Asset Management summaries

Table of Contents

Lecture week 1

Hicks & McGovern – Product life cycle management in ETO industries

Schuman & Brent – Asset life cycle management: towards improving physical asset performance in the process industry

Lecture week 2

Fabrycky & Alsem – Estimating cost and economic elements

Chan – Investment appraisal techniques for advanced manufacturing technology (AMT): a literature review

Kumar et al. – An investment decision process: the case of advanced manufacturing technologies in Canadian manufacturing firms

Woodward – Life cycle costing: theory, information acquisition and application

COT Case Conclusions

Lecture week 3

Archer & Ghasemzadeh – An integrated framework for project portfolio selection

Ratnayake & Markeset – Asset integrity management for sustainable industrial operations: measuring the performance

Lecture week 4

Muchiri & Pintelon – Performance measurement using OEE

Muchiri et al. – Development of maintenance function performance measurement framework and indicators

Waeyenbergh & Pintelon – A framework for maintenance concept development

Lecture week 1

Hicks & McGovern – Product life cycle management in ETO industries

The markets for ETO products are mature and cyclical with supply often exceeding demand. Demand has shifted from specific items of plant towards turnkey contracts and through life solutions. Some ETO companies start alliances to share risks and benefit from existing complementary assets to meet customer requirements.

ETO companies are divided in four ideal types:

  1. Vertically integrated
  2. Design and assembly (with component manufacturing outsourced)
  3. Design and contract (all physical processes outsourced)
  4. Project management (with all physical processes and design outsourced)

There are three stages of interaction between ETO companies and their customers:

  1. Relationship marketing that enables market trends, technical and non-technical requirements and individual customer’s evaluation criteria to be identified
  2. Tendering after an invitation to tender has been received
  3. The cost of producing a tender may be very substantial
  4. Typically 85-90% of cost is committed at the tendering stage
  5. The tendering success rate was often less than 30%
  6. Companies have a limited tendering capacity
  7. Selecting which contract to tender for is an important strategic choice, which is informed by the relationship marketing activity
  8. Activities after the contract has been awarded: project planning, detailed design, procurement, manufacturing, assembly, construction and commissioning. In some cases, there are subsequent activities relating to operations, maintenance and decommissioning activities.

The committed cost associated with a design rises steeply during the early stages of design, although the incurred cost is low. Errors, ambiguities or misunderstandings in requirements definition at the design stage can commit substantial costs, which are realized during manufacturing and later stages of the product life cycle. The effective management of the specification and design processes is crucial because 75-80% of avoidable total costs are controllable at the requirements definition and design stages. Due to the competitive nature of tendering, design configurations that result in excessive costs are unlikely to be successful.

Managing specifications is important for defining requirements in terms of technical attributes and performance. A specification will typically contain sections relating to:

  • Technical, performance and quality requirements
  • Project management
  • Contract and commercial conditions

Specifications determine the power balance between customers and suppliers and are used by customers to mitigate and manage risk. As specifications are developed early in the design process they have a large influence on product performance, risk and capital and operating costs.

Design activities have two forms, incremental innovation – which involves product development through the modification or customization of existing products to meet customer requirements – and radical innovation – which involves the creation of new types of product. The last has limited amount of knowledge and the level of risk and uncertainty is high.

Design changes arise when the specifications are uncertain or when customer requirements change. The design of complex systems requires considerable interaction between business functions. Failure to manage change effectively is a primary cause of project failure.

Stage-gate systems recognize that product innovation is a process that can be managed. This is important to minimize risk, design change and project failure. The gates are built in as quality check points that ensure that project leaders and teams meet the required level of execution. The five phase are:

  1. Feasibility
  2. Selection
  3. Definition
  4. Execution
  5. Operations

Capability maturity models are used to assess the capability of an organization to perform the key processes required to deliver a product or service. CMM is used as a framework for managing Engineering, Procurement, Construction and Maintenance processes for companies managing multiple projects. Three typical capabilities of EPCM companies are:

  • Functional capabilities: include engineering, procurement, planning, configuration and change management, quality assurance and control.
  • Integrated capabilities: cross-functional, goal dependent and important for a significant part of the ETO life cycle
  • Learning capabilities: include functional and cross-functional learning

Schuman & Brent – Asset life cycle management: towards improving physical asset performance in the process industry

Question from lecture slide about this article:

1. Explain the specific characteristics of the Asset Life Cycle Management (ALCM) approach.
2. Discuss advantages and challenges of the ALCM approach.

Core message – The ALCM model proposed in this paper, guides decisions made during the early stages of a project in the process industry in order to increase the long-term performance of assets at reduced life cycle costs (LCC). However, this model cuts across all strategic, operational and tactical levels and a distinction between these levels must be recognized from an overall management perspective.

Asset management - A strategic, integrated set of comprehensive processes (financial, management, engineering, operating and maintenance) to gain greatest lifetime effectiveness, utilization and return from physical assets (production and operating equipment and structures).

(Process) Asset life cycle phases – To gain even greater value, the asset management process should extend from design, procurement and installation through operation, maintenance and retirement. This is over the complete life cycle of an asset. The figure below presents the (process) life cycle phases of asset systems:

Question 2  Challenge:The challenge in managing the entire asset life cycle effectively lies in the fact that costs are isolated and addressed in a fragmented way through the various stages.

Acquisition phase: During the acquisition phase, the emphasis is on implementing a technology within the boundaries of the approved budget and prescribed time frame, while ensuring that the facility conforms to the technical specifications. Responsible department: R&D or technical department.
Utilization phase: The primary drivers of the utilization phase are the associated costs of product distribution, spares and inventory, maintenance, training, etc. Responsible department: operations department.

Question 1: Characteristics of the asset life cycle management (ALCM)

Goal of paper – This paper therefore proposes a holistic asset life cycle management (ALCM) model for physical assets in the process industry by aligning and integrating the relevant elements of project management, logistics engineering, systems engineering, maintenance management and life cycle costing. This ALCM model optimizes the maintenance prevention process during the acquisition phase, thereby reducing maintenance costs during the utilization phase. The proposed ALCM model for the process industry integrates 3 different frameworks. These are

  • The asset life cycle
  • Project Management framework
  • Operational reliability framework

The asset life cycle framework is described above; hereafter the project management framework and the operational reliability framework will be described.

Project management framework - A basic project management framework, which is practitioner-oriented and follows the described straightforward approach to technical project life cycles serves as the foundation of the proposed ALCM model. The framework divides a project into different “stages”, which are separated by “gates”. How this is implemented in the ALCM will become clear in the ALCM model.

Operational reliability - A flexible process that optimizes people, processes and technology, and thereby enabling companies to become more profitable by maximizing availability and value addition of producing assets. It is based on the following four key elements that should be addressed jointly to ensure long-term continuous improvement towards optimization:

  1. Human reliability
  2. Equipment reliability
  3. Equipment maintainability
  4. Process reliability

The four elements are summarized in the following figure:

ALCM performance measures - Performance measurements that will be used during the operation and support phase of an asset’s life cycle will determine decisions during early stages of the asset project. It is, therefore, very important to identify the measures to be used and the applicable targets and benchmarks as accurately as possible. As the project progresses and more information on asset details become available during the detailed design stage, the expected maintenance cost should be re-calculated more accurately based on reliability strategies.

Proposed ALCM model – The proposed ALCM model is given in the appendix, so that it can be kept next to the explanation because of its size. The description of the proposed ALCM model is explained based on the asset life cycle phases.

Phase 1 – Identify needs for assets

The focus during this project stage is on investigating and evaluating the process requirements and there is very little detail on the actual assets.

Phase 2 – Conceptual and preliminary design

(1) At this early stage, concerns are addressed and practical obstacles removed as production and maintenance viewpoints are allowed to influence decisions. Initial assumptions are made regarding future human capacity and the skills required for operating and maintaining the facility.

(2) The process flow diagrams (PFDs) developed during this stage are an important facet of process reliability as it illustrates the basic flow of the process. The maintenance approach is developed during this stage and includes assumptions on the levels of maintenance support required and basic responsibilities for support.

(3) A high level system breakdown structure (SBS) is derived from the PFDs to visualize the functional position of a piece of equipment according to the process in which it operates. The first round criticality ranking is drafted, based on the process functions of major systems or equipment.

Phase 3 – Detail design and development

(1) The PFDs are further developed into mechanical flow diagrams (MFDs) that graphically illustrate all equipment and interconnecting piping, materials, design and operating data, location of instruments and pressure relieving devices.

(2) All levels of the SBS are completed and the criticality ranking revisited to include all equipment not yet covered in the previous stage. Equipment identified as critical are subjected to a failure mode effect analysis (FMEA) to identify possible failure modes.

(3) RCM logic is followed, whereby preventive and predictive maintenance tasks are identified that will detect, mitigate or prevent the anticipated failure modes from occurring.

(4) If it is found that it may not be cost-effective to operate specific equipment within the expected reliability parameters, alternative solutions should be considered. Trade-offs between initial capital expenditure and operation and maintenance costs should be analyzed and the best solution selected.

(5) The reliability strategy results in schedules and task lists that can be entered into the computerized maintenance management system (CMMS). Although it is not always possible to populate the CMMS at this stage, the intention should be to do it as early as possible, as it is the easiest way to quantify the reliability strategy.

Phase 4 – Construction and/or production

(1) As the physical plant nears completion, the operating and maintenance personnel become fully involved.

To facilitate human reliability, operating and maintenance personnel are trained during this stage.

(2) It is good practice to conduct cost-risk studies to assist in deciding on whether and how many expensive, slow moving spares should be kept. Ideally, all spare parts must be on site prior to start-up to prevent any unnecessary downtime. Standardization and interchangeability are considered to reduce the amount of stock held and the number of maintenance procedures.

(3) Specialized tasks, required for the future maintenance of the equipment, are identified and special tools procured or constructed during this phase to ensure that all equipment can be properly maintained after start-up. As part of the human reliability component, the necessary maintenance training should also be completed during this stage.

(4) Another emerging trend is to enter into a service contract with a supplier whereby the supplier is held responsible to maintain the equipment.

(5) At the end of the stage all equipment should have a suitable reliability strategy and the CMMS must be fully populated to implement the strategies directly after start-up.

Phase 5 – System utilization and life cycle support

(1) Operating the plant within the design parameters supports process reliability during system utilization. During the previous stages these parameters were defined and used to develop reliability strategies. It is now required to operate the plant within these parameters.

(2) Work management plays an important role in reducing mean time to repair (MTTR), the prime measurement for equipment maintainability (See operation reliability framework)

(3) The reliability strategies that were developed and entered into the CMMS during the previous stages are implemented during the system utilization and support phase.

(4) An important aspect during this stage is the collection of failure data. The operators gather the data on the plant and feed it into the CMMS in order to build the foundation for reliability analysis. This data is used to evaluate whether the reliability strategies are effective or needs to be revised. It is also the source data for conducting root cause failure analysis with the aim to eliminate defects.

Phase 6 – Retirement

During all stages of the system development, possible (partly) retirement should be kept in mind, and the system should be designed such that, if required, it can be disposed of at minimum cost in the most environmentally responsible manner. If the retired system needs replacement, the complete project management framework and corresponding system development steps are followed again.

Conclusion - Within an increasingly competitive global economy that enforces the maximizing of cost savings with subsequent profit increases, successful companies have demonstrated an understanding and commitment to two key issues that have been identified: increased productivity and growth.

It is proposed that both of these objectives can be achieved if new projects are identified and executed while simultaneously focusing on optimizing the value from assets over the life cycle of a facility in the process industry.

Limitations - The ALCM model must be further tested within the process industry to determine if the holistic approach does overcome the disadvantages that cause the maintenance models not to address PM adequately in the acquisition phase of assets.

Also, in its present form, the ALCM model focuses on the total maintenance costs only. Additional aspects of corporate sustainability must be considered in terms of asset performance and the model must be revised accordingly.

Lecture week 2

Fabrycky & Alsem – Estimating cost and economic elements

Estimating in the physical environment approximates certainty in many situations. Much less is known with certainty about the economic environment within which life-cycle costing must be done.

Cost estimating methods

A cost estimate is an opinion based on analysis and judgment of the cost of a product, system or structure. Can be arrived at in formal or informal manner by several methods, which all assume that experience is a good basis for predicting the future. This however depends on the situation.

Estimating by engineering procedures

Estimating by engineering procedures involves an examination of separate segments at a low level of detail. It begins with a complete design and specifies each task, equipment and tool need, and material requirement. Costs are assigned to each element at the lowest level of detail. These are then combined into a total for the product and system. This may however require more hours than are likely available. Also, combining thousands of estimates into a whole can be wrong, as it often turns out to be greater than the sum of its parts. You can’t include activities that are unknown, and often there are labor elements which are factored in as a percentage of the detail estimates. Thus small errors can lead to large errors in the total cost estimate. Another source of error can be the significant variability in the fabrication of successive units.

Estimating by analogy

Useful when entering into a new activity. Difference between macro level (whole new market/product cost estimate) and micro level (e.g. labor hours for a similar job).The basis for the estimate is the similarity that exists between the known item and the proposed part. Major disadvantage is the high degree of judgment required. However as costs of this methods are low, it can be used to check on other methods. Besides it’s often the only method available in a preliminary stage of development.

Parametric estimating methods

Finds a functional relationship between changes in cost and the factor upon which the cost depends such as output rate, weight etc. Utilizes statistical techniques ranging from simple graphical curve to multiple correlation analysis. Is often the preferred method, but the needed data is not always available.

Application of estimating methods

Industry wide labor and overhead rates can be obtained from statistical publications and used to give a rough cost estimate for a given item. As more information is known, more specific data can be used. During the early planning stages, available data is limited (use parametric cost estimating). As the system design progresses, more information becomes available (analogous cost estimating). As the system design becomes firm, design data are produced which allow for detailed estimates (estimate by engineering procedures) (figure 1).