The Future of Asset Management
Dr Penny Burns, Editor, “Strategic Asset Management”
What questions should we ask of the future?
There are those who believe the future is ordained, our fates are fixed and what will be will be - and then there are those who believe that the future is what we make it. The truth probably lies somewhere in the middle.
A number of very positive drivers are occurring at the moment - there is much interest in
both the private and the public sector, asset management conferences continue to attract large numbers of participants and interesting and innovative presentations, the number of and quality of asset management courses continues to increase, and very shortly there will be the first international asset management standard, ISO 5500.
It would be easy to assume that asset management must continue to go from strength to strength. However, we should not take this for granted. Continued progress, like freedom, requires constant vigilance. Rather than asking whether asset management will continue to grow, a better question, might be ‘how’ it will grow, what shape it will take, and whether these movements will be strong and positive, or weak and negative.
Here I consider 3 pairs of possible development, namely:
A world in which Asset Management develops as a set of regulated procedures.
Scenario 1 is the upside, the strong or positive option. Scenario 2 is the downside, the weak or negative option.
A world in which Asset Management develops as a technology, an advanced tool box. Scenario 3 illustrates the upsides of this movement, Scenario 4, the downside.
A world in which Asset Management develops as a management philosophy. Scenario 5 looks at the strong option, Scenario 6 the weak.
There is also a Scenario 7 - A world in which Asset Management fails to develop any clear direction, where it becomes a buzz word which is applied to everything, where it flounders, fails to make any clear impact, and is eventually forgotten. Not unnaturally, I prefer not to dwell on this possible outcome, but nevertheless we should keep our eyes open for any indications that we are moving in this direction.
The Scenarios
Each of the six scenarios looks at a plausible combination of elements that are common to any future scenario - the way in which top management or senior decision makers view asset management; how asset management addresses service levels, how it innovates, the role that AM plans play, who the key players or what the lead disciplines are, how automation, IT and the risk/uncertainty balance is approached, and how knowledge is disseminated, through training, research and publication.
A WORLD WHERE ASSET MANAGEMENT DEVELOPS AS SET OF REGULATED PROCEDURES
Scenario 1. Strong Regulation
Major characteristics: clear service delivery objectives, mutual respect increases information, competition spurs innovation.
Senior management view, service levels, innovation
Senior Management see performance in Asset Management as a way of demonstrating
superiority and winning favour with regulators. They enjoy competing with other
organisations reporting to the same regulator which spurs innovations that are proudly
reported at industry conferences. Minimum service levels are set by the regulator but
competition encourages a wider range of services and higher service levels.
Asset Management Plans, lead disciplines
Regulators set targets but avoid prescriptive methods. Targets are set in discussion with
the companies. Asset Management Plans serve a dual role, as a funding proposal to
attract the support of the regulator, and as a mechanism for implementation by which
the organisation will be audited. Asset Management Plans are therefore taken very
seriously. The audit process is rigorous and management publicly acknowledges that it
contributes to their knowledge and understanding. The Asset Manager has a senior role
in the organisational structure. The lead disciplines are economics, (the regulator) and
engineering (the regulated).
Automation, IT and risk/uncertainty
Assumptions built into automated processes are required to be justified, and risk
management arguments on which much activity depends are rigorously examined and
just as rigorously defended. Tools for managing uncertainty are central to the
discussions between the regulator and the regulated when deciding on targets.
Teaching, Research and Publication
Regulation requires knowledgeable staff and Universities compete to offer the highest
quality and most relevant training. Academics are active in research, especially in the
analysis of the impact on efficiency and productivity of different regulated procedures
and they work closely with the regulators, often acting as auditors. The results of their analysis are written up in the academic management journals and attract spirited
discussion.
Scenario 2. Weak Regulation
Major characteristics: Conflict, Regulations increase in complexity and diminish in transparency, minimum information feed back.
Senior management view, service levels, innovation
Senior management see Asset Management as an obligation, they recognise its
necessity (it may be a licence condition) but it is not seen as a value-adding activity so
companies seek to minimise its cost and do not engage in value-adding innovation.
Management aims no higher than the regulated minimum service levels. The regulated
challenge the authority of the Regulator and seek ways to ‘get around’ the more
onerous conditions. Regulators respond by ‘tightening up’ the regulations, leading to
increasing complexity and diminished transparency. Under- resourced regulators are
forced to adopt ‘tick the box’ audit procedure which provides no useful information feed
back for management.
Asset management plans, lead disciplines
Asset management plans are considered a compliance issue and responsibility is
allocated to administration, divorcing the plans from real management decisions.
Lead disciplines are economics for the regulator and administration for the regulated.
Automation, IT and risk/uncertainty
Automation of asset management is employed to reduce costs, but s the built in
assumptions are not subject to rigorous audit, nor are the companies forced to defend
them and the automated models quickly become obsolete. IT is a cost cutting tool,
rarely a means to add value. The risk/ uncertainty balance is not well understood and
risk management tools are regularly applied to deal with issues of uncertainty.
Teaching, Research and Publication
There is the occasional article in the popular journals, mostly criticising existing
procedures but without providing alternatives, or by an interested party denouncing a
particular decision. Academics provide training but the level of take up is low. There is
little interest in research and publication.
A WORLD WHERE ASSET MANAGEMENT DEVELOPS AS A TECHNOLOGY, A TOOL BOX
Scenario 3 - The upside or strong version
Major characteristics: A focus on tools and technical processes; innovation in
technology.
Senior management view, service levels, innovation
Senior management view asset management as essential for both management of
existing assets and for decisions on portfolio change. The Board is knowledgeable
and receive regular updates on asset management issues. Life cycle costing is used in
future asset acquisition decisions. Innovation in engineering tools and technologies is
strong and highly regarded but there is little advance in non-engineering areas such as
developing customer related service levels, which require non-engineering inputs.
Asset management plans, lead disciplines
Asset Management Plans are seen as an operational tool. The lead discipline is
engineering / technical. In terms of organisational structure, asset management is
seen as important, but it reports to Engineering rather than to Top Management.
Automation, IT and risk/uncertainty
In this scenario the role of IT and automation is extremely strong. IT is seen as integral
to asset management, in the provision and analysis of major data bases. Full
automation is seen as the holy grail. The goal is always to be pro-active, never
reactive. Risk Management is the main objective. What is uncertain is often treated as
if it were a risk on which numbers can be put. Other uncertainties are often ignored
because they are difficult to manage.
Teaching, Research and Publication
Asset management courses flourish in engineering faculties and centres of excellence
are established focused on the development of asset management tools and models.
Engineering journals produce scholarly articles on issues related to operations and
maintenance.
Scenario 4 - The downside or weak version
Major characteristics: lack of understanding, failure to communicate, asset
management becomes mechanical.
Senior management view, service levels, innovation
Senior decision makers do not understand asset management. The asset management
tools and technologies that the staff are so interested in are regarded as ‘toys for the
boys’ and expensive. Staff have to fight to get funding, they feel neglected and frustrated. Through necessity, cost saving innovations are made, but are not
disseminated. Service is defined in technical terms.
Asset management plans, lead disciplines
Asset management plans are a combination of operational tool and funding proposals -
and sometimes tend towards a ‘wish list’ of desirable projects. Management fails to
clearly communicate organisational goals and staff are left, by default, to invent their
own goals, few of which are documented. Asset management is seen as a subset of
engineering and there is little or no multi-disciplinary involvement and very little
communication between asset management and other areas of the organisation.
Automation, IT and risk/uncertainty
New models and approaches are eagerly seized on, and just as rapidly discarded in
favour of newer models. Risk Management is highly regarded by staff, but uncertainty
is either treated as if a risk, or not treated at all.
Teaching, Research and Publication
More emphasis is placed on teaching than research. There is little publication in the
academic journals and such publication as there is tends to be in association and trade
journals and often focussing on only one group of assets rather than assets in general,
and to be more operational in nature.
A WORLD WHERE ASSET MANAGEMENT IS A MANAGEMENT PHILOSOPHY
Scenario 5 - The Strong Version
Major characteristics; multi-asset, multi-disciplinary, focus on corporate goals.
Senior management view, service levels, innovation
In this scenario senior management see asset management as the means by which
their corporate objectives are achieved. They embed asset management as their way
of doing business and asset management issues are regular items on the corporate
agenda. Business goals are tracked and asset actions are monitored, when they veer
off-course, they are rapidly adjusted. Management decides on the most appropriate
asset actions based not only on their financial value but also their value to company by
way of reputation, and by their contribution to social, ecological, and political goals. New
measures are constantly developed to track these non-financial goals.
Asset management plans, lead disciplines
Because asset management is adopted as a management philosophy, it is applied to
all assets, physical, financial, IT, human resources and intangibles - and to their full integration. This requires the involvement of many disciplines however the lead is
usually taken by the management, economic and planning disciplines. Asset
management plans are the major tool both for organisation and communication. They
are taken very seriously. Assumptions need to be verified and are challenged as a
regular course of action. All asset managers are financially literate.
Automation, IT and risk/uncertainty
Asset management is considered a strategic issue. Automation is reserved for routine
actions. The quality of service delivery is seen as critical to business success and
effort is directed to the development of business intelligence that moves beyond purely
asset based tools such as life cycle costing and condition analysis to build in the
impacts of technological and demand changes and other social factors. Clear
distinctions are made between risk (for which probabilities are assigned) and
uncertainty, where scenario planning is key.
Teaching, Research and Publication
Engineering, Finance and Planning Departments within Universities join forces with
Management to provide integrated asset management training. Research is also
multidisciplinary. Masters and PhD programs attract students from many different
disciplines. New, highly rated, journals appear dedicated to articles on integrated
asset management.
Scenario 6: the weak version
Characteristics: KPIs are dominant, absence of clearly communicated corporate goals and lack of incentives to achieve them.
Senior management view, service levels, innovation
This scenario sees the ‘measurement equals management’ paradigm prevail over
everything. What cannot be measured is ignored. KPIs determine all decisions and
conflict between individual KPIs is common. Management, believing that the KPIs will
keep everyone on track, puts little effort into clear communication of its corporate goals,
making conflict resolution more difficult. Economic goals dominate. Service levels are
evaluated terms of short-run financial gain. Intangibles, such as reputation, are
discounted because they do not allow easy measurement. Asset management is seen
as a framework for delivering lower costs, but not as a means for adding value. Asset
management is seen as a means of exerting centralised control. Individual incentives
and innovation is weak.
Asset management plans, lead disciplines
Integrated asset management is thwarted by units seeking to exert their own
independence. The necessity to adhere to local KPIs and absence of clearly communicated corporate goals and reinforces this. Units use asset management plans
and their tracking to create the illusion of success rather than to identify areas needing
attention. The lead discipline is usually administration and reports to Finance.
Automation, IT and risk/uncertainty
Automation is desirable because ‘efficient’ but with no process for systematically
challenging and revising the assumptions built into the automated processes they
rapidly become outdated. There is pride in having the ‘latest IT’. New IT models and
approaches are quickly taken up, and as quickly changed. In the risk/uncertainty
balance, risk management dominates because it lends itself more readily to
measurement. Uncertainty is anathema to organisations devoted to managing by KPIs.
Teaching, Research and Publication
Asset management is taught within schools of management but is considered inferior
to ‘proper’ business management and attracts limited interest. Research in asset
management tends to the theoretical. Publication in journals of management or
administration attract little discussion. Asset management fails to engender much
interest and enthusiasm.
Conclusion: The future is still out there!
Which of these scenarios is the most likely? Will the unmentionable ‘Scenario 7’
dominate? How asset management develops over the next 5-10 years will depend partly on where it is now, partly on the external drivers, (political, economic, social, technological, environmental and legal/regulatory), partly on the reactions of key players in each scenario, and partly on actions that we, ourselves, take. There are a myriad possible outcomes. These seven scenarios are just a tiny subset, chosen to be representative of the broad picture.
Watch as events unfold over the next few years. Be active! If the trends are adverse, you may take action - either as an individual, as an employee, or as a member of a
professional association. The past is set in concrete, but the future is still malleable.