Rx Whitepaper

Executive Summary
If your asset management strategy is not risk-based, you may be spending money on symptoms of problems instead of the
root cause of your losses. For example, one company without a complete asset management strategy in place experienced a
limiting factor that impacted production capacity by 25% (to the tune of $30 million), yet had no control plan in place to address
the cause, nor the key performance indicators and analytics to even know the problem existed. A risk-based asset
management system will help you appropriately prioritize how you spend time, money and materials fixing the most critical
problems, provide the infrastructure for continuous improvement and help you meet your corporate business objectives,
including regulatory compliance. This paper offers an overview of the three key elements of an asset management strategy
and presents the six steps to building a robust, risk-based asset management program.

CONTENTS Accounting for Risk in Your Asset

PAGE 1:
Management Strategy
Executive Summary
Background
Background
Introduction Asset management has evolved significantly as machine technology has changed.
Until about 50 years ago, corporate assets were run to failure. Then efforts to reduce
PAGE 2:
breakdowns led to the birth of preventive maintenance. With the inception of the jet
Front End Loading Approach to engine and the complexities of equipment that came with it, probability tables much
Asset Management like those used in the insurance industry were used to develop this maintenance
strategy. The relationship between age and risk in asset management was born.
PAGE 3:
Following time-based maintenance, the airline industry once again drove for
The Asset Management Plan
improvement and formed the Maintenance Steering Group. Fault tree logic and the
PAGE 4-10: application of analysis yielded the dawn of reliability-centered maintenance.
The Six Steps to Risk-Based
Today, with a global market, shrinking availability of natural resources, rising fuel cost
Asset Management
and a weakening economy, increasing asset utilization and decreasing total cost of
ownership are standard corporate objectives. Any organization planning to sustain a
viable value stream must optimize asset performance to survive these tough business
conditions. The focus on continuous improvement and Lean events to increase overall
equipment effectiveness while lowering life cycle costs is now commonplace – but this
approach doesn’t go far enough. Faced with the lack of technically qualified people, an
aging work force, and shrinking margins, all industries must consider risk when
applying resources to the management of assets.

Introduction to Risk-based Asset Management

A risk-based asset management strategy couples risk management, standard work,

> Only known
International Standard on
Asset Management is the
British Standards Institute
PAS55: 2008
and condition-based maintenance to properly apply resources based on process
criticality. This ensures that proper controls are put in place and reliability analysis is
used to ensure continuous improvement. An effective risk-based management system
includes an enterprise asset management or resource solution that properly catalogs
asset attribute data, a functional hierarchy, criticality analysis, risk and failure analysis,
control plans, reliability analysis and continuous improvement. This paper outlines the
development and application of risk-based management to include life cycle
strategies.

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Risk-based Asset Management Process

Front End Loading Approach to Asset Management

As in capital improvements and project management, front end loading is a powerful methodology that helps you facilitate
change early in the life cycle without having a large impact on life cycle cost. Though it often adds a small amount of time
and cost to the early portion of a project, these costs are minor compared to the alternative impact on total cost of
ownership. You can use front end loading to develop your asset management plan as a part of your corporate objectives.
There are typically four stages in front end loading, with a gate between each that will not be passed through until
milestones are all met. To craft an asset management plan, the stages would be Conceptual Idea, Feasibility Study,
Design and Implementation, as illustrated below.

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The Asset Management Plan

An asset management plan is created to meet your corporate objective pertaining to asset management policies and
strategies relating to the process flows, business processes, and infrastructure to support asset sustainment, utilization,
performance measures and continual improvement.
• Conceptual Idea: Determine the background and objectives, such as interaction with other goals, and procedures and
plans.
• Feasibility Study: This study should outline the planning period, stakeholder interest, accountability and
responsibilities for asset management, and details of asset management systems and processes.
• Design: The design stage includes a description of asset configuration, identification of assets by category, justification
for assets, proposed levels of service, customer-oriented performance targets, other asset performance targets, and
justification for target levels of service.
• Implementation: The implementation stage puts the project plan in motion, including resources, milestones and
budgetary constraints, asset age and condition. Additionally, there should be a focus on detailed infrastructure
performance measures.

The Components of an Asset Management Plan

 Asset Operation Plan: The operation plan defines the boundary conditions, startup and shutdown cycles,
permissible operating ranges and methods, operating campaigns, and specific procedures for normal and
abnormal operating modes
 Asset Risk Plan: The risk plan defines the risk identification process, risk analysis, risk mitigation,
communication plan, and the use of the risk management table
 Asset Maintenance Plan: The maintenance plan defines the process of mapping failure modes to failure
detection methods, contains rebuild / refurbishment criteria, assigning crafts and trades, determining frequency,
establishing durations, and level loading tasks created from the control plan.

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The Six Steps to Risk-based Asset Management

1. Build the Enterprise Asset Management database (a four phase approach):

• Design (Functional Requirements Specification)

o Business Process Review – Review your existing business processes and work flows against best
practice

o Functional Requirements – Create a cross-functional team to determine the objectives of each functional
department and define those specifications that are required to support the value stream. This table
provides an example of the different functional areas and the team members that need to help define
requirements.

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 o Specifications for RFP – The next step is to convert the engineered specifications defined in the
functional requirements document into contractual language to be used to provide software vendors the
request for proposal.

• Selection

o Demonstrations – Select the top two or three proposals and ask the vendors to demonstrate how their
solution adheres to the engineered specifications and functional requirements.

o Grading – Create a table that will help you evaluate and compare the solutions based on cost,
performance, reputation, etc.

• Implementation – Due to the duration of the implementation, the integration of workflows, business processes,
resource requirements, module mapping, etc., use both a Gantt chart and project management plan to ensure all
milestones are adequately captured and all resources are clearly accounted for.

o Database Development – This is probably one of the most overlooked components of a successful risk-
based asset management system. For your system to meet corporate objectives, data for each asset
must be clearly captured based on its type and required attribute data.

 Collection – Data can be collected manually, with the aid of electronic media, and even digital imagery.

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  Cataloging – It’s critically important to create a functional hierarchy. The hierarchy will provide the level to which
work orders are assigned, bills of material are written, and failure analysis is conducted. It also allows for roll ups
to cost centers, providing total cost of ownership and budgetary analysis. Here’s an example:

> Taxonomy derived

from ISO 14224:2006

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 Criticality Analysis – The next step is to create an analysis of your equipment and the significance of failure to
work flows, business processes, value stream, etc. As the example below illustrates, this analysis includes such
considerations as environmental impact, safety, production, or reputation issues associated with the organization.

o System Test & Validation – Once you have collected the data, created the functional hierarchies and
entered all data into your system, test the system to make sure it meets the functional requirements you
identified in your RFP.

• Customization

o Reports / Queries – Evaluate whether the canned reports support your KPIs. Then develop any
customized queries or reports you need to manage your assets.

o Standard Operation Procedure – This document is not the vendor-supplied User’s Manual. Develop a
customized procedure that clearly outlines the integration of work flows and business processes to the
applicable modules.

o Training – Develop training, both formal introductory training and interactive repetitive training. Both are
necessary to reinforce the methodology and application.

o Change Management – Implementing a new system successfully requires a process of changing the
culture to accept and execute, such as the ADKAR model outlined below:

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2. Risk and Failure Analysis

• Risk analysis – Identifying risk is the first step in risk management. Your analysis needs to include potential
sources of risk, the severity if uncontrolled, and the likelihood of occurrence. An example of a simple risk table is
presented below. Those items in the “A” category have the greatest risk and therefore receive the most attention.

• Failure analysis – The next step is to conduct some formal failure analysis to determine the predominant failure
modes that will be addressed based on risk ranking. The complexity of the analysis will depend on the criticality
analysis. An example would be a Reliability Centered Maintenance approach to those most critical. This method
usually requires a cross-functional team and is fairly intrusive.

> Standards
such as
SAE JA1012
provides
a guide to RCM

Then, a simplified failure mode and effect analysis can be created for the next logical grouping such as the one
presented below.

> FMEA Standards

such as:
MIL-STD-1629
SAE J1739
SAE ARP5580
AIAG FMEA-3
VDA V4
IEC 60812

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 • RCM vs. SFMEA

3. Risk Ranking

The risk ranking is a product of the risk priority number from the failure analysis and the criticality analysis. This ranking
enables you to deploy corporate resources to the assets and predominant failure modes that have the greatest risk of
impacting corporate objectives and the process value stream.

This process, along with the failure and risk analysis, allows for a risk-based inspection methodology such as that
depicted below:

> Risk-based inspection

methods are outlined in
ASME PLC-3-2007

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 • Affiliation of Risk Ranking

o Reliability Centered Maintenance – Most intrusive to define asset care task – only a small percentage of assets

o Simplified Failure Modes and Effect Analysis – Still risk based but not as intrusive – most assets meet this

o OEM recommended tasks – not failure based but meet regulatory and warranty requirement – if risk doesn’t
justify failure analysis

o Run to Fail – no planned asset care task – criticality and risk justify

4. Control Plans

Control plans consist of tasks that will be accomplished to mitigate or eliminate the risk of failure by targeting how
equipment is maintained and operated. Examples of control plans relating to maintaining include a preventative
maintenance task such as lubrication, deployment of a predictive technology such as ultrasonic testing, installing a
component using a precision installation procedure, or replacing a component using a bill of material. Examples of control
plans relating to operating include procedures detailing start-up, shut-down, lay-up, and change-over. As in the Lean
principle of standard work, these must be defined and must be performed repeatedly in the same manner. Variations in
these plans will create risk.

> Probability and statistics
for reliability are outlined
in the American Society
for Quality’s Body of
Knowledge for Certified
Reliability Engineers
(ASQ.ORG)
5. Reliability Analysis
Measures must be established that define the key performance indicators supporting the
value stream and corporate objectives. Once the control plans are defined, planned,
scheduled, resourced, and then executed, historical data can then be coupled with work
order history, failure codes, material usage, etc. and then utilize probability modeling,
such as Weibull distribution, to gain an understanding of where the limiting factors reside.

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6. Continuous Improvement

Utilize tools such as root cause analysis to ensure triggers are clearly and formally defined, and define a process to
implement corrective actions. An example of an effective root cause analysis would involve the following:

 A knowledgeable reliability engineer with good facilitation and coaching skills

 A cross-functional team with specific insight into the problem

 Time to address the problem (typically 2 to 12 days)

 Agreement from all stakeholders to determine and correct the problem

 Discipline to follow and complete the process

 The correct tools and processes for each problem

DMAIC is another method familiar to Lean practitioners to ensure a formal process is in place to continually identify
limiting factors and then place effective controls in place to mitigate or eliminate the risk.

Conclusion
A risk-based asset management strategy provides the infrastructure for continuous improvement and insures that the
time, money and material used to address your limiting factors are spent targeting the overall risk to meeting corporate
objectives. This strategy has the added benefit of insuring regulatory compliance.

For more information about creating a risk-based asset management program, contact Mike Poland, Director of Asset
Management Services at Life Cycle Engineering. You can reach Mike at mpoland@LCE.com or 843-744-7110 ext.4208.

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