- Kleber Siqueira
Industrial Assets Custodianship: The Organizational Paradox
Updated: Feb 20
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Generally, companies delegate the managerial responsibility for defining and auditing the strategies and tactics related to the management of their industrial industrial assets to maintenance organizations, which is usually an organization inserted in a hierarchical layer of middle management or supervision, with no seat at the top management level (also known as corporate leadership), in contrast to the organizational empowerment related to other strategic assets, which are directly managed by the corporate leadership, such as financial assets, human assets, information technology assets.
For purposes of this article, industrial asset is a system considered in all its aspects, including inputs and outputs, controls (DCS, SCADA, IACS, HMI), condition monitoring, protection, as well digital twin, and management information systems (CMMS, APM). ISO 55000 provides a widely accepted definition of asset management as “the coordinated activities of an organization for the purpose of generating value from assets”. The key point is that it is not an extension of maintenance (organizations).
By analogy, it makes no sense to let the management of industrial assets, which run the industrial portion of the business value chain, with a relevant and fundamental strategic for the success of the business itself, be relegated to a secondary condition or even disregarded in the organizational structure, instead of being integrated, without intermediaries, with the top management. Therefore, it is not in the position to be an interdisciplinary facilitating agent, as well as a technical authority with adequate jurisdiction to act as legislator and internal arbiter in matters related to operational reliability management and mechanical integrity of these assets in the operational context to which they are subjected.
This contradiction, due to the risks it poses to the business strategic objectives, seems to constitute an organizational paradox that needs to be better considered and properly assessed considering the potential corporate risk of each business.
OBJECTIVES OF THE INDUSTRIAL ASSETS CUSTODIANSHIP
The custodianship of industrial assets involves satisfying and sustaining the expectations of
· Asset Owners: They are satisfied if their industrial assets return on investment and are profitable over time in service.
· Asset users (usually their operators): These are satisfied if the industrial assets they run continue to do what they want it to do, within performance standards that they – the users – find satisfactory (including the notion that the risk of death or injury caused to the users because of failures shall be reduced to acceptable levels),
· Society as a whole: This is satisfied if industrial assets do not fail in such a way that may pose threats to the physical integrity of people and/or the integrity of the environment (affecting neighboring or distant populations)
As can be inferred from the expectations listed above, the importance of industrial physical assets (physical production systems, that is, processes and/ or machines that add value) is strategic for the business value chain in which they will be inserted throughout the operational phase of its life cycle.
INDUSTRIAL ASSET MANAGEMENT AND MAINTENANCE MANAGEMENT
The ISO-55000 defines Asset Management as “the coordinated activity of an organization to obtain value from assets”. This concept implies in a broad scope, which in practice constitute the framework of a new discipline. This new discipline is not part of the maintenance discipline.
Maintenance Management can be defined as the set of actions for planning, programming and controlling the activities and resources necessary to maintain the functional integrity and performance of the components of the physical systems of production and provision of utilities.
Maintenance departments often perform repairs, overhauls, inspections, and condition monitoring required by physical assets. However, more recently, the incorporation of some attributions related to the operational reliability of indistrial assets, expanded its scope and responsibility by encompassing functions related to the management of physical assets.
Due to the consolidation of this expansion of the scope traditionally attributed to the maintenance departments, which adds responsibilities regarding the reliability of industrial assets, the functional disconnection with corporate top management is gradually becoming more evident.
As a result, it is possible to identify the importance of rethinking how to make an adequate insertion of asset management scope and responsibilities to the existing organizational structure of the businesses.
From this finding, some questions may arise:
Does the current hierarchical organization, that is, the maintenance departments which hold the industrial asset management discipline, coherently meet the strategic and tactical needs of the company?
What are the limitations and potential issues of the current organization design?
What are the possible solutions to address the organizational potential issues?
Should the management of industrial assets be on the same level of jurisdiction than the management of other strategic assets for the business?
The following topics in this article present some aspects of the current corporate paradigms regarding the management of industrial assets, seeking to develop a critical analysis that allows a better understanding of the potential issue and to provide an adequate solution for the potential issue identified within the hierarchical organization.
CUSTODY OF FINANCIAL ASSETS: AN ANALOGY
In 1494, a Florentine friar named Luca Bartolomeo de Pacioli invented the double-entry accounting system, which became the basis of the financial custody process.
Even today, more than 525 years later, financial analysts and accountants use Pacioli's ideas as a basis for managing financial assets on behalf of the people who own, earn, and spend the money.
In the financial world, responsible custodianship means to ensure that all financial transactions are accounted for, recorded on balance sheets, and audited down to the penny at the end of each fiscal period.
Procedures, norms, regulations, and specific documentation necessary to carry out this management process have become standardized and an integral part of the best practices that govern corporate finance, even if it is intensive in resource allocation requirements and expensive.
INDUSTRIAL ASSETS CUSTODIANSHIP
The understanding of the scope, responsibilities, and even the position of this new discipline, called industrial assets management, within the corporation hierarchical structure, in turn is still very recent and with less than 30 years of existence, structuring and practical experience. However, the new discipline is still under development, which is happening in the midst of an enormous and accelerated digital transformation, resulting in a new generation of complex industrial assets, with higher operational performance requirements (just-in-time chains, output quantity, output quality, competitive costs, narrow mark-up levels), with an intensive level of automation onboard, as well subjected to highly stringent environmental and safety regulatory requirements and legislation.
Despite of this extremely challenging scenario, this new discipline has attributions completely different from those assigned to the maintenance discipline, has not yet been properly studied and understood in terms of its strategic importance and real dimension as a cross-organizational facilitator for the operational reliability of the value chain of productive industrial processes.
As a result, organizations are lagging in this area of strategic risk management, omitting or ignoring the insertion of the industrial assets management discipline as part of the top management level.
Using financial custody as an analogy, it is possible to say that the “currency” adopted to establish risk management criteria in industrial physical assets is the "failure mode/cause".
However, to ensure responsible custody of physical assets, is not enough taking in consideration only a list of failure modes/causes. It is necessary to go further.
In summary, those responsible for the custody of industrial assets also need to detail and orderly address other aspects related to the management of failure modes/causes, such as:
- description of the asset functions
- description of the asset functions performances
- description of the asset functional failures
- description of the functional failures causes, i.e. the failure modes/causes for each functional failure
- accurate description of the effects of each failure mode/cause
- consequence (risk assessment) of each failure mode/ cause
- selection of a technically feasible and cost-effective management strategy to mitigate or eliminate the consequences of each failure mode/cause
- ensuring that defined strategies are executed in the right way, at the right time and by the right people
- defining and implementing suitable and specific performance indicators (KPIs and scorecards) to monitor the functional performance and reliability of the assets
- performing periodically audit of the reliability strategies in place, using internal resources and/ or independent third parties
- Acting as the controller for the information systems directly linked to the asset management
Evaluating the above topics, which constitute responsibilities assigned to the industrial asset management organization, it becomes clear that it is not adequate to simply transfer such a challenging and broad scope and responsabilities to the maintenance departments. These departments are usually overloaded with their typical scope and responsibilities, which is also challenging and broad, and essentially aims to achieve excellence in the repair of industrial assets to keep the productive value chain running (available to perform its functions) for as long as possible.
It should be noted that this document is limited to discussing the benefit of a correct jurisdiction for the industrial asset management function within the organizational charts.
It does not call into question the technical and managerial capacity of engineers and maintenance technicians, who accumulate some duties related to indistrial assets management, but it does provide a reflection on the need to recognize and relocate this new discipline into the corporate leadership.
The basic scope of maintenance departments generally covers, among a multitude of activities, the following:
- perform all repairs interventions (planned and unplanned)
- execute proactive strategies (predictive and/ or preventive actions)
- troubleshoot unexpected failures
- develop/update procedures for carrying out maintenance actions
- plan and prioritize repair work orders
- plan and schedule qualified human resources
- risk assessment of execution of maintenance interventions
- schedule the execution of service orders according to the priorities of the operations and assets availability for the execution of maintenance tasks
- close work orders, ensuring appropriate quality information for use in maintenance and reliability performance indicators
- ensure the quality of the services performed, avoiding rework
- interact with the supply chain
- collaborate in the definition of stock levels of spare parts
- identify critical spare parts
- develop procedures for managing spare parts stocks
- actively participate in reliability studies (analyses)
- participate in root cause analysis of failures, especially those not previously identified, which have high consequence
- participate in the planning, scheduling, and management of shutdowns and turnarounds
- participate in the management and quality control of outsourced services
- coordinate the ongoing training needs of available human resources
As can be deducted, the scope of maintenance departments is quite challenging, broad, with many interfaces, which combined with the nature and complexity of production processes becomes a major challenge that will intensely occupy the management and members of these departments to attend or exceed the companies expectations.
In other words, maintenace management is a highly specialized and complex scope, which consumes a lot of resources and time, requires specialization, commitment, and dedication on the part of the engineers and technicians involved with its management and execution.
Finally, in the context of the financial asset management analogy, compare what happens when things go wrong in the world of financial management versus the world of industrial asset management.
In general, the consequences are disproportionate:
The worst consequence of irresponsible financial assets custodianship is that a company can go bankrupt, and its custodians prosecuted and eventually jailed.
However, the consequences of incorrect or irresponsible industrial assets custodianship are even more serious, as one or more people can be injured or even perish, as well as the environment can be severely affected.
As can be concluded from the comparison above, the scope and additional responsibilities attributed to maintenance departments, combined with their organizational and structural limitations for a proper exercise of the industrial assets custody, pose a potential corporate risk that needs to be measured, because of the strategic importance of the new discipline.
In fact, the risks to the business represented by the inadequacy of the organizational structure are dramatically increasing with the complexity of the state-of-the-art of the industrial assets and the operational contexts in which they operate, including the requirements imposed by regulatory bodies (at various levels of government). Such factors imply in the need of an increasing corporate attention to the effectiveness of policies/strategies for managing industrial assets in place.
Ultimately, there is growing pressure on the part of stakeholders (owners, users, and society) for the corporate leadership to demonstrate that it is directly involved in the measures prescribed and in practice within the organization, in order to mitigate the consequences of industrial asset failures to acceptable levels in a sensible and defensible manner.
THE ORGANIZATIONAL PARADOX
The organizational paradox becomes evident as companies identify and recognize the need to reconsider some organizational aspects, such as:
- maintenance departments are responsible for functions beyond their scope and functional expertise
- management of industrial assets is a new discipline, which has its own complexity, as well it is strategic for the business value chain analog to the ones already recognized (finances, human resources, Information technology)
- the strategic importance of industrial asset management over their life cycle (from the cradle to the grave)
- undesirable potential exposure to high consequences risks for the business
INDUSTRIAL ASSET MANAGEMENT: ORGANIZATIONAL PARADIGM CHANGE
The risk management of physical assets include assessment and mitigating the severity of their failures/causes consequences management, such as:
- Safety (injuries and fatalities)
- Environmental Integrity (environmental disasters)
- Operational Losses (quantity, quality, costs, downtime)
The strategic nature of this emerging discipline, due to its highly specialized and broad field of action, requires independence of action to facilitate and audit the use of best practices for managing failures of physical assets, demanding a dramatic change in the current organizational paradigm, so that it becomes promote and incorporate this new discipline into the corporate leadership, in order to effectively fill the organizational gap by taking over their role and responsibilities.
Hence, due to this organizational paradox, companies in general are still not ready to make corporate efforts to effectively implement a new culture into the industrial asset management, as recommended by international standards such as ISO 55000, PAS-55 and ISO 31000.
PAS-55 standard, for instance, defines asset management as follows: “systematic and coordinated activities and practices through which an organization optimally manages and sustainable its assets and asset systems, their associated performance, risks and expenditures throughout their lifecycles in order to achieve its strategic organizational plan."
Therefore, in practice, there is a missing link: a organization at the corporate leadership (the strategic level) to support the industrial asset management discipline!
Thus, it becomes crystal clear the priority for the companies to assess the strategic importance of this new discipline for their businesses, to steer a possible needed adjustment of their corporate organizational chart, as well as to define the guidelines for their attributions and necessary knowledge, information systems. and human resources.
In summary, it is likely that in medium and large companies, where failures can have a significant impact on the business, the strategic recommendation should be:
Consider the inception of a new organization, at the top management level (corporate leadership) to take over the management of industrial assets, because this is the organizational paradox to be resolved!
Additionally, the maintenance departments also need to start reviewing the current organizational paradigm used for reliability management, to propose to top management an open debate about the unjustified, unnecessary and even dangerous "extra dose" of responsibilities that they are entrusted with. which may ultimately pose an undesirable potential risk to the business itself.
It's time to remove this "extra weight" from the maintenance departments' shoulders, allowing to the maintenance management a greater focus on the quality of their no less important activities and contributions to the operational reliability of industrial assets.
The conceptual organizational redesign required, as well as the rationale for its adoption, will be further discussed in more details a separate article.
Establishing a new organizational paradigm for managing industrial assets is a new building still under construction. You can be a significant part of this construction.
Your comments and suggestions are welcome!