How Can Managing an Asset's Life Cycle Reduce Its Total Cost of Ownership?

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technicians discussing asset life cycle management

Asset performance is essential in a plant, factory, or service provider company to deliver value for any organization. In the past, we have focused on optimizing maintenance to reduce failures and costs. However, in the last few years, we have learned that asset performance depends a lot more on other phases of the asset life cycle, including how assets are designed, built, installed, and commissioned. 

This article discusses the asset life cycle and the impact of design, procurement, installation, commissioning, and operations and maintenance (O&M) phases on total life cycle costs. It has been documented at many organizations that errors and omissions introduced during the design, build, and installation phases can increase both failure rates and O&M costs, thereby increasing total asset ownership costs. 

This article is also designed to help us understand how to avoid costly mistakes and reduce the total cost of ownership.

Asset Lifecycle Phases

Assets—ranging from a piece of equipment to the whole plant/factory—have four key stages in their life cycle.

  • Need: A need for the asset is established to provide a service or to make a product. 
  • Acquisition: An asset is designed, built, purchased, installed, and commissioned.
  • Utilization: As the asset is operated, maintained, and improved to provide a service or to make a product. 
  • Disposal: The need is over, and the asset is decommissioned and disposed of. (Note: for the sake of simplicity, the term asset will be used for the assets or the plant/factory.) 

The utilization phase (also known as O&M) and the acquisition phase are the key phases where most of the cost is incurred during the asset life cycle. Figure 1 shows the estimated costs distributed across the different life cycle phases, based on my experience and reported in many papers at major conferences. 

asset life cycle phase costs chart Figure 1: Asset life cycle phase costs as percent of total cost of ownership

The majority of the cost occurs in the utilization (operational) phase, where the asset is actually utilized, producing something. Depending on the type of asset, this phase may last for five years, 20 years, 50 years, or even more than 80 years. The other significant cost occurs in the acquisition phase. However, typically we don’t do a good job of identifying what we need and how much it will cost. Budgets are allocated too often as a part of capital projects at a very high level, based on guesses. These budgets are then cut, resulting in an unreliable asset that costs a lot more during the operation phase. Generally, we don’t do a good job of projecting the impact of failures when justifying the higher acquisition costs and are forced to accept these cuts. 

Explaining the Acquisition Phase

The acquisition phase generally consists of the following subphases:

  • Specifications 
  • Design
  • Purchase
  • Build
  • Install/Commission

This phase is very important in the asset life cycle. Working with many organizations has shown that we don’t do a good job in this phase. Some of the reasons I have found are:

  1. We don’t do an adequate job of writing requirements and specifications. Either we don’t know what we need, or we don’t do a good job of explaining what and why we need something.
  2. Budgets are cut from the top, either without explanation or because we haven’t provided a reasonable justification for keeping RAMS²-related (reliability, availability, maintainability, safety, and sustainability) requirements. Generally, we’re forced to keep the same production capacity in our requirements. However, to manage budget cuts, we sometimes settle for cheap and lower-reliability components, with no redundancy and sufficient spares. We might lack appropriate devices to monitor asset conditions or bypass rotating machines' proper alignment during installation/commissioning. 
  3. Training of O&M workforce is cut to a minimum or eliminated. We’re advised that this could be done after assets are installed, which is not a good practice. 
  4. O&M manuals, drawings, and other documentation are delayed or provided in a preliminary stage. Many times, redline drawings are not updated after installations.

These are examples of issues facing O&M personnel when the capital budgets are cut. However, if we do the right things in this phase―maybe spending a little more money―the asset's reliability and safe operation will be improved. This results in higher uptime (fewer failures) and lower the total cost of ownership during the asset's life cycle. These are lessons we learned in the last few years, as have many other experts in this field, as reported and discussed in several recent reliability and asset management conferences. 

Implementing 10 Rights

We have to ensure that we design, procure, build, and install assets with RAMS² principles. It's not easy to do that. It requires a lot of extra effort, coordination, and understanding of reliability principles, as well as creating the right culture involving all of the stakeholders. In this journey, the stakeholders who must ensure that we do the right things during the asset life cycle include:

  • Asset owner
  • Operational manager/engineer
  • Capital project manager/engineer
  • Design engineer
  • Reliability engineer
  • Maintenance manager/engineer
  • Operations/process engineer
  • Operators: technician
  • Maintainer: technician
  • Planner 
  • Procurement professional/officer
  • Quality manager/engineer
  • Human resources 

All of these stakeholders are needed to create the right culture for implementing the “10 Rights” of asset management. Implementing these 10 Rights will ensure that the asset is designed, built, and installed with RAMS² principles and are operated, maintained, and sustained both safely and reliably. Here are the ten rights.

Ten RightsApplying Each Right
1. Specify It Right• Provide right requirements/specifications for reliable operations.
2. Design It Right• Design the asset with RAMS² principles to minimize failures and ensure safe and efficient operation.
3. Source It Right• Purchase the best value components and assets.
4. Build It Right• Fabricate/assemble with quality workmanship.
5. Install/Commission            It Right• Install with precision quality to eliminate infant mortality issues.
6. Operate It Right• Operate safely with care as if you own it.
7. Maintain It Right• Perform the right maintenance.
8. Improve It Right• Apply the right tools and practices to improve the asset.
9. Dispose of/Decommission It Right• Dispose of it in an environmentally safe manner when the need is over.
10. Manage It Right• Ensure the right skill and talent in every role and establish robust processes.

Continuous engagement of all the stakeholders in doing the right things is essential during the asset life cycle.

Challenges and Conclusion

We need assets that are reliable, have a high mean time between failures, have a low mean time to repair, and are safe to operate. Simply achieving this goal is a challenging task. Sustaining that goal is another challenging task but also achievable. It requires a culture of excellence—reliability excellence. It means all the stakeholders are engaged all the time. Also, it means that the stakeholders are aware of the industry's best practices and implement them effectively.

Figure 2 shows the typical life cycle cost of an asset (orange line) and the impact of doing the right things (yellow line). This figure is based on my experience and data gathered from other subject matter experts and conference papers. 

asset life cycle costs Figure 2: Asset life cycle costs

During the acquisition phase of the asset, when we are writing specifications, designing, procuring, building/constructing, and installing/commissioning the asset, we have ample opportunities to implement best practices. These practices would make the asset more reliable and safe to operate during the utilization phase. In addition, they will reduce the total cost of ownership for the entire life of the asset. 

Suggested Reference Material

  • 10 Rights of Asset Management by Ramesh Gulati & Terrance O’Hanlon. Reliabilityweb.com,  2017
  • Maintenance & Reliability Best Practices, 2nd Ed. by Ramesh Gulati. Industrial Press, 2013/2009
  • Making Common Sense Common Practice by Ron Moore. Reliabilityweb.com
  • International Maintenance Conference (IMC), The Reliability Conference (TRC), SMRP’s annual conference proceedings, and Uptime magazine articles.

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Ramesh Gulati headshot

Ramesh Gulati, PE, CRL, CAMA, CMRP
Ramesh Gulati is an Asset Management & Reliability Specialist at Jacobs - Asset Management Group, Tullahoma, TN. He is a world-renowned leader in the maintenance, reliability, and asset management field, and the author of more than four books, including the award-winning "Maintenance & Reliability Best Practices." His new book, "10 Rights of Asset Management," was released in 2017.

Ramesh is also known as the "Reliability Sherpa" in the reliability and asset management arena. He has worked at Aerospace Testing Alliance/Jacobs, Arnold Engineering Development Complex - TN, Carrier A/C, True Temper Corp., Bethlehem Steel, Foundry Forge Plant, and more. 

He is an active member of ASQ, AMP, IIE, SMRP, and has authored numerous papers in maintenance, reliability, asset management, productivity improvements, application of standards, and workforce development. Ramesh holds BSME, MSIE, and an Executive MBA.