International case studies in asset management

Case study: Wessex Water 9 Box 2.1 Extracts from the DAA asset management 03.. The six case studies describehow three water companies, one municipal authority, a government agency and an

International Case Studies

in Asset Management

International Case Studies

in Asset Management

Edited by

Chris Lloyd

Also available from ICE Publishing Asset Management C Lloyd ISBN 978-0-7277-3653-6 People and Organizational Management in Construction, Second edition S Naoum ISBN 978-0-7277-4151-6 Art and Practice of Managing Projects A Hamilton.

ISBN 978-0-7277-3456-3 www.icevirtuallibrary.com

A catalogue record for this book is available from the British Library ISBN 978-0-7277-5739-5

# Thomas Telford Limited 2012

ICE Publishing is a division of Thomas Telford Ltd, a wholly-owned subsidiary of the Institution of Civil Engineers (ICE).

All rights, including translation, reserved Except as permitted by the Copyright, Designs and Patents Act 1988, no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying or otherwise, without the prior written permission of the Publisher, ICE Publishing, 40 Marsh Wall, London E14 9TP This book is published on the understanding that the author is solely responsible for the statements made and opinions expressed

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Contents Preface ix

01 Case study: Wessex Water 9

Box 2.1 Extracts from the DAA asset management

03 Case study: Arts Victoria 39

04 Case study: South West Water 49

05 Case study: City of Calgary 59

06 Case study: Scottish Water 67

07 Case study: Grand Port Maritime du Havre 83

08 Case study: Network Rail 99

09 Case study: ScottishPower Generation 109

10 Case study: City of Cambridge 121

10.2 Information and knowledge management 122

11 Case study: London Underground 131

12 Case study: RailCorp 141

13 Case study: SP AusNet 147

14 Case study: City of Hamilton 155

15 Case study: Rio Tinto 165

17 Case study: KPMG 187

Section 4: Observations – Investment,

18 Observations – Investment, risk and returns 203

Preface This book is the result of another Two years ago, when I

was working on Asset Management: Whole Life Management of Physical Assets, which Thomas Telford published in 2010, it quickly became obvious that the follow up would need to be a book of case studies Where the earlier book sought to reposition asset management as

a powerful new logic for building value and generating better returns from asset-intensive businesses, this one looks at how a variety of organisations operating in different sectors have embraced asset management thinking and best practices, how this has affected them and what has been learned from this.

These case studies will serve as a historical record of how asset management has matured in conception and practice since it first emerged in the 1980s They offer insights into how asset management is being used to prioritise capital investment, increase operational efficiency, manage risk, and change how organisations position themselves in the market and account for their actions to customers, investors, banks, regulators and others.

The book is written for investors seeking insights into the management and performance of major infrastructure businesses; the directors and managers of organisations new

to the opportunities presented by asset management, in the early stages of adopting it or looking to refresh their approach; and people studying for asset management qualifications or taking short courses and their teachers Each of these audiences will find something of value in the case studies – approaches to reflect on, problems to solve, concrete examples, practical solutions and new ideas.

The number of potential case studies that did not make it into this book is enough to fill another Some emerged too late, others were not completed and a few could not be published for commercial reasons or because they were too obviously promotional There is a thin line to tread between publishing what organisations want to read about themselves and publishing what the asset management audience wants to read about, one that I hope I have managed to tread successfully In years to come, I would not be surprised if it became more difficult to put case studies into the public domain as the connections between asset management and competitiveness become more explicit.

all those who contributed ideas, documents and/or drafts for the case studies – the list of contributors reads like a who’s who of asset management Finally, because I moved house while working on this book, its publication will be a lasting testament to the talents, energy and forbearance of

my wife.

Chris Lloyd Director, CAS

C Moran Dublin Airport Authority

P Chambers Dublin Airport Authority Chapter 3

P Burns Editor, ‘Strategic Asset Management’

C Ahern Arts Victoria

C Moritz Sinclair Knight Merz Chapter 4

T Newell Scottish Water

L Petch Scottish Water Chapter 7

C Gauthier Grand Port Maritime du Havre

C Vercoglio Oxand

J Boero Oxand Chapter 8

Y Shah City of Cambridge

M Hauser City of Cambridge Chapter 11

R Moore London Underground Chapter 12

R Wallsgrove TKJ Partners

Chapter 14

T Quinn City of Hamilton

S DuVerney City of Hamilton

A Dalziel Stantec

L Gohier Dynamix Inc.

Chapter 15

M Hodkiewicz University of Western Australia

G West Rio Tinto

N Bartlett Rio Tinto

S Tapsall AIM-UWA Business School Executive Education Chapter 16

J Walker Euroports Holdings s.a.r.l.

H Harford CAS Chapter 17

D Pairon KPMG

Where everything connects

Around the world, infrastructure businesses and other organisations that rely heavily onthe availability and reliability of physical assets for their success are reaching similarconclusions about needing to be more strategic and efficient in the way they managetheir assets Asset management offers them, their investors and other stakeholders arational set of principles for defining how corporate goals can be achieved and howthe value of a business can be confirmed This book provides evidence that it ishelping to shape a new way of organising the relationship between services, assets andcapital This is based on the economics of high-value-adding asset managementsystems through which businesses focus on services rather than engineering and reducetheir exposure to risk at the same time as they reduce operating costs and capitalspending

Writing about asset management means writing about how money is spent, risks aremanaged and returns are made; about how value is created and accounted for; abouthow organisational cultures can impede or facilitate change; and, about how easy it is

to mistake the management of assets or facilities or capital spending or operatingcosts for the broader goals of asset management

One aim of this book is to demonstrate the interrelatedness of asset management andbusiness strategy Another is to build an appreciation that asset management strategy,planning and impact need to be analysed from a number of different perspectives, andthat there are many alternative, and no definitive, off-the-shelf answers

While definitions of asset management have converged since the Publicly AvailableSpecification on asset management (PAS 55) was first published in 2004, there remainvarious perceptions of what it means in practice It is seen by some as a pervasiveapproach that affects all parts of an organisation, and by others as a specialisedactivity, requiring the attentions of a dedicated department or function So, the way

an organisation perceives asset management will have an important effect on its abilityand willingness to undertake the changes needed to engage it fully in the service of itscorporate objectives This variation between organisations also owes much to theexternal pressures they are responding to, existing cultures and structures, and theconventional wisdom of senior managers.

Structure of the book

This book presents 17 case studies featuring leading global and national companies,state-owned firms, municipal authorities and government agencies from seven differentcountries Each case is specific to the context and aspirations of a particular organisation,and between them they give broad and detailed coverage of asset management in prac-tice Table 1 provides an overview of the range of themes explored by the case studies.The case studies are organised into three sections, as follows

theme continues on through the subsequent sections The six case studies describehow three water companies, one municipal authority, a government agency and

an airport authority have set about harnessing asset management principles totheir objectives and what has caused them to do this

organisation It is concerned not just with process and methods but also with thechallenges that asset management poses to established hierarchies, functions andcultures The six case studies feature three railway businesses, a state-owned roadsand transport authority, a power company and one municipal authority

performance The emphasis here is on demonstrating good governance, deliveringbetter earnings and cashflows through capital expenditure reductions and

operating efficiencies and linking technical, operational and financial data.Leading international businesses from the gas and electricity, ports, mining andaccountancy sectors are featured, along with a municipal authority

The cases vary in length, but they all follow the same basic structure Each starts bygiving some background information on the organisation and setting its relationship

to asset management in context The middle sections describe the organisation’s goals,approach and achievements Each ends with some conclusions and a short set ofquestions that may help readers reflect on their own situations, formulate ideas, focustheir studies or organise learning events

The book concludes with Section 4, which presents a number of observations on thecontents of and themes apparent in the case studies These are intended to amplify thediscussion questions at the end of each case study

What the case studies are telling us

Between them, the case studies offer a plethora of ideas, innovations, reflection,critical success factors, insights, methodologies, models, process descriptions, systemspecifications and templates They present organisations which are in various stages ofdevelopment and maturity but share a common interest in some or all of the following

consistent with their missions and strategies

using this knowledge to structure internal controls, risk management and

evidence trails

Table 1 Main themes of the case studies

rehabilitation of aged assets

medium and long term

du Havre

Reducing capital and operating expenditures

improvement

g Modelling lowest possible average costs over the lifecycle, and putting a value onasset availability and failure that takes into account the cost of capital andfinancing.

future context where things are even more uncertain

organisations

compelling evidence

because this is what drives improved understanding of the cost, risk and benefittrade-offs, the value of the asset, the impact of its failure and the return oninvestment

In every organisation, what makes sense at one time is often displaced by something thatappears better adapted to new times and new demands And while some organisationsadapt themselves readily to new ways of thinking or practices, others try and fail orleave it too late, while a substantial few just sit and wait, perhaps hoping it will all go away.Readers will draw their own conclusions on the perspectives and approaches of theorganisations featured Not all have been successful straight away All of them knowthat you cannot treat asset management like a piece of software – buy one, install itand move on to the next problem

Many important messages emerge from the organisational experiences and knowledge inthis book – that it is the business purpose that provides the rationale for asset manage-ment; that it would be a mistake to regard asset management as a cure for all corporateills; that success calls for a movement from information to communication at all levels;that the perception of asset management as a function or department rather than as astrategic approach or way of thinking is a serious limitation; that it is only when organ-isations view asset management as a collectively coordinated activity that its benefits can

be fully realised; that asset management is not about empowering engineers, althoughengineers have a key role to play; and that greater efficiency and more certaintyaround capital spending forecasts are the key deliverables whether the organisation isprivately or publicly owned

There are some very challenging ideas too, including the following

existing assets in order that the organisation can be structured around its futureneeds rather than just its existing asset base

g Establishing asset management as a department or function will limit its strategicpotential.

asset management on the corporate performance and value is to be understoodand demonstrated

simply from an engineering or safety dimension, including lost opportunity

international standards such as BSI PAS 55 (BSI, 2008) and the impendingISO 55001, there is no single, predetermined formula that takes asset

management into an organisation, and each organisation must decide and justifyits own path

Culture change

Culture change, that is, the alignment of people’s attitudes and beliefs, behavioursand performance with the organisation’s goals, is a major aspect of embedding assetmanagement strategy, planning and systems In particular, effective asset managementcalls for functions and disciplines to coalesce and for people to cross personal andcareer boundaries in ways they never have before in many organisations

Asset management is a new way of thinking, so it goes without saying that peoplepractising it have to think in a new way about the situation their organisation is inand how to improve it Time and time again, the case studies describe asset management

as a systematic process, an opportunity even, for bringing together people from differentfunctions and disciplines and stakeholders with different self-interests And theirdecisions and activities need to be informed in a new way by detailed inputs on thecurrent and future capacities, criticality and condition, costs and values, risks andperformance of assets

Whether it be the engineering manager challenging the commercial department tosharpen its levels of service definitions; the operations manager requiring futuredemand forecasts from the business development team; or the finance manager callingfor product lines or processing capacity to be cut because margins are eroding and themoney would be better spent elsewhere, business-like behaviours at all levels are not

an implication of asset management, they are a prerequisite to the sightlines that are

so important to good asset management

The issues that asset management raises – whether to do with strategic direction, nisation of technical and financial data, demand forecasting or cultural change, etc – aremultifaceted and interrelated A change in policy or in one part of the system may haveramifications throughout In considering the discussion questions that are posed at the

harmo-end of each case study, the interconnections between the components of asset ment, as illustrated in the case studies, need to be taken into account.

manage-REFERENCE

BSI (2008) PAS 55:2008 The specification for the optimised management of physicalassets Parts 1 and 2 British Standards Institution, London

ISBN 978-0-7277-5739-5

ICE Publishing: All rights reserved

http://dx.doi.org/10.1680/icsiam.57395.009

Chapter 1

Case study: Wessex Water

Wessex Water is a regional water and sewerage business serving an area of the south west

of England, covering 10 000 square kilometres Since 2002, the company has been owned

by the Malaysian power company YTL Corporation It is recognised by the industryeconomic regulator Ofwat as having consistently delivered the best levels of customerservice of any water and sewerage business in the sector

Over the last 20 years since privatisation, Wessex Water has invested more than £3 billion

in improving and maintaining services (Figure 1.1) There have also been capital andoperational efficiencies that Ofwat’s 2008–09 annual report (Ofwat, 2009a) estimatedhave resulted in average annual household bills being approximately £100 lower thanthey would otherwise have been The investment has taken an uneven cyclical patternlargely due to the interruptive nature of the 5-yearly periodic regulatory reviews in

1995, 2000 and 2005

The main aim of developing improved asset management capabilities in the company was

to maintain its high levels of service even more cost-efficiently without increasing risk.Given the age of most of the UK’s water infrastructure, decisions on the size of theinvestment needed to maintain service levels has a major bearing on business perform-ance Asset management is fundamental because it offers the methodology for makingthe right decisions

In the last 10 years, Ofwat has put pressure on companies to

g improve their understanding of the ability of their assets to maintain service levels(serviceability) and knowledge of the impact and likelihood of service risk

deterioration in the planning and prioritisation of asset repair and replacement(capital maintenance)

Asset management initiatives in the sector undertaken by UKWIR (UK Water IndustryResearch) have been as follows

g The Capital Maintenance Planning Common Framework (CMPCF), which usedrisk-based analysis of past performance and future scenarios (UKWIR, 2002).

(AMPAP), which provided a method for companies to self-assess their capabilities

in asset management planning, including leadership, processes, systems andreporting (UKWIR, 2007) Ofwat (2009b) subsequently developed its own version

of this, named Asset Management Assessment (AMA), which was used to rateeach water company as part of its 2009 price review to determine capital

maintenance expenditure for 2010–15

The creation of an asset management focus in Wessex Water has led to an improvement

in the company’s capabilities, and has enabled

It has also sparked a concerted effort by the company to shape the industry’s long-termdirection The company is currently engaging stakeholders in a debate about the benefits

of regulatory incentives for holistic sustainable solutions which draw on asset ment best practice

manage-Figure 1.1 Wessex Water’s capital investment since privatisation

Courtesy of Wessex Water

Year 0.0

1.2 How asset management evolved at Wessex Water

The increased levels of investment that followed privatisation also gave rise to sharpincreases in maintenance expenditure Many of the company’s assets are complex, andmeeting tighter quality standards incurs significant energy costs They also have relativelyshort asset lives, and some, which were installed 20 years ago, have now reached or areapproaching the point of replacement

Wessex Water recognised these issues in its 2004 price review (PR04) submission bydeveloping proposals for improving the management of its asset base aimed at extendingthe functional life of these deteriorating assets This was described as ‘sweating the assets’and contributed to an alignment between the company’s initiatives and Ofwat’s perspec-tive on the company’s capital maintenance plans Alongside the regulatory requirements,there was a growing understanding in the company of the value to be gained by applyingthe principles promoted in the CMPCF These led to asset management being seen ascore to the future success of the business, and a belief that if sound asset managementprinciples were applied successfully then the regulatory aspects of price setting wouldfall into place naturally

In 2006, the company undertook a root and branch review of its asset managementcapabilities, to identify where and how these needed to be developed It was understoodthat the development of these capabilities would be an evolutionary process and drivechange in the business The review led to the launch of five major initiatives

The company’s organisational structure, conventionally arranged around maintenanceand operations, was changed to one that focused on optimising the management ofassets (Figure 1.2), with the emphasis on achieving a deeper understanding of their require-ments and the ability to find the right balance between performance, costs and risk

A new asset management directorate (AMD) was created, which was tasked withestablishing the department at the core of the organisation’s long-term direction anddeveloping an integrated approach that could be implemented across the company.The main initial objective for the AMD was to identify proposals for the periodicregulatory review in 2009 (PR09) that could subsequently form ‘business as usual’processes Key to the directorate’s success was to ensure there was a commitment

from the whole company to achieving strategic objectives, and this involved developingclose working relationships at the outset with the in-house engineering, construction andoperational parts of the business.

Water companies’ objectives need to be directed by long-term environmental objectivesand customers’ needs In December 2007, as part of the periodic review process, WessexWater published Water – The Way Ahead (Wessex Water, 2007), a statement of itsstrategic direction that set out the future challenges for the water industry in the UKand how the company planned to deliver services over the next 25 years

This included a commitment to operate and maintain the capacity and condition of theasset base for current and future generations by

quality obligations and to plan for the impact of the future being different fromthe past (e.g effects of climate change, and urban creep)

g maintaining stable service levels (serviceability)

Figure 1.2 Wessex Water’s organisational structure

Courtesy of Wessex Water

Continuing service to customers

Support services

Asset management

Operational services

Non-regulated services

Engineering and construction services

Retail services

1.2.3 Risk-based prioritisation

A focal point in the development of the company’s asset management capabilities hasbeen risk-based prioritisation of maintenance and investment The objective was toimprove understanding and management of risks to service associated with operationalactivity and external factors An iterative approach was taken that built on externalinitiatives from environmental regulators, such as water protection plans (risk-basedplans for managing water supply compliance), and water distribution networks’operational and maintenance strategies (DOMSs) Modelling and analytical toolswere developed to prioritise operational maintenance response and investment, byallowing

g a consistent way of assessing the impact and likelihood of service failure across allthe company’s physical assets at an operational, tactical and strategic level

mitigation measures

These processes and tools use an extensive risk and value approach that has been central

to the company’s strategic work to support the delivery of its 2010–15 (AMP5)programme They are now cited by external auditors as examples of asset managementbest practice The ‘heat map’ report (Figure 1.3) allows a simple representation of thecompany’s aggregated risk position by using colour (green, low; red, high) to showthe severity of the risk position for the company’s service standards and industrydrivers (Sx)

The relative positions on the map are based on probability assessments of performance,condition, potential hazards and predictive modelling; and the likely financial, customer,environmental, regulatory, and health and safety impacts These are summarised asscales of very low (1) to very high (5)

To help it achieve its objectives, Wessex Water has used the BSI PAS 55:2008 assetmanagement specification (BSI, 2008) as a road map for developing its maturity Thecompany believed the requirements were more accessible and far reaching than thosedeveloped within the sector for capital maintenance planning and self-assessment,and that gaining external certification to the standard would also be more effective infacilitating the changes required In preparation for this, in 2007 the company engaged

an independent risk management and systems certification organisation, LloydsRegister, to undertake a gap analysis, which identified pockets of good practice andweaknesses in some business processes and systems, and in the quality and sharing ofinformation and data

It was recognised that improvements in these areas could strengthen the company’s assetmanagement capabilities, and in the process contribute to business efficiency WessexWater was the first water and sewerage business to obtain PAS 55 certification inMarch 2008, and continued assessment by Lloyds has added value by helping with thedevelopment of business processes, skill levels, and the establishment of collaborativecompany-wide improvement initiatives.

Historically, business processes in the company had been managed by separatedepartmental ISO 9001-certified quality management systems A new interactive assetmanagement framework (Figure 1.4) has provided a clear line of sight and coherence

Figure 1.3 Example of a risk management ‘heat map’ report (The actual map uses colour, with the background changing from green in the bottom left to red in the upper right, to give a visual indication of risk)

Courtesy of Wessex Water

Assessment and review

Performance and condition, compliance investigations, audits/management review

between the company’s vision, asset management strategies and plans, and theoperational maintenance and capital investment performance measures and controls inplace to meet standards and to reduce the likelihood of service failure.

The framework has also allowed the opportunity for a bottom-up as well as top-downapproach to strategy development to emerge The establishment of a company manage-ment systems group and end-to-end business processes allows cross-business governance,with audits targeted at identifying improvements, most notably to the quality andtimeliness of asset information and its communication across departments

Key elements of any management system are performance assessment and review.Based on the company’s past experiences, it was keen that these activities were used tofacilitate collective learning rather than focusing solely on compliance These are nowtargeted at capturing asset knowledge to identify cost savings and improvements inoperations and maintenance, standards and technology Lessons learned are sharedacross the company, and a forum has been created to increase the profile of inno-vation in the business This forum manages projects and trials for asset optimisationand the introduction of new technology, and incorporates a reward scheme (Eureka)for ideas that create savings and/or improvements, and collaboration with UK waterindustry bodies such as UKWIR, the Water Research Council (WRc), universities andmanufacturers

In parallel with these initiatives, in 2006 a benefits case was prepared for the tion of new work and asset management systems to improve functionality inoperation and maintenance, and asset performance and condition data Historicalinvestment in IT systems had meant that work scheduling, asset data and otherbusiness information were held separately at a disaggregated level New systems havebeen introduced that integrate information held on assets (failure, condition, etc.) withthe systems used for work management: maintenance scheduling; the availability andskills of operators; customer enquiries; cost accounting; and investment planning(Figure 1.5)

introduc-As well as creating improved capabilities in areas such as risk management and thedevelopment of new integrated systems, there have been separate programmes in thebusiness to improve operational skills and leadership An up-skilling programme wasimplemented to increase work quality and productivity by allowing skills transferacross equipment at operational sites, networks and processes Future asset managersare also being identified as part of a company succession planning initiative, withtraining based on the requirements of the Institute of Asset Management CompetencesFramework (IAM, 2008)

1.3 Strategic direction shaped by relationships with

Energy use has increased markedly in the water industry over the last 10 years – a 33%increase in Wessex Water’s case Major energy efficiency savings will be needed simply tostand still on costs in the coming years, and historically, to guarantee that regulatoryrequirements on water quality are met, investments in continuous high-tech automatedprocesses such as ultraviolet disinfection and membrane filters have been needed Thistrend seems likely to continue if the EU Water Framework Directive (EC, 2000) andPriority Substances Directive (EC, 2008) are applied in a way that requires absolutestandards for the removal of phosphorus in sewage works’ discharges and nitrates ingroundwater and river flows Wessex Water believes that what is required is a collabora-tive approach to deliver sustainable rather than capital-intensive asset managementsolutions Table 1.1 compares the key features of these solutions

To help achieve its strategic environmental aims, as part of developing its futureproposals, Wessex Water is applying asset management principles to demonstrate bestvalue for money within a constrained funding regime The company is proposing arisk-based approach to environmental compliance and a right to earn a margin on theoperating costs associated with new obligations It believes that in order to promote aholistic approach to asset management in the industry, lower capital expendituresolutions that balance incentives for operational and capital expenditure should beintroduced

At present, capital expenditure is incentivised if companies believe they can make savings

in the delivery of their capital programme relative to the cost of capital allowed for in the5-year regulatory review By contrast, there is no long-term incentive that encouragescompanies to deliver operational solutions, as increases in operational expenditure

currently make a company appear less efficient, resulting in tougher efficiency targets andlower revenues at future price reviews.

The UK water industry already avoids some capital investments that are disproportionate

to environmental and public health risks But if there is an insistence on guaranteedsolutions to stringent absolute standards, this will inhibit the adoption of risk-basedsustainable operational solutions Wessex Water is seeking to influence regulators toconsider both the opportunities and risk of trade-offs As an example of what can beachieved, the company is implementing improved catchment management in conjunctionwith local farmers as a solution to problems caused by pesticides in drinking water Thisavoids the need to build additional treatment processes, reduces the carbon footprintand, if extended to incentives for operational costs associated with new standards,could drive more sustainable and cost-effective solutions across the industry

Improved asset management capabilities have delivered significant benefits for WessexWater Critical to this success has been a strategy that has focused on the form of organis-ational structure, knowledge and systems required to achieve long-term business objectives.This approach has created more of a ‘network’ form of organisation that can capitalise onthe company’s values and its core competences This has led to a greater understanding ofassets and transparency of risk through improved information on performance and con-dition, and an integrated company-wide approach to business processes and learning.Improved decisions on asset interventions have increased levels of certainty about boththe resilience of current service and the company’s ability to deliver expected future needs.The company is concerned that future water quality directives may drive another wave ofcapital- and resource-intensive solutions, focused on end-of-pipe standards, and that notenough consideration is being given to alternative solutions It believes that significant

Table 1.1 Comparison of capital-intensive and sustainable solutions

high-energy and chemical consumption

problems and to develop proportionate risk mitigation

environmental and cost benefits can be achieved by adopting a sustainable approach thatuses asset management principles, and it is working with its stakeholders to demonstratehow these can be delivered.

EC (2008) European Union Priority Substances Directive 2008/105/EC of the pean Parliament and of the Council of 16 December 2008 on environmental qualitystandards in the field of water policy European Commission, Brussels

Euro-IAM (2008) Asset Management Competences Framework, Parts 1 and 2 Institute of AssetManagement, Bristol http://theiam.org/content/download-competences-framework(accessed 10/02/2012)

Ofwat (2009a) Asset management assessment and baseline setting (AMA), PR09/23.Ofwat, Birmingham http://www.ofwat.gov.uk/pricereview/pr09phase2/pr09phase2letters/ltr_pr0923_amabaselinesetting (accessed 10/02/2012)

Ofwat (2009b) Annual report 2008–09 Ofwat, Birmingham

UKWIR (2002) Capital Maintenance Planning: A Common Framework (CMPCF), 02/RG/05/03 UK Water Industry Research, London http://www.ukwir.org/ukwirlibrary/

80474 (accessed 10/02/2012)

UKWIR (2007) Asset Management Planning Assessment Process – a methodology forself assessment (AMPAP), 07/RG/05/18 UK Water Industry Research, London.http://www.ukwir.org/ukwirlibrary/91803 (accessed 10/02/2012)

Wessex Water (2007) Water – The Way Ahead Wessex Water, Bath http://www.wessexwater.co.uk/publications/ (accessed 10/02/2012)

Wessex Water (2010) Water – Delivering the Vision Wessex Water, Bath http://www.wessexwater.co.uk/publications/ (accessed 10/02/2012)

Discussion questions

investment?

external factors in your organisation?

strategy development be organised?

DAA is a state-owned organisation that is fully commercially funded Dublin Airport isregulated by the Commission for Aviation Regulation, an independent public bodyunder the auspices of the Irish Department of Transport The principal function of thecommission is price regulation, that is, setting the maximum level of airport charges atDublin Airport and air traffic control charges at Dublin, Cork and Shannon Airports.All airports in Ireland are regulated by the Irish Aviation Authority (IAA) for airtraffic safety The IAA also provides air traffic management at each airport.

DAA airport asset management activities are covered in this case study Its interests inretail, commercial activities and investment other than Dublin, Shannon and CorkAirport operational assets are not

DAA owns and manages substantial areas of land and property at its three airport sites.Its core activities are associated with aircraft operations and passenger logistics Its keyassets comprise airfields, runways, taxiways, aprons, stands, terminal buildings, energycentres and piers, with all of their associated components and infrastructures Thereare also car parks, roads, campus and utility infrastructures

DAA has spent roughly €1.2 billion over recent years modernising Cork and ShannonAirports with new terminals, and upgrading the capacity of Dublin Airport with newinfrastructure and a second terminal building Its net asset value at the time of writing

is €1.8 billion, and the replacement value or modern equivalent asset value is estimated

to be €5 billion

The recent major investment programme was developed and committed during along period of financial growth in Ireland that also saw a 7% increase in air traffic

between 2005 and 2009 This was the latter part of a period when Ireland was widelyknown as the Celtic Tiger The capital programme was aimed at addressing historicunder-investment at Dublin Airport and also at improving the passenger experience atall three airports.

When the worldwide economic downturn began to be felt in Ireland, a major long-terminvestment programme was in full swing A new terminal had been recently completed,and construction of Dublin Terminal 2 was moving into its second year In 2009,DAA launched a major cost recovery programme that reduced costs in both payrolland non-payroll areas, and included agreed pay reductions for all staff and a voluntaryredundancy scheme

Early in 2010, the DAA executive team set out a plan to restructure the organisation Up

to then, it had been a typical semi-state organisation focused on the operations, projectengineering and property departments The plan was to adopt a new functional structuremade up of five main functions, namely operations, property, commercial, corporate,and asset management and development (AMD)

The new AMD function comprised design, projects, maintenance and asset managementplus a new commercial business section The major shift was to bring asset lifecyclemanagement under one banner However, when the organisation embarked on thisrestructuring in 2010, significant focus was still on delivering Dublin’s new terminal,all associated infrastructure and the major operational changes associated with amajor build project, its commissioning phases and the ‘go live’ transition

The overall airport performance in terms of efficiency and value is comparable with otherairports across Europe, as is evident from airport performance benchmark data(Table 2.1) However, with renewed focus on cost, further reassurance that all reasonableefforts were being made to provide and demonstrate good value was required

The economic downturn led to reduced passenger numbers at Dublin, Cork andShannon Airports during 2010, although DAA remained profitable overall However,following the Dublin Terminal 2 ‘go live’ in late 2010, around €600 million of newinvestment costs moved within the DAA asset register from ‘assets under construction’

to ‘live assets’, which resulted in much higher levels of depreciation being shown in theprofit and loss account While DAA reported a profitable operational financialoutcome in 2010, it needed to continue to reduce its costs

Shannon and Cork Airports are currently operating at a financial loss and drainingreduced profits made by Dublin Airport and overseas interests because

g passenger numbers remain low compared with 2008–09

g fixed asset depreciation rates are not all in line with true meaningful lives

Asset management cannot make significant changes to passenger traffic numbers,but it can make a real contribution to addressing the second and third of theseproblems

The main challenges to AMD in its cost reduction project were to

and what profitability could be achieved across all three airports over a 4 yearperiod

An asset management audit, structured around the requirements of BSI PAS 55:2008(BSI, 2008) was undertaken in 2010 While it found that AMD processes had beenwell managed with regard to airport operational services and safety, it also concludedthat these were not sufficiently integrated in terms of bottom-line business efficiencyand value Therefore, DAA set out to fully map, integrate and improve its asset-related business practices to improve process, performance and profit The auditresults were adopted as the baseline for asset management performance, and the resultinggap analysis and roadmap were applied within the overall initiative

The profitability element was regarded as a separate issue from the main drive toachieve compliance with PAS 55 Focusing on compliance was seen as an opportunity

to create short-term impetus for the asset management agenda, whereas maturingbeyond compliance was seen as the route to longer-term efficiencies In the cir-cumstances, the need to increase profitability could easily have been interpreted as aneed to cut costs in the short term until passenger numbers increased The temptationwas to reduce staff, contract out essential work to lowest-cost bidders and rely on newassets not to fail, at least in the short term However, the DAA executive team wascommitted to the principles and requirements set out in PAS 55 and also conscious ofhigh-profile asset failures that had followed rapid cost-cutting initiatives in otherindustries Delivering an asset-management-driven solution was believed to improvethe chances that performance and profit increases would be sustainable and that assetswere being managed safely

The DAA’s starting point was its mandate, which reads:

The DAA has a number of statutory obligations (the Air Navigation and

Transport (Amendment) Act, 1998 and the State Airports Act 2004) that can besummarised as follows:

g To provide the services and facilities necessary for the operation,

maintenance and development of the airports

The next key element is the strategic plan that sets out a number of corporate goals, ofwhich four have been identified as the key drivers for asset management, as follows

cost-effective manner

2 Align people and processes to deliver the best results

and secure manner, consistent with the efficient operation and development of theairports

For each of these goals, a set of key objectives and activities has been defined asfollows:

cost-effective manner

Objectives/activities

g Apply asset condition, serviceability, criticality scoring to improve assetinformation, investment and asset care needs

criticality analyses), and applied to get the right maintenance at the righttime and price

system (CMMS) and asset register, and align/map this with the fixed-assetregister

stands)

key performance indicator (KPI) reports

Figure 2.1 visualises the asset lifecycle that the above activities create.

Historically, a recurring situation across the DAA portfolio was that projects divisionswould work with external developers and engineering consultants to design, build andcommission new assets, at which point their lifetime care was handed over to the internalmaintenance function Levels of consultation between projects and maintenancedivisions varied widely, and this led to some significant inefficiency In other words,maintenance was an afterthought, often carried out according to manufacturers’recommendations Similarly, spares were offered, procured and stored according tomanufacturers’ recommendations While these recommendations might be a goodplace to start specifying requirements, adopting them verbatim can prove costly, andwas not always appropriate to the operating environment

To overcome this problem, DAA adopted the failure mode, effect and criticality(FMECA) approach to develop maintenance schedules that apply to similar assetsacross its six asset care business units in Dublin Terminal 1, Terminal 2, Airfield andCampus, Shannon Airport and Cork Airport Based on these schedules, risk-basedmaintenance bills of materials are developed that list the materials that should bestocked internally, vendor managed or itemised but not stocked Maintenance schedules

Figure 2.1 DAA asset lifecycle management

Courtesy of Dublin Airport Authority

Do Check

Asset management system

are also used to identify projected, planned and reactive maintenance needs as well ascosts The challenge is to achieve the required levels of maintenance through an opti-mised balance of insourcing and outsourcing of work based on delivered value Beforethese schedules were developed, senior managers had presumed that outsourcing wasgenerally cheaper than insourcing This belief has been disproved, and, where skills orstaff shortages mean that the internal option is not available, being well informedabout scope, requirement and projected costs has proved beneficial when negotiatingwith external service providers.

Data and information have been identified within DAA as key enablers of good assetmanagement A new asset manager was appointed with specific accountability forasset data and information, which is now treated as an asset in its own right Work isalso underway on a CMMS, a unified asset register and a common approach tocoding, time reporting, working practices and reporting

Figure 2.2 visualises the asset data and information lifecycle in the context of theassets in action process – this is concerned with how assets earn their keep Theonly time they are adding value in the asset lifecycle is when they are operating toprovide service It is an important part of DAA’s vision for asset management that

Figure 2.2 The asset data and information cycle

Courtesy of Dublin Airport Authority

Drivers Regulatory/customer Technology/intelligence Policies/funding

Asset strategy Strategic objectives – Issues prioritised by cost, benefit and risk

Assets in action Assets delivering services to meet business objectives

Capital expenditure Acquire Build Rehabilitate

Operating expenditure Operate Inspect Maintain

Analyse

Asset health Service health Performance versus cost and risk exposure

Monitor Level of service metrics –

performance data, including input operational costs, maintenance costs, running costs,materials/inventory consumed, output quality, quantity, reliability, maintainabilityand downtime, are collected for analysis and continuous improvement.

2 Align people and processes to deliver the best results

Objectives/activities

property manager

show to explain their roles

and included within the hierarchy of DAA policies

and road show

validate, audit and review

g Detailed planning of front-line structures, including team leads, technicians,stores personnel, planners, operators and administrators

explain the changes

and working practices

competence requirements and training plans to align with planned

organisational structures

An organisational restructure is being undertaken at DAA to support the introduction of

a whole new method of working During the asset management audit in 2010, a commonresponse to questions about ‘who is accountable for these assets or this process?’ was

‘there is joint responsibility’, followed by a long list of the people and departmentsthat were involved This demonstrated a lack of clarity and ownership for differentaspects of the asset management process DAA has now developed an asset managementterms of reference document that outlines the overall scope of asset management and thefour key roles, and clarifies what individuals in these roles are accountable for and whatresponsibilities they have (Box 2.1) Figure 2.3 shows the four key roles and their keyasset management transactions

Box 2.1 Extracts from the DAA asset management terms of

reference document

The Asset Manager is a Business Management role with a primary function ofoptimising the medium to long term service and cost performance by ensuringefficient investment in company assets and services without compromising safetyand regulatory compliance Asset Managers are accountable for

g assurance of condition, serviceability and funding for the assets within theirdefined accountability

life investment profile for the assets)

assets under their guardianship

g challenging design criteria to drive best whole life cost and service

performance

operation, lifecycle and design

techniques such as predictive modelling, business risk management, andinvestment decision making

long term asset and system performance, and providing funding for resourcesand/or capital investment to achieve this outcome

based on the Asset Management Plans and the results of the Asset HealthReviews

requirements contained within the AM Plan

Fixed Asset

and business management requirements

The Design Lead role is an engineering one accountable for design and development

of DAA assets It is primarily concerned with providing suitable designs that meetthe operational functionality and serviceability requirements of Airport Operators

& Airport Services The Design Lead also provides a consultative role within theirexpertise Design Leads are accountable for

Investment Business Cases

Programmes and Design Leads

a specific project of their design

are accountable

providing an operational service

safety related) subject to Governance process

requirement and spares provisioning) for their assigned assets includingsupporting procedures

cost) for variation outside of design specification to enable timely

intervention

The Asset Care Manager role is scoped to manage, operate and maintain technicalservices and systems throughout their operational lives for the purposes of passengerservice management at Airports and their ancillary systems Asset Care Managersare accountable for

outside of design specification to enable timely intervention

Reviews and Asset Management Planning

experience during design development and project stage reviews