The operating asset life cycle starts at the conception of a business idea and ends with the decommissioning and disposal of the business assets
The future operational success of a business, and the size of its operating profits, are decided at the beginning of the asset life cycle, well before the business starts operation
The asset life cycle and asset life cycle management for maximum profitability are critical concepts to understand and do well, because massive operating fortunes will be made if you do them right, or else massive operating fortunes are sure to be lost.
PEW/PWW EAM Course Day 1 – Foundations Session 7 – Asset Life Cycle
What Makes a Productive Equipment Life?
Well performing businesses return their investments and generate good profits. The profitability from plant and equipment depends on the difference between how much it costs to operate and produce a product from them, and the selling price of the product. Equipment that runs without failure, at high capacity and product quality, with good efficiency and little waste will produce higher Return on Investment (ROI). To achieve this ideal it is first necessary to have selected well-designed equipment suited to the task and situation, properly installed to high standards, run within design limits and cared for to the standards that retain design performance. If any of the four foundation asset life cycle requirements under the pyramid in the slide are missing you will have problem plant.
The successful operations work hard to sustain a high capacity from their plant AND for low costs. This means they make a quality product, with a low unit cost that they can sell below competitor’s prices, and so win greater market share, while still having good profits.
The Life Cycle of Plant and Equipment | Effect of Process Failures Across Life Cycle
The plant and equipment used in an enterprise have an asset life cycle. It starts with the recognition of an opportunity, then progresses to feasibility and approval. If the idea is found worthwhile a full design is developed, plant and machinery are purchased, installed, and put into operation. The vast majority of the asset life cycle is the operation phase, and this continues until the plant and equipment are eventually decommissioned and disposed of.
A business is started in the expectation that the investment made to get into operation will return a profit within a specified time. The profit is only generated during the operating phase of the life cycle. The more profitable the operation, the sooner the investment is returned, and the sooner an unencumbered income stream is created. If we want to maximize operating profit we must keep the operation performing at the throughput approved when the investment decision was made, while having costs no greater than those expected. One of those costs is the repairs and maintenance of the plant and equipment.
Each step in the asset life cycle consists of processes and people working within systems. Evidence is clear that about 80% of equipment failures are rooted in business process and human error. Not only does failure happen during operation, but it also happens during feasibility, approval, design, procurement, construction and commissioning. Failure in the project steps can be represented as being similar in effect to failure in operation. The ‘components’ of the project systems fail, often unknowingly, and produce defects that are built into the design. The defects await a suitable ‘trigger’ of circumstances and produce an operating failure.
When Operating Costs are Committed
This Figure shows when plant operating costs are committed. It indicates that up to 95% of operating costs are predicated, or set in place, during the capital phase. By the time a plant goes into operation there is little that the people operating and maintaining the plant can do to change operating costs. During the operating phase of the asset life cycle the focus is to minimise operating costs to the very lowest levels achievable with their plant and equipment.
The Maintenance Group contributes to this least-cost-of-operation goal by making sure people and resources are minimised and used wisely for the greatest benefit of the enterprise. Hence why the primary purpose of maintenance planning and scheduling,“to gain greater work utilization from the rest of the maintenance mechanics,” is so important.
Low Operating Costs are Design-in for Life
The asset life cycle of plant and equipment typically follows a well defined process from conception to disposal.
Usually the capital project phase is seen to be separate to the operating phase. This thinking is wrong and leads to a lifetime of unnecessary problems, such as: lack of standardisation, wrong materials selection, excess spare parts, under-skilled workforce, unrealistic plant availability expectations.
For a proportionately small capital expenditure in the project phase on better equipment and strategies (like intentionally de-rating equipment to lower internal stresses) your operating costs are lowered and will consequently deliver higher profits during its years of operation.
PEW SOLUTION: Stop Variability and Defects Across the Business and Plant and Equipment Life Cycles
Making and delivering a product/service is the output of many processes and numerous actions and decisions. We know that in every process, act and decision there is an opportunity for variation to arise. Extreme variations lead to the creation of defects and eventually failures. This was supported by the Failure Pyramid evidence where disaster will arise given enough chances.
Throughout the asset life cycle of a facility and its plant there will be times when chance, variability and opportunity for disaster align and a calamity happens. If we want to reduce the possibility of a calamity it is necessary to prevent the presence of defects which under the ‘right’ circumstances will progress to failure and in a few cases disaster.
The more defects present, the greater the number of problems they become. Problems show up as lost time, reduced production rates, poor quality product, workplace accidents and many other wastes and losses. These require removal and correction, which absorbs our time, resources and money. We see the end result as poor operating performance and poor profitability.
Manage the Plant and Equipment Life Cycle
It is possible to make great operating cost savings during design, if the designers reduce the operating risks that their choices cause the business.
To be sure we consider the long-term well-being of our business, we view the health of its plant and equipment from the end of their life cycle. We ask what do we do to get a long, healthy, problem-free operating life?
So by selecting methods and practices that lead to lower risks and trouble-free operation, we also maximise life cycle profit because there are far fewer DAFT Costs to pay.
PEW SOLUTION: Life Cycle Risk Management Strategy
The Diagram shows a means of selecting appropriate project, maintenance and operating strategies matched to the size of risk carried by a business. The methodology is known as the ‘Optimised Operating Profit Method’. It uses the more than 60 DAFT Costs that could happen from a failure, to determine the true cost of business risk and then matches risk control practices to the risk a company is willing to carry.
Do “What-If” Operational Risk Modeling Early in the Asset Life Cycle
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