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may/june 2005
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Goals
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may/june 2005
Framework
In its classical form, asset management separates itself from
asset ownership and asset operations. The asset owner is
responsible for setting financial, technical, and risk criteria.
The asset manager is responsible for translating these criteria
into an asset plan. The asset service provider is responsible
for executing these decisions and providing feedback on actual cost and performance (risk is determined through variation
in performance).
This decoupled structure allows each asset function to have
a focus: owners on corporate strategy, managers on planning
and budgeting, and service providers on operational excellence (see Figure 1). The asset owner sets the business values,
corporate strategy, and corporate objectives in terms of cost,
performance, and risk. The asset manager identifies the best
way to achieve these objectives and articulates this in a multiyear asset plan. The service provider executes the plan in an
efficient manner and feeds back asset and performance data
into the asset management process.
Competencies
A robust asset management structure is supported by three pillars of competency: management, engineering, and information (see Figure 2). Building these competencies is daunting
when viewed in isolation. Far more difficult is developing
cross-functional expertise so that management, engineering,
and information skills can be addressed in a mutually supporting manner. At a minimum, this requires knowledge of the concerns, jargon, and methodologies associated with each pillar.
There are not many people in the transmission and distribution business who have strong skills relating to all three pillars.
As such, many projects and initiatives will be led by project
managers who need support when considering the full range of
issues related to asset management. Without this support, projects will often achieve tactical goals but will be incongruent with
the overall corporate asset management strategy. Awareness is
Asset Management
Management
Engineering
Information
Business Strategy
Planning
System Architecture
Regulatory Strategy
Design
System Integration
Organizational Design
Operations
Business Intelligence
Performance Management
Maintenance
Knowledge Management
Process Design
Reliability
Asset Registry
Resource Planning
Protection
Decision Analysis
Equipment Health
CMMS, SCM
Financial Risk
Technical Risk
SCADA, OMS
figure 2. Asset management must be supported by three pillars of competency: management, engineering, and
information.
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Aging Infrastructure
Pole Count
Cumulative (%)
Reliability
Performance Standards
No Requirements or No Response
figure 4. A majority of states require reliability reporting, and many have set
specific reliability targets. Reliability is quickly becoming one of the most
important performance issues regarding asset management.
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Asset Utilization
Distribution Transformers
Planning
Good planning ensures that money spent today has lasting
value in the future. Since this definition is best understood in
terms of capital spending, most utilities equate planning with
400
may/june 2005
115+%
100-114%
90-99%
80-89%
70-79%
60-69%
50-59%
40-49%
30-39%
20-29%
10-19%
0-9%
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Performance
Targets
Risk
Targets
Capital
Plan
Asset
Planning
Budget
Targets
Operations
Plan
Maintenance
Plan
Asset management can help in this area by forcing decisions to be made based on process, rather than basing them on
decisions made within functional silos. Decisions about protection upgrades are forced by process to consider SCADA
implications. Information experts instinctively consider the
ability of information systems to provide wide access to captured data and for processes to extract the most value out of
this data. Risk management forces consideration of catastrophic issues such as blackouts and cyberattacks. Protection,
control, and automation are three huge opportunities for most
utilities, and asset management will make the whole far
greater than the sum of its parts.
quantified and balanced against cost? How should maintenance and inspections be planned in conjunction with operations and capital spending? Such questions are difficult, but
can be answered through an asset management process that
forces management, engineering, and information competencies to act in unison.
Risk Management
Risk management is perhaps the most misunderstood aspect
of asset management. Most executives view this topic in
terms of financial risk management, where statistical methods
are well established. The trade-off between risk and reward is
quantifiable, and risk mitigation can be pursued through
diversification, indemnification, options, futures, swaps, and
a myriad of other financial instruments.
Physical risk management is seemingly unrelated and
concerns itself with undesirable events such as equipment
failure, misoperation, injuries, and other headline events.
Many utilities approach risk by looking at the probability and
severity of bad things happening if a project is not approved.
Although this is a good start, it falls short of true asset management since it is based on projects rather than performance
and is not rigorous in its approach.
Risk is best thought of as the risk of not meeting performance targets (for example, reliability, environmental, and
safety). Viewed in this way, it is insufficient to set a performance target such as achieve less than two interruptions per
customer. Instead, each target is accompanied by a risk tolerance, for example, achieve less than two interruptions per
customer with 90% confidence. If this target is not achieved,
the asset management group can confidently state that this
was a one-in-ten-year occurrence and that the system is performing as designed.
Proper treatment of risk requires the knowledge of equipment condition, the impact of maintenance and operations on
equipment condition, and the impact of equipment condition
on the probability of failure. It also requires supporting information systems and business processes that allow risk mitigation in the form of inspection, maintenance, operations,
replacement, and system modifications. A complete technical
risk management program will be integrated into an overall
corporate risk management program and should be familiar
with hedging, real options, scenario analysis, the cost of capital, regulatory affairs, legal affairs, and public relations. Risk
management is an explicit goal of asset management and
must become a core competency of transmission and distribution utilities.
Enterprise Applications
Information systems touch nearly every aspect of the
transmission and distribution business and are key drivers to
productivity improvement, performance management, and
the ability to make data-driven decisions about asset spending. Fundamental to asset management is an asset registry,
which is a repository of all equipment that tracks information
related to economic and technical performance. Important
questions to ask include: Can a geographic information system or a maintenance management system serve as an asset
registry? Is asset-level information used for all decision-making processes, including forecasting, planning, engineering,
operations, and maintenance? Do applications related to asset
may/june 2005
management work in unison with financial, project management, supply chain, and human resource systems?
Many utilities are also faced with legacy hardware, internally
developed applications, a large number of separate databases,
and a large amount of data that is not in electronic format.
Addressing these situations can be a distraction from asset
management and risks having the tail wag the dog. When
addressing these issues, it is important to develop a comprehensive asset information plan. However, it is equally important for this plan to complement, rather than drive, an overall
asset management process.
Summary
Asset management is the art of balancing performance, cost,
and risk. Achieving this balance requires support from three
pillars of competency: management, engineering, and
information. Initiatives can stem from each of these pillars
but must always consider and coordinate with the other two.
Asset management is capable of addressing the most
pressing issues facing the transmission and distribution
businesses: aging infrastructure, reliability, asset
utilization, planning, automation, maintenance, project selection, and risk management. Each issue is daunting when considered in isolation. More daunting is the thought that true
asset management will optimize decisions across all of these
issues simultaneously. Asset management can be truly revolutionary but only when it is based on three functions, a single
process, supporting systems, and a robust skill set of management, engineering, and information.
Biographies
Richard E. Brown is a principal consultant with KEMA, Inc.
and specializes in helping utilities improve business performance through management and technical consulting. He has
published more than 60 technical papers related to reliability
and asset management, is author of the book Electric Power
Distribution Reliability, and has provided consulting services
to most major utilities in the United States. He is a Senior
Member of IEEE, chair of the Working Group on Distribution
Planning and Implementation, and recipient of the Walter Fee
Outstanding Young Engineer award (2003). Richard has a
B.S.E.E., M.S.E.E., and Ph.D. from the University of Washington and an M.B.A. from the University of North Carolina. He
can be reached at rebrown@kema.com.
Bruce G. Humphrey, vice president at KEMA, Inc., leads
consulting engagements on corporate strategy,
economic analysis, and public policy. He has numerous
publications on a wide variety of topics, including the corporate implications of evolving competition, the economics of
climate change, and techniques for scenario planning. Prior to
joining KEMA, Bruce was a partner at Putnam, Hayes &
Bartlett; director of North American Electric Power at CERA;
and chief economist at the Edison Electric Institute. His career
also includes federal government service on energy and regulatory policy. He can be reached at bhumphrey@kema.com. p&e
IEEE power & energy magazine
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