Asset Lifecycle Management & The Digital Plant

Operating assets are more than the physical equipment one sees during a plant tour. Critical human and information assets lie “hidden” behind the equipment façade and their development must be synchronized with the equipment throughout design, build and commissioning to achieve rapid operational readiness goals.

By Sid Snitkin, ARC Advisory Group September 15, 2008

Operating assets are more than the physical equipment one sees during a plant tour. Critical human and information assets lie “hidden” behind the equipment fa%%CBOTTMDT%%ade and their development must be synchronized with the equipment throughout design, build and commissioning to achieve rapid operational readiness goals.

Physical Assets

Physical assets represent the inanimate things that people can see and touch in their operations. They can generally be segregated into two groups, primary and supporting, according to their role. Primary physical assets are the central elements required for the production process. Supporting physical assets are those that enable and keep the process and the primary physical assets operating.

The processes involved in designing, acquiring, installing, assembling, using and maintaining physical assets vary significantly across industries. In industries like refining and metals, design is a long, complex process because the process equipment and its supporting structures are custom-designed. In a hospital or airport, design focuses primarily on the building and its layout, as most of the equipment is commercially provided and standard products are used to a great extent.

Human Assets

Humans are critical to asset performance, regardless of the investments a company makes in automation. Most facilities have some critical, manual operations and many require humans for tasks that cannot be automated, like directing workflow, inspecting complex products and repairing equipment.

Organizations may not “own” their employees, but they do make extensive investments in their training. Loss of this investment, when people leave or retire, shows up as a cost to the organization in deteriorating asset performance. Improving an employee’s capabilities should likewise be considered an investment whose returns show up as better performance. Clearly, organizations need to recognize the need to manage these “human asset” investments in their asset lifecycle models.

There are two groups of human assets and each presents its own set of management challenges:

Asset-centric human assets are directly associated with a particular asset investment. They are acquired as part of the asset lifecycle and their role is eliminated when the asset is eventually retired. The primary management challenge in this case is to synchronize their acquisition and training with the acquisition and startup of the associated physical assets. This is true whether the asset investment is a new, Greenfield facility or an upgrade of an existing facility with new equipment.

Program-centric human assets are those that support centralized, recurring asset management activities within the organization (e.g. project management, project or process engineering, maintenance centers of excellence, etc.). The management challenge in this case is to ensure that the people have and follow proper procedures and that there is a program for continuous improvement of their performance.

Virtual Assets

Virtual assets represent the information that is used in the creation, use and care of an organization’s physical assets as well as the IT solutions needed to collect, store, manage and distribute this information.

We use the term Virtual Assets (in place of the simpler term Asset Information) as a way of acknowledging the vital role that this information plays in asset management and to connote the fact that organizations should view their asset information as a valuable resource, deserving of appropriate care and management.

For many people, the Virtual Asset is their only interaction with the physical assets and they need it to understand how they operate, to diagnose problems and to improve physical asset performance. To support these needs, the virtual asset has to be comprehensive, accurate and flexible in the way that people can access and use the information. And it is important to note that this need pervades all lifecycle stages and all asset management programs.

The Virtual Asset must contain all of the information that any stakeholder would need to answer any reasonable question about the asset or its performance. For example, consider the needs of someone investigating an incident. They cannot change the fact that the incident occurred, but they would like to demonstrate to regulators that the organization did everything that they believed was appropriate.

This would mean showing design information and calculations demonstrating that the company had selected the right equipment for the process, operating, maintenance and safety procedures that were appropriate for the chosen equipment and operating, maintenance and inspection histories to show that these procedures had been followed. Other stakeholders would have other “reasonable questions” in support of the plant’s upgrade, use and care, or for building another similar facility.

The kinds of information that should be considered part of the virtual asset can be segregated into 6 different categories that we find to be useful:

  • Functional — what the asset is designed to do and any associated limitations or constraints

  • Design — The characteristics of the specific asset design used to accomplish the functional requirements

  • Procedural — How to install, assemble, test, use and care for the asset in a safe proper manner and the results of any tests or validations of these procedures and the asset

  • Commercial — The costs and schedules for building and operating the facility and any agreements or warranties the organization has for their assets

  • Status — the current status of the asset. This would include the status of the project during the Design & Build activities, current performance and equipment & inventory status & plans

  • Historical — Records of all project, operating and maintenance activities related to the asset throughout its lifecycle

    • One can also group the information according to whether the data is reference information, which requires complete management of change, or activity records, which are transactions of events and actions that occurred and therefore do not require change management.

      Virtual assets are one of the most valuable things that an asset-intensive organization owns, yet it is the least appreciated “thing” in most asset management programs.

      Studies consistently show that poor management is prevalent and that this costs owner-operators a staggering amount of money each year in lost asset availability and poor productivity.

      Managing an asset

      With a more realistic model of an asset, we can now discuss what it means to manage them successfully. Since assets have finite lifetimes, Asset Lifecycle Management is a good name for these management strategies.

      But, there can be misunderstandings as to what Asset Lifecycle Management means. Is it “lifecycle management” of an asset (like the management of a person’s finances or health according to their stage in life)? Or, is it management of the “asset’s lifecycle” (as in strategies to extend the useful life or phasing the replacement of an asset)? Both perspectives have merit, so it is incumbent upon anyone who uses the term Asset Lifecycle Management to clearly define their meaning.

      Our definition begins with a description of what we mean by lifecycle. Lifecycle is not a word that one will find in the dictionary, but “life cycle” is a concept that has been used when referring to the various stages that an entity, like a frog or a butterfly, goes through during their lifetime.

      All frogs and butterflies go through the same stages, and the term “Cycle” captures this idea as stages repeat for every generation. Applying this kind of thinking to assets means that one should start by describing the states in the life of an asset that are distinct and merit attention. Lifecycle management can then be defined as the set of management strategies that one uses to support each of the identified asset lifecycle stages, with the understanding that the same strategy will be used for every asset (in that class) when it reaches that state.

      With our terms defined, the next logical step would be to define the set of lifecycle stages that all assets pass through in their lifetime. But there is no single lifecycle model that applies to all cases. Like frogs and butterflies, different asset classes will have different lifecycle stages that merit specific attention. But we can offer some general guidance for asset lifecycle models by discussing the lifecycle for a typical greenfield facility.

      Fig 2 (below left) shows the lifecycle for a greenfield facility, which is quite analogous to the human lifecycle. Facilities begin life as an idea regarding some opportunity or internal need. In many organizations, a “stage gate” process is used to filter the good ideas from the bad and we capture this idea in our lifecycle model with the “design basis” and “project plan” states. Ideas that make it through these stages become a “specification”, an “assembled asset” and, finally, a “functional asset” which is like the newborn child for capital assets.

      A newly-commissioned plant may have all the equipment it needs to perform, but it is certainly not ready for full production. Physical plant assets must be merged with their human and virtual assets if they are ever to become a complete operating facility. And, this merging of physical, human and virtual assets takes time and support from the design/build team during this transition period. Initially, the physical asset will only be used in pilot mode while personnel develop their skills, procedures are refined, systems are adjusted and various products are produced and validated.

      Once basics have been mastered, the complete operating facility enters a ramp-up stage where production is increased in a controlled manner to allow the organization to test its skills under increasingly challenging circumstances. The transition from ramp up to operationally ready means that the operating facility is finally considered ready to be a full contributor to the owner/operator’s business plan. At this point the focus shifts to optimizing performance of the facility and staying in this state for as long as possible.

      Different parts wear out at different rates and this spawns many “Brownfield” replacement projects. It is important to note that this affects all aspects of the operating assets, including the physical, human and virtual assets. Corrosion reduces the wall thickness of pipes and vessels, operators and technicians age physically and mentally, and programs for preventive maintenance become inadequate to avoid critical failures. The need for these replacements must be anticipated and addressed in the strategies used for earlier lifecycle stages.

      Eventually the facility’s performance cannot be cost-effectively retained and it is retired making it a liability for the owner-operator. Management of the asset during this stage requires a completely different set of skills to maximize equipment salvage value, safely remove and dispose of hazardous waste and terminate people in a professional, community-acceptable manner.

      While our lifecycle model has 12 stages, Fig, 3 (above) shows how these stages naturally fall into three continuous business processes that exist in every asset intensive organization: Design & Build, Operate & Optimize and Maintain & Improve, which we refer to as the DOM processes. Often people will think of the operating stages as Operate & Maintain, but we believe that it is best to separate these into the two separate processes Operate & Optimize and Maintain & Improve.

      While they may be part of one O&M organizational unit, the focus and goals of people responsible for operating and maintaining the facility are quite different. Operators are responsible for using the assets to produce a product or provide a service. They measure their performance relative to the product, using criteria like quantity, quality and unit costs. Maintenance personnel, on the other hand, are responsible for making sure that the assets are available and capable of operating at their design specifications. Their success is measured relative to the asset itself, using criteria like availability, capability relative to specs, lifetime, etc.

      While our model expands O&M into two processes, we have collapsed all of the activities involved in converting ideas into physical solutions into one global process which we call Design & Build. And, to avoid any confusion caused by our choice of terminology, it is important to note that our design/build process includes all of the activities related to plan and FEED in many traditional models.

      This grouping of activities aligns with the way we see many owner-operators structuring their organizational responsibilities and recognizes the fact that engineering, construction and project management expertise plays a major role in the investment evaluation and planning processes.

      The role of each of these business processes is defined by the asset lifecycle stages that it covers. And, this responsibility includes all forms of the asset involved in those stages, i.e. the physical, human and virtual assets.

      Traditional models often recognize that Design & Build is responsible for sourcing material and building the facility. But, our model highlights the fact that their responsibility also includes the management of all information created or collected in these stages, making sure that spare parts are acquired in time for commissioning, that IT systems used to operate and maintain the facility are in place and initialized with all needed information, that procedures are available in time for operating and maintenance personnel to be trained before accepting the facility, etc.

      As Fig. 3 illustrates, responsibility for lifecycle stages overlap at certain points. This highlights the fact that DOM business processes must be “compatible” for shared stages. Activities must be synchronized, roles and responsibilities well-defined with no gaps, and information needs to flow seamlessly.

      Another point to note is that the same DOM processes are used for all of the organization’s assets. This is an important point that is missing in traditional models, which focus exclusively on one facility. While some of the individuals who execute DOM processes may be attached to specific projects or assets, the processes themselves are not project or plant-specific. They are corporate strategies applied to all asset investments and should be managed as corporate programs, independent of any given project or facility.

      This has critical implications for anyone designing an ALM program. First, it means that investments made to improve process performance will have global impact across all existing facilities and all future projects. Second, unlike projects which are one-shot efforts, corporate programs are ongoing and lend themselves to continuous improvement, so it is incumbent on the managers of each process to make sure that information and lessons learned on one project or plant are captured and made available for improvement on other projects and other plants.

      Digital Plant — A strategy for excellence

      In the previous sections we outlined the many challenges that exist in Asset Lifecycle Management and the key elements that must be considered in an effective program. But there is still one element missing — a strategy to guide your actions and give your company a winning edge. Are you going to just work harder than everyone else? Or, are you going to do something smarter that will give you a competitive advantage? If so, what is the magic ingredient?

      We believe that technology can be this magic ingredient. Recent developments in analytics, modeling and simulation have made it possible for anyone associated with any asset lifecycle stage to measure performance, analyze it for the cause of performance constraints and identify the best improvement alternatives. But this is only enabled when owner-operators recognize this potential, adopt it as their vision for how they will achieve ALM excellence and make the necessary investments in physical and virtual assets.

      This strategy, which we call “The Digital Plant”, (Fig. 4 below left) uses technology as a key enabler and accelerator of ARC’s OpX model for continuous improvement. Excellence in ALM is guaranteed through use of proven methods for continuous improvement, you get their faster than anyone else because you are exploiting the full power of technology and you retain this leadership position by keeping at the forefront of advancements in information management, modeling and simulation.

      The Virtual Asset, which we discussed earlier, contains the kinds of information you need to drive The Digital Plant. The technology needed to analyze and use this information in driving better ALM performance comes in many forms. Some examples include:

    • Active 3D Models that can simulate assembly of the physical plants and material being processed into final products;

    • 3D, Virtual reality models of facilities and equipment that enable simulation of human “avatars” executing critical operating and maintenance tasks and equipment;

    • High fidelity process models of the facility’s underlying operations that enable simulation of new control strategies and alternative material flows;

    • On-line sensors to continuously monitor process and asset performance in real-time, identify and report pending problems to local operators and remote experts, automatically institute process adjustments to stabilize operations, avoid major disruptions and enable orderly shutdowns for necessary repairs and modifications;

    • Powerful analytics that enable slicing-and-dicing of information, comparison of different information for a given case, comparison of performance patterns over time, pattern recognition and what-if analysis for alternative maintenance and operating scenarios;

      • Future ARC reports will be focused on these topics and how they can help owner-operators achieve excellence in asset lifecycle management. Much technology already exists and owner-operators that recognize and appreciate the power of The Digital Plant are already beginning to adopt these approaches for their operations. We believe that these companies will be tomorrow’s leaders in asset lifecycle management and they will have created some very high hurdles for late adopters to overcome.

        The Opportunity is Staggering

        Our first goal in developing this new model for asset lifecycle management was to help people gain a better understanding of the real challenges and opportunities that exist in the management of capital asset investments. Our second goal was to provide a vision of what could be done to improve the situation and thereby give organizations something they can use to build strategies to improve their situation. While we hope that this report has already provided value to you in those regards, we could not finish this story without some hard facts about the costs and opportunities.

        Most of the problems that owner-operators struggle with in asset lifecycle management are neither new, nor something that only ARC recognizes. Studies show that organizations can save of 2% to 3% in installed cost and improve ROA by several percent by just improving their management of Asset Information.

        These result in staggering benefits for owner-operators when one considers the billions being invested in modern facilities. Action is long overdue, and justification for investments in this technology is quickly becoming a foregone conclusion.

        ARC Advisory Group

        ARC has been providing support for clients around Asset Lifecycle Management for many years. Industry studies show the incredible costs that owner/operators are paying for poor management of processes related to the creation, use and care of their assets and ARC research indicates that traditional perspectives on Asset Lifecycle Management actually encourage this dysfunctional behavior. This report is our attempt to rectify this situation by offering a new, richer vision for Asset Lifecycle Management that clarifies its role in the organization, identifies the key processes and stakeholders that must be managed and provides a better way to measure and control performance of asset investments.

        We conclude this report with a glimpse of a new strategy for Asset Lifecycle Management which we call “The Digital Plant”. This strategy combines a proven methodology for continuous improvement, a model for better Asset Information Management and the tremendous power of new analytic, modeling and simulation technologies to drive Excellence in Asset Lifecycle Management.