the case for strategic asset optimization

Colin Palombo, Artemis

How easy is it to define and regularly adjust long-range maintenance and financial plans for a power station? Are these plans making the best use of resources and capital to reduce operating risk, maximize generating capacity and cut overall costs? And, how do these corporate investments support strategic business goals and regulatory operating requirements?

The answers to these questions are often not encouraging. Managers continue to work long hours to coordinate plans and budgets for each unit. Stations cannot determine if they are getting the biggest bang for the buck from their maintenance investment, and fleets are not leveraging economies of scale to reduce overall cost and risk. All of this results in millions of dollars of higher costs and lost output, and possible non-compliance with safety and corporate governance regulations.

The causes of these problems are common throughout the power generation industry: the large volume of work involved with managing a portfolio, the multiple constraints to prioritize work and balance those priorities, the organizational complexity of the process, the changing environment of regulations and constraints, and inadequate IT systems.

A new class of asset optimization software has emerged to help energy companies tackle these problems much more effectively, whether it is for a single plant or an entire fleet of generating stations: strategic asset optimization or SAO.

The overall scope of SAO consists of three process areas: strategy management, work management and factor management. Each process area has three similar stages: 1) identify and assess, 2) select, and 3) perform and monitor results.

strategy management

The strategy management process area is concerned with what the organization is trying to achieve. It represents the governance mechanism for strategic asset optimization and is typically performed by company executives, supported by planning analysts. The three stages of this process area are:

“- stage 1. First, executives identify business goals for each station and the fleet, including regulatory, financial and operating goals, as well as the dependencies between goals.

“- stage 2. Next, executives prioritize these business goals. Planners will use these goals to prioritize and align work at each plant. Executives can then see the degree of support for each goal in terms of projects and resources aligned to that goal.

“- stage 3. Finally, key performance indicators are used to monitor progress toward each goal. These metrics are often generated from project execution and resource usage at the plant. Executives use this information as a feedback loop to adjust strategy or take corrective action to meet the goals identified.

work management

This process area is concerned with what activities the organization performs in order to achieve identified business goals.

“- stage 1. First, engineers identify all potential work. This includes predictable work such as preventative maintenance, equipment purchase, and ongoing operational activities; and unpredictable work such as corrective repair and plant improvements.

“- stage 2. Next, department leaders and plant design and management committees prioritize work according to the business goals of the station and fleet. Planners use this prioritization to schedule work in the long-range maintenance and financial plan for the plant.

“- stage 3. Finally, project teams perform the work through multi-phase projects, single-phase projects or operational activities. The method chosen depends on the scale and complexity of the work, and determines the level of detailed planning and executive authorization and oversight required.

factor management

This process area is concerned with what resources and assets are involved in performing selected work. We consider four types of factors available to the station or fleet: cash (operating and capital budgets), people (employees and contractors), physical assets (plant and equipment) and suppliers.

“- stage 1. Department managers identify and assess all factors available to the station or fleet. When engineers identify potential work, they identify the required factors needed to complete that work.

“- stage 2. Planners next update the long-range maintenance and financial plans, constraining the work schedule by comparing the required factors for the work with the available, unallocated factors of the station.

“- stage 3. When a project is executed, project teams may track the usage of factors-such as time tracking for employees and contractors, actual costs incurred by the project, or services delivered by suppliers. The project manager uses planned vs. actual variances to take corrective action in managing the project. Once a project is completed, the project manager updates the factors now available for other work, such as team members, unspent cash, purchased equipment or modified plant.

Power station operators face a challenging and complex task in getting the most output from their generating assets in a safe and cost-effective way. Strategic asset optimization offers a new solution to optimize the investment in and management of generating fleet assets.

Palombo is vice president of consulting services at Artemis International Solutions Corp., a leading provider of investment planning & control software. He can be reached at colin.palombo@us.aisc.com.

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