planning Consultants (2008) Use, Renovation and Replacement Study for Hamilton Recreation and Public-Use Facilities. City of Hamilton, Ontario.

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Chapter 15

Case study: Rio Tinto 15.1.

Background and context

The leading international mining group Rio Tinto manages in excess of US$25 billion of plant and equipment through five mineral commodity-based product groups. Some of these product groups have been in business for over a hundred years, and by the early 2000s a range of approaches, practices and systems were in play, but there was no common approach to asset management. A meeting of Rio Tinto managing directors in 2004 decided that there was significant value to be gained from a more coordinated, top-down approach to the management of core business processes, including asset management. At the time, asset management was emerging as an interdisciplinary field in which professionals needed to combine an understanding of the technical issues of asset reliability, safety and performance with financial and organisational skills. In 2005, Rio Tinto’s global Technology and Innovation Group was created to support the push for standardisation, enhanced collaboration and capability development. The group included the Asset Management Centre (AM Centre), headed by a global practice leader, with team members located in countries where business units operate. The AM Centre supports the business units in the development and execution of a number of programmes to improve asset management. Its vision is to ‘lead a stepchange improvement in the reliability and performance of physical assets across the group, developing and sustaining world class asset management capabilities and delivering significant value for the business’. This includes aligning asset management processes to best-practice through collaboration, improving competences, increasing asset reliability and developing new asset systems. This case study focuses on one of the training programmes developed to improve asset management competencies within the business. Known as the Asset Management Professional Development Programme (AMPDP), it focuses on managers and superintendents with accountability for asset management. 165

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15.2.

Aims and scope of the AMPDP

In the mining industry, how physical assets are managed is crucial to unlocking value from each mineral resource for the benefit of all stakeholders. The purchase, installation, use, maintenance and disposal of plant and equipment involve many of Rio Tinto’s 72 000 employees. A critical aspect in improving the way that assets are managed across their lifecycles involves influencing these employees to change their behaviours and practices. Two critical components in managing the organisational culture change required to support the AM Centre’s vision are (1) identifying and developing capable and competent people, and (2) ensuring they understand, and can articulate, how their work in asset management supports organisational goals and delivers value for the business. Initial work within the AM Centre in 2006–07 focused on defining a set of asset management core competencies applicable across the business and developing expectations of competence for each asset management role. These core competencies reflect the asset lifecycle and cover asset acquisition, sustaining assets, optimising assets, planning and rigorous data-based analysis, as illustrated in Figure 15.1. An assessment of 292 employees across four business units against these expectations identified improvement opportunities at a number of levels within the organisation. In the light of this, a decision was made to focus first at the manager and superintendent level through the launch of the AMPDP. Other programmes, including courses for asset management practitioners, maintenance planners and reliability engineers, have followed since. Figure 15.1 Asset management core competencies Courtesy of Rio Tinto

Rigorous data-based analysis

Acq

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u iri n g a s s e t s

plannin Asset g

taining asset s Sus

mising assets Opti

Case study: Rio Tinto

The business challenge for the AMPDP is to g

g

g

build capability and develop leadership at the asset management professional and manager level and to bridge competence gaps where they exist at the superintendent level create a common understanding of the Rio Tinto approach to asset management across the different business units by collaborating with asset-focused groups, such as Process and Project Development, and leveraging the capabilities of functional groups such as People and Operational Support and IT identify and capture business value through the asset management improvements initiated and executed as part of the learning journey.

15.3.

Strategy for programme development

The key steps in the development of the programme were g g g g

the identification of learning partners and the division of responsibilities. the programme design managing engagement across the business measuring performance.

15.4.

Identification of learning partners and responsibilities

Learning programmes within the AM Centre are conceived and managed globally and delivered and supported regionally. This requires a partnership approach, and in January 2007 a number of organisations in North America, Europe and Asia were invited to tender for programme development and delivery. They were required to demonstrate the ability to g g g g g g g

develop and deliver content to achieve specific learning outcomes access current research and case studies in managing assets work with Rio Tinto’s strategies for managing assets apply adult learning principles in delivery styles provide references and examples of similar work provide an external faculty of subject matter experts support global implementation.

The tender was awarded in May 2007 to the AIM-UWA Business School Executive Education, an alliance between the Australian Institute of Management Western Australia and the University of Western Australia Business School, based in Perth, Australia. The resulting contract set out programme responsibilities with clearly defined roles, timescales and milestones for each partner through programme design, implementation and review. Each partner identified a lead contact who was responsible 167

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for monitoring the metrics used to assess programme success, contract management and financial performance.

15.5.

Programme design

Five core competencies form the basis of the learning and development objectives for the course, as shown earlier in Figure 15.1. The Rio Tinto tender document identified five sets of outcomes (A–E). Collectively, these contribute to the development of the desired behaviours identified in the core competencies framework, as follows. g g g g g

Outcome A: capability in asset management. Outcome B: develop appropriate business cases for acquiring assets. Outcome C: managing mobile and fixed assets. Outcome D: strategies for reliability-focused maintenance. Outcome E: strategies for changing a reactive culture to a proactive reliability-based culture.

A single day in the residential workshop is dedicated to the development of the behavioural and technical competencies associated with each outcome. These are illustrated along the lower edge of Figure 15.2. Content to support each outcome was developed initially by the external faculty and then reviewed by a core team of people drawn from the external faculty, Rio Tinto’s asset management centre and project groups. A key part of the design of the AMPDP is the inclusion of an individual project. This project requires the support of the participant’s general manager and, on completion, is presented to a panel of general managers. The outcomes of the project are assessed, value created, and the risks managed are captured and tracked. The project is the vehicle through which participants, with external faculty support, test their understanding of new concepts and demonstrate their ability to apply tools and practice behaviours. The role of the project in the programme is illustrated in Figure 15.2. The week-long face-to-face component of the course is residential. This separates participants from their day-to-day routines and pressures. It also encourages them to relax and engage with each other and the external faculty team. In many cases, people have to travel some distance, including overseas, to attend the course. Before and after the residential component, a series of virtual seminars and workshops is held to brief participants on the programme and allow them to properly prepare for the residential component. During the residential week, the learning methods utilise adult learning approaches, including case studies based on Rio Tinto events and situations, games, presentations, group activities and the project. An inductive approach is taken to the ‘Develop appropriate business cases for acquiring assets’ competence. A real Rio Tinto case study is used to 168

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Project proposal

Day 1: asset management capability and key drivers

Identify asset improvement

• Asset performance • Variability and capability

Individual asset management competence

Courtesy of Rio Tinto

Day 2: business case

Analyse

• Rigorous data analysis • Lifecycle costing

Day 3: fixed and mobile plant

Day 4: reliability focused asset management

Day 5: sustainable asset management

Project completion and feedback

Organisational asset management competence

Learning project: business case for asset management improvement

• Acquire, sustain and optimise assets • Risk assessment

Plan and execute

Mentor asset management competence

Figure 15.2 Role of the learning project in the AMPDP learning journey

Case study: Rio Tinto

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Align capability and deliver value

International Case Studies in Asset Management

explore the selection of appropriate decision criteria, the identification of key costs and risks, and how to (and not to) present data to senior executive audiences. Additional material is provided in lectures on calculating net present value and developing risk tables. Participants then demonstrate application of these tools and techniques in their project. Each day is structured around a different theme, and time is put aside after most sessions for participants to apply the new ideas and processes they have just learned to their individual projects. Teaching and learning support is provided by regional business units, global groups and the internal and external faculties to ensure that there are learning opportunities for all involved, not just the participants.

15.6.

Managing engagement across the business

The owner of the programme is the Rio Tinto AM Centre, which engages with the five commodity-based business unit asset management groups and the global Process and Project Groups. These are shown across the top of Figure 15.3. Providing external subject matter expertise in development is one core academic from AIM-UWA supported by other academics from engineering faculties close to where the programme is delivered. Administration and logistics are coordinated by AIM-UWA Business School Executive Education. A variety of technology solutions is to support the programme. All the material is stored in an e-room, with mentors and participants given access rights appropriate to their needs. The e-room supports multiple people working on similar documents, and tracks edits. Alongside this, considerable use is made of teleconferencing, with web-enabled document viewing for both mentor-to-mentor discussions and mentor-to-participant discussions. Also, there has been a recent move to provide online resources to help prepare participants with differing levels of expertise.

15.7.

Measuring performance

The AMPDP ran uninterrupted through the global financial crisis that developed in 2008. It had a proven track record of supporting the corporate strategy and the AM Centre vision. From their close involvement in the programme, general managers had been able to observe how it developed capability, created alignment, leveraged internal expertise and generated business value through the asset management improvements initiated and executed as part of the programme. Data were available to support these observations, as provided in the following section. Table 15.1 details the 14 programmes that had been run by the end of 2010. These involved 308 people from all levels, business units and functional groups. Seven programmes were run in 2011 in four locations, including the USA, Canada (in French), Western Australia and Australia’s East Coast. 170

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Case study: Rio Tinto

Figure 15.3 Stakeholders in the Rio Tinto AMPDP Courtesy of Rio Tinto

Rio Tinto Iron ore

Rio Tinto Copper

Rio Tinto Alcan

Rio Tinto Diamonds and minerals

Rio Tinto Energy

Participants

Rio Tinto business unit asset management groups

Professors in engineering faculties

Rio Tinto process and project global groups Rio Tinto Technology and innovations Asset Management Center

AIM-UWA Business School Executive Education

Table 15.1 Stakeholders involved in the programme Data courtesy of Rio Tinto

Number of programmes Total number of participants Number of globally distinct course locations Internal faculty involved External faculty involved General managers, chief advisors and managing directors involved

2007

2008

2009

2010

2 35 2 2 4 4

5 85 3 10 4 7

3 74 2 10 3 9

4 83 2 15 1 11

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Four measures of success were identified in the original contract. Increase the number of company personnel assessed as demonstrating advanced application of the core competencies. 2. Successful completion of final workshop projects with appropriate reviews. 3. Delivery of asset management improvements in the work area. 4. Capture and report on value for the project. Each individual selects and completes a project as a core part of the course. This project must deliver value for the organisation. 1.

The quality of the project proposals submitted by participants is assessed by two senior faculty members (one internal and one external) on completion of each programme. Feedback is provided to each participant, who is then given an opportunity to edit and resubmit the proposal. Projects are tracked through to execution to ensure that value is delivered. Examples of asset management improvement projects include (1) improvements to asset reliability, (2) development and implementation of new processes, for example in condition assessment, (3) asset renewal optimisation and (4) risk management, including improvements in structural integrity management. A total of 227 competence assessments have been completed and 141 development plans are being actioned. These development plans will help participants achieve advanced application competency status. The AM Centre keeps a log of less tangible benefits generated by the programme, including the following. g

g g

g g

g

g

Executive support for complementary learning initiatives taken by the AM Centre, including the development of an ‘Introduction to reliability’ course and ‘Practitioner training’ courses. Improved participation in collaborative forums. Professionals pursuing further education in asset management, maintenance and reliability. Participants and internal faculty moving to more senior roles. Expansion of the programme participant base beyond maintenance to other areas, including operations. Linking participants to globally recognised asset management experts, to bring a broader industry perspective and cutting-edge thinking to challenge the status quo. The embedding of Rio Tinto terminology, images and symbols within the programme and consistent delivery helped support individual learning outcomes and a fundamental change in Rio Tinto’s global asset management culture. This culture is evident in the attitudes and behaviours of Rio Tinto staff towards

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Case study: Rio Tinto

reliability concepts and the use of asset management principles in decision-making at all levels.

15.8.

Conclusions

This programme was the first of several developed subsequently by the Rio Tinto AM Centre. It stands out for the way that it has leveraged a mix of internal and external people and the high level of involvement of senior people. In 2011, the Rio Tinto AMPDP was one of just 13 programmes worldwide to be honoured with a Highly Commended citation in the category of Professional Development from the European Foundation for Management Development Excellence in Practice Awards. The following are the lessons learned by this programme. g

g g g

g

g

g

g g

g

g

Start with the end in mind. Rio Tinto had a very clear view of what it wanted to achieve. Make sure the development team has a mix of expertise, experience and views. Use a combination of learning approaches appropriate for adult learners. Give participants the opportunity to apply and test what they have learned in a practical way that also adds value to the business. Ensure participants are set up for success through careful screening, assessments of their ability to apply learning and pre- and post-programme support. Ensure that there are people and processes, such as communities of practice, clearly identified within the organisation, which participants can direct questions to concerning skills and tools learned during the course. Support mentors and lecturers through peer-to-peer mentoring, clear case and teaching notes, and reflective review. Collect feedback from all involved, not just participants. Target improvement opportunities and collate these for review – better to implement in batches than make frequent updates. Be clear that asset management is more than a set of tools – it is about delivering value and managing risk. Have visible leadership support and attendance at the programme.

The final words come from the two programme leaders at Rio Tinto: By bringing asset management experts from within, and from outside the business, together we are able to deliver a compelling and consistent message that ensures that current and future generations of asset management professionals understand where Rio Tinto wants to be with asset management, how we intend getting there, and the role that they play in ensuring we arrive. Gary West, Chief Advisor – Asset Management, Technology and Innovation 173

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This programme has embedded learning at two levels, the programme participant and the faculty. Combining a new faculty member local to the region in which the programme is being conducted with an experienced faculty member with global perspective enhances the development of the local faculty and supports dialogue between global centres and regional business units. This process also ensures participants have a regional contact post-programme completion. I have experienced a tangible growth in learning culture due to this process. Natasha Bartlett, Principal Advisor, Asset Management Competency and Training, Rio Tinto Technology and Innovation

Discussion questions 1. 2.

3. 4. 5.

How would you set about defining core competences in asset management for your organisation? What are the main advantages and disadvantages of bringing together people from different parts and functions of an organisation to learn about asset management? Which individual projects would be most relevant for people to undertake as part of an asset management learning programme in your organisation? What success criteria would your organisation use to measure the effectiveness of an asset management learning programme? Who would be the main stakeholders in an asset management learning programme in your organisation?

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Chapter 16

Case study: Euroports 16.1.

Background

Euroports is one of the largest port operators in continental Europe. It is owned by a consortium of financial institutions: Brookfield Infrastructure Group, Antin Infrastructure Partners and Arcus European Infrastructure Fund. The Euroports portfolio went through a rapid period of development between 2006 and 2009. It now handles 73 million tonnes annually of various commodities, with a strong focus on general cargo and dry bulk – 56 million tonnes through its own multi-use port terminals and 17 million tonnes via the harbours and quays of industrial customers. It has 21 port terminal operations in Europe and two in China (Figure 16.1). Between them, they occupy 485 hectares of long-term port concessions and 31 kilometres of quay length. Euroports also operates at a further ten sites on behalf of industrial customers. It has a full-time equivalent workforce of 2800 staff. Euroports is committed to developing its portfolio by g g g g

coordinating and driving commercial and operating synergies transferring operational excellence establishing a strong and stable financial base integrating its businesses into a wider corporate culture.

Asset management thinking and practices are recognised to have a strategic role to play in each of these areas.

16.2.

Introducing asset management planning

In January 2010, an asset management plan (AMP) template and authorisation process was introduced to 11 of the port terminal operations in Belgium, Italy, Spain and Finland. The directors of each business unit (BU) were required to develop 20 year plans and capital expenditure (capex) forecasts. The three shareholders were instrumental in launching this process. 175

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Figure 16.1 Euroports terminal network 2011 Courtesy of Euroports Holdings S.a.r.l.

The AMP template – derived from BSI PAS 55 (BSI, 2008) – was produced by Euroports and issued to the BUs. Populating this template required asset registers to be updated to a new format and data from market demand forecasts and service levels to be combined with risk assessments and lifecycle management plans. In each BU, the engineering function was given the job of leading the development of the first AMP (AMP1) and the chief executive was required to present the finished plan to the Euroports executive for approval. This was a new experience for everyone. For the engineers, the challenges ranged from getting to grips with the concept and principles of asset management through to engaging business functions that they had previously had little to do with on subjects which those functions had previously regarded as their own special preserves. In July 2010, specialist CAS were brought in to help the BUs focus and organise their work, facilitate progress and generally reinforce the need for better asset management at all levels. 176

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Case study: Euroports

From the outset, the AMP development process had been positioned as a new way of thinking, a powerful new logic to underpin performance improvement across Euroports and in its individual BUs, rather than as a new initiative or department. For Euroports investors, the major payback on the AMP process was expected to be the increased accuracy of capital spending forecasts, because this would deliver reduced requirements for capital spending and higher rates of EBITDA (earnings before interest, tax, depreciation and amortisation) in the medium term. For Euroports, it was about providing the BUs with the knowledge, methods and tools they need to improve performance and accountability. Additionally, Euroports saw asset management as a tool for improving cultural cohesion between the various businesses. At the start, it was less obvious to BU managers and staff (known as asset management planners), who had been given responsibility for producing the AMPs, how they would benefit – it just looked like a lot of extra work. As AMP1 development progressed, the benefits started to become clearer at all levels. For instance, as soon as the asset registers had been updated, it became obvious that these gave the newly formed Euroports procurement function the ability to engage more proactively with the BUs on leveraging their combined purchasing and leasing power. They also provided Euroports and its shareholders with single view of the asset portfolio that previously had been available only as a collection of incompatible data sets. In September 2010, Euroports signed off an asset management strategy that set out four main objectives for 2011–14, namely g

g g g

provide a risk based structure for BUs to plan more. accurately future capex demands, capex deferrals and asset disposals produce a single database of assets reported using consistent criteria increase the return on assets, extend asset life and reduce capex demands extend planning horizons to improve strategic decision-making at all levels.

The first drafts of AMP1 were ready by November 2010. Final versions were submitted to the Euroports executive for approval in February 2011, along with detailed, 5 year strategic plans and annual budgets. By June 2011, AMP1s had been signed off, budgets and capital spending forecasts aligned, the AMP1s were operational and the AMP2 process had commenced. Passing these milestones took an enormous effort by the asset management planners in each of the BUs, each of whom had their day jobs to contend with.

16.3.

AMP2 changes and improvements

AMP1 was very useful in creating a first-cut single view of the asset portfolio, but the asset registers were still different enough to prevent easy comparison, and most of the 177

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benefits stemmed simply from bringing previously unrelated information and analysis into a single report. AMP2 had to provide more consistent data and begin the process of integrating asset information, demand forecasts, service levels, operational costs and capital spending into a strategic analysis of options, risks and returns. It put much more emphasis on consistent language and methodology, because this would enable the same messages to be sent and received across Euroports and assist with the integration of the BUs, which only 4 or 5 years ago had been independent companies, into the new corporate culture. One of the first steps in the development of the AMP2 template was to provide a consistent classification system for all the assets across Euroports. Many of the BUs still used hierarchies inherited from previous ownerships. The new asset hierarchy had to encompass all of these and to be applicable to the whole range of asset configurations and operations and enable comparisons to be made across all the terminal operations. A four-level asset hierarchy was built around class, group, type and unit. Six asset classes were defined – cranes, product movement, mobile equipment, building and other infrastructure, production assets, and support assets. The asset hierarchy started off as a draft produced by Euroports, then went through several iterations as the managers and staff in the BUs became more involved, and the stability and logic of the final version reflects their efforts to ensure it will have lasting value. To match the data to the asset hierarchy, the data collection process was structured so that all data could be allocated to a specific level and section of the hierarchy. Each asset was classified using the hierarchy, and all the other data relating to the asset were referenced back to this classification. The data that were collected fell into four categories. Asset identification (including the hierarchical classification) comprises identification, ownership, age and other key information, such as legal compliance and location. 2. Asset business criticality assessment is a practical and expert engineering judgement based assessment of health and safety and environment risk, asset condition and asset criticality. Criticality was assessed with three different measures covering impacts on service delivery and failure on the customer and the difficulty of restoring service. 3. Financials and asset reliability detailed the information on warranties, leases, maintenance responsibility, failure rates, capacity, replacement cost, basic productivity measures and the expected remaining asset life. 4. Maintenance and service delivery recorded preventative and corrective maintenance hours (costs were too complex to allocate to these categories at the time) and set 1.

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Case study: Euroports

targets for the basic productivity measures in the previous category. For terminal operations, planned and unplanned idle times were also recorded. Data were collected for the first two categories on all assets, but data in the third and fourth categories were collected only for assets that warranted extra data collection. This was identified as exceeding a certain criticality rating, as identified through the asset business criticality assessment.

16.4.

AMP2 report template

The main aim of AMP2 is to embed asset management thinking and behaviours across Euroports, make the evidence supporting different asset management options transparent and facilitate risk- and evidence-based decision-making at the BU level. The main difference between AMP2 and AMP1 is that the former required each BU to work through the connections between the various aspects of the business. It was also designed to keep the amount of free text content to a minimum, which made it easier for the asset management planners to complete since for all of them English, the language of Euroports, is a second language. The focus is on tables of information carefully targeted to break down departmental barriers and highlight key asset management priorities for individual BUs and across Euroports. A key task is identifying how the number of assets and their capacity relates to the forecast level of demand. This is demanding work, often avoided by organisations that carry excess assets to ensure that this question does not need to be answered. The problem is that every asset incurs compliance, safety, minimal maintenance and storage costs even if it is not used, alongside working capital tied up in unnecessary spares inventory. Port terminal operation is a complicated, often unpredictable business activity. The amount of time available from directors, managers and staff for desk-based activities such as asset management planning is limited. To justify the use of valuable resources in this way it was important to focus AMP2 on areas that would really make a difference to the BUs. With pressure from Euroports to achieve greater operating efficiencies and to reduce the asset base providing the context, it was decided to put most of the available resources into populating the new asset register and to focus AMP2 on the single asset class of most significance to each BU. For this asset class, each BU is required to g

g

g

develop a lifecycle management plan that prioritises the top five options for asset disposal, maintenance improvement, capex deferral and capex replacement forecast the impact of these options in terms of changes to capacity improvements in asset performance to meet forecast demand and levels of service and changes in forecast capex and operating expenditure spend undertake a risk assessment to demonstrate that the options as a whole do not increase risk to an unacceptable level. 179

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Figure 16.2 Age versus criticality (sample) Reproduced courtesy of Euroports Holdings S.a.r.l.

25

Average asset age

20

BU EP average

15 10 5 0 Low criticality (<1.5)

Medium criticality ($1.5, <2)

High criticality ($2)

In November 2011, a Euroports asset engineer was appointed to bring maintenance management practices within the BUs to a common standard and to support the development and delivery of AMPs. Whereas AMP1 showed the worth of increasing the visibility to shareholders of the asset base, AMP2 has enabled detailed comparisons to be made between the asset bases of individual BUs and the wider position across Euroports. Graphs and tables are used to quickly convey key ratios and issues such as Figures 16.2–16.4, which show asset criticality and asset condition broken down by age. The AMP2 template structures the analysis to be undertaken by each BU and the risk, performance and return justification they must provide for the asset management options they identify. The underlying intention is to create the line of sight that enables management to understand technical and operating realities, and technical and operational staff to understand the impact of their activities on the business. A risk assessment process is central to this. The template is designed to help BUs identify opportunities for adding value through better alignment of levels of service, forecast demand and the configuration and capacities of the asset base. Criticality ratings, as assessed in the asset register, were used to confirm which asset class each BU would consider in detail in AMP2. All actions for implementation were assessed using a holistic risk assessment based on the matrix in Figure 16.5. Risks assessed include those relating to current assets (reduced condition and performance, reduced remaining life, increased unpredicted 180

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Case study: Euroports

Figure 16.3 Condition versus criticality (sample)

Average asset condition

Reproduced courtesy of Euroports Holdings S.a.r.l.

5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

BU EP average

Low criticality (<1.5)

Medium criticality ($1.5, <2)

High criticality ($2)

costs, reputational risk) arising from changes to a particular asset or assets, fluctuations in demand, workforce competence and behaviours, and the law. Current and future risks are assessed in order to demonstrate the potential effects of the action and to determine if mitigation of these is required to keep risks within acceptable Figure 16.4 Age versus condition (sample) Reproduced courtesy of Euroports Holdings S.a.r.l.

8 7

Number of assets

6

Condition 1 Condition 2 Condition 3 Condition 4 Condition 5

5 4 3 2 1 0

<5

$5, <10

$10, <15

$15, <20 Asset age range

$20, <25

$25

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Figure 16.5 The Euroports risk matrix

Likelihood

Courtesy of Euroports Holdings S.a.r.l.

80

Almost certain

Medium

High

Very high

Extreme

Extreme

20

Likely

Medium

Medium

High

Very high

Extreme

10

Possible

Low

Medium

High

High

Very high

2

Unlikely

Low

Low

Medium

Medium

High

1

Remote

Low

Low

Low

Medium

High

Insignificant

Tolerable

Moderate

Major

Catastrophic

1

3

10

30

100

Consequence

boundaries and to enable the greater operational efficiency or revenues the action would generate. The AMP2 process also required BUs to identify three asset-related operational cost reduction opportunities and to propose projects for achieving the targeted savings. Projects approved by Euroports have been identified within BU annual budgets, and their delivery is now the responsibility of the respective chief executives. By January 2012 the Euroports asset management strategy will be updated, a SMART (specific measurable achievable realistic time-bound) objective relating to the production and implementation of AMPs will be introduced for BU chief executives, and standardised role profiles will be defined for all asset management planners and function heads. These profiles will underpin future training and development programmes. AMP2s are on schedule for submission for approval to Euroports in March 2012. The emphasis will then switch to delivering the prioritised asset management actions and laying the foundations for AMP3, which will see the emergence of Euroports asset policies and an asset information strategy. Looking ahead, AMP3 will involve a number of new developments. g

The inclusion of lifecycle management plans for three asset classes in each AMP.

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Case study: Euroports

g

g

g

The first Euroports asset policies to set high-level requirements for the management of business-critical asset classes, groups and types. An asset information strategy for bringing the BUs to similar standards of asset data quality and integrity. The addition of asset systems to the asset hierarchy.

16.5.

Conclusions

It is too early to confirm the financial impacts of introducing asset management thinking and planning to the business. Table 16.1 shows the capex and EBITDA percentage changes year on year from 2009 to 2011. Capex spend has been 37% or greater below the capex spend budgeted. This is against a background of capex increasing as a percentage of earnings. These figures reflect greater investment and at the same time significant efficiency against budget. The major outcome of the AMP process is the demonstration that these reductions in spend against budget do not come at the expense of increased risk to the business. It is also deepening the understanding and visibility within the business of how its margin is created and may be widened, which, in turn, reinforces the value of the process at Euroports and investor levels. There are less tangible outcomes of asset management that are not immediately reflected in the bottom line. These include the introduction of risk- and evidence-based decisionmaking and improved cultural cohesion as integration of the BUs continues. It has been 2 years since asset management was introduced to Euroports. The lessons learned from the development of AMP1 and AMP2 are many. Most importantly, it is clear that the outputs of the AMP should be consistent with the annual budgets submitted by the BUs for Euroports approval. For this to happen, AMP developers

Table 16.1 Capex and EBITDA 2009–11 Courtesy of Euroports Holdings S.a.r.l.

Euroports 2009–11

EBITDA: % change from budget

Capex: % change from budget

Capex as % of EBITDA: budget

Capex as % of EBITDA: actual

2009

2009 budget unavailable 14 3

2009 budget unavailable 41 37

–

11

35 46

24 30

2010 (to Q3E) 2011

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must know the targets for EBITDA and CAFD (cash available for distribution) so that the AMPs can be fully aligned with them because line of sight must work top down as well as bottom up. It is clear also that the development of competences and capabilities in the BUs must keep in step with the development and increasing sophistication of the AMP. This is a core part of the Euroports asset management strategy, and the requirements of PAS 55 are being used to assess, prioritise and track developments in the capabilities of the BUs. The contents of AMP2 went through a number of iterations before an effective balance was achieved between the progress Euroports was seeking and the abilities of the BUs to collect and analyse the necessary data and produce robust plans. The AMP process is expected to help the business financially and to change the culture, so it is important that AMPs are not perceived as engineering ‘wish lists’ or as engineeringonly projects. Embedding this perspective in a highly operational, fast-evolving business is not an overnight task, and the business as a whole is realistic about the need to phase in the AMP process and how long this will take. However, AMPs are now regarded as integral to strategic planning, annual budgeting and performance improvement because they g

g

g

g

g

g g

g

g g

allow the prioritisation of capital spending and informed trade-offs between returns, risk and levels of service and remove short notice, ‘surprise’ capex requirements from the equation create a common language for explaining and growing an understanding of shareholder requirements and the returns expected demonstrate how well Euroports knows its assets, capabilities and capacities to insurers, banks and other investors make everyone more aware of the connections between business development, service levels, maintenance and operations, capex requirements and returns to shareholders help shareholders understand what level of investment will be required and what the returns could look like by improving the accuracy of spending forecasts highlight where the business most needs to develop its systems and people empower the BUs to think beyond the annual budget cycle and view the AMP process as explicit approval to investigate options more strategically allow comparisons to be made between BUs, asset classes, groups and types that create possibilities for balancing capex and business development activities across the portfolio support centralised purchasing and the savings that come with it allow informed decisions to be made about reducing product lines and scrapping assets.

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Discussion questions Why are investors so interested in EBITDA and CAFD? What are the implications of making financial information like EBITDA targets more widely available within a business? 3. In what ways could asset management assist in the integration of newly acquired businesses? 4. What would be the SMART asset management objective for the chief executive in your organisation? 1. 2.

REFERENCE

BSI (2008) PAS 55:2008. The specification for the optimised management of physical assets. Parts 1 and 2. British Standards Institution, London.

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Chapter 17

Case study: KPMG 17.1.

Background and context

Initially, asset management was focused mainly on satisfying operational and technical requirements arising from the asset lifecycle (acquire, operate, maintain, dispose), safety and environmental issues. However, it was not long before capital-intensive companies started to see the added value that could result from implementing an asset management system and an asset management function that integrates with finance. For KPMG, asset management is not the exclusive preserve of technical and/or operational staff but should be seen as a multidisciplinary function that is, ideally, carried out in close collaboration by the operations and finance divisions, with support from IT (Figure 17.1). Proper coordination between the activities in the field and the way these are accounted for is essential, because only in this way can accurate, complete and timely reporting be obtained that meets the needs of stakeholders. KPMG counts among its clients quite a number of capital-intensive companies from various industries such as power and utilities, oil and gas, chemicals and infrastructure (including railways, airports and ports) (KPMG, 2012). Its physical assets have often been built up over a long period, diverse accounting, technical and IT systems have been used in the past, some data have been lost, physical assets have been bought and sold, etc. We find that senior executives in capital-intensive firms are often struggling with the following types of questions and problems. g g g g

g g

Do our technical, operational and finance people speak the same language? How can I manage my future capital expenditure? How can I determine a component’s/spare part’s standard price? Are decisions relating to supply and maintenance of assets taken on the basis of the correct information? Am I losing assets without realising it? Am I able to prove the existence and value of the assets listed in my balance sheet? 187

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Figure 17.1 Asset management – a multidisciplinary collaboration Courtesy of KPMG

Operations

Finance AM

IT

g

g

g

g g

g

g

g

Are my shareholders confident about the asset verification/valuation/existence/ impairment tests? We just took over a capital intensive company. How do we value the assets under different parameters, be it for tax, regulatory, operational or accounting purposes? How do we reconcile the asset base with our existing systems and reporting standards? What do we need to do if we have identified a difference/gap in the asset register and this must be cleared up before the end-of-year audit? I don’t have any tools with which to assess the capital expenditure budget. An accounting method changed. How can I assess its impact on the financial statements? I must disclose in international financial reporting standards (IFRS) for the first time. How do I assess assets on an economic life period basis? I have an authorisation claim with the government. What is the value of the compensation I can get for the current activities expenses? I don’t obtain enough information on the asset base for reporting purposes or to enable correct and timely decisions. I get conflicting information from different sources.

KPMG takes the view that property, plant and equipment (PPE) need to be considered from a single, integrated perspective, including both technical, operational and financial data as well as their entire history. Through its extensive experience regarding PPE, KPMG has noted that a large number of capital-intensive companies devote insufficient attention to the following issues. 188

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Case study: KPMG

g g g

The quality of financial–technical asset data. Consistency between the technical inventories and accounting data. Financial–technical reporting.

This case study examines each of these aspects. They support all, individually and collectively, the principles of proper asset governance.

17.2.

Quality of financial–technical asset data

Every verification process relating to PPE begins with a thorough review of the quality of the financial–technical data. This review should give rise to better and more complete insights into the completeness, accuracy, valuation, existence, ownership and presentation of PPE. It should also improve a company’s understanding of the lifespan breakdowns and the quality of the critical data on the physical assets and enable the correct registration and monitoring of investments and divestments, in both the financial accounts and the technical files. The review must cover the following four aspects. 1. 2. 3. 4.

Verification of the technical inventory. Verification of the PPE financial accounts files. Comparison between the technical files and the PPE financial accounts files. Data registration procedures and internal controls.

The verifications are to be carried out as follows. g

g

g

The PPE financial accounts file and the technical files received are converted into a specific developed asset management tool (AMT). This AMT has been developed specifically as a data warehouse where you can upload large volumes of often complex data from a variety of source files and formats. When verifying the technical files, the following graphs are always generated a lifespan breakdown a bar chart showing a grouping of core data a stacked column chart: a lifespan breakdown with a subdivision according to core data. When verifying the PPE financial accounts file, the following checks are performed checking the indicator figures checking the total level detailed check per asset category. for the total level per accounting inventory category, the technical data of the corresponding asset classes are compared with each other, by quantity and by value. 189

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g

g

Finally, the technical database is presented visually in comparison with the PPE financial accounts database. The comparison takes place by grouping the technical databases on the basis of the granularity of the financial accounts. After receiving the process documentation from the investment and divestment process, various internal controls are carried out, including an IT application control.

17.3.

Initial harmonisation of technical data and accounting data

The initial harmonisation has to do with the activities relating to the initial linking of the technical data with the accounting data. This harmonisation has to be done for the entire value, which consists of the following elements g g g

the purchase price added value any recognised client interventions.

17.4.

Accounting purchase price excluding added values and client interventions

The starting point for the initial harmonisation of the technical databases and the accounting system is that both the book value and the investment history must be identical at the general ledger level in both systems at the point where the two are linked, for example, 31/12/xx. The initial harmonisation of the technical and accounting investment data occurs in four stages: g

g

Stage 1: verification of the files received. See the section ‘Quality of financial– technical asset data’, above. Stage 2: optimisation and/or reconstruction of the technical inventories. Based on the results of the verification of the technical inventories, any missing data are optimised in the second stage. In practice, this means that the volumes are corrected in the first instance on the basis of field information such as technical reports and site visits, and then by means of supported, documented, realistic and auditable assumptions. If data are lost or unavailable, these data will be reconstructed. This will be based upon a mix of physical registration, assumptions and several sanity checks. The optimisation and reconstruction exercises are individual and specific in each case. It is extremely important that the optimisation and/or reconstruction exercises are documented and auditable. The aim is for the investment dates as registered in the technical databases to match as closely as possible to the construction dates of the assets in the field (Figure 17.2). The accounting data cannot be part of an optimisation exercise. The accounting data involve the approved accounts, as audited and approved of by

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Figure 17.2 Comparison of (a) technical (amount/length) and (b) financial data (€) Courtesy of KPMG 80 000.00 75 000.00 70 000.00 65 000.00 60 000.00 55 000.00 50 000.00 45 000.00 40 000.00 35 000.00 30 000.00 25 000.00 20 000.00 15 000.00 10 000.00

0.00

(a)

1902 1906 1910 1914 1918 1922 1926 1930 1934 1938 1942 1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006

5000.00

(b)

1901 1903 1905 1907 1909 1911 1913 1915 1917 1919 1921 1923 1925 1927 1929 1931 1933 1935 1937 1939 1941 1943 1945 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

€3600 000.00 €3500 000.00 €3400 000.00 €3300 000.00 €3200 000.00 €3100 000.00 €3000 000.00 €2900 000.00 €2800 000.00 €2700 000.00 €2600 000.00 €2500 000.00 €2400 000.00 €2300 000.00 €2200 000.00 €2100 000.00 €2000 000.00 €1900 000.00 €1800 000.00 €1700 000.00 €1600 000.00 €1500 000.00 €1400 000.00 €1300 000.00 €1200 000.00 €1100 000.00 €1000 000.00 €900 000.00 €800 000.00 €700 000.00 €600 000.00 €500 000.00 €400 000.00 €300 000.00 €200 000.00 €100 000.00 €0.00

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g

g

the various decision-making bodies of the company. The net carrying amount per harmonisation date, 31/12/xx, thus remains unchanged (Figure 17.3). Stage 3: calculating the accounting purchase price for the technical investment history. The assets for which the investment dates were optimised in the previous stage are valued at accounting prices, ensuring that the technical investment history is expressed in the appropriate currency. The method used is illustrated in Figure 17.4 in a hypothetical example (in euros). Stage 4: harmonising the accounting history with the technical history. In the final stage, the technical investment history, valued at accounting prices, is reloaded into the financial accounts. The uploading of the technical investment history into the financial accounts and, therefore, the transcription of the original history into the financial accounts, is necessary in order to be able to process disposals correctly in the future. The disposal is recorded in the technical databases, in which each record is accompanied by a field in which the accounting purchase price (unit) per physical asset is recorded. As stage 3 ensured that the history in the financial accounts is the same as the history in the technical databases, the recording of a completed disposal in the technical database can be correctly processed in the accounting system, since each investment year has exactly the same acquisition value in both the technical databases and the accounting system. Figure 17.5 sets out a hypothetical example of this.

Figure 17.6 illustrates the final result. The financial accounts are transcribed with the optimised technical inventory, without the net book value, as being changed at 31/12/xx. In the technical inventory, each physical asset has been given an accounting purchase price, which is the same, as at 31/12/xx, after depreciation as the net book value in the accounts. 17.4.1 Added value and client interventions With regard to added value and client interventions, the investment history must likewise be harmonised in the financial accounts in order to produce the optimised technical investment history, so that the accounting treatment – of the added value and client interventions to be retired – can be made correctly. Client interventions are financial contributions that customers pay for a service and/or asset that they receive or are allowed to use. The payment can be upfront or periodical. This initial harmonisation of the accounting investment history with the technical investment history is done using the distribution mechanisms described below. Analogous to the accounting purchase price, a separate table or field must be provided in the financial accounts for both the added values and the client interventions 192

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Figure 17.3 Comparison of (a) initial and (b) optimised technical data (amount/length) Courtesy of KPMG 80 000.00 75 000.00 70 000.00 65 000.00 60 000.00 55 000.00 50 000.00 45 000.00 40 000.00 35 000.00 30 000.00 25 000.00 20 000.00 15 000.00 10 000.00

(a) 13 500.00 13 000.00 12 500.00 12 000.00 11 500.00 11 000.00 10 500.00 10 000.00 9500.00 9000.00 8500.00 8000.00 7500.00 7000.00 6500.00 6000.00 5500.00 5000.00 4500.00 4000.00 3500.00 3000.00 2500.00 2000.00 1500.00 1000.00 500.00 0.00

(b)

1901 1903 1905 1907 1909 1911 1913 1915 1917 1919 1921 1923 1925 1927 1929 1931 1933 1935 1937 1939 1941 1943 1945 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

0.00

1902 1906 1910 1914 1918 1922 1926 1930 1934 1938 1942 1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006

5000.00

193

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194

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17.95

17.95

17.95

17.95

€

€

€

€

Type 3

Type 3

Type 3

Type 3

1

1

1

1

ID 4

ID 5

ID 6

ID 7

Input

51.30

€

Type 2

1

ID 3

17.95

17.95

17.95

17.95

51.30

2006

2006

2006

2006

€

€

€

€

€

€

€

17.95

17.95

17.95

17.95

42.36

31.25

125.00

Input

€

€

€ 50 years

€

€

56.82

84.79

€

€

0.88

0.80

€

€

€

€

€

€

15.00

15.00

15.00

15.00

33.89

25.00

50.00

Disindexed economic value per (meter) asset (or record) × conversion ratio

Proportion of real net book value compared to disindexed economic value (31/12/20xx)

Input

50.00

67.83

€

Historical Net book Conversion acquisition price ratio value 31/12/20xx 31/12/20xx per (meter) asset

Disindexed economic investment per GL account depreciated to current valuation date (31/12/20xx)

Input

68.18 30 years

42.36

156.25

Sum of disindexed economic investment per GL account per year/month

GL acc. 2

GL acc. 1

Disindexed economic investment = economic value × (1 + disindexation value)

–5.04%

–17.44%

–39.09%

Input

Economic investment = economic price × amount

€

€

€

€

€

1991

1980

51.30

51.30

€

Type 2

1

ID 2

€

1980

€ 102.61 € 205.22

Type 1

2

Disindexed Disindexed EI DepreciDisindexed Amount Economic Economic Investment ation economic value Disindexation economic GL account per GL account length Asset type price investment date 31/12/20xx per year/month period investment

ID 1

ID

Courtesy of KPMG

Figure 17.4 Calculating the accounting purchase price for the technical investment history

International Case Studies in Asset Management

ID1 ID2 ID3 ID4 ID5 ID6 ID7

ID

xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx

Field 1

Courtesy of KPMG

Copyright © ICE Publishing, all rights reserved.

Accounting system

2 1 1 1 1 1 1

Length amount/

6/1/1980 13/1/1980 25/1/1991 7/7/2006 12/7/2006 23/7/2006 30/7/2006

1 2 3

Accounting ID

102.62€ 61.30€ 51.30€ 17.95€ 17.95€ 17.95€ 17.95€

Investment Economic date price

1980 1991 2006

LT cables LT cables LT meters

Asset class

50.00€ 26.00€ 33.89€ 15.00€ 15.00€ 15.00€ 15.00€

In service In service In service In service In service In service In service

Status

Removal date

xxxxx xxxxx xxxxx

Field y

125.00€ 33.89€ 60.00€

Historical acquisition value

Accounting system

Historical acquisition price

Investment date

Type 1 Type 2 Type 2 Type 3 Type 3 Type 3 Type 3

Asset type

Technical database

Figure 17.5 A hypothetical example of a completed disposal

xxxxx xxxxx xxxxx

Field z

xxxxx xxxxx xxxxx

Field q

Technical database

Case study: KPMG

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International Case Studies in Asset Management

Figure 17.6 The final result – (a) optimised technical data with accounting purchase prices (€) and (b) accounting data with an optimised technical investment history (€)

€1 450 000.00 €1 400 000.00 €1 350 000.00 €1 300 000.00 €1 250 000.00 €1 200 000.00 €1 150 000.00 €1 100 000.00 €1 050 000.00 €1 000 000.00 €950 000.00 €900 000.00 €850 000.00 €800 000.00 €750 000.00 €700 000.00 €650 000.00 €600 000.00 €550 000.00 €500 000.00 €450 000.00 €400 000.00 €350 000.00 €300 000.00 €250 000.00 €200 000.00 €150 000.00 €100 000.00 €50 000.00 €0.00

1901 1903 1905 1907 1909 1911 1913 1915 1917 1919 1921 1923 1925 1927 1929 1931 1933 1935 1937 1939 1941 1943 1945 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

Courtesy of KPMG

€1 450 000.00 €1 400 000.00 €1 350 000.00 €1 300 000.00 €1 250 000.00 €1 200 000.00 €1 150 000.00 €1 100 000.00 €1 050 000.00 €1 000 000.00 €950 000.00 €900 000.00 €850 000.00 €800 000.00 €750 000.00 €700 000.00 €650 000.00 €600 000.00 €550 000.00 €500 000.00 €450 000.00 €400 000.00 €350 000.00 €300 000.00 €250 000.00 €200 000.00 €150 000.00 €100 000.00 €50 000.00 €0.00

1901 1903 1905 1907 1909 1911 1913 1915 1917 1919 1921 1923 1925 1927 1929 1931 1933 1935 1937 1939 1941 1943 1945 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

(a)

(b)

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for each unique combination of the general ledger account and investment year (or month). Given that the sum of the added values and client interventions at asset level, broken down over the entire investment history, must at all times be identical to the total added value (after annual recognition of disposals) and the client interventions as at 31/12/20xx respectively, the distribution of the added values and the client interventions respectively may not be allocated at record level in the technical source systems. The reason for this is that qualitative changes could alter the investment date of records and/or delete records. A qualitative change is a change to the data in the technical systems that results from an improvement in data quality, for example reduced records, deleted records, or a change made to an investment date or to the length of fields or records. These qualitative changes do not occur in the financial accounts, where investment histories are static. They may, therefore, have no impact on the investment history in the financial accounts. In such cases, it would not be possible to check the various technical databases to identify how the added value and client interventions respectively may need to be adjusted in each record at 31/12/20xx in order to compensate for changes in other records. The final investment history of the added values and client interventions respectively are uploaded at record level to the AMT, given that each record in the technical databases in the AMT is linked to a unique combination of investment year (or month) and general ledger account. The advantage of including both the added value and the client interventions in each record in the AMT is that, in making up the investment or divestment scenarios on the basis of forecast technical data, not only the impact on the net book value can be calculated precisely but also the impact on the added value and client interventions. Since the uploading of the final investment history for the net book value will take place on 31/12/xx, it is only at that point that the final distribution of the added values and client interventions can be calculated at the asset level. For the added value and client interventions respectively, the same mechanism can be used as for the net book value, provided that the historical capital gain is depreciated in a manner analogous to the accounting purchase price of the underlying asset. Subsequently, the technical investment history, valued at the unamortised accounting cost of the added value and the capital gain respectively, is uploaded into the financial 197

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accounts. This uploading of the technical investment history in the financial accounts and, therefore, the transcription of the original history of added values and client interventions into the accounts, is necessary in order to be able to process correctly the disposal of the added value and the client interventions respectively. 17.4.2 Financial–technical reporting In 2011, KPMG carried out an empirical study of the financial–technical and operational information in the annual reports of 51 listed capital-intensive companies. The sample was spread both in terms of sector (chemicals, pharmaceutical, food, telecommunications, infrastructure, power, utility, oil, gas, aviation) and of geography (13 different stock exchanges). The most important conclusion was that the information provided on PPE and physical assets in general was focused almost exclusively on financial information from the annual accounts, such as, among others g g g

the description of the category of assets the description of the categorisation of the assets’ value the description of the accounting policies.

The information provided is in line with the guidelines laid down in local generally accepted accounting principles (GAAPs) and IFRS. KPMG is nevertheless arguing in favour of providing additional information in the annual report regarding financial– technical and operational information on physical assets. In this way, stakeholders, ranging from shareholders, employees and suppliers to government and society in general, can gain understanding of the way physical assets are managed and determine whether management is in control of them. This is of particular importance in the case of capital-intensive companies, where PPE constitute a substantial portion of the total balance sheet value. Additional information in the annual report on financial–technical and operational aspects of physical assets will increase the comprehensibility, relevance, reliability and comparability of the financial statements. Preferably, this financial–technical and operational information should cover g g g

asset management policy, strategy, objectives and plans performance assessment and improvement physical asset types as cash-generating units.

A cash-generating unit is the smallest identifiable group of assets. This means that if you review a transformer of type x, you have to review all transformers of type x and not a selection of them. 198

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g g g

Segment reporting. Component accounting. Forecast versus actuals.

17.5.

Conclusions

Capital-intensive firms need to pay particular attention to the quality of the data they hold on their physical assets. From an accounting perspective, not only is it necessary to take a close look at the accounting data within PPE but also, especially, at the technical data in the technical databases and the link between the two. This is essential in order to provide reliable financial–technical reporting and monitoring of PPE. Under certain local GAAPs and, in particular, under IFRS (IAS 16.43–49) with regard to ‘component accounting’, this is already a strict requirement that, when applicable (IAS 16.46), involves the analysis of the financial–technical data quality and optimisation of the technical data of the physical assets in order to (non-exhaustive list) g

g

g

g

g

make possible a sustainable and unique link between the technical inventories and the accounting depreciate separately each component when an item of PPE comprises individual components for which different depreciation methods or rates are appropriate implement uniform data-recording procedures in order to guarantee the link between the technical inventories and the financial accounts be able to recognise correctly the annual and periodic changes, such as purchase and sale, from both an accounting and a technical perspective be able to carry out correct and auditable valuations and impairment tests.

Beside the traditional financial information from the annual accounts, the management of capital-intensive companies should also provide financial–technical and operational information on the way physical assets are being managed in order to assure their stakeholders that suitable controls are in place. The advantages of improved data quality and effective financial–technical reporting lead to several advantages g

g

g g

qualitative follow-up of mutations in the technical, as well as in the financial, accounts accurate financial–technical reporting to all stakeholders (management, shareholders, bankers, regulators, etc.) support asset governance a basis for improved asset management plans based upon efficient and effective quantitative maintenance and investment analysis. 199

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Discussion questions What are the main benefits of aligning technical and financial information – for shareholders, directors, staff, suppliers, government? 2. How would you set about harmonising this information in your organisation? 3. What are the main obstacles to achieving this and how would you overcome them? 4. What are the main implications of differences between technical and financial data for asset management decision-making? 1.

REFERENCE

KPMG (2012) Asset Management. (accessed 10/02/2012).

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http://www.kpmg.com/be/asset-management

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Chapter 18

Observations – Investment, risk and returns Judge a man by his questions rather than by his answers. Voltaire You are the chief executive of a company or organisation that depends heavily for its success on the availability and reliability of its physical assets. If you are not already asking yourself questions like the following, your shareholders, non-executive directors, funding authority, regulator or bank will be soon. g g g g

g g

Do all the investments we make in our asset base support our strategy and objectives? Are levels of risk associated with the asset base acceptable? How do asset costs and performance affect our competitiveness? Which investment projects will have the least impact on risk, costs and service if they are stopped or delayed when there are funding or cashflow constraints? Are reductions in maintenance and/or operating costs sustainable? Why are some activities outsourced and others not?

To answer these questions, there are lots more questions you need to be able to answer first. g g

g g g g g g

Which of our assets are most critical to us now or in the future? How do we make sure our critical assets are available in the right condition when we need them? Are assets being used and operated in the best ways? Can less be spent on them and targets still be achieved? What other asset costs can be reduced, deferred or eliminated? Does the board understand the main sources and types of asset-related risk? How can returns on investment be improved? How can maintenance deliver better value?

These questions, in turn, lead on to some more fundamental questions, such as: Where do we want to get to? What do we need to know? What don’t we know? How can we develop 203

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the new knowledge we need? How should we use it to improve our performance? What capabilities do we need to do this? Which of these capabilities are weakest or missing? How do we develop these quickly enough? What commercially or publicly available frameworks, tools and approaches are relevant? Which of these are fit for our purposes? How do we need to be organised? What competences do our people need? And so on. In the past, asset management has received much more attention from engineers than from managers, and more attention from both of these groups than it has from directors and investors. But this is changing. The companies and organisations that are featured in this book know that asset management is no-one’s sole preserve and that it takes more than a single point of view or knowledge base to answer the most pertinent questions. Most of them view asset management as a part of, if not central to, the approach they are taking to achieving their corporate goals. None of them regard their asset management capabilities or systems as complete; far from it, many of them talk of needing to strengthen their processes, expand their competences, benchmark their performance or move beyond the requirements of BSI PAS 55 (BSI, 2008). Asset management emerges from the case studies as too powerful a concept to be confined to the management of assets. Although their capabilities are in different states of maturity, most of the organisations in this book recognise the potential in asset management to bring capital spending, operating costs and service levels fully into line with corporate strategy and objectives. Savings and other benefits are delivered by integrating functions (Case 11: London Underground) and systems (Case 13: SP AusNet), deferring capital spending (Case 10: The City of Cambridge) or changing the way people think (Case 3: Arts Victoria or Case 15: Rio Tinto). These and other incremental improvements create the evidence, build the support, establish the systems and processes, and develop the competences that are needed to deliver improved earnings, higher shareholder returns or better value for the tax payer over the longer term. And, for some, this is a case of the journey they end up taking being different from the journey they set out on.

18.1.

Introducing asset management

There appear to be four stages in the adoption of asset management: awareness, interest, inquiry and commitment. During the awareness stage, a company merely becomes aware of the existence of asset management, with few people in the company knowing very much about it. Some companies get no further than this, while others have spent a long time in this state. Network Rail (Case 8) is an example of a company that spent 3 or 4 years at this stage before rapidly moving through the second, third and fourth stages described below. 204

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The second stage, interest, depends heavily on the sales and marketing efforts of consultancies and software firms, the networking and initiatives of professional bodies, regulator and government initiatives, pressure from investors and banks and, above all, a perception among senior managers that asset management might be able to make a significant contribution to the company’s financial performance. Most of the water, gas and electricity businesses featured in the case studies face challenges from their respective regulators to achieve and demonstrate greater efficiency through the use of asset management systems. At the third stage, inquiry, a company is ready to assess, in a systematic way, how asset management thinking and practices might be configured to suit its purposes. Such assessments need to estimate the likely impact on service levels, business development, risk and obligations, data collection, information management, communications, staff training, supply chains, operational costs and capital spending projections, earnings, cashflow, financing and refinancing opportunities. Most companies find it difficult to estimate the financial impacts, and all companies have difficulties in predicting the benefits. London Underground (Case 11) talks of a more open and honest discussion of the benefits, of the early wins having as much to do with costs avoided as savings made. A recurrent message from the case studies is that the business case for asset management should be based on identified requirements, specific outcomes and expected benefits with timescales. It is clear that few companies, if any, will be ready to embrace a holistic approach to asset management on day one. It would be asking too much of their cultures and capabilities and, most likely, set back what they are trying to achieve. Most start by adopting the basic principles, and then gradually intensify their application through the integration of existing systems and processes and the development of new capabilities. The business case for these changes often includes discussion of how the company’s organisational structure and culture might need to change and how they are likely to affect the prospects of asset management in the meantime. The fourth stage, commitment, involves the company committing itself to change. The case studies indicate that PAS 55 has proved invaluable in this regard, symbolising both openness to external best practices and a depth of management support. At Wessex Water (Case 1) and ScottishPower (Case 9), PAS 55 was pivotal in mobilising support and resources and creating momentum. But in all these cases and in others, the commitment to change has its roots in pressures to hold down prices, maintain service, meet new quality standards and upgrade networks. PAS 55 is a useful tool for structuring the corporate response to these challenges, but PAS 55 certification is described in most instances as a waypoint rather than a destination. 205

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18.2.

Becoming an asset management organisation

Asset management is a way of thinking, one that is constantly in the process of being formed by the self-reflections and interactions of its participants (Lloyd and Johnson, 2011). For asset management to be strategic, it has to engage the whole organisation. Typically, where it develops vertically in a department, this damages its prospects because that department lacks the authority needed to influence thinking or practices in other departments. Organisations adopt asset management for different reasons, so they adopt asset management in very different ways. Although, of course, different organisations learn in different ways, the types and degrees of external pressures brought to bear on them by investors or industry regulators, clients, customers or investors are a key factor. As the case studies show, the more external pressure, the more formal, and the more oriented towards generating objective proof of activity and improvement the asset management approach is likely to be. One or two of the case studies touch on the problem of risk aversion this can create, where the focus tends to be on ‘bad’ risk rather than on the value or opportunities lost through over-mitigation. There are plenty of examples in the wider world of companies that have tried but so far failed to establish effective asset management thinking and practices. More often than not this is because senior-level perceptions of asset management are too narrow, misplaced or conflicting. The signs are not good if asset management is always referred to as a project or is only expected to deliver a new information system or some new processes, or where there is no recognition of the need for a change in strategic priorities or competitive posture. People who do not ‘get it’ are unlikely to understand that asset management offers a new way of seeing their business and its opportunities or that it is a style of thinking that did not exist previously. They will also be less tolerant of the costs involved in optimising the way the business operates and prone to complaining, for instance, that everything is taking too long, costing too much and not producing enough tangible outcomes because they fail to appreciate what a low base the business has started from. Almost inevitably, the development of asset management systems carries with it the threat that past mistakes will be illuminated. Good asset management practices expose things that are not well understood and bad decisions that have been made previously. In some organisations, things may have to get worse before they get better, as has been the case with London Underground (Case 11), where perseverance is now paying off. To illustrate these issues, consider the case of a chief executive of a transport group, not featured in this book, who told me that a number of his managing directors thought ‘his’ new asset management process was creating a ‘huge amount of work with only very 206

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Observations – Investment, risk and returns

limited value’. In his view, this feedback showed the business was not yet capable of rising to the challenge, so he postponed further development of the process and switched the emphasis onto developing the ability of directors and senior managers to see the value in it and make use of its outcomes. He set out his position as follows: Our shareholders want to understand how the business is prioritising and targeting capex and making cost/risk/benefit decisions. The asset management process has started to give us a much better understanding of the relationships between capacity, demand, maintenance management and improvement planning. No other process does this. Asset management is about systematic, continuous improvement right across the business. Before we introduced it, we were just repeating the same practices, year in year out, with only minor process improvements. Our strategic plans are driven by financial outcomes – asset management will help us ensure that our financial targets are based on commercial, technical and operational realities so that they are achievable. Securing the necessary capex requirements is going to be a continual battle between the board and our investors – we need to justify that capex is needed in terms of the value it brings to the whole business. Asset management provides a robust approach to doing this and identifying the associated risks. We will use the asset management plans and evidence that they are being delivered to demonstrate good management to our banks and investors – showing them we understand our business in depth and know how to grow its margins. In the past, our costs have tended to increase in line with our revenues, resulting in margins remaining steady at best – this does not reflect well on us. When a majority of senior people in an organisation come to understand asset management, conventional wisdom quickly dissipates, for example, at Dublin Airport Authority (Case 2), where there had been a belief that the manufacturers of equipment knew best how to maintain it. In organisations where asset management takes root, the assumption no longer holds that the best way of controlling operations is through a top-down structure that is generally cautious of devolving responsibilities. Asset management tends to generate a new and more open structure founded on participation in all its aspects, as in the case of the Grand Port Maritime du Havre (Case 17) and the City of Hamilton (Case 14). Asset management is a catalyst for innovation. It solves the particular problems of planning, organising and decision-making in the context of uncertain futures. Because everything is managed more tightly, brought together better and the relationships 207

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between functions, systems and people are given more attention, asset management can change the way you do business and the reputation your business enjoys. It is clear from the case studies that PAS 55 has had a big influence since it was first published in 2004, and that the impending publication of ISO 55001 can be expected to raise the profile and extend the reach of asset management still further. But it is clear too that international standards are a baseline that companies will only utilise or go beyond where the business case justifies the effort. If an organisation does not require it then it is not fit for purpose. Like all external standards, PAS 55 and ISO 55001 can be invaluable in creating initial momentum, getting people interested and giving senior management confidence that they are setting out on the right path. But they can also stop people thinking for themselves, foster a compliance-led approach and become dislocated from the strategy of the business. The danger here is that a PAS 55-compliant asset management system will be produced that achieves certification but bears no relation to what is actually happening in the business. Indeed, a good number of the case studies feature organisations that have made use of the PAS 55 requirements but have not sought PAS 55 certification because they did not see the benefit and have pushed on instead for a capability maturity-based approach. Certainly, it is better to use PAS 55 to leverage an asset management strategy than to treat it as the strategy itself. The clarity and international consensus on the scope and definition of asset management and its components that emerged in late 2011 from the Institute of Asset Management (IAM) and the Global Forum on Maintenance and Asset Management (GFMAM) are an important new addition to the picture. In particular, the IAM conceptual model (Figure 18.1) and its competence framework have provided the foundations for the progress made by a number of the organisations featured here. By providing working definitions of the main components of asset management, the most recent IAM publication, Asset Management – An Anatomy (IAM, 2011), should help companies around the world to communicate and integrate asset management in a consistent way and thus lay the foundations for comparing performance, developing capabilities and creating new careers and qualifications.

18.3.

Value and performance

Alignment of technical, operational and financial data as described by KPMG in Case 17 is, of course, a complex task – especially where multiple acquisitions have made technical data difficult to substantiate and their relationship to financial data opaque. But it must be a strategic objective where a company wishes, or is under pressure, to substantiate its value, margins or returns. Although the potential benefits of asset management are well understood because they are motivating infrastructure companies worldwide to adopt asset management, not 208

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Observations – Investment, risk and returns

Figure 18.1 The IAM conceptual model for asset management Courtesy of the Institution of Asset Management

Legislation

Customers

Commercial environment

Investors

Scope of asset management

Organisational strategic plan

Asset management strategy and planning

Acquire

Operate

Lifecycle delivery Organisation and people enablers

Asset management decision-making

Dispose

Maintain

Risk and review

Asset knowledge enablers

many organisations have reached the point where they are able to measure the full impact on investment, risk and returns. Dashboard reporting techniques, such as the one used by ScottishPower Generation in Case 9, tend to zoom in on specific aspects of this challenge. There is, however, good awareness in the case studies of the value of asset management that has been brought about through benchmarking, professional body networks and public reporting. What this tells us is that efficiency plays a key role in unlocking savings and avoiding costs and buying time for the effects of capital expenditure (capex) prioritisation, maintenance improvement, refinancing and the like to pay back. Here, efficiency has two meanings, namely g

the external efficiency that concerns the way a company manages stakeholder interests, government and regulatory requirements, customers and suppliers more effectively 209

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g

the internal efficiency that is concerned with the inter-relationships between the individual parts of the organisation, its departments, activities and management systems.

In general, companies can influence their external efficiency, depending on whether or not they operate under regulation, but they can control their internal efficiency, although it is clear that in some industries (Case 13: SP AusNet) regulators are looking to have more say on this. The cost–benefits equation of asset management versus conventional management of assets can be worked out in terms of the impact on productivity or the ratio of the measure of output to the measure of one or more of the inputs used to produce the output. However, it is early days where criteria for judging efficiency gains from asset management are concerned. For example, although the framework and principles published by the GFMAM recently (GFMAM, 2011) demonstrate the impressive international consensus now reached between the leading professional bodies concerned with asset management, they fall short of linking inputs with outputs or, more importantly, showing how asset management can help investors improve their returns. Lack of alignment between strategy and plans means lack of alignment between capacities and demand, maintenance investment decisions and asset knowledge, funds allocation, capex priorities, etc. It affects everything, especially external and internal efficiency. Develop an asset management strategy and it becomes clear quite quickly that an asset management policy will be needed that sets out principles and procedures for governing the application of the strategy. Develop asset management plans before you have a strategy, and nothing lines up in the boardroom. Develop strategy too far ahead of plans, and no one will know what is expected in the workplace. It all has to come together. And the people at the top need to mean the same thing when they say asset management even if some are thinking strategically, some are being tactical and others might be thinking of their next career move.

18.4.

Conclusions

A typical investment analyst’s report on an infrastructure business will concern itself with EBITDA (earnings before interest, taxes, depreciation and amortisation) levels, net income, growth prospects, sensitivity to price, operating performance, the certainty of capex programmes, the ratio of EBITDA to capex, current and future capacity, the likelihood of returns to shareholders and balance sheet headroom. These are the routine concerns of investment funds, shareholders looking to maximise the value of or dispose of investments, companies on the acquisitions trail, banks, insurers and reinsurers, regulators, credit agencies, traders and employees with options. But often these reports take little or no account of the criticality, condition, costs or risks of the physical assets on which the cashflows, earnings and value of these businesses rely. 210

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Whereas, traditionally, investors may have regarded this as a management issue, recent trends such as pension funds buying directly into unlisted infrastructure businesses are bringing investors face to face with these issues. Countries around the world are injecting funds into infrastructure to support future growth, create jobs and stimulate economic growth in the short term. A recent study (Urban Land Institute and Ernst and Young, 2011) predicts that the cost of meeting global infrastructure requirements over the next 25 years could reach US$50 trillion. The report cites the examples of Canada, where US$16 billion of stimulus funding is being used to deal with ageing urban infrastructure; China, which is investing over US$1 trillion over 5 years in a 10 000 mile high-speed rail network, a nationwide toll highway system, state-of-the-art airports and sea ports; India, which is doubling its infrastructure spend to US$1 trillion; Brazil, where a US$900 billion infrastructure plan is being launched, including a high-speed rail line, new power plants, hydroelectric dams and port construction; and the UK, where US$326 billion has been allocated to its 5 year national plan. Not surprisingly, asset management is creating a great deal of interest in all of these countries, not least because of its potential to reassure new investors. The pressing need for investment in infrastructure has led to an increase in private sector financing for infrastructure projects from pension funds and others attracted by the prospects of long-term growth and potentially low correlations between investments (Inderst, 2009). Investments range from transport networks, energy generators to water companies and hospitals, and the means of financing including debt, equity, private, listed, direct and indirect. This is exposing investors to safety and environmental risk, regulatory and political challenges. Understandably, investors are seeking benchmarks and models for comparing the performance of different businesses (Weber and Alfen, 2010). Understanding the priorities of investors and the directors who serve them is essential to good asset management. The ability of the business or project to ‘generate sufficient cash flows to cover not only the investment and operating costs but also the interest and principal payments (debt service) under the planned financing structure’ is central to these and also ‘the generation of an appropriate return on their equity employed and/or a suitably high level of current income (yield)’ (Weber and Alfen, 2010). Everyone who holds or aspires to a senior asset management role ought to know, for example, how capex affects EBITDA and how operating expenditure affects cashflow, and be able to explain why. At the same time, most investors would struggle to explain the cost side of the business or how margins are created and protected, although, as mentioned, that is changing, as some become involved directly in the management of infrastructure companies. 211

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Asset management is about making sure that capital spending and the ways an organisation manages its assets are in harmony with its corporate objectives. Good asset management practices provide the evidence that third parties look for to assure themselves a business is being well run. Infrastructure businesses may well spend 80–90% of their monies on managing and operating their assets. It follows that company valuations or corporate strategies that are ill-informed by technical, operating and service level realities are unlikely to be realised, just as business practices that are ill informed by corporate strategy and value generation are likely to put the brake on growth and performance. But it is not hard to think of businesses whose directors do not understand the sources of, or interactions between, the costs, risks and performance of the infrastructure, plant, vehicles and equipment that their success depends on. And what good to anyone is a corporate strategy, a business plan or a balance sheet that does not accurately reflect the value or liabilities of the asset base? REFERENCES

BSI (2008) PAS 55:2008 The specification for the optimised management of physical assets. Parts 1 and 2. British Standards Institution, London. GFMAM (2011) The Asset Management Landscape. Global Forum on Maintenance and Asset Management, Zurich. http://gfmam.org/files/ISBN9780987179913_ LANDSCAPE.pdf (accessed 10/02/2012). IAM (2011) Asset Management – An Anatomy. Institute of Asset Management, Bristol. Inderst G (2009) Pension Fund Investment in Infrastructure. OECD Working Papers on Insurance and Private Pensions, No. 32. OECD, Paris. Lloyd C and Johnson C (2010) Becoming an Asset Management Organisation. Assets Magazine, August 2010, Institute of Asset Management www.theiam.org. The Sunday Times (2010) Investors must behave like owners and look to the longer term. The Sunday Times, 26 Sept. Urban Land Institute and Ernst and Young (2011) Infrastructure 2011: A Strategic Priority. Urban Land Institute, Washington, DC. http://www.uli.org/ResearchAnd Publications/PolicyPracticePriorityAreas/Infrastructure//media/Documents/ Research AndPublications/Reports/Infrastructure/Infrastructure2011.ashx. Weber B and Alfen HW (2010) Infrastructure as an Asset Class: Investment strategies, project finance and PPP. Wiley Finance, London.

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Index AECOM, 50 aged assets, rehabilitation of see South West Water Ahead of the Wave: A National Guide to Sustainable Municipal Infrastructure (InfraGuide), 121 AIM-UWA Business School Executive Education, 167, 170, 171 Air Navigation and Transport (Amendment) Act 1988, 25 AM Centre (asset management centre, Rio Tinto), 165, 166, 167, 168, 170, 171, 172, 173 AMA (asset management assessment), 10 AMC (asset management committee, SP AusNet), 152 AMCL, 103, 149 AMD (asset management and development, Dublin Airport Authority), 22, 24, 28, 32, 34 AMD (asset management directorate, Wessex Water), 11 AMD (asset management division, Cambridge, Canada), 121–122, 123, 126, 127 AMP (asset management plan, Calgary), 60, 61, 64 AMP (asset management plan, Euroports including AMP1, AMP2 and AMP3), 175, 176, 177, 178–183, 184 AMP (asset management plan, South West Water), 49, 50, 51 AMPAP (asset management planning and performance assessment process), 10 AMPDP (asset management development programme), 165–174 AMT (asset management tool, KPMG), 189, 197 Antin Infrastructure Partners, 175

Arcus European Infrastructure Fund, 175 Arts Victoria, 3, 39–48, 204 functional spaces, 42–43 requirements, 40–41 service levels, 43–45 situation, 41–42 six-step assessment process of service oriented asset management, illustration, 46 Arts Victoria Act 1972, 39 Asia, 167 asset care manager, role of, 30–31, 33 asset health review, 29, 30, 36, 37 asset investment decision environment (aiDE), 53, 54, 55 Asset Management – An Anatomy (IAM), 208 Asset Management Landscape (GFMAM), 210 Asset Management Council, 142 asset manager, role of, 29, 31, 33 Australia see Arts Victoria; RailCorp; Rio Tinto; SP Ausnet Australian Energy Regulator, 149 Australian Institute of Management Western Australia, 167 awareness, 112, 113, 114, 116, 117, 204, 209 Baker Report, 110 Bartlett, N, 174 basic risk monitoring and management, 74 see also risk Belgium, 175 see also KPMG Berardi et al., 49 best practice reviews see Network Rail BP US Refineries Independent Safety Review Panel, 110 Brazil, 211 213

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Index

Brookfield Infrastructure Group, 175 bubbles, uneven, 159–160 bucketing, 127 Buncefield fire, 113 business as usual, 11, 50, 51, 112 business process improvement, 123–125 CAFD (cash available for distribution), 184, 185 Calgary, 3, 59–65 introduction of asset management, 59–64 customer levels of service subcriteria, table, 62 example of output from CLOS tool, illustration, 63 performance measures, 64–65 example target performance measures for playgrounds, table, 64 CAM (corporate asset management), 60, 61 Cambridge, Canada, 3, 121–129, 204 business process improvement, 123–125 capital planning process, 126–127 illustration, 126 information and knowledge management, 122–123 Canada, 170, 211 see also Calgary; Cambridge; Hamilton Canadian Public Sector Accounting Board, 59–60, 124 Capex, 51, 175, 177, 179, 183, 184, 207, 209, 210, 211 capital planning process, 126–127 CAS, 176 CCTV, 49, 51, 52, 53, 54, 128 China, 175, 211 climate change, 12 CLOS rating, 61, 63, 64 CMMS (computerised maintenance system), 25, 27, 37, 38 CMPCF (capital maintenance planning common framework), 10, 11 Commission for Aviation Regulation, 21 commitment, 11–12, 49, 103, 104, 114, 117, 119, 136, 142, 147, 150, 204, 205 communities, minimising disruption to, 13 compliance, 24, 29, 60, 69, 102, 111, 151, 178, 179, 208 Arts Victoria, 40, 41, 42, 45 Wessex Water, 13, 15, 16, 18, 19 214

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Comprehensive Spending Review, (UK), 134 condition, 5, 9, 12, 13, 15, 16, 19, 22, 25, 27, 29, 30, 33, 37, 40, 41, 42, 43, 49, 53, 54, 62, 64, 71, 73, 86, 94, 100, 102, 103, 114, 117, 123, 124, 126, 127, 128, 129, 133, 151, 172, 180, 181, 210 continuous improvement and organisational change see SP Ausnet Cork Airport, 21, 22, 26 costs, 1, 4, 5, 203, 204, 205, 206, 209, 210, 212 Arts Victoria, 41–42, 43 Cambridge, Canada, 122, 124, 127 Dublin Airport Authority, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 37 Euroports, 178, 179, 181, 182 Grand Port Maritime du Havre, 83, 84, 87, 89, 96, 97, 98 Hamilton, 156, 158, 159, 160, 161, 162 London Underground, 133–134, 138 Network Rail, 103, 104, 105, 106 RailCorp, 149 Rio Tinto, 169, 170 Scottish power, 110, 111, 118 Scottish Water, 67, 69, 70, 71, 72, 75, 76 South West Water, 50, 51, 52, 53, 54, 56 Wessex Water, 9, 11, 16, 18, 19, 20 criticality, 5, 9, 25, 26, 35, 37, 55, 71, 73, 75, 83, 87, 127, 138, 178, 179, 180, 181, 210 culture change, 5, 112, 147, 155, 166, 168, 172, 174, 184, 205 dashboard reporting techniques, 209 decision making, 4, 53, 54, 55, 69, 72–73, 78, 84, 86, 87, 94, 98, 104, 112, 122, 123, 133, 134, 136, 143, 148, 161, 166, 170, 173, 178, 179, 184, 207 structured decision making for the medium and long term see Scottish Water delivery roles, 134, 137, 153, 165, 166, 167, 169, 170, 172, 173, 179, 180 Deming, WE, 148 design lead, role of, 29–30, 31, 33 Developing a High-level Asset Management Function Strategy for RailCorp (Burns and Wallsgrove), 142 DOMS (distribution networks operational and maintenance strategies), 13 drainage area plans (DAPS), 50 Dublin Airport, 21, 22, 26

Index

Dublin Airport Authority (DAA), 3, 21–38, 207 approach to restructuring, 24–37 asset data and information cycle, illustration, 27 asset lifecycle management, illustration, 26 balanced scorecard asset health review, illustration, 36 extracts from DAA asset management terms of reference document, box, 29–32 four key roles in asset management, illustration, 33 risk, resilience and assurance, illustration, 34 risk management hierarchy, illustration, 35 outcomes, 37–38 restructuring around asset management, 22–24 benchmarking data, table, 23 see also Cork Airport; Dublin Airport; Shannon Airport EAM (enterprise asset management) system, 142 EBITDA, 177, 183, 184, 185, 210, 211 Edwards, R, 101 Electricity Safety Management Scheme, 147 embedding, 3, 5, 18, 34, 45, 77, 83, 96, 102, 111, 112, 113, 114, 116, 148, 172, 174, 179, 184 Energy Networks Australia (ENA), 149 Energy Safe Victoria (ESV), 149, 152 environmental issues, 18, 19, 25, 32, 35, 43, 52–53, 61, 62, 69–70, 109, 110, 111, 117, 126, 151, 178, 187 see also climate change; pesticides Ernst and Young, 211 ESRI, 60, 122, 125 EU Water Framework Directive, 18 Eureka, 16 Europe, 167, 175 European Foundation for Management Development Excellence in Practice Awards, 173 Euroports, 3, 175–185 AMP2 changes and improvements, 178–179

AMP2 report template, 179–183 age versus criticality (sample), illustration, 180 age versus condition (sample), illustration, 181 condition versus criticality (sample), illustration, 181 Euroports risk matrix, illustration, 182 Capex and EBITDA, table, 183 Euroports terminal network 2011, illustration, 176 evidence, 3, 4, 38, 45, 102, 134, 138, 144, 179, 183, 204, 207, 212 expenditure (capital and operating), reduction of see Grand Port Maritime du Havre failure, 4, 51, 52, 54, 56, 89, 93, 113, 117, 133–134, 178 probability of failure, 86, 88 type of failure, 86, 88 FMECA (failure mode, effect and criticality approach), 26 fairness intergenerational, 3, 157–158, 163 options, 161, 162 putting a price on, 158–159 financial and technical data alignment see KPMG Finland, 175 FMECA, 74 France see Grand Port Maritime du Havre Galileo, 1 Gas Safety Case, 147 Gatwick Airport, 23 generally accepted accounting principles (GAAPs), 198, 199 GIS (geographic information system), 52, 55, 60, 64, 122, 124, 125, 127 global competence and learning see Rio Tinto Global Forum on Maintenance and Asset Management (GFMAM), 208, 210 Grand Port Maritime du Havre (GPMH), 3, 83–98, 207 development process, 84–94 definition of maintenance actions, 87, 89 elaboration of the maintenance plan, 89, 94 215

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Index

Grand Port Maritime du Havre (GPMH) (continued ) example classification of hazard probability of failure, type of failure and uncertainty, illustration, 88 example of an acceptable risk boundary for security and availability, illustration, 90 frequency (HI-hazard index), 85–87, 88, 91 functional analysis of a steel sheet pile seawall, illustration, 86 functional domains of the port infrastructure system, illustration, 85 preliminary analysis, 84 ranking of actions based on risk indexes, illustration, 93 ranking of maintenance actions, 89, 93 requirements analysis, 84–85 risk (RI-risk index), 89, 91, 92 risk index over time for one projected scenario, illustration, 94 risk mapping for availability requirement, illustration, 91 scale of repair and reconstruction costs, table, 89 severity (SI-severity index), 87, 89, 90, 91 prediction of future maintenance requirements, 96 simulation capabilities and predictions of SIMEO Ports reduce visual inspections, illustration, 96 prediction of performance over time, 94–95 example of availability risk grid before and after interventions for a given year, illustration, 95 prioritising maintenance interventions, 96–97 histogram of certain and probable maintenance costs, illustration, 97 requirements, 83–84 Governance for Railway Investment Projects (GRIP), 102 Guardian, 49 Gulf of Mexico oil spill, 113 Halfawy et al., 53 Hamilton, 3, 155–164, 207 analysis, 156–157 216

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financial assumptions, 156–157 population assumptions, 157 technical assumptions, 156 generational differences, 157 2010 populations by generation, table, 157 fairness, intergenerational, 157–158, 163 fairness, options, illustrations, 161, 162 fairness, putting a price on, 158–159 cost increase by generation, illustration, 159 initiatives, related, 162–163 levels of service for long-term care facilities, 161–162, 163 annual cost per capita, illustration, 162 number of long-term beds, illustration, 161 social policy, responsibility for, 160 uneven asset bubbles, 159–160 remaining useful life-by number of facilities, illustration, 160 Hatfield, 101 HAZOP, 74 Helm and Rajah, 50 High Level Output Specification (HLOS), 104–105 Hong Kong railway (MTR), 144 House of Commons Committee of Public Accounts, 100 human services planning initiative (HSPI), 162 Iberdrola Group, 109, 118 IBM, 125 Inderst, G, 211 India, 211 InfoNet, 53 information management, 3, 4, 14, 15, 16, 19, 25, 27, 29, 30, 31, 37, 41, 60, 117, 118, 122–123, 138, 142, 178, 183 see also GIS; IT; knowledge Institute of Asset Management (IAM), 208 IAM conceptual model for asset management, illustration, 209 Institute of Management, 72 Infracos, asset management objectives, 133, 134 innovation, 3, 16, 18, 40, 43, 44, 78, 109, 150, 165, 171, 173, 174, 207–208 Institute of Asset Management Competences Framework, 16, 135

Index

Institution of Chemical Engineers, 109 integrating asset management, 134–138 interest, 204, 205 international financial reporting standards (IFRS), 188, 198, 199 inquiry, 204, 205 investment optimisation, South West Water, 53–55 IQEMC criteria, 74, 77 Ireland see Dublin Airport Authority Irish Aviation Authority (IAA), 21 ISO 9001, 14 ISO 14001, 118 ISO 55000, 154 ISO 55001, 5, 138, 139, 208 ISO 31000, 74, 152 IT, 16, 35, 55, 119, 125–126, 142, 167, 187, 217 see also CMMS; ESRI; GIS; InfoNet; Maximo; Microsoft; OnPoint; Oracle; SIMEO Port; Sunflower Systems; WAM Italy, 175 Kaizen, 148 Kennedy, J, 141, 142 Kennedy and Boldeman, 144 knowledge, 3, 4, 9, 16, 19, 41, 60, 71, 76, 86, 114, 102, 103, 106, 122–123, 125, 129, 132, 143, 177, 204, 209, 210 see also information management Knowledge Transfer Partnership scheme, 76 KPIs, 25, 113, 118 KPMG, 3, 187–200 accounting purchasing price excluding added values and client interventions, 190–199 added value and client interventions, 192, 197–198 calculating the accounting purchase price for the technical investment history, illustration, 194 comparison of initial and optimised technical data, illustration, 193 comparison of technical and financial data, illustration, 191 financial-technical reporting, 198–199 hypothetical example of completed disposal, illustration, 195

optimised technical data with accounting purchase prices and accounting data with an optimised technical investment history, illustration, 196 initial harmonisation of technical data and accounting data, 190 multidisciplinary collaboration, illustration, 188 quality of financial-technical asset data, 189–190 Ladbrooke Grove, 101 leadership, 3, 10, 16, 37, 67, 68, 101, 111, 112, 113, 114, 116–117, 118, 137, 142, 144, 165, 167, 173 Lean Six Sigma, 143 Lego brick development, 76–77 lifecycle management, 4, 22, 25, 26, 27, 35, 41–42, 43, 69, 70, 71, 74, 75, 78, 103, 114, 119, 123, 155, 158, 166, 169, 176, 179, 182, 187 see also reverse lifecycle management line of sight, 14, 32, 67, 105, 114, 135, 138, 150, 153, 180, 184 Lloyds Register, 13–14, 136 London Passenger Transport Board, 131 London Underground, 3, 131–139, 143, 204, 205, 206 forecast growth in passenger journeys, illustration, 132 integrating asset management, 134–138 asset management framework, illustration, 135 development areas, illustration, 136 organised to manage assets, illustration, 137 outcomes, 138–139 PPP contracts and asset management, 132–134 Lux see Euroports Macassa Lodge, 155 Madrid Stock Exchange, 109 Maintenance Engineering Society of Australia, 142 maturity scales, 72 Maximo Enterprise Asset Management System, 125, 125 Maxwell, S, 141, 142, 144 217

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Index

Metronet, 132, 133, 134, 138 Mexico, 118 Microsoft Excel, 53 missions, 3, 42, 46, 150, 151 modelling, 3, 4, 13, 29, 41–42, 50, 51, 52, 54, 55, 56, 70, 72–78, 86, 98, 111, 112, 151, 208 see also SIMEO Port Monteith Brown Planning Consultants, 162 Murray and Gee, 72 National Audit Office (NAO), 134 Network Licence, 100–101, 102, 103 Network Rail, 3, 99–107, 216 establishing asset management processes, 102–105 Industry Initial Plan, 104 laying the foundations, 101–102 Reporter, role of the, 102–103, 104, 105 New South Wales see RailCorp non-government organisations (NGOs) see Arts Victoria Office of Rail Regulation (ORR), 100, 101–102, 104, 105 Ofgem, 148 Ofwat, 9, 11, 18, 49, 50, 52, 68 OHSAS 18001, 118 OnPoint, 122 Ontario Ministry of Health and Long-Term Care, 155 Oracle, 60 Oxand, 83, 86, 96, 98 Parks Asset Reporting and Information System (PARIS), 60, 64 Parks Business Unit see Calgary PAS 55 (Publicly Available Specification on asset management), 1, 5, 11, 13–16, 24, 61, 67, 69, 70, 71, 74, 109, 110, 114, 118, 119, 135–136, 138, 139, 147, 148, 149, 176, 184, 204, 205, 208 impact of PAS 55, 149–152, 153–154 perception of asset management, 206–207 performance, 5, 16, 22, 24, 25, 34, 37, 64–65, 85, 94–95, 101, 105–106, 111, 112, 114, 116, 117, 118, 138, 150, 151, 152, 165, 167, 169, 203, 204, 206, 208–210, 212 external efficiency, meaning, 210 internal efficiency, meaning, 210 218

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Public Performance Measure, 101 see also AMPAP; AMPDP; Euroports; KPIs pesticides, 19 PESTLE analysis, 70, 74 Piper Alpha disaster, 113 planning, 210, 212 Calgary, 60, 61 Cambridge, Canada, 122, 123, 126–127 Euroports, 177, 179 Grand Port Maritime du Havre, 89, 94, 98 Hamilton, 162–163 London Underground, 134–138 Network Rail, 103, 104, 105, 106 Rio Tinto, 166, 169 Scottish Water, 68–77 South West Water, 52–53, 54 SP AusNet, 150, 151, 152, 154 Playbook, the (Hamilton), 162 PPP contracts and asset management, 132–134, 138, 139 profit, 22, 24, 39, 87, 91, 161 project manager, role of, 31–32, 33 process safety, 3, 109–119 Programme Management Office (PMO), 152, 153 property, plant and equipment (PPE), 188–190, 198, 199 PS 3150, 59–60, 124 Rail Infrastructure Corporation (Australia), 142 RailCorp, 3, 141–144 Railtrack plc, 99 return on investment (ROI), 35, 192 Rio Tinto, 3, 165–174, 204 aims and scope of AMPDP, 166–167 asset management core competencies, illustration, 166 identification of learning partners and responsibilities, 167–168 managing engagement across the business, 170 stakeholders in the Rio Tinto AMPDP, illustration, 171 measuring performance, 170–173 stakeholders involved in the programme, table, 171 programme design, 168–170

Index

role of learning project in AMPDP learning journey, illustration, 169 strategy for programme development, 167 risk, 3, 4, 203, 205, 206, 209, 210–211, 212 Dublin Airport Authority, 25, 26, 27, 29, 32, 33, 34, 35, 37, 38 Euroports, 176, 178, 179, 180–182, 183, 184 Grand Port Maritime du Havre, 83–98 heat map report, illustration, 14 London Underground, 133, 136 Network Rail, 103, 106 Rio Tinto, 168, 169, 170, 173 Scottish Power, 109, 114, 117, 118 Scottish Water, 69, 70, 71, 72–78 South West Water, 50, 51, 52, 53, 54, 55 SP AusNet, 151, 152, 153, 154 Wessex Water, 10, 13, 14, 18 safety, 165, 190, 191, 199 see also process safety; risk Sayano–Shushenskaya hydroelectric power station, 113 Scott, K., 49 Scottish Power, 3, 109–119, 205, 209 high reliability organisation, illustration, 110 Operational Transformation Programme (OTP), 109, 110–111, 118 OTP business case drivers, illustration, 111 staff awareness and communications, 117 stage 1 (vision and strategy) of seven-stage model, 111, 113–116 integrated asset management and process safety approach, illustration, 115 process safety dashboard, illustration, 116 stage 2 (establish leadership) of seven-stage model, 116–117 Scottish Water, 3, 67–79 multiple strategies within a defined framework, 67–68 structured hierarchy for strategies and plans, 68–77 analytical processes, 72–73 asset management objectives, 71 asset management strategy, 69 asset plans, 71–72 asset strategy framework, illustration, 68 basic risk monitoring and management, 74

data analysis spiral, illustration, 73 pan-Scotland strategies and geographic strategies, 69–71 pan-Scotland strategy example of aspirations, goals, intents and actions, illustration, 70 statistical analysis, 76–77 structured approach to asset risk modelling, illustration, 76 systematic assessment, 75–76 typical risk methodology health assessment, illustration, 74 use of maturity scales in stakeholder engagement, 72 service levels, Euroports, 190, 191 service levels of long-term care facilities, Hamilton, 159, 161–162, 163 service levels on public amenities see Calgary service orientated asset management framework see Arts Victoria serviceability, 9, 12, 25, 27, 29, 37, 50, 122, 129 sewer condition classification, 53 sewer location model (SLM), 50, 51, 52, 56 sewer rehabilitation planning optimisation process, 54 sewerage economic assessment model (SEAM), 50, 51, 52, 55, 56 sewerage risk management (SRM), 52 Shannon Airport, 21, 22, 26 SIMEO Port, 83, 84, 94, 96, 98 Singapore Power, 147 SMART asset management, 182, 185 social policy, 160 SotI report, 155, 157, 162, 163 South West Water, 3, 49–57 effective planning, 52–53 investment optimisation, 53–55 sewer rehabilitation planning optimisation process, illustration, 54 typical output from aide, illustration, 55 SEAM process flow-’business as usual’, 51 Southall, 101 SP Ausnet, 3, 147–154, 204, 210 impact of PAS 55, 149–152, 153–154 risk management framework, illustration, 153 SP AusNet asset management process, illustration, 151 219

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Index

Spain, 109, 118, 175 SPI Electricity and Gas Australia Holding Pty Ltd, 147 sponsors, role of 137, 153 standards of service, 13 State Airport Act 2004, 25 STEM (strengthen, transform, extend and modernise), 152 Strategic Asset Lifecycle Value Optimisation Project (SALVO), 75 strategies, 3, 206, 207, 210, 212 Euroports, 177, 182, 183, 184 Hamilton, 157 London Underground, 134–138 Network Rail, 103, 105 RailCorp, 142, 144 Rio Tinto, 167, 168 Scottish Power, 111–116 Scottish Water, 67–77, 78 SP AusNet, 150, 151, 152, 154 Wessex Water, 12–13, 18–19 for service strategy see Arts Victoria statistical analysis, 76–77 structuring, 4 restructuring at Dublin Airport Authority, 22–38 restructuring at Network Rail, 104 structure, authority and responsibilities, SP AusNet, 149 structured approach at Scottish Power, 112 structured hierarchy for strategies and plans, Scottish Water, 68–77, 78 structuring development programme at Rio Tinto, 168, 170 subject matter expert group (SME), 61–64 sustainability, 4, 18, 19, 25, 32, 43, 104, 112, 113, 121, 150, 158 systematic assessment, 75–76 tailoring management approach to needs and capabilities, 4 tangible capital asset (TCA), 60, 124 technical and financial data alignment see KPMG technology adoption, 125–126 TED, 87, 90, 91, 95 Temasek Holdings, 147 Texas City refinery, 109, 110 TMS Programme Board, 136, 137 220

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total quality management, 148, 153, 154 transparency see Euroports Transport for London (TfL), 131, 133, 134 Transportation and Public Works Department (TWP), Canada, 121 Tube Lines, 132, 134 TXU Energy, 147 UK, 211 see also London Underground; Network Rail; Scottish Power; Scottish Water; South West Water; Wessex Water UK Health and Safety Commission, 100 UK Health and Safety Executive, 109, 113 UK Water Statistics User Group, 72 UKWIR, 9, 10, 16, 68 uncertainty, 86–87, 88, 97 University of Edinburgh, 76 University of Strathclyde, 76 University of Western Australia Business School, 167 urban creep, 12 Urban Land Institute, 211 USA, 167, 170 USA Occupational Safety and Health Authority, 113 value, 1, 2, 4, 5, 203, 204, 206, 207, 208–210 KPMG, 190, 192, 194, 197–198 Victoria see SP AusNet Voltaire, 203 WAM (work and asset management), 60, 64 Ward and Savic´, 49, 54 Ward et al., 55 Water Act 1989, 49 Water – Delivering the Vision (Wessex Water), 18 Water – The Way Ahead (Wessex Water), 12 Water Research Council, 16 Weber and Alfen, 211 Wentworth Lodge, 155 Wessex Water, 3, 9–20, 205 capital investment since privatisation, illustration, 10 evolution of asset management, 11–17 asset management framework, illustration, 15 certification to BSI PAS 55, 13–16

Index

creation of an asset management function, 11–12 heat map report, 14 integrated work and asset management systems, illustration, 17 long term strategic vision, 12–13 new work and asset management systems, 16–17 organisational structure, illustration, 12 risk-based prioritisation, 13, 14

strategic direction shaped by relationships with stakeholders, 18–19 comparison of capital-intensive and sustainable solutions, table, 19 West, G, 173 Wirahadikusumah et al., 53 Woodhouse J, 55 YTL Corporation, 9

221

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