Asset management

Whole-life management
of physical assets

Edited by
Chris Lloyd
Director, CAS
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Introduction
Chris Lloyd Director, CAS and Member of the Council of the Institute of
Asset Management, UK

Simply pushing harder within the old boundaries will not do.
Karl Weick

1 The whole life management of physical assets

Until recently, the term asset management was most commonly associated
with financial asset management. Financial asset management is concerned
with managing and guiding investments for increased returns which are
conceived of purely in financial terms. Physical asset management is simi-
larly concerned with returns on investment, but it focuses on the whole life
of capital assets and calculates value in terms of the optimum trade-off that
can be achieved between social, environmental and economic objectives.
Asset management is a strategic discipline which gives rigour and
accountability to the way organisations decide:
. how, where and in what to invest
. what assets are most critical
. what risks need to be managed
. what demands must be served
. what needs to be known
. how this knowledge should be captured and disseminated
. how organisations should be structured and led
. what types and teams of people they need
. how activities should be carried out
. how actual performance should be measured
. that improvements are needed.
Asset management involves bringing these and many other decisions
into a coherent framework to ensure their outputs serve organisational
goals. It is a holistic and integrative approach to managing the whole
life of assets, from their inception through to their disposal, which
involves looking forward as well as backwards, outwards as well as
inwards, and balancing the needs of all stakeholders – those of today
and those of the future.
In Chapter 5, ‘Asset management strategy: leadership and decision-
making’, Penny Burns calls asset management an art form. Perhaps
Asset management – Whole-life management of physical assets # Thomas Telford 2010
978-0-7277-3653-6 All rights reserved
xiv Asset management – Whole-life management of physical assets

there are analogies that can be drawn with juggling or high-wire walking
but, first and foremost, as all the contributors to this book make clear, it
is a systematic application of principles. Good asset management is
characterised by a clear line of sight from the directors in the boardroom
to staff on the front line, from the asset management strategy to the
individual task. It requires asset policies to be justified, strategies to be
evidence based, impacts to be traceable and asset information to be up
to date and reliable. It also requires a clear, well-communicated end-
to-end process backed up by unambiguous roles and responsibilities,
and managers who have the knowledge, skills and experience to under-
stand, contribute to and enact asset management policies, strategies and
whole-life asset management plans. Above all, it places a high premium
on knowledge and learning and demands serious commitment to contin-
uous learning from people, teams and organisations.

2 An idea that has found its time

There was never a better time for the whole-life management of physical
assets to enter mainstream corporate thinking than now. For the foresee-
able future, organisations, industries and whole economies which
depend on the availability and condition of physical assets are going
to succeed or fail on their ability to manage them efficiently and sustain-
ably with insufficient resources. The fine print of success may vary but
the overall goals will be the same:
. spending less to get more
. leaving assets in the same state as you would wish to find them
. managing risks not resources
. thinking in whole systems not their parts
. applying a whole-life perspective
. everyone reading from the same page
. stakeholders understanding the choices made.
The return on investment in physical assets can take many forms. It
could be:
. more profitable delivery of services
. the contributions their condition makes to maintenance and
operational costs
. how long-term planning reduces capital and operational expendi-
ture and associated funding calls on investors
. how their availability helps communities access essential services
Introduction xv

. how their resilience to severe weather or terrorist threat bolsters the

reputation of a business
. how healthy they are when handed over to the next generation
. how historical decline in their condition is halted or reversed.

Whatever success looks like for you, this book considers the role that
whole-life management of physical assets can play in delivering it. It
challenges the reader to consider the balance between short-term
efficiencies and long-term sustainability. It examines how organisations
accommodate both of these and achieve the degree of integration
across disciplines and activities that effective asset management requires.
It gives practical examples of how asset management principles can guide
organisations to make better risk-based decisions, calculate long-term
funding requirements in uncertain environments, smooth out demands
on the people who pay for them, and demonstrate value for money and
good governance to regulators, shareholders and other stakeholders.
In Chapter 2, ‘Asset management in the oil and gas, process and
manufacturing sectors’, John Woodhouse describes how asset manage-
ment has helped organisations ‘break the cycle of just chasing efficiency
gains from doing the same thing quicker/cheaper and forced a first-
principles consideration of what was worth doing in the first place’.
Asset management provides a way of calculating which outputs can be
delivered for the available funding in a sustainable way. Organisations
in the early stages of adopting its principles may be more concerned
with delivering efficiencies in the next performance period. As their
grasp of its principles and methods of application improve, asset
management will help them think about how they can do this without
detriment to the period after the next one, and the one after that. As
their capabilities mature, the decisions they make will involve less
whole-cost and through-life value sacrifices, and where these occur
they will be able to justify them.
Asset management enables all parties with a stake in the performance
of an organisation or an industry to engage in evidence-based debate
about cost, risk and performance, and how these should trade off over
time to deliver sustainable outcomes. This raises the thorny issue of
how organisations, particularly those which are monopolies or in
public ownership or both can be incentivised to embrace asset manage-
ment and how incentives can endure changes in senior personnel,
regulatory bodies, owners and government administrations. Richard
Edwards addresses this in Chapter 9, ‘Regulating asset management’,
as does Steve Male in Chapter 3, ‘The challenges facing public sector
asset management’.
xvi Asset management – Whole-life management of physical assets

3 Growing momentum and consensus

The emergence of asset management has gained impetus from growing
public and consumer scepticism and demands for greater accountability
from the government bodies responsible for major capital investments in
infrastructure and from transport and utility service providers amongst
others. In the USA this has led to a more asset-based approach to state
financial reporting of facility condition and asset valuation. The work
in recent years of the US Federal Highways Administration Office of
Asset Management is a good example of the efforts now being made
to disseminate asset management practices to policy-makers and their
infrastructure maintenance and renewal supply chains.
In the UK and elsewhere, economic regulators have been appointed
to oversee asset management performance in all sectors where it is a
major issue. An array of guidelines has also appeared over the last few
years from organisations seeking to promote or influence asset
management thinking and techniques amongst their members or
constituencies or client bases. In the UK, these include the County
Surveyors Association, the Construction Industry Research and Infor-
mation Association, the Royal Institute of Chartered Surveyors, the
Highways Agency, the Department for Communities and Local
Government and the Office of Government Commerce, not to mention
the Institute of Asset Management, which in 2008 launched updated
versions of BSI PAS 55 and its Competences Framework. Close co-
operation between the European Federation of Maintenance Societies
and its counterparts in the USA, Australia, the Arabian Gulf Region,
Brazil and Latin America led recently to the formation of the Global
Forum on Maintenance and Asset Management. The work of the New
Zealand Asset Management Steering Group continues to exert influence
on international asset management thinking and practice, as it has done
since 1995.
The results of all these efforts are impressive. A strong consensus is
building on the meaning of asset management, people are starting to
use a common language to discuss and debate its application and benefits
and, in BSI PAS 55, there is an internationally accepted standard for
asset management systems.

4 A new way of thinking

Imagine you are the MD of a business of which 90% of everything it
spends goes on creating, maintaining, renewing and disposing of its
Introduction xvii

assets, and which makes profits only when those assets are in service.
Regulators are holding your prices down, energy costs are fluctuating
wildly and politicians are pressuring you to reduce your carbon foot-
print. Shareholders don’t like your investment strategy but regulators
and customers are demanding it.
Judging by the way your organisation is structured and the day-to-
day preoccupations of your managers, you wouldn’t think any of this
was happening. Departments are working in silos and conniving against
each other, annual planning cycles dominate the internal fight for funds,
and performance targets are pegged to short-term targets. Not surpris-
ingly, it’s getting harder and harder to explain the thinking behind the
decisions you and your fellow directors are making. Your managers
know this, and they understand why, but the credibility gap between
what the company says it stands for and how they have to behave is
wearing them down. Key people are leaving and new ones are hard to
bring on line.
Why not reorganise? Your organisation has been doing that for years.
How about refocusing the strategy? The long-term corporate vision and
strategy has been under development for years. What about some fresh
blood? The last lot didn’t stay fresh for long. You could create an
internal communications team, but you know that’s only a temporary
dressing.
There is some good news. Most of the elements needed for a successful
turn-around are already in place. You have good people, most of the
processes and procedures that would be expected of an organisation
working to high standards are in place, customers are sticking around,
and your research team is saying you are in the upper quartile for
economic and effective service. The bad news is that processes might
look good on paper but they don’t join up, more is spent on compliance
than improvement, you don’t know what condition most of your assets
are in and your people don’t believe you when you say things can change.
It’s a vicious circle. Events are running the business. There is a lack of
confidence in people’s planning abilities. The organisation is becoming
increasingly reactive. Some of your directors are wearing rose-coloured
spectacles – they don’t know the asset portfolio and they don’t know
the asset policies. The quality of upward reporting is poor. This is
creating lots of spaces that some of your managers are hiding in. Does
this sound familiar?
Asset management offers a way out of these problems but it is not an
instant solution. It gives you a way of achieving your business goals but
only if you define them first – no business is in business just to become
good at asset management. It can help you integrate your management
xviii Asset management – Whole-life management of physical assets

and information systems, technical resources and human capabilities in

focused, long-term pursuit of your objectives but only if you are clear
what these objectives are and understand their implications. In this
respect, asset management is not a new discipline so much as a new
amalgamation of old disciplines galvanised around whole-life principles
of cost, risk and sustainable performance.

5 The purpose of this book

This book is for people new to the subject of asset management who
want to get to grips with its principles, characteristics and benefits. It
contains a compendium of short, thought-provoking pieces contributed
by leading practitioners and thinkers in the field.
The chapters of this book deal in different ways with the practicalities
of asset management such as investment decisions, whole-life costing,
demand forecasting, strategy and planning, risk-based maintenance
and the management of change. The authors bring their different
perspectives to bear on the application of a common conception of
asset management as a strategic, whole-life, risk-based, enterprise-
wide, multidisciplinary, game-raising endeavour. They trace its
evolution, take stock of current best practices, review the benefits and
consider future directions. They have written research and practice-
based articles covering all the key dimensions of asset management.
The book is, therefore, a unique starting point for readers new to asset
management or with new asset management responsibilities, and for
students of asset management and their teachers. The multidisciplinary
character of the book also gives managers and executives a coherent
introduction to how asset management principles can provide an
organising approach for their businesses.

6 Main themes of the book

Four themes recur throughout this book.

6.1 Sustainability
This means different things to different stakeholders; so, how do busi-
nesses, government, regulators and the general public ensure that
assets are fit for the next generation? How can resources be allocated
Introduction xix

efficiently and fairly between competing short- and long-term com-

mercial, social and environmental interests? How do you get key players
in the boardroom or in government to think beyond their own tenure?
How do you make sure knowledge and understanding aren’t lost when
functions or activities are outsourced or people leave?
The rationale for the widespread adoption of asset management
is based on the related factors of reduced operational and capital
expenditures and the standardisation of processes and competences.
The arguments for this rationale are made from financial, social and
environmental standpoints throughout this book.
Driving the demand for asset management are the forces of competi-
tion – between individual organisations and whole industries, between
today’s consumers and tomorrow’s, between short-term and long-term
priorities, between output and sustainability, between shareholder and
wider stakeholder expectations.
Finding a response to global warming is another major imperative
on organisations to get their asset management strategies right. In
Chapter 8, ‘Incorporating climate change within asset management’,
Ralph Rayner states that ‘There is now a high level of confidence that
our climate is changing due to human activity and especially due to
emissions of greenhouse gases.’ He goes on to observe that organisations
now have only a ‘limited capacity to accurately project environmental
conditions over the lifetime of assets and asset systems’. The stakes
couldn’t be higher for organisations responsible for delivering essential
services. In this context, rigorous, risk-based whole-life asset manage-
ment isn’t a choice, it’s a necessity.

6.2 Organisation
For most organisations, the adoption of asset management will mean
developing mechanisms to enhance, encourage and facilitate coordina-
tion between previously distinct functions. For example, the relation-
ships between the information an organisation needs for whole-life
costing purposes, the knowledge standards it sets and the data it collects
need to be seamless. Fragmentation of roles and responsibilities and rival
subcultures are known to be significant barriers to the successful practice
of asset management. In particular, they can affect the efficiency with
which the individual components of an asset management system
interact.
So, what does a good asset management organisation look like?
Where do you start? How do you incentivise and control change? How
do you balance innovation and risk and who decides this? How do
xx Asset management – Whole-life management of physical assets

you get line-of-sight between the asset management policy and strategy
and the functions and activities their success depends upon?

6.3 Measurement
Best practices emerge from a few organisations and are standardised
for adoption by the many. Over time they become custom and practice
in whole sectors, and this enables less advanced organisations to
compare themselves with their peers and use the results to plan the
next stage of their development. So, how do we measure good asset
management? How can businesses be challenged to move beyond
compliance? How do you define the level of process maturity your
organisation requires?
The systematic application of asset management principles has been
proven to make a positive contribution to organisations. It leads to a
greater efficiency in asset stewardship, greater cohesion between the
various functions of the organisation, improved communications with
regulators and other stakeholders, increased confidence in investment
decisions and their justifications, and more effective knowledge and
skills management and transfer. All this requires measures organisa-
tions and their stakeholders have confidence in and evidence they
believe.
Standards may be set in a number of ways – by an unchallenged
innovator, through contestation, by industry consensus or by state
imposition. They are validated in the marketplace by the demand for
the products and services that embody them. BSI PAS 55, the specifi-
cation for the optimised management of physical assets, was developed
by the Institute of Asset Management on behalf of the British Stan-
dards Institution. It has grown out of industry consensus spanning
sectors and continents, and, judging by the demand for assessment
and certification against its requirements since it was first published in
2004, its arrival has been timely. Companies such as Serco are using it
to establish and verify asset management systems. Others such as
National Grid are using it to enhance international cooperation and
comparison between business units. It is also increasing demand for
and raising the profile of asset management specialists, which is
attracting the interests of educators, training companies and the
professions. If further evidence of its impact is needed, work is now
underway to turn BSI PAS 55 into a full-blown ISO standard.
BSI PAS 55 is not an end-point but it is an important waypoint on the
journey to what Martin Pilling calls ‘appropriate best practice’ in
Chapter 4, ‘Beyond BSI PAS 55 compliance’. Most organisations
Introduction xxi

which take asset management seriously are thinking more about value
than compliance. To raise consumer and regulator confidence in their
decisions, asset management organisations need to do more than
simply wave certificates.

6.4 Change management

Successful organisations get the relationships right between opportunity,
strategy and structure, and they manage to keep these relationships
strong in the face of external changes and uncertainties. This is especially
difficult when an organisation faces sudden shocks to its system after a
lengthy period of stability. Is asset management evolutionary or revolu-
tionary? How widespread are its implications? Can it help organisations
deal with uncertainty and future changes better?
In Chapter 1, ‘Asset management in the rail and utilities sectors’,
Richard Edwards identifies the major activities which need to be aligned
and integrated in an asset management system. Few organisations will
come to asset management without a history, so change management
has a big part to play in how successfully they will be able to adopt
and apply its principles. Charles Johnson examines the implications
asset management has for asset management, and vice versa, in Chapter
6, ‘Creating an asset management culture’.
The implications are most significant in the boardroom, where it is not
unusual for established heads of functions to resist moves to bring asset
management under a single authority. This is difficult enough to achieve
in the operational business, but without director support, efforts to
achieve the level of integration that good asset management requires
face being subordinated and stymied by rivals. If you want to give leader-
ship to asset management, you have to think and operate at the right
level, as Penny Burns argues in Chapter 5, ‘Asset management strategy:
leadership and decision-making’.
One of the key battlegrounds in organisations on the lower rungs of
the maturity scale is information and data sharing. Asset management
decisions feed on detailed data on condition, resources, demand and
performance. Without this, there can be no real appreciation of
constraints, returns or long-term value, and the ability to weigh the
impact of different options, carry out ‘what if ’ analyses and articulate
choices to stakeholders is seriously diminished. Moreover, without a
steady flow of reliable and valid data, decision-making becomes less
consistent and less transparent, and decisions become harder to
defend. However, to deliver qualitative and quantitative system or
network-wide data, people have to trust each other, be willing to share
xxii Asset management – Whole-life management of physical assets

and be committed to the overall goal. For these reasons, information

sharing is a litmus test of progress towards an asset management system.

7 Structure of the book

The ten chapters in this book are arranged in three sections. A short
postscript closes the book with some reflections on the role of directors,
regulators and governments.

Section 1: The story so far

This considers the origins and development of asset management
thinking, systems and techniques within major industries and govern-
ment. Chapter 1 gives an explanation of why and how asset management
has emerged in the transport and utilities industries and Chapter 2 does
the same for the process and manufacturing industries. Chapter 3
focuses on asset management in the public sector. Chapter 4 considers
the role of BSI PAS 55 and looks beyond compliance to the pursuit of
appropriate best practice.

Section 2: Organising for asset management

This is concerned with strategic asset management and its implications
for the asset management capabilities of people and organisations.
Chapter 5 examines the nature, scope and implications of strategic
asset management decision-making for industry and government.
Chapter 6 considers how organisational structures and cultures need
to adapt to support asset management, and Chapter 7 is concerned
with the development of asset management competence – in the board-
room, the workplace and the supply chain.

Section 3: Looking ahead

This focuses on the contribution asset management needs to make in
decades to come. Chapter 8 discusses how asset management perfor-
mance can be regulated. Chapter 9 examines the implications of climate
change for asset management policy and strategy. Chapter 10 looks to
the future of the asset management discipline and the benefits it can be
expected to deliver.
Preface

A year ago I met with some of the authors who have contributed to this
book. We talked about producing a state-of-the-nation-style pamphlet
on asset management for our clients, and from that idea this book grew.
If the volume of government initiatives, research programmes,
professional body activity, training courses and conferences is anything
to go by, interest in the whole-life management of physical assets is
growing exponentially.
A few years ago, asset management conferences would be attended
almost exclusively by engineers from utility, petrochemical, rail and
highways businesses and their regulators. Today, you are just as likely
to find people from government, defence, local authorities, health,
property, education, banks, ports, interest groups and the emergency
services.
Wherever the availability of reliable assets is important, asset
management is giving organisations a new way of looking at what
they do. It is a lens they can use to refocus their strategies and resources
on delivering sustainable long-term value and performance.
If you are new to and serious about asset management, whatever stage
of your career you are at, I hope this book of essays by some of today’s
leading lights on the subject will be a good companion to you as you
travel onward. Whether the subject is strategic decision-making, trading
off whole-life costs and risks, adapting to climate change, building
careers, winning the argument in the boardroom, benchmarking or
changing attitudes, this book has something to say and some useful
advice to follow.
My thanks are due to my fellow authors for being prompt and
perceptive; to Matthew Lane of Thomas Telford Ltd, who commented
so usefully on early drafts; to my colleagues at CAS for holding the
fort; and to my wife for her grace and patience.

Chris Lloyd
Director, CAS
Contents

Foreword v
Preface vii
List of contributors ix
Introduction xiii
Chris Lloyd

Section 1. The story so far 1

Chapter 1. Asset management in the rail and utilities sectors 3
Richard Edwards
Chapter 2. Asset management in the oil and gas, process and
manufacturing sectors 27
John Woodhouse
Chapter 3. The challenges facing public sector asset management 50
Professor Steven Male
Chapter 4. Beyond BSI PAS 55 compliance 74
Martin Pilling

Section 2. Organising for asset management 91

Chapter 5. Asset management strategy: leadership and
decision-making 93
Dr Penny Burns
Chapter 6. Creating an asset management culture 116
Dr Charles Johnson
Chapter 7. Developing the competence of asset management
staff 138
Chris Lloyd

Section 3. Future directions 159

Chapter 8. Incorporating climate change within asset management 161
Professor Ralph Rayner
iv Asset management – Whole-life management of physical assets

Chapter 9. Regulating asset management 181

Richard Edwards
Chapter 10. Asset management: the way forward 201
John Woodhouse

Postscript 223
Chris Lloyd and Richard Edwards

Index 227
Section 1. The story so far
1 Asset management in the rail and
utilities sectors
Richard Edwards Director, AMCL and Member of the Board of the Institute
of Asset Management

This chapter introduces asset management and explains why it is different

to traditional ways of managing infrastructure assets. It describes the
background to asset management and the roles of BSI PAS 55 and
regulators in advancing the discipline. It discusses techniques in the six
key areas of asset management with examples from rail and utility organisa-
tions. It concludes with a review of future challenges for the rail and utility
sectors.

1 Introduction
Asset management is defined in BSI PAS 55 (BSI, 2008) as ‘the
systematic and coordinated activities and practices through which an
organisation optimally and sustainably manages its assets and asset
systems, their associated performance, risks and expenditures over their
life cycles for the purpose of achieving its organisational strategic plan’.
A simpler definition, developed by the European Federation for
National Maintenance Societies, is ‘the optimal lifecycle management of
physical assets to sustainably achieve the stated business objectives’
(EFNMS, 2009).
There are many other definitions of asset management around the
world, but, essentially, asset management allows asset-intensive businesses
to use limited resources to achieve their stated business objectives in the
most cost-effective way.
Asset management is made up of six key areas of technical, human
and organisational capability, as shown in Fig. 1.1.
Many aspects of asset management are not new; it is the integration
of the activities within these six areas that asset management is seeking
to achieve. Effective asset management means that all the activities
undertaken in these six areas are aligned with the organisation’s overall
business strategy, to ensure that every pound or dollar spent on assets is
contributing to the overall goals of the business. This is often described
as the ‘line of sight’ from policy and strategy down to lifecycle delivery
activities.
Asset management – Whole-life management of physical assets # Thomas Telford 2010
978-0-7277-3653-6 All rights reserved
4 Asset management – Whole-life management of physical assets

Fig. 1.1 An asset management conceptual model. (Reproduced by permission

of AMCL)

There are many misconceptions that asset management is the job of

the maintenance manager or the engineering manager. In asset-intensive
businesses, asset management is the responsibility of a whole range of
people, from directors down to front-line delivery personnel.
However, organisations that are starting out on the road to imple-
menting effective asset management may well begin from different
places. It is quite rare that asset management starts in the boardroom,
even though it is important that it ends up there. The adoption of an
asset management approach often starts in the middle of an organisa-
tion. It is the responsibility of managers at this level to communicate
its benefits, both up and down the organisation, in order to achieve
the ‘line of sight’.
This chapter will examine how asset management has developed over
the last 15 years. It will discuss the way different organisations have
adopted asset management in the rail and utility sectors, and will draw
out lessons that these organisations have learned. It will conclude by
suggesting the emerging challenges that many of these organisations
face in the coming few years.
Section 1: Asset management in the rail and utilities sectors 5

2 Background to asset management in the UK utility and

rail sectors
It is difficult to pinpoint the origins of asset management. In many ways,
it is a relatively new description of activities that have been undertaken
for many decades but previously in a more fragmented way. Use of the
term asset management to describe the optimised management of physical
assets has been common in the UK since the early 1990s and had been in
use in Australia and New Zealand for quite a few years before that.
The UK Institute of Asset Management (IAM) was formed in the
early 1990s as the professional body to develop and disseminate good
practice in asset management. Many of the early members of the IAM
were from the utility and rail sectors which had just been privatised, or
were about to be, and were looking for ways of delivering their services
more efficiently.
After they had been privatised, utility and rail companies typically
pursued efficiencies through higher levels of productivity and through
outsourcing various services. When these types of savings became
harder to find, organisations started to challenge their renewal and
maintenance regimes to see if renewals could be deferred or maintenance
periodicities extended.
To do this, organisations needed better asset knowledge and control
over their work management processes. They began to develop and
implement asset registers and work management systems, using increas-
ingly sophisticated IT systems. Many of these initiatives resulted in
improved asset registers, but they did not always deliver the expected
efficiency benefits, and systems costs were often significantly more than
anticipated.
One of the difficulties of trying to change renewal and maintenance
regimes was that the requirements for these regimes were often embodied
in standards or procedures, the justification for which had either never
been clearly defined or had been lost over time. This made it difficult
to change these regimes and to demonstrate that the risks associated
with the changed regimes were ‘as low as reasonably practical’
(ALARP). This was particularly true where there were safety implica-
tions of changing renewal and maintenance regimes, for example the
inspection and maintenance regimes in the rail or electricity industries.
Understanding, quantifying and managing risk, therefore, became
increasingly important to unlocking the efficiencies associated with the
optimisation of renewal and maintenance regimes. Regulators were
also becoming increasingly concerned about the longer-term risks
associated with asset management, in particular the risk of introducing
6 Asset management – Whole-life management of physical assets

short-term efficiencies at the expense of higher costs and risk in future

years. The provision of better guidance on the holistic management of
risk was one of the key drivers for the IAM developing BSI PAS 55.

3 BSI PAS 55
BSI PAS 55 is the ‘publicly available specification’ for the optimised
management of physical assets and infrastructure. It is published by
the British Standards Institute. BSI PAS 55 was initiated by, and is
now distributed and supported worldwide by, the IAM. It was originally
published in 2004 and, after extensive international consultation, was
updated and reissued in 2008.
BSI PAS 55 specifies requirements for 28 aspects of good practice
asset management, from lifecycle strategy to everyday maintenance. It
enables the integration of all aspects of the asset lifecycle, and provides
a common language for cross-functional discussion. The specification
defines what needs to be done, but not how. This allows companies to
develop effective processes that reflect the challenges in their particular
business.
Many organisations within the rail and utility sectors, in the UK and
internationally, are adopting BSI PAS 55 as the basis for their asset
management framework. Some of these organisations are pursuing certi-
fication to BSI PAS 55, but others are just using it to develop consistent
asset management processes across their business with no intention of
obtaining certification.
In Chapter 4, ‘Beyond BSI PAS 55 compliance’, Martin Pilling
discusses the benefits of adopting BSI PAS 55 and developing asset
management capabilities beyond its requirements.

4 Role of regulation
Regulation has played an important role in the development of asset
management in the utility and rail sectors in the UK. The rising costs
of renewing or refurbishing ageing infrastructure assets, in some cases
compounded by a lack of historical investment, meant that developing
more transparent ways of justifying these costs became increasingly
important for regulators.
In 2002, Ofgem, the UK regulator for gas and electricity companies,
recognised the need for greater assurance over longer-term management
of asset-related risks and initiated the Asset Risk Management (ARM)
Section 1: Asset management in the rail and utilities sectors 7

survey. The ARM survey was designed to give Ofgem assurance that
each network company was employing a systematic and coordinated
approach to asset stewardship and risk management. It was one of the
earliest attempts by a regulator to influence asset management capabil-
ities, and recognised that measuring outputs alone did not guarantee
effective long-term stewardship of the assets.
In 2005, rather than repeat the ARM survey, Ofgem encouraged all
network companies to achieve certification to BSI PAS 55, and stated
‘Ofgem believes that BSI PAS 55 certification will help provide assurance
as regards long-term asset stewardship and establish greater clarity of the
asset management policy and processes that underpins the investment
strategy of network companies’ (Ofgem 2006). All UK energy network
companies achieved BSI PAS 55 certification by the end of 2008.
In the water industry, concerns about inconsistencies in the way that
different water companies were developing capital maintenance plans,
and justifying the funding identified in these plans, led to the develop-
ment of the Common Framework (UKWIR, 2002). The Common
Framework provided an agreed framework and set of approaches for
long-term asset management planning and for developing capital main-
tenance plans.
Ofwat, the UK regulator for water and sewerage companies, encour-
aged the use of the Common Framework in the development of business
plans for certain aspects of the 2004 periodic review. Significant progress
was made by the industry in applying these principles during the 2004
periodic review, and the Common Framework has subsequently been
supplemented by the Asset Management Planning Assessment Process
(AMPAP). AMPAP is a capability maturity assessment process to
examine and score the processes and information used to develop capital
maintenance plans. It was used in the 2009 periodic review to assess the
water companies’ capital maintenance plans.
At the time when the electricity and water sectors were starting to
introduce asset management principles to the development of their
strategic business plans, the rail industry had much shorter-term
concerns. Railtrack Plc was placed into administration in late 2001,
and in 2002, Network Rail, a company limited by guarantee, bought
the infrastructure assets and took on the role of asset steward. Network
Rail’s first priority was to reverse the decline in performance and
restore investment in assets to a more sustainable level. The mainline
rail regulator, the Office of Rail Regulation (ORR), set Network Rail
a series of demanding output and efficiency targets, but at the time
there was less focus on some of the longer-term aspects of asset
management.
8 Asset management – Whole-life management of physical assets

More recently, however, these longer-term asset management issues

have significantly increased in importance in the regulation of Network
Rail. In 2005, the ORR and Network Rail introduced the role of
independent reporter for asset management, a tri-partite arrangement
between the independent reporter, Network Rail and the ORR. The
role of the independent reporter is to examine Network Rail’s capa-
bilities in asset management and provide the ORR with a level of
assurance in the tools, processes and asset information used to underpin
strategic publications such as Network Rail’s strategic business plan. Its
introduction has significantly increased the profile of asset management
in the mainline rail industry. The regulation of asset management is the
subject of my other chapter in this book (Chapter 9).

5 Approaches and techniques

This section provides an overview of the asset management approaches
and techniques in each of the six main areas of asset management
discussed in the introduction to this chapter. It also includes examples
of how different rail and utility businesses have applied these approaches
and techniques.

5.1 Strategy and planning

Strategy and planning relates to the asset management activities required
to develop, implement and improve asset management in line with
overall business objectives, taking into account changing demands
over time on the asset portfolio. The output is, typically, an asset
management plan (AMP), which describes how an organisation intends
to manage its assets to deliver the required outputs or level of service for
the available funds.
Many organisations in the utility and rail sectors have developed asset
management policy and strategy documents, in particular those who have
adopted BSI PAS 55. Demand analysis is also a relatively mature activity,
in particular in the energy sector, where it is critical to running a successful
business. Despite these individual aspects of asset management having
been developed, how well integrated they are with other asset management
activities within the business and how well they reflect the overall goals
and mission of the business is another question. Penny Burns provides
an interesting insight into the challenge of developing an asset manage-
ment strategy that reflects the broader challenges facing business in
Chapter 5, ‘Asset management strategy: leadership and decision-making’.
Section 1: Asset management in the rail and utilities sectors 9

As part of the regulatory periodic review process, most utility and rail
organisations are required to develop AMPs which contain work
volumes, cost predictions and expected levels of service in terms of
asset condition, performance and other relevant outputs. A typical
AMP sets out plans over 5–15 years, with a trend in recent years towards
a longer 25–50 year time horizon.
Some rail and utility companies have found that an AMP developed
for regulatory purposes can become disconnected from the day-to-day
activities of the organisation, as these can be managed by different
parts of the organisation. This results in inefficiencies through dupli-
cation and misalignment of objectives and makes the plan difficult to
validate. Better integration of day-to-day asset management activities
with business-planning processes will ensure that AMPs better reflect
the actual activities being undertaken, and will allow work volumes
and assumptions in the AMP to be validated and continuously
improved. Figure 1.2 shows a high-level process for the development
of an integrated AMP.
Many organisations have developed strategic business-planning
models to facilitate the development of an integrated AMP. For many
rail and utility businesses, the data volumes associated with asset infor-
mation and the complexity of the analysis in determining appropriate
maintenance and renewal interventions requires quite complex IT solu-
tions.
One of the key challenges associated with developing ever-more
complex business models is the difficulty of validating the assumptions
regarding asset deterioration and the outputs from the model. This is
particularly difficult where an organisation has outsourced the develop-
ment and management of its strategic business model where both
internal and external stakeholders can become sceptical of the outputs
of the model due to the lack of integration with the core business.
Three Valleys Water in the UK has addressed this issue by integrating
its strategic business model and planning processes with the day-to-day
operations of its business. The strategic business model was used to
produce the business plan for Ofwat’s 2009 periodic review by analysing
the optimum renewal and maintenance interventions for each type of
asset and mapping these interventions to the asset portfolio within
their work management system.
The output from the model includes work volumes, costs, risk profiles
and expected output measures over 40 years. The assumptions in the
model can be continuously validated by including the predicted condi-
tion of the assets on the inspection work sheets used by the maintenance
staff. Feedback is collated on differences between predicted and actual
 10
Asset management strategy and specific asset policies or strategies

Asset management – Whole-life management of physical assets

These should include asset management objectives and asset management
processes, tools and techniques to be utilised

Determine driver for

Demand forecast Analysis of
asset management
infrastructure Develop maintenance,
activities:
performance against renewal and
current and future • Capacity/growth Develop work
• Performance enhancement volumes and cost
Required levels of forecasts and required activities to achieve
service, performance levels of service • Condition/age requirements based
schedules for all
and condition • Cost of service on lowest whole-life
activities and publish
in AMP
costs

Review of asset base and previous AMP, identification of gaps and mitigation plans

Asset information requirements, unit costs and supporting information systems

Fig. 1.2 Integrated approach to the development of an AMP. (Reproduced by permission of AMCL)
Section 1: Asset management in the rail and utilities sectors 11

condition, and these changes are peer reviewed, and the strategic busi-
ness model updated accordingly. This work was recognised by industry
peers as an innovative approach to strategic asset management planning
when it was declared the winner of the IET Asset Management Innova-
tion Award in 2008 (IET, 2008).

5.2 Whole-life cost justification

Whole-life cost justification is concerned with the analysis of costs and
risks over the life of an asset, or group of assets, to identify the optimum
way of delivering customer and stakeholder requirements at the lowest
whole-life costs. Whole-life cost justification activities are typically
undertaken in parallel with the strategic planning activities described
above, to support the justification of strategic business plans. This
enables organisations to justify their proposed expenditure and demon-
strate the consequences of different funding scenarios where available
funds are insufficient for the optimum scenario. This is particularly
important when dealing with multiple stakeholders who may have
competing objectives. For example, a safety regulator may set a required
level of safety which results in costs that an economic regulator may
consider unaffordable.
Whole-life cost justification also includes the evaluation and optimi-
sation of operational expenditure, typically maintenance and inspection,
and the development of accurate unit cost information to support both
capital and operational expenditure evaluation.
Whole-life cost justification requires an understanding of how costs
and risks change with respect to time or usage and how different inter-
vention activities impact on these costs and risks. Some organisations
in the rail and utility sectors have tried to develop complex deterioration
models to predict the deterioration and optimisation of each individual
asset, but have run into difficulties for two reasons:
. First, the complexity associated with this type of modelling makes
it hard for internal and external stakeholders to understand and
validate the assumptions within the model.
. Second, this type of modelling creates massive data volumes
which tend to result in models that cannot be run on standard IT
infrastructure.
These conclusions were echoed by a UK government-sponsored research
project undertaken under the ICT carrier programme (the Investor
Project: www.investorproject.com), which examined the feasibility of
developing whole-life cost models for asset-intensive businesses. One
12 Asset management – Whole-life management of physical assets

Risk Condition Cost

Renewal cost

Maintenance
Mid-life cost increase
overhaul
towards end
of life

Increasing
failure risk
Routine
maintenance

Declining
condition

Age/usage

Optimum point of renewal

Fig. 1.3 Whole-life cost template. (Reproduced by permission of AMCL)

of the main conclusions from this project was that whole-life cost
templates should be used to simplify the complex modelling used to
undertake whole-life cost analyses. Whole-life cost templates are used
to approximate the behaviour of different asset types and identify the
optimum renewal, overhaul and maintenance strategy, based on a
whole-life assessment of costs and risks. A typical whole-life cost
template is shown in Fig. 1.3.
Templates can be created for all asset types, including multiple
templates for high critically assets to reflect the different rates of
deterioration and costs for assets in different operating contexts. The
length of the whole-life cost template equates to the optimum life of
the asset type which can be determined using standard cost–risk optimi-
sation techniques.
Assets within an organisation’s work management system can then be
assigned to whole-life cost templates including where in the lifecycle each
asset is. For high-criticality assets where multiple whole-life cost
templates have been defined, each asset would also need to be assigned
to the appropriate operating context to ensure it is matched to the
correct template. Powerful outputs can then be produced which can be
Section 1: Asset management in the rail and utilities sectors 13

incorporated into an organisation’s strategic business plan including

50 year cost and risk profiles, as shown in Fig. 1.4.
One of the difficulties with this type of analysis is that there are signif-
icant uncertainties that impact on future costs and risks, in particular for
assets that have relatively long expected lives. These uncertainties
include:
. actual deterioration rates of an organisation’s assets
. actual condition of an organisation’s assets
. actual demand from customers
. unit costs of the various intervention activities
. how future technology may influence the choice of assets or inter-
ventions on assets
. future commodity prices
. impact of climate change and future weather patterns
. future legislation.
Range estimating and sensitivity analysis can be used to understand
which of these have the biggest impact on cost and risk. Optimistic
and pessimistic scenarios can then be developed to show the range of
likely costs and risks over 50 years. The most recent developments in
whole-life cost analysis use a combination of whole-life cost templates,
Bayesian statistics and data modelling to fully understand the impact
of these uncertainties.
Several organisations have developed models using Bayesian statistics
over the last 15 years, but these models have tended to be standalone,
often to support a regulatory periodic review, and have tended to be
isolated from the day-to-day operations. As discussed previously, this
makes it difficult to justify the assumptions and algorithms used in the
model, which reduces the confidence that stakeholders have in the
outputs.
The most recent whole-life cost models are addressing this weakness
by producing both strategic plans and ‘bottom-up’ plans using a Baye-
sian sample to produce the whole-life cost templates. This sampling
process offers a substantial reduction in engineering study costs whilst
improving the quality of the plan in comparison with a top-down ‘super-
ficial’ study of the whole population. This improved approach eliminates
the problem of how to verify a strategy level plan produced by a ‘black
box’ model, as it works at the same level of granularity as work under-
taken on the assets. Consequently, verification of any investment plan
produced in this way becomes self-evident.
Turning to the evaluation and justification of operational expendi-
ture, there are a number of well-established tools and methods for
 Average annual expenditure: £m

Fig. 1.4
0
100
200
300
400
500
600
700

2010
2011
2012
2013
2014
2015
2016
2017

Renewal and overhaul

2018
2019
2020

50 year cost and risk profile

2021
2022
2023
2024
2025

Maintenance
2026
2027
2028
2029
2030

Risk
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
0
10
20
30
40
50
60
70
80
90
100

Annual risk costs: £m

Asset management – Whole-life management of physical assets 14

Section 1: Asset management in the rail and utilities sectors 15

120

Total
100 business
impact

80
Annual costs: £

60
Risk

40

Direct
20

0
1 2 3 4 5 6 7 8 9 10

Maintenance frequency: years

Fig. 1.5 Optimising operational expenditure. (Reproduced by permission of

AMCL)

achieving this. Reliability centred maintenance (RCM) and risk-based

maintenance (RBM) are techniques for evaluating operating expenditure
that have been around for several decades. John Woodhouse describes
the background and application of RCM in more detail in Chapter 2,
‘Asset management in the oil and gas, process and manufacturing
sectors’.
Turning to the more recent development of RBM, Fig. 1.5 shows the
cost–risk trade-off that is undertaken as part of the RBM analysis
process. The direct costs are a function of the unit cost of maintenance
and the periodicity of the maintenance task. The risk costs are a combi-
nation of the probabilities and consequences of the loss of function(s) of
the asset that the maintenance task is designed to mitigate, and how these
risks increase as a function of the time since the last maintenance visit.
The optimum periodicity to undertake the task is where the sum of the
costs and risks, the total business impact, is at a minimum, which is at
about 3–4 years in the example shown.
In most cases, both the costs and risks have uncertainty associated
with them and range estimating and sensitivity analysis techniques are
used to find a range for the optimum maintenance periodicity. Packaging
of maintenance tasks into logical work schedules is typically undertaken
to determine the final maintenance periodicity.
RBM studies across many different sectors have shown the typical
benefits from adopting a risk-based approach to maintenance and
16 Asset management – Whole-life management of physical assets

inspection are between a 20% and 30% reduction in operational expen-

diture for no increase in risk. Despite these reported benefits, the
application of RBM techniques within the rail and utility businesses is
less widespread than might be expected.

5.3 Lifecycle delivery

Lifecycle delivery includes all the activities associated with the execution
of an organisation’s AMP, including the creation and acquisition of
assets, project management, systems engineering, maintenance, opera-
tions, asset rationalisation and disposal. It also includes the management
of the required access to renew or maintain the assets and the manage-
ment of the various resources needed to execute the work.
Many of these activities are established disciplines where published
good practice is widely available for the individual activities. The asset
management challenge associated with lifecycle delivery is again one of
integration. Typically, 80% of the lifecycle costs of an asset or asset
system are incurred during the maintenance and operations phase of
the lifecycle. However, about 80% of lifecycle costs are ‘locked in’ to
the asset at the design stage. It is therefore vital to ensure maintenance
and operational personnel are fully involved at the earliest possible
stage in the asset creation process to ensure the resulting assets and
systems can be cost-effectively maintained and operated, even if this
incurs greater initial costs.
Most utility and rail businesses in the UK have developed their life-
cycle delivery processes significantly since they were privatised.
However, it is still quite common for insufficient attention to be paid
to the maintenance and operation of the assets during design and
construction. Often, this appears to be caused by the objectives for
renewals projects being focused on driving initial capital costs down
without understanding the impact on the maintenance and operations
phase of the lifecycle. As described earlier, undertaking whole-life cost
analysis is a useful way to demonstrate the whole-life impact of setting
such short-term objectives.

5.4 Asset knowledge

Asset knowledge aspects of asset management include the activities
required to specify, collect, maintain and dispose of asset information
in a way that supports an organisation’s asset management objectives.
This includes the development of an asset information strategy that
should define an organisation’s approach to the management of asset
Section 1: Asset management in the rail and utilities sectors 17

information, recognising the lifecycle costs of collecting, storing and

maintaining the information.
In mature organisations, the asset information strategy would define
the criticality of the asset information to the business, and the method of
managing asset information would reflect this criticality. Asset knowl-
edge standards are also important to define the way in which data and
information will be structured and to define how complete and accurate
that data should be, given its criticality. Interestingly, the type of asset
information that turns out to be most critical to the business can often
be counter-intuitive and sensitivity analysis provides an effective way
of assessing this criticality in an objective manner.
The other major aspects of asset knowledge relate to the provision of
asset information systems to store and manage the required asset
information and the accuracy and quality of the data and knowledge
held within these systems.
Many utility and rail businesses recognised the need for better asset
information systems many years ago. Some developed in-house data-
bases and work management systems and some procured existing
third-party work management systems. Quite often, organisations
would only adopt one or two modules of these systems and would
keep some asset information in existing legacy systems. These existing
systems were often developed locally by managers or supervisors to
meet their specific needs.
Although many of these initiatives resulted in improved asset regis-
ters, they did not always deliver the expected efficiency benefits. Very
few organisations at the time recognised the importance of developing
an asset information strategy and asset knowledge standards to ensure
these systems provided the right asset information at the right quality,
at the right time, to the right people to support the organisation’s
asset management activities.
Over the years, these systems have expanded to become enterprise-
wide asset information systems, with the aim of replacing the locally
developed legacy systems. Although the IT profession has advanced
significantly over the last ten years, it has also potentially contributed
to unnecessary costs in the development and implementation of these
enterprise-wide asset information systems. IT departments tended to
lead these developments using analysts to define the requirements by
interviewing potential users.
The problem with this approach is that potential users of the system
did not really understand the requirements for these enterprise-wide
systems, as the organisation’s asset management approach was still
developing. Also, many potential users did not have an input to the
18 Asset management – Whole-life management of physical assets

requirements. In the absence of an asset information strategy, it was

difficult to articulate the requirements in a consistent and justified
manner across the organisation. The result was that new systems often
did not provide users with the asset information they needed. Therefore,
it was extremely difficult to implement them and persuade people to give
up their local systems. Charles Johnson explores this further in Chapter
6, ‘Creating an asset management culture’.
An increasing number of organisations are addressing this issue by
implementing an ‘overlay’ system that provides a standard data
dictionary and data structure but interfaces with existing legacy systems
rather than attempts to replace them immediately. These legacy systems
can then be replaced one by one in a controlled manner.
A major source of best practice guidance in this area is the 8000 series
standards currently being developed by the International Standards
Organisation (ISO) Technical Committee 184 (Industrial Data Quality).
Of particular relevance is ISO 8000-001, on data and information
quality, which is structured around the information quality management
system shown in Fig. 1.6.
The standard sets out the enterprise architecture necessary to support
asset data and information management. It is focused on the business
context of asset information systems and provides requirements for the
management of information quality that are appropriate to the business.
The standard also provides a maturity-based development path that
avoids the need to undertake a ‘big bang’ implementation of an enter-
prise-wide asset information system, thereby avoiding some of the
issues discussed above.

5.5 Organisation and people

The organisation and people aspects of asset management are about the
capability of an organisation and the individuals who work in it to effec-
tively implement all aspects of asset management. This is not about the
organisation’s roles and responsibilities or competence management
systems per se but how well these are aligned to the asset management
goals of the business.
It includes the development of asset management roles and competences
to ensure that individuals have a wider understanding of how their role
contributes to the overall asset management goals and how the activities
they are responsible for integrate with other activities in the business.
It also includes contract and supplier management in terms of how the
specification, selection, evaluation and management of the supply chain
fully support the organisation’s asset management activities.
 Section 1: Asset management in the rail and utilities sectors
Information quality management system

General requirements Management Information product realisation

responsibility
Documentation
requirements
Management Planning Purchasing of
commitment information
Control of documents Determine and review
information requirements Information production
Information and and service provision
information
management policy Design and development
for information quality Control of monitoring and
measuring methods

Resource management Responsibility authority Measurement analysis and improvement

and communication
Provision of resources
General Analysis of data

Monitoring and improvement

Human resources Management measurement
representation
Infrastructure Control of non-conforming
information products
Management review
Work environment

Fig. 1.6 Scope of ISO 8000-001. (Source: ISO/TC184/SC4/WG13/N0099)

19
20 Asset management – Whole-life management of physical assets

The IAM published the latest version of its Asset Management

Competences Framework in 2008 (IAM, 2008). This provides a basis
on which organisations can define role profiles within asset management
and assess the development needs of its people against this. Many UK
rail and utility businesses were involved in the development of this
framework, and are now starting to use it to align their existing compe-
tence frameworks around the needs of asset management.
Leadership and development of an asset management culture are
being recognised as increasingly important in helping organisations
move from a departmental view of their business towards a more
integrated view centred on asset management. Leadership skills are as
important for the middle managers of a business as they are for the
top team. As discussed earlier, asset management often starts in the
middle of a business, and it is the responsibility of middle managers to
communicate the benefits of an integrated asset management approach
both up and down the organisation.
The importance of competence, leadership and culture in developing
an effective asset management organisation is further explored by
Chris Lloyd in Chapter 7, ‘Developing the competence of asset
management staff ’, and by Charles Johnson in Chapter 6, ‘Creating
an asset management culture’.

5.6 Risk and review

Risk management techniques for quantifying individual risks have been
around for many years. Typically, they use a 5
5 matrix, where risk is
the frequency of failure multiplied by the severity of the failure. Most
utility and rail businesses in the UK have been using these techniques
for many years to quantify risk, and have tailored the frequency and
severity values to suit their particular business. Some organisations
choose to define a matrix with more rows and columns if the 5
5
matrix does not provide sufficient resolution of either frequency or
severity of failure.
Figure 1.7 shows that using a risk matrix risks fall into three regions:
. The ‘acceptable region’ where risks are accepted as being
sufficiently small or existing mitigation methods are working
effectively.
. The ‘tolerable region’ where risks should be reduced to ALARP.
This requires organisations to implement additional risk controls
where the costs of reducing the risk are not grossly dispro-
portionate to the reduction in risk exposure resulting from these
controls.
Section 1: Asset management in the rail and utilities sectors 21

In reg
to io
le n
ra
bl
To

e
le
Increasing

frequency

ra
failure

bl
e
re
gi
Ac re

on
ce gio
pt n
ab
le
Increasing
severity

Fig. 1.7 Typical risk matrix showing the three regions

. The ‘intolerable region’ where risks must be reduced regardless of

cost.
In theory, it is possible to reduce risk controls in the acceptable or
tolerable regions if the costs of the risk controls can be shown to be
grossly disproportionate to the reduction in risk exposure resulting
from that risk control. However, organisations are typically reluctant
to remove or reduce risk controls in this way, despite the potential
cost savings.
Guidance provided by UK Health and Safety Executive (HSE) states
that the term grossly disproportionate is used because ‘the Courts
(notably in Edwards v. National Coal Board (1949: 1 All ER 743) have
decided that, in judging whether duty-holders have done enough to
reduce risks, practicable measures to reduce risk can be ruled out as
not ‘‘reasonable’’ only if the sacrifice (in money, time, trouble or
otherwise termed costs) involved in taking them would be grossly
disproportionate to the risk’ (HSE, 2009).
Asset management is a holistic discipline that is concerned with
identifying the optimum blend of cost and risk over the lifecycle of the
assets. It is difficult to achieve this trade-off if safety risks cannot be
treated in the same way as cost prevention measures. For example, in
order to undertake the risk-based maintenance analysis discussed earlier,
it is necessary to be able to quantify safety risks in a way that enables
them to be compared with both business risks and the costs of
undertaking the maintenance.
Again, the HSE advises that:
22 Asset management – Whole-life management of physical assets

. There is no authoritative guidance from the courts as to what

factors should be taken into account in determining whether cost
is grossly disproportionate.
. The duty-holder needs to take account of both the level of
individual risk and the extent and severity of the consequences of
major accidents.
. For a given benefit, the higher these risks, the higher the degree of
disproportion (i.e. the ratio of costs to benefits) can be before being
judged ‘gross’.

This is an important issue that rail and utility organisations need to

consider in their risk management processes when determining how
this trade-off between cost and risk will be managed, to ensure expendi-
ture is appropriately aligned to risk.
One of the potential solutions may be to re-examine how risk is
quantified. Research undertaken in the USA by Dr Peter Sandman
has concluded that an additional outrage factor needs to be added to
the traditional calculation of risk, particularly for events that have a
high impact on members of the public (Holing, 1996). I explore this in
more detail later in Chapter 9, ‘Regulating asset management’.
A further consideration raised by the ALARP principle is the poten-
tial conflict between risk management at an asset level compared with
risk management at the system level. In certain circumstances, e.g. the
application of risk-based maintenance to a distributed set of assets, the
lowest-risk solution for the system may mean risks on certain individual
assets being increased, as limited resources are diverted to higher-risk
assets. If these individual assets are examined in isolation, the optimum
solution may not appear to be ALARP, but when looking at the overall
system of assets, the solution does appear to be ALARP. There is
currently little guidance on how to deal with this potential conflict,
and, once again, organisations need to set out their approach to
system-wide risk management within their risk management policy
and processes.
The final aspect of risk that needs to be considered as part of an
integrated asset management approach is the consideration of the
social, environmental and reputational risks associated with an organisa-
tion’s asset management activities. As with safety risk, this can be quite
challenging, as the consequences of such risks are sometimes difficult to
quantify. Despite these difficulties, many organisations in the rail and
utility sectors are now starting to develop techniques for quantifying
these types of risk in response to challenges from their customers and
regulators.
Section 1: Asset management in the rail and utilities sectors 23

Some of the more mature organisations in the utility sector are now
including the risk consequences of different expenditure options in
their business case submissions. This enables a more balanced case to
be presented to internal and external stakeholders by seeking approval
for the level of risk as well as the expenditure. It can also help in under-
standing how well investment in assets aligns with the risks the organisa-
tion is exposed to from those assets. Some organisations have gone
further than this and set delegated authority levels for risk. British
Energy, the operator of the UK’s nuclear power stations, is one such
organisation that has adopted this approach (Kohler, 2009).
Review and audit is the final area of asset management to be
discussed. This includes the processes necessary to:
. provide assurances to stakeholders that activities are being under-
taken in line with standards and procedures
. measure the organisation’s performance against its objectives and
to identify opportunities for greater efficiencies.
Review and audit is an area of asset management that is fairly well
established in the rail and utility sectors, due in no small part to the
focus on safety assurance over many years. The challenge now for orga-
nisations is to ensure review processes, key performance indicators and
audit programmes are all aligned with the asset management objectives
of the business.
The supermarket chain Tesco is frequently referred to as operating
good practice in the area of performance management. Its ‘steering
wheel’ is based on the teachings of Robert Kaplan of Harvard Business
School, inventor of the balanced scorecard and the approach Tesco has
taken is directly transferable to rail and utility businesses (Tesco, 2008).
Putting Kaplan’s teaching into practice, the Tesco ‘steering wheel’
emphasises parts of the business that do not figure in traditional perfor-
mance measures, such as corporate responsibility, employee trust and
customer relations, but are all important objectives to the business.
The ‘steering wheel’ also provides a useful metaphor for a tool intended
to drive performance of the business and help employees navigate into
the future.
The ‘steering wheel’ divides the business into five different sections –
customer, community, operations, people and finance. Each of these are
monitored by managers using a traffic light system, where green indicates
that targets are being met and red flags up a problem. Each Tesco store
has its own individual ‘steering wheel’. Performance is reported quarterly
to the board, and a summary is sent to the top 2000 managers in the
company to cascade onto staff. This has proven to be an effective way
24 Asset management – Whole-life management of physical assets

of linking strategy to day-to-day work, and emphasises that there is more

to running a business than financial metrics.
The real value of this approach is twofold. Firstly, the measures are
‘outcome oriented’, in that they are focused on issues that matter to
customers and other stakeholders. Penny Burns examines the impor-
tance of asset management measures being focused on outcomes and
not internal measures in Chapter 5, ‘Asset management strategy: leader-
ship and decision-making’. Secondly, the measures are easy to under-
stand by everyone within the business. Example measures on the
‘steering wheel’ include ‘the aisles are clear’ and ‘be responsible and
honest’, which all employees and customers can clearly understand
and contribute to.
Although Tesco is a retail business, there are many lessons that rail
and utility businesses could learn from its approach to incentivising
and measuring the success of their businesses.

6 Conclusions
This chapter has introduced the subject of asset management and has
explored the development of asset management within the rail and utility
sectors over the last 15 years.
Asset management can be described in many ways, but one of the
more helpful ways is to describe it as comprising six key areas: strategy
and planning; whole-life cost justification; lifecycle delivery; asset knowl-
edge; organisation and people; and risk and review. Many aspects of
asset management within these six areas are not new: it is the integration
of these activities that delivers the asset management benefits that many
businesses are looking to achieve.
Organisations in the rail and utility sectors have made good progress
in developing their asset management capabilities in response to pressure
from customers, shareholders and regulators to identify ways of sustain-
ably delivering their services more efficiently. However, even those
organisations that have developed asset management the furthest
would acknowledge that there are many more challenges ahead to
better integrate and optimise asset management across their businesses.
These challenges are numerous, and some organisations have already
started addressing them, but, in my view, the more significant ones for
rail and utility businesses are:
. Development of more mature risk management processes to ensure
that (1) all risks, including reputational, environmental, social and
safety risks, are fully quantified using the same basis as technical
Section 1: Asset management in the rail and utilities sectors 25

risks – this is an aspiration that John Woodhouse picks out for

special mention in Chapter 10, ‘Asset management: the way
forward’; (2) risks are integrated in decision-making processes to
ensure an appropriate analysis of the trade-off between costs and
risk is undertaken; and (3) quantified risk profiles are produced
as part of the strategic planning process and are documented in
an AMP alongside cost profiles.
. Better linkages between strategic asset management processes and
the business drivers that influence the environment an organisation
is operating within. This will require work volumes and costs
within an AMP to be linked to required outputs or level of service,
cash flow predictions, funding and debt requirements, risk profiles,
and impact on the environment and society. This will allow more
flexible planning and the ability to quickly develop different
scenarios to reflect changes in these business drivers, for example
the difficulty in raising money during an economic downturn.
. To support the above, development of more transparent whole-life
cost analysis processes and models to produce work volumes,
expenditure, risk profiles and expected outputs that can be fully
justified to customers, regulators and investors. These processes
and models will need to link the ‘top-down’ strategic planning
processes with the ‘bottom-up’ work management processes, to
ensure strategic plans can be validated and continuously improved.
Where high levels of uncertainty exist, this uncertainty will need to
be modelled to determine the level of confidence stakeholders can
have in the organisation’s AMP.
. Incorporation of the risks associated with climate change and
changing weather patterns into business planning and risk
management processes. Consideration will also need to be given
to developing processes to specify and deliver appropriate levels
of asset resilience, including independencies between the assets of
different organisations. This subject is discussed in depth by
Ralph Raynor in Chapter 8, ‘Incorporating climate change
within asset management’.
. Better integration of asset information with the overall asset
management strategy of a business. This will need to include
analysis of the importance of asset information to the business and
the lifecycle costs of collecting and maintaining asset knowledge.
Asset knowledge standards will need to be defined that define the
completeness and accuracy requirements for different types of
asset information based on a trade-off between the costs of the
information and the critically of the information to the business.
26 Asset management – Whole-life management of physical assets

. Further development of asset management competences at all

levels of an organisation, including appropriate training and
development. Specific asset management competences and objec-
tives will need to be included in roles and responsibilities to
incentivise the ‘line of sight’ between the objectives of individuals
and teams and the asset management objectives of the organisa-
tion. This subject is discussed in depth by Chris Lloyd in Chapter
7, ‘Developing the competence of asset management staff ’ and
Steve Male identifies it as a key requirement of the informed
client interface in Chapter 3, ‘The challenges facing public sector
asset management’.
. Development of the business case for organisations to continue to
develop their asset management capabilities beyond the require-
ments of BSI PAS 55. This will need to define capability targets
for each aspect of asset management that are appropriate for
each individual business over specified timeframes. This subject is
discussed further by Martin Pilling in Chapter 4, ‘Beyond BSI
PAS 55 compliance’.

References
BSI 2008. PAS 55: 2008: The Specification for the Optimized Management of
Physical Assets, Parts 1 and 2. British Standards Institute, London.
EFNMS 2009. Definition of Asset Management, European Federation of
National Maintenance Societies, General Assembly Meeting, Trondheim.
Holing, D. 1996. It’s the Outrage Stupid. Dwight Holing, San Francisco.
HSE 2009. HSE Principles for Cost Benefit Analysis in support of ALARP
decisions. Health and Safety Executive, London.
IAM 2008. Asset Management Competences Framework. Institute of Asset
Management, London.
IET 2008. Optimising Capital Maintenance Planning in Three Valleys Water using
CMPT. Submission to the IET Asset Management Innovation Award,
Stevenage.
Kohler, V. 2009. British Energy – Keynote Speech. Institute of Asset Manage-
ment Annual Members Conference, Warwick University.
Ofgem 2006. Ofgem letter to network companies: BSI PAS 55 Certification and
the Stakeholder Working Party, London.
Tesco 2008. Annual Review and Summary Financial Statements 2008. Tesco plc,
Dundee.
UKWIR 2002. A Common Framework for Capital Maintenance Planning. UK
Water Industry Research, London.
2 Asset management in the oil and gas,
process and manufacturing sectors
John Woodhouse Managing Director TWPL and Chair of Faculty, Institute
of Asset Management

The European North Sea oil and gas sector was one of the first to explore
and develop a more integrated approach to asset management – with
spectacular results. This chapter outlines some of the key learning points and
business templates that have emerged. It also covers some of the component
methods that have been widely adopted in the process and manufacturing
sectors to improve asset systems performance, reliability and whole-life costs.

1 Introduction
Integrated, whole-life optimised asset management, as described in BSI
PAS 55 (BSI, 2008), has been developed in various guises, to various
degrees of success and maturity, and in several process and manufac-
turing industries. Most notable, however, has been the oil and gas
exploration and production sector, where much of the modern thinking
on the subject was developed in the first place, which is reflected in the
content and structure of BSI PAS 55. Accordingly, this chapter focuses
primarily on the best practices and experiences gained in this industry
and now adopted much more widely.
What is perhaps strange, given the common oil company parentage in
several cases, is that the ‘downstream’ oil industry, which is concerned
with refining and chemicals, has been among the slower sectors to
absorb the lessons and achieve the substantial performance gains that
are increasingly proven to be available. Similarly, whereas many
manufacturing industries have adopted a number of component
methodologies and good practices, such as lean, total quality manage-
ment (TQM)/Six-Sigma and total productive maintenance, they often
lack the overarching model or structure to connect corporate long-
term value strategies with day-to-day issues, actions and priorities.
Toyota, for example, is deservedly famous for leading the innovation
of good practices in quality management, value focus and workforce
team-working. General Electric, Motorola, DuPont and others have
also developed, derived or repackaged variants of such tools and
approaches.
Asset management – Whole-life management of physical assets
978-0-7277-3653-6
28 Asset management – Whole-life management of physical assets

Sadly, however, the implementation records in other process and

manufacturing sites are littered with temporary enthusiasms, partial
‘solutions’, unfulfilled initiatives and the overselling of confusing
acronyms and methodologies. This is, at least partly, due to very tight
commercial margins and volatility of the businesses, causing short-
termism and a reactive habit. It is sometimes compounded by high
management turnover, with each manager needing to make his or her
mark in a short window of opportunity. People find themselves too
busy fighting the crocodiles to have time to plan and drain the whole
swamp. The good examples of strategic asset management thinking,
therefore, stand out particularly strongly. Later in this chapter, I
summarise some of these cases – and the methods that have proven
particularly effective when correctly targeted and implemented.

2 Asset management in the oil and gas sector

Many of the core principles of integrated, lifecycle and optimised
physical asset management evolved in the North Sea oil and gas industry
during the 1980s and 1990s. The asset management business model, and
its wide-reaching implications and benefits, emerged from a concen-
trated series of events in the 1980s that threatened the very survival of
the industry. Oil prices crashed below the costs of production, the
‘easy’ oil started to run out, and new reserves were found in lower cost
regions of the globe such as Kazakhstan and south China. Finally, on
top of the commercially life-threatening financial and technological
challenges, the Piper Alpha disaster occurred, killing 167 people in an
horrific example of several relatively minor individual incidents that
combined to escalate into a major catastrophic event. The subsequent
Cullen Enquiry (Cullen, 1990) is credited with being a major contributor
to the modern approach to asset risk management, now incorporated
into the UK Control of Major Accidents and Hazards (COMAH)
legislation (HSE, 1999).
In addressing the underlying financial and performance issues, BP
and Shell both observed that, despite their extensive technical capa-
bilities and presumed economies of scale, the smaller production
companies, such as Hamilton Brothers, were delivering much better
production margins and were able to exploit innovations and custom-
ised solutions much faster. So the BP MAST experiment was born –
the ‘Mature ASsets Team’ (Leggate et al., 1995). This was a cross-
disciplinary group given sole and complete responsibility for
maximising the residual value for some declining reservoirs and their
Section 1: Asset management in the oil and gas 29

associated production infrastructure. Subject only to the obvious

compliance requirements with legal and corporate regulations, the
team had complete freedom to determine what was worth spending,
who, if anybody, to employ to do what, and how to operate the
systems. They were measured by their net contribution to the bottom
line (NPV) over the whole remaining life of the ‘asset’. This experiment
– basically unrestricted permission to use common sense, lateral
thinking and fast decision-making/action – was such a success that the
model was adapted and adopted across all BP exploration and produc-
tion facilities around the world (www.uniquesolutions.co.uk/
bp-exploration). BP has moved from being a middle-ranking performer
in the North Sea, with unit production costs of around $15/barrel, to a
world-beater, producing oil from deeper water and more complex
reservoirs, and under tighter safety and environmental controls, for just
$2/barrel.
Shell came to similar conclusions about the need for small, tightly
integrated, cross-functional teams given much greater freedom to
optimise value for money at the level of discrete production facilities,
i.e. platforms and associated infrastructure. The resulting radical
improvements in performance confirmed that the approach represented
a valuable template for good lifecycle asset management. In the space of
just 4 years, for example, the Dunlin Alpha platform raised production
levels by 17%, at the same time as reducing total operating costs by 50%
and improving all safety and integrity measures, and winning a UK
‘Investors in People’ award (T. Brown, Former Asset Manager,
Dunlin Alpha, personal correspondence).
Such a business model, however, is really a manifestation of good
business practices devolved down to specific systems, production units
and/or physical installations – effectively creating the dynamic, opportu-
nistic culture of a small business within the power, resources and leverage
of a larger one. This is quite easy to visualise, but extremely hard to
establish. In both the BP and Shell cases, and other companies rapidly
imitating them, the gains required some radical changes to culture,
business processes, roles and authorities, decision-making, performance
measures and risk management. Shell was particularly good at
documenting the resulting learning points, creating a template of ‘best
practices’, which centred on the construction of an asset reference plan
(ARP) for each viable business unit ‘asset’. To this day, this is one of
the best checklists around for establishing and maintaining a joined-up
view of risk-based, whole-life optimised management of a complex
asset system, and is, therefore, described in more detail later in this
chapter.
30 Asset management – Whole-life management of physical assets

3 An asset management business model

3.1 Definition of the ‘asset’
As subsequently reflected in BSI PAS 55, physical equipment assets are
only part of the functional systems that deliver an organisation’s goals.
To optimise total value to the business, it is these complex systems that
must work cost-effectively: it is no good designing a chain with some
links made of titanium and others of paper. To run a successful oil
and gas business, an oil reservoir must be found or acquired and
developed, extraction facilities such as platforms constructed, operated,
maintained and ultimately decommissioned, and a wide range of services
obtained (e.g. helicopter transport, catering, IT, telecoms, materials
purchasing, recruitment and training). These require physical infrastruc-
ture, of course, but also a wide mix of personnel, data and knowledge,
licenses, supply-chain relationships and logistics systems. A North Sea
asset, to be managed as a viable business contributor, therefore,
comprises the best combination of dedicated elements that enable
maximum lifecycle value to be obtained for the whole system. It was
also found that, to clearly allocate costs and resources in relation to
the resulting outputs, the asset boundaries needed to be as clear as
possible. This usually corresponded to the treatment of each discrete
oil or gas reservoir, with its associated production infrastructure and
operating staff, as an ‘asset business unit’, albeit a very complex one,
with lots of very different component subsystems and equipment types.
A typical North Sea production asset includes:
. a mining operation
. an oil and gas separation and processing facility
. a gas-treatment unit
. a water-treatment plant
. a compression/pumping station
. a power station
. a ship harbour
. a communications centre
. a heliport
. a hotel
. a workshop and store
. a clinic
. an emergency control centre.
Such a diversity of component asset and system types, operational
processes, people and skill requirements comprise the dedicated asset
resources, the cost of which is fully attributed to the asset as a business
Section 1: Asset management in the oil and gas 31

unit. Similarly, it is the net total output of all these systems and processes
working together that represents the asset’s performance.
Intermittently required resources and functional services that could be
shared between two or more asset business units were treated as external
and discretionary – the asset manager holds the purse strings and deter-
mines if, what and when such resources were worth paying-for. Corporate
functions and departments, therefore, lost their budgets altogether. The
UK Human Resources Director, for example, needed to ‘sell’ the
value-adding services that his team could provide to the various asset
‘customers’. Like TQM methodologies, this power shift forced a better
focus on real requirements, sensitive to the individual assets and their
different needs or opportunities. Overheads like these were forced to
demonstrate positive value-for-money contributions compared to the
obtaining of such services from the open market, and asset managers
were free to choose the best-value option. In a large organisation, this
represented a major culture shock, and a 1808 reversal of the traditional
‘command and control’ style, whereby human resources, information
technology or finance departments forced generic policies or methods
onto everyone, irrespective of local suitability or needs.
Subsequent maturing of understanding has led to this extreme model
being adapted somewhat; now, some power and budget is still held by
corporate/centralised functions to ensure the spreading of best practices
or the adoption of processes that rely heavily on interasset alignment,
such as performance measures, data standards, recruitment and educa-
tion requirements. Such centralised resources or services, however, still
have to demonstrate net positive value compared to alternatives – such
as outsourcing – and that the advantages of adopting a common process
outweigh the local opportunity variations of individual assets. Neverthe-
less, the organisational earthquakes resulting from the initial total
transfer of budgets and decision-making to the discrete asset manage-
ment teams was a key factor in shaking up old habits, challenging/
terminating low-value activities and focusing on what is really worth-
while. It helped to break the cycle of just chasing efficiency gains from
‘doing the same thing quicker or cheaper’, and forced a first-principles
consideration of what was worth doing in the first place. In Chapter 5,
‘Asset management strategy: leadership and decision-making’, Penny
Burns explores further this important shift in perspective.

3.2 The asset manager

Just like a whole organisation ‘asset’, where the Chief Executive is an
‘asset manager’ charged with optimising inputs (e.g. expenditures),
32 Asset management – Whole-life management of physical assets

outputs (e.g. production), service and safety, and sustainability, each

North Sea business unit asset required a specific individual with personal
accountability for all costs and resulting outputs over the economic life-
span of the asset. This single point of accountability proved to be a vital
part of the business model. It involved equipping a specific person with
the freedom to optimise the mix of capital investment, operating
expenditures, short- and long-term production benefits, and compliance
and risk management, but in return for accountability for the net value
of doing so. Clearly, such a critical role required not only detailed asset
knowledge of all systems and subsystems, but also commercial acumen,
leadership skills, communication skills and risk-management skills.
Given the strong engineering/technology and financial/management
polarisation of traditional recruitment, education and career paths,
however, the required cross-section of skills in one person was not
common. BP identified 20 natural asset units in the UK Continental
Shelf (UKCS) portfolio, but only 13 individuals with the requisite
range of skills to become the mini-business CEOs or asset managers
needed to lead them. Accordingly, smaller assets were originally bundled
to construct just 13 assets until such time as additional multi-skilled asset
managers were developed. As a matter of note, this recognition of
requirements in BP also yielded a valuable succession planning process
that was not adequately established in Shell. So, as the Shell multi-skilled
asset managers have moved on – upwards, internationally or outwards
through retirement – their exploration and production business model
in the North Sea has slipped back to a more functionally isolated and
cost-focused style. In Chapter 7, ‘Developing the competence of asset
management staff ’, Chris Lloyd examines how competence management
can contribute to an enduring asset management strategy.

3.3 The asset management team

As described above, the team leader or asset manager must have clear,
single-point accountability for the capital and operating expenditures
and for the performance results for the asset. He or she holds the
formal, signed mandate that defines the decision freedoms and
constraints, asset management objectives and responsibilities for
managing the asset as a mini-business.
The asset manager is supported by the heads and/or nominated
representatives of each function or department. For a North Sea asset,
this would include:
. production
. reservoir development and geology
Section 1: Asset management in the oil and gas 33

. drilling
. infrastructure
. maintenance
. human resources
. contracts and procurement
. energy
. transport
. finance
. other focal-point personnel who are responsible for any critical
external service providers.

The asset management team is a cross-disciplinary management group,

with shared responsibility for assisting the asset manager in the
optimisation and delivery of the ARP. They work with an overall asset
‘dashboard’, or similar performance scorecard, and have an obligation
to seek the best overall value or asset performance, irrespective of
localised or departmental vested interests.

3.4 The asset reference plan (ARP)

The ARP, or whole-life asset management plan, is a cross-functional,
integrated picture that considers long-term and short-term issues and
opportunities, and how they impact performance, cash flow, resources
and profitability of the asset and its support activities and stakeholders.
Strengths, weaknesses, threats and opportunities (SWOT) that can affect
the asset during its operational life are systematically considered and
managed. The ARP provides a shared and consistent basis for quanti-
fying and optimising activities for best net value to the asset owner or
parent organisation.
The ARP contains key information such as the asset strategy, base
case plan, end of field (economic) life predictions and, most importantly,
references to more detailed information sources such as the production
forecasts, resource requirement assumptions, services dependency
forecasts, SWOT analyses and sensitivities to possible changes. The
ARP also documents the main assumptions and uncertainties, and
summarises the growth and development opportunities for an asset
business unit. In short, it is the ‘single source of truth’ that represents
the collective understanding of what the asset is, what should be done
to maximise its whole-life value for money and how this maximised
value will be assured.
An ARP is the binding document that translates corporate objectives
into asset-specific realities, opportunities and plans. It covers:
34 Asset management – Whole-life management of physical assets

. clarifying the nature, boundaries and characteristics of the

asset
. developing and defining the whole-life asset management strategy
. long-term exploitation and production planning, i.e. the asset
utilisation view
. integration of planned actions, responsibilities, assumptions
and uncertainties, including the asset investment and asset care/
maintenance views
. identifying growth opportunities, and risks, and how they will be
managed, i.e. projects, innovations, contingency planning and
alternative scenarios
. understanding and optimising the lifecycle costs and production
values associated with these activities and opportunities, i.e. the
net value-for-money view.

It is used to:
. define the boundaries of the asset at which cashflows and all
aspects of performance are measured
. provide a clear management mandate, e.g. the responsibilities,
‘ownership’ and limits of decision-making within the asset
. professionalise asset planning, subsurface studies, facilities design
and equipment selection by providing for better cost estimation,
forecasting and ‘what if ’ scenarios
. integrate all process and functional strategies into a single picture,
including key external dependencies on service providers
. integrate the management team and functional contributions – all
commit to a single shared purpose rather than often conflicting
departmental goals
. continuously assess key event dates and critical decision points in
the development projects and operation and abandonment stages
of the asset lifecycle, i.e. the manifestation of real continuous
improvement, including records of why things are being done.

As shown in Fig. 2.1, the content of an ARP evolves over time, from
the initial design stage, with all its assumptions and uncertainties, to
infrastructure construction and commissioning, steady-state operations
and ultimate decline, including any life extensions, reusage and/or
abandonment. Nevertheless, this ‘live’ document acts as a maintained
central register of the knowledge, assumptions and plans for the
asset, pooling the contributions of all relevant parties and functional
disciplines. Success in any one area of activity is only measured in
terms of the net impact on the total picture.
 Section 1: Asset management in the oil and gas
Development (typically 1–3 years) Operation (10–50 years) Abandon

Explore Identify Define Execute Produce Decommission

DSN Project
initiation
note SWOT Asset
Option strategy
selection report
ABCM
Field Basis Key events
development for plan
plan design
Development
Process Asset
economics
strategies mandate

Operations Project
studies specification SWOT

EOFL
prediction ABCM

Decommissioning

Growth Production
opportunities forecast

Fig. 2.1 Evolution of an ARP during asset lifecycle stages

35
36 Asset management – Whole-life management of physical assets

3.5 Questions that an ARP needs to answer

The ARP must contain a clear description of the asset and its character-
istics, including strengths, weaknesses, opportunities and threats, the
strategic development and production plan, the key events, risks and
assumptions or uncertainties, and the component resources and func-
tional activity plans. It is, as previously described, the asset management
‘single source of truth’, and should answer the following vital questions
about the asset:
. What is it, and what condition is it in today?
. Where are we going with it? For example, commitments, strategies,
objectives, challenges.
. Why are we going with it? For example, corporate business
drivers and policies, asset strengths, weaknesses, opportunities,
threats.
. What needs doing, by who and when? That is, lifecycle plans.
. What value will this generate? For example, economic and other
stakeholder perspectives/views, such as safety, customer satisfac-
tion, compliance, reputation, etc.
. What are the alternative options, risks and contingency plans?
These elements map very closely onto the requirements that have been
incorporated in BSI PAS 55, and also align with the elements of asset
management documentation that have since emerged in other industry
sectors.

3.6 What goes into an ARP?

One of the important learning points from the oil and gas asset manage-
ment experience is that the process of creating an ARP is itself a valuable
catalyst for considerations of necessary changes in organisation focus
and behaviour. For example, long-term consideration of resourcing,
investments and cost-effectiveness is forced by the need to construct a
whole-life production (asset utilisation), financial and ‘economic-life’
view of the asset. All relevant activities, assumptions and cost elements,
such as engineering design, operating scope, financial values, mainte-
nance requirements, logistics, contractors and materials assumptions,
are needed to construct such a jigsaw puzzle. All parties can then see
the whole picture, as shown in Fig. 2.2.
Once a full picture is assembled and uncertainties, and risk elements
have been recognised, immediate priorities can be decided and
long-term plans can be made to ensure best-value delivery. So, for
example:
Section 1: Asset management in the oil and gas 37

. capital investment requirements can be prioritised and justified

with greater credibility and relevance
. human resource requirements can be met with adequate recruit-
ment, training and development lead-times
. physical infrastructure, equipment and facilities can be developed,
operated and maintained in line with the whole-life business values
. future technology developments can be identified, explored and
exploited more flexibly
. new legal requirements, concession/license changes and other
constraints can be identified and mitigated more readily
. information and data requirements can be specified more
appropriately in relation to identified needs (e.g. performance
criteria or key uncertainties/vulnerabilities).
The ARP provides a consolidated view of the asset current status and
future plans at a specific moment in time. It cannot hold, of course, all
the detail about all the activities – if it did, it would become totally
unwieldy, unreadable and constantly out of date. This means that a
distilled summary of each contribution is needed at the ‘total picture’
level, creating a good and useful discipline for each contributor, to
encourage clear explanation of what is needed in each area, why and

Other parties
Production and planning Government Logistics
Hydrocarbon register departments Contracts
Production reports Unions Purchasing
Modelling tools Contractors Transport
Business reviews Land owners Service agreements

Operations
Field activities Maintenance
Treatment plants Equipment register
Oil production Maintenance systems
Gas production Asset Maintenance management
Inspection schedules
reference Performance monitoring
plan Plant availability
Engineering
Infrastructure
(ARP)
Projects Legal
Power supply Concessions
New installations Licences
Compliance

Development
Reservoir models Human resources
Production forecasts Manpower requirements HSE
Technology plans Competency registers Legislation
Development Skills registers Standards
Drilling schedules Employment practices Monitoring reporting
Retention strategies

Fig. 2.2 Inputs to the ARP come from nearly all areas of the business
38 Asset management – Whole-life management of physical assets

when, and with what likely or possible outcomes and risks. Again, the
collective creation of an ARP acts as a valuable catalyst to improve
individual competencies and team-working. It encourages all to think
and present their proposals in more businesslike terms and to communi-
cate in a language that others can understand.
Because the information in each area is being updated continuously,
the ‘latest view’ ARP still needs to be frozen at specified points so that
corresponding assumptions can be made, net value and logic can be
checked, and resource implications, costs and plans developed or adjusted.
For example, the production potential for a new reservoir, including 10%/
50%/90% confidence bands, must be agreed before the facilities require-
ments, drilling plans and human resources can be developed accordingly.
Subsequent emergence of a new drilling technology, or changing environ-
mental constraints, would change these assumptions, so the ARP content
will need to be reconsidered and updated – possibly in all respects. For an
oil and gas company, this involves a review of the ARP at least annually
plus, of course, following any significant external event. Other sectors
would need to update their asset management strategies and plans on
different cycles or ‘triggers’, depending on the stability of the embedded
assumptions and the external business influences.

3.7 ARP development process

The development of a first ARP is very challenging, particularly in an orga-
nisation used to working in rigid silos. These may be functional silos, such
as ‘operation’, ‘maintenance’ and ‘inspection’, or asset-type silos, such as
‘instruments’, ‘telecoms’ or ‘civils’. In such environments, staff are often
not familiar with cross-functional working, long-term thinking or business
value language. In the oil and gas sector, and subsequently in other
industries, it has been found that resistance can be reduced, and confidence
built, by breaking down the development into carefully planned, simple
steps, with good programme management and leadership, and allowing
enough time for the development of understanding and ‘ownership’
among the contributors. In particular, the first phase, usually an intensive
training workshop and coaching period (Fig. 2.3), should involve all key
personnel who will be involved in developing the ARP and who will
work together in the future to optimise the whole-life performance and
value of the asset. Thereafter, the work comprises a mix of parallel activ-
ities – with each activity assembling, filtering and clarifying its contribution
to the total picture – and team-based explanation, integration, alignment
and iterative ‘what if ?’ consideration of alternatives, barriers, implications
and contingency plans.
 Section 1: Asset management in the oil and gas
Corporate New corporate
vision initiatives,
mission concessions, Corporate
values and exploration support and service Other asset
strategy plans departments plans and alignments

Team values,
principles,
Corporate behaviours

Integration and optimisation checks

Key Feed back to
strategic Asset long-term
Stakeholder and events corporate
plan strategy
communication plan strategic plan
plans

Asset Risk Draft Final

SWOT register
Base case ARP ARP
production and
development Scenarios Costs
Asset Implementation
plans (area) and sensitivity and NPV
mandate and business
testing forecasts
and improvements
Corporate scorecard • Short term
policies, Function and Function • Long term
suppliers, Resource
services SWOTs
HR, IT requirements
dependencies and plans
and finance
functions

Initial team Assigned Full ARP team Peer and expert

training and teams work consolidation reviews
workshops

Fig. 2.3 Development steps in building an ARP

39
40 Asset management – Whole-life management of physical assets

3.8 ARP base case, and risks and uncertainties

The ARP base case should describe the current state of the asset and
future ‘most likely’ development plans, including only the production
and development/cost assumptions that have reasonable expectations
of success or occurrence. In oil and gas terms, this is described as P50,
which represents a 50% probability of achievement. This represents
the baseline against which future developments, innovations and
improvement options can be tested for incremental value. The combina-
tion of such potential ‘stretch’ improvements comprises the ‘optimistic’
case, e.g. P10 – a 10% chance of achievement. Conversely, any threats,
vulnerabilities or uncertainties about the achievement of the baseline
plan are regarded as risks, which need to be managed, including preven-
tion, mitigation and contingency plans. The P90 (90% confidence of
delivery) represents the ‘worst-case’ scenario, assuming such risks and
problems are encountered. Figure 2.4 shows a typical production
forecast example, and similar graphics might be used for the capital
investment programme, various operating expenditures, human resource
requirements and other dimensions of the ARP – provided that the
assumptions are pooled and aligned, i.e. the base case expenditures,
resources and production/performance assumptions work together and
similar logic applies to the scope of improvement opportunities and to
the identified risks.
Finally, based on many cycles of developing such a cohesive,
asset-centric view of strategic plans, a key requirement of the ARP
development process has proven to be the understanding and agreement
of what is included in a credible base case. It is imperative that, in
compiling the base case, only realistic and approved development

14
Product: million of barrels/year

Optimistic case
12 Most likely (P50)
Worst case
10
8 Opportunities
6
Risks
4

2
0
07

08

09

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25
20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

Year

Fig. 2.4 Asset lifecycle performance forecasts. (Reproduced by permission of

TWPL)
Section 1: Asset management in the oil and gas 41

assumptions are included and ‘most likely’ costs estimated. ARP teams
should not include immature proposals, which may have a low
probability of success, or resource requirements/budgets that include
contingencies and spare capacity. Such project proposals or budget
contingencies should always be handled as possible variants from the
base case, either as improvement opportunities with their individual
cost/benefit/risk appraisals, or as identified risks with appropriate
probability and severity consideration and prevention, mitigation and
contingency justifications.

4 Methods used in manufacturing, process and mining

sectors
In manufacturing, pharmaceutical, mining and other industries, the
term asset management is still strongly associated with equipment
maintenance or asset care. There are some excellent examples of cross-
functional team-working, risk-based thinking and operational reliability
and sustainability initiatives, but they tend to be discrete initiatives to
address perceived performance problems, and do not have an over-
arching philosophy other than the desire to maximise profit margins
within constraints. Despite this susceptibility to short-termism and
‘temporary enthusiasms’, there are some undoubtedly valuable lessons
and transferable good practices to be found in these sectors. The
following methodologies are, for example, increasingly recognised to
be part of the asset management tool kit, albeit sometimes misapplied
or poorly implemented.

4.1 Lifecycle costing (LCC)

The quantification of whole-asset lifetime costs, usually in the procure-
ment phase, has a confused history of occasional spectacular success
and fairly frequent lip-service-only adherence. We are all aware of the
risks of purchasing the initially ‘cheap’ option and then paying high
operating costs thereafter; ink-jet printers, mobile telephones are often
sold on this basis, reflecting the profit margins available from the sale
of consumables and airtime compared to the production costs of the
‘hook’ equipment. Similar ratios are found in industrial equipment
also – a Boeing 747 jet, for example, costs around $100 million to
purchase, but this only represents about 5% of the full ‘costs of owner-
ship’ during its economic life. ‘False economy’ decisions in the capital
42 Asset management – Whole-life management of physical assets

projects environment are, therefore, common: it might seem attractive to

shave 5% of the purchase price (it seems a big saving) but, if it results in
just 1% per year ongoing operating costs, this can be an expensive
option, even when we consider the deferred cashflow of the later costs
compared to the ‘up-front’ expenditure.
As Richard Edwards discusses in his Chapter 1, ‘Asset management in
the rail and utilities sectors’, the business discipline of making decisions
based on whole lifecycle cost is often eroded by affordability constraints,
short-termism in performance measures (e.g. capital projects to be
delivered on-time and on-budget) and conflicting vested interests (e.g.
purchasing expenditures incurred by one department, operating costs
by another). There is also the significant matter of how to include a
‘cost’ element to represent asset reliability or performance. Many defini-
tions of lifecycle cost include only capital expenditures and through-life
operating costs (e.g. energy, consumables, maintenance), ignoring the
impact of functional inadequacies, downtime and inefficiency, which
may differ significantly between acquisition options. Some organisations
try to mitigate this by specifying a required minimum service level or
availability, which does at least level the playing field a bit. However,
this method can also distort the picture, as the differences in perfor-
mance-for-price can be crucial considerations in the value-for-money
decision (e.g. an 80% solution for 20% of the price might be an
acceptable compromise, or a 110% solution might be worth the
premium cost).
The longest standing formal adoption of the principles of whole-life
costing (a term used interchangeably with LCC) has been in the defence
sector – with military procurement ostensibly based on the lifecycle cost
of ownership rather than just the ‘cheapest purchase price’ option. In the
early 1970s, the US Department of Defence MIL STD 1388 for Logistics
Support Analysis (since replaced by HDBK 502) introduced a require-
ment for operating costs to be incorporated in acquisition decisions.
The UK MOD standard (Def Stan 00-60) has gone further, specifying
that ‘The supportability of design options shall be assessed and
influenced, and the whole life-cycle cost shall be balanced against
performance in identifying the optimum support solution’. This recog-
nises the need to consider value-for-money differences that incorporate
performance attributes, but it fails to go as far as clarifying that
identifying the ‘optimum solution’ is not a ‘balancing’ act, i.e. seeking
an equality of significance. It should be the summation of actual costs
and lost opportunity costs, owing to performance inadequacies, risks,
etc., and we are seeking the best-value combination or total business
impact (BSI PAS 55:2008) over the asset life.
Section 1: Asset management in the oil and gas 43

The adoption of LCC in other sectors has been selective at best –

usually involving some pragmatic compromises, such as predetermining
a constant assumed or required ‘life’ to compare different options
(whereas a common difference between an expensive option and a
cheaper alternative is the longevity achieved). Again, the North Sea oil
and gas sector has done some interesting work in the field, with a
‘Joint Industry Project’ during the 1990s that involved over 20 operators,
constructors and major equipment vendors in developing a checklist and
guidance documentation for major project whole-life costing. The results
of this are now embodied in ISO 15663. Application of these principles
in, for example, the BP Andrew platform is claimed to have achieved
approximately 30% savings in the total costs of ownership. Nevertheless,
despite the very large number of organisations professing to support and
apply LCC principles, relatively few can stand up and demonstrate a
systematic implementation in their procurement processes or capital
investment projects.

4.2 Reliability centred maintenance (RCM)

Reliability centred maintenance (RCM) was originally developed in the
USA civil airline industry and provides some logic ‘rules’ for determining
what type of maintenance strategy is appropriate for different com-
binations of component failure mechanisms and consequences. Credited
with a ten-fold improvement in aircraft reliability, it is also particularly
suited to complex process or manufacturing plant, where there are many
potential failure modes to be considered. It provides a structured
method, using seven key questions, to consider equipment functions,
potential losses of function through failures, and their consequences
and any warning signs. In this stage, it is much like the long-established
disciplines of failure modes and effects analysis (FMEA), with some
additional consideration of the equipment’s function in the first place
(ATA, 1980). In the RCM process, however, a decision tree is used to
select appropriate predictive, preventive, detective and mitigation
actions. This decision tree has evolved over the years and, although
the JAE 1011 standard produced by the automotive industry is the
best known, some of the industry variants have added steps and options
that were not so commonly encountered in the aircraft environment,
such as lubrication or painting options to extend equipment/component
life.
The rigorous RCM process requires a multidisciplinary team to look
at the very large number of components and their failure modes, so it is
very labour intensive. As a result, many RCM implementation
44 Asset management – Whole-life management of physical assets

programmes in manufacturing and process environments during the

1980s and 1990s ran out of steam and failed to deliver the promised
benefits. More mature understanding in the last decade has led to
much more selective use of the method, using a criticality analysis of
assets and their functions to determine which systems should be studied
in the first place and to what level of detail.
There is also plenty of debate on the various flavours of RCM that
have emerged, particularly in the validity of ‘streamlining’ or reversing
the process (i.e. starting with existing maintenance tasks, and challen-
ging their rationale by looking for failure modes that might justify
them). Defendants of the traditional approach argue that such short
cuts introduce risks of oversight, allowing potentially significant failure
modes to go unanalysed, and indeed some streamlining methods sacri-
fice integrity for cost and time savings. Criticality-selective studies,
however, are widely regarded as necessary, and my own observation,
based on a sample of about 75 implementation programmes, is that
full RCM rigour is worthwhile for about 30–50% of the installed asset
base if it comprises a mix of mechanical/electrical and rotating/static
systems. Higher dominance of static equipment and/or electrical
systems leads to lesser value from RCM-level review, and risk-based
inspection or condition-based maintenance reviews become more
appropriate. Less rigorous methods, such as Reverse RCM, and the
use of templated studies can account for the remainder of lower
criticality items at a fraction of the analysis cost, with little risk or
performance penalty.
It should also be noted here that there are also some very unsafe
messages that are sometimes being taught as ‘facts’ within RCM training
programmes (e.g. the proportions of components that exhibit particular
failure patterns). A study of 23 000 aircraft components in the 1960s is
sometimes quoted as a universally applicable distribution of the ways
in which components fail, whereas other asset systems and industrial
environments will have a very different mix of failure patterns, repre-
senting ‘infant mortality’ or maintenance-induced, random and degrada-
tion-related risks. Similarly, a sometimes unnoticed weakness within
RCM is the reliance on subjective judgement to assign appropriate
inspection or maintenance intervals to the emerging tasks; the guidance
that does exist is very shallow and can lead to inappropriate budgeting,
resourcing and downtime requirements.
Nevertheless, the core value of the RCM discipline is undeniable: it is
a concise summary of the questions that need to be asked in order to
determine what type of maintenance is likely to be appropriate. Appro-
priately targeted to critical assets and asset risks, it has both reduced
Section 1: Asset management in the oil and gas 45

maintenance costs and improved system reliability in many organi-

sations. Where sensibly applied in the process and manufacturing
sector, it is credited with reductions of maintenance costs in the range
20–40%, while simultaneously yielding system availability improve-
ments of 2–15% compared to traditional ‘one size fits all’, fixed-interval
maintenance strategies.

4.3 Risk-based inspection (RBI)

Risk-based inspection (RBI) provides a systematic criticality assessment
of static equipment, and the choice of appropriate condition-monitoring
methods. Documented in the American Petroleum Institute’s Recom-
mended Practice 580, it defines and codifies the different risks and
degradation mechanisms found under different operating conditions,
equipment design, metallurgy, etc., and the effectiveness and appro-
priateness of different inspection or condition-monitoring methods.
Using a score-based ranking of failure probabilities and consequences,
it yields four levels of rigour of integrity management and recommended
inspection methods.
It is heavily focused on hydrocarbon processing – presuming hydro-
carbon containment, with various corrosion and other deterioration
mechanisms, vessel and pipe materials characteristics, etc. – but cross-
industry variants are already appearing. Its strengths lie in the systematic
nature of the survey, the ‘probability
consequence’ view of criticality,
and the mass of technical data available on corrosion rates, materials
properties and inspection methods (in the Base Resource Document
RP 581). It is notably weak, however, in determining how much to
spend on inspections and condition monitoring, where the cost/
benefit/risk trade-off must be considered, and in pointing to alternative
risk-treatment options, where RCM is strong. Nevertheless, RBI has
proven to be a big step forward in plant integrity management and, as
part of the improving maturity of industrial risk management.
Combined with the safety-case approach and ‘as low as is reasonably
practicable’ (ALARP) principles (as embodied) in the UK COMAH
Regulations 1999), RBI has allowed greater transparency and trust to
develop with safety regulators, thereby allowing significant extensions
in mandated inspection intervals and plant shutdown cycles, etc.

4.4 Total productive maintenance (TPM) and lean manufacturing

Total productive maintenance (TPM), lean manufacturing and the
theory of constraints represent a group of related excellent asset manage-
46 Asset management – Whole-life management of physical assets

ment practices and principles that have been widely adopted in the
manufacturing sector and in some process environments. TPM and
lean principles were originally developed within Toyota (Ohno, 1988)
to improve the operator–maintainer team-working, the focus on overall
effectiveness and efficiency, and customer value for money. So effective
were these techniques in raising productivity, in production performance
and in stimulating continuous improvement activities, they were soon
copied widely. DuPont, Exxon, Kodak, BP, Pirelli and others have
adapted and adopted TPM with great success (Suzuki, 1992). Nowa-
days, there are few significant manufacturing companies that have not
got some form of TPM and/or lean manufacturing at the heart of the
business.
Total productive maintenance contributes five underlying strategies:
. maximise overall equipment effectiveness (OEE)
. establish a comprehensive planned maintenance system covering
the whole equipment life
. involve all departments that plan, use and maintain equipment
. involve all employees from top management to frontline workers
. promote planned maintenance through motivation and small
autonomous work teams.
All these elements are all in line with modern optimised asset manage-
ment thinking, and they encourage attention to detail, a whole-lifecycle
view, cross-functional collaboration and a more holistic OEE view
(although this measure does not adequately incorporate risk and sustain-
ability attributes). This is why the TPM title is somewhat misleading – it
is much more than just improving the awareness and role of the
maintenance contribution.
I also group lean manufacturing principles in this area of observed
good practices within the manufacturing sectors and could extend the
list to include just-in-time, the theory of constraints, kanban, kaizan
and a host of contributory techniques. Lean manufacturing shares its
origins with TPM in the Toyota Production Systems, and contributes
a useful checklist of seven areas in which to seek and eliminate waste.
It also reminds us, as TQM does (see below), of the need for strong
and sustained customer focus.
The many checklists, motivational triggers, organisation development
messages and performance criteria from this family of ‘good practices’
have generated substantive productivity and efficiency gains for those
who have persisted beyond the ‘temporary enthusiasm’ level. The
practices tend to be methods-led, rather than self-sustaining and
adaptive, so they can be dependent on continued championing by
Section 1: Asset management in the oil and gas 47

senior personnel and/or on institutionalising the requirements to ensure

continued adherence and motivation. Nevertheless, the success stories
far outweigh the failures, so the asset management environment is
much the richer for their contributions.

4.5 Total quality management (TQM) and Six-Sigma

These cover a range of old, proven and thoroughly respected bundles of
‘continuous improvement’ techniques. From Deming’s quality manage-
ment successes in Japan during the 1950s, to Motorola’s more recent
repackaging in the Six-Sigma manifestation, these methodologies
represent a push for quality in all process steps, in greater client-focus
and in teamwork. They work through multidisciplinary analytical and
improvement activities, using strongly fact-based reasoning, and are
excellent catalysts for communication, clearly-focused objectives and
problem-solving. The associated toolbox reflects, perhaps, the predomi-
nant usage in high-volume consumer goods production – with a statis-
tics-based analytical approach (e.g. statistical process control
methods). As a result, some of the adoption in high-integrity infra-
structure management environments of Six-Sigma has been rather
inappropriate, being a solution looking for an appropriate problem.
Similarly, there are some quality management systems that are decidedly
cosmetic in the implementation – obtaining an ISO 900x certificate by
having thick quality management manuals on the shelves rather than
truly embedding the culture and habits of continuous improvement
and customer focus.

4.6 Root cause analysis and reliability analysis

The data analysis part of asset reliability is a confused fighting ground in
the process and manufacturing sectors. On the one hand, increasing
availability of asset condition and performance data, and maintenance
or reliability history means that more and more is known about the
equipment. On the other, the analytical weapons and understanding of
what can be learnt is very patchy and, in some cases, fundamentally
unsound. This is due to the underlying complexities of the subject, as
well as the poor availability of relevant education in normal engineering
or technical training programmes. In summary, the process and manu-
facturing sectors are in the middle of learning the following lessons:
. more data is not always good news – in some cases it simply yields
more confusion
48 Asset management – Whole-life management of physical assets

. knowing how the information will be used is necessary before

determining what data to collect in order to supply such information
. structured capture and use of existing ‘tacit’ knowledge, e.g. subject
matter experts (often frontline employees), is often perfectly
adequate
. root cause analysis training and discipline is essential to avoid
leaping to conclusions, and not just in the major ‘post-mortem’
cases
. reliability data is good for identifying the what? and where? of
problems, but only very rarely helps with answering why?

5 Conclusions
It can be seen, therefore, that the oil and gas process and manufacturing
sectors span the extremes from fully-developed, integrated and even
world-leading asset management business models, to a patchwork of
component technical or methodological fixes. The cycles of enthusiasm
and decay are certainly evident, with a fair amount of reinventing, or
at least rediscovery, of the wheel. Nevertheless, an emerging consensus
is slowly becoming apparent and, provided we can see through the over-
selling of contributory elements, it is gratifying to see that BSI
PAS 55:2008 embodies many of these conclusions. There is not
enough cross-pollination between industry sectors yet, as most industries
are still strongly tribal and prefer to compare ‘like with like’ in their
benchmarking activities, professional networking and journals/confer-
ences. Asset management good and best practices are, however, highly
transferable across different asset types and industrial environments,
albeit with different emphasis and implementation flavours. This chapter
has, I hope, shown you just a little of what others are doing, and given
you a feel for the scope to learn from such environments.

References
API 2002. Risk Based Inspection, API RP580 and RP581. American Petroleum
Institute, Washington, DC.
ATA 1980. MSG-3: Operator/Manufacturer Scheduled Maintenance Develop-
ment, Air Transport Association Publications Department, Washington, DC.
BSI 2008. PAS 55: 2008: The Specification for the Optimized Management of
Physical Assets, Parts 1 and 2. British Standards Institute, London.
Cullen, W. D. 1990. The Public Inquiry into the Piper Alpha Disaster. The
Stationery Office, London.
Section 1: Asset management in the oil and gas 49

HSE 1999. Control of Major Accident Hazards Regulations 1999. Health and
Safety Executive, HMSO, London.
HSE 2006. A Guide to the Control of Major Accident Hazards Regulations 1999
(As Amended), HSE L111. Health and Safety Executive, London.
Leggate, J. S., Gregory, J. B. and Bennett, S. C. 1995. Productivity and Profit-
ability from Mature North Sea Fields. SPE European Formation Damage
Conference, The Hague.
Ohno, T. 1988. Toyota Production System. Productivity Press, Portland, OR.
Suzuki, T. 1992. TPM in the Process Industries. Productivity Press, Portland,
OR.
3 The challenges facing public sector
asset management
Steven Male Professor of Property and Infrastructure Asset Management,
School of Civil Engineering, Institute for Resilient Infrastructure, University
of Leeds, UK

This chapter presents the challenges and options facing central government
in the domain of physical asset management. It explores these through the
outcomes of two government-funded research studies in this area conducted
by the University of Leeds. It argues that a paradigm shift is required in the
discipline of asset management – moving it away from being seen predomi-
nantly as a technically-focused discipline to one that has three interacting
and mutually-reinforcing components; an organisational-strategy component,
a government-policy component and the conventional technical component.
The chapter deals primarily with the consequences of this shift for the
management of the public sector asset base and the skills and capabilities
that are required.

1 Introduction: the challenges facing asset management

Public infrastructure assets are essential for continued national
economic, social and environmental development and prosperity. Infra-
structure assets take many forms. They can be civil engineering structure
type assets, such as roads, railways, airports, flood defences, ports and
harbours, water treatment plants, oil, gas and power plants, and the
distribution infrastructures of utilities. Alternatively, they can be asso-
ciated with building engineering structure type assets, such as schools,
healthcare facilities, manufacturing plants, retail and industrial outlets,
commercial offices, housing developments and different types of govern-
ment buildings. Many of these types of infrastructure assets are owned
and managed by the public sector, and many by the private sector.
Increasingly, however, with the privatisation of the public sector asset
base through forms of public–private partnership (e.g. private finance
initiatives (PFIs)), there are now combinations of public and private
sector organisations working in closer collaboration to manage the
public sector physical asset base.
As an emerging discipline, asset management will need to regularly
redefine its boundaries to encompass not only its traditional strengths
Asset management – Whole-life management of physical assets # Thomas Telford 2010
978-0-7277-3653-6 All rights reserved
Section 1: The challenges facing public sector asset management 51

at the technical level, but also its contribution to achieving organisational

strategy. More importantly, it will need to increase its influence on govern-
ment policy. The redefinition of the boundaries of asset management
requires a sense of urgency. Organisations – whether public, private or
hybrids – that rely heavily on physical assets to function will face
unprecedented challenges over the coming decades. Many of these
challenges will be due to the difficulties posed by climate change. The
recent report produced by the Intergovernmental Panel on Climate
Change (IPCC, 2007) observes that warming of the climate system is
indisputable. Simple extrapolations indicate that the costs of extreme
weather alone could reach 0.5–1% of world GDP per annum by the
middle of the 21st century, and will continue to rise as global warming
continues. The Stern Report (Stern, 2007) provides three examples of
potential impacts of climate change in the developed world:
. In the USA, a 5% or 10% increase in hurricane wind speed linked
to rising sea temperatures could result in a near doubling of the
annual damage costs.
. In the UK, annual flood losses alone could increase from 0.1% of
GDP today to 0.2–0.4% of GDP once the increase in global
average temperatures reaches 38C or 48C.
. In Europe, heat waves similar to those in 2003 when 35 000 people
died and agricultural losses reached $15 billion, will be common-
place by the middle of the century.
The report adds that, at higher temperatures, developed economies face a
growing risk of large-scale shocks. Swiss Re (2009) notes that, over the
coming decade, Europe is likely to experience increasing levels of storms
and flash floods as a direct result of climate change. These rising costs
could affect global financial markets through higher and more volatile
costs of insurance (Stern, 2007). Freeman and Warner (2001), using data
from the World Development Indicators, note that some 24% of invested
capital stock is public infrastructure. Clearly, the impact of climate change
on public infrastructure will be considerable and measured in billions of
pounds. Ralph Rayner goes into a great deal more detail on this subject
in his Chapter 8, ‘Incorporating climate change within asset management’.
UK infrastructure assets will need to handle greater uncertainties
arising from:
. changes in the demand and supply of finance, people, communities,
services and skills, and in society’s needs and expectations
. the need to be become more adaptive to, in particular, the impact
of climate change, to terrorist attacks and other crisis events
52 Asset management – Whole-life management of physical assets

. the need to be responsive to changes in technology, design, con-

struction methods and materials, procurement and, not least,
UK government and international policy, especially around
moves to low-carbon economies.

In categorising these changes, the first group can be termed ‘incremental

changes’, while the second group can be termed ‘shock changes’
(Fletcher, 2009). The third group can be termed ‘transitional changes’,
and these are a direct consequence of the impact of either incremental
or shock changes, or of both acting in tandem. In terms of shock and
transitional changes, the Stern Report notes there are three essential
elements of policy for mitigating the impacts of climate change and
moving to a low-carbon economy: a carbon price, technology policy,
and the removal of barriers to behavioural change. The report notes
that not addressing all these elements will significantly increase the
costs of subsequent action (Stern, 2007).
Governments are increasingly concerned about a range of
factors that are likely to impact safe, secure and sustainable forms of
new physical assets, but also about extending the life of existing
structures. The primary problem with physical assets is the lengthy
time it takes to create them. They also have differing operational and
performance parameters and requirements, which are also related to
differing timeframes. Finally, their longevity, which can often be
measured in decades, centuries or millennia, depending on their
heritage and cultural importance, means they need to be conserved,
protected, maintained, modernised or upgraded. This requires
different timed intervention strategies, and this is the domain of asset
management.
Against this backcloth, this chapter focuses on asset management in
the public sector. It brings together research findings from two studies:
one, conducted for the Office of Government Commerce (OGC), into
the asset management of the central government estate; and the
second, conducted for the OGC and the Commission for Architecture
and the Built Environment (CABE), into major capital investment in
procured constructed physical assets. The chapter addresses, in
particular, the challenges and options facing the public sector around
the third element of the Stern Report, i.e. inducing behavioural change
in the management of public sector assets to meet the challenges
ahead. In so doing, it considers the meaning of the term ‘resilient infra-
structure’, drawing out how the challenges identified above might be met
in practice, and the consequence for public sector skills and capabilities
in asset management.
Section 1: The challenges facing public sector asset management 53

2 Definitions
For clarity, this chapter has adopted the following definitions from BSI
PAS 55 (BSI, 2008):
. Asset management is the ‘systematic and coordinated activities and
practices through which an organization optimally and sustainably
manages its assets and asset systems, their associated performance,
risks and expenditures over their lifecycles for the purpose of
achieving its organizational strategic plan’ (BSI PAS 55, Part 1,
p. 2).
. An asset management system is the ‘organisation’s asset management
policy, asset management strategy, asset management objectives,
asset management plan(s) and the activities, processes and organiza-
tional structures necessary for their development, implementation
and continual improvement’ (BSI PAS 55, Part 1, p. 2).

In this context, the government as a whole, from central through to local

government, has placed an increasing emphasis on asset management.
Recently, central government, in particular, has focused on the need
for efficiency gains through increased embedding of asset management
across the central civil government estate.

3 The central civil government asset management base

The OGC, an independent office of HM Treasury, commissioned the
University of Leeds to investigate and report on the asset management
of the central civil government estate, which is worth some £220 billion.
The Leeds research was an outcome of a study conducted by Sir Michael
Lyons, concerned with asset management, covering tangible and
intangible assets (Lyons, 2004). Central government has under its
custodianship and stewardship a diverse and diffuse estate of physical
assets. These assets support service delivery to a wide and significant
customer base, including the machinery of government. The Leeds
study adopted the term ‘property assets’ to include land and built
assets comprising buildings and civil infrastructures. The term ‘property
asset management’ (PAM) was adopted to indicate a structured, holistic
and integrating approach for aligning and managing over time the
service delivery requirements and the performance of property assets
to meet departmental business objectives and drivers.
Comparisons were made with the USA and Australia. The experience
of UK local authorities, which had by that time been developing asset
54 Asset management – Whole-life management of physical assets

management plans for at least 5 years, was also drawn on. The Leeds
study informed what was subsequently called the OGC ‘high performing
property’ (HPP) initiative and the programme for embedding PAM
across central civil government.

3.1 The public sector and property assets

In the UK public sector, a wide variety of organisational models deliver
the various outcomes required by Ministers of State (OPSR & HMT,
2002). In March 2005, the Cabinet Office noted that there were 910
public bodies sponsored by UK central government departments
(Cabinet Office, 2005). This figure comprised 21 public corporations,
the Bank of England, 26 National Health Service bodies and 862 non-
departmental public bodies (NDPBs). The NDPB group is made up of
211 executive NDPBs, 458 advisory NDPBs, 42 tribunal NDPBs
(tribunal systems rather than individual boards) and 151 independent
monitoring boards. The increase by 71 bodies since 2004 includes the
42 Courts Boards (the then Department for Constitutional Affairs
Advisory NDPBs) and 27 bodies that were already in existence but
had not been brought within the formal classification system. In
addition, there are around 390 local planning authorities, which have
an interest in physical infrastructure. The highly decentralised nature
of UK central government provides a substantial challenge for the
implementation of asset management across the central civil government
estate. This is addressed in the next section. The decentralisation of
government is set to continue.

3.2 The asset management organisation at central government

departmental level
There are a number of cross-government structural implications
involving the management of property assets. The Leeds study used
the International Infrastructure Management Manual (IAM, 2002) as a
benchmark for addressing the structure-of-government implications of
enhancing asset management across the central civil government
estate, including differences between a basic and advanced asset manage-
ment organisation. The Leeds study concluded that, depending on the
starting position, the successful implementation of PAM requires a
concerted and coordinated effort across any government organisation,
and could involve substantial organisational change. As a minimum,
an asset management coordinator is required who has sufficient
authority and resources to drive through the process and seek and
Section 1: The challenges facing public sector asset management 55

obtain inputs from personnel across the organisation. From the

published literature and fieldwork interviews, the study identified
issues regarding who should occupy this role and at what level in the
organisation it should be located. The experience of another central
government organisation, which had been seeking to embed asset
management in its ways of working, indicated that, at the very least, a
cross-function team would be needed. It was clear that these issues
needed to be addressed at many levels in government.
One of the key findings to emerge from a report produced by the UK
National Audit Office (NAO) is that, in situations where major organi-
sational change is required, perhaps through the adoption of a new
business model, property can become an enabler and a driver of that
change (NAO, 2006). For example, one government organisation
implementing a new service delivery model brought together expertise
at senior levels, from finance, information technology, human resources
and estate management, to think through and subsequently implement
the changes required across the organisation. This is an example of the
cross-functional, interdisciplinary demands of asset management that
Chris Lloyd discusses in his Chapter 7, ‘Developing the competence of
asset management staff ’.
Figure 3.1 sets out the framework within which PAM was to be
considered within central government departments. It shows PAM as
an activity and capability that fits between business strategy and plan-
ning, and involves the effective and efficient estate management by a
department, agency or other sponsored body. It was proposed that a
PAM Board should be set up, with a differentiation made in the asset
management framework between:
. Effectiveness, which is outcome and objectives driven, where the
focus is on ensuring the organisation does the right things in the
first place in terms of managing its assets. The outcome of this
analysis will be an appropriate property portfolio that is linked
to business strategy and services delivery. This also forms the
basis on which judgements can be made about appropriate prop-
erty asset ownership structures and the consequent impact on
estates strategy.
. Efficiency, which is process driven, follows from effectiveness, and
is concerned with ensuring that the right things are done with the
appropriate balance of inputs to outputs.
The federal structure within many government departments is still seen
as one of the more significant obstacles to rolling out a coherent, consis-
tent and common approach to PAM across the civil estate.
56 Asset management – Whole-life management of physical assets

Organisational
forward direction, Business strategy
service delivery strategy.
Consider stage of organisational and planning
development and

feedback loop
Learning and
levels of organisational flux

Cross-unit and/or Locus of property

cross agency, asset management
NDPB, etc, Directing, influencing and challenging resources Gateway decisions on:
coordination, surrounding property asset base. Property asset/service
depending on Right portfolio, right location. dependency
organisational size, Integrating strategic thinking surrounding
Asset utilisation
business strategy, HRM, IT, change management,
stage of organisational Property asset location
finance and the property asset base.
development Developing, managing and signing-off
Property asset capacity
and asset management plans Property asset functionality
property asset base

Effectiveness: doing the right

For example, things, business outcome and
on buildings: objectives driven
PFI/PPP
Leasehold
Freehold Delivery strategies
Mixed
Moto
Efficiency: doing things well and
in the right way,
process and performance driven

Estate strategy for property assets

Infrastructure Buildings

Systems, networks Facilities Accommodation

and components management and work place
strategy strategy

Fig. 3.1 Locating the public sector strategic PAM capability (adapted from
University of Leeds, 2006)
Section 1: The challenges facing public sector asset management 57

The role of the PAM Board, its function and constituency was
informed by workshops involving representatives from the larger
government departments. It brings together strategic and operational
aspects of PAM into one organisational unit. Hierarchically, it resides
just below executive management board level in a large department,
and has a policy function for managing property assets strategically,
i.e. integrating policy decisions on property assets made by the executive
management board with the operational management of those assets.
The PAM Board is seen as the focal point for a strategic PAM capability
in a department with a significant federalised and decentralised struc-
ture. For unified or smaller departments or organisations, implementa-
tion of the PAM Board would occur within their existing structures
(e.g. within an extended Investment Board structure). A set of character-
istics for the PAM Board was developed to ensure the board is structured
and operates appropriately. PAM Boards have since been implemented
across many government departments.
The first Leeds study placed PAM as a corporate governance require-
ment at executive management board level, and located responsibility
for the implementation of PAM just below that level with the PAM
Board. The second Leeds study built on this work and investigated the
management of significant capital investment in physical assets through
major construction programmes and projects; this is the subject of the
next section.

4 The OGC/CABE study of major construction

investment programmes and projects
The UK construction industry is an enabling industry for creating and
recreating the physical built environment. The Construction Industry
Council notes that the UK construction industry:
. has an annual turnover of more than £100 billion and accounts for
almost 10% of the UK’s GDP
. is five times the size of the aerospace industry and more than three
times the size of the automotive industry.
National Audit Office reports typically indicate that public sector
construction, covering central and local government, accounts for of
the order of 40% of industry turnover, with approximately 30% of that
figure attributed to central government investment (NAO 2001, 2005).
The Major Construction Investment Programmes and Projects
(MCIPP) research study was commissioned jointly by CABE and the
58 Asset management – Whole-life management of physical assets

OGC on behalf of the Public Sector Construction Clients Forum

(PSCCF). The PSCCF comprises significant public sector clients
procuring major construction programmes. The research aim was to
build a picture of the current capacity and capability of government
departments and sponsored bodies to procure, manage and deliver
major capital construction programmes and projects, and the mechan-
isms through which this capability is currently developed. The research
scope was to investigate the skills of those involved in the investment
decision-maker (IDM), senior responsible owner (SRO) and project
sponsor/project director (PS/PD) roles working in the central govern-
ment departments, agencies and sponsored bodies involved in the
procurement of major capital investment in construction programmes
and projects. Five major spending departments featured in the investiga-
tion, together with a number of departments, agencies and central
government organisations that had participated in the first study.
The research identified that 39% of Civil Service staff occupying Grade
6, 7 or Senior Civil Service roles are aged 50 years and over. The knowledge
and skill of this group of staff represents a significant capability for the
IDM, SRO and PS/PD roles in delivering construction investment. Over
33% of these staff will retire within the next decade, and the impact of
this will be felt, in particular, in those departments with experienced,
centralised procurement teams. The evidence from a range of sources
also indicates that the UK Government’s Efficiency Programme is not
assisting in the replenishment of this capability at senior levels of the
Civil Service, where these types of programmes and projects are dealt with.
The study also identified that, in departments with devolved struc-
tures and significant numbers of localised business units delivering
major capital construction expenditures, no more than 20–30% could
be classed as having best-in-class capabilities. Of the remaining 70–
80%, there are major difficulties in both capacity and capability.
Around £14–20 billion per annum of capital expenditure on construction
is being delivered through these types of devolved structures – some
involving central government managed structures, others within the
local authority remit. With some notable exceptions, within centrally
procurement teams (where close to 100% of an individual’s time is
spent on major construction activity), SROs and PS/PDs in central
government will, typically, spend 5–30% of their time on capital
expenditure programmes in construction; in decentralised structures
these individuals’ time commitment is at the lower end of this spectrum.
Similar figures have also been identified across other types of major
investment programmes, such as centrally procured information
technology programmes and projects within central government.
Section 1: The challenges facing public sector asset management 59

The MCIPP study concluded that the public sector, and central
government in particular, has and will continue to have a significant
capability, knowledge and skills deficit surrounding the procurement
of its major construction investment programmes and projects. Front-
end capacity and capability difficulties have emerged from the study as
threats to the delivery of the £20 billion per annum public sector invest-
ment in construction, resulting in the lost opportunity of reinvesting
some £300 million in central government and £2.1 billion in local govern-
ment for improving the whole-life value of its physical asset base.

4.1 Major construction investment through programmes and

projects
A current trend identified in the MCIPP research study is for most major
construction investment clients to undertake a significant part of their
infrastructure delivery through multi-project delivery mechanisms.
This has been, in part, due to changes in procurement practices. The
study identified a number of interlinked levels of organisational deci-
sion-making that impact investment decision-making, namely decisions
relating to organisational strategy, asset portfolio, programmes and
individual projects.
The OGC (2007) has established the following definitions:
. A Programme is ‘a temporary, flexible, organisation created to co-
ordinate, direct and oversee the implementation of a set of related
projects and activities in order to deliver outcomes and benefits
related to the organisation’s strategic objectives. . . . During a
programme life cycle, projects are initiated, executed, and closed.
Programmes provide an umbrella under which these projects can
be co-ordinated. The programme integrates the projects so that it
can deliver an outcome greater than the sum of its parts’.
. A Project is ‘also a temporary organisation, usually existing for a
much shorter duration, which will deliver one or more outputs in
accordance with a specific business case. A particular project
may or not be part of a programme’.
The MCIPP research uses the term ‘portfolio management’ to represent
the organisation-wide coordination requirements of numerous pro-
grammes, which, in turn, have their own project coordination require-
ments. Portfolio management and programme management function
as strategic business disciplines within the strategic management
domain. They lie at the heart of configuring, shaping, scoping, managing
and delivering investment priorities for physical assets. Programmes
60 Asset management – Whole-life management of physical assets

support an organisation’s core business, translate investment decisions

into a multi-project environment, and move the organisation forward
through time in terms of creating a future capability to realise benefits.
The investment process was also seen within the study as flowing
through a six-level organisation configuration shown in Fig. 3.2. This
commences with (i) vision, (ii) mission, and (iii) policy and strategies,
which flow into (iv) the portfolio level and then through (v) programmes
and (vi) projects. This provides the ‘line of sight’ for investment decisions
flowing into physical assets, and hence comprises the internal organisa-
tional ‘value chain’ of asset management capabilities. Martin Pilling
discusses the asset management value chain in more detail in his
Chapter 4, ‘Beyond BSI PAS 55 compliance’.
The shaded area in the centre of Fig. 3.2 provides the organisational
domain of asset management. While the study identified, and then
confirmed, programme and project management as core skill require-
ments of senior civil servants, the data also revealed that senior civil
servants are rotated through posts every 2–4 years on average. The
MCIPP study has major implications for the ongoing asset management
of the government estate, and the fieldwork investigation provided a
direct link into the HPP initiative on a number of levels, as is discussed
in the next section. The only feasible options to overcome these
capability deficits at senior levels are:
. to ensure portfolio, programme and strategic project management
skills continue to be emphasised as core skills for all senior civil
servants
. to emphasise delivery skills, as well as policy skills, in career
grading
. to regularise longer-term career placements at senior levels of the
civil service.
This will consolidate organisational capabilities in capital investment,
revenue investment and procurement around construction, and retain
and embed asset management capabilities within departments and
agencies. This will become even more important as climate change
impacts on the management of the public sector physical infrastructure
asset base.

4.2 Linkages with the HPP initiative

A key factor identified in the fieldwork interviews for the HPP research
study was the impact of the high levels of organisational flux encoun-
tered across those departments interviewed. Typically, interviewees
 Section 1: The challenges facing public sector asset management
Investment decision
The domain of Vision framework for
asset management construction and
physical assets
Mission

Organisational strategy and objectives

ge
an
ch
Portfolio management
c
gi
te
ra

Programme management
St

High-level operations Strategic project

planning and management management

Op
er
Tactical management of

at
Management of ongoing operations

io
(recurring activities) authorised projects

na
(projectised activities)

lc
ha
ng
Operating core

es
Organisational resource

Fig. 3.2 The organisational context of investments, portfolio and programme management. (Adapted from PMI, 2006; OGC,
2007)

61
62 Asset management – Whole-life management of physical assets

commented that the time horizons for the impacts of organisational

change to be felt within the property asset area varied between less
than 1 year (or even months), especially where ad hoc task forces were
concerned, to typically 3–5 years. This was also noted as the typical
time horizon within the Australian Commonwealth and state govern-
ments (Barrett, 2003). One interviewee summed up the point well, by
indicating that the organisational development cycle of any one
department, agency or NDPB would be unlikely to span more than
two parliaments, regardless of the party in power, giving a maximum
time frame of between 8 and 10 years, assuming a normal parliamentary
cycle of elections.
One case study investigated in the above studies demonstrated an
extensive rethinking of the property portfolio as a result of organisa-
tional change. This required a total rethink of the business model and
a comprehensive approach to PAM at a strategic level. Other depart-
ments encountered were also going through a total rethink of their
business and service-delivery models. As a consequence, the direct
linkage between organisational functioning and development, together
with the opportunities and constraints imposed by the estate and its
further rationalisation, were clearly in evidence and at the forefront of
managers’ thinking. These departments were in the stage of late maturity
and early transformation and organisational reinvention.
A model was developed to capture these insights from fieldwork, and
this is set out in Fig. 3.3. Each of the phases in the figure, identified from
the fieldwork, will have different implications for the focus of strategic
asset management. For the administrative government estate, which
deals with the machinery of government, in the growth and reinvention
phases it is highly likely that close integration will need to be fostered
between business strategy, human resources, information technology,
finance and PAM. This is where the strategic elements of PAM – the
links between organisational strategy, investment decisions, and the
configuration of the physical asset base as a corporate resource – come
to the fore as an organisational capability. Asset management capability
clearly has an integrating function between business strategy, organisa-
tional development and the estate as a business enabler.
During the established/mature phase, when the property asset port-
folio has reached a level of stability and organisational rationalisation
has become embedded, the need for an integrated and strategic focus
on property asset related matters will subside to some extent. However,
it should not go off the corporate radar. The transition between phases
will most likely need to be managed, and senior management will
need to be able to recognise when this transition may be required. This
 Section 1: The challenges facing public sector asset management
De-merger phase Start-up phase
Departments are
Departments merged or reconfigured
rethinking;
reshaping or
reconfiguring Departments go
service delivery Business and through
with consequent property asset strategy organisational
impact on the rationalisation,
property portfolio which includes
rationalisation of
property portfolios,
and may include
Reinvention phase – Growth phase – relocation. No
strategic change strategic change major service
reconfiguration

Business and
Organisational property asset strategy
development cycle
Business and
property asset Departments have gone
strategy Established and mature phases: through organisational
Recurrent change: permitting and estate rationalisation.
standard procedures to be adopted
The property portfolio is
Competitive change: necessitated by
efficiency programmes relatively stable; focus on
performance
measurement, contracts
management, further
efficiency gains and
Business and
property asset strategy continuous improvement
across the portfolio

Fig. 3.3 The HPP organisational development cycle, property asset management and its impact on procurement strategies.

63
(Adapted from Male et al., 2003; University of Leeds, 2006)
64 Asset management – Whole-life management of physical assets

transition may be triggered by external events. This is a strategic skill,

and the information and knowledge it requires can only reside at, or
near, executive management board level, as the changes will normally
be business strategy or policy driven. They will require, and result
in, an appropriate and timely subsequent response from the estate.
Transitional triggers can occur any time during the life of a parliament.
There have been numerous examples reported recently in the press of
departments being reorganised, ministers resigning over expenses
scandals, a Cabinet reshuffle following the European elections, and
Prime Minister Gordon Brown looking towards the general election in
early to mid-2010.
The fieldwork evidence also indicates that the stage at which a depart-
ment finds itself within its organisational development cycle will
influence the relative importance placed on capital investment and
procurement strategy. Equally, this may also change with time. The
HPP research and the MCIPP study identified a number of departments
in the organisational growth phase that were having to adjust to the
impact of bringing together two separate departments, where the
property asset base, procurement strategies and associated contractual
arrangements had to be realigned. In such situations, there is a signifi-
cant learning curve, with implications for public sector capability
enhancement, the solutions to which can become available for wider
dissemination across government as the learning curve is addressed
and resolved.
Departments that were in the reinvention stage, either through de-
merger, or rethinking totally their service delivery strategies, were also
involved in rethinking procurement policy and strategies, with the
associated additional skills requirements. Departments that were in the
established/mature phase built up a substantial knowledge about
procurement. The organisational options encountered included con-
solidation into centralised teams or centres of excellence. However,
these departments were also finding that:

. a move to, for example, a greater emphasis on collaborative

procurement approaches for construction investment was having
a direct impact on organisational structures, processes and
procedures, and there was a substantial need to upgrade skill
requirements to accommodate this
. they were having to fine tune existing procurement approaches, to
take account of changing internal and external environments
. they were rethinking their approaches to procurement totally due
to government efficiency requirements
Section 1: The challenges facing public sector asset management 65

. in situations where decentralised structures were operating, at the

localised business unit level there is a significant reliance on private
sector skills, especially in collaborative procurement structures, to
address public sector skills gaps.

The resultant impact is the potential creation of significant power differ-

entials between the public and private sector knowledge levels, favouring
the latter rather than the former. Equally, in the HPP initiative, certain
departments had gone through the growth phase, perhaps by integrating
separate PFI structures. They were exploring options to address an
increased focus on contract management activities and the ongoing
management of an established PFI structure. This is an example of
competitive and then recurrent change.
Through the consequent exploration of the organisational develop-
ment cycle in the two research studies, it became evident that there
was a close alignment with certain aspects of the HPP research in asset
management, procurement regimes and certain aspects of the OGC
Gateway Review process. The Gateway Review process is an assurance
and developmental review, not an audit process, and is the subject of the
next section.

4.3 Linkages between asset management, portfolio, programme

and project management
The study also investigated the influence of the OGC Gateway Review
process on construction investment. Gateway Review 0 has clear
linkages with the PAM structures identified under the HPP research
and the front-end requirements for major capital programmes and
projects identified in the MCIPP research. Gateway Review 0 is a
programme-only review concerned with investigating the direction and
planned outcomes of a programme and the progress of its constituent
projects, and is repeatable over the life of the programme, as required.
However, the MCIPP study identified through fieldwork the need for
a review preceding Gate 0. For simplicity, this option was termed
‘Gate 1’. It is not to be taken as linked to the OGC review process at
this point in time. Gate 1 needs organisational capabilities favouring
a close alignment between policy, organisational strategy, investment
decisions and the requirement for a physical asset solution, compared
to non-asset solution, to be addressed. Discussions with senior managers
in the OGC also identified that they are also actively pursuing develop-
ments in this area. Figure 3.4 sets out the linkages between Gate 1 and
Gate 0 that were developed as part of this research.
66 Asset management – Whole-life management of physical assets

Gate 0 and Gate –1

Commercial strategy
Policy and strategies
Corporate
Non-asset solutions and options
portfolio board
Change
SROs and PS
initiatives

Physical Construction
asset capital investment
Gate –1 requirements programmes and
projects

Construction related
programmes and
projects
(a)

Gate 0 and Gate –1

Procurement strategy

SRO and PS
Gate 0
Programme manager
Programme
Projects

SRO

Project
PS/PD PM

Internal

PM
External

Procurement strategy

(b)

Fig. 3.4 (a) Gate 1 to Gate 0. (b) Gate 0 onwards (adapted from University of
Leeds, 2008)

Within the Gate 1 process, departmental policy and strategy will be

developed, and may involve policy initiatives resulting in service
changes, organisational changes, associated investment requirements,
programmes and projects and, potentially, changes to the physical
asset base. Figure 3.4 shows that a decision arena, or ‘decision node’,
will be reached at some stage, where either a physical or non-physical
asset-based series of options should be forthcoming. The physical asset
Section 1: The challenges facing public sector asset management 67

solutions will result in the initiation of capital investment programmes

and/or projects, and subsequently construction-related activity. Field-
work evidence indicates that there is often an iterative process in play
within the Gate 1 and Gate 0 activities, and that some form of
impartial review is required prior to a major capital investment
programme being launched. From Gate 0 outwards, the OGC Gateway
Review process continues to operate as normal.
It has been noted from fieldwork that the Procurement Capability
Reviews currently underway within the OGC follow the decision flow
from investment to procurement, and may well identify areas of impor-
tance within the Gate 1 and Gate 0 domains. Equally, these two areas
and Gateway Review 1 are the areas where the ‘informed client role’
comes to the fore in the public sector, as discussed in the next section.

4.4 The informed client role

Successive research studies have identified the informed client role –
simultaneously a corporate, team and individual role – as critical for
the public sector. The NAO (2006, p. 6) defines the intelligent client
as: ‘An organisation with the knowledge, skills and authority required
to negotiate with and manage both suppliers and users and to contract
with suppliers’. The MCIPP research defined the informed client role
as one where the organisation knows what it does not know, and also
knows how and where to fill that knowledge gap and manage the
interfaces that result. There was extensive consensus around this defini-
tion in both the public and private sectors. It indicates clearly a high-level
organisational capability requirement. The NAO report defines capacity
building as ‘measures to increase the knowledge and skills needed to
deliver a programme or project’. It would not be unreasonable to include
the linkages to asset management within this definition. The NAO report
adds that every major IT change programme or project should have an
SRO, normally a senior civil servant, with responsibility for ensuring the
programme or project meets its objectives and delivers the projected
benefits. The role has associated key tasks, including developing the
business case, monitoring, and liaising with senior management on
progress and risks to delivery. These tasks would be identical to major
construction capital investment and asset management and, indeed,
they feature strongly in John Woodhouse’s descriptions of the asset
manager role in Chapter 2, ‘Asset management in the oil and gas, process
and manufacturing sectors’.
The recent UK Department of Business, Enterprise and Regulatory
Reform Select Committee on Construction noted that there is a
68 Asset management – Whole-life management of physical assets

common assumption that the public sector cannot manage large-scale

procurement because it is not subject to the same market pressures as
the private sector. The evidence reviewed by the Committee demon-
strated that it is a false dichotomy to differentiate between the public
and private sectors on their performance as construction clients.
Rather, the key distinction is whether a client is frequent or
infrequent – experienced or inexperienced. Frequent clients are respon-
sible for the greater part of the value of construction work, about 60%
by value. However, the Committee noted that, at any one time, about
95% of the industry’s customers are one-off or occasional clients, and
have little or no experience of working with the construction industry.
As such, they are less likely to understand how the sector operates and
the importance of their role in ensuring success.
The informed client role has strong linkages to corporate governance
and the management of the interface between the public sector and
private sector supply chains. It is also the locus of the capability and
skills difficulties with the SRO and PS/PD roles. The MCIPP research
fieldwork identified consistently – across the public and private
sectors – that these roles required a 3608 skill set. This skill set comprised
a vertical component covering an understanding of the departmental
strategy, political context and policy requirements, together with an
understanding of technical delivery requirements, including asset
management and construction procurement issues (but not in-depth
knowledge of this activity). The horizontal component involves under-
standing the cultural, political and stakeholder management issues
associated with the management of assets, programmes and projects.
Figure 3.5 sets out the locus of the anticipated skill set requirements
for the SRO and PS roles. It is clear from the descriptions given, by
both public and private sector senior interviewees, that skills in this
area can only be built up through wide experience. The informed
client role is seen as having both capacity and capability problems in
private and public sectors. It is this role that will have to deal with the
implementation of infrastructure solutions to meet the challenges arising
from the impact of climate change, for example, which is an issue
addressed in the next section.

5 Resilient infrastructure
There has been a recent upsurge of interest in the capability of infrastruc-
ture to support communities, society and economies during times of
turbulent change. Terms such as ‘critical’, ‘vulnerable’ and ‘resilient’
Section 1: The challenges facing public sector asset management 69

Policy and strategy skills

Senior
responsible
owner

Stakeholder engagement
and management skills

Project
sponsor

Technical skills

Fig. 3.5 The likely skills profiles of the SRO and PS roles (adapted from
University of Leeds, 2008)

infrastructure have entered the arena. This chapter does not intend to
enter into this debate per se, but to utilise the ideas around the term
‘resilient infrastructure’ to explore further the skills issue in the public
sector and the management of its asset base.
The notion of resilient infrastructure has emerged and is evolving.
O’Rourke (2007) observes that definitions of ‘resilience’ typically include
linking it to recovery after physical stress. Fletcher (2009) notes that
‘resilience’ has entered policy language globally, adding that resilient
infrastructure is that which can consistently deliver outcomes in a
changing social, economic and environmental context, which is also
uncertain and accelerating. He poses the question of what must be
done differently to design, deliver and operate such infrastructure
under these conditions.
In this context, Fletcher notes that, in an assessment conducted for
England’s Environment Agency early in 2008, it was estimated that
close to two-thirds of the main road network and the rail network in
the Yorkshire and Humber region could be at risk of a flood event.
He noted that it was not just the length of network that might be
under water, but the entire length of the system, through a cascade
70 Asset management – Whole-life management of physical assets

effect of that flood event. Fletcher concluded that the transport network
in the region is not particularly resilient to flood risk, and that the cost to
the region’s communities, businesses and the regional economy from this
cascading disruption would be severe. He adds guidance on what needs
to be considered for the future, namely:

. There needs to be a shift away from the traditional linear thinking

towards thinking about complex systems. This demands complex
solutions, and may also require using probabilistic data to
inform and make decisions.
. A paradigm shift is required in the policy arena. Fletcher argues
that infrastructure investors are making complex, long-term
decisions, but the policy debate that enables or disables them
rarely occurs.
. He proposes that delivering resilient infrastructure requires
flexibility and adaptability, dealing with complexity and change,
and, finally, recognising the existence of self-organising systems
and how they can be influenced by a variety of stakeholders.

The above has to encompass the domain of asset management, especially

in the public sector. This chapter argues that the frontline for the public
sector in dealing with these issues at the physical infrastructure level are
those involved in the IDM (a corporate, team and individual role), SRO
and PS/PD roles.

6 Conclusions
It is clear from the evidence presented here that physical infrastructure as
an enabler will have to become more resilient to a diversity of changes.
Some of these changes will be incremental, some transformational,
and some the result of ‘shock’ events. It is also clear that incremental
thinking alone is no longer appropriate when dealing with the investment
horizons required for designing, creating, maintaining, operating and
disposing of physical infrastructure for such an uncertain future. A
paradigm shift is required from dealing at many levels with physical
infrastructure – namely, nationally, regionally, locally, and at policy,
strategy, investment, organisational, team and individual levels. The
HPP and MCIPP research, while policy focused, addressed options
and solutions in managing the public sector asset base. These options
were associated with dealing with competitive (efficiency) or recurrent/
incremental change (operational). The HPP initiative put in place the
Section 1: The challenges facing public sector asset management 71

structural elements at government level that would be required to

address the paradigm shift needed to deal with transformational and
shock changes through, for example, the creation of PAM Boards.
They have a clear strategic role in linking government policy with
those physical asset options and investment requirements to make
infrastructure more resilient. This has been reinforced further by the
MCIPP research. This study addressed not only complementary
structural and governance requirements, through an investigation of
the informed client role, but also skill requirements at an organisational,
team and individual level. These are key for the behavioural change
requirements noted by Stern (2007).
As noted in the recent House of Commons Committee report on
engineering (HoCC 2009), engineering expertise should be better
represented, not only within the generalist civil service, but also in the
area of more specialist policy advice, especially when considering
solutions to global problems such as climate change, food and water
supply, energy, security and economic instability. For asset manage-
ment, especially in the public sector, this means moving away from a
technically focused discipline to one where practitioners are comfortable
in providing advice at organisational strategy and policy levels, and
where probabilistic, and often ambiguous and complex, information
may be in evidence.
Significant ‘churn’ at senior levels has been noted, not only across
central government due to the machinery of government changes, but
also due to the policy-driven mobility of senior civil servants. These
are the people typically occupying the SRO and PS roles that the
study encountered. They are also the people needed at the interface
between policy, departmental organisational strategy, asset manage-
ment, and programme and project management. These roles require a
3608 skill set, the locus of which often occurs at the informed client
interface between the public and private sectors, where policy, strategy
and investment meet supply chains to create, modify and adapt infra-
structure for greater resilience. People occupying SRO and PS roles
who have that skill base, even without the challenges arising from
climate change, are already in short supply. The difficulty is exacerbated
by the ‘churn’ factor noted earlier and the consequent loss of ‘organisa-
tional memory’, and difficulties in embedding change deeper within the
public sector. This chapter argues that this state of affairs cannot be
permitted to continue, as it will inevitably have an impact on ‘UK plc’
at many levels. Government has to put in place initiatives to deliver
the 3608 skill set that those in SRO and PS roles require in order to
deal with the needs of the future.
72 Asset management – Whole-life management of physical assets

Acknowledgements
I would like to acknowledge the financial support provided by the OGC
and CABE for the two research studies. At a personal level, I would like
to thank Mike Burt, Bridget Hardy, John Iannou, Mike Raynsford,
Andrew Howarth and Yvonne Hardy (now of the Metropolitan
Police) from OGC, and Richard Simmons and Paul Ducker from
CABE. I would also like to thank those individuals across central and
local government, and the private sector, too many to name, who gave
their advice and time freely and without reservation to inform, guide
and steer the studies reported here.

References
Barrett, P. 2003. An Auditor’s View of Commonwealth Assets, including Property
Management. Available at: www.anao.gov.au/director/publications/speeches.
cfm?pageNumber=11
BSI 2008. PAS 55-1: 2008: Asset Management. Part 1: Specification for the
Optimized Management of Physical Assets. British Standards Institute,
London.
Cabinet Office 2005. Public Bodies 2005. Material from the Public Bodies On-line
Directory. Agencies and Public Bodies Team.
Fletcher, M. 2009. The Challenge of Creating and Maintaining Resilient Infra-
structure. Working Paper, Arup, May.
Freeman, P. and Warner, K. 2001. Vulnerability of Infrastructure to Climate
Variability: How Does This Affect Infrastructure Lending Policies? Report
Commissioned by the Disaster Management Facility of The World Bank
and the ProVention Consortium, Washington, DC.
HoCC 2009. Engineering: Turning Ideas into Reality. House of Commons
Innovation, Universities, Science and Skills Committee, Fourth Report of
Session 2008-09, HC 50-I.
IAM 2002. International Infrastructure Management Manual. Institute of Asset
Management, London.
IPCC 2007. Climate Change 2007: Synthesis Report. Inter-Governmental Panel
on Climate Change, Geneva.
Lyons, M. 2004. Towards Better Management of Public Sector Assets: A Report
to the Chancellor of the Exchequer. HMSO, London.
Male, S. P., Kelly, J. R., Grönqvist, M., Damodaran, L. and Olphert, W. 2003.
Supply Chain Management for Refurbishment: Lessons from High Street
Retailing. Thomas Telford, London.
NAO 2001. Modernising Construction, HC 87 Session 2000–2001. National
Audit Office, London.
NAO 2005. Improving Public Services through Better Construction, HC 364-I
Session 2004–2005. National Audit Office, London.
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NAO 2006. Getting the Best from Public Sector Office Accommodation. National
Audit Office, London.
OGC 2007. Managing Successful Programmes, TSO, London.
OPSR and HMT 2002. Better Government Services: Executive Agencies in the
21st Century. A Joint Report by the Prime Minister’s Office of Public Services
Reform and HM Treasury, Cabinet Office, July 2002.
O’Rourke, T. D. 2007. Critical infrastructure, interdependencies, and resilience.
The Bridge, 37(1).
PMI 2006. The Standard for Portfolio Management. Project Management
Institute, PMIC, 2006.
Stern, N. 2007 The Economics of Climate Change: The Stern Review. HM
Treasury, London.
Swiss Re 2007. Natural Catastrophes and Man-Made Disasters in 2008, Sigma
Report 2/2009. Swiss Reinsurance Company, Zurich.
University of Leeds 2006. Improving Property Asset Management in the Central
Civil Government Estate. Report for Office of Government Commerce. Univer-
sity of Leeds, Leeds.
University of Leeds 2008. Public Sector Skills, Capacity and Capability in the
Procurement of Major Construction Programmes and Projects. Report
produced by Prof. Steven Male, University of Leeds for the Office of
Government Commerce and Commission for Architecture and the Built
Environment, Dec. 2008.
4 Beyond BSI PAS 55 compliance
Martin Pilling Director, AMCL, London, UK

A discussion is given of the benefits of a maturity-based approach to asset

management, and a review of how businesses have utilised the asset
management value chain to determine best appropriate practice for their
circumstances. Consideration is given to whether compliance with the Publicly
Available Specification on asset management published by the British
Standards Institute (BSI PAS 55) is essential for good asset management,
recognising that true benefit to a public or private organisation is only gained
when reducing resource requirements.

1 Introduction
Asset management enables businesses with physical assets to achieve
their stated business objectives in the most cost effective way. It combines
engineering and mathematical analyses with sound business practice and
economic theory. The more asset intensive the business operation, the
more vital the reliability, availability, maintenance and safety of those
assets is to its performance. Good infrastructure asset managers
can produce substantial benefits to the bottom line by reducing the
requirements for resources without detriment to asset stewardship or
an increase in overall business risk.

2 What is good asset management?

Successful asset management requires the integration of effective
processes across all aspects of a business to ensure that bottom-up
plans and top-down business objectives are aligned over the long term
with the needs of all stakeholders.
There is mounting evidence to suggest that good asset management
can help businesses achieve short-term efficiency savings of 5–15% in
their operating costs, and some organisations have achieved even more.1
Conversely, poor asset management practices can leave organisations

1
The author acknowledges the assistance of Marius Sultan of AMCL in
researching the financial benefits attributed to asset management.
Asset management – Whole-life management of physical assets # Thomas Telford 2010
978-0-7277-3653-6 All rights reserved
Section 1: Beyond BSI PAS 55 compliance 75

exposed to significant risks, loss of reputation and, in some cases, failure

of the business.
For example, in January 2003, the UK metro rail owner London
Underground began operating as a public–private partnership (PPP).
Under this arrangement, the infrastructure and rolling stock were
maintained by two private companies, Metronet and Tube Lines,
under 30-year contracts, which specified asset management require-
ments. Metronet was found to be inefficient, and subsequently went
into administration. Following a review by the National Audit Office
(NAO), the level of inefficiency was calculated to be of the order of
7.5%, including maintenance, operations and administration costs
(NAO, 2009).
There are an increasing number of asset management tools and
resources available to assist the practitioner in eliminating such
inefficiencies. The Publicly Available Specification for the optimised
management of physical assets (BSI, 2008) provides asset managers
with a framework they can use to understand better how to get the
most out of their assets.
However, BSI PAS 55 deliberately says nothing on ‘to what extent’ or
‘how well’ a business needs to develop its asset management capabilities.
The standard is a framework; an organisation can address the require-
ments necessary to demonstrate compliance, but its processes for
doing so can still be at a relatively low level of maturity.
For the many asset-intensive businesses under pressure to deliver
more for less, compliance with BSI PAS 55 is a good starting point,
but compliance alone is unlikely to be enough. Good asset management
is also about implementing a culture of continuous improvement.

3 BSI PAS 55 compliance

Compliance is sometimes seen as a cost to a business. However, it could
also be viewed as an investment in risk mitigation. When managed prop-
erly, compliance will help to protect the business from possible losses
involving financial penalties, loss of reputation, market confidence, etc.
Good asset management considers compliance with legal obligations,
standards and statutory requirements to ensure that the business meets
its obligations to customers, stakeholders and regulators.
Third-party assessment and self-assessment against the requirements
of BSI PAS 55 can assure the customers, stakeholders and regulators of a
business that its corporate asset management processes are following
good practice. The Institute of Asset Management (IAM) identifies the
76 Asset management – Whole-life management of physical assets

benefits of implementing BSI PAS 55 as including:

. enhanced customer satisfaction from improved performance and
control of service delivery
. the ability to achieve and demonstrate best value for money
. improved risk management and corporate governance – with a
clear audit trail
. optimised return on investment and/or growth
. improved health, safety and environmental performance
. confidence from long-term planning, better sustainability and per-
formance
. improved corporate reputation, including enhanced shareholder
value, greater staff satisfaction, and more efficient procurement
and supply chain.
Of course, to a public or private organisation true business benefit only
comes by reducing resource requirements, be they people, money or the
consumption of natural resources. Businesses thinking of adopting BSI
PAS 55 should, therefore, not just be asking ‘What is the benefit of
PAS 55 compliance?’, but also ‘What is the financial benefit of asset
management?’.
Beyond reductions in operating cost, bottom-line benefits are not
always immediately apparent, although evidence shows that a range of
other benefits can be achieved. Through adopting a systematic approach
to asset management, businesses have been able to lift performance,
increase productivity and improve services within existing budgets by
targeting limited funding on the improvement areas that can provide
the greatest benefits.

4 The evolution of asset management

Asset management is not a new discipline. Rather, it has evolved over a
number of decades, and has learned from and incorporated other disci-
plines and techniques. Figure 4.1 shows the gradual evolution of
different corporate approaches to the management of the business, and
the management systems and frameworks that have supported them.
Although its beginnings stem from the industrial age, the realisation
commenced in the 1970s that the effective management of assets involved
more than simply reactive maintenance, i.e. fixing something when it
breaks. Most recently, an enterprise-wide approach has begun to take
hold, which involves businesses looking at their entire asset portfolio
and the interactions between asset systems. This has contributed to a
 Section 1: Beyond BSI PAS 55 compliance
Engineering-led
Companies
Project
Management
Programme
Management
Value
Engineering
Systems
Integration
Asset
Management

Up to 1970s 1980s Late 1990s Asset

1970 1980s Management
Enterprise-wide
Approaches
Total Quality e.g. balanced
Management scorecard
ISO 9000
Quality Systems
Management by
Objectives
Command
and Control

Fig. 4.1 The evolution of asset management. (Reproduced by permission of AMCL)

77
78 Asset management – Whole-life management of physical assets

situation where businesses now see asset management as a powerful tool

to help them achieve their corporate objectives, rather than as just a cost
centre. The recognition that enterprise-wide asset management applied
through the whole asset lifecycle can actually add value to a business
means that asset managers now want to understand better their
capability to do this.

5 Maturity scales
To avoid the risk of supply implementing a compliance culture, and to
ensure that asset owners are fully engaged in developing their asset
management capabilities, it is essential to develop a transparent
method of determining asset management capability that all stake-
holders can understand and buy into.
To allow a business to answer the vital questions ‘How good are we?’
and ‘How good do we want to be?’, a maturity scale is needed, where
each level, or state, on the scale is described in terms of the typical
characteristics of a business operating in that state. An example of a
maturity scale is shown in Fig. 4.2. This particular scale ranges from
‘innocent’ to ‘excellent’.

The maturity scale has six maturity states:

The organisation is starting to learn about the importance of the
1 Innocent asset management activity
The organisation is aware of the importance of the asset management
2 Aware activity and has started to apply this knowledge
The organisation is developing its asset management activities
3 Developing and embedding them
The organisation’s asset management activities are developed
4 Competent embedded and are becoming effective

The organisation’s asset management activities are fully effective

5 Aspiring and are being integrated throughout the business
The organisation’s asset management activities are fully integrated
6 Excellent and are being continuously improved to deliver optimal whole-life value

Fig. 4.2 Example maturity scale. (Reproduced by permission of AMCL)

6 Maturity models
By calibrating maturity states against industry benchmarks, a maturity
model can be produced that allows a business to determine the current
Section 1: Beyond BSI PAS 55 compliance 79

state of its capabilities and a vision of where it wants to be. This vision
can be determined relative to industry standards or competitors or,
indeed, may be set by a regulator. The issue for most businesses is not
to simply target excellence in all activities, but to decide the appropriate
level of capability it needs in each of its activities and in what order to
develop this.
The transitions that a business makes between maturity states as it
develops its capabilities towards its targets can be categorised by the
behaviours needed to achieve each stage of transition, i.e. learning,
applying, embedding, integrating and optimising. These behaviours are
shown relative to the maturity states in Fig. 4.3, which also shows
where the ‘limit of known (or recognised) asset management best
practice’ is positioned. The percentage scale is based on the IAM’s
PAS 55 assessment methodology (IAM, 2008), which includes additional
maturity states beyond PAS 55 compliance.
The limit of known best practice is not a fixed destination, but is rela-
tive to the current performance of industry leaders and the perception of
what should be achievable within that industry. The constant flow of
new asset management tools and techniques means the best practices
of today may not be tomorrow’s. While, theoretically, one organisation
could demonstrate best practice performance in all areas, it is more
realistic that the best practice benchmark is a combination of scores
from a number of businesses.
Best practice levels should also be determined based on compara-
tors from other industries/sectors and countries. These broader
measures ensure that notional best practice levels are not set
artificially low when a particular industry exhibits generally low levels
of performance.
The ‘limit of known asset management best practice’, shown in
Fig. 4.3, should not, therefore, be viewed as an end point, but as the
current horizon of the asset management landscape. This landscape
will continue to evolve and re-shape as the needs of businesses change
and evolve along with the technologies that support them.

7 Assessing maturity
A maturity model can be used to determine how well an organisation has
adopted appropriate best practices. The maturity of an organisation is
not a measure of how complex its asset management processes are but
of how appropriate they are for the costs and risks being managed.
There are a growing number of maturity models available against
 80
Asset management – Whole-life management of physical assets
Fig. 4.3 The maturity scale: the behaviours a business exhibits as it develops. (Reproduced by permission of AMCL)
Section 1: Beyond BSI PAS 55 compliance 81

which a business can assess its current state of maturity and plan its
target state. One of the more established is the AMCL Asset Manage-
ment Excellence Model (AMEM). This model has been calibrated
against industry benchmarks globally, and enables businesses to assess
their asset management capabilities and compare them against best
practice. It is built around the six groups and 23 activities shown in
Fig. 4.4. These span the range of technical, organisational and human
capabilities needed to achieve world-class asset management.
The AMEM tests the existence, completeness, effectiveness and
integration of these asset management activities, and is applicable to
any organisation operating in an asset-intensive environment. Businesses
are scored against each of the 23 AMEM activities using a range of
assessment criteria and questions, with the scores being presented
using the maturity scale shown in Fig. 4.2. AMEM results can be used
to identify and prioritise improvements based on where a business sits
relative to the world best practice. Improvement actions are then
identified based on the criticality of each activity to the business, the
current scores for the assessment criteria that make up each activity,
and the targets a business and its stakeholders wish to set themselves
for each activity.
The benefits of assessing maturity in this way include:
. a clear view of a business’s strengths and areas of opportunity
. identification of internal areas of excellence
. identification of applicable external best practices
. certification to BSI PAS 55, if required
. a prioritised roadmap of activities requiring improvement
. tangible evidence to support decisions for enhancing a business’s
systems, processes and procedures.
The AMEM database is constantly updated with emerging best prac-
tices, which are used to continuously improve the maturity assessment
process.

8 Maturity is not the same as complexity

A maturity model can be used by a business to determine the level of
maturity of its current asset management capabilities. However,
maturity is not the same as complexity.
A sophisticated approach to the analysis of a problem may result
in the adoption of a non-complex solution. For example, once a
business has analysed the maintenance requirements of its asset base,
 82
Asset management strategy and planning
1.01 Policy and strategy
1.02 Demand analysis
1.03 Strategic planning
1.04 Asset management plans

Whole-life cost justification

Asset management – Whole-life management of physical assets

Asset 2.01 Opex evaluation
Risk and management 2.02 Capex evaluation
Review strategy 2.03 Asset costing and accounting
and planning
Lifecycle delivery
3.01 Asset creation
3.02 Systems engineering
3.03 Maintenance delivery
3.04 Resource and outage management
Organisation Whole-life-cost 3.05 Incident response
and people justification 3.06 Asset rationalisation and disposal

Asset knowledge
4.01 Asset knowledge standards
4.02 Asset information systems
4.03 Asset knowledge and data

Asset Lifecycle Organisation and people

knowledge delivery 5.01 Contract and supply management
5.02 Organisational structure and culture
5.03 Individual competence and behaviour

Risk and review

6.01 Risk assessment and management
6.02 Sustainable development
6.03 Weather and climate change
6.04 Review and audit

Fig. 4.4 The AMCL Asset Management Excellence ModelTM. (Reproduced by permission of AMCL)
Section 1: Beyond BSI PAS 55 compliance 83

and how the risks associated with these assets can be mitigated by
different strategies (e.g. renewal, inspection, maintenance), it may deter-
mine that, for certain less-critical assets, a simple ‘run-to-failure’
approach may be the most cost-effective (office lighting is a typical
example here).
Conversely, for high-criticality assets, where failure would impede
service delivery, a more complex combination of condition-based
inspection and risk-based maintenance, supported by built-in asset
redundancy, may be appropriate. It may not be appropriate, or cost-
effective, for a business to apply such sophisticated techniques to its
entire asset portfolio, and the method for determining the relative
criticality of assets itself carries a degree of sophistication. It is the
business’ processes that need to be sufficiently mature such that it can
determine the appropriate level of complexity needed in its approach
to asset management. A simple approach to a simple problem can be
excellent, in maturity terms, but the same approach to a complex
problem is unlikely to be.
The financial impact of getting this right can be significant. The New
York State Department of Transport (NYSDOT) spends around
$3.5 billion per annum to maintain its assets, including 113 000 miles
of highways and 17 000 bridges (NYSDOT, 2008). It implemented a
Transportation Asset Management (TAM) programme in May 2003,
and since then this programme has been used to drive the department’s
transportation infrastructure management strategy, using economic,
engineering and mathematical analysis to optimise the operational and
capital works programme.
New York was among the first states to automate its highway
information systems and to use decision support tools when consid-
ering highway investments. The NYSDOT initiated management
reforms that established clear lines of management responsibility, goal-
oriented programming, and improved and integrated management
systems.
The NYSDOT found that replacing highways pavement when it had
reached a ‘very poor’ condition would cost five to six times more than
replacing it when it reached a ‘poor’ condition. In other words, $1
spent in time could save $6 later. Similarly, timely intervention for its
bridge assets meant that it could gain up to 35% more asset life than
if they implemented a policy of no corrective maintenance. Simple
procedures, such as washing the bridges down to remove salt, were
also found to have a marked effect on extending the life of the assets
before more complex heavy maintenance became necessary (FHWA,
2003).
84 Asset management – Whole-life management of physical assets

9 Determining an appropriate level of maturity

To achieve a state of competence across asset management activities, a
business would typically need to have understood and documented all
the processes associated with asset management within their organisa-
tion, and to have demonstrated that they exist and are complete. This
is, of course, the aim of audit activity, and is typically the manner and
level at which a business can verify it meets the requirements of an
appropriate standard, such as BSI PAS 55.
The IAM currently defines BSI PAS 55 as being at the upper end of
the competent band on the maturity scale shown in Fig. 4.3. However,
the BSI PAS 55 standard is a framework, not a maturity model, because
it is not calibrated against best practice, and does not specify the extent
to which a business needs to develop processes in order to achieve
compliance. Instead, it allows businesses the flexibility to select the
sophistication of their approach to be appropriate to their needs. An
organisation can address the requirements necessary to demonstrate
compliance how it best sees fit, but the maturity of these processes for
doing so can range from relatively low to relatively high.
An audit can provide a view of a business’ compliance with the
requirements of BSI PAS 55 and identify the requirements for improving
its capabilities. However, the key drivers for developing higher levels of
maturity lie in how able the business is to apply and integrate those
capabilities effectively across the organisation.
By recognising the need to match the maturity of the business to its
situation (i.e. the value of its asset portfolio, and the condition and
performance of those assets), a business can improve in a logical cost–
benefit driven way that is tailored to its situation. Large, valuable,
complex infrastructure portfolios require a more mature approach to
asset management. This necessitates a better definition and assessment
of the higher levels of maturity, and it is here that the notion of going
‘beyond BSI PAS 55 compliance’ becomes relevant. This indicates a
recognition by the business that, from a cost–benefit perspective, a
more sophisticated approach to certain of its asset management capabil-
ities will give greater value than a level of maturity that simply complies
with the minimum requirements of BSI PAS 55.
This flexibility to choose the best appropriate practice allows a
business to demonstrate compliance yet makes BSI PAS 55 continue
to be appropriate for organisations with different constraints and objec-
tives that are seeking higher levels of maturity in their asset management
capabilities (i.e. to determine the best appropriate use of resources in the
context in which the business is operating). When considering the test of
Section 1: Beyond BSI PAS 55 compliance 85

appropriateness, it may be that a business is expending too much

analysis effort that is not justified by the benefits, or implementing a
regime that is complex but not actually cost effective.
In this way, BSI PAS 55 can incorporate the needs of small as well as
large businesses, and is particularly valuable to those just starting to
understand the role of asset management. It prevents the need for
businesses targeting compliance with BSI PAS 55 to ‘start from scratch’
in the development of their asset management systems. Instead, it allows
them just to identify the gaps in their existing systems and develop these
to the level of maturity initially required to achieve compliance, and then
beyond this if they so wish.
This challenge should not, however, be underestimated. Each improve-
ment opportunity identified will have different benefits that need to be
understood and prioritised, and not every potential improvement will
yield value to the business; indeed, some may have a negative impact. A
business needs to identify the improvement projects that are warranted
and have demonstrable business worth, as good asset management relates
the needs of the assets and business to the maturity of the approach.

10 The asset management value chain

The value chain, also known as ‘value chain analysis’, is a concept from
business management that was first described and popularised by
Michael Porter (1985). A value chain is a chain of activities. Products
pass through all activities of the chain, in order, and in each activity
the product gains some value. The chain of activities gives the product
more added value than the sum of the added values of all the activities.
The role of the ‘asset management value chain’ is, therefore, to identify
the benefits and implementation priorities for improvement opportu-
nities in business-case terms.
In his Chapter 1, ‘Asset management in the rail and utilities sectors’,
Richard Edwards describes a model of the ‘ideal’ components, or
activities, of an asset management system, which it may be helpful to
consider when determining how each contributes to the value chain of
the business. It is the process of integrating these activities that truly
creates the value chain.
Assessment using a suitable maturity model delivers an evaluation of
the current state of maturity of a business. Once it has defined a target or
future-state maturity, the business can plan how to reach it by using gap
analysis to identify the opportunities to improve asset management
capability to the target maturity level. It is appropriate to apply
86 Asset management – Whole-life management of physical assets

‘weighting factors’, as maturity scores need to be related to value and

benefits to get a better idea of their actual worth to the business. This
defines the value chain – a prioritised set of initiatives, or improvement
projects, that form the basis of the roadmap to deliver the target levels of
maturity, and benefit.
The value-chain concept helps a business decide the logical order in
which improvement actions should be undertaken, and to take account
of the difference between best appropriate practice and the costs of
implementation. For example, businesses can spend significant sums on
implementing enterprise resource planning (ERP) systems, without
ensuring that such systems are aligned with the business’ needs and objec-
tives. An ERP system is only as good as the information that it contains,
and this will ultimately reflect on the quality of decision-making in
running an economic and efficient organisation. Uncertainty in the quality
of the asset data upon which that information is based is an unavoidable
risk. ERP systems must be able to cope statistically with this uncertainty if
they are to be utilised successfully in decision support. The priority for a
business should, therefore, be to understand the information requirements
necessary to drive its core processes, and hence the supporting data
requirements, before specifying and procuring ERP systems. When
considering the gap analysis between current and target maturity in this
instance, a business should attach a higher significance to first undertaking
an analysis of its stakeholders’ true information requirements over the
asset lifecycle, rather than accepting the ERP vendors’ standard products
as representing best appropriate practice for them.
Eventually, the roadmap to support delivery of the asset manage-
ment value chain will be fully formed, and often will benefit from the
shortcuts identified when looking at how others have developed their
own asset management capabilities. Ready access to sources of such
raw material on the likely benefits and costs is diverse. In the UK, the
IAM has begun a Body of Knowledge programme that will serve,
ultimately, as a compilation of such evidence, and assist individual
organisations to determine what is appropriate in their own contexts.

11 Implementation – case studies

For the roadmap to deliver the benefits expected of the asset manage-
ment value chain, the plans must become a reality. In most instances,
the transformation of the organisation will come about by a combina-
tion of changing how the business thinks and works, developing the
competence of the people within the business, and deploying appropriate
Section 1: Beyond BSI PAS 55 compliance 87

information technology, such as ERP systems, to support them. Such

change requires commitment from the whole organisation, from the
top down.
Two organisations that have taken a maturity-based approach to the
development of their asset management capabilities are Network Rail in
the UK (ORR, 2007) and Orange County Sanitation District in the USA
(OCSD, 2003).
Network Rail is responsible for operating and maintaining the
railway network in the UK, with some 32 000 km of track and some
40 000 bridges being listed among its extensive asset base. By adopting
a maturity-based approach to asset management, Network Rail
continues to drive down the costs of running the railway, having
achieved savings of £178 million in 2007–2008 alone. This represents a
reduction of around 8% of its annual operating and maintenance
budget, while continuing to improve performance. Figure 4.5 shows
how in 2007–2008, punctuality reached 89.9%, and by 2009 it was
over 90%. This shows that benefits can take time to achieve, but with
continual improvement the results justify the investment in a systematic
approach to asset management.
Orange County Sanitation District (OCSD) in the USA has
also adopted a maturity-based approach to its asset management
programme. OCSD operates the third largest wastewater agency west of
the Mississippi River, servicing the needs of 21 cities and three special
districts covering an area of 471 square miles. OCSD recognised the
importance of having good condition and performance information,
which enables better decisions, and it has developed sophisticated deci-
sion support tools that help to prioritise and optimise investment.
Orange County Sanitation District reported in March 2009 (OCSD,
2009) that the adoption of asset management lifecycle processes meant
that the capital improvement program (CIP) had been reduced to
$270.7 million for 2008–2009 from an originally expected figure of
$373.9 million, while still delivering the required level of service to custo-
mers. This represents a reduction of 26.6% of their capital maintenance
plan as a result of a maturity-driven strategic asset management
initiative, which has been running since December 2002.
Orange County Sanitation District has also identified its key business
risks, and manages its performance in accordance with triple bottom-line
principles (economic, social and environmental). The concept of triple
bottom-line accounting was first proposed by John Elkington (1998).
In practical terms it means considering an altruistic approach that
takes into account environmental, social and financial performance,
and requires an organisation to be more responsible to its stakeholders
 88
100%
93.4%
95%

90% Pre-Hatfield MAA P7

Asset management – Whole-life management of physical assets

00/01–86.1%
90.8%
85%

80%
PPM

75%

70%

65%

60%

55%

00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10

Period result
MAA

Fig. 4.5 Network Rail’s performance record. (Source: Public Performance Measure (PPM) 2000/01–2009/10, Network Rail.)
Section 1: Beyond BSI PAS 55 compliance 89

(including customers and end-users), rather than just to its shareholders,

placing their interests as equal with delivering profits.

12 Conclusions
Businesses are under pressure from customers, stakeholders and regula-
tors to provide better services without increasing costs or risks. Good
asset management is, therefore, essential to any business faced with the
need to achieve its stated objectives with fewer resources.
Asset management has gained credibility worldwide and become a
discipline in its own right. As it continues to develop, more tools and
publications have become available to support practitioners, such as
BSI PAS 55 and various maturity models.
Assessment against the requirements of BSI PAS 55 is a good starting
point for an organisation wishing to understand the fundamentals of
asset management. However, a number of leading organisations have
taken this a step further, and are regularly benchmarking themselves
against other industry sectors in a bid to learn from best practice
around the world, and develop their asset management capabilities
beyond that required purely for compliance with standards where
business value can be demonstrated.
The asset management value chain plays an important role in
identifying business value and implementation priorities for improve-
ment opportunities in business-case terms. Organisations that have
successfully developed their asset management capability have typi-
cally had a good understanding of the asset management value chain,
and how it applies to their business and the contexts in which they
operate.
The challenges to businesses going forward include the growing
impact of sustainability issues (e.g. climate change, carbon trading),
increasing population and demand for services, constrained budgets,
ageing assets and workforces, security issues, the pace of technological
change and the scarcity of specialised resources. The pressure to do
more with less is set to increase.
A maturity-driven approach to asset management is an effective way
of helping businesses balance the needs of their stakeholders and make
use of limited resources wisely. Although there are some quick wins to
be had when implementing an asset management improvement
programme, the benefits tend to be incremental over a period of time.
Businesses that simply reduce resources without a full understanding
of the implications for their value chain, in terms of both risk and cost,
90 Asset management – Whole-life management of physical assets

could well be considered by some of their stakeholders to be acting

negligently.

References
BSI 2008. PAS 55: 2008: The Specification for the Optimized Management of
Physical Assets, Parts 1 and 2. British Standards Institute, London.
Elkington, J. 1998. Cannibals with Forks: The Triple Bottom Line of 21st Century
Business. Capstone, Oxford.
FHWA 2003. Economics in Asset Management. US Transportation Asset Manage-
ment Case Studies. Department of Transportation, Federal Highway Adminis-
tration, New York, NY.
IAM 2008. Asset Management Competences Framework. Institute of Asset
Management, London.
NAO 2009. Failure of Metronet Report. National Audit Office, London.
NYSDOT 2008. Multimodal Transportation Program Submission: 2009–2014.
New York State Department of Transport, New York.
ORR 2007. Best Practice Review of Network Rail’s Asset Management. Office of
Rail Regulation, London.
OSCD 2003. Asset Management Strategic Plan. Orange County Sanitation
District, Fountain Valley, CA.
OSCD 2009. Financial Report Third Quarter Ended March 31st 2009. Orange
County Sanitation District, Fountain Valley, CA.
Porter, M. E. 1985. Competitive Advantage: Creating and Sustaining Superior
Performance. The Free Press, New York, NY.
Section 2. Organising for
asset management
5 Asset management strategy: leadership
and decision-making
Penny Burns Editor, Strategic Asset Management and Director, AMQ
International, Australia

Asset management strategy can be thought of as three separate, but inter-

connected, layers of decision-making: deciding goals and objectives (Where
do we want to go?); determining the best organisational structure for these
goals (How do we get there?); and assessing performance, making directional
change and reinforcing organisational values (How are we doing?). These
aspects are discussed in this chapter, with illustrations and applied techniques.

1 Introduction
Asset management strategy can be thought of as three separate, but
interconnected, layers of decision-making:
. The outer circle, where the organisation connects with the wider
world and makes decisions concerning its goals and vision. These
decisions answer the question: ‘Where do we want to go?’
. The inner circle, where the organisation’s strategic decisions con-
cern how the organisation should be structured to best achieve
its goals and vision. These decisions answer the question: ‘How
do we get there?’
. The core, where the organisation monitors its achievement of its
goals and vision, where it reinforces its values, and where it receives
and analyses feedback. These decisions answer the question: ‘How
are we doing?’
After a short introduction to the concept of asset management strategy,
each layer is discussed, some tools and techniques are introduced, and
some short case studies presented.

2 Asset management and its strategy

Asset management developed over a period of relative political stability
and economic growth, when the usual answer to an asset problem was
to devote more money to it. Whether the preferred answer was more
Asset management – Whole-life management of physical assets # Thomas Telford 2010
978-0-7277-3653-6 All rights reserved
94 Asset management – Whole-life management of physical assets

maintenance, more renewal or more assets, the common element was

‘more’. But, with the change in economic climate, the ‘more money’
solution needs to be challenged. Extra funds for maintenance, renewal
and new assets, in the absence of general growth, means there are
fewer funds for other uses. The same applies to more resources for
asset management itself. The need now is not for ‘more’ spending, but
for smarter, more strategic spending – for understanding the role of
asset management strategy.

2.1 Asset management is concerned with activity

Twenty or so years ago, when asset management was developing as a
discipline related to, but separate from, maintenance and its manage-
ment, it was common to indicate the wider breadth of asset management
by listing the activities involved, of which maintenance was but one.
Thus, for example, in the late 1980s we would see definitions such as
‘Asset management covers the acquisition, maintenance, operation,
rehabilitation and disposal of assets’. These activities would normally
be shown in the form of a ‘lifecycle’ (Fig. 5.1) representing movement
from ‘birth to death’ of the asset (or from ‘lust to rust’ as some more
colourfully referred to it). Now known collectively as ‘engineering
asset management’, these lifecycle activities and the theory behind
them are taught in engineering schools around the world.
To these must be added the activities of accountants, planners,
designers, and regulators amongst others, for asset management is a
multidisciplinary activity. The initial engineering focus was ‘asset
centric’. This has broadened in recent years by recognition that the
purpose of the activity is a critical determiner of what is to be done
and by increased recognition of the importance of the longer term.
Thus, the content of the above definition is expanded by the addition
of ‘to meet a required level of service in the most cost effective/profitable
way’ and ‘for present as well as future communities/customers’. Nor
would we today omit the rider ‘and to protect the environment’. This

Fig. 5.1 Life-cycle activities

Section 2: Asset management strategy: leadership and decision-making 95

Fig. 5.2 Expanded multi-disciplinary activities within a decision context

broader definition sets the decision-making context, and Fig. 5.2 shows
asset management activities set within this purpose-driven decision-
making context.
Most of the developmental effort to date has been applied to creating
better tools and techniques and to training asset managers within their
professions. Yet, with greater awareness, understanding and, to a
degree, accountability of the existing investment in infrastructure and
the associated issues of risk, opportunity and resource allocation, has
come the realisation that it is not sufficient for each group, each silo,
acting in isolation simply to do its job better. To achieve more effective
outcomes for the organisation itself, a whole new level of decision-
making is required to bring each silo into line with the others, as well
as with the organisation’s goals and outside pressures, and this is asset
management strategy.

2.2 Asset management strategy deals with decision-making

Asset management strategy is still relatively new. It transcends
engineering and accounting, for it is not an activity – rather it comprises
the decisions that take place before and between activities. It is corporate
in focus.
It is helpful to think of this strategic decision-making in terms of three
distinct, but interconnected, levels: an outer level that looks outward – to
the community or customer, and to the future; an inner level that looks
inward – to the organisation itself, and how it is structured and operates;
and a central core that serves as a focal point – its role being to monitor
the achievement of the corporate vision and to reinforce corporate
values. This three-level decision-making concept is illustrated in Fig. 5.3.

2.2.1 Level 1: the outer circle – vision and values

The outer level is the highest, most strategic, level of decision-making. It
takes place in that space where the organisation connects with the rest of
the world. It looks outward.
96 Asset management – Whole-life management of physical assets

Fig. 5.3 The three levels of decision-making

Decisions here answer questions such as: What is it that we wish to

achieve in the longer term? What won’t we do in order to achieve
these things? That is, What are our values? What drives us? How do
we balance our short-term needs with our long-term desires? How do
we balance profitability with community awareness, on the one hand,
and environmental sustainability, on the other? Are we sustainable?
The answers to these questions set the organisation’s asset and asset
management parameters.
The critical dimension of the outer circle is breadth. The most strategic
of organisations will have a very broad outer circle. Their vision setting
will be inspired, energising and will take a long-term perspective. Consid-
erable effort will be put into setting goals and aspirations, testing them
against a range of future scenarios, and examining the consequences of
each for the most effective asset portfolio and asset management struc-
ture that will best serve the organisation. Non-strategic organisations
will have a narrow outer circle, and most of their energies will be devoted
to management of the current situation. Any vision statement will be
broad and hazy.

2.2.2 Level 2: the inner circle – organisational structure

The inner circle is concerned with the design of the organisational
structure, and how relationships between each organisational element
serve the corporate good and help it to achieve its vision. It thus has a
corporate, but inwards, focus.
Decisions here answer questions such as: What does a good
organisational structure look like? Which is the best structure to
adopt? Where do we start? How do we create incentives for initiative
yet control change? How do we balance innovation and risk? For infra-
structure organisations and those with a major asset component, these
organisational questions are clearly asset management questions.
Charles Johnson discusses these issues further in Chapter 6, ‘Creating
an asset management culture’.
Section 2: Asset management strategy: leadership and decision-making 97

The critical dimension of the inner circle is balance. The best strategic
organisations ensure an appropriate balance between the power of
different activity sectors, with no one dominating others to the detriment
of the corporate whole. Corporate guidance is strong. Values of coopera-
tion for the overall good predominate. Staff share the corporate vision
and values. Good-quality and timely information exchange between
activities is easily facilitated. Non-strategic organisations allow power
imbalances to arise for structural reasons or because of personalities.
This is often seen in the dominance of engineering or finance. Planning
may be disconnected with both. There is little cooperation between
silos. Activities drive decision-making rather than corporate decision-
making driving activities. Mindless compliance with minimum standards
prevails. Intelligent questioning and improvement is hampered by lack of
a shared corporate vision and values.

2.2.3 Level 3: the central core – performance

The central core performs two tasks: it monitors achievement and it
reinforces values.
Decisions here answer questions such as: How do we stage our
aspirations? Is asset management evolutionary or revolutionary? Are we
on track to meet our vision, goals and aspirations? How do we know?
And, if we are off-track, how do we regain direction? How do we create
incentives to go beyond mere compliance? How do we get key personnel
to think beyond their own area and beyond their own tenure?
The critical dimension of the core is focus. The core is what anchors the
organisation and keeps it on track. The core is where we reinforce the
vision/values through internal communications of all kinds – what gets
rewarded and punished, what gets praised, what gains promotion, etc. It
is here that we see the practical application of the organisation’s values.
If there is inconsistency between actual performance at the core and the
stated vision, the core wins! This is where the ‘rubber hits the road’ as
far as values, goals and aspirations are concerned. Highly-strategic organi-
sations have clear values and goals. Outcomes, not merely outputs, are
monitored. Effort is directed to ensuring that the values are reinforced
and that the vision is a shared vision. There is a focus on the longer
term. Non-strategic organisations lack clear values and goals. Reward
practices are inconsistent, and often contradictory. A short-term focus
predominates. Desired outcomes are not clearly stated or monitored.

2.2.4 Summary
The best asset management organisations are ones that have a tightly
focused core that mirrors the vision and values of the outer circle, a
98 Asset management – Whole-life management of physical assets

balanced inner circle, with no one section dominating the whole, and an
extensive outer circle that reaches far out to the community and the
future.
These terms are, of course, purely symbolic, but they represent key
ideas.
There are, and can be, no objective tests by which you can determine
how you fare on each of these scores. Your needs are your needs. Your
circumstances are your circumstances. Benchmarking can be, at best,
indicative of areas to re-examine, not a tool for setting targets or
objectives. In this sense, then, asset management strategy is as much
an art as a science.
In each of the next three sections, we expand on the questions raised
above, indicate briefly some of the fields of knowledge that are relevant
to the strategy task, provide some illustrations of the problems that
can arise when strategic thinking is not applied or is misapplied, and
introduce some useful new techniques.

2.3 The outer circle – vision and values

The most strategic, or direction-setting, decisions are made at the outer
circle (Fig. 5.4). Asset management strategy is a corporate, not a middle
management, occupation.
What is your vision for the future? How far forward do you look?
What scenarios have you considered, what analysis of trends have you
conducted? What constraints must you overcome or live with in
achieving this vision? Without a good understanding of the past, and a
thoughtful, analytical, approach to the future, a strategy is not a
strategy, it is just a wish.
What are your organisational values? What will you not do, no matter
what? What are you prepared to give up in order to achieve your main
objectives? Value decisions are not easy decisions to make, if you
really intend to implement them, but without them you have no strategy.

Fig. 5.4 The outer circle

Section 2: Asset management strategy: leadership and decision-making 99

You may have a so-called ‘vision statement’ or ‘strategic plan’ but,

unless you have thought through what the achievement of your vision
or plan means and what you are prepared to give to achieve this
vision, and unless you have communicated this throughout your organi-
sation and brought everybody on board, you actually have no real
strategy, no real plan – only a wish.
Together, your vision and your values, and how well developed they
are, determine your organisation’s success.

2.3.1 Vision – the ability to ‘see’ the future

A company’s vision is a picture of what it wants its future to look like. If
the organisation is to buy into that vision, it must seem possible to
achieve, even if it is a challenge (as with the best of company visions).
Any vision that does not take account of the likely future is more a
wish than a vision. While the future is unknown, it never comes as a
complete surprise. Looking back, there were always indications. The
trick is to see them ahead of time. This field of inquiry is ‘thinking
forwards’. It is more than projection, although projection is involved.

2.3.2 Tools and techniques

Straight-line extrapolation is the most common form of future projec-
tion, yet it is rarely useful for more than a year or so ahead, if that.
We need to consider the rate of change – and even changes in the rate
of change. This means understanding the ‘reasons why’ and not simply
the ‘what’. For example, demand may be increasing, it may have
increased 3% p.a. for the last 2 years; are we, therefore, safe to assume
a continuance of growth of 3% p.a. over our planning period of
10 years or more? Until recently, this was a common practice for
many organisations. Now it is realised that we need to know what was
driving the growth in recent years. Maybe population was expanding,
and we need to consider whether it will continue to expand, and, if so,
at what rate. Maybe new technology was driving demand, and we
need to consider what point on the take-up curve the new technology
has now reached and will reach over the planning period. Maybe it
was a combination of these things – and also of old technology becoming
more affordable, or regulatory action encouraging change in demand.
Each element of demand will change at a different rate, and thus
future demand can seldom be represented by a straight line.
Trend impact analysis, for example, the effects of trends in markets,
population, oil prices, etc., over a given time period, is an improvement
over the simple straight-line extrapolation described above, and, better
still, is cross-impact analysis, which is analysis of complex systems in
100 Asset management – Whole-life management of physical assets

which the analyst looks for ways in which forces combine to generate
effects greater than the sum of the parts. The Delphi method is designed
to create a consensus view among experts, and is widely used in tech-
nology futures. Delphi goes beyond mere extrapolation, but, as with
the other techniques, it still seeks a single-point future.
Thinking forward is difficult for asset management strategy, for the
following main reasons:
. all ‘hard’ data or facts relate, by definition, to the past
. the data relates predominantly to supply rather than demand
. organisations may know what they have sold, but they do not, and
cannot, know what they would have sold had the price, or circum-
stances, been different.
To get from the past to the future requires the use of assumptions. This is
true of supply (all renewal projection models, lifecycle models, etc., need
assumptions), and it is also true of demand. But, whereas there are many
techniques for analysing data, there is almost nothing for analysing
assumptions. Most assumptions are implicit, i.e. not documented, and,
even if explicit, are not often subject to much examination. This creates
circumstances where assumptions are not widely understood, not
necessarily consistent with each other, and difficult to change when the
world changes. This is illustrated in the ‘case in point’ at the end of
this section.

2.3.3 New technique: scenario analysis

Scenario analysis is a strategic planning method that combines known or
likely facts about the future with a range of plausible alternative social,
technical, economic, environmental and political trends representing the
driving forces for change. This produces different scenarios reflecting
different assumptions, and thus enables the assumptions themselves to
be analysed by their impacts. Elaborate scenarios have been developed
by Shell, but even more moderate constructions can help organisations
in their vision development, by switching the focus from trying to predict
a certain future end-point to determining what needs to be done, and
what it is possible to do, to cope with whatever the future may bring.
The importance of using scenarios in the regulation of asset management
is discussed further by Richard Edwards in Chapter 9, ‘Regulating asset
management’.
Scenarios allow decision-makers to position themselves in the future
and to think through their reactions to a range of situations – before
they have to do it for real. Burns (2003b) provides some simple examples
for constructing scenarios.
Section 2: Asset management strategy: leadership and decision-making 101

2.3.4 Organisational values

The difference between a ‘motherhood statement’ and an ‘organisational
value’ is that values cost something. A real value always means that
something is given up in order to achieve it. The values of importance
to an organisation are determined in the outer circle; it is part of setting
the vision, but they are promulgated at the core by what gets rewarded.

2.3.5 Tools and techniques

Leaders in reputation risk management have put the following compo-
nents at the heart of their approach (Davies, 2004):
. a clear vision – what we stand for and are prepared to be held
responsible for
. clear values, supported by a code of conduct, setting out expected
standards of behaviour
. policies clearly stating performance expectations and ‘risk toler-
ance’ in key areas
. understanding of stakeholders’ expectations, information require-
ments and perceptions of the organisation
. an open, trusting, supportive culture
. a robust and dynamic risk management system that provides early
warning of developing issues
. organisational learning, leading to corrective action where neces-
sary
. reward and recognition systems that support organisational goals
and values
. extension of vision and values to major partners and suppliers
. open and honest communications tailored to meet the needs of
specific stakeholders.
The first of these, advisedly so, is a clear vision. Many vision statements
are far from clear. For example, most organisations would nowadays
claim to have sustainability amongst their goals and aspirations, but
what does this mean? Whether we are talking economic, social or
environmental sustainability, just what is to be sustained, and for how
long and at what cost? For example, what particular attributes of a
complex asset are to be sustained and which aspects are not important?
Consider the Shinto shrine at Ise. It has been rebuilt every 20 years
since 04 CE. The design uses ephemeral materials, yet it has done some-
thing that Stonehenge and the Great Pyramids have not – it has
sustained the beliefs of the Shinto institution. The Shintoists are not
concerned about the longevity of the asset (in fact they do not think of
their shrine as an asset), they are focused on outcomes.
102 Asset management – Whole-life management of physical assets

It is important to ask whether the task is to sustain assets, or rather to

sustain service, and, given that needs change, for how long?

2.3.6 Linkages within the decision circles

While, for clarity of discussion, we are considering each decision layer
separately, they are interconnected within the organisational structure.
For example, an inner circle consideration can have significant impact
on how the organisation sees the future and determines its vision (an
outer circle consideration).

A case in point
For many years the state power company had operated on the basis of
building a new power station every 2 years. So predictable was this,
that the company’s organisational structure was based on it. The
design team spent 2 years designing the new station, and when the
design was handed over to the construction team, it started on a new
one. Two factors contributed to the success of this approach – rapid
population growth and rapid technological change. The first generated
the demand, while the second resulted in each new generation of
power stations being larger, more fuel efficient, and, particularly, more
labour efficient, than the one before, so that only a new design and a
new plant was a viable option.
Inevitably, the time came when both population growth and techno-
logical change slowed. The slow-down in population growth meant that
the cycle of expansion needed to be extended beyond the customary
2 years. And the slow-down in technology meant that rehabilitation of
existing stations, previously not an efficient option, became by far the
cheapest means of meeting demand.
Asset growth in this organisation was driven by a computer model
that the CEO ruefully admitted no one in the organisation, except the
modeller, understood. Actually, the model had grown so complex over
the years that it transpired that even the modeller was no longer able
to explain what input factors were really driving the model’s outputs.
He did not understand, but did not question, the model’s logic.

What can be learnt from this illustration?

The organisational structure meant that individuals gained benefit from
a continuance of the status quo. It was a comfortable, well-worn path
and required little thinking. There was no customer focus.
When the predictive model required the next plant to be decommis-
sioned as a base-load station in half the normal time, alarm bells
should have gone off. They should have asked what was in the model
Section 2: Asset management strategy: leadership and decision-making 103

that caused this output. But they did not. The organisational structure –
reliance on a computer model that no one understood – conditioned
them not to look, and therefore not to see. Yet the signs were there.
The state of technological development and growth was no secret.
This company had a very narrow outer circle – its field of vision was a
mere 2 years, at the most, with the assumption that the next 2 years
would be the same as the past 2 years. It took outside intervention, a
parliamentary inquiry and change of Minister to force broader consid-
eration.
Shortly after the event described, the electricity industry was
commercialised and regulated. The company did not see this coming.
Yet commercialisation was happening in other industries, and it was
widely discussed. It would have featured in even an elementary approach
to scenario planning.
This illustrates that, while the role of the outer circle is to look
outwards, it can be compromised by the organisational structure
decisions that have been made (explicitly or implicitly) at the inner
circle level (Fig. 5.5).

Fig. 5.5 The inner circle

2.4 The inner circle – organisational structure

What is the right structure for asset management? The following is a true
story – it might be yours.
A rail company had, for many years, been organised according to
traditional functional divisions – finance, operations, IT, planning, etc.
Each division was run as a separate fiefdom, and the emphasis was on
inputs and process (Fig. 5.6).

CEO/executive panel

Finance Engineering IT Planning/environment

Fig. 5.6 Function-based organisation

104 Asset management – Whole-life management of physical assets

But the company believed that it had become large and unwieldy, and
its organisational structure did not allow it to respond rapidly to the
changing nature of its market. So, it restructured, this time based on
service-focused divisions (Fig. 5.7).

CEO/executive panel

Service 1 Service 2 Service 3 Service 4

Fig. 5.7 Service-based organisation

After a number of years of operation, the service heads became

strong, and the service divisions themselves became fiefdoms. Because
of the divisional focus, asset management took place with limited
consideration of how to best manage assets from a corporate perspec-
tive. In addition, it was noted that there was a lack of standardisation
in certain asset classes, which caused inefficiencies in procurement,
inventory and lifecycle maintenance. So, it restructured again
(Fig. 5.8).

CEO/executive panel

Asset class 1 Asset class 2 Asset class 3 Asset class 4

Fig. 5.8 Asset-based organisation

This time, the company decided to base its structure around, not
functions, not services, but assets. Thus, it created one division to
manage its buildings, one to manage its plant and equipment, another
to manage its fleet and yet another to manage its infrastructure. As all
services used each of the asset groups, the company considered that
this would enable it to impose some greater consistency over service
delivery.
Is this the final answer? You know it isn’t. There are many structures
that have worked for some organisations for some of the time, but no
single structure that is right for all and for all time (Burns, 2003a;
Wijnia, 2004).
After the enthusiasm for change management and re-engineering, in
which organisations were restructured every few years, we are starting
to question the damage this has done and to query whether it was
ever necessary, mindless change being no better than mindless stability.
Are there tools and techniques that work with any or, at least, most
structures? Yes, and one such is ‘we’ statements, which accomplish
Section 2: Asset management strategy: leadership and decision-making 105

the dual task of establishing and communicating the guiding value

statements of the organisation.

2.4.1 Tools and techniques: ‘we’ statements

The following is an excerpt from a much longer article by Harlow (2004).
We are dedicated to understanding our customers’ expectations and provid-
ing levels of service that they find of value.
We set clear service level policies and fund operations to meet these service
levels.
Our management shares a common vision of asset management and commu-
nicates it clearly with staff.
We know our assets. More importantly, we know what it is we need to know,
and we strive for better asset knowledge in all areas where it makes business
sense. We know our risk exposure and our costs of ownership now and into
the future.
We are extremely cautious in capital spending because we know that new
facilities impact our capital and O&M budgets on a continuing basis.

We maintain our assets for appropriate reliability. We know which assets

must not be allowed to fail as well as the reliability requirements for all
other assets. We monitor asset condition or use predictive maintenance
wherever it makes economic sense.

We provide service as if we were the customer. We spend our customers’

money as if it were our own.

2.4.2 New technique: investment logic maps

An asset investment is a response to a change in direction designed to
provide benefits to meet desired objectives that derive from the problem
or opportunity that is the driver: driver–objectives–benefits–change–
enabling asset. That is, the asset investment is at the end of the line.
Yet, people routinely jump in at the end-point and start considering
what the investment should be and how it should be funded. This is
the wrong starting point, argues the State Treasury of Victoria, where
the use of investment logic maps (ILMs) has been developed to a fine
art. Instead of wasting many thousands of dollars on ‘business cases’
for projects that have no real purpose, the ILM approach has enabled
departments to drastically cut back the number of projects that they
submit to cabinet – and to drastically increase the percentage accepted.
The ILM process:
106 Asset management – Whole-life management of physical assets

‘starts with a focus on the ends, rather than the means; on engaging investors
in a dialogue, rather than overwhelming them with detail; on being clear about
the practical enabling actions required; and on unambiguous assignment of
accountability for the proposed benefits. The right approach is to think like
an investor, not a project manager. . . Also, an investment’s life cycle is
longer than that of the project. Often, the value is not fully realised until
after the project team has disbanded. The investment life cycle starts with the
initial idea and ends only when the investors are happy with the return on
their capital or have revised their benefit expectations’ (Hodgkinson, 2008).

2.5 The core

2.5.1 Performance tracking
Decisions made at the core (Fig. 5.9) anchor the vision, goals and
values of the organisation. Consciously or unconsciously, decisions
made here determine the actual values held by the organisation, regard-
less of public pronouncements. Decisions at the core determine the
morale of the organisation, and thus how easy it is to recruit newcomers
and to hold onto staff. It is at the core that decisions determine the
credibility of your organisation and your success in achieving its goals
and vision.
The core is where you find the answers to ‘How can I encourage the
organisation to perform beyond mandatory levels of compliance?’,
‘How can I ensure that key performers think ahead beyond the end of
their term or tenure?’ and ‘How can I get key performers in different
divisions to work together for the common good?’ It is also where you
determine whether your people will be prepared to take sensible risks,
take ridiculous risks, or take no risks at all.
The two critical factors are what you measure and respond to, and
what you reward. The design of these measures and response mechan-
isms, and the reward practices established, are key strategic decisions

Fig. 5.9 The core

Section 2: Asset management strategy: leadership and decision-making 107

that determine whether your goals and vision will be achieved and
whether anything, including organisational structure, needs changing.

2.5.2 Measurement at the core is not by key performance indicators

Key performance indicators (KPIs) are useful efficiency measures for
divisions, but they make poor effectiveness decisions, as shown in the
following illustration, an actual case of a new quality control manager
in the white goods industry. The new manager tried to make a change
that would net the organisation an improved, more reliable product
for its customers, a pleasanter work life for workers and a sizeable
profit. One would think that the change would have been welcomed by
all, but this ‘case in point’ study shows how adherence to individual
KPIs blocked the achievement of a good organisational outcome
(Riegel-Huth, 2000).

A case in point – KPIs and the corporate good

The company’s statistics showed that the V-belt in their washing product
was the cause of a high percentage of machine failures and call-outs.
When called out to fix a fault, the technician fitted a different brand of
belt to that used originally, a brand widely regarded as a ‘fit and
forget’ belt, as the service technicians had used them for 5 years with
only one known problem. A few sums by the new Quality Control
Manager showed that the ‘fit and forget’ belt cost 10 cents more than
the one the factory used but, in terms of warranty costs, the ‘cheaper’
belt was costing about $1.10 for every washer produced. Switching to
the new belt would save $1.00 per washer – a small amount but, with the
quantities produced, this would amount to $200,000 per year per plant.
But, although it was a clear corporate gain, the KPIs by which indi-
viduals were measured meant it could not happen.

1. Engineering – the washer division’s chief engineer had been aware

of the problem, but had not seen it quantified. Could he specify this
fit and forget belt? Only if he wanted his performance to look bad,
because he was assessed on the basis of keeping down the factory
variable cost (FVC).
2. Purchasing – the purchasing manager could appreciate the advan-
tages of the new belt, but was also reluctant to take action. He
could introduce a FVC saving immediately, but if the cost of any
item went up then he had to be prepared to be grilled unmercifully
at each monthly meeting. His primary yardstick was the FVC-
reduction target – and if by his actions there was a saving in
warranty it would give him no kudos (all pain, no gain).
108 Asset management – Whole-life management of physical assets

3. Production Manager – the factory belt, as it came through the

door, had too hard a surface and would slip on the pulleys. Thus
the special equipment people had built a machine that wire brushed
the faces of the belt to scuff them. The extra labour cost of this
operation was about 10 cents/belt. Not only that, but the special
machine fouled the air with fine rubber dust, with the result that
the nearby lunch area was never used. What an opportunity!
Using the new belt would get rid of a particularly messy operation
and save the cost of an operator. A great opportunity? No, the
Production Manager was evaluated by the ratio of direct operators
(good guys) to indirect operators (bad guys). Removing a direct
operator, even an unneeded one, would send the ratio the wrong
way.
4. Divisional Manager – at least the divisional manager would under-
stand! Sure he did. His yardsticks were the collective sum of the
other yardsticks – so the below-deck logic applied at the top. He
was also responsible for the warranty cost of the product. But,
being no fool, he knew what his main yardsticks were – he had
his grilling each month in front of the Board and he knew exactly
what was important.
5. Chief Financial Officer – could Divisional Managers increase
the FVC and offset this with greater warranty savings? ‘Well I
suppose if a divisional manager actually wanted to increase the
FVC he could always come to Head Office and make a proposal.’
There it was again. The number one yardstick – FVC – was all
pervading.
Fortunately, the company had a good CEO who had the foresight to
have asked the Quality Control Manager to sit with him and his key
managers on an irregular basis and advise them on what they could do
to improve quality. He raised the story of the V-belt, prefixed by
‘Here’s a story that I think might amuse you’.
6. The CEO – was not amused!

If not KPIs, then what?

Here, it is necessary to distinguish between asset performance and asset
management performance. They are different, and each is important.
As we saw in the above case in point, KPIs are related to processes,
not to outcomes and not to assets, and, while their original purpose
was to ‘measure unit performance’, they quickly become objectives in
their own right for the units concerned, producing the distortions that
the story illustrated.
Section 2: Asset management strategy: leadership and decision-making 109

The measures that are needed for asset management strategy

decisions are those that relate assets and asset performance to the
organisation’s desired outcomes. They are easy to distinguish from
KPIs because they all require analysis and interpretation, i.e. thought.

3 Asset performance and asset management

performance
Most asset-based companies have in place some indicators of current
asset performance. Ideally, these show the assets’ contribution to service
or production outputs. For example, if you have a service measure of lost
customer minutes (as in electricity generation), you will wish to see what
is causing the loss. Is it a failure of the assets (plant breakdowns), or is it a
failure of overall capacity (a strategic issue)? If your service measure is
the number of trains delayed, as in some rail companies, the reports
will usually tell you whether this is a problem with the assets, such as
the track, signals or train, as opposed to, say, drivers not being available.
Working out the ‘asset’ and the ‘asset management decisions’ contri-
bution to outcomes is not always straightforward, but the principles
need to be clear. Why did an asset fail to deliver? Is it because of a
failure of the asset (undermaintained or the wrong thing done during
maintenance), or is it a failure of the asset decision – the wrong asset
in the wrong place?

3.1 Measuring good asset management performance

Performance indicators for asset management can be tricky, because
asset managers’ decisions are inevitably related to future circumstances.
Ruth Wallsgrove (2005) argues that part of the answer to the question
‘How good are we as asset managers?’ is the extent to which we can
relate our plans to future demand, and the quality of the processes
used to produce the demand estimates, as well as the plans. She argues:
Providing more data is not the answer. Giving other people ever more
information doesn’t really help them if they don’t have the resources to use
it. So the way forward is not so much about more performance indicators,
more data per se, but transparency about decision-making.
If our methods and models are clear, we should be able to show how we come
up with our answers with the inputs we used. The Board, owner or regulator
can check our input data and prod our models. If we’re halfway competent,
they can’t know more than us, not about the assets; we’ll have the data
110 Asset management – Whole-life management of physical assets

and should have the knowledge, the access to best practice methods and the
means to develop them for our business. Then, how efficiently the plans were
implemented is the success or failure of Asset Delivery, of programme and
project management and maintenance – not asset management.
Martin Pilling goes into more detail on how good-practice asset manage-
ment can be defined and measured in Chapter 4, ‘Beyond BSI PAS 55
compliance’.

3.2 Measuring performance of the vision

A clearly stated vision makes it possible for everybody in the organisa-
tion to understand it and to be able to see what they, individually,
need to do to make it happen. Also, when circumstances change in a
way that makes the goals temporarily, or even permanently, unattain-
able, they can be changed so that the goals are still credible and
believable. To take a recent example (Holland, 2009), British Waterways
had a clearly stated vision statement that read ‘By 2012 we will
have created an expanded, vibrant, largely self-sufficient waterway
network used by twice as many people as in 2002. It will be regarded
as one of the nation’s most important and valued national assets.
Visitors will be delighted by the experience and many will become
active participants’. While the ‘vision’ this statement embodies is resis-
tant to economic downturns, the immediate 2012 goal may need to be
adjusted to ensure that the goal is credible and believable in the new
circumstances.

4 Values – what gets rewarded?

Many a company claims to have a high regard for their excellent staff,
but their actions belie their words. Many a company claims to put
environmental sustainability first, but then focuses on short-term profits.
What you do trumps what you say.
So what do you reward? Rewards are not only monetary rewards or
promotions. In fact, non-monetary rewards speak louder. What gets
praised in your organisation? What stories are told with pride at board
meetings and social functions? What do you write about in in-house
journals? What papers are selected for presentation at conferences?
Who gets chosen to head up prestigious interdepartmental or inter-
company groups?
If you want your key people to look beyond their term or tenure, ask
yourself whether this is something that the company publicly rewards.
Section 2: Asset management strategy: leadership and decision-making 111

Are previous key people recognised for their contribution to present-day

successes? Is cooperation publicly recognised and rewarded, or are the
plaudits saved for individual gains and excellence? Who gets extra
staff, the leader who puts effort into working with other divisions, or
the leader who jealously guards information within his own division?
The rewards mechanism in any organisation will determine what is
valued by the staff – and therefore what gets done. Is the reward struc-
ture consistent and transparent? Does it seem fair? If so, morale will
be high and it will be easy to attract new staff and retain the staff you
already have. Charles Johnson explores this further in Chapter 6,
‘Creating an asset management culture’.

A case in point
Recently, I was considering with a group of 20 middle management
council officers a project that had been hovering for about 10 years
and, if it went ahead, was scheduled to cost at least $35 million, and
quite likely a lot more. We were using the ILM framework. The group
found it very difficult to define the problem that the ‘solution’ was
expected to solve. They could find no drivers, objectives and, especially,
no benefits that could come anywhere near justifying the $35 million
price tag. Despite this, not a single one thought to challenge the status
quo and suggest that the project be cancelled – or, at the very least,
rethought at a senior level.
Were these people stupid? Not at all! But the ‘system’ did not provide
any means by which the appropriateness of the project could be
challenged. And this story can, I am sure, be replicated in many other
organisations.

A second case in point

In another example of examining a project from the standpoint of the
ILM framework, the project was one under active discussion with
another group of senior middle management. Again, the project was
unanimously seen to present no benefits that could anywhere near justify
the costs. Moreover, the project was also seen to present the possibility of
creating a dangerous precedent, whereby other similar projects could
also be justified. But the group believed that they were obliged to go
ahead with it. The possibility of not doing so did not occur to them.
So they applied their considerable ingenuity to ‘creating’ a justifying
case – a case that no one in the room believed in!
Again, were they stupid? Not at all! But a system that does not
encourage full consideration of project worth is a stupid system. This
situation is replicated many times in many organisations.
112 Asset management – Whole-life management of physical assets

The use of good-quality investment decision techniques such as the ILM

framework can reveal where measurement and reward systems are
counterproductive, as well as create more effective decisions. The officers
in these two case studies were well intentioned but demoralised. How
could they optimise outcomes when they had no idea what was to be
optimised?

5 The role of information in asset management strategy

In their enthusiasm, and perhaps owing to a lack of understanding, many
software producers will tell you that they have a program to ‘do asset
management strategy’.
Programs can help illustrate the consequences of a given set of
assumptions, but they cannot generate, or test, or choose between
those assumptions. Programs do only what their programmers tell
them to. If your programmer has not foreseen the (many possible)
consequences for your particular assets in your particular current
configuration, in your location, with your current and future likely
customers, customs, rules and regulations – and under a wide range of
future possibilities for climate change, commodity prices, demand
change, etc. – then you may have a generated list of works orders, but
you do not have an asset management strategy. And no program can
make the many reward and appreciation decisions that determine a
successful company.

6 Information at the core

It is surprising, yet true, that when it comes to strategic (as distinct from
operational) decisions, less information is required. A real-time system
may be excellent for tactical decision-making, but is not only not
needed for one-off, long-term direction setting, but can result in overkill
and be detrimental if it detracts from the strategic nature of the decision-
making required.
A good proportion of the information needed at the strategic level
does not come from the asset information system (AIS). At best, the
AIS can tell you what is required to maintain and renew the current
assets in their current formation and for current needs. But this is only
part, and often a small part, of what the strategic decision-maker
needs to know. Strategic decisions require to know, or rather need to
‘best estimate’, future client demand, likely technology changes, possible
Section 2: Asset management strategy: leadership and decision-making 113

future scenarios with respect to legislation, and the impacts of such

things as global warming, political regime changes, peak oil, etc., and
none of this information comes from an AIS, be it real-time or otherwise.
Nevertheless, some AISs are more useful than others in supporting
strategic decisions:
. History – systems that reset to current data are ideal for opera-
tional tasks, but not for strategic decisions, as these require a
sense of where we are in time, and for that a system that retains
history is necessary.
. ‘What if ?’ – systems that allow simple (or complex) ‘What if ?’
analysis are desirable for strategic decision-making. Trend analysis
is essential to strategic decision-making.
. Aggregation – systems that allow different levels of aggregation,
such as a ‘roll up’ of all expenditures and interventions by asset,
asset type or region, lend themselves to strategic decision-making
more so than do systems that provide only one type of aggregation.
For example, accounting systems that record expenditure by
facility, but do not distinguish what assets or components in
that facility are requiring intervention, may serve the accounting
function but are of limited use for strategic decision-making.
. Asset life – systems that record only remaining life but not
economic or useful life are sufficient for short-term operational
interventions but are of limited value for longer-term strategic
decision-making.

7 Conclusions
A good asset management organisation integrates both effective
decision-making (asset management strategy) and efficient actions
(operational asset management). Efficiency reduces costs, while effective-
ness increases value.
Most of the effort, and most of the asset management tools and tech-
niques that have been developed, have been directed towards efficiency
gains. However, there is an absolute limit to the extent that costs can
be reduced. At a maximum, and then only by ceasing to exist, costs
can be reduced by 100%. But there is no limit to the gains that can be
made from greater effectiveness.
This is illustrated in Fig. 5.10. The heavy borders around the
trapezoids showing integration between and within asset classes (greater
efficiencies in operational asset management) represent the limits to
efficiency gains. The open trapezoids showing integration of corporate
114 Asset management – Whole-life management of physical assets

Strategic
Effectiveness gains – boundless

Integration with
corporate aims
and objectives

Effectiveness gains – boundless

Efficiency gains – bounded

Integration Integration
between Measuring with the
asset classes success world outside

Integration
with asset classes

Operational Efficiency gains – bounded

Fig. 5.10 Effectiveness gains from asset management strategy unlimited

aims and objectives and with the world outside (greater effectiveness
from asset management strategy) represent boundless effectiveness
gains.
For all the above reasons, asset management strategy is as much an
art as it is a science. It is continually evolving. Like the law, it develops
by the acquisition of cases.

References
Burns, P. 2003a. What organisational structure best suits asset management?
Strategic Asset Management, 110: 461–463.
Burns, P. 2003b. Scenario planning: the Christmas game. Strategic Asset
Management, 129: 623–628.
Burns, P. 2008. Investment logic maps. Strategic Asset Management, 246: 1–8.
Davies, D. 2004. Reputation risk: ignore it at your peril. Strategic Asset Manage-
ment, 152: 807–814.
Harlow, K. 2004. We are an asset management organisation. Strategic Asset
Management, 151: 752–754.
Section 2: Asset management strategy: leadership and decision-making 115

Holland, G. 2009. A compelling case for vision, part 2. Strategic Asset Manage-
ment, 265: 1–8.
Riegel-Huth, R. 2000. Troubleshooter’s casebook: when individual performance
measures give the wrong company result. Strategic Asset Management, 39:
102–104.
Wallsgrove, R. 2005. A basic primer on how to measure asset management
performance – with practical examples. Strategic Asset Management, 176:
1001–1004.
Wijnia, Y. 2004. The challenges of a risk based asset management organisation.
Strategic Asset Management, 155: 832–838.

Useful websites
Scenario planning: www.gbn.org
Strategic asset management: www.amqi.com
Investment logic maps: www.dtf.vic.gov.au/ (choose ‘Investment Management’
quick link)
6 Creating an asset management culture
Charles Johnson Director, CAS, London, UK

Effective organisational cultures result in high-performing companies while

ineffective cultures result in internal conflict and poor performance. Knowing
how to create a culture that will produce the performance you want is a
key attribute of leadership and an important component of good asset
management.

1 Introduction
Organisational culture is a slippery concept at the best of times. Yet,
since the 1980s it has regularly been invoked as a key influence on
both commercial and safety performance. For example, the American
Society of Safety Engineers states that it ‘knows’ from data and
anecdotal evidence that investment in a safety, health and environment
(SH&E) programme is a sound business investment (ASSE, 2002) and
that an SH&E programme ‘is where developing and maintaining a
safety culture is key. This involves introducing the concepts, practices
and methodologies of safety and integrating them into the corporate
culture of a company, so safety is present at all levels’ (Duchscherer
and Nyblom, 2008). Similarly, the operational and safety benefits of
having an effective organisational culture have been demonstrated in
the UK rail industry (Johnson, 2008).

2 A definition of culture
In Chapter 5, ‘Asset management strategy: leadership and decision-
making’, Penny Burns gives some good examples of what happens
when organisational culture is out of step with corporate objectives.
So, what is organisational culture and how would you recognise it in
the context of asset management. One popular definition is that ‘culture
is the way things are done around here’ (Deal and Kennedy, 1982).
Although simplistic, this definition captures an important concept.
Organisations need to do more than simply get things done. To have a
sustainable business, it is important that things are done in the right way.
There are any number of more sophisticated and elaborate definitions of
Asset management – Whole-life management of physical assets # Thomas Telford 2010
978-0-7277-3653-6 All rights reserved
Section 2: Creating an asset management culture 117

organisational culture. Unfortunately, there is no one common, agreed

definition. There are a number of reasons for this. There has been a
degree of confusion over what exactly the term ‘culture’ applies to. In
particular, there has been a failure to distinguish between ‘culture’ and
‘climate’. Furthermore, different authors have approached the topic
from different perspectives. Some, such as Schein (1992), have adopted
a descriptive approach, sometimes described as a socio-anthropological
perspective (Wiegmann et al., 2002). Others, such as Bate (1992) and
Thompson et al. (1996), have adopted a process-based approach, some-
times referred to as an organisational psychology perspective, which is
more concerned with the processes and procedures that an organisation
has in place and how these can influence culture. As I shall argue later,
both approaches are necessary when you come to consider how culture
can be managed and changed.
In the past few years, there have been a number of reviews which,
although not settling on an agreed definition, have identified the
common features of culture and climate. For example, Wiegmann et al.
(2002) identify the following characteristics of each:

Culture:
. refers to the shared values of everyone in the organisation
. is relatively enduring, stable and resistant to change
. impacts on the way staff behave at work.

Climate:
. refers to staff perceptions of the state of the organisation
. is, therefore, a relatively unstable snapshot
. is subject to change.

‘Culture’ refers to a long-lived set of values, beliefs, attitudes and

assumptions which are thought to affect behaviour and performance
over the longer term while ‘climate’ refers to the way in which the under-
lying culture is manifested and expressed in current staff attitudes and
behaviours (Mearns et al., 2003; Clarke, 2006). Two points follow
from the transient nature of organisational climate. Firstly, the current
climate may or may not be consistent with the underlying culture.
Recent events or experiences, such as pay rises or redundancies, may
result in short-term mismatches between climate and culture. Secondly,
company initiatives may change climate in the short term but, in the
longer term, attitudes will revert to what they were before if the
initiatives do not address the underlying culture (e.g. Schein, 1992).
118 Asset management – Whole-life management of physical assets

3 The origins of organisational culture

Left to their own devices, organisations will develop cultures in an
organic and, often, haphazard way. Furnham and Gunter (1993) identify
three main ways in which organisational cultures are created:
. The founders of the organisation impose their, usually dynamic,
personalities on the first staff to join, which then gets accepted as
the norm for how things are done.
. Organisational experience of what has and hasn’t worked in their
business environment gets crystallised as the way to do things.
. The need for work colleagues to get on and to work effectively
together means that styles are adopted that work for them.
A number of problems arise from the organic development of cultures.
Founders retire or hand over the reins to other people who may not
share their philosophy or leadership style. They may try to impose
their own values on the organisation, which conflict with the culture
built up over the organisation’s early years. As an organisation grows
and different divisions and departments are formed, the culture of the
organisation may fragment, as different cultures develop in each. Over
time, the nature of the organisation’s business may change, and the
approach it has to take to survive in the new environment may
also change. For example, at first the organisation may need to be
entrepreneurial and adopt a culture suitable for rapid growth, but,
over time, as it becomes established, it may need to adopt a culture
suitable for consolidation and maintenance of market share.

4 The consequences of a failing culture

Cultures which develop organically sometimes just get it right. Most of
the time, however, at some point problems start to arise. Culture clashes
begin to appear. Performance begins to suffer. The symptoms of an
organisational culture in trouble will be recognised by all. The following
examples, drawn from experience with asset management organisations,
illustrate the main symptoms of cultures in trouble:
. A large company with a significant physical asset base and a
mixture of engineers, operational staff and customer-facing staff.
The three types of staff rarely meet each other and are often
dismissive and, frankly, rude towards anyone from outside their
own division. Cooperation between divisions is consequently low
and company-wide initiatives rarely successful.
Section 2: Creating an asset management culture 119

. Another large company with a significant asset base recognises the

importance of asset management but has no asset management
department or asset management roles. Asset management
activities are undertaken by a mix of staff in different engineering
disciplines. The engineering disciplines are kept separate, operating
within their own functional silos. There is little multi-disciplinary
working. Cliques have formed within the disciplines which both
disparage and distrust staff in other disciplines and protect their
own turf. An air of secrecy has developed. Engineers in different
disciplines have created their own asset databases which overlap
but often include uniquely valuable information which is not
made known to or shared with other disciplines.
. A medium-sized civil engineering company has a notably strong
culture. Its staff express high levels of satisfaction with the com-
pany’s management and the way it is run. In particular, the culture
emphasises devolved responsibility and staff empowerment. The
company has been successful and grown quickly. Then it moves
into a sector which is very safety conscious and highly regulated.
It becomes transparent that the company culture has led to
inconsistent practices which, in its new safety critical work, leads
to worryingly high accident rates. So much so that the company
is suspended by its major client from working on major contracts.
. A medium-sized asset maintenance company is spun out of a larger
company which had a much wider set of activities and responsibil-
ities. Unfortunately, the staff have strong memories of the old
company and their status within it. They find it difficult to adjust
to the new situation, and their allegiances are confused. This
leads quickly to disenchantment and disillusionment as efficiency
drops, buck passing increases and overstaffing results.
. A moderately large government agency is privatised. The staff are
used to doing everything by the book, but quickly find that they
need to take greater personal responsibility and be more flexible
in the commercial environment. Many staff fail to adjust. Turnover
is inadequate to support staff numbers, resulting in redundancies.
Levels of insecurity become high. Staff become inward-looking
and defensive. Their interactions with clients become more and
more contract-focused. Client dissatisfaction increases, but staff
are in denial about this being anything to do with the company’s
culture and approach to client relationships.
. A moderately large company merges with a slightly smaller one so
that it can extend the range of asset management services it can
deliver. The two companies were individually successful but had
120 Asset management – Whole-life management of physical assets

quite different company cultures. The senior managers of the

smaller company are all removed. Management simply tried to
impose the culture of the larger company on the smaller one.
The result was a lot of unhappiness which led fairly quickly to
apathy. From there, it was a short step to mutual distrust and a
complete separation of work activities. Staff from the smaller
company were soon left scrabbling for work while all the choice
jobs went to staff from the larger company. Needless to say, perfor-
mance and safety suffered amongst the smaller company’s staff.

5 Creating a culture that works

Clearly, the development of your asset management culture cannot be
left to chance. Doing so will often result in conflicting subcultures and
inconsistent practices. Senior managers, therefore, have to have a clear
idea of what they want their asset management culture to be and how
to go about establishing it. In doing so, they have to take into account
that not all subcultures are bad. Some can be beneficial. The dominant
culture in an organisation is usually related to its core business, but
specific functions within the organisation may need to have a different
culture to operate successfully. Therefore, if an organisation’s core
business is asset management, its senior managers need to ensure the
dominant culture in the organisation is appropriate to asset manage-
ment. If asset management is a support function, management must
consider whether the dominant culture will work for the asset manage-
ment function. If not, an asset management subculture needs to be
created and properly integrated with the dominant culture.
Creating an asset management culture is a specific type of change
management process. As such, it needs to follow best practice in
change management. Change requires you to go through a number of
stages. The following three-stage description is an elaboration of Kurt
Lewin’s model of change, based on refinements suggested by a number
of authors (e.g. Bainbridge, 1996; Conger et al., 1999; Schein, 1999):
Stage 1 – unfreezing:
. Determine the need for change.
. Assess the readiness for change – this involves identifying the
desired goal state, assessing the current state and identifying bar-
riers to change.
. Prepare for change – this involves identifying and addressing staff
concerns about change and ensuring there is strong stakeholder
Section 2: Creating an asset management culture 121

support for change, including the identification of change leaders

and champions.
Stage 2 – changing:
. Identify the mechanisms through which change will be brought
about.
. Inform people about the change and engage them in the process –
this includes public engagement, regular communication and the
dispelling of rumours and myths.
. Plan a migration process with clear stages over a feasible timescale.
Stage 3 – refreezing:
. Identify, communicate and apply rewards and benefits of the
change.
. Maintain the change through support systems, training, etc.
. Avoid relapse – including dealing with residual barriers, reviewing
progress and being flexible.
Many companies engaged in asset management will be new to it and,
therefore, only just have started thinking about the need to develop an
asset management culture. The unfreezing stage for them is quite
complex, since it involves identifying what staff believe their company
has been about and then changing their approach not only to asset
management but also to the whole way they undertake their business.
Although the change model says a lot about the stages to go through,
it says little about precisely what to do at each stage. For example, the
unfreezing stage requires you to carry out some form of gap analysis
between what your culture is like now and what you want it to be like
in the future. The changing stage requires you to have a clear idea
about what sorts of mechanisms and interventions are most likely to
promote the desired culture and help the company move from the old
culture to the new one. The refreezing stage requires you to know
what sorts of things staff will value as benefits and rewards and what
sort of support is best suited to maintaining the new culture.
Interestingly, although there are many models of organisational
culture and its management, including specific aspects such as safety
or security culture, Guldenmund (2000) notes that most models are
either normative or descriptive and that what is needed are models
which deal with the causes, contents and consequences of culture. For
example, in the world of safety culture, no models take a recognisably
systems approach to culture management which covers Guldenmund’s
criteria. Figure 6.1 shows the CAS culture management model that
 122
Asset management – Whole-life management of physical assets
Incentives
Incentives Management
Management
Systems
systems

Culture
Culture Climate
Climate Behaviour
Behaviour
Organisational goals
Organisational Goals Embed
Embed Individual attitudes
Individual Attitudes Enable
Enable and
and Aspirations
and aspirations and beliefs
and Beliefs performance
Performance

Management
Management
Commitment
commitment Pressures
Pressures

Fig. 6.1 Overview of the CAS culture management model. (Reproduced by permission of Competence Assurance Solutions Ltd)
Section 2: Creating an asset management culture 123

has been developed to address these limitations (Johnson, 2008; Luther

and Johnson, 2008):
The model contains the following components:
1. A description of the desired culture. This may, of course, be
different from or even conflict with the current culture.
2. Identification of the motivational mechanisms (incentives and
management commitment and actions) that need to be in place
to embed the desired culture in the current climate.
3. Identification of the technical systems, processes and procedures
(management systems) needed to enable staff to behave and
perform effectively.
4. Identification of the constraints and barriers (pressures) which may
block the desired behaviours.
5. Organisational climate, which appears in the model as the
attitudes, perceptions and feelings that individual members of
staff have about the motivational activities, support systems and
pressures that exist.
6. Identification of the desired behaviours and performance. This
involves specifying what counts as appropriate and acceptable
behaviour and putting in place assessment processes which can
be used to judge whether the culture is working effectively.
It is assumed that inconsistencies or conflicts, in any part of the model,
are likely to lead to undesirable or ineffective behaviour and perfor-
mance. Two key questions arise:
1. How big is the gap between the current and desired cultures
(and the current and desired behaviours associated with them)?
Large gaps associated with high risk will be the key areas for
improvement.
2. How well are the motivational and enabling mechanisms working
and what barriers to improvement exist?

6 Culture description and gap analysis

In a recent project, I had reason to review the full range of dimensions
and categories that have been used for describing organisational culture,
and found 257 different ones. Of course, some of these are conceptually
very similar and can be grouped into a smaller set. Actually, some
authors, adopting a qualitative approach to assessing culture, have
argued that all organisations are unique and that it makes little sense
124 Asset management – Whole-life management of physical assets

to attempt to reduce descriptions of culture to a small number of

dimensions (e.g. Schein, 1992, 1999; Reiman and Oedewald, 2002).
Nonetheless, to make the tasks of description and gap analysis manage-
able, it is preferable to work with a relatively small set. Experience with a
number of transport, civil engineering and construction companies
suggests that there are four primary dimensions and four secondary
dimensions which are particularly relevant for describing asset manage-
ment culture. All of these dimensions have been identified frequently in
models of organisational culture in one guise or another, particularly in
the work of Hofstede (1980) and O’Reilly et al. (1991).

6.1 Primary dimensions of asset management culture

The primary dimensions of asset management culture, not surprisingly,
relate to the primary goals of asset management, namely optimising the
delivery, performance reliability and safety of assets. Note, however,
that all the dimensions are bipolar. This is important. If all organisations
have a different culture because they operate under different constraints
and choose to achieve their goals in different ways, it follows that there
is no such thing as one correct asset management culture. Asset
management companies working in the same sector can differ on every
dimension, even being at the opposite ends of some of the poles, yet
still be high performing. The key is to create the best sort of culture
for your organisation.

6.1.1 The participative–authoritative dimension

Companies at the authoritative pole run on strict command and control
lines where the responsibilities of staff at different management levels are
clearly defined and differentiated, delegation is limited and decision-
making and control is centralised. An example of this would be asset
management policy and strategy being set at HQ, with no involvement
of local staff, and then imposed on all parts of the organisation. At the
participative pole, delegation is widespread, staff at all levels are
empowered to take responsibility and make their own decisions and
control is decentralised. An example would be staff in local offices or
depots being encouraged to design their own, unique asset maintenance
plans to cope with local conditions. Of course, companies are very rarely
at these extremes, and their culture will involve some mix of authorita-
tive and participative features. External factors may also constrain
their freedom to adopt a particular culture. For example, companies
involved in safety-critical work may be forced by the regulatory environ-
ment to adopt a more authoritative culture than they would like.
Section 2: Creating an asset management culture 125

6.1.2 The risk-taking–cautious dimension

An organisation’s culture with respect to risk-taking is also likely to be
severely constrained by its regulatory environment. Actually, this is
one of the most difficult areas of culture to get right. For example, all
levels of staff in heavily regulated industries, from senior managers to
front-line operatives, tend to feel frustrated by how long change takes
to accomplish. Often this will be the result of thorough but time-
consuming change control and acceptance processes. Similar problems
arise with attempts at staff empowerment. Operatives often find them-
selves faced with an impossible dilemma. Senior managers will tell
them on the one hand that they are keen to encourage innovative
thinking, personal responsibility and delegated decision-making while
at the same time stressing that they want zero-accident, error-free
performance. The managers’ position on this dimension often reflects
wishful thinking. Being clear about what the organisation can really
tolerate by way of risk-taking is vitally important.

6.1.3 The short-term–long-term dimension

Where organisations stand on this dimension is often determined by
the nature of their assets and the type of economic and commercial
environment they operate in. So, for example, companies with assets
which last for decades, such as buildings or bridges, need to have a
long-term perspective. The greatest problem such companies have is
getting staff to raise their sights above day-to-day operational fire-
fighting and to take a more strategic view. Companies with short-lived
assets and a high rate of replacement can afford to be much more
short term, although, usually, they must also have an eye to their
sustainability.

6.1.4 The individualistic–collective dimension

This dimension is concerned with how you choose to allocate responsi-
bilities and accountabilities and how you choose to recognise, reward
and deal with desirable and undesirable performance. In individualistic
cultures, individual staff members are explicitly given responsibility for
certain activities. They are personally rewarded, through recognition,
status, pay, bonuses, etc., for successful performance, and personally
disciplined for unacceptable performance. In collective cultures, respon-
sibilities are assigned to groups or teams, individuals are never singled
out for praise or recognition and rewards (and punishments) are allo-
cated to the group as a whole. One of the problems in many companies
is that individuals are given demanding personal responsibilities but are
then not appropriately recognised or rewarded for it.
126 Asset management – Whole-life management of physical assets

Conceptually, these four dimensions are independent. It is certainly

possible in principle for a company’s culture to have any combination
of the descriptors, and all combinations can be found. However, in
practice, some cultural profiles are more likely to occur than others.
For example, long-term cultures are more likely to be associated with
cautious, collective cultures, while short-term cultures are more likely
to be associated with risk-taking, individualistic cultures. Authoritative
cultures are likely to also focus on individual responsibility but have a
cautious culture.

6.2 Secondary dimensions of asset management culture

The secondary dimensions are more related to beliefs about the way asset
management companies should operate.

6.2.1 The outcome–process dimension

The main difference here is between companies whose goal is to achieve
results at any cost and companies who insist that work is always under-
taken in the correct manner even if that means deadlines are missed or
profits constrained. Again, companies do not always have a free hand
in this. Those working in safety-critical and heavily regulated sectors
will often have to adopt a relatively process-oriented culture. Further-
more, the position on this dimension is often related to the position on
the risk-taking–cautious dimension. Cautious cultures are more likely
to be associated with process cultures.

6.2.2 The certainty–uncertainty dimension

This dimension is concerned with the extent to which you believe it is
possible to understand and control all the factors which might influence
your business. The performance of assets in closed systems, where there
is little influence from external factors, will usually be much more
predictable than those in open systems. The certainty arising from this
situation makes it easier to think long term, design processes which
can be used in all circumstances and avoid risk.

6.2.3 The accepting–questioning dimension

This dimension is often closely associated with the authoritative–
participative dimension, and relates to the extent to which subordinates
are expected to do what they are told without question. In particular,
organisations which have a culture of centralised control are more
likely to want an accepting culture. Questioning cultures are more
common in organisations with high levels of delegation, and a decentra-
lised and risk-taking culture.
Section 2: Creating an asset management culture 127

6.2.4 The information-restricting–information-sharing dimension

Where an organisation stands on this dimension often depends on its
security requirements. Security can involve physical, public, personal,
financial and commercial issues. Companies need to be clear about the
extent to which they expect staff to share information with each other,
with competitors, with members of the public, and so on. Most asset
management companies want to encourage information sharing across
relevant staff even if they want to restrict it otherwise. However, this
goal is sometimes blocked by conflict between subcultures within the
company. This is often a result of individuals or groups wanting to
hold onto their own information as a way of increasing their own
status or power.

7 Culture assessment methodology

Two quite different aspects of culture assessment methodology need to
be taken into account. The first concerns the methods you might use
for defining and establishing the culture you want. The second concerns
how to measure what your current organisational climate is and whether
it is consistent with the desired culture.
It has already been stressed that culture development and culture
change comes primarily from the top of the organisation. They are
heavily influenced by leadership style. Different leadership styles can
result in completely different but equally effective cultures. Therefore,
any attempt to define and establish the desired culture must start
with the top management team. Initial investigations may involve the
identification of personal opinions, and this can be done either through
questionnaires or interviews. One of the key advantages of doing this on
an individual basis initially is that it allows you to identify areas where
there is marked disagreement between senior managers.
Disagreement is not always a bad thing. Managers may legitimately
value the different cultures in their parts of the organisation. However,
too often different cultural aspirations reflect fundamentally different
beliefs, values and philosophies. This can be very counterproductive.
The result will be that senior management sends contradictory messages
to staff about its cultural and behavioural expectations, producing
uncertainty and inconsistency. So, the process of establishing the desired
culture must include a discussion amongst the senior managers where
they identify and resolve disagreements and establish cultural aspirations
that they are all willing to support. This takes time that all too few top
management teams are willing to commit.
128 Asset management – Whole-life management of physical assets

Measuring the existing climate can be done in a number of ways.

Good assessment uses a combination of these methods. One of the
most common is questionnaire surveys. The advantages of surveys are
that they can be done company-wide, and are thus highly inclusive
and are standardised, which allows for meaningful comparisons to be
readily drawn across different parts of the organisation. The downsides
are that they provide a high-level snapshot which may be too coarse
grained to suggest meaningful interventions. They typically have to be
kept short so that participants will complete them but this means that
important areas may be missed. Interviews, focus groups and content
analysis of written submissions can all be used to address these problems,
but tend to either be time-consuming and expensive or to provide very
poor coverage. All the methods described so far are faced with the
danger that participants may either lack awareness of what is really
going on or have their own agendas which distort the picture being
presented. Direct observation of events such as team meetings,
inter-disciplinary meetings, briefing sessions and work groups can
address this problem but, of course, also have the problem of being
time-consuming, costly and partial. The final approach, therefore, is to
identify performance indicators collected by the company that shed
light on the current climate. This data will be more objective, but
often suffers from being only indirectly related to climate and culture
and having very poor data characteristics. Safety data is a prime example
of the latter problem. This mix of advantages and disadvantages should
make it clear why a combination of approaches is preferred.

8 Incentives for asset managers

As noted previously, it is not enough to have a vision of the desired
culture. You need to work out how best to motivate staff to adopt the
desired culture and persist with these motivational mechanisms until it
is embedded in the organisation. A key part of these embedding mechan-
isms is the incentives offered to staff to adopt the desired culture. These
incentives can be physical and psychological, and include the full range
of factors which influence job satisfaction. So, tangible rewards such as
pay and bonuses, intangible rewards such as praise and recognition,
status-related rewards such as empowerment and delegation, and
rewards associated with personal involvement and engagement should
be considered.
Different incentives are appropriate for different types of culture.
There is little point in encouraging empowerment and delegation in a
Section 2: Creating an asset management culture 129

highly authoritative culture. Personal bonuses may be an effective

incentive in an individualistic culture but be counter-productive in a
collective culture. Incentives, therefore, need to be carefully chosen so
that they will support the desired culture.

9 Management commitment to asset management

The relationship between management and staff is perhaps the most
commonly identified factor in culture development (e.g. see Debobbeleer
and Beland, 1998). Staff ’s belief in the culture being promoted is strongly
influenced by their perception of whether managers demonstrate their
belief in and acceptance of the culture. Managers can effectively scupper
a company’s culture through any of the following:
. Inconsistency, particularly in the decisions they make and the rules
they apply.
. Unjust decisions – staff will put up with a lot as long as they believe
they are being treated equably.
. Under-resourcing – there is no point telling people how important
asset management is if it is understaffed and underfunded.
. Inattention – evidence that managers do not pay serious attention
to asset management will reduce the impact of any pronouncements.
If asset management doesn’t appear in meeting agendas, job titles
or organisational structures, or asset management issues are not
listened to and learned from, it will not be taken seriously.
Failures in these areas can have disastrous consequences. For example,
Rear Admiral Grace Hopper (Hopper, 1986), in her review of the
Challenger space shuttle disaster, identified the following failings at
NASA:
. inconsistent definitions across the organisation
. inconsistent management practices across the organisation, e.g.
some centres making extensive use of planning and analysis tools
while others relied only on following existing processes
. the invalid assumption that classifications in job descriptions are
sufficient to understand the knowledge possessed by holders of
those jobs
. no consistent, systematic aggregation of data so that the organisa-
tion never had a complete picture of its resources
. no organisation-wide buy-in or, indeed, approach to capital
management.
130 Asset management – Whole-life management of physical assets

Even if managers are committed to the desired culture, they need to

consider which management styles will best suit their purpose. A
number of tactical approaches might be considered. These can be
roughly grouped into three main classes:
. leadership (including education, communication, facilitation and
management support)
. accommodation (including participation and negotiation)
. enforcement (including manipulation, co-option and coercion).
The leadership approach assumes that management action can directly
influence and change culture. This approach is central to many process
models which tend to emphasise the importance of management activ-
ities related to commitment, communication, competence management
(especially assessment and training), and procedure and process design
(e.g. Flin et al., 2000; Gadd and Collins, 2002).
The accommodation approach assumes that culture is very difficult to
change and that the best tactic to adopt is to recognise what sort of
culture already exists and make sure all changes are consistent with it.
Approaches which recognise the importance of subcultures – and
counter-cultures – tend to fall into this group.
Enforcement approaches assume that culture results from behaviour
and not the other way round. The core notion is that behaving in a parti-
cular way has consequences for the individual. If those consequences are
sufficiently important and reinforce the behaviour (either positively or
negatively), it makes it more likely that the behaviour will recur. If you
constrain people to behave in a particular way for long enough and
they can see that the consequences are favourable, they will eventually
assimilate the styles and values associated with the behaviours into the
culture. This is the concept that underpins behavioural modification
theories and informs much of the thinking on how to promote behavioural
safety within organisations (e.g. Fleming and Lardner, 2002).
These change options are not mutually exclusive. Some or all
combinations could be applied effectively.

10 Support for asset management cultures

Even if the desired culture is embedded in the company climate, there is
no guarantee that you will get the behaviour and performance you want.
People often act irrationally. They don’t always behave in accordance
with the attitudes they express and the beliefs that they hold. Some of
this is due to personal psychology. For example, people are perfectly
Section 2: Creating an asset management culture 131

capable of simultaneously holding two contradictory or opposing

attitudes, and sometimes behaving in accordance with one attitude and
sometimes with the other (Ajzen, 2005).
The reason people may behave more often in one way than another is
that one is easier and has more obvious or more immediate benefits.
Therefore, managers need to do everything they can to make sure
that desired behaviours are the easiest way of doing things or, failing
that, that the benefits of doing it that way are obvious. From an asset
management perspective, you need to make sure that:
. the procedures and processes you follow (e.g. for updating asset
databases or risk registers) are evidently fit for purpose
. the techniques and methods applied (e.g. whole-life costing,
demand analysis) give credible results
. staff are well trained in processes, procedures and techniques
. the company is structured and work is organised in a way
that makes it easy for asset management staff to do their work
effectively and efficiently.
If such support systems are not in place, staff will quickly become
demotivated or start introducing inconsistent practices. Examples of
these problems can be found in the Fujitsu organisation prior to 2002.
Locke and McCarthy (2002) describe the problems they were facing as:
. numerous business applications needing data
. each application getting data from different sources, often by
manual input
. each application needing significant administration effort to
manage the data, or the work was not done so the data was
completely unreliable
. no confidence that the data in one application was accurate or the
same as in another application – but applications were integrated
so synchronisation of data was essential to the integrity of outputs.
Locke and McCarthy’s solution, incidentally, was to create an enterprise
reference service which comprised a common central store of informa-
tion with clear data ownership.

11 Dealing with pressures and barriers to asset

management culture
Conflicts do not only arise within individuals. Pressure can be put on staff
by their peers, managers, friends and family to behave in unacceptable
132 Asset management – Whole-life management of physical assets

ways. Peer pressure is a particularly powerful influence for either good or

bad. Goal conflicts are also all too common. For example, imagine being
ordered to double an asset’s life expectancy without spending any money
on it and without compromising safety.
A strong culture is one where staff have a strong sense of belonging to
the company and a powerful sense of allegiance to their colleagues whom
they trust to do things the right way. Problems arise when you have the
latter but not the former or when staff feel allegiance to the people they
work with day to day but not to anyone else in the organisation.
Perceived unfair discontinuities in the way staff at different levels are
treated is another sure-fire way of diluting the company’s culture.
The symptoms of a weak culture are similar to those of a failing
culture. A number of typical counter-productive behaviours will be
observed. How badly things have deteriorated can be gauged from the
seriousness of the counter-productive behaviours. Furnham and
Taylor (2004) suggest that disenchanted staff go through three
increasingly serious stages: disillusionment, resentment and revenge.
Disillusionment is marked by behaviours such as reduced efficiency,
loss of enthusiasm, constant complaining, poor timekeeping and
increased absenteeism. Resentment is marked by behaviours such as
constantly disparaging colleagues, rule-breaking and duplicity. Revenge
is marked by behaviours such as deliberate sabotage and releasing
confidential information. If you are concerned you may have a failing
culture, you need to look out for these behaviours and try to stop
them before they escalate. Improved allegiance and positive peer
pressure can be generated by encouraging meaningful multidisciplinary
working, regular sharing of ideas and paying attention to team com-
position. Obviously, removing goal conflicts and demonstrating that
you actually care for the welfare of your staff will also make a difference.

12 Managing subcultures
Weak and failing cultures can arise from having conflicting subcultures.
One way of thinking about conflicts is to consider the clashes that might
arise between different types of culture. For example, Handy (1985)
identifies four culture types: power cultures, role cultures, task cultures
and person cultures. Deal and Kennedy (1982) also identify four culture
types: the ‘tough guy/macho’ culture, the ‘work hard/play hard’ culture,
the ‘bet your company’ culture and the process culture. If one part of
your company has a power culture but another a person culture, or if
one part has a ‘bet your company’ culture and another part a process
Section 2: Creating an asset management culture 133

culture, they are unlikely to be able to work together unless they fully
understand each other and appreciate why that culture works for
them. Actually, such typologies have been criticised as being too
simplistic (e.g. Parker, 2000). Organisations rarely, if ever, fit neatly
into one culture type. Furthermore, large organisations often have
complex cultures with a number of – sometimes competing, sometimes
complementary – subcultures.
A number of authors have suggested both that different organisations
may require different cultures to achieve best performance and that
different parts of the same organisation can be better served by different
cultures. For example, Maloney (2003) notes that, within the construc-
tion industry, organisations will vary on a number of cultural dimen-
sions, such as the locus of authority and decision-making, dependent
on factors such as the stability of the workforce, time and cost pressures
and variability of demand. Cooper (2000) suggests that ‘although an
organization may possess a dominating ‘‘cultural theme’’, there are
likely to be a number of variations in the way in which the theme is
expressed throughout the organization’. Schein (1996) has claimed that
many organisations have three distinct cultures – operator, engineer
and executive – and that the distinct subcultures may be necessary for
a successful organisation. Even counter-cultures are thought to
sometimes serve useful functions, such as ‘providing a safe haven for
innovative ideas’ (Martin and Siehl, 1983). The way asset management
issues are dealt with at a local level can often be traced back to historical
and cultural influences. Where these influences are different, the
approach to managing assets is also likely to be different, but may be
equally effective if the approaches suit the local organisations.

13 Conclusions: cultural maturity

Defining and creating an appropriate organisational culture is integral to
achieving the level of integration between functions that good asset
management requires. So far in this chapter, only the indications of a
failing culture have been discussed. Companies will also want to know
if their cultural development is progressing appropriately. In conclusion,
therefore, it is worth considering cultural maturity and how to locate
your company on a cultural maturity scale.
There are many types of maturity scale. Most derive from models of
management maturity as is the case with the asset management
capability maturity model put forward by Martin Pilling in Chapter 4,
‘Beyond BSI PAS 55 compliance’. Many of these models are based on
134 Asset management – Whole-life management of physical assets

Table 6.1 Scale for assessing asset management cultural maturity

Level Stage Description

Level 1 Emerging Asset management is defined as a set of technical and

procedural solutions plus compliance with
regulations; asset management is not seen as a key
business risk; asset failures are seen as unavoidable.
Level 2 Managing Asset management is seen as a business risk but is
solely defined in terms of adherence to techniques,
rules and procedures. Asset failures are seen as
preventable but asset performance is inadequately
monitored.
Level 3 Involving Asset failure rates are relatively low; management
thinks frontline employees are critical to asset
management; asset performance is actively
monitored.
Level 4 Proactive Managers and staff recognise that a wide range of
factors cause asset failures and affect asset
performance; the organisation puts effort into
proactive measures to prevent asset failures and
enhance asset performance.
Level 5 Continually Sustained period of low asset failure rates, but no
improving feeling of complacency at any level; all staff are
constantly striving to find better ways of improving
asset performance.

the concept of process maturity, but such models are only relevant to one
aspect of culture and are, therefore, inadequate for describing cultural
maturity.
There are, however, a number of safety culture maturity models which
provide a better basis for assessing levels of asset management cultural
maturity. The scale in Table 6.1 is based on the work of Fleming
(1999), and is adapted from a scale produced by Gordon and Kirwan
(2004) for interpreting the results of the EEC safety culture survey.
Referring back to Fig. 6.1, it can be seen that level 1 is only concerned
with technical support systems. Level 2 shows a higher level of manage-
ment commitment, but only in some areas and pays no attention to how
staff are incentivised. In level 3 the organisation has started to deal with
incentives by involving and engaging staff in the asset management
Section 2: Creating an asset management culture 135

process and to deal with the pressures staff may face. It also has a more
effective range of system support mechanisms in place. In level 4, the
organisation is demonstrating a high level of management commitment,
including learning from experience, and has a competent workforce
fully alert to asset management issues. Level 5 is, of course, the Holy
Grail where not only are all staff motivated, competent and supported
but they also have a strong sense of allegiance to the company and
each other and are providing mutual support in asset management
activities.

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7 Assuring the competence of asset
management staff
Chris Lloyd Director, CAS, and Chair of the Qualifications and Professional
Development Committee of the Institute of Asset Management, UK

Asset management requires a systematic approach to defining, developing

and assuring the competence of people and teams. Proactive management
of competence enables managers and staff to deliver the line of sight
needed between strategies, plans and work activities. This chapter reviews
the competence implications of asset management and outlines a strategic
response to these.

1 The accidental asset manager

People with all sorts of backgrounds find themselves working in asset
management. Some of them because other people, usually more senior
than them, have decided they should be, others because they want to,
and a good few because their job titles or reporting lines have been
changed. In this respect, there are parallels between asset management
today, safety management in the 1970s, quality management in the
1980s and project management in the 1990s. There are important
differences too, perhaps the most significant being the number of well-
rewarded, senior asset management posts being created at this relatively
early stage. These are starting to act like a magnet for career-minded
individuals looking for ways to the top.
Over the last year or so, recruitment advertisements have been
appearing internationally for ‘head of asset management’ posts in a
wide range of sectors, including local authorities, emergency services,
central government, regulators, property management, manufacturing,
energy and water utilities, mining, highways, and transport. In the
UK, most are public sector vacancies, many of which are concerned
with property and land assets. A strong impetus for this has come
from the drive by central government to adopt asset management
principles in the management of the public estate following the
publication of the Lyons Report in 2007 (Lyons, 2007).
The contents of these advertisements reveal a wide range of inter-
pretations of what asset management means, but what is striking
about them is the extent to which the term optimisation of physical
Asset management – Whole-life management of physical assets # Thomas Telford 2010
978-0-7277-3653-6 All rights reserved
Section 2: Assuring the competence of asset management staff 139

assets is used and the openness to candidates from non-traditional back-

grounds. The lack of a ‘professional property qualification would not be
an impediment to the right candidate’ claims one, while another states
the ‘strategy development and leadership skills are more important
than a specific professional background’. In a similar vein, the US Envir-
onmental Protection Agency (EPA, 2008) advises that a successful asset
management team:
. is flexible and encourages critical thinking
. creates opportunities for sharing ideas and information and open
and transparent debate
. works through problems and shares the success not the blame
. fosters an atmosphere that builds trust and develops partnerships
. uses existing elements of asset management as the basis for the
programme
. starts implementation during planning to achieve early gains.
This emphasis on behaviours, personal attributes and business manage-
ment skills rather than specific professional backgrounds is leading to
some tensions.
During a workshop at the 2009 Institute of Asset Management (IAM)
Annual Members’ Conference, delegates were discussing career paths
and priorities for qualifications (IAM, 2009). Some felt that the focus
should be on developing engineers, because they believe technical
knowledge is essential to effective asset management. In response, a
senior manager from Tube Lines, which is responsible for maintaining
and upgrading parts of the London Underground, said that his best
asset planner had a music degree, and that what was needed was not
detailed technical or engineering knowledge of specific asset types so
much as the ability to assimilate it well enough to make or facilitate
good, risk-based business decisions.
More often than not, differences of opinion like these arise when the
people involved use the term ‘asset management’ but mean different
things. In particular, there are disagreements over where asset manage-
ment starts and ends. Some organisations think it ends with the
calculation of work volumes and the design of work programmes,
others think it includes front-line maintenance and operations. Penny
Burns discusses how these differences have arisen in Chapter 5, ‘Asset
management strategy: leadership and decision-making’.
These tensions are symptomatic of the position most asset management
organisations find themselves in, staffed with accidental asset managers
and faced with the task of turning them into a coherent workforce and
establishing asset management as a positive career choice.
140 Asset management – Whole-life management of physical assets

2 Competence and performance

The American philosopher Noam Chomsky distinguishes between
‘idealised capacity’ and performance. One is no guarantee of the other,
as many organisations have found to their cost. What competence
frameworks do is set out, in the form of requirements, the idealised
capacities that people and organisations should strive to attain. In
most modern definitions of competence, it is conceived of being made
up of both the ability to do something and evidence that it has been done.
For the purposes of this chapter, competence is defined as the ability
to perform tasks consistently to the expected standard. This is an output
model of competence that calls on a combination of practical and
thinking skills, knowledge and experience, personal attributes and
attitudes. The precise combination of these depends upon what needs
to be done, in what circumstances and how well.
There is an important distinction to be made between having the
potential to perform and the ability to perform to the expected standard
consistently. Individuals, teams or organisations can be described as
competent when they can work consistently to the expected levels of
performance, however these are defined. Expectations change over
time, sometimes radically. This means that competence deteriorates
over time if it is not actively maintained.
There are a number of reasons why people, teams and/or organisa-
tions who should perform competently, do not. Their commitment
and the conditions they are working under are just as influential.
There are lots of reasons why people regarded as competent in certain
aspects of asset management might not perform well, for example:
. People and teams which ought to have complementary capabilities
may clash because they belong to different subcultures or take differ-
ent positions on priorities. Charles Johnson discusses the reasons for
this in Chapter 6, ‘Creating an asset management culture’.
. Asset information and data may not be good enough to support
asset management planning or whole-life cost justifications. Or it
may be good enough but the people charged with collecting it
and making it available might have other priorities. Or the
people charged with providing it may not trust other colleagues
to use it properly.
. An organisation launches an asset management strategy, adjusts its
balanced scorecard measures to fit this but does not think to bring
its performance review process in line. Or it may end up adding
more performance objectives to an already lengthy list, which
makes it difficult to evidence or resource actions.
Section 2: Assuring the competence of asset management staff 141

. An executive team places too much faith in the management

cascade to carry its asset management vision through the organisa-
tion. The goals it has set will be compromised until roles and
responsibilities are clarified and competence requirements and
individual objectives are aligned.

3 Perspectives on competence
This particular definition of competence adopted in this chapter has its
origins in the UK vocational education tradition, and is concerned
with the outputs of performance.
There are several other models of competence in widespread use,
including:
. competence as personal qualities
. competence as knowing how to do something (rather than actual
performance)
. mixed models which combine the above.
The first of these has been the approach of choice in most human
resource development and personnel work in the UK and the USA.
The second is the approach which, historically, has been most commonly
adopted in the rest of Europe and in education in both the UK and the
USA. The third is an emerging approach, particularly combining output
models with personal qualities, which is beginning to be more popular in
human resources practice in the USA.
Organisations should be concerned with specifying the range of
competence issues they face and then making sure the competence
model they work to suits their needs and is appropriate to the organisa-
tional culture they are seeking to create or sustain.
There is no set formula for defining or managing competence in an
organisation. It is important, therefore, not to work with a pre-determined
set of specific measures or approaches to managing competence. A more
pragmatic position is that whatever approach is taken to developing and
assuring the competence of staff, it should be risk-based, purpose-specific
and as efficient as possible. Moreover, it should reflect the organisational
culture and fit with relevant regulatory frameworks.

4 Line of sight
One of the most important concepts in asset management and a hallmark
of best practice approaches is ‘line of sight’. In Chapter 2, ‘Asset
142 Asset management – Whole-life management of physical assets

management in the oil and gas, process and manufacturing sectors’, John
Woodhouse talks about the early experiences of BP in establishing
autonomous asset managers, and stresses the importance of the ‘single
source of truth’, which he describes as ‘a maintained central register of
knowledge, assumptions and plans for the asset, pooling the contribu-
tions of all relevant parties and functional disciplines’. He goes on to
talk about the importance of integrating the management team and
functional contributions so that all commit to a single shared purpose
rather than often conflicting departmental goals. Asset management
organisations need to make sure everyone involved in delivering the
asset management plan is not only committed but also competent to
make the contribution expected of them. Moreover, they need to be
able to demonstrate this to regulators, investors and others. If they are
not proactive, the lead times involved in recruiting, selecting, training
and developing people and teams will compromise their ability to deliver
plans and performance. These lead times are not to be underestimated. It
takes time to get people used to the cross-functional nature and scope of
asset management, to put behind them narrower functional perspectives
and to mature asset management teams.
Top-down strategic planning processes need to interact with bottom-
up work management processes, to ensure plans can be validated
and continuously improved. What holds this together and makes
asset management vision a reality is the combination of requirements,
assessment and development processes used to ensure that people and
teams throughout the organisation and, if necessary, in its supply
chain are competent and motivated to make the contributions needed
of them.

5 All points of the compass

People are coming into asset management from engineering, project
management, finance, surveying, data analysis, environmental science,
risk management, facilities management, information technology,
human resources, general management and elsewhere. This is not
surprising. In Chapter 1, ‘Asset management in the rail and utilities
sectors’, Richard Edwards identifies six key areas of activity as lying
within the scope of asset management: strategy and planning, whole-
life cost justification, lifecycle delivery, risk and review, asset knowledge
management, organisation and people. He argues that the degree
to which these are integrated is a key indicator of organisational
capability.
Section 2: Assuring the competence of asset management staff 143

That people are coming to asset management from such a diverse

range of backgrounds is both a source of strength for asset management
teams and a weakness. It is a strength because they bring with them
different experiences, perspectives, attitudes and beliefs about what is
possible, networks and relationships, methodologies, tools and success
criteria. These will make it easier to promote and drive asset manage-
ment strategies across traditional boundaries. It is a weakness because
it makes it harder to establish effective asset management teams.
When an organisation adopts asset management there are clear
implications for what people do and how they work together – BSI
PAS 55 (BSI, 2008) stresses the holistic nature of asset management
systems and the need to break through traditional boundaries. But,
conversely, important implications also arise from the diverse types of
people working in asset management – for the way teams are structured
and for policies and processes governing recruitment, development and
retention. It is easy to lose sight of this amidst all the work involved in
adopting asset management principles.
There are opportunities too, not least to rationalise roles and respon-
sibilities and ensure the right people are in place to discharge them.

6 Multi-disciplinary teams
Multi-disciplinary asset management teams are not just desirable, they
are essential for unifying asset management activities across organisa-
tions and driving progress across boundaries. They provide a way of
overcoming fragmented thinking and attitudes and developing holistic
approaches, decision-making and practices (Kline, 1995). In this respect,
asset management can be seen as part of a wider shift into a new mode of
knowledge production which is replacing or reforming established
institutions, disciplines, practices and policies (Gibbons et al., 1994).
A lot has been written about team development and how to produce
high-performance teams. Very little has been written about selecting
team members in the first place. Yet by far and away the most
common problem facing industry with regard to teams is that teams
often have to be put together at short notice, work to tight deadlines
and are disbanded as soon as the project is completed (Johnson, 2007).
Poorly constructed and supported teams often under-perform in spite
of the competence of the individual team members. It doesn’t matter
whether they are maintenance-planning teams trying to cope with
large seasonal variations in workload, teams responsible for safety
approvals of new equipment or executive teams coping with emergencies.
144 Asset management – Whole-life management of physical assets

It is still too early to say whether one way of organising for

asset management is better than another. A pattern does appear to be
emerging, however, and the following three-stage learning curve is
apparent:

1. The asset management teams starts small, its activities focused on

planning and analysis.
2. Realising the implications of its work for other parts of the
organisation, it goes through a fast growth stage, annexing them
in an effort to cut the costs of coordination.
3. The team is reduced in size when the board realises it needs a
team that can lead and facilitate a strategic, organisation-wide
approach to asset management which helps the business achieve
its objectives.

Not all asset management teams will go through this learning curve. It
depends where they start from. If the executive is behind a top-down,
strategic asset management approach, it is likely the asset management
team will be established at stage 3. However, if asset management is
being driven by middle management, it is likely all three phases will be
necessary, not least because middle management lacks the authority
needed to effect the changes in roles and responsibilities needed to estab-
lish line of sight or overcome boundary issues. For most organisations in
this position, the trick will be to miss out stage 2 by getting early buy-in
from the executive to a more strategic approach. This means gaining an
early and precise understanding of what the asset management team
needs to contribute, and making sure the people in it are equipped to
do this. This has implications for the types of people who need to be
in the team, the range of competences they should have between them,
their attitudes and personal attributes and the behaviours they need to
demonstrate.
All of this poses problems for traditional education and training
processes geared to the needs of the component functions of asset
management. It demands that as much attention is given to the way
teams are designed, built and managed as to the way individuals are
developed and enabled to perform specific roles well. There are two
challenges here – the development of existing staff into coherent asset
management roles and teams and the development of the next generation
of asset management professionals. The first is down to organisations to
deal with in ways that suit their circumstances either independently or
collaboratively. The second needs the active participation of educators,
qualifying organisations and professional bodies.
Section 2: Assuring the competence of asset management staff 145

7 Competence frameworks
Asset management has been around in various guises since the 1980s, but
it is only in the last few years that broad consensus has emerged on what
it is, what it entails and what good practice looks like. This consensus
came to a head with the publication of BSI PAS 55 in 2004 and the
IAM Competences Framework in 2006 and was further substantiated
when second editions of these were published in November 2008. As
Martin Pilling explains in Chapter 4 – Beyond BSI PAS 55 compliance,
the emergence of capability maturity models in the last few years has
further substantiated understanding of the scope and performance
improvement potential of asset management.
Consensus is essential for the development of nationally and
internationally recognised training schemes, qualifications and awards.
Competence frameworks are the currency of this consensus. When
they are well designed, they provide unambiguous, validated descrip-
tions of what people should be able to do, which serve as a common
language for defining selection criteria, setting development goals,
identifying training needs, assessing performance, planning careers and
succession. There are two main ways to approach their development:
. One is to define the generic competences required by people in asset
management roles regardless of the sector or organisational
context they operate in, as, for example, the IAM has done.
. The other is to define how the competence requirements already
defined for people in other roles need to be adapted to support
asset management, as, for example, the Asset Management
Council of Australia is doing at present in its certification
programme.

Both approaches depend on agreement as to what asset management is

and where its boundaries lie. For example, does asset management end
with the definition of work volumes and work programmes or does it
include the delivery of these? The answer to this question has obvious
implications for the size and functions of the asset management team.
In practice, most organisations will need to combine these approaches.
Not many come to asset management without a history – they have to
meet it where they stand. This might mean they have to drive asset
management from the bottom up at the same time as they are creating
a top-down strategy.
The IAM Competences Framework (IAM, 2008) is the only one of its
kind. It contains a set of generic competence requirements which are
applicable to people working in asset management in all sectors. It
146 Asset management – Whole-life management of physical assets

defines their overall goal as being to optimise the delivery and performance
of physical assets, and identifies seven key roles that the achievement of
this goal relies upon, namely:
1. Policy development.
2. Strategy development.
3. Asset management planning.
4. Implement asset management plans.
5. Asset management capability development.
6. Risk management and performance improvement.
7. Asset knowledge management.
Each of these roles is further broken down into a number of competence
units, such as ‘Apply whole-life costing principles’. Each unit is sub-
divided into a small set of elements of competence such as ‘Identify
whole-life costing models’ and ‘Define the process for tracking, analysing
and verifying unit cost data’. These elements describe what an individual
should reasonably be expected to do, and are the focus for assessing
individual performance. The IAM Framework also provides indicative
lists of the knowledge and understanding people will need to perform
competently.
Organisations seeking to improve their asset management systems and
performance need to ensure they have suitably competent people in place.
The IAM Framework is a tool they can use to decide the mix and depth of
competences they require in their asset management teams. Its clear,
modular structure makes it easy to use in planning and monitoring
training and development, and universities, vocational training companies
and human resources departments are using it to create accredited
learning programmes. The format and contents of the IAM Framework
make it compatible with other leading competence frameworks. Although
its contents map to the requirements of BSI PAS 55, the IAM Framework
is designed to support organisations at all levels of asset management
maturity. Organisations which are seeking BSI PAS 55 certification can
use the IAM Framework to demonstrate that roles and responsibilities,
performance reviews and personal development objectives are aligned
with asset management, strategy and plans.
A key demand in defining competence requirements for asset manage-
ment is that individuals, teams and organisations working in this field are
likely to be highly varied, and so are the relationships between them.
Approaches to defining what is expected of people and organisations
and how this will be measured which exclude this, do so at their peril.
Competence requirements, the ways they are described, communicated
and assessed against should leave room for inevitable future changes
Section 2: Assuring the competence of asset management staff 147

(Lloyd and Cook, 1993). They should also encompass roles in the board-
room and supply chain as well as the workplace. The greatest danger in
defining competence requirements is basing them on the way things have
always been done or are done today when it is clear that tomorrow and
the day after are going to be very different.

7.1 Customising competence frameworks

The IAM Framework has been developed intentionally as a generic
occupational standard. It describes what people working in asset manage-
ment should be able to do and gives a broad indication of what they need
to know, but it stops short of saying how well they should be able to do
things or what precise knowledge they need. As with other generic
competence frameworks such as the Management and Leadership
Standards and the Engineering Competence Reference Standards, the
IAM Framework leaves these decisions to the organisations which will
use it. In this way, it seeks to provide a basis on which cross-sector and
sector-specific training, qualifications and awards can be established.
The units of competence within generic frameworks are designed to be
easily contextualised and customised by adding appropriate detail to the
performance criteria, knowledge statements and range statements. Use
of the framework in this way assumes that the unit statements remain
unchanged for a significant period of time. This provides for the
recognition and transferability of competence within and across different
organisations and user groups. It also provides a common conceptual
framework within which different levels of responsibility and achieve-
ment can be recognised.
Whether customised or not, the IAM Framework provides a basis for
selecting, assessing and developing people to work in asset management
roles in an efficient, traceable and consistent manner (IAM, 2008). It can
be used for:
. Developing the roles and job descriptions of individuals with asset
management responsibilities. Using the competence requirements
will also identify what is required to provide the assurance that
people are competent to do what is being asked of them.
. Appraising individuals with asset management responsibilities.
. Planning continuing professional development (CPD) as necessary.
. Deriving criteria which can be used in the recruitment and selection
of new staff.
. Defining generic training courses for new and existing staff.
Figure 7.1 illustrates these relationships.
148 Asset management – Whole-life management of physical assets

Corporate
objectives

Person Performance criteria

specifications and and guidance on
selection criteria assessment process
Competence and methods
requirements

Training and
Recruit and development Assess
select linked to existing
competence
new staff requirements staff

Training and
development
Training and development Training and development
requirements identified requirements identified
Evidence of
competence

Records of
competence
Review competence
Evidence of
requirements in light of
competence
staff performance Evidence to support deployment
succession/career planning
and certification

Fig. 7.1 Typical competence management lifecycle

7.2 Competence profiles

Competence frameworks can be used to define the level of responsi-
bilities and achievement expected from different roles.
Competence profiles can be created to indicate the level of capability
needed. Table 7.1 gives an example of this. In this case, four levels of
capability have been identified – understand, apply, evaluate, design/
develop – although there is no hard and fast rule for how many levels
and what verbs should be used, other than they should be logical and
discrete. Competence profiles for different job roles are produced by
describing the level of capability needed for each of the units of
competence in the framework.
Section 2: Assuring the competence of asset management staff 149

Table 7.1 Example competence profile and levels of capability

Unit Role 1 Role 2 Role 3

1. Evaluate Apply Understand

2. Design/develop Design/develop Apply
3. Evaluate Apply Understand
4. Evaluate Apply Apply
5. Apply Apply Apply
6. Understand Understand Understand

This simple approach provides a way of clarifying expectations for

different roles based on a common framework, which in turn creates
opportunities to define development paths between roles. It is a relatively
easy way of putting a competence framework to work, and represents a
first step to more detailed assessment of competence and performance.
Most organisations which choose this approach do so in order to get
managers and staff into the habit of setting and using objective measures
as a basis for periodic performance reviews and development planning
meetings. As Penny Burns observes in Chapter 5, ‘Asset management
strategy: leadership and decision-making’, ‘the values of importance to
an organisation are . . . promulgated at the core by what gets rewarded’.
As an organisation’s asset management capability matures beyond
the requirements of BSI PAS 55, so its application of competence frame-
works to structure roles and responsibilities, assess individual and team
performance, define training and development needs and solutions and
plan career paths needs to become more rigorous. As Martin Pilling
argues in Chapter 4, ‘Beyond BSI PAS 55 compliance’, as the asset
management capability of an organisation matures, so the range of
processes and techniques it deploys will become more mature, but not
necessarily more complex. In the case of competence management,
best practice involves risk-based definition of requirements and lean
assessment processes underpinning recruitment and selection, training
and development, performance reviews and accreditation. Above all, it
is characterised by strong personal commitment by managers and staff
to building and demonstrating appropriate competences and behaviours.
Along similar lines, the IAM has produced competence profiles of a
similar nature for what it has identified as five key asset management
roles – business leader, head of asset management, asset management
planner, asset management team leader and asset management new
entrant (IAM, 2008).
150 Asset management – Whole-life management of physical assets

8 Competence management systems

One of the main lessons learned from the introduction of asset manage-
ment to the Orange Country Sanitation Department (EPA, undated)
was that a great deal more attention should be given at the outset to
capturing people’s hearts and minds and equipping them with the
skills and knowledge they needed to work together in new ways.
Although competence is raised as an issue in most asset management
initiatives, competence management is not always perceived as having a
strategic role to play in delivering the plans of the business. There are
several reasons for this:
. competence management is too often associated with compliance
in the minds of senior managers
. it takes people new to asset management a while to get used to the
holistic nature of asset management
. most managers do not have and are not getting the cross-
organisational experience needed to transform their subjective,
function-specific opinions on how things should be done into
valid, objective performance criteria.
Competence management is the process for assuring that contributions
at every level are relevant, motivated and effective and, above all,
sustainable over time. It needs to be designed and managed as a strategic,
top-down process if it is to support effective, enterprise-wide asset
management.
A very traditional model of competence and organisation still
flourishes in most industries within which the concept of the ‘isolatable’
function is central. It is this concept that drove the emergence of so-
called ‘safety professionals’ in the 1990s. A less functional, more
dynamic and flatter model has been much talked about since the
mid-1980s – partially through the impact of information systems and
outsourcing – which is altering the relationship between what has to
be done, how it gets done and who does it. At present, however, most
competence frameworks, and the training, qualifications and awards
they underpin, address the needs of specific functions.
In many sectors, particularly those in which organisations are engaged
in safety-critical activities, competence management systems play a pivotal
role in ensuring that work is performed satisfactorily. A competence
management system has five main components (ORR, 2007):
. performance requirements defining what people should be able to
do and how well
. a system for assessing people’s performance against these requirements
Section 2: Assuring the competence of asset management staff 151

. a process for ensuring that assessment results influence decisions

on selection, development, deployment and certification
. a verification system to assure the quality of assessments
. a records system for capturing key competence data and
information.

This close association with safety critical work has led to competence
management systems being perceived in many quarters as synonymous
with compliance. In the UK this perception has been ingrained more
deeply since the Corporate Manslaughter and Corporate Homicide
Act became law in 2007 (Lloyd and Appleby, 2007/2008). As a result,
efforts to develop and introduce competence management systems in
recent years have focused too much on delivering compliance evidence
and not enough on delivering high business benefits (RSSB, 2006).
The strong association with compliance has given rise to a quite
widespread belief that defining competence requirements, assessing
people against them and using the evidence to make decisions on their
development and deployment is an unnecessarily bureaucratic process.
In practice, most organisations already have in place the processes
they need to do this – they define roles and responsibilities and set
work objectives, they organise performance reviews at least once a
year and they expect line managers to agree personal and professional
development plans with their staff reports. A competence management
system is simply a means of bringing these processes into a structured
approach to ensure staff are available to deliver business objectives.
Where their scope extends beyond demonstrating that mandated
requirements are being met, competence management systems have
tended to focus on specific technical or operational skills such as
installing and testing or commissioning or maintaining assets and
equipment. Far less attention has been given to the competences required
at other stages of the asset management lifecycle, such as making sure
that key staff are conversant with the principles and concepts of asset
management and can apply these in their decisions. The current scarcity
of professional training services, educational qualifications and awards,
and CPD schemes is testament to this.
There is a danger that the increasing popularity of BSI PAS 55 will
spawn a plethora of initiatives designed to improve the competence of
the asset management workforce, but the impact of these is bound to
be mixed. It is likely, especially if BSI PAS 55 makes the transition to
an ISO in a few years’ time, that most will be compliance-driven, focused
on making sure people hold the right credentials to satisfy certification
audits rather than on improving the relevance and quality of what
152 Asset management – Whole-life management of physical assets

they do. Soon, organisations will begin to feel exhausted by their efforts
to find answers to the competence question, although in reality they will
have only just begun.
Different approaches to defining, developing and assessing and recog-
nising competence have taken root in different professional groups over
the years. Even in the same organisation it is not uncommon to find
divergent and, sometimes, confused views on:
. how to identify competence requirements and set standards
. what types and sources of competence standards are most
appropriate
. which assessment methods to use
. how much and what sort of evidence is relevant
. how to gather and record this evidence
. what the relative values of certificates and qualifications are.
In many organisations, the result is a set of partially overlapping
systems – at different stages of development, following different
approaches – which do not directly address the needs of the business.
As a result, competence issues keep surfacing but are rarely resolved.
Furthermore, different organisations within the same industry often
pull in different directions which makes it difficult to:
. transfer staff with confidence between organisations and projects
. make comparisons between contractors
. understand the capability and capacity of teams and workforces
. demonstrate industry commitment to third-party agendas and
requirements.

9 Strategic competence management

The lack of a competence management strategy creates two distinct
problems. It causes unrealistic expectations to be placed on external
organisations. It also perpetuates a belief that the competence manage-
ment agenda can be set outside the organisation.
A strategic approach is needed to align the competences and
availability of people (employed staff, contractors and consultants)
who are expected to contribute to the delivery of asset management
strategy either directly as part of the asset management team or at the
many interfaces between it and the technical, operational and support
functions it must work with.
Figure 7.2 shows the main components of a strategic competence
management process.
 Section 2: Assuring the competence of asset management staff
Corporate objectives

Asset management objectives

Asset group objectives

Government Contributions required

Third-party
pressures of people, teams
Regulators and supplier organisations
Shareholders
Communities
Trade unions
Consumers
Performance requirements Training and
development

Competence Performance
management system review

Deployment
Performance indicators

Fig. 7.2 Strategic competence management

153
154 Asset management – Whole-life management of physical assets

This competence management process will ensure that inputs to and

outputs from the competence management system are correctly aligned
with business objectives. It requires the executive to be explicit about
what each part of the organisation needs to contribute to the asset
management strategy and the competences they will need to make this
contribution. It also allows for the fact that objectives change over time.
Once these relationships are defined, the competence requirements
and performance expectations for individuals and teams and a system
for managing the competence of individuals and teams against these
can be constructed.
Adopting a strategic approach to managing the competence of the
engineering workforce can be expected (Hopper, 2004; Lindgren et al.,
2004) to deliver a number of benefits, including:
. better communications and lesson learning in the supply chain
. training and development that is focused on priorities
. cross-industry acceptance of competence records
. more efficient contractor selection and contract hand-overs
. more effective planning of investment projects
. improved utilisation of the engineering workforce
. reduced levels of rework and programme delays
. greater assurance of front-line delivery
. a more efficient assessment regime.
A best practice competence management system should:
. be risk based, to enable effective prioritisation of commercial and
safety-related competence issues
. be based on good practice principles that can be tailored to the
needs of different professional domains
. take account of change management issues and assist effective
transitions in management systems and work practices
. produce relevant and timely inputs to company-wide systems
. provide a mechanism for ensuring that lessons learned from
inquiries into accidents and incidents are acted upon
. encourage the active participation of assessment candidates in
planning assessments and compiling evidence.

10 Implementing a strategic approach

Almost everything that needs to be known about implementing
competence management systems is in the public domain. One thing is
Section 2: Assuring the competence of asset management staff 155

clear from this – a strategic approach cannot be implemented overnight.

There are a number of classic problems associated with the development
and introduction of competence management systems evident in the
experience of the rail and other industries:
. people struggle to come to terms with more formal arrangements
for assessment and development
. systems become too bureaucratic – too many layers of paperwork
get between those involved in the system and the required effects of
the system.
To overcome these, a risk-based approach to developing the competence
management process and system is essential (Bush and Lloyd, 2007). In
practice, this means involving users in the development process to help
visualise how the process and system will operate, who will do what
and how the transition from current arrangements will be managed, in
particular the shift from reactive to proactive interventions in the
development of the workforce.
In practice, it may be two or three years before a strategic competence
management system is operating routinely and generating all the neces-
sary outputs. It may take longer than this if the organisation is trying to
migrate from entrenched positions on competence requirements in some
of its functions or an overly bureaucratic compliance-driven approach to
competence management.
Whatever the starting point, there are certain key steps that must be
taken early in the process such as aligning asset management and
corporate objectives, determining their competence implications and
deciding how to track the contribution of improved competence
management to this.
Another pressing issue is to address the asset management com-
petence requirements of the executive and other relevant professionals.
Asset management is not well served by attempts to departmentalise it,
as Richard Edwards explains in Chapter 1, ‘Asset management in the
rail and utilities sectors’. While it is important to guard against it
becoming a theory of everything, it is important also to recognise that,
as others have argued, senior management needs to unite behind asset
management if its principles are to be applied successfully to organisa-
tional strategy. Executive education is prerequisite to this, both for
incumbents and those identified as having the potential to replace
them – one of the main threats to the consistency and staying power
of asset management strategy is turnover in the boardroom. The seven
key roles of the IAM Competences Framework provide a starting
point for the design of learning modules. Directors with corresponding
156 Asset management – Whole-life management of physical assets

accountabilities need to take responsibility for making sure the contents

of these modules are aligned with corporate goals.
As Steven Male describes in Chapter 3, ‘The challenges facing public
sector asset management’, the UK Office of Government Commerce
(OGC) recently embarked on a high-performance property initiative,
with the aim of transforming property asset management by government
departments. The OGC is one of a number of organisations including the
UK Environment Agency, Atkins Group and Serco Docklands which
are using the IAM 2008 Competences Framework to help them identify
how and where competence frameworks already being used to manage
the development and performance of specific occupations can be aligned
better with asset management goals.
This involves mapping the more specific frameworks to the generic
requirements of the IAM Framework in order to identify gaps in
coverage and overlaps which may create opportunities to re-use assess-
ment evidence. It is a complex task because competence frameworks
vary in style, structure and format, depending on their purposes and
when they were written. In the case of the OGC, these include frame-
works published by the British Institute of Facilities Management, the
Chartered Institute of Public Finance and Accountancy, the Association
for Project Management and the Chartered Institute of Purchasing and
Supply, amongst others. It is a sensitive task too, not least because
professional groups, understandably, have a strong vested interest in
maintaining their competence frameworks and the awards and CPD
schemes they support.

11 Conclusions
Asset management is a strategic response to a fast-changing, fiercely
competitive, cost-conscious business environment. Knowledge and
learning are the keys to its success. The development of suitably
competent and motivated workforces is a critical challenge to all
would-be asset management organisations. The goal of management is
to create and endlessly recreate the working environment in order to
make the organisation and the people it relies upon as productive as
possible. This will involve establishing clear asset management strategies
and objectives, capturing the competence implications of these in
clear requirements and using these requirements to focus selection,
development and retention processes.
The benefits of systematic asset management are not achievable
without a similarly systematic approach to ensuring that roles and
Section 2: Assuring the competence of asset management staff 157

responsibilities, performance review objectives and personal develop-

ment plans support the line of sight from asset management plan to
the local work instruction. It is not enough to focus on individuals:
asset management teams need to be constructed with care. That
these teams need to span the disciplines and have knowledge of the
diverse activities which must contribute to the achievement of asset
management goals only makes the task harder. Above all, roles and
responsibilities in the boardroom need to be aligned with the
integrative demands of asset management leadership, and those who
contribute to policy and strategy development need the knowledge,
skills and motivation to do so effectively. For employers, this means
tackling traditional mindsets, moving beyond conventional wisdom on
the origins and career paths of good asset management staff and
finding efficient methods for equipping them with the principles, prac-
tical and thinking skills they need to contribute to the development of
the business. For employees, it means a commitment to continuous
learning and stepping outside the boundaries that have previously
defined their careers.

References
BSI 2008. PAS 55: 2008. The Specification for the Optimized Management of
Physical Assets, Parts 1 and 2. British Standards Institute, London.
Bush, D. and Lloyd, C. 2007. Assuring the assurors. Engineering Management,
17(3): 42–45.
EPA (undated). Multisector Asset Management Case Studies. Environmental
Protection Agency, Washington, DC. www.epa.gov/owm/assetmanage.
EPA 2008. Building an Asset Management Team, 816-F-08-016. Environmental
Protection Agency, Office of Water, Washington, DC.
Gibbons, M., Novotny, H., Limoges, C., Schwarzman, S., Scott, P. and Trow,
M. 1994. The New Production of Knowledge: The Dynamics of Science and
Research in Contemporary Societies. Sage Publications, London.
Hopper, G. 2004. NASA Competency Management System. http://nasapeople.
nasa.gov/perform/Developing_Detail.html.
IAM 2008. IAM Competences Framework. Vol. 1, The Requirements. Vol. 2,
Guidance. Institute of Asset Management, London.
IAM 2009. Workshop. Institute of Asset Management Annual Members’ Confer-
ence. University of Warwick, 29–30 June.
Johnson, C. 2007. Effective asset management teams. Assets Magazine, spring:
8–11.
Kline, S. J. 1995. Conceptual Foundations for Multidisciplinary Thinking, Stan-
ford University Press, Palo Alto.
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Lindgren, R., Henfridsson, O. and Schultze, U. 2004. Design principles for

competence management systems: a synthesis of an action research study.
MIS Quarterly, 28(3): 435–472.
Lloyd, C. and Cook, A. 1993. Implementing Standards of Competence: Practical
Strategies for Industry. Kogan Page, London.
Lloyd, C. and Appleby, M. 2007/2008. Good safety makes good business. Engin-
eering Management, Dec./Jan.
Lyons, M. 2007. Towards Better Management of Public Sector Assets: A Report
to the Chancellor of the Exchequer. HMSO. London.
ORR, 2007. Developing and Maintaining Staff Competence. Railway Safety
Publication 1. Office of Rail Regulation, London.
RSSB 2006. Workforce Competence and its Management: A Five to Ten Year
View. Rail Safety and Standards Board, London.
Section 3. Future directions
8 Incorporating climate change within
asset management
Ralph Rayner Professor, Centre for the Analysis of Time Series, London
School of Economics and Political Science

A description of established techniques for deriving environmental criteria for

the management of assets is presented, followed by a review of the principal
issues surrounding the practical application of uncertain knowledge of the
future climate. A case study of the Thames Barrier provides an example of
best practice.

1 Introduction
Physical assets such as buildings, offshore structures and transportation
systems operate in a dynamic environment where they are exposed to
short, medium and long-term variability in ambient environmental
conditions. An important input to asset management is an adequate
understanding of this variability. This typically includes the estimation
of environmental conditions that can be expected over the life of an
asset (e.g. an offshore structure) or a system of assets (e.g. a transporta-
tion system). Engineers and asset managers employ these environmental
criteria as the basis for understanding the impact of the environment on
proposed or existing assets. Criteria may be derived on an asset-specific
basis or through the application of predetermined codes. Environmental
criteria are used as inputs to the design and construction of an asset, to
the planning of operations and to gain an understanding of through-life
maintenance requirements.
Environmental criteria usually take the form of a statistical view of
the variability of conditions within which the asset must operate: for
example, wind speed variability to determine the wind loading on a
building, wave height variability to determine the loading on an offshore
structure, or air temperature variability as an input to the design of
railways or roads.
For operational planning, daily, weekly, monthly or seasonal vari-
ability of an environmental parameter which has an impact is often
required: for example, the likely exceedance of a threshold limiting
condition for the operation of a port or airport. To understand
through-life maintenance costs, an understanding of the relationship
Asset management – Whole-life management of physical assets # Thomas Telford 2010
978-0-7277-3653-6 All rights reserved
162 Asset management – Whole-life management of physical assets

between environmental factors and the deterioration of the asset is

needed, such as the impact of continuous wave loading on the
deterioration of key structural components of an offshore structure.
A critical input to design is an analysis of the most extreme environ-
mental conditions that an asset must be designed to withstand: for
example, the maximum wind speed that a building must withstand or
the extremes of air temperature under which a road or railway must be
able to operate. Design codes and asset-specific design studies typically
provide an estimation of the magnitude of the most extreme event that
might be expected to occur at least once in a specified return period.
The selection of return periods is based on the expected life of the
asset and the economic, safety and environmental risks associated with
damage or structural failure. The selection of different return periods
permits trade-offs between economic, safety and environmental impacts
and the costs of construction to be taken into account. For example,
offshore oil and gas production facilities have typically been designed
for a 100 year return period, and coastal nuclear power stations for a
return period of 10 000 years or more. Steven Male talks more about
the importance of climate change in long-life asset management in
Chapter 3, ‘The challenges facing public sector asset management’.

2 Use of time histories

The fundamental basis for meeting the environmental information needs
of asset management is the analysis of time histories of environmental
variables. Time histories can be derived in a number of ways. They
may be calculated (e.g. astronomical tidal elevation) or measured
directly (e.g. location-specific measurements of wind speed and direc-
tion). Empirical formulae are frequently employed to compute the
value of a variable at a location which differs from where it was observed;
for example, wind speeds measured at one elevation are often converted
to values at a different elevation based on empirical factors derived from
experiment. For spatial interpolation, numerical modelling techniques
are frequently employed. Numerical modelling also provides a basis
for deriving time histories of one variable from knowledge of another;
for example, ocean wave characteristics derived from surface winds
based on the knowledge of the physics of wave generation. Many
different types of model are widely used to describe data and processes.
For determining extremes, the length of available time histories is
almost always significantly less than the design return period, so
probabilistic techniques are used to extrapolate to longer periods.
Section 3: Incorporating climate change within asset management 163

Generalised extreme value distributions such as Weibull, Fisher Tippett

and Gumbel (Kotz and Nadarajah, 2000) or generalised Pareto
distributions (Falk et al., 2004) are used for this purpose.

3 Uncertainty in environmental criteria

Sources of time history data and the tools used to analyse or extrapolate
them are subject to a range of generic uncertainties.
For measured data there are uncertainties associated with the accuracy
and precision of measurement devices. Empirical factors for inferring
variation in an environmental parameter at a location different to where
it was measured are generalised approximations. Numerical models
introduce uncertainty through inadequate mathematical representation
of processes, errors in parameterisation, omission of important processes,
and spatial and temporal smoothing across model grids and time steps.
In Chapter 5, ‘Asset management strategy: leadership and decision-
making’, Penny Burns highlights the risk of basing future strategy on
historical information alone. A key source of uncertainty is the assump-
tion that past time histories will be statistically representative of the
future. Time histories must be long enough to capture annual variability,
but how long do they need to be to adequately capture inter-annual
variability?
It has long been understood that the natural climate is not stationary.
This is self-evidently the case over geological timescales, where we know
that climatic conditions, such as temperature, precipitation and sea level,
lay well outside of anything observed during human history. Even over
the period of human history, climate is known to have varied consider-
ably. As climate science has advanced, natural climate cycles have been
identified which operate on multi-year scales.
The best known of these is the El Niño-Southern Oscillation (ENSO).
Driven by large-scale sea surface temperature fluctuations in the tropical
Eastern Pacific, this natural climate cycle is associated with floods,
droughts and other disturbances at a range of locations around the
world. ENSO is the most prominent known driver of inter-annual
variability in weather and climate around the world, and has a period
of between 3 and 8 years (Glantz, 2000).
A number of other long-period natural cycles which have far-reaching
effects have also been identified. Examples include the North Atlantic
Oscillation (NAO), which is responsible for much of the variability of
weather in the North Atlantic region during the November to April
period, affecting wind speed and wind direction, temperature and
164 Asset management – Whole-life management of physical assets

moisture distribution and the intensity, number and track of storms

(Hurrell and Loon, 1997), and the Indian Ocean Dipole (IOD), which
influences climate throughout the Indian Ocean region, including effects
on the magnitude of Indian monsoons (Saji et al., 1999).
Established techniques for deriving environmental criteria are all
based on the assumption that the use of a long enough time history of
past variability will capture inter-annual variability sufficiently to
ensure that it is incorporated into statistical summaries and projections
of extreme events.
This implicit assumption of stationarity is no longer valid when there
is a cycle longer than the length of the time history or if a single event
from a class of events, which are absent in the observed or modelled
past, occurs; for example, the occurrence of a hurricane at a location
where no hurricanes have previously been observed. A cycle or type of
event not captured in the time history will mean that the statistics
of the past will not be representative of the future. Most significantly
in the context of climate change, non-linear long-term trends which
may extend far into the future are explicitly excluded.

4 Climate change
There is now a high level of confidence that our climate is changing due
to human activity and especially due to emissions of greenhouse gases.
The ‘greenhouse effect’ is an essential component of maintaining a
habitable planet. Naturally occurring greenhouse gases (especially
carbon dioxide, methane and nitrous oxide) effectively trap part of the
heat radiated from the earth’s surface. Were these natural greenhouse
gases absent, the earth would be too cold to support life as we know it.
Direct measurements of carbon dioxide in the atmosphere show that
its concentration has been progressively increasing over the last 50 years.
Indirect measurements based on analysis of gas bubbles trapped in ice
cores show a carbon dioxide increase of approximately one-third since
the start of the industrial revolution. The majority of the increase from
a pre-industrial level of 280 parts per million to a level of 387 parts
per million in 2009 has been firmly attributed by the Intergovernmental
Panel on Climate Change (IPCC) to the burning of fossil fuels and
changes in land use (IPCC, 2007a). Current atmospheric concentrations
of carbon dioxide far exceed the natural range of the last 650 000 years
(IPCC, 2007a).
The effects of increased greenhouse gases and land use changes on
global climate are determined by the analysis of a wide variety of
Section 3: Incorporating climate change within asset management 165

observations and measurements and the use of mathematical models

which aim to provide insight into future change. The most sophisticated
of these are the so called atmosphere–ocean general circulation models
(AOGCMs), which aim to reproduce many of the processes through
which greenhouse gases influence the earth’s climate.
The Fourth Assessment Report of the Intergovernmental Panel on
Climate Change (IPCC, 2007a) provides a synthesis of observed and
projected results of anthropogenic climate change. In summary:

. The IPCC report finds with a very high confidence that the globally
averaged net effect of human activities since 1750 has been one of
warming. Global mean temperatures have been rising over the last
century with a more rapid rise since 1970. Average global lower
atmosphere temperatures have increased by 0.748C, with most of
this increase having occurred in the last 50 years. Climate models
used to estimate temperature changes all project that it will be
warmer in the future, with global average warming of about
0.48C expected during the next 20 years. Over the longer term,
these models project average global temperature increases ranging
from 1.18C to 6.48C by the end of the 21st century with
considerable regional variation. Extreme temperatures are also
expected to increase. These projections are the result of integrating
the results from a range of global climate models under a variety of
scenarios for future economic activity and energy use. Over the last
50 years, the frequency of cold days and nights has declined and the
frequency of hot days, hot nights and heat waves has increased.
The number of days with temperatures above 328C and 388C
has been increasing since 1970, as has the intensity and length of
periods of drought. The report finds it virtually certain that
warmer and more frequent hot days and nights will occur over
most land areas during the next century.
. Over the past century, precipitation has increased in several regions
while drying has been observed in others, notably in Africa
and Asia. During the 21st century, increases in the amount of
precipitation are very likely in high latitudes while decreases are
likely in most subtropical land regions. While the average levels
of precipitation will vary by region, the incidence of extreme
precipitation events is expected to increase.
. The IPCC reports that the globally averaged rise in sea level during
the 20th century was 0.17 m and that average sea level rose at a rate
of 1.8 mm per year between 1961 and 2003, with the majority of
this rise being due to the thermal expansion of seawater. Excluding
166 Asset management – Whole-life management of physical assets

the effects of rapid changes in ice flow from the polar ice sheets,
model-based projections for global sea level rise over the next
century across multiple socio-economic scenarios are in the range
0.18–0.59 m. These estimates are being re-examined in the light
of new evidence that glaciers and ice sheets could experience
more rapid melting, leading to a significantly larger global mean
sea level rise by the end of the century (Pfeffer et al., 2008).
. It is likely that future tropical cyclones will become more intense,
with higher peak wind speeds and heavier precipitation. There is
currently insufficient evidence to clearly identify trends for other
storm phenomena.

5 Uncertainty in climate observations and projections

Observations of climate change are subject to a range of measurement
and analysis uncertainties. It remains the case that the earth is sparsely
monitored, and this is especially true for the oceans. The inadequacy
of the observational base, measurement accuracy and analytical tech-
niques all contribute to uncertainty in global and regional measures of
observed climate change.
The cascade of uncertainty surrounding projecting future climate
begins with forcing uncertainties; to predict future anthropogenic
climate change requires knowledge of future greenhouse gas emissions
and land use changes. Even if there were perfect techniques for
projecting the impact of a given level of greenhouse gas accumulation
in the atmosphere, we cannot reliably predict what future emissions
will be or how patterns of future land use will change. All that can be
done is to work with realistic scenarios of future global socio-economic
development and the possible emissions pathways that they might create.
It will be possible to narrow the uncertainly in future emissions scenarios
as national and international policies on mitigating greenhouse gas
emissions are developed and implemented.
The IPCC uses a range of scenarios (Nakicenovic and Swart, 2000)
derived from the IPCC Special Report on Emissions Scenarios (SRES):
. The A1 scenario family describes a future world of very rapid
economic growth, a global population that peaks mid-century
and declines thereafter, and the rapid introduction of new and
more efficient technologies. A major underlying theme is conver-
gence among regions of the globe, with a substantial reduction
over time in regional differences in per capita income. The A1
family is split into three groups that describe alternative directions
Section 3: Incorporating climate change within asset management 167

of technological change in the energy system: fossil intensive

(A1FI), non-fossil energy sources (A1T) or a balance across all
sources (A1B).
. The B1 scenario family describes a convergent world with the same
population trajectory as in the A1 storyline, but with rapid changes
towards a service and information economy, with reductions in
material intensity and the introduction of clean and resource-
efficient technologies.
. The A2 scenario family describes a very heterogeneous world, with
the underlying theme of self-reliance and preservation of local
identities. The global population increases continuously, economic
development is regionally oriented, and per capita economic
growth and technological change are more fragmented and
slower than in the other storylines.
. The B2 scenario family describes a world that emphasises local
solutions to economic, social and environmental sustainability
(i.e. a heterogeneous world as in A2). The global population
increases continuously at a rate slower than A2, with intermediate
levels of economic development, and less rapid and more diverse
technological change than in the B1 and A1 storylines.

It is telling that emissions are currently tracking above the most intense
fossil fuel scenario established by the IPCC SRES (Global Carbon
Project, 2008).
A further area of forcing uncertainty concerns understanding how
emissions of greenhouse gases translate into actual concentrations in
the atmosphere and are therefore ‘available’ to affect the earth’s radiative
balance. Natural land and ocean carbon dioxide sinks largely control
this, and are currently responsible for removing just over 50% of
human greenhouse gas emissions over the 2000–2007 period. There is
evidence that the efficiency of these natural sinks is decreasing (Global
Carbon Project, 2008). Reliably predicting future efficiency changes is
not yet possible since the bio-geochemical processes involved are
highly complex and poorly understood.
Modelling of the global and regional climate response to greenhouse
gases is also subject to major uncertainties. The often-cited multi-model
graph of global surface warming (IPCC, 2007a) illustrates this
uncertainty for a range of emissions scenarios.
It is clear from Fig. 8.1 that the likely range around the best estimate
for the last decade of the 21st century is large. It must also be understood
that this range is not a measure of total uncertainty, since not all
processes that determine future climate are represented in the models.
 168
Post-SRES (max.) 6.0 Post-SRES range (80%)
200
B1
180 5.0 A1T
Global GHG emissions: GtCO2-eq/year
B2
160 A1B

Asset management – Whole-life management of physical assets

Global surface warming: °C
4.0
A2
140
A1FI
3.0
120 Year 2000 constant
concentrations
100 2.0 20th century

80
1.0
60

40 0

20
Post-SRES (min.)

A1FI
A1B
A1T
–1.0

B1

B2

A2
0
2000 2100 1900 2000 2100
Year Year

Fig. 8.1 Left panel: Global GHG emissions (in GtCO2-eq) in the absence of climate policies: six illustrative SRES marker scenarios
and the 80th percentile range of recent scenarios published since SRES (post-SRES) (gray shaded area). Dashed lines show the full
range of post-SRES scenarios. The emissions include CO2, CH4, N2O and F-gases. Right panel: Solid lines are multi-model global
averages of surface warming for scenarios A2 A1B and B1, shown as continuations of the 20th-century simulations. These projec-
tions also take into account emissions of short-lived GHGs and aerosols. The lowest line is not a scenario, but is for Atmosphere-
Ocean General Circulation Model (AOGCM) simulations where atmospheric concentrations are held constant at year 2000 values.
The bars at the right of the figure indicate the best estimate (solid line within each bar) and the likely range assessed for the six SRES
marker scenarios at 2090–2099. All temperatures are relative to the period 1980–1999. (From IPCC (2007a).)
Section 3: Incorporating climate change within asset management 169

Understanding the effects of anthropogenic climate change on the

characteristics of natural cycles such as ENSO and the NAO is also
currently beyond the capability of climate models.
Problems with determining uncertainty become more acute in moving
from a global to regional scale and from modelling temperature to
modelling more complex effects such as changes in precipitation. At
regional scales, AOGCMs produce not only different quantities of
change in precipitation but also changes in different directions (Jenkins
and Lowe, 2003).
Global and regional models produce climate change scenarios that
are too coarse in both space and time for determining site-specific
impacts. One possible means of addressing this is to downscale to
finer spatial and temporal resolution using statistical or dynamical
modelling. An example is the UK Climate Projections (UKCIP)
(Murphy et al., 2009), which make extensive use of downscaling
techniques to derive fine resolution outputs (25 km
25 km UK land
grid squares). The UKCP also include statistical representation of
future daily climate from 2020 onwards on an even finer scale
(5 km
5 km grid squares) generated on the basis that future climate
will be consistent with the statistics of the current climate. By adding
further modelling and statistical procedures, downscaling adds much
additional uncertainty to already uncertain global and regional model
projections. As a result, such downscaled products must be used with
considerable caution.
The final source of uncertainty concerns so-called tipping points, or in
IPCC terms, large-scale singularities (IPCC, 2007a). These are extreme,
sometimes irreversible, changes in the earth system such as an abrupt
cessation of the North Atlantic Meridional Overturning Circulation,
rapid global sea level rise due to Antarctic or Greenland ice sheet
melting, or abrupt releases of methane from permafrost regions or the
deep ocean. Such events are at the extremes of probability and cannot
be reliably predicted. Although thought to be extremely improbable,
their impact is potentially very large. John Woodhouse explains how
these uncertainties need to be taken into account when developing
strategic asset management plans in Chapter 2, ‘Asset management in
the oil and gas, process and manufacturing sectors’.

6 Adapting to climate change

It is clear that knowledge of the past is no longer a valid basis for
making projections about the future. Since the effects of long-term
170 Asset management – Whole-life management of physical assets

anthropogenic changes in climate are not incorporated into established

techniques for generating environmental criteria and since the magni-
tude of the possible changes are significant over the design live of
many assets, then some means of including such changes in asset
management decision-making must be developed.
There is an obvious problem here. Although our knowledge of the
past (and present) environment is subject to the errors already described
(measurement errors, analytical errors, interpolation errors), these errors
are generally small and are quantifiable. Experience has tuned the esti-
mation of environmental criteria and their use in asset management
such that risks associated with uncertainty are generally accommodated
though appropriate safety margins. By contrast, uncertainties in the
projection of future anthropogenic climate change are known to be
large, include unknowable uncertainties associated with knowledge of
future emissions, and are determined based on models which poorly
represent or omit important processes. Past experience in ensuring
adequate safety margins is of limited value in this non-stationary and
uncertain climate future.
If future climate were predictable with much greater certainty, then
the largely deterministic methods currently used to provide environ-
mental criteria for engineering design and asset management decisions
could be readily adapted to incorporate known long-term trends
not captured in historical data. However, given the uncertainties
concerning the magnitude and timing of climate factors, it is clear
that these methods can no longer adequately address the range of
environmental conditions that engineers and asset managers now need
to consider.
Incorporation of climate change into asset design has so far been
limited, with the vast majority of new infrastructure continuing to be
designed against established codes or historical time history-based
asset-specific environmental criteria. Management of the majority of
existing assets also continues to be on the basis of established techniques
for the estimation of environmental criteria.
In some cases, the results of the analysis of historical time histories
and probabilistic extreme value analysis have been corrected for
measured long-term trends (for example, extrapolation of present rates
of sea level rise over the design life of a coastal facility). In others, a
more precautionary approach has been employed with application of
safety factors based on a combination of model projections and expert
opinion.
Where climate change has been considered in more detail, an iterative
risk assessment approach is beginning to find wider application.
Section 3: Incorporating climate change within asset management 171

7 Climate risk assessment

A risk assessment approach takes account of four major conceptual
factors in assessing climate change impact and adaptation: exposure to
climate stressors; vulnerability; resilience; and adaptation. These
concepts and their definitions are borrowed from ecological and
hazard assessment practices.
Climate change exposure is ‘the nature and degree to which a system is
exposed to significant climate variations’ (IPCC, 2001). Exposure is a
combination of the probable range of a climate stressor and the physical
characteristics of a geographical location, e.g. height above sea level for a
coastal facility. Exposure represents the likelihood that the climate stress
will affect a particular asset or asset system.
Vulnerability refers to the potential for loss due to exposure to a
particular climate stressor (Tobin and Montz, 1997). The IPCC defines
vulnerability as ‘the degree to which a system is susceptible, and
unable to cope with, adverse effects of climate change, including climate
variability and extremes. Vulnerability is a function of the character,
magnitude and rate of climate change to which a system is exposed, its
sensitivity, and its adaptive capacity’ (IPCC, 2007b). Vulnerability
considers the structural strength, integrity and function of assets or
asset systems in terms of the potential for damage or functional
disruption as a result of climate stressors. Risk to an asset is a function
of exposure and vulnerability.
Resilience is used to refer to the capacity of a system to absorb distur-
bance without losing essential function. In the context of physical assets
or asset systems, it is the ability of a system to continue to operate as a
result of built-in redundancy, e.g. a transportation system’s ability to
continue to operate despite loss of a single road or bridge or the relative
ease with which a single asset can be repaired or replaced. The context
for resilience is a combination of physical constraints on repair or
replacement, socio-economic limitations (public support, economic
and social resources) and system redundancy.
Adaptation is the ‘adjustment in natural or human systems in
response to actual or expected climatic stimuli or their effects, which
moderates harm or exploits beneficial opportunities’ (IPCC, 2007b).
An associated concept, ‘adaptive capacity’, refers to ‘the ability of a
system to adjust to climate change, including climate variability and
extremes, to moderate potential damages, to take advantage of
opportunities, or to cope with consequences’ (IPCC, 2007b).
Adaptive strategies fall into three categories: protect, accommodate
and retreat. These adaptive strategies are derived from the IPCC
172 Asset management – Whole-life management of physical assets

framework for assessing coastal adaptation options (Bijlsma et al.,

1996). Within the context of a coastal region, a protection strategy
might aim to protect assets from flooding by constructing hard or soft
structures, e.g. sea walls, beach nourishment or wetland restoration.
Accommodation may call for preparing for periodic flooding by
having operational plans in place. Retreat involves no attempt to protect
the asset, e.g. a facility or structure may be abandoned under certain
conditions. Although applied specifically to coastal examples, these
adaptive strategies may be generalised to all types of asset and asset
geographical locations.
An important concept in the risk assessment approach is that of
thresholds. Thresholds are defined as points at which stimuli lead to
specific responses (Parry and Carter, 1998; Jones, 2001). In the context
of asset management, these are points within an assessment or decision-
making process at which specific actions are taken. Thresholds can be
quantitative indicators such as observed extremes (e.g. sea levels observed
to exceed a particular level), may be condition driven (e.g. when the
condition of an infrastructure component falls below a certain standard)
or may be economic (e.g. when replacement costs less than repair).

8 Use of risk assessment approaches

A number of authors have outlined the principles of application of a
risk-based approach to climate change-related decision-making (e.g.
Willows and Connell, 2003; Sussman and Freed, 2008).
The US Climate Change Science Program (CCSP) provides a
comprehensive evaluation of a risk-based approach to the evaluation
of climate change risks to transportation systems and infrastructure on
the Gulf Coast (CCSP, 2008).
Among the limited number of asset-specific studies that have
employed a risk analysis and impact assessment framework, a number
of different approaches have been taken.
In the UK, Associated British Ports made use of a risk assessment that
relied on expert opinion to judge risk levels for UK ports (ABP Marine
Environmental Research, 2004). For this study, risks were broken down
into four categories: flooding, insurance, physical damage and disrup-
tion. Port managers and other experts were then asked to classify risk
for each impact as very low risk, low risk, moderate risk, high risk or
very high risk.
For the UK rail network, Eddowess et al. (2003) developed a frame-
work for prioritising risks that integrates the probability that a particular
Section 3: Incorporating climate change within asset management 173

climate effect would impact the rail industry – risk likelihood – with the
scale of the impact if it did occur – risk impact. Risk likelihood combines
an assessment of the present-day vulnerability to specific climate factors
with projections of how they might change under climate change
scenarios. Risk impact takes into account the severity of a given
impact, the amount of infrastructure affected and the ability to adapt
to the change.
Transit New Zealand developed a methodology for determining
thresholds for taking action by using a two-stage process (Kinsella and
McGuire, 2005). The first stage constituted a decision tree that examined
the necessity of taking action in the near term. No action was deemed
necessary if it was determined that a given impact was unlikely to
occur before 2030, the impact would not occur within the design life of
the facility (for facilities with lifetimes less than 25 years) or if current
standards would adequately address climate impact. If present-day
action was deemed necessary, the second-stage analysis determined the
feasibility of taking action by comparing the costs of doing nothing,
retrofitting the infrastructure or designing new infrastructure.
The Asian Development Bank outlines a number of case studies of a
risk-based approach to asset design and management in developing
countries (ADB, 2005). These include the design of a road and a break-
water, ‘climate proofing’ of a coastal town and the consideration of
climate risks within two national development plans.

9 A case study: the Thames Estuary 2100 Project

Currently, the most exhaustive UK application of a risk analysis
approach is that undertaken by the Environment Agency for Thames
flood protection. The Thames Estuary 2100 Project (TE2100) has
developed a strategic plan for managing flood risk on the Thames
Estuary over the next 100 years. This section describes the way in
which the plan takes account of the uncertainties of future climate
change. The approach to option development and adaptation was
developed by David Ramsbottom (HR Wallingford Limited) and Tim
Reeder (UK Environment Agency), who contributed this case study.

9.1 Options for flood risk management

Options have been developed for managing flood risk over the next
100 years. Each option consists of a sequence of interventions. Each
intervention is triggered when a threshold is reached, for example the
174 Asset management – Whole-life management of physical assets

design water level at a particular location on the estuary. Interventions

consists of a ‘portfolio (or set) of responses’, where a response is a
particular measure, for example a new barrier. A portfolio of responses
might consist of defence raising, improvements to the Thames Barrier,
and some new flood control structures.
The first step in developing the options was to identify portfolios of
responses that could manage future increases in surge tide level and
fluvial flows. The portfolios were hydraulically modelled to determine
how much increase in flood water level they could accommodate.
Portfolios for tidal flooding were plotted against the maximum surge
tide water level at Southend ( just outside the mouth of the estuary)
that can be accommodated by the portfolio. A series of portfolios,
each of which can accommodate a different increase in surge tide level,
can then be linked to form a complete option for managing flood risk.
Options were designed for an increase in surge tide level of over 4 m. This
required an assessment of the ease with which one portfolio can be adapted
to another portfolio that provides a higher level of protection against
flooding. Four generic options were developed using this procedure.
These generic options represent the following conceptual approaches:
. Option 1 – improve the existing flood defence system including the
Thames Barrier.
. Option 2 – maximise tidal flood storage in the floodplains.
. Option 3 – new barrier.
. Option 4 – new barrage (or barrier with locks).
Figure 8.2 shows how portfolios have been combined and simplified to
develop the four generic options. The options are plotted against rise
in the surge tide level. By adding the amounts of sea level rise expected
for different climate change scenarios in 2100, options that can
manage flood risk over the next 100 years under different future
scenarios of sea level rise are identified. The figure shows that all four
generic approaches are suitable for a sea level rise in 2100 of about
1 m, which corresponds to current UK government guidance (Defra,
2006). However, for the most extreme scenario, only option 4 is suitable.
Climate change studies undertaken as part of the TE2100 project have
revised the extreme scenario of a 4 m increase in sea level downwards to
an increase of 2.7 m by 2100.
The final options in the TE2100 plan are based on the generic options
described above. Each generic option includes several suboptions, for
example, generic option 3 has a number of different locations for
barriers. The options are designed for current government guidance on
climate change but are adaptable for faster (or slower) rates of change.
 Section 3: Incorporating climate change within asset management
Surge tide level rise:
0m 1m 2m 3m 4m

Improve defences HLO 1

Improve Thames Barrier and raise d/s defences

HLO 2
Over-rotate Thames
Barrier and restore Flood storage, improve Thames
interim defences Barrier, raise u/s and d/s defences
Existing system
Maximise storage
Raise Flood storage, over rotate Thames
defences Barrier, raise u/s and d/s defences

Flood storage, restore

interim defences
HLO 3a
New barrier
New barrier, retain Thames Barrier, raise defences

Medium High 2100

HLO 4
HLO 3b

High ++ 2100
High + 2100
Defra 2100

New barrier, raise defences

New barrier
New barrage with locks/
barrage

175
Fig. 8.2 Generic options for managing sea level rise
176 Asset management – Whole-life management of physical assets

9.2 Adaptation for future change

The preferred estuary-wide flood risk management option takes account
of future changes, including climate change, physical changes to the
estuary, and deterioration of the existing flood risk management
system. Whilst the options have been designed for particular assump-
tions about future change, the magnitude of future changes is essentially
unknown. Rates of change may be faster or slower than the rates
assumed, and therefore the dates when interventions are required will
change.
An approach to adaptation has been developed which takes account
of uncertainty in future change, and enables decisions to be made that
are based on actual rates of change.
The main future changes that will affect the implementation of the
adaptation plan are:
. Climate change. This presents the greatest challenge in terms of
future uncertainty. The impacts include expected rises in mean
sea level, peak surge tide level, wave heights and fluvial flows.
. Socio-economic change.
. Deterioration of the existing flood defence assets.
. The physical environment, including estuary morphology.
. Public attitudes to flood risk.
The types of adaptation envisaged within the plan to cope with the
uncertainty of future change include the following:
. Changes to the timing of new interventions.
. Ability to change between options.
. Adaptation of engineering responses.
. Land use planning that provides flexibility in the selection of
options.
. Adaptation to new infrastructure, for example a new estuary
crossing.
The approach to adaptation is as follows:
. Indicators that represent the main drivers of flood risk manage-
ment are identified.
. For each indicator, the thresholds where responses are needed to
maintain the required level of flood protection are identified. For
example, in the case of climate change, this includes a particular
sea level at the Thames Barrier.
. The lead time for implementing each portfolio of responses is
estimated. This is the time needed to plan and construct the
Section 3: Incorporating climate change within asset management 177
Indicator value (e.g. sea level rise)

Threshold value of indicator

when intervention is needed

Decision point Band of uncertainty

based on best estimate
Predicted values of
Decision point taking indicator based on
account of uncertainty rate of change

Recorded values of
indicator

Date of review Lead time for planning

and construction

Time

Fig. 8.3 Relationship between a threshold, lead time and decision points

portfolio of responses before it is actually needed. A decision point

is the date by which the decision to implement the portfolio of
responses must be taken. Figure 8.3 illustrates the concept of
lead times and decision points.
The timing of a decision to implement an intervention is based on:
. The rate of change of the indicator (which is unlikely to be linear).
. The threshold value when an intervention is required.
. An estimate of how the indicator will continue to change, in order
to estimate the date when it reaches the threshold value.
. The lead time for planning and constructing the intervention.
The plan includes assumed dates when the responses will be required,
and therefore assumed dates when decisions must be made. The indica-
tors are monitored, and the monitoring results are used to update the
estimated dates when portfolios of responses must be implemented,
and to revise, the dates when decisions must be made.
If the actual values of the indicators do not correspond with the
assumed values, the preferred option will be affected. This can affect
the timing and choice of interventions. The plan is updated using the
revised estimates of the dates when thresholds will be reached and
decisions must be taken.
178 Asset management – Whole-life management of physical assets

If significant changes occur in the expected dates when thresholds

will be reached, the choice of the preferred option should be reviewed.
This is because an alternative option may be more effective for managing
flood risk under the changed circumstances. Alternative options are
included in the plan, although it would be wise to consider whether
there are any others available when the options are reviewed. For
example, new infrastructure projects may provide opportunities to
combine new structures such as estuary crossings with flood risk
management.
The procedure outlined above will take place over a number of
years. The preferred option and the alternatives all involve a similar
approach until a critical water level threshold is reached at the
Thames Barrier. The critical drivers for this are the mean sea level and
peak surge tide level. The current assumed date for major interventions
is 2070, based on present UK government guidance on climate change.
The plan includes responses that should be implemented within
the next few years, including improvements to defences and habitat
creation. It is, therefore, necessary to establish the monitoring network
as soon as practicable to facilitate decision-making for these cases.
This will be helped by the fact that several key indicators are already
monitored.

10 Conclusions
Scientific evidence that human activity is resulting in climate change is
near unequivocal. That changes in climate are now a significant factor
in the design and management of assets is without question. However,
political consensus regarding climate change mitigation is far from
certain, and scientific capacity to project the trajectory of local climate
for a given mitigation framework is very limited.
Faced with these large political and scientific uncertainties, engineers
and asset managers must make effective use of a limited capacity to
accurately project environmental conditions over the lifetime of assets
and asset systems. Gone is the ability to look in the rear-view mirror
at the past in order to adequately understand the future.
Engineers and asset managers are used to working in a framework
where they are provided with reliable statistics about the future
environment. If adaptation to climate change is to be effective they
must now learn to work with much more uncertain information
about a future climate that will be significantly different to that of the
past.
Section 3: Incorporating climate change within asset management 179

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9 Regulating asset management
Richard Edwards Director, AMCL and Member of the Board of the Institute
of Asset Management

There is a growing need to identify how essential services can be delivered

in ways that are economically, socially and environmentally sustainable. This
chapter explores how better regulation of asset management can help to
incentivise sustainable asset management practices that are in the long-
term interests of all stakeholders.

1 Introduction
Economic theory suggests that efficient solutions will usually be found
where there is an effective and competitive market operating. Conversely,
where inefficiencies exist, one must look for missing markets or missing
incentives. With that in mind, what incentives are there to ensure that
the management of long-life infrastructure assets is undertaken in the
most efficient way? By efficient, we mean not just that the work is being
done on the assets as cost-effectively as possible but also that the right
work is being done when considering the lifecycle costs of the assets.
These assets may relate to rail, water, energy, roads, healthcare,
education or leisure services, and are essential to establishing and main-
taining the quality of life aspired to and expected by communities around
the world. In many cases, these assets are managed by monopoly service
providers, often publicly owned, and it may not be possible, or even
desirable, to try to introduce competitive markets.
In these circumstances, how is it possible to incentivise a sustainable
level of investment to ensure the long-term availability of services at the
lowest lifecycle cost? How do we ensure short-term efficiencies or
improvements in outputs are not achieved at the expense of the
longer-term stewardship of the assets?
Finding a sustainable level of investment is becoming increasingly
important given the expenditure on infrastructure assets around the
world. It is reported that investment in new infrastructure in the
emerging economies will be $2.25 trillion annually, or 5% of GDP
(Merrill Lynch, 2008), over the next 3 years as these countries strive to
achieve the same standard of living as that enjoyed in the developed
world. The American Society of Civil Engineers reports that existing
Asset management – Whole-life management of physical assets # Thomas Telford 2010
978-0-7277-3653-6 All rights reserved
182 Asset management – Whole-life management of physical assets

infrastructure requires major investment of $2.2 trillion over the next

5 years in the USA alone, approximately twice the expenditure currently
planned (ASCE, 2009).
Another consideration is the increased vulnerability of infrastructure
due to the age profile of many infrastructure assets, climate change,
extreme weather conditions and increasing external threats such as
terrorism. A recent report by the UK Institution of Civil Engineers
concluded that the UK’s critical infrastructure is under more threat
than ever before (ICE, 2009). The report sets out a series of recom-
mendations to address these threats, but how do regulators and other
stakeholders decide whether to fund these recommendations in
preference to other demands on public finances?
This chapter explores how changes to the way asset management is
regulated can help answer some of these questions and contribute to
achieving an efficient and sustainable level of investment ensuring
essential services continue to be available and affordable in the long-term.

2 Regulation in the UK
In sectors of the UK industry where there is no effective and competitive
market, it is the role of regulators to ensure asset managers are making
economic and efficient decisions relating to the long-term stewardship of
their assets. Regulators were first introduced in the UK when the major
utility providers were privatised in the late 1980s. Regulators tended to
target output measures and short-term (up to 5 year) efficiencies using
an RPI-x formula to drive more efficient provision of infrastructure
services over the next control period. This was successful in incentivising
short-term efficiencies, and improved outputs as the UK National Audit
Office reported (NAO, 2002):

. Following the Office of Telecommunications (Oftel) 2001 price

review, charges for some of British Telecom’s network services
will fall by up to 13% a year in real terms until 2005.
. In its 1999 review, the Office of Water Services (Ofwat) reduced
average prices by 12.3% in 2000–2001, while the number of
unplanned supply interruptions has fallen from 0.4 to 0.2% of
properties since 1990.
. The most recent Office of Gas and Electricity Markets (Ofgem)
price review cut charges by the electricity distribution companies
on average by 24% in 2000–2001. The number of interruptions
to customers’ electricity supply has fallen over the years.
Section 3: Regulating asset management 183

However, this publication also acknowledged three potential risks

associated with the RPI-x approach:
. The risk of an unintended incentive for companies to defer
investment.
. The risk of weaker incentives to achieve efficiencies in capital costs
than in operating costs.
. The risk of unintended incentives to substitute capital costs for
operating costs.

Network rail control periods

Average annual expenditure: £ millions

4500
4000
3500
(2006–2007 prices)

3000
2500
2000
1500
1000
500
0
CP1 CP2 CP3 CP4
1996–2001 2001–2004 2004–2009 2009–2014

Source: ORR 2008 price review

Maintenance
Renewal (excluding enhancements)
Average annual expenditure: £ millions

Electricity distribution control periods

2000
1800
1600
(2007–2008 prices)

1400
1200
1000
800
600
400
200
0
First price control DPCR1/2 DPCR3 DPCR4
1990–1995 1995–2000 2000–2005 2005–2011

Source: Ofgem various price control documents

CapEx (including enhancements)

Fig. 9.1 Regulatory determinations

184 Asset management – Whole-life management of physical assets

More recent price controls have seen some significant increases in the
funds available for investment in the assets of the regulated industries,
with associated increases in consumer charges. For example, Ofwat
reported in 2008 that water and sewerage charges in 2007–2008 were
42% higher in real terms than in 1989, which contrasts significantly
with the 12.3% reduction identified by Ofwat in the 1999 period
review. Is this now a sustainable level of investment?
Average annual expenditure: £ millions

4500
4000
3500
(2004–2005 prices)

3000
2500
2000
1500
1000
500
0
PR94 PR99 PR04 PR09
1995–2000 2000–2005 2005–2010 2010–2015

Source: Ofwat various price control documents

Quality and other enhancements

Capital maintenance

Electricity transmission control periods

(No data for 2006/2007)
Average annual expenditure: £ millions

900
800
700
(2007–2008 prices)

600
500
400
300
200
100
0
TPCR1 TPCR2 TPCR3 TPCR4
1993–1997 1997–2001 2001–2006 2007–2012

Source: Ofgem various price control documents

CapEx (including enhancements)

Fig. 9.1 Continued

Section 3: Regulating asset management 185

If we look at the capital expenditure within rail, electricity and water

over the last few control periods, we see some significant variations in the
funding allowed by regulators (Fig. 9.1).
There are always going to be variations in the level of funding
required for infrastructure assets due to:
. changes in the age profile of the assets
. changes in unit cost efficiencies
. requirements to enhance the level of service
. availability of new technology
. changes in the economic environment
. enhancements to the asset base to cope with increased demand.
Taking the uncertainty of these factors into account, determining the effi-
cient and sustainable level of investment is complex. How can regulators
and other stakeholders tell if these cost profiles represent a sustainable
level of investment to deliver future levels of service? How can regulators
identify the scope for long-term efficiency savings through changes to the
asset managers’ renewal and maintenance regimes? How can central govern-
ment trade off the funding requirements of one sector against another?

3 Introducing asset management capability

Before considering how regulation can help to answer these questions, it
is important to understand why the current regulatory regimes do not
appear to sufficiently address these issues. Figure 9.2 shows the two
key dimensions to the management and regulation of asset management.
The first relates to an organisation’s ability to deliver the required
outputs in terms of performance, cost and quality. The second dimension
relates to an organisation’s underlying asset management capabilities
that are necessary to ensure the maintenance, renewal and enhancement
of assets is undertaken on the basis of the lowest whole-life costs to
sustainably deliver the required outputs.
There is a natural tendency for governments, regulators and even
asset managers themselves to focus on the output dimension, as this is
what customers tend to experience most immediately. However, these
outputs may be inefficient or unsustainable when looking over the
whole lifecycle of the assets, which may be many decades.
What may appear to be an efficient solution to deliver acceptable
outputs and short-term cost reductions may not be efficient in the
longer term. And what may appear to be ‘over-engineered’ to deliver
the required short-term outputs may in fact be the most efficient and
186 Asset management – Whole-life management of physical assets

Performing but Performing

unsustainable/ sustainably and
uneconomic economically
Output performance

Underperforming Promising

Asset management capability

Fig. 9.2 Output performance versus asset management capability

sustainable long-term solution. There is also a risk that the consequences

of a poor asset management decision, for example installing an
inadequate specification of an asset, may not manifest itself for many
years. Even though short-term outputs and cost efficiencies may have
been delivered, the poor decision could result in excessive costs or
risks being incurred many years later. Measuring and regulating outputs
alone does not highlight this type of risk.
It is understandable that stakeholders focus on outputs and short-
term efficiencies, as the tenure of politicians, regulators and senior
managers is typically 3–5 years. Customers and communities will also
tend to measure the success of their asset managers in terms of short-
term outputs unless the long-term consequences of investment decisions
are well articulated to them, which is rarely the case.
It is not just stakeholders who tend to focus on outputs. Markets are
good at incentivising ways of delivering outputs more efficiently in the
short term but are arguably not so good at incentivising the development
of long-term asset management capabilities. Investors are typically
looking for a return on investment over a 1–5 year horizon and will,
therefore, favour organisations which deliver short-term benefits over
ones that focus on the longer term.
A report from Forum for the Future (Forum 2009) suggests that falls
in capital markets, most notably during the recent economic crisis, occur
Section 3: Regulating asset management 187

for a number of interlinked reasons:

. incentives are not aligned with the public good
. critical goods and services are not valued or are undervalued
. we lack imagination and awareness about new and systematic risks
. regulation is inadequate
. progress is based on unsustainable growth models fuelled by credit.
Although this report was not specifically discussing asset management,
the analogies are clear. Better asset management can contribute
considerably to addressing all five of these issues, and better asset
management over the longer term will require changes to the way that
it is regulated.
Regulating the underlying asset management capabilities of asset
managers is crucial in ensuring future generations of customers are
not disadvantaged by short-term decision-making. This regulation
needs to incentivise organisations to make decisions that are optimal
in the longer term and prove to be enduring long after the tenure of
the current management team.
Consideration also needs to be given to the impact of different
funding scenarios on the customers and communities affected by these
asset managers, including their willingness to pay for current and
future levels of service. This will require asset managers to articulate
the long-term implications of different funding scenarios, including
future levels of output and cost, to enable customers to effectively
input to this preferred choice of scenario.
So where do we start in putting this regulation in place? The starting
point should be the requirement for asset managers to adopt an asset
management framework around which it can develop its asset manage-
ment capabilities, which can then be assessed in a consistent and reliable
manner.

4 Measuring asset management capability

Much has been written about BSI PAS 55 and the benefits of adopting an
asset management framework based on its requirements. Previous
chapters have discussed the extent to which asset-intensive businesses
around the world have adopted BSI PAS 55, but can BSI PAS 55 play
a part in the effective regulation of asset management?
On the one hand, yes. BSI PAS 55 provides a framework for organi-
sations to structure their asset management processes and provides
useful definitions and checklists to ensure organisations apply asset
188 Asset management – Whole-life management of physical assets

management consistently. Alternative asset management frameworks

can be used, for example some organisations in Australia have adopted
ISO 15288, ‘System Engineering – System Lifecycle Processes’, as the
framework for developing their asset management capabilities.
However, BSI PAS 55 is fast becoming the accepted international
standard for asset management, so there is an argument for regulators
and asset managers to adopt BSI PAS 55 as the common asset
management framework, especially if comparisons between different
organisations are desirable.
On the other hand, to set certification against BSI PAS 55 as a
regulatory requirement risks incentivising a compliance culture where
organisations believe they have achieved an appropriate level of asset
management capability by achieving it. Whilst BSI PAS 55 provides a
good practice asset management framework, the development of asset
management capabilities beyond the requirements of BSI PAS 55
compliance is consistent with emerging best practice.
There is growing evidence that organisations that develop their asset
management capabilities beyond that required for compliance with BSI
PAS 55 have delivered a reduction in both capital and operational
expenditure of between 5% and 15% over the life of the assets
concerned. These benefits may not be realised for many years, and
regulators should, therefore, set appropriate targets for future maturity
levels of asset management capability in order to provide appropriate
long-term incentives to asset managers.
In order for regulators to be able to define target levels of asset
management capability, and to monitor progress against these targets,
it will be necessary to use a transparent method of determining asset
management capability that all stakeholders can understand and buy
into. In Chapter 4, ‘Beyond BSI PAS 55 compliance’, Martin Pilling
discusses a method of assessing an organisation’s asset management
capabilities against the maturity scale shown in Fig. 9.3.
This assessment methodology breaks down asset management
capability into 23 key activities. Target levels of asset management
capability can be defined for each of these. These targets need to take
account of the following:

. the stakeholder priorities for developing improvements

. the cost of developing the target level of capability
. the benefits of developing the target level of capability
. the potential impact on the organisation’s outputs
. the feasibility of the organisation achieving the target level of
capability.
 Section 3: Regulating asset management
Fig. 9.3 Asset management capability maturity scale

189
190 Asset management – Whole-life management of physical assets

This target level of capability is unlikely to be the same for each of the
23 activities, as the above factors will almost certainly be different for
the different activities. A target asset management capability profile
should, therefore, be defined for key milestones in the regulatory
review process that both the asset manager and the regulator sign up to.
Assessments of asset managers can then be undertaken at these key
milestones to determine their actual asset management capabilities.
Best practice would suggest that this assessment should be carried out
by an organisation that is independent from both the asset manager
and the regulator.
One industry that has already begun to implement this type of
approach is the UK rail industry. In 2005, the UK mainline rail regu-
lator, the Office of Rail regulation (ORR) and Network Rail, appointed
an independent reporter to undertake assessments of Network Rail’s
asset management capabilities. Assessments are undertaken using a
similar process to that described above, and undertaken every 2–
3 years to coincide with key dates in the regulatory review process.
The independent reporter is contracted to both Network Rail and the
ORR, and this tri-partite arrangement means there is a duty of care to
both the asset manager and the regulator that means the outputs from
the assessments are impartial and must be agreed by both parties.
Figure 9.4 shows a typical output from this type of assessment where
the results from independent assessment of each asset management
activity can be seen together with the target capability profile. The
capability maturity scale shown earlier runs from 0% at the centre to
100% on the outer edge of the circle. The actual assessment can be
compared with the target capability profile, and financial penalties
could be applied by the regulator for failing to meet these targets.
Regulators can also use the results from this type of assessment to
establish a level of confidence in the strategic asset management plans.
These strategic asset management plans would typically contain several
funding scenarios, and the confidence levels may be different for each
scenario, depending on the information and knowledge available to
the asset manager at the time the plans were developed.

5 The strategic asset management plan

In order to identify a sustainable level of investment to deliver a defined
level of service, it is necessary to understand the work volumes, costs,
risks and expected outputs over the lifecycle of the assets. One of the
key regulatory requirements should, therefore, be for asset managers
 Section 3: Regulating asset management
191
Fig. 9.4 Asset management capability assessments versus the target profile
192 Asset management – Whole-life management of physical assets

to produce and maintain fully costed strategic asset management plans

over at least a 50 year period.
The strategic asset management plan can then be used as the key
document to engage with an organisation’s stakeholders to understand
priorities and agree funding requirements. It is important that the
strategic asset management plan examines a number of scenarios,
which may include:
. lowest whole-life costs over 50 years
. lowest costs in the next control period
. minimum expenditure to achieve safety limits
. impact of climate change
. scenarios concerning new technology.
As a minimum, the asset management capabilities that an organisation
can demonstrate for the following aspects of asset management will
impact on the level of confidence stakeholders will have in the strategic
asset management plan:
. understanding how assets deteriorate with age or usage
. understanding the risks associated with asset deterioration
. whole-life cost models
. asset information
. justification of asset policies and strategies
. unit costs of renewal and maintenance activities
. understanding of demand analysis and how this impacts on
planned investments
. understanding of how required service levels change over time
. understanding of how asset interventions impact on service
levels.
All of these aspects should be separately assessed using the asset manage-
ment capability assessment described previously. The results from the
assessment of asset management capability and the corresponding
level of confidence in the strategic asset management plan form a key
input into the regulatory review process to determine the preferred
scenario.
As discussed, the strategic asset management plan would typically
define work volumes, costs, risks and expected outputs over at least
50 years. There is also a growing requirement to include a wider range
of risks, including social, environmental and reputational risks over
the same timescales. Engagement with customers and other stake-
holders in determining the value of these risks is discussed in the next
section.
Section 3: Regulating asset management 193

The cost and risk profiles should also be shown as an annual funding
requirement that then allows different scenarios to be compared on a
whole-life basis. Figure 9.5 shows an extract from a typical strategic
asset management plan of the costs and risks over 50 years for one
funding scenario and the equivalent annual funding requirement.
The equivalent annual funding requirement provides stakeholders
with an understanding of the long-term funding requirements of the
business, once perturbations relating to the age of assets and other
variables are removed. This provides a baseline against which to
compare the allowable funding from regulators to establish if this is
above or below the sustainable investment necessary to deliver the
required level of service.
Having developed the strategic asset management plan, including
establishing the level of confidence in the different scenarios in the
plan, asset managers can again engage with regulators, customers and
other stakeholders regarding their willingness to pay for scenarios
within the plan.

6 Engaging with stakeholders

Willingness to pay is one of the methods often used to understand the
value that customers place on the provision of a service, or an enhance-
ment to that service. It provides one way of establishing the ‘market
value’ of specific improvements in service, but how effective is this
approach in determining customers’ willingness to pay for different
funding scenarios where the costs and benefits of these scenarios are
spread over many decades?
How well do asset managers and regulators understand what
customers want? Do they want the cheapest short-term solution or are
customers willing to pay higher bills or fares, if this can be shown to
be in the long-term interests of the community? It is very difficult
for regulators and customers to engage in this debate if the costs and
risks associated with the activities in their strategic asset management
plan have not been articulated over the lifecycle of the assets. It is,
therefore, important for asset managers to produce summarys from
their strategic asset management plans that clearly set out the whole
life implications of the different funding scenarios in a way that
customers will understand.
It has been quite common in the UK water industry to use willingness
to pay to understand customer priorities and to understand their willing-
ness to pay for individual service improvements. But how successful is
 194
9000

8000

Asset management – Whole-life management of physical assets

Annualised
7000 funding
requirement

6000
Expenditure: £ millions

5000
Regulatory
settlement
4000

3000

2000

1000

0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
Renewal Enhancements Maintenance Operations Risk

Fig. 9.5 Fifty year funding requirement for one scenario. (Reproduced by permission of AMCL)
Section 3: Regulating asset management 195

this approach at understanding customer and stakeholder preferences

between scenarios that have different long-term impact on levels of
service and future water bills?
There are other examples around the world where public outreach
programmes are used to try to determine the value of proposed invest-
ment projects or specific improvements to levels of service that could
be provided to customers. However, these often relate to specific projects
or improvements in service, but do not provide the total of costs, risks
and service levels over a 50 year period for the different funding
scenarios.
One organisation that has undertaken stakeholder analysis on
different funding scenarios is the Sacramento Regional Transit organi-
sation in California. Its Regional Transit Master Plan (SRT, 2009) sets
out three different transit scenarios that were used to develop ridership
forecasts and costs and to undertake a public outreach programme to
solicit public feedback and comment on what the future transfer network
for Sacramento should look like.
This outreach programme included engagement with over 50 orga-
nisations, including public workshops, presentations to city councils, a
school outreach programme, newsletters, media engagement and an
interactive website. Phase 1 of this public outreach programme
concluded that over 80% of the public preferred scenario C, which
involved the highest level of investment. Phase 2 of this public
outreach programme then used an interactive website to determine the
public’s willingness to pay for this scenario, which identified that each
household was prepared to pay $570 per household to pay for this
scenario.
However, this outreach programme has not yet shown how this
willingness to pay contributes to the overall funding required for the
preferred scenario in terms of both capital investment and ongoing
maintenance costs. How will these costs impact on customers through
increased fares and taxes over the life of the assets? It is only when this
can be articulated to customers that their true willingness to pay can
be understood.
One of the areas of increasing concern to customers is the social
and environmental impact of an organisation’s asset management
activities. To respond to this, asset managers need to change the way
they define and manage risk, to ensure all social and environmental
risks are considered and the costs associated with these risks are
understood.
Research carried out in the USA by Dr Peter Sandman has shown
that there are two aspects of risk that need to be considered to truly
196 Asset management – Whole-life management of physical assets

engage with stakeholders. The technical aspects of risk are well docu-
mented, and can be calculated through the well-known equation
hazard ¼ severity
frequency
However, Sandman argues that this only addresses part of the real risk,
and that outrage (or potential outrage) should also be considered. His
now famous definition of risk is
risk ¼ hazard þ outrage
Outrage represents a further cost that needs to be included in the calcu-
lation of risk, to take account of social anger resulting from particularly
high-severity events. ‘When people are outraged, they tend to think the
hazard is more serious than it is’, says Sandman. ‘Trying to convince
them that it is not is unlikely to do much good until you reduce the
outrage’ (Holing, 1996).
When engaging with stakeholders on scenarios within a strategic asset
management plan, it is important that all costs and risks are clearly
articulated and that risk profiles take suitable account of the outrage
that could result from the activities of the service provider. These
plans should also clearly highlight how these costs and risks will
impact on the level of service provided and on customers’ bills or fares
and potential tax increases. This may significantly impact on the choices
customers might make between different funding scenarios.

7 A regulatory framework
This section draws on the arguments presented so far in this chapter, and
proposes a framework for the future regulation of asset management.
There are two parts to this framework, with the first centred on the
regulation of asset management capabilities and the second centred on
the regulation of outputs and delivery targets.
Figure 9.6 shows the four main steps in the approach to regulating asset
management capability. This is designed to address the prioritisation,
incentivisation and regulation of an appropriate level of asset manage-
ment capability that reflects stakeholder priorities. The output from this
process would be the organisation’s strategic asset management plans,
including different scenarios with defined levels of confidence.
Step 1 examines what is important to stakeholders, including custo-
mers, regulators, shareholders and asset managers themselves. The
purpose of developing this understanding so early in the process is to
make sure that the priorities and targets that are defined for developing
Section 3: Regulating asset management 197

Fig. 9.6 Regulating asset management capabilities. (Reproduced by permis-

sion of AMCL)

the asset manager’s asset management capabilities reflect the require-

ments and priorities of customers and stakeholders.
Step 2 is concerned with defining appropriate asset management
target capability profiles for different milestones in the regulatory
cycle. These milestones would typically be at the beginning of the
control period or when the strategic asset management plan is submitted
to the regulator. The target capability profiles would be developed
for each milestone using the stakeholder priorities from step 1 as a
key input.
Step 3 of the process is primarily concerned with the time between the
target capability profile being agreed and the strategic asset management
plan being produced. During this period, the regulator should be
incentivising, benchmarking and assessing the asset manager against
these asset management capability targets. At the appropriate
198 Asset management – Whole-life management of physical assets

milestones, independent reporters can be used to undertake assessments

to provide the evidence to the regulator on the extent to which the asset
manager has achieved the targets.
Step 4 of the process occurs when the strategic asset management plan
has been produced. The results of the capability assessment of the asset
management activities and knowledge that were used to develop each of
the scenarios can then be used to determine the level of confidence in
these plans and scenarios. There may be several stages in this process,
from the production of the initial draft plan through to the production
of the final plan.
Once the final strategic asset management plan has been published, it
is then appropriate to move into the second part of the regulatory
framework. This starts with the selection of the preferred scenario and
moves into the specification, measurement and regulation of the outputs
associated with that scenario. Figure 9.7 shows the four steps involved
with the regulation of the outputs.
Step 5 uses customer and stakeholder engagement to examine the
scenarios within the strategic asset management plan. Although research
on willingness to pay for various improvements to service may have been
carried out during the development of the strategic business plan, this is
the first chance that customers and other stakeholders will get to see the
total impact of the different scenarios. This will include the expected
costs and risks, including potential outrage, and the impact on bills or
fares and the service levels relating to each scenario over the life of the
plan, which is, typically, 50 years. This engagement concludes with the
selection of a preferred scenario.
Step 6 is about defining output measures and targets for the preferred
scenario, including expected work volumes, costs, risks and service
levels. The specification of output measures should be based on a
criticality analysis of the cost, risk and any other factors that have a
significant impact on the asset manager’s ability to deliver the commit-
ments in the strategic asset management plan.
Step 7 starts at the beginning of the regulatory control period, and
involves the measurement, benchmarking and regulation of the agreed
output measures and targets to ensure the expected outcomes are
being delivered. This assessment would normally be undertaken
annually throughout the control period.
Step 8 would also start at the beginning of the control period, and
would assess the volume of the renewal and maintenance activities
delivered compared with those set out in the strategic asset management
plan. This would also include a review of the work quality and unit costs
compared with what is defined in the strategic asset management plans.
Section 3: Regulating asset management 199

Fig. 9.7 Regulating outputs. (Reproduced by permission of AMCL)

This assessment would also be undertaken annually throughout the

control period.
Step 1 of the process would typically start again for the following
control period within 1 year of the start of the current control period.

8 Conclusions
This chapter has raised a number of questions about how to achieve
efficient long-term stewardship of assets in the absence of an effective
and competitive market. Many essential services are provided by asset-
intensive organisations that are either in the public sector or operate
monopoly services. Given the increasing expenditure on infrastructure
assets, and growing concerns about the social and environmental
200 Asset management – Whole-life management of physical assets

impact of this investment, it is imperative that these organisations find

increasingly efficient and sustainable ways of delivering their services.
One of the greatest challenges in achieving this is how to incentivise
asset managers to make decisions that are in the long-term interests
of consumers and not just to achieve short-term output or efficiency
targets. Better regulation of asset management can help to provide this
longer-term incentive by incentivising and assessing the asset manage-
ment capabilities of asset managers against agreed target capability
profiles as well as setting short-term output and efficiency targets.
This chapter proposes a framework for the regulation of asset
management, which takes these arguments into account. This frame-
work puts the same emphasis on the specification and assessment of
asset management capabilities as it does on the specification and
assessment of outputs. This should ensure that the regulation of asset
management is providing balanced incentives to deliver efficiencies and
improvements to outputs in the short to medium term whilst ensuring
asset management decisions are taken on the basis of lowest, medium
to long-term whole-life costs to customers.

References
ASCE 2009. Report Card for America’s Infrastructure. American Society of Civil
Engineers, Reston, VA.
Forum for the Future 2009. Rethinking Capital, the Larger Lessons of the
Financial Crisis. Forum for the Future, London.
Holing, D. 1996. It’s the Outrage Stupid. Dwight Holing, San Francisco, CA.
ICE 2009. State of the Nation Report. Institution of Civil Engineering, London.
Meryl Lynch 2008. The $2 trillion EM Infrastructure Theme. Merrill Lynch, New
York, NY.
NAO 2002. Pipes and Wires. National Audit Office, London.
SRT 2009. Regional Transit Master Plan. Sacramento Regional Transit,
Sacramento, CA.
10 Asset management: the way forward
John Woodhouse Managing Director, TWPL and Chair of Faculty, Institute
of Asset Management

This chapter examines the emerging consensus on what comprises good

asset management, and speculates on future trends. Asset management is
still evolving, but has already yielded significant value in both the private and
public sectors. It will play a critical role in resolving competing demands and
priorities arising from global challenges in climate, economics, demographics
and natural resources.

1 Introduction
The overall jigsaw puzzle of asset management still has a number of
rough edges and missing pieces, and is subject to wide variations in its
implementation and sophistication. Nevertheless, the underlying picture
is clearly emerging. There are big differences between merely ‘managing
the assets’, which organisations have been doing for centuries, and
leading-edge examples of joined-up, risk-based, whole-life, optimised
and sustainable asset management. These qualifying attributes, which
BSI PAS 55 (BSI, 2008) identifies as key principles (Fig. 10.1), represent
both the challenges and the opportunities for better asset management.
Whether you are responsible for some aspect of public services or running
a commercial enterprise, whether dealing with the latest telecommunica-
tions systems or heavy construction or mining equipment, there is scope
for delivering better value, at lower risk and with greater sustainability,
if we adopt them and their associated practices. As Steven Male observes
in Chapter 3, ‘The challenges facing public sector asset management’,
this opportunity is not limited to businesses or organisations – it has
social, national and global implications. Indeed, the consequences of not
changing and of not being cleverer with what we have got are unthinkable.
In a review of what has been learnt so far, we can see a number of
common threads and trends. There are also cases, of course, where asset
characteristics, industry sector, societal culture or regulatory environment
require variations in approach, but these tend to be of lesser significance
than the common elements. They are mostly flavours or differences in
weighting rather than fundamental contrasts. Such common elements and
sector-specific or asset-type differences are discussed in more detail below.
Asset management – Whole-life management of physical assets
978-0-7277-3653-6
202 Asset management – Whole-life management of physical assets

Holistic

Sustainable Systematic

Integrated

Optimal Systemic

Risk based

Fig. 10.1 Key principles and attributes of asset management

Extrapolation into the future is a mix of confident optimism and

unprecedented uncertainty. On the one hand, common sense, logic, the
increasingly evident tangible benefits and growing stakeholder expecta-
tions will inevitably push for wider adoption of better asset management
practices. On the other, it is difficult to see how we can truly resolve the
head-on conflict between the big sustainability issues, such as environ-
mental, financial and demographic projections, and the short-termism
of political cycles and individual self-interests. Until we move from
intellectual acceptance of what is needed to the point where business
processes, tools, human behaviours, measures (including accountancy
criteria) and legislation are brought into line, we are going to remain
vulnerable to reversion. Throughout human history, the crisis often
has to occur before the need for change is accepted (Russell, 1982).
The good news is that the interconnected world is increasingly aware
of the alternative: bad asset management, e.g. silo behaviours, short-
termism, poor risk management, inefficient work programme delivery,
becomes more easily recognised for what it is.

2 Common threads
The evolution of modern thinking in asset management has yielded a
number of common conclusions from widely disparate starting points.
Several of the preceding chapters provide examples, which include the
following:
Section 3: Asset management: the way forward 203

. Pressures on local municipalities in Australia and New Zealand

forced a fundamental reappraisal of investment planning, service
delivery and measurement, and cross-disciplinary coordination.
. Very similar changes were found to be necessary in the North Sea
oil and gas sector in response to the combination of an oil
price crash, the Piper Alpha disaster, new safety legislation and
globalisation of the industry.
. The privatisation of the UK electricity, gas and water utilities, after
initial rounds of cost-cutting and gaming with regulators, has
evolved a very similar set of processes for investment prioritisation,
risk management and value/performance alignment.
. National and local government initiatives have been patchier but
have also recognised the need for data-driven decision-making,
more transparent criteria for investment planning and better
connectivity between the organisational goals, plans, resourcing
and the delivery of front-line activities.

Indeed, the development of BSI PAS 55 was a direct recognition of

these common threads and 28 universal requirements for good asset
management. Rather than repeat the full list here, however, I will high-
light the ones that stand out as representing both the greatest challenges
and the most important success criteria.

2.1 Line of sight

Clearer and more consistent corporate values as reflected directly in
strategic prioritisation, investment planning and day-to-day work are
crucial. Historically, the language of senior management and various
stakeholders has often been fuzzy and impenetrable, using generalisa-
tions, qualitative terms and politically correct phraseology that avoid
specific commitments and accountabilities. Operational levels of the
business have been expected to deliver ever-increasing performance or
service levels in an environment of conflicting and changing messages,
resource constraints, risks and uncertainties. Modern, joined-up asset
management, in contrast, requires much greater clarity and coherence
between the high-level business goals and the practical realities of what
gets done, by whom, why, when, where and how. Chris Lloyd discusses
how this can be achieved in Chapter 7, ‘Developing the competence of
asset management staff ’. This requirement for better connectivity or
line of sight between organisational strategic intent (where are we
going and why?) and asset-management activities (how do we get
there?) is a vital feature of all manifestations of good asset management.
204 Asset management – Whole-life management of physical assets

2.2 Asset Management strategies and (lifecycle) plans

Within the line of sight chain of logic and clarification, the development
of asset management strategies and long-term management plans are key
steps. Various templates and ideas have developed about what should be
included in such documentation, as Richard Edwards discusses in
Chapter 1, ‘Asset management in the rail and utilities sectors’, but
important features clearly include:

. Timescales which are not limited to the traditional annual or other

accounting, regulatory or reporting cycles. Asset management
strategies and plans need to be able to select and demonstrate the
optimal choice of investment options with whole-lifetime usage
benefits, costs, risks and the sustainability attributes obtainable.
. The why? justifications for what is planned. It is not enough simply
to document what needs to be done, by whom and when. The
reasons for the actions are critically important, both to those
who will be responsible for delivering them and to the processes
of change management. Plans must be flexible to accommodate
the unexpected, so an understanding of the consequences of not
doing something is valuable in determining how to adjust priorities.
. Cross-disciplinary input to, and acceptance of, the best combined
approach to overall value-for-money, irrespective of local vested
interests or departmental implications. This often involves revising
budgets, resources, responsibilities and performance measures to
align with the agreed optimal mix.

2.3 Criticality, risk and prioritisation methods

A common backbone of values and their respective importance to the
business greatly helps in targeting the biggest problems or chasing the
greatest improvement opportunities. In contrast to simplistic statements
such as ‘safety is paramount’ or ‘no expense will be spared’ – which are
easy to say and sound good for public relations purposes but do not
generally pass the test of practical implications – a robust, risk-based
criticality method is an essential tool for determining priorities. Such a
method must consolidate competing attributes, e.g. cost, health and
safety, environmental impact, reputation and performance, and provide
a single corporate view of importance or scope for improvement. It
provides the starting point for improvement activities by identifying
where the biggest headaches and opportunities are, helps in the
prioritisation of asset management activities according to improvement
value-for-money and urgency, and provides the balancing mechanism
Section 3: Asset management: the way forward 205

for performance scorecards by defining criteria and ranking their impor-

tance. Furthermore, it is an excellent method for resolving competing
departmental objectives and developing a shared understanding of
priorities across the organisation.
Criticality scoring and risk analysis methods have emerged in various
guises and manifestations, ranging from the dangerously simplistic to the
oversophisticated. Some organisations still try to hide behind ‘linguistic’
variables such as high, medium or low attributions of importance, but
most adopt a scoring system to merge combinations of factors. And
an increasing number now recognise the value of assigning scales of
importance directly in economic equivalents, including intangible factors
such as reputation or customer satisfaction. Whatever the maturity and
level of detail, however, it is clear that an asset risk management and
criticality system is a vital enabler.

2.4 Asset management decision-making

Asset management introduces a more holistic view of value-for-money.
As Fig. 10.2 indicates, it requires us to consider all the aspects of costs,
performance, risks and longevity, and to identify the optimal compro-
mise between competing factors within any non-negotiable constraints.
Such optimised decision-making is now recognised to be one of the
most critical attributes of good asset management, and represents a
significant change from many common ‘false economy’ practices such
as just buying the cheapest alternative, or working to a budget without
considering the ‘value added’ of challenging or changing that budget.
In particular, as explained in the BSI PAS 55 guidance document
(BSI, 2008), there are at least three levels of requirement for optimised
decision-making:
. individual intervention decisions such as an investment decision,
maintenance strategy or operational task
. asset lifecycle optimisation, which blends the various activities of
initial investment, utilisation, inspection, maintenance and renewal
in the optimal overall way
. activity programme optimisation, which coordinates the delivery
of capital investment, operations, maintenance or other activities
in the most efficient and effective way.
Unfortunately, there is still a great deal of confusion about how to
address these requirements. A significant education gap certainly
exists, and the various decision-support tools, either home-grown or
commercially available, vary widely in credibility, robustness and
206 Asset management – Whole-life management of physical assets

1. Specific intervention Portfolio of assets and system

optimisation (types, criticalities, condition, performance)
(cost/benefit/risk/timing)
Lifecycle activities

Acquire/create

Utilise
3. Activity programme
Maintain optimisation
(cost/benefit/risk/timings)
Dispose/renew

2. Asset lifecycle optimisation

(cost/performance/risk/sustainability)
(a) Individual assets (whole-lifecycles)
(b) Asset system integration level (performance sustainability)

Fig. 10.2 Optimisations required in asset management decision-making (from

BSI PAS 55, Part 2)

flexibility. The European MACRO project (www.macroproject.org), for

example, revealed the need for a multi-threaded approach to handle
around 40 common scenarios in a consistent value-for-money manner.
It also generated important guidance on the appropriate usage of tacit
knowledge or expert opinion in combination with quantified risks,
costs and performance data. In particular, MACRO identified the
process steps, mathematical handling and importance of decisions that
involve risk or performance that changes with time, such as inspection,
condition monitoring, planned maintenance, shutdowns and asset
renewal timing (Fig. 10.3).
Yet, despite widespread recognition of the importance in asset
management decision-making and good progress in the introduction
of more value-for-money oriented methods in specific cases, there
remains plenty of scope for further improvement. For example, global
or system performance assumptions, budget-setting processes and
strategic investment prioritisation are often handled quite separately
from the individual case decisions about which new pump to purchase
or when next to inspect the current one. Better integration of these
decision methods will yield a more bottom-up budgeting process and
greater clarity about which specific interventions or options best deliver
the overall system goals or value.
This remains one of the greatest challenges to the refinement of asset
management practices in the future, although leading edge organisations
are busy developing asset health indices, deterioration models, advanced
condition monitoring methods and simulation tools, and the cross-
industry SALVO project (www.salvoproject.org) is currently addressing
it with regard to the management of ageing assets.
Section 3: Asset management: the way forward 207

2120 OFM
20

Total
15
£ thousands/year

10
Restore failure

Continue failure
5

Planned maintenance

0
10 15 20 25 30
Renewal interval: year(s)

Fig. 10.3 MACRO (APT) example of optimal equipment renewal timing,

showing planned expenditure versus various failure mode risks: train track
rerailing (conductor rail) base case

2.5 Data, information and knowledge management

Decision-making, data and information requirements are tightly inter-
dependent, and the essential need to sort out the underlying data and
information management issues as part of a robust asset management
system is well recognised. Indeed, many get so engrossed with this area
that they presume that asset management involves just the implementa-
tion of an enterprise asset management information system, usually
comprising such modules as an asset register, maintenance work
management, materials management/procurement, inspection and
condition monitoring, and history capture and reporting. There is no
doubt that some such enabling software is vital to fact-based asset
management, and vast sums are sometimes spent on such systems and
their implementation. Great debates are still occurring, however,
about levels of integration that are necessary and worthwhile, what
data models are appropriate, what data quality is needed or achievable
or affordable, and the fit or adjustments necessary to support desired
business processes. There remains, for example, significant confusion
about what data is really worth recording, to what level of detail and
how it should be used. The business case for many such investments
has sometimes proved very difficult to make in conventional cost–benefit
208 Asset management – Whole-life management of physical assets

terms or to demonstrate in resulting efficiency or effectiveness improve-

ments. Indeed, the record for exploiting such systems to the full is poor,
with functionality deemed important at the design and acquisition stage
often found to be unused a few years later. In many cases, I think this can
be put down to a combination of three factors:

. The lack of loop-closing processes that explicitly link the identifica-

tion of improvement opportunities, the exploration of possible
options and the decision-making to the requirements and usage
of specific information (Fig. 10.4).
. Lack of methods, processes and understanding of how to combine
tacit knowledge or engineering expertise with the collectable hard
evidence, including the handling of uncertainty and data quality
in a proportionate manner, e.g. the required granularity and
precision of information should be related to the criticality of
decisions that will be dependent upon it.
. Inadequate provision for the education, engagement and motiva-
tion of those who will be gathering or providing data in the reasons
and processes of using it. The training budget is a common target
for cost-cutting when IT systems start to run over their planned
budget and timescales, and training is also often limited to opera-
tional competency and does not cover the educational elements of
‘why are we doing this?’ and ‘what could or should be achievable as
a result?’

2.6 The human factors

Many organisations have started out thinking that asset management is
primarily a technical subject. However, there is a near-universal recogni-
tion amongst those who make significant progress in the subject that
getting the human factors right is even more important than the tools,
processes and technical ‘solutions’ that are adopted.
Motivation, education, communication, leadership, team-working
and sense of ownership are absolutely critical enablers to the establish-
ment of a joined-up, sustainable approach to asset management. Part
of these requirements are covered by the formal aspects of organisation
structure, roles and responsibilities, and a substantial revision to the way
competences are developed. These matters are dealt with in more detail
by Penny Burns in Chapter 5, ‘Asset management strategy: leadership
and decision-making’, and by Chris Lloyd in Chapter 7, ‘Developing
the competence of asset management staff ’. Certainly, asset manage-
ment has profound implications for future recruitment, training and
 Section 3: Asset management: the way forward
Project design
and construction
Materials
and labour

Operating and Change

Resource maintenance control
control strategies

Evaluation of
solutions

Resource estimating
and task assignment
Problem/opportunity
investigation

Work programme
scheduling Inspection
Work
and CBM loop
control
Problem/opportunity
identification

Preventive, detective
Data
and corrective work
collection
Cost
control

209
Fig. 10.4 Asset management processes and their primary linkages
210 Asset management – Whole-life management of physical assets

education requirements, and the de-conflicting of departmental silos and

their localised interests, budgets and performance goals is a necessary
objective. There is also, as Charles Johnson explains in Chapter 6,
‘Asset management culture’, a significant element of change manage-
ment required. In particular, there is a need for leadership styles that
do not just rely on command and control, more active workforce and
stakeholder consultations, communication and consistency of purpose,
and new behaviours in cross-disciplinary team-work that can reduce
the effects of functional tribalism or departmental silos. And it is not
just the traditional, mechanistic aspects of change management we
need to cover: the psychology, culture and habits also need to be
addressed in a transition management manner (Bridges, 2003) if we
want the new approach to become the norm. Otherwise, old behaviours
will creep back into the picture, and asset management risks becoming
just another temporary enthusiasm.
This area is so important, yet so often underestimated and under-
funded or under-resourced, that it is worth making an explicit example
of what is at stake. In BP’s transition to a fully asset-centred organisa-
tion, moving from a total production cost of $15/barrel to just $2/
barrel over 15 years, it has been observed that the great majority of
the improvement came not from technology breakthroughs (although
horizontal drilling did make quite a difference) but from thousands of
individually small, common-sense ideas coming from an informed,
engaged and motivated workforce. As the saying goes, ‘For every pair
of hands we hire, we get a brain for free’ (Clutterbuck and Kernaghan,
1994). Good asset management involves, at its core, the harnessing of all
the brains and hands to a clearer, common purpose.

3 Sector-specific and asset-type differences

3.1 Industry sector differences
As the preceding chapters illustrate, there are significant differences in
the maturity or state of evolution of asset management in the public
sector, electrical, water utilities, rail/transport, oil and gas, process and
manufacturing industries. The most obvious differences, however, are
found simply in the stage of evolution of the subject in different public
and private ownership structures and commercial, geographical,
industrial and regulatory environments. As Martin Pilling describes in
Chapter 4, ‘Beyond BSI PAS 55 compliance’, there is a broad spectrum
of maturity and many intermediate levels of innocence, understanding,
development, integration and optimisation. Indeed, the path has no
Section 3: Asset management: the way forward 211

Safety Reliability

Risk
Life
exposure
expectancy
Regulatory

sure

Cap e
expo k

valu
Ris

ital
Environmental Capital cost

‘S cy
hin
e’ ien
fic
Ef
Operating costs
Public image

Performance
Quality output
Customer
impression

Fig. 10.5 ‘Shamrock diagram’ of competing business drivers and their (quan-
tifiable) influence on asset management priorities. (Reproduced by permission of
TPWL)

natural end-point, for asset management is a subject that holds indefinite

future scope for refinement and innovation.
Where necessary variants do occur, however, they reflect the different
importance of various business drivers (Fig. 10.5), the imposition of
certain constraints, usually legal or licensing, or certain industry
attributes that limit the available options, e.g. mining or oil and gas
production, where the exploitable reserves are finite, or mobile phone
production, where the rate of technology change favours very short
lifecycles.
Richard Edwards discusses the impact of regulation in Chapter 9,
‘Regulating asset management’. Heavily regulated organisations are
often characterised by passive or reactive rule-driven habits. In such
an environment, there is a difficult cultural shift to make from just
seeking the least cost, compliant option to a more proactive engagement
and influencing of regulators and other stakeholder expectations. As
Edwards identifies, however, new regulatory models, such as those
evolved from the UK utilities and rail privatisations, offer scope for
quite a different relationship, and it is instructive to note that Ofgem,
the gas and electricity regulator, promoted BSI PAS 55 as a requirement
212 Asset management – Whole-life management of physical assets

for all UK network operators, and that ORR, the rail regulator, is now
giving it a similar level of priority.
Edwards also covers the utilities sectors, and these have been, in the
UK, the torch-bearers for asset management over the last 5–10 years.
The catalyst of privatisation and de- or re-regulation shaped them along
asset management lines. Such sectors, however, are often dependent on
very long-life assets, 100 years plus in some cases, so they encounter
particular challenges in measuring condition, quantifying asset value,
predicting residual life and justifying pre-emptive investments.
Steve Male provides a good insight into national and local govern-
ment interest in the subject in Chapter 3, ‘The challenges facing public
sector asset management’. This reveals a big gap in understanding
about which assets are in what condition and how to establish some
basic plans for long-term investment or disposal, utilisation and care.
Local authorities and municipalities are now one of the fastest-growing
areas of interest in the subject, with strong top-down and bottom-up
pressures on them to deliver better value, reduce costs and risks and
simultaneously ensure long-term sustainability. Like other public service
organisations, whether publicly or privately owned, local governments
often struggle with putting a value on their output (many are ‘shine’
factors), so it is initially harder to establish consistent criticality and
prioritisation methods, and more stakeholder engagement and indirect
measures become necessary.
In Chapter 2, ‘Asset management in the oil and gas, process and
manufacturing sectors’, I covered the North Sea oil and gas story, and
these industries arguably led the way with modern asset management.
These sectors have specific attributes, however, in that the oil and gas
reserves have a finite extent, so lifecycle asset management plans involve
horizons that are self-constraining e.g. do we extract it faster, for a
shorter period, or more slowly for longer? On the other hand, innova-
tions in exploration and production methods are already creating
more re-usable infrastructure such as floating production storage and
offloading vessels that can be moved from one field to another, so
maybe the sector-specific influence is reducing in its effect.
Manufacturing and other process sectors, in contrast, have not yet
really embraced the asset management message. They are at early
stages on the maturity scales, with priorities set on fairly short-term
horizons, particularly in the current financial crisis. Survival and
efficiency are measured day to day, or at best year by year. This problem
is exacerbated by a more general barrier to good asset management,
namely the traditional annual accountancy and reporting cycles.
Organisations and industry sectors which are locked into annual cycles
Section 3: Asset management: the way forward 213

of budget approval, performance reporting and planning, face big

challenges in the introduction of strategic, optimised whole-life asset
management. This is particularly difficult in public sector environments
subject to government treasury approvals and the usual 4–5 year poli-
tical cycles of distorting self-interests. The defence sector is an interesting
case: one of the leading developers of lifecycle costing as a basis for
procurement, it faces constant attrition on operating costs, as well as
changing expectations and functional requirements, so short-termism
and lowest-cost solutions are common in much day-to-day decision-
making. To be fair, government accounting regulations in the USA
(GASB, 1999), the triple bottom line concept of corporate reporting
(Elkington, 1994) and balance scorecard techniques (Kaplan and
Norton, 1996) have all helped to provide a more comprehensive view
of asset value and corporate performance. Nevertheless, short-termism
is still rife, reinforced both by accountancy and regulatory cycles
and, in some cases, by senior managers’ or politicians’ personal interests
of reputation or reward mechanisms. A robust model for an ‘asset
management scorecard’ is still not available: one that can demonstrate
short-term and long-term trade-offs and include the ‘lost opportunity
costs’ of asset unavailability, performance shortfalls, risks, sustainability
effects and ‘shine’ factors (see Fig. 10.5).

3.2 Asset-type differences

3.2.1 Different types of physical assets
Most of this book is focused on the management of physical assets, and,
of course, these vary considerably in their characteristics, asset manage-
ment opportunities and available options. For example, electrical and
mechanical systems exhibit very different mixes of degradation processes
and failure modes in their maintainability and condition measurability.
Such variations must naturally be reflected in their optimised lifecycle
management strategies. Techniques for developing such strategies have
evolved to match these differences. For example, the reliability-centred
maintenance methodology, used to determine what type of maintenance
is appropriate, is most suited to complex systems that exhibit a variety of
failure modes which need to be systematically considered, and criticality
filtered, for different detectability, predictability, preventability or
mitigation options. Simpler, static equipment systems such as pipelines,
rail track or electrical distribution networks tend to exhibit fewer
degradation mechanisms, but there is often greater uncertainty about
the progress of such deterioration, so risk-based inspection techniques
may provide more appropriate strategy development rules.
214 Asset management – Whole-life management of physical assets

One of the commonest errors, however, in acknowledging asset-type

differences is the overshoot into fully developed, distinct asset manage-
ment strategies for different asset classes. Whole-system performance
cannot be optimised by developing separate plans for instrumentation,
the mechanical systems, the electrical circuits, etc. Yet there are still
many organisations that make their primary divisions of the asset
portfolio by equipment type and then develop roles and responsibilities
by corresponding specialist discipline, e.g. railway signalling, track and
electrical protection experts. More mature asset management organisa-
tions start with the customer-facing (or other stakeholder expectations)
viewpoint of how service or value is delivered, subdivide the portfolio
by the functional systems (e.g. rail routes, individual power stations, oil
platforms) and, only then, consider the sorts of interventions that different
components require to assure system performance and value for money.
Asset-type specialists contribute a horizontal, fine-tuning contribution
across multiple instances of particular equipment in different functional
contexts, locations and/or criticalities. This allows the asset management
strategies to be both consistently business-oriented and to reflect the diver-
sity of asset types and opportunities within the systems. A systems integra-
tion view is an essential stage in developing asset management strategies
and plans which align bottom-up component asset management needs
and opportunities with top-down corporate priorities and value delivery.

3.2.2 Other types of assets and their management

When BSI PAS 55 was being developed, there was significant discussion
about the interdependencies between not just different physical assets
within operational systems but also between physical and other asset
classes such as financial assets, human assets, information, intellectual
property and reputation (Fig. 10.6). The priority seemed to be addres-
sing the need for physical asset-centric organisations, but the principles
of good asset management apply to all asset types. Reputation and
brand value, for example, require investment and protective care, and
are exposed to risks, degradation and lifecycle sustainability concerns.
Financial assets have long been treated in the same cost–risk–perfor-
mance and short- versus long-term sense as is now being adopted for
physical infrastructure. Indeed, as Chris Lloyd points out in the Intro-
duction, the financial services sector has been using the term ‘asset
management’ for decades. The 2008 banking crisis merely reinforces
the importance of appropriate risk assessment and better performance
measurement criteria for net value-for-money.
Some asset types undoubtedly do introduce special considerations,
such as the low cost of duplication in the case of data assets, or the
 Section 3: Asset management: the way forward
Important interface: To t a l b u s i n e s s Vital context: business
objectives, policies,
motivation, communication, regulation, performance
roles and responsibilities, Human requirements, risk
knowledge, experience, management
leadership, teamwork assets
Scop
eo
f

PA
S
Financial
Physical Information
assets assets assets
Important interface:
lifecycle costs, capital
investment criteria, Important interface:
operating costs condition, performance,
activities, costs and
opportunities
Intangible
assets
Important interface:
reputation, image, morale,
constraints, social impact

215
Fig. 10.6 Asset types within the total business context
216 Asset management – Whole-life management of physical assets

difficulties in quantifying the value of intangible assets such as reputation

and knowledge. Nevertheless, these are primarily adjustments in the
calibration of asset management factors or vulnerabilities, rather than
fundamental differences in the underlying principles. National Air
Traffic Services, for example, treats each air corridor above the UK as
an asset to be managed. Likewise, various organisations treat their
data, information and in-house knowledge as discrete assets to be
managed in a full lifecycle, value-optimised manner. However, while
we often hear the phrase ‘people are out greatest asset’, there are only
a few cases where this visibly translates into proper asset management
strategies, including adequate education, empowerment, utilisation,
risk management and succession or sustainability planning.

4 The future of asset management

There can be no real doubt that the emerging discipline of integrated,
optimised, risk-based, whole-life asset management is here to stay and
has significant potential to change our lives. Indeed, the financial,
environmental and demographic pressures that we face ahead serve to
heighten the criticality of getting it right – doing the right things for
the right reasons, in the right way (i.e. good asset management). Gone
are the days when it was enough to seek ever-cheaper and quicker
ways of doing the same thing more efficiently; now we have to get
smarter, including challenging, regularly, what it is we are doing in the
first place, why, and with what net effect. The tangible benefits of
doing this are evident and substantial, and the consequences of not
adopting such practices are potentially very severe (ranging from
corporate inefficiency, non-competitiveness and loss of credibility to
societal damage, national and even international crises). Clearly, however,
the rates of change will vary across different industries, countries and
cultures – every organisation needs its own asset management roadmap
to reflect priorities, capabilities, constraints and readiness.
Along the overall path into the future, we can expect some intellectual
battles and the inevitable tension between those who desire standardisa-
tion of approaches and those who feel they are different. BSI PAS 55 will
evolve into a full ISO standard, and a range of sector-specific guidelines,
already being developed, will emerge to bridge the gap between generic
requirements and the languages and special characteristics of different
asset types or industrial contexts. Along the way, I hope that we see
an increasing consistency of terminology and meaning, including the
end of a few false messages and impressions that are still quite common.
Section 3: Asset management: the way forward 217

4.1 Disposing of a few myths

4.1.1 Asset management is the same as maintenance
Asset care (maintenance) is just one contributory factor in whole-life
asset management, which includes capital investment decisions, oper-
ating or utilisation (asset exploitation), asset care (maintenance) and
end-of-life decisions (renewals, upgrades, disposals, etc.). Maintenance
and reliability personnel need to understand this bigger picture in
order to reduce this confusion.

4.1.2 Asset management is an IT solution

Software vendors are sometimes guilty of perpetuating this myth, styling
their products as ‘enterprise asset management’ tools instead of focusing
their correct and important asset information management role. An
asset management system, as defined in BSI PAS 55, is much more
than just the tools used to store information or facilitate planning or
other component business processes.

4.1.3 It requires a major reorganisation

This is not always true: certainly the oil companies benefited greatly
from creation of discrete, multi-disciplined teams and single-point
accountable asset managers to manage ‘mini-businesses’. However,
there are cases where existing functional departments have been retained
and cross-disciplinary processes established to generate the shared
roadmap, priorities, respective contributions and delivery responsi-
bilities, performance measures and inter-departmental service level
agreements, etc. The creation of a separate asset management depart-
ment can also cause problems if it is not accompanied by adequate
competences, decision-making responsibilities, communications and
credibility establishment. Many businesses spend months, great energies
and emotion debating organisation structure, whereas a great deal of
progress can usually be made within existing structures if common
sense is allowed to apply.

4.1.4 Asset management is just common sense

This is mostly true, but there are some critical, very non-intuitive
elements that make a disproportionate difference to success or failure.
In the area of optimisation, for example, there are big pitfalls for the
unwary. It is easy to talk about balancing costs and risks, short-term
and long-term effects, capital and operating expenditures, etc. Data
uncertainties and mathematical relationships between the factors,
however, mean that subjective judgement or even simplistic calculation
is unlikely to select the right mix. Indeed, ‘balancing’ is the wrong
218 Asset management – Whole-life management of physical assets

term in the first place – the optimum solution is where competing factors
are equal in significance; it is where their combined effect is minimised in
terms of ‘cost’ or other scale of business impact. Such pitfalls and errors
are particularly common in decisions about intervention timing, main-
tenance intervals, asset replacement and other decisions where costs or
risks are changing with time.

4.1.5 There is an ideal model

No there isn’t. Whereas many of the requirements for good asset
management are independent of asset type, industry, geography, regula-
tory or other environment, every organisation has a different mix of
business goals, priorities, strengths, weaknesses and constraints. So,
every asset management roadmap is different and, given that a core
feature of good asset management is continual improvement, there is
no end-point. While it might be tempting to look for templates and
off-the-shelf solutions, considerable customisation or configuration is
always needed. This is why BSI PAS 55 only specifies what must be
done: the how must be adapted in each case to the circumstances of
the organisation.

4.1.6 Standards and consensus

The development of BSI PAS 55 has proved to be a valuable aid to the
international debate about the meaning of asset management. Clearly,
however, it is only one part of the unfolding story. In Australia, Holland,
New Zealand, Canada and other countries, there is work underway to
address complementary aspects of process definition, guidance and
clarity about the subject and how organisations can apply the principles
in practice. Sector-specific groups and trade associations are expanding
such guidance in the construction industry, property sector, water
industry and others. The UK Institute of Asset Management (IAM)
has launched a series of working groups to harness, support and align
such initiatives and collate a ‘body of knowledge’ so that common
threads can be shared and reinvention of the wheel is minimised. And
an international network of professional bodies is being established to
share experiences and coordinate efforts internationally.
As the subject gets wider visibility and attention, therefore, we can
expect to see a phase of further accelerating activity. Despite the efforts
of the IAM and other bodies, there is bound to be some resulting
confusion and competing messages.
In the end, however, there will also need to be a consolidation phase,
with agreements on terminology and compromise about what represent
‘adequacy’, ‘good practice’ and generic or sector-specific requirements.
Section 3: Asset management: the way forward 219

The obvious international platform for this is the International Stan-

dards Organisation, and proposals are already in place and accepted
for developing an ISO standard, at least for the elements of asset
management that are generic, i.e. based on the BSI PAS 55 specification.
It is not difficult to visualise an asset management ISO standard com-
plementing the ISO 9001, ISO 14000 and OHSAS 18000 families, as
part of an expected set of demonstrable capabilities that provide assur-
ance to customers, owners, regulators and other stakeholders. Like the
other standards, however, it will be essential to avoid the cynical levels
of implementation and certification based on just paperwork and good
intentions. Asset management, in particular, depends upon clear and
traceable links between the high-level goals of the organisation and the
day-to-day realities of what people are doing, why, where, when and
how.

4.2 Global trends and future uncertainties

As I write, the world is facing unprecedented concerns and uncertainties.
This ‘perfect storm’ includes:
. the ‘credit crunch’ and economic recession
. the environmental projections of global warming
. the energy crisis
. world population growth, food and water distributions
. highly distorted demographic profiles of both nations and organisa-
tions, including the age–experience–knowledge distribution within
organisations
. ageing physical infrastructure and significant reinvestment
challenges.
Combined with the human tendency to be reactive rather than proac-
tive in any fundamental changes, plus political short-termism and the
distorting accountancy measures of annualised corporate success, we
could be forgiven for being extremely gloomy about the future. Thank-
fully, however, there is another human tendency that helps to mitigate
these concerns – when the crisis is credible, it is amazing what we can
do. Collective commitment, creativity and positive action are all
features of good asset management, and these attributes are certainly
going to be needed in the decades ahead. In fact, the emerging picture
of joined-up, sustainable, risk-based, optimised asset management
might well prove to be the framework for not just physical equipment
and infrastructure but also for society, nations and even the planet
(Russell, 1982).
220 Asset management – Whole-life management of physical assets

In the meantime, the pressures we face simply add to the importance

of being extremely careful with what we own, and maximise value for
money in all aspects of investment, utilisation, care, renewal and
disposal. Risk management and sustainability are important factors in
such value maximisation, so the acknowledged big future uncertainties
simply highlight their vital consideration.

5 Conclusions
This book has assembled some of the leading observers and thinkers in
the emerging field of asset management. Their chapters cover the human
dimension to this, the levels of maturity along the way, the benefits
obtainable, the mix of methods, tools and processes that are necessary,
and some of the past and future influences on the discipline as we
currently understand it. Inevitably, there is a mix of views and flavours,
but the underlying themes are increasingly robust and clear. We are on
an exciting road to better integration, understanding, clarity of purpose
and value delivery. Modern asset management provides the framework
and philosophy within which each organisation can construct its way
forward and satisfy the competing expectations of stakeholders to the
greatest degree possible.
I have been impressed, over the last 20 years, by the great openness
and community feeling of those engaged in this story. This bodes well
for the future of mutual assistance, development of the discipline and
consolidation of good practices in asset management.
The future clearly holds big challenges, but also exciting possibilities.
If we keep our heads clear, invest adequately in understanding and
competencies, and adopt an incremental, stepwise approach to improve-
ments, very big prizes are within our reach.

References
Bridges, W. 2003. Managing Transitions: Making the Most of Change. Da Capo
Press, Cambridge, MA.
BSI 2008. PAS 55: 2008. The Specification for the Optimized Management of
Physical Assets, Parts 1 and 2. British Standards Institute, London.
Clutterbuck, D. and Kernaghan, S. 1994. The Power of Empowerment. BCA/
Kogan Page, London.
Elkington, J. 1994. Towards the sustainable corporation: Win–win–win business
strategies for sustainable development. California Management Review,
36(No. 2): 90–100, CA.
Section 3: Asset management: the way forward 221

GASB 1999. GASB Statement No. 34. Basic Financial Statements – and Manage-
ment’s Discussion and Analysis – for State and Local Governments. Governmental
Accounting Standards Board, Washington, DC.
Kaplan, R. S. and Norton, D. P. 1996. The Balanced Scorecard: Translating
Strategy into Action. Harvard Business School Press, Boston, MA.
Russell, P. 1982. The Awakening Earth: The Global Brain. Routledge and Kegan
Paul, London.
Postscript

Chris Lloyd Director, CAS, London, UK

Richard Edwards Director, AMCL

Looking over the contents of this book, it is striking how consistent

its main messages are. This is despite the various chapters having
been written from different perspectives by authors coming to asset
management from different backgrounds and experience.
Without wishing to repeat the arguments put forward in the various
chapters, we have focused our concluding thoughts on what we see
as the three main issues arising from this book: proof, relevance and
accountability.

1 Proof
Proof concerns the evidence that will be needed to demonstrate the
economic superiority of asset management over traditional thinking
and practices in organisations and sectors that are new to it. Those
that are accustomed to its rigours and wide-ranging implications don’t
need convincing. For them, asset management is the serious business
of rising to the challenge of delivering more for less – more value for
less cost, less risk, less environmental impact. They are working with
BSI PAS 55 to get their systems in order and with maturity capability
models to drive their integration, gauge their performance and set
improvement targets. They are already using risk-based criticality
analysis to prioritise asset investment and capture whole-life cost–risk
justifications, asset knowledge, assumptions, objectives and targets in
whole-life asset management plans. Inevitably, some are better at these
things than others, usually because they have made asset management
an explicit board level remit, there are clear lines of responsibility
running through all levels of the organisation, and they are more
proactive on matters of culture and competence.
In organisations and sectors where asset management is a newer
concept, research needs to play a more prominent role in substantiating
its benefits and the economic, environmental and social advantages it
confers. This is not straightforward because there are very considerable
Asset management – Whole-life management of physical assets # Thomas Telford 2010
978-0-7277-3653-6 All rights reserved
224 Asset management – Whole-life management of physical assets

difficulties in establishing economic criteria of relevance to the

integration of the different requirements, specialisms and activities in
the variety of environments in which this needs to occur.
With ever more pressure on companies and their directors to reduce
costs and improve levels of service, perhaps the most important contri-
bution asset management can make is the prevention of an insidious
decline in an organisation’s asset base from which it is prohibitively
expensive to return or which imports a level of risk that is socially
unacceptable. We have heard examples of organisations that now
understand that early intervention in the maintenance or overhaul of
assets has significant benefits over the longer term, and mitigating
these long-term risks is one of the key benefits of asset management.
Quantifying these benefits is an essential step in persuading boards of
directors to embrace asset management. The growth in the number of
BSI PAS 55-compliant organisations and the spread of international
benchmarking based on maturity models will generate a valuable
source of data and case study material to support the case for asset
management where the results come into the public domain.

2 Relevance
There is a danger that compliance will become the dominant approach to
building and proving asset management systems, and that this will be the
primary means by which asset management extends its reach, particu-
larly in sectors where public funding is dominant. Whilst compliance
can create impetus, it can also stop people and organisations taking
things seriously. There is a fine line between taking something seriously
and not thinking about it anymore. It will be important, therefore, that
the promotion of asset management is focused on the adoption of
appropriate best practice to achieve outcomes that are consistent with
the organisation’s strategic goals and objectives. Compliance with
standards such as BSI PAS 55 should be encouraged, but only as a
waypoint to appropriate best practice.
Although it may be difficult to achieve the full potential of asset
management on anything but an enterprise-wide scale, this should not
be taken to imply that organisations need to improve everything they
do until it reaches the highest recognised standard. It may be impossible
to deliver ‘perfect’ asset management – there are so many complexities,
interdependencies and uncertainties involved: but this should not be
an excuse for inaction. Tackling these issues is a key stage in developing
appropriate best practice asset management solutions. Defining
Postscript 225

stretching but realistic asset management improvement plans that reflect

the criticality of the different assets and decisions within an organisation
should become a core part of the business-planning process. Organisa-
tions must learn to work out for themselves how mature their capabilities
need to be and when excellence is relevant and where competent will do.
There may be awards, but there will be no rewards for being good at
asset management if the business is failing.

3 Accountability
Organisations make changes because they have to or because they want
to. In the case of asset management, it is most likely that regulation will
get tougher, spurred by public demands for an urgent response to climate
change and by increasing competition for scarce financial and natural
resources. There will always be directors who wait to see how bad
things get or how others are doing before committing their organisations.
Whether their motives are caution or scepticism, on their watch it is
unlikely asset management will get far beyond its own department, a para-
graph or two in the annual report or some lip service appointments.
It has taken over two decades of relatively slow progress for asset
management to find its feet. Deming’s work on quality management in
post-war Japan took a similar length of time to enter mainstream
corporate thinking. There is enough evidence in this book to suggest
that asset management has reached its tipping point. In the USA,
reporting on asset management is a mandatory requirement in many
states. Elsewhere, the boards of companies such as National Grid are
taking it on themselves to report their activities in this area. We see no
reason why owners of major infrastructure and other publicly funded
asset bases should not be required to formally report their asset manage-
ment performance, define the 30–50 year scenarios they have developed
and the cost–risk profiles these contain, justify which of these scenarios
they are basing their decisions on and be explicit about the trade-offs
they are making between short- and long-term gains.
Perhaps there is a role for stronger legislation around the world that
mandates organisations to produce asset stewardship reports as part of
their governance processes? After all, managing these asset portfolios
brings with it responsibilities no less significant than those addressed
by health and safety legislation. If the legal duties for directors included
explicit requirements for asset stewardship, then asset management
would be taken as seriously as the opportunities that it presents suggests
it should be.
INDEX
Page numbers in italics refer to illustrations or tables.

Index Terms Links

ability 140
see also competence
accepting–questioning dimension 126
accidental asset managers 138–139
accommodation
climate change 171–172
culture 130
accountability 32–33 125 225
activities, asset management strategy 94–95
adaptation, climate change 169–172 176–178
advertisements 138–139
agreement–disagreement culture 127
airline industry 43–44
ALARP (as low as is reasonably
practical) 22 45
alignment factors, competence 155
AMEM see Asset Management
Excellence Model
American Society of Safety Engineers 116
AMP see asset management plans

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Index Terms Links

AMPAP see Asset Management

Planning Assessment Process
anthropogenic factors 165–166 178
apathy 120
ARM see Asset Risk Management
ARP see asset reference plans
Asian Development Bank 173
as low as is reasonably practical
(ALARP) 22 45
assessing culture 127–128
assessing maturity 79–81 82
asset classes 201 213–216
asset information
decision-making 112–113
rail and utility sectors 16–18 19 25
asset knowledge 16–18 19 25
asset management capability 183–190 191 196–199
200
maturity scales 133–134 145 188–190
measuring 187–190
Asset Management Competence
Framework 20
Asset Management Excellence Model
(AMEM) 81 82
Asset Management Planning
Assessment Process (AMPAP) 7
asset management plans (AMP) 8–9 10

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Index Terms Links

asset management strategy

information’s role 111–113
leadership and decision making 93–115
life cycle activities 94–95
asset management value chains 74 85–87 89–90
asset managers, business models 31–33
asset performance indicators 109–110
asset portfolios 84
asset reference plans (ARP) 33–41
base cases 40–41
commissioning 34
content 36–38
decommissioning 35
development 34 35 38–40
inputs 36–38
life-cycles 34 35
oil and gas sector 29
operation 34 35
production forecasting 40–41
risks 40–41
uncertainty 40–41
asset reliability 47–48
Asset Risk Management (ARM) 6–7
assets, definition 30–31
asset-type differences 201 213–216
Associated British Ports 172
assurance 138–157
see also competence

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Index Terms Links

atmosphere–ocean circulation 165

audits 23–24 84
Australia 53 62
authoritative culture 124

balance, decision-making 97 98
barriers, culture 123 131–132 203
base cases, asset reference plans 40–41
Bayesian statistics 13
behaviour
competence 139
culture 122 123 127
130–131
future directions 210
public sector asset management 52
best practices
BSI PAS 55 compliance 79–81 80 82
84–85
competence 141–142 154
culture creation 120
oil and gas sector 29
Body of Knowledge 86
bottom-up plans 13
BP 28–29 210
breadth, decision-making 96
British Standards Institute (BSI) see
BSI PAS 55
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Index Terms Links

BSI PAS 55
asset management definition 1
certification 188
competence 84–85 143 146
149 151–152
compliance 74–90 210–211 223–224
assessing maturity 79–81 82
Asset Management Excellence
Model 81 82
asset management value chains 74 85–87 89–90
audits 84
best practice 79–81 80 82
84–85
calibrating maturity models 78–79
case studies 86–89
competence 84–85 149 151–152
complexity and maturity 81 83
cost-benefit perspectives 84–85
enterprise resource planning 86–87
evolution of asset management 76–78
financial impacts 83
implementation case studies 86–89
Institute of Asset Management 75 86
London Underground 75
maturity models 74 78–85 87–89
maturity scales 78
National Audit Office 75
Network Rail 75 87 88

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Index Terms Links

BSI PAS 55 (Cont.)

Orange County Sanitation
District 87 89
proof 223–224
rail sector 75 87 88
regulation 188–190
risk mitigation 75
United States of America 83 87 89
value chains 74 85–87 89–90
decision-making 205
definition of assets 30
future directions 201 203 205
210–211 214 216
218
Ofgem 7
proof 223–224
public sector 53
rail sector 1 2 6–8
26 75 87
88
regulation 187–190
relevance factors 224–225
sector-specific differences 210–211
utility sectors 1 2 6–8
26
bureaucracy, competence 155

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Index Terms Links

Business, Enterprise and Regulatory

Reform Select Committee on
Construction (Department of ) 67–68
business models 30–41
ARP 33–41
asset managers 31–33
Chief Executive Officers 31–33
teams 32–33

CABE see Commission for

Architecture and the Built
Environment
calibrating maturity models 78–79
capability
competence 148–149
maturity models 133–134 145 188–190
regulation 183–190 191 196–199
200
capital costs/expenditure 183 184 185
capital investment 52
carbon dioxide 164–165 167–169
career paths 139
case law 21
case studies
BSI PAS 55 compliance 86–89
climate change 173–178
CAS culture management model 121–123
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Index Terms Links

cautious culture 125 126

CCSP see Climate Change Science
Program
central government estate 52–57
see also public sector asset
management
CEO see Chief Executive Officers
certainty–uncertainty dimension,
culture 126
certification, BSI PAS 55 188
Challenger space shuttle 129
change management 104–105 120–135
Chief Executive Officers (CEO) 31–33
Chief Financial Officers 108
Civil Service 58
clients, culture failure 119
climate change
accommodation 171–172
adaptation 169–170 171–172 176–178
anthropogenic factors 165–166 178
carbon dioxide 164–165 167–169
case studies 173–178
culture 117 122 123
127 128
emissions scenarios 166–169
extreme value distributions 163 170
flood risk management 161 173–178
future directions 161–180

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Index Terms Links

climate change (Cont.)

global surface warming 167–169
greenhouse effect 164–165
greenhouse gases 164–165 167–169
human activities 165–166 178
incorporation 161–180
Intergovernmental Panel on
Climate Change 165–169 171–172
lead times 176–177
observation uncertainty 166–169
ocean circulation 163–164 165 169
portfolios of responses 174–175 176–177
precipitation 165 169
probability 162–163 170
projection uncertainty 166–169
public sector asset management 51
return periods 162–163
risks 25 170–178
sea levels 165–166 174–175 178
stationariness 163–164
temperature 165 169
Thames Barrier 161 173–178
thresholds 161 176–177
time histories 162–163 170
uncertainty 161 163–164 166–169
weather patterns 165 166 169
Climate Change Science Program
(CCSP) 172

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Index Terms Links

climate stressors 171

cliques, culture failure 119
coaching 38
collective culture 125
COMAH see Control of Major
Hazards
Commission for Architecture and the
Built Environment (CABE) 52 57–68
commissioning asset reference plans 34
common sense, dispelling myths 217–218
common threads, future directions 201–210
communication 182 208 210
compass points, competence 142–143
competence
accidental asset managers 138–139
assurance 138–157
best practices 141–142 154
BSI PAS 55 84–85 143 146
149 151–152
bureaucracy 155
capability levels 148–149
compass points 142–143
compliance 149 151–152
customising frameworks 147–148
definitions 141
education 144 155–156
frameworks 145–149

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Index Terms Links

competence (Cont.)
Institute of Asset Management 20 139 145–149
156
integration 142–143
learning 144 155–156
line of sight 141–142 203–204
management lifecycles 147–148
management systems 147–148 150–156
multidisciplinary teams 143–144
Office of Government Commerce 156
performance 140–141 150–151
perspectives 141
profiles 148–149
qualifications 138–139
rail sectors 20 26
strategic management 138 142 152–156
systematic management 156–157
teams 138 143–144
training 144 155–156
utility sectors 20 26
complexity and maturity 81 83
compliance
BSI PAS 55 74–90 210–211 223–224
competence 149 151–152
condition-based inspection 83
conflicts, culture 131–133

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Index Terms Links

consensus
competence frameworks 145
dispelling myths 218–219
consequences of failing culture 118–120 129
Construction Industry Council 57
construction investments 52 57–68
continuous improvement cultures 75
Control of Major Hazards
(COMAH) 28 45
control periods 198–199
cooperation factors 118
core layer, decision-making 93 97–98 106–109
112–113
corporate good 107–108
cost-benefit perspectives 84–85
costs
decision-making 111–112
lifecycle costing 41–43
rail and utility sector 9 11
regulation 183 185–186 190
192 193 198
whole-life cost justification 11–16 21 25
creating culture see culture
criticality
decision-making 96 97
future directions 204–205
reliability centred maintenance 44

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Index Terms Links

cross-governmental structural
implications 54–57
cross-impact analysis 99–100
Cullen Enquiry 28
culture 117 122 123
127
accommodation 130
adoption incentives 128–129
assessment methodology 127–128
barriers 123 131–132 203
behaviour 122 123 127
130–131
BSI PAS 55 compliance 75
capability maturity model 133–134
CAS management model 121–123
change management 120–135
climate 117 122 123
127 128
conflicts 131–133
consequences of failure 118–120 129
creation 116–137
decision-making 101
definitions 116–117
enabling mechanisms 123
enforcement 130
failure consequences 118–120 129
future directions 210
gap analysis 121 123–127

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Index Terms Links

culture (Cont.)
incentives 128–129
leadership 127 130
management commitment 129–130
maturity models/scales 133–135
motivation 123
origins 118
performance 118 122 123
130–131
pressures and barriers 123 131–132 203
primary dimensions 124–126
rail and utility sectors 20
safety 116 118–120 121
134–135
secondary dimensions 126–127
security 121
staff 118–121 124 128–131
subculture management 132–133
support mechanisms 130–131
utility sectors 20
customising competence frameworks 147–148
cyclones 166

data analysis 47–48

data requirements 207–208 214 216

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Index Terms Links

decision-making
asset information 111–113
asset management strategy 93–115
asset performance indicators 109–110
BSI PAS 55 205
competence 151
core layer 93 97–98 106–109
112–113
cost factors 111–112
disciplinary activities 94–95
effectiveness 107 113–114
efficiency 107 113–114
engineering asset management 94–95
future directions 205–208
ILM framework 111–112
information 111–113
inner circle layer 93 96–97 98
102–106
justification 111–112 204
layers 93 95–109
life-cycle activities 94–95
management performance
indicators 109–110
outer circle layer 93 95–96 97–103
performance indicators 93 97–98 106–110
reward practices 106–109 110–112
strategic management 93–115
strategic planning 100 112–113

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Index Terms Links

decision-making (Cont.)
values 93 95–96 97–103
110–112
vision 93 95–96 97–103
110
websites 115
decision points 177
decommissioning asset reference
plans 34 35
defence sector 42–43
delivery target regulation 196 198
Delphi method 100
demand analysis 8
departmental structural implications 54–57
Department of Business, Enterprise
and Regulatory Reform Select
Committee on Construction 67–68
Department of Defence 42
design codes, climate change 162
disciplinary activities 94–95 143–144
dispelling myths 217–219
divisional management,
decision-making 108
Dunlin Alpha platform 29

economic sustainability 181–182

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Index Terms Links

education
asset reference plans 38
competence 144 155–156
future directions 208 210
Edwards v. National Coal Board
(1949) 21
effectiveness
decision-making 107 113–114
public sector asset management 55
efficiency
decision-making 107 113–114
public sector asset management 55
regulation 181–182 183
EFNMS see European Federation
for National Maintenance
Societies
electricity industry 6–7
decision-making 102–103
regulation 182 183 184
185 211–212
El Niño-Southern Oscillation
(ENSO) 163 169
emissions scenarios 166–169
enabling mechanisms, culture 123
enforcement approaches 130
engagement factors 193–196 198 208
engineering asset management 94–95 107

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Index Terms Links

ENSO see El Niño-Southern

Oscillation
Enterprise and Regulatory Reform
Select Committee on
Construction (Department of ) 67–68
enterprise resource planning (ERP) 86–87
enterprise-wide information systems 17–18
environment
climate change incorporation 161–180
culture 116
regulation 181 192 195
risks 22 181 192
195
Thames flood protection 173–178
ERP see enterprise resource planning
estuary-wide flood risk management 176
European Federation for National
Maintenance Societies
(EFNMS) 1
European MACRO project 206 207
European North Sea oil and gas
sector 27–30 32–33 203
210 212
evidence (proof) 223–224
evolution of asset management 76–78
expectation clarification 149
expenditure options 23
exposure, climate risk 171

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Index Terms Links

extrapolation
decision-making 99
future directions 202
probability 162–163
extreme value distributions 163 170

factory variable costs 107

failure
culture consequences 118–120 129
risk matrices 20–21
failure modes and effects analysis
(FMEA) 43
finance
BSI PAS 55 compliance 83
see also costs
flooding
public sector asset management 69–70
rail network 69–70
risk management 161 173–178
roads 69–70
Thames Barrier 161 173–178
FMEA see failure modes and effects
analysis
focus, decision-making 97 106–109
Forum of the Future (2009) 187
forward thinking 93 95–96 97–103

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Index Terms Links

frameworks
Asset Management Competence
Framework 20
competence 145–149
decision-making 111–112
regulation 196–199 200
freezing, culture creation 121
frequency of failure 20–21
function-based organisations 103–104
funding 193 194
see also investment
future directions 201–221
asset classes 201 213–216
asset-type differences 201 213–216
BSI PAS 55 201 203 205
210–211 214 216
218
climate change incorporation 161–180
common threads 201–210
communication 208 210
criticality 204–205
culture 210
data requirements 207–208 214 216
decision-making 205–208
education 208 209
extrapolation 202
gas sector 203 210 211–212
global trends 219–220

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Index Terms Links

future directions (Cont.)

human assets 208 210 214
215
human factors 208 210 214
215 219
information requirements 207–208 214 215
ISO standards 216 219
knowledge management 207–208
leadership 208 210
lifecycle plans 204
line of sight 203–204
management strategies 204
manufacturing sectors 212–213
myths 217–219
oil and gas sector 203 210 212
prioritisation methods 204–205
privatisation factors 203 212
process sectors 212–213
regulation 181–200 211–212
risk 204–205
sector-specific differences 201 210–213
staff 208 210 214
215
standards 216 218–219
team-working 208 210
trends 201–210 219–220
uncertainty 219–220
future vision, decision-making 93 95–96 97–103

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Index Terms Links

gap analysis 121 123–127

gas sector 6–7 27–30 32–33
48
asset reference plans 29
climate change 162
future directions 203 210 211–212
regulation 182 183 184
185 211–212
Gateway Review process 65–67
glaciers 166
global surface warming 167–169
global trends 219–220
government
funded research 50–73
public sector asset management 50–73 203 212
structural implications 54–57
greenhouse gases 164–165 167–169
Guldenmund’s criteria 121

hazards 196
health 21 116
Health and Safety Executive (HSE) 21
highways 69–70 83
Hopper, Grace 129

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Index Terms Links

House of Commons Committee

report 71
HPP initiative 60–65 70–71
HSE (Health and Safety Executive) 21
human factors
climate change 165–166 178
future directions 208 210 214
215 219
see also people aspects; staff
hydrocarbon processing 45

IAM see Institute of Asset

Management
ice-sheets, climate change 166
ICT carrier programme 11–12
ideal models 218
identifying organisational culture 123
ILM framework 111–112
impact analysis 99–100
improvement cultures 75
incentives
culture adoption 128–129
regulation 181–182 183 187
incremental changes 52 70
Indian Ocean Dipole (IOD) 164
indicators of climate change 176–177
individualistic–collective culture 125
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Index Terms Links

information
decision-making 111–113
future directions 207–208 214 215
rail and utility sectors 16–18 19 25
requirements 207–208 214 215
restriction 127
role in management strategy 111–113
sharing 127
information technology (IT) 217
informed client role 67–68
infrastructure, public sector asset
management 51–52 68–70
inner circle layer, decision-making 93 96–97 98
102–106
inputs, asset reference plans 36–38
inspection
condition-based inspection 83
risk-based inspection 45
whole-life cost justification 11
Institute of Asset Management (IAM)
BSI PAS 55 compliance 75 86
competence 20 139 145–149
156
formation 5
standards and consensus 218–219
integration, competence assurance 142–143
intellectual property 214 215

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Intergovernmental Panel on Climate

Change (IPCC) 51 165–169 171–172
International Standards Organisation
(ISO) 18 19 216
219
Internet 115
investment
decision-makers 58
logic maps 105–106
regulation 181–182 183 186–187
193 194
Investor Project 11–12
IOD see Indian Ocean Dipole
IPCC see Intergovernmental Panel on
Climate Change
ISO see International Standards
Organisation
IT see information technology

JAE 1001 standard 43

justification, decision-making 111–112 204
just-in-time principles 46

kaizan 46
kanban 46

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Index Terms Links

Kaplan, Robert 23–24

key performance indicators (KPI) 107–109
knowledge
competence 156
future directions 207–208
rail and utility sectors 16–18 19 25
KPI (key performance indicators) 107–109

law see Edwards v. National Coal

Board (1949)
layers
decision-making 93 95–109
linkages within decision circles 102–103
leadership
asset management strategy 93–115
competence 147–148
culture 127 130
future directions 208 210
rail and utility sectors 20
strategic management 93–115
see also decision-making
lead times, climate change 176–177
lean manufacturing 45–47
learning curves/modules 144 155–156
Leeds see University of Leeds
Lewin, Kurt 120

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lifecycles
asset management strategy 94–95
asset reference plans 34 35
costing 41–43
delivery 16
future directions 204
limit of known best practice 79 80
line of sight 141–142 203–204
logic maps 105–106
London Underground 75 139
long-term factors, culture 125
loop-closure 208 209
Lyons, Sir Michael 53

MACRO project 206 207

maintenance
dispelling myths 217
whole-life cost justification 11 14 15–16
Major Construction Investment
Programmes and Projects
(MCIPP) 57–68 70–71
major reorganisations, dispelling
myths 217
management
competence 147–148 150–156
culture development 129–130

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Index Terms Links

management (Cont.)
future directions 204
performance indicators 109–110
manufacturing sectors 27–28 41–42 45–48
212–213
Mature ASsets Team (MAST) 28–29
maturity models
BSI PAS 55 compliance 74 78–85 87–89
210–211
capability models 133–134 145 188–190
competence 145
culture 133–135
sector-specific differences 210
maturity scales
asset management capability 133–134 145 188–190
BSI PAS 55 compliance 78
culture 133–135
regulation 188–190
MCIPP see Major Construction
Investment Programmes and
Projects
mean temperature 165
measures
asset management capability 187–190
decision-making 106–109
mining sector 41
MOD standard 42–43
motivation factors 123 208

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Index Terms Links

multidisciplinary teams 143–144

multi-model graph 167–168
multi-project delivery mechanisms 59–60
myths, future directions 217–219

NAO see North Atlantic Oscillation

National Audit Office (NAO)
BSI PAS 55 compliance 75
public sector asset management 55 57 67
regulation 182–183
Network Rail 7–8
BSI PAS 55 compliance 87 88
regulation 183 184 190
New York State Department of
Transport (NYSDOT) 83
New Zealand 173
North Atlantic Oscillation (NAO) 163 169
North Sea oil and gas sector 27–30 32–33 203
210 212
NYSDOT see New York State
Department of Transport

observation uncertainty 166–169

ocean circulation 163–164 165 169

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Index Terms Links

OCSD see Orange Country Sanitation

District
Office of Gas and Electricity Markets
(Ofgem) 6–7 182 183
184 185
Office of Government Commerce
(OGC) 52–68
central government estate 52–57
Commission for Architecture and
the Built Environment 52 57–68
competence 156
Office of Rail Regulation (ORR) 7–8 183 184
190
Office of Telecommunications (Oftel) 182
Office of Water Services (Ofwat) 7 9 11
182 183 185
Ofgem see Office of Gas and Electricity
Markets
Oftel see Office of
Telecommunications
Ofwat see Office of Water Services
OGC see Office of Government
Commerce
oil sector 27–30 32–33 48
asset reference plans 29
climate change 162
future directions 203 210 212
operation, asset reference plans 34 35

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operational expenditure 11 13 15
operational safety 116
Orange Country Sanitation District
(OCSD) 87 89 150
organisational culture 116–137
definitions 116–117
models 121–123
origins 118
see also culture
organisational developmental cycles 62–65
organisational structure
decision-making 96–97 98 102–106
public sector asset management 54–57
organisational values 93 95–96 97–103
organisation aspects, rail and utility
sectors 18 20
ORR see Office of Rail Regulation
outcome–process culture 126
outer circle layer, decision-making 93 95–96 97–103
outputs, regulation 185–186 190 192
196 198
outrage 196
overall equipment effectiveness 46
ownership factors 58 68 71
208 210

PAM see property asset management

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parliamentary cycles 62 64
participative-authoritative dimension 124
PAS see Publicly Available
Specifications
peer pressure 132
people aspects
competence assurance 138–157
rail and utility sectors 18 20
see also human factors; staff
percentage scale 79
performance
competence 140–141 150–151
core decision-making layer 93 97–98 106–109
culture 118 122 123
130–131
decision-making 93 97–98 106–110
personal attributes 139
pharmaceutical sector 41
Piper Alpha disaster 28 203
policy documents 8
population growth 102–103
portfolio management 59–60 61 65–67
portfolios of responses, climate
change 174–175 176–177
postscript 223–225
power plants 102–103
PPP see public–private partnerships
precipitation 165 169

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pressures and barriers, culture 123 131–132 203

price controls 183
primary culture dimensions 124–126
prioritisation methods 204–205
private–public sector partnerships 50 75
privatisation
culture failure consequences 119
future directions 203 212
rail and utility sectors 5
proactive management 138
probability, climate change 162–163 170
process culture 126
processing sector 41 45 47–48
212–213
procurement
decision-making 107
public sector 52 57–68
production forecasting 40–41
production management 108
profiles, competence 148–149
programme management 59–60 61 65–67
projection uncertainty 166–169
project management 59–60 61 65–67
138
project sponsor/project directors 58 68 71
proof 223–224
property asset management (PAM) 53–57 62 65–67
71

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protection, climate change 171–172

PSCCR see Public Sector
Construction Clients Forum
Publicly Available Specifications
(PAS) see BSI PAS 55
public outreach programmes 195–196
public–private partnerships (PPP) 50 75
public sector asset management
BSI PAS 55 53
central government estate 52–57
challenges 50–73
climate change 51
Commission for Architecture and
the Built Environment 52 57–68
construction investments 52 57–68
cross-governmental structural
implications 54–57
departmental structural
implications 54–57
Department of Business, Enterprise
and Regulatory Reform Select
Committee on Construction 67–68
flooding events 69–70
Gateway Review process 65–67
government 50–73 203 212
House of Commons Committee
report 71
HPP initiative 60–65 70–71

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public sector asset management (Cont.)

informed client role 67–68
infrastructure 51–52 68–70
Major Construction Investment
Programmes and Projects 57–68 70–71
National Audit Office 55 57 67
Office of Government Commerce 52 53–68
organisational developmental
cycles 62–65
parliamentary cycles 62 64
portfolio management 59–60 61 65–67
procured constructed assets 52 57–68
procurement strategies 62 63 64
programme management 59–60 61 65–67
project management 59–60 61 65–67
project sponsor/project directors 58 68 71
property asset management 53–57 62 65–67
71
Public Sector Construction Clients
Forum 58
resilient infrastructure 52 68–70
senior responsible owners 58 68 71
sponsored public bodies 54
time horizons 62 64
Public Sector Construction Clients
Forum (PSCCF) 58

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purchasing
decision-making 107
public sector 52 57–68

qualifications 138–139
quality
asset knowledge 18 19
competence 138
control 18 19 108
decision-making 108
Six-Sigma 47
total quality management 47
quantification, risk 22
questioning dimension, culture 126
questionnaire surveys 128

rail sector
asset information 16–18 19 25
asset knowledge 16–18 19 25
asset management background 5–6
asset management development 4–26
asset management plans 8–9 10
audit 23–24
BSI PAS 55 1 2 6–8
26 55

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rail sector (Cont.)

compliance 75 87 88
climate change 172–173
competence assurance 139
decision-making 103–104
flooding 69–70
information strategy 16–18 19 25
lifecycle delivery 16
organisation aspects 18 20
people aspects 18 20
privatisation 5
regulators/regulation 5–8 183 184
190 211
reviews and audit 23–24
risk 5–7 9 11–16
20–26
strategic asset management 8 9 11
13 25
whole-life cost justification 11–16 25
Railtrack Plc 7–8
Ramsbottom, David 173
range estimating 13
RBI see risk-based inspection
RBM see risk-based maintenance
RCM see reliability centred
maintenance
records, competence 151
recruitment advertisements 138–139

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redundancy, BSI PAS 55 compliance 83

Reeder, Tim 173
re-engineering, decision-making 104–105
refreezing, culture creation 121
regulators/regulation 181–200
asset management capability 183–190 191 196–199
200
BSI PAS 55 187–190
capability factors 183–190 191 196–199
200
costs 183 185–186 190
192 193 198
delivery targets 196 198
electricity industry 182 183 184
185 211–212
frameworks 196–199 200
future directions 181–200 211–212
gas industry 182 183 184
185 211–212
incentives 181–182 183 187
investment 181–182 183 186–187
193 194
maturity scales 188–190
outputs 185–186 190 192
196 198
rail sector 5–8 183 184
190 211

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regulators/regulation (Cont.)
risks 181 190 192
193 195–196 198
social risks 181 192 195
strategic planning 190–193
target levels 188–190 191 196
198
telecommunications 182
United Kingdom 182–183 184–185
utility sectors 5–8 182–183 184
185 193 195
211–212
water industry 7
water services/industry 182 185 193
195
work volumes 190 192 198–199
Regulatory Reform Select Committee
on Construction (Department of) 67–68
relevance factors 224–225
reliability analysis 47–48
reliability centred maintenance
(RCM) 15 43–44
reorganisation, dispelling myths 217
reputation
asset differences 214 215
risk management 22 101–103 192

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resilience
climate risk assessments 171
public sector asset management 52 68–70
response mechanisms,
decision-making 106–109
responsibility, culture 125
restructuring, decision-making 104–105
retreat, climate change 171–172
return periods, climate change 162–163
reversing, reliability centred
maintenance 44
reviews and audit 23–24
reward practices 106–109 110–112
risk
asset reference plans 40–41
climate change 25 170–178
decision-making 101–103
flooding 161 173–178
future directions 204–205
matrices 20–21
mitigation 75
quantification 22
rail sector 5–7 9 11–16
20–26
regulation 181 190 192
193 195–196 198
reputation 22 101–103 192

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risk (Cont.)
social risks 22 181 192
195
utility sectors 5–7 9 11–16
20–26
whole-life cost justification 11–12 13 14
risk-based approaches, competence 155
risk-based inspection (RBI) 45
risk-based maintenance (RBM) 15–16 21 83
risk-taking–cautious culture 125
road sector 69–70 83
root cause analysis 47–48
RPI-x formula, regulation 182 183
rule-driven habits 211–212

Sacramento Regional Transit

organisation, California 195
safety
competence 138
critical work 151
culture 116 118–120 121
134–135
Health and Safety Executive 21
risk 21–22
safety, health and environment
(SH&E) programme 116
SALVO project 206
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scenario analysis 100

sea levels 165–166 174–175 178
secondary culture dimensions 126–127
sector-specific differences 201 210–213
security 121
self-assessments 75
senior responsible owners (SRO) 58 68 71
sensitivity analysis 13
service-focused divisions 104
service levels 9 11 198
sewerage companies 7
SH&E see safety, health and
environment
shamrock diagrams 211
Shell 28–29
Shinto shrine 101
shock changes 52 70
short-term factors, culture 125
singularities, climate change 169
site-specific impacts, climate change 169
Six-Sigma 47
skills, competence 139
social risks 22 181 192
195
software 112
space shuttle 129
Special Report on Emissions Scenarios
(SRES) 166–169

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sponsored public bodies 54

SRES see Special Report on Emissions
Scenarios
SRO see senior responsible owners
staff
competence assurance 138–157
culture 118–120 121 124
128–131
future directions 208 210 214
215
see also human factors; people
aspects
stakeholders 181–200
engagement 193–196 198
strategic planning 192
standards
competence 147
dispelling myths 218
future directions 216 218–219
ISO 18 19 216
219
JAE 1001 43
stationariness, climate change 163–164
steering wheel, Tesco 23–24
Stern Report (2007) 51 52
storms 166
straight-line extrapolation 99

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strategic management
competence 138 142 152–156
decision-making 93–115
leadership 93–115
public sector asset management 62
rail and utility sectors 8 9 11
13 25
whole-life cost justification 13
strategic planning
competence 142
decision-making 100 112–113
regulation 190–193
scenario analysis 100
strategic responses, competence 138–157
streamlining, reliability centred
maintenance 44
strengths, weaknesses, opportunities
and threats (SWOT) analysis 33
structure factors, decision-making 96–97 98 102–106
subculture management 132–133
support mechanisms, culture 130–131
surface warming 167–169
surveys, culture 128
sustainable practices 181–200
SWOT (strengths, weaknesses,
opportunities and threats)
analysis 33
systematic management 156–157

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TAM see Transportation Asset

Management
target levels, regulation 188–190 191 196
198
TE2100 see Thames Estuary 2100
Project
teams
business models 32–33
competence 138 143–144
future directions 208 210
leaders, business models 32–33
technological changes,
decision-making 102–103
telecommunications 182
temperature 165 169
templates, whole-life cost justification 12–14
Tesco 23–24
Thames Barrier 161 173–178
Thames Estuary 2100 Project
(TE2100) 173–178
theory of constraints 45–47
third-party assessments 75
Three Valleys Water 9 11
thresholds, climate change 161 176–177
tide levels 174–175
time histories, climate change 162–163 170

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time horizons, public sector 62 64

timescales, future directions 204
tipping points 169
top-down approaches 142
total productive maintenance (TPM) 45–47
total quality management (TQM) 47
Toyota 46
TPM see total productive maintenance
TQM see total quality management
training
asset reference plans 38
competence 144 155–156
future directions 208 210
transitional changes 52 70
Transit New Zealand 173
transparency 109–110
Transportation Asset Management
(TAM) 83
trend impact analysis 99–100
trends, future directions 201–210 219–220
trust 120

UK see United Kingdom

uncertainty
asset reference plans 40–41
climate change 161 163–164 166–169
culture 126 127
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uncertainty (Cont.)
future directions 219–220
public sector asset management 51–52
regulation 183
whole-life cost justification 13
unfreezing, culture creation 120–121
unit costs 11
United Kingdom (UK)
Climate Impacts programme
(UKCIP) 169
regulation 182–183 184–185
risk assessment 172–173
United States of America (USA)
BSI PAS 55 compliance 83 87 89
climate change 172
public sector asset management 53
University of Leeds 50–73
Commission for Architecture and
the Built Environment 52 57–68
Office of Government Commerce 52 53–68
property asset management 53–57
USA see United States of America
utility sector
asset information 16–18 19 25
asset knowledge 16–18 19 25
asset management background 5–6
asset management development 4–26
asset management plans 8–9 10

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utility sector (Cont.)

audit 23–24
BSI PAS 55 1 2 6–8
26
information strategy 16–18 19 25
lifecycle delivery 16
organisation aspects 18 20
people aspects 18 20
privatisation 5
reviews and audit 23–24
strategic asset management 8 9 11
13 25
whole-life cost justification 11–16 25
utility sectors
regulators/regulation 5–8 182–183 184
185 193 195
211–212
risk 5–7 9 11–16
20–26

value chains 74 85–87 89–90

value-for-money 204 205 206
values, decision-making 93 95–96 97–103
110–112
verification systems 151

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vision
decision-making 93 95–96 97–103
110
performance indicators 110
vulnerability, climate risk assessments 171

warming, climate change 167–169

water industry
regulation 7 182 185
193 195
Three Valleys Water 9 11
weather patterns 25 165 166
169
websites 115
‘we’ statements, decision-making 105
whole-life cost justification 11–16 21 25
willingness to pay 193
work volumes 9 11 190
192 198–199

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