Leveraging Enterprise Value With Asset Management

By Fred Jennings, R. W. Beck

Electric utilities are adopting and integrating enabling technologies. Smart metering creates a foundation for smart grid capabilities, mobile data computing, mobile information delivery and enterprise applications that convert overwhelming amounts of data into usable, decision-supporting information. These advancements hold the potential to transform the utility’s core business processes. Without stretching the imagination, it is easy to envision how new information access, such as real-time customer usage, can change how we do business. Despite the opportunities, extracting full value from the wealth of technology potential requires much more than implementing systems and equipment. The value of technology rests as much with management practices as it does with any technologic systems.

 

What is Asset Management?

 Electric utilities are capital-intensive. Accordingly, they must manage a variety of transmission and distribution assets. Asset decisions involve operating patterns and conditions, preventive and responsive maintenance and repair vs. replacement decisions. Often, these decisions are accompanied by enormous financial commitments and the risk of detrimental financial consequences.

With these potential threats, asset management tools and techniques have become more prevalent among utilities. Most companies respond affirmatively that they have some, if not all, elements of an asset management program, although there is no single definition of the breadth or scope of asset management or of the degree of incorporation. Most commonly, asset management conceptually consists of asset inventory, condition assessment, life cycle history and costs and varying degrees of asset performance measurement and reporting. While there are myriad articles that address asset management practices, specific analytical techniques and software systems and tools, there is surprisingly little insight into how asset management can and should be integrated into the business and organizational culture to achieve the fullest potential.

Understanding how to connect asset management into the organization begins by recognizing that to be fully successful, asset management must be viewed as an enterprise system. This means the information inherent in the asset management system supports decisions that span the entire organization. Commonly, many divisions of an organization rely on the information central to asset management, not simply the departments that touch the assets in construction, operation and maintenance. This broad reliance can be problematic because assets generally belong to the enterprise, not a specific function. For example, a distribution department, finance department and central services department might all seek specific information from an asset management system to support their particular decision and reporting needs, and tension might develop around which group owns the assets.

 

Why is Asset Management Needed?

 An enterprise asset management program examines the management of physical assets over their entire service lives and compares that to initial assumptions across the organization. Based on how an asset performs over its life and the economics of that performance, asset management aims to provide the basis for improved decisions going forward. The benefits from this life cycle costing and improved decision-making can accrue from many functions across the enterprise. For example, selecting major substation equipment maintenance optimally results from the integrated efforts of varied functions: Operations sees what substation control is required; Substation maintenance best understands what it takes to keep equipment running; Procurement can assess where value resides among vendors; And legal may test the durability of vendor warrantees.

But too often, the potential broad organizational benefits from asset management programs fail to materialize. Instead, the primary system users and immediate benefits affect a limited number of organizational functions. The causes are many, but they are surprisingly consistent. First, the organization does not ferret out enterprise goals and objectives for the asset management program. Second, the organization avoids positioning asset management as an enterprise application other than its implementation and management from an IT perspective. Third, asset management ownership becomes narrowed, typically more aligned with asset ownership. Finally, though there is significant effort in implementing the program especially from an IT program management perspective, changes in affected management processes are not prescribed around potential improvements resulting from asset management.

 

What’s a Better Approach?

 Many organizations focus on ensuring a successful asset management system implementation. Given the high cost of systems implementation and integration, these well-intentioned organizations are prudent to protect their IT investments. There are other equally important areas in which to focus, however, including the following suggestions:

  • Define goals and objectives. This sounds obvious, but defining goals and objectives often can be complex but not comprehensive. Involve all stakeholders, as with strategic planning. Articulate, vet and align goals and objectives to ensure the organization is not selecting a limiting or suboptimal path. This should be a deliberate step, perhaps facilitated by outside resources. Challenge the status quo, and be willing to craft a future state to exploit the functionality of asset management across the enterprise. For example, utilities that lost control of pole attachments set asset management program goals to capture an accurate inventory of pole attachments and regain millions of dollars in lost revenue stemming from inaccurate records.
  • Establish success criteria. Part of successfully defining goals entails envisioning success. Create short-, mid- and long-term success factors that set a road map for achieving the goals and objectives. Encourage broad participation and endorsement across the enterprise, and consider the impact on levels of service, both internally and externally. For example, one organization employed asset management to manage its infrastructure condition assessment primarily to comply with a U.S. Environmental Protection Agency consent decree. While this was obviously important, it diminished desire to leverage the asset management program to serve much broader company goals.
  • Define software needs. Many asset management applications are expensive, especially when designed to be comprehensive and fully integrated. In some instances, asset management applications may be a system of record introducing additional requirements and complexities in application access and control. Carefully assess near- and long-term application needs, and critically evaluate the most cost-effective approach to serve the organization. Integrate the asset management initiative into the IT road map, that is, the blueprint that directs the future needs for information technologies. Remain mindful of fixed asset accounting, and consider meter inventory needs in conjunction with an advanced metering infrastructure project deployment and ongoing business process. This is particularly important for small- and mid-size organizations where funding for application investment may be more limited.
  • Assess the organizational structure. Organizational design plays a key role in how asset management systems are owned, controlled, managed and updated. Consider the primary and secondary users of the asset management information and any real or perceived boundaries. Define the role of the IT organization, especially for an enterprise system operation and maintenance.
  • Integrate with business processes. This is perhaps the most important step in harvesting value from an asset management project because asset management is not simply a system, but a tool that supports and enhances business processes. Define the business processes and identify appropriate steps where asset management information can be used to make better decisions. Conduct a diagnostic assessment of processes, and build a road map for how asset management information will be used. Evaluate capital planning, project identification, design, alternatives, selection and authorization, and operations and maintenance work planning. Assess where and how asset life cycle management will be implemented. Consider where risk assessment takes place and how it is improved by asset management insights. Evaluate financial reporting opportunities and measurement of asset management results. Consider the need for absolute data integrity. In many instances, data reliability is crucial to preempt the condition of multiple versions of the truth resulting from inconsistent and conflicting records. Often this series of tasks is left to chance and intuition, and the results are haphazard at best.
  • Plan realistic cost and schedule. Implementing any enterprise system exerts significant strain on organizational resources. Depending upon the scope of the project, set the milestones for implementation around a realistic assessment of workload, not arbitrary deadlines. Ensure the project results will be accurate and support inherent confidence. Carefully plan and schedule these intensive efforts. Some organizations have used asset management implementation as an opportunity to establish an accurate inventory of their assets. They physically identified, validated and assessed asset records to establish a baseline and overcame years of records breakdown. In these cases, comprehensive asset inventory and assessment may require one to several years and need to be scheduled well in advance of the actual systems implementation.
  • Plan for education and culture change. The human element is more challenging than the system implementation. Too often, systems are implemented first and business change follows, under-planned and underfunded. Follow the tenets of sound cultural change management. Plan the efforts well by developing and executing a strong communications plan and assessing progress frequently. Recognize that bringing change in any organization is challenging and that asset management presents additional obstacles because it asks managers to alter the means by which they have made decisions in the past. Do not assume change will automatically happen, and be pragmatic about affecting cultural transformation where and as needed.

 Asset management holds enormous potential for electric utilities heavily invested in diverse assets. But unlocking that potential requires equal, if not greater, attention to the soft side of business processes. To gain the most value from an asset management program, utilities must focus on the enterprisewide elements, including management practices, culture and structure, instead of simply concentrating on the technological and software capabilities. In particular, it is imperative that utilities target where and how asset management information will be used and highlight improvements in decision-making that will result. Although not without challenges, approaching asset management implementation as an IT application and decision-support tool for use across the entire enterprise leverages organizational values and improves the measures of success.

Fred Jennings is an executive consultant at R. W. Beck, an SAIC company. He has 30 years of experience in utility industry program design and implementation, as well as strategic and business planning.

 

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