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Global Trends in Asset Management

Scott Morris, Associate Director Global Engineering

March 6, 2013

Global Trends in Asset Management

Agenda

•What is asset management

•What is PAS 55

− Genesis

•What are the financial and investor trends

•What are the risk and insurance trends

•What are the legislation and litigation trends

•What is ISO 55000

What is an Asset?

• An “asset is defined as something that has potential value to an organization”

• Value realization occurs when the asset fulfills its function

• Asset Management – not a new idea

− We own assets for a reason

− They will cease to fulfill their function at some point

− Some organizations are very good at addressing this fact

− Others, not so much

What is Asset Management?

• Definition - Any system whereby things that are of value to an entity or group are monitored and maintained. It may apply to both tangible assets and to intangible concepts such as intellectual property and goodwill

What is Asset Management?

Think of the impact on:

•Total cost of unavailability

•Capital investment planning

•Safety

•Environmental

•Reputation

Who is responsible for Asset Management?

• Depends on who you ask

− Investment

− Accounting

− Operations

− Engineering/Maintenance

− IT

• Who is right?

The Seven Questions of Asset Management

1. What do we own and where are they?

2. What are they worth?

− Asset are more than just sunk depreciating costs

− Assets can be competitive differentiators

3. What condition are they in?

4. What do I need to do to them?

5. When do I need to do it?

6. How much money will I need to invest?

7. How do we achieve sustainability?

The Seven Questions of Asset Management

• The answers to these questions lead to choices and decisions

• Are all groups aligned?

• Do the people making these decisions have the right information?

• What are the consequences?

• PAS 55 was the first document to address these issues

PAS 55

• Developed by the Institute for Asset Management in UK

• Made a Publically available specification (PAS) by British Standard Institute

• Introduces to asset management concepts of

− Line of site between organizational objectives

− Risk to Asset Management Planning

− Plan – Do – Check – Act (PDCA)

• Focused on Physical Assets

• Has become defacto regulatory standard in some industries

PAS 55 - Line of Sight

11

FloorCeiling

Top Management Decision Making Process

PAS 55 - Line of Sight

Asset Life

© Copyright Meridium 2012

PAS 55 - Line of Sight

A partial line of sight destroys business value

Characteristics of Highly Competitive Companies - Operational Excellence

• Market Share Matters

• Focus on Core Business:

• Continuous Improvement

• Innovate or Evaporate

• Growth is Essential

• No substitute for Quality

• Value-added Only

• Data-driven Decisions

• Competitive Cost

Characteristics of Highly Competitive Companies - Operational Excellence

• The main objective of Operational Excellence is to reduce operation cost and wastes, without affecting quality, time delivery and cost of products and services one has to offer.

• "Toyota has turned operational excellence into a strategic weapon. This operational excellence is based in part on tools and quality improvement methods made famous by Toyota in the manufacturing world, such as just-in-time, kaizen, one-piece flow, jidoka, and heijunka." [1]

Operational Excellence

Global Trends in Asset Management – Finance and Investment

• If you could save your business millions of dollars would you do it?

• Brand and reputation are increasingly important

• Removing as much uncertainty about the future as possible

• Building stakeholder confidence

• Demonstrate long-term focus and commitment

• Organizations are being driven to do more with what they have

However…

• Investors are more risk averse

• There is a growing focus on operational risk

Global Trends in Asset Management – Finance and Investment

Equipment failures cost the US Refining Industry over $4 Billion per year”

John Aller, ConsultantAsset Optimization LLC

“Operational reliability problems and increased unscheduled downtime – that led to a dull first quarter in which the company lost $1.01 per share – have overshadowed its gains from successful restructuring initiatives over the last two years.”

Zach’s Investment Reseach“Bearish on Sunoco’s Future

“…significant planned and unplanned downtime in both Suncor’s upstream and downstream operations as a cause for concern”

Suncor: Estimates Too High?Globe & Mail, June 24, 2011

Global Trends in Asset Management – Finance and Investment

Global Trends in Asset Management –Finance and Investment

Global Trends in Asset Management –Finance and Investment

Global Trends in Asset Management – Risk and Insurance

“Demonstrating to an insurer that you are pro-active in maintaining your equipment assets isn't the struggle - proving that what you're doing is actually reducing the risk of breakdowns and business interruptions is much more difficult.”

Loa Jansen, Manager of Asset ManagementXcel Energy

“Whether you realize it or not, the insurance industry when they charge a dollar of insurance to your company, part of that pricing of that dollar is actually based on how well they believe you manage assets and risk”

Don Schubert, SVP Marsh Meridium Conference 2010

Global Trends in Asset Management – Litigation and Legislation

• A class action lawsuit was initiated … that would centre on alleged negligence by SP AusNet in its management of electricity infrastructure. The action alleges the power company failed to fit a $10 protective device on the power line, which contributed to it breaking and starting the devastating Kilmore East/Kinglake fire

• In Maryland, Pepco has neglected grid maintenance and tree trimming, staff at the Maryland Public Service Commission said this month as part of the state's investigation into Pepco's reliability.

Global Trends in Asset Management – Litigation and Legislation

• We Can’t Wait: Obama Administration Takes Action to Reduce Prescription Drug Shortages… Issues Executive Order, Backs Legislation to Require Drug Companies to Report Shortages

• FDA takes great efforts, within its legal authority…(and) also works with other firms who manufacturer the same drug, asking them to increase production, if possible, in order to prevent or reduce the impact of a shortage

• A number of people from the Pittsburgh, Pennsylvania area have filed a lawsuit against Genzyme Corp. over allegations that it extended a shortage of a life-saving medication…limiting its availability and causing some patients to have to substantially reduce their doses and leaving new patients without access to the medication

ISO 55000 - Asset Management System

• Process to develop ISO standard started in 2010

• Builds on PAS 55

• Expands from physical assets to include all types of assets (except HR and Financial)

• Applicable to all types and sizes of organization

• Forces organizations to define the ‘value’ assets provide, not the cost

• Brings finance into the equation

• Breaks down silos

ISO 55000 - Asset Management System - Vision

• It's not really about managing assets; it's more about actually delivering the business objectives by extracting value from assets

• in particular by integrating asset management and process safety principles - Martin Sedgwick, Head of Asset Management at Scottish Power

• Asset management has been evolving for the last ten years, and what we’re seeing now is a more integrated approach. The way things are going to operate, I believe, in the future, is more integration between operations and the investment, which will make us more effective, more efficient, and actually almost give better service to our customers - Chris Royce, Head of Strategic Asset Management at Anglian Water

ISO 55000 - Asset Management System - Timeline

Global Trends in Asset Management

• Questions?