Asset Management 9780727736536, 9780727741516, 9780727734563, 9780727757395, 1221231251, 9780727740526, 0727740520

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International Case Studies in Asset Management

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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

v

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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

33

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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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

13

18

12 8

7

4. Probable

19

16

4

11

20

17

5. Very probable (already observed on site)

3: 1001–100 000 TED

2: 10–1000 TED

1: 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: 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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Case study: London Underground

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 (