his guide continues our previous look into the Management cycle. Now we will see how the generalized OPERA framework maps on a long-lasting asset lifecycle is used in business. By assets, we imply that these resources are utilized to run a business, including customer acquisition, service, production and supply, and all other supporting functions. These can be human resources, machine tools, buildings, equipment, infrastructure, money, intellectual property, or other tangible and intangible assets. These resources are utilized in almost every OPERA cycle as the Execution horsepower, but they do not come from nowhere. They need to be bought, prepared, and allocated before they become available for operation, for which they have their own OPERATIONS lifecycle, the reincarnation of the OPERA cycle discussed in the previous guide.
Research landscape of the Asset Lifecycle
The process of managing assets, both tangible and intangible, follows a similar pattern, with slight modifications. For instance, some assets are purchased or hired from the market, while others are developed internally by an organization. Despite these minor changes, the core of the cycle remains the same:
bjectives. The decisions about the need for new assets are made on a strategic level. Based on the objectives, the number and type of resources become clear along with the other requirements.
lans. Planning gives a more detailed view of what and when should be done, what assets and when should be bought or built, and how the assets will be allocated.
xecution. The allocated assets are used as tools and fulfill their role in the process. It is at this step that assets generate value. All other steps generate costs.
eview. The assets should be monitored during the execution. Based on performance, corrective measures may be taken, including rePlanning and readjustment.
nalysis. The outcomes, achieved objectives, and overall effectiveness of the assets and their condition should be analyzed at the strategic level to make decisions about the future needs. The same goes for the lifecycle: whether the asset should be reallocated, upgraded to the next level, or retired.
Five new elements are added in between the core steps:
ake on. New assets may be purchased from the market. They can be developed in-house or retrieved from the existing assets after significant upgrade and modification.
nstallation. Before a new asset can be utilized, it must be prepared. The onboarding can include installing new equipment or training new employees. If the asset is reallocated from a different project or process, additional initialization or setup may be required.
versight. If an asset is not performing its function properly, it needs to be supervised and may require repair, maintenance, or support.
ext Level. At the strategic level, after the Analysis of the asset’s effectiveness, you have a possible decision about whether or not to bring the asset to a new level and give it a more responsible role. That may include upgrades of physical assets or promotion of people. Thus the asset starts a new life now joining the pool of more valuable assets.
end off. Another strategic decision may be made about replacing and disposal of the asset. If the effectiveness is below expectations or below average, the asset may be sold, scrapped, or retired.
There are several common problems with asset management. Among them these are most annoying:
- Cost of new asset acquisition
- Asset variability
- Build or buy decision
- Downtime and idle time
- Cost of ownership, utilization, efficiency, and effectiveness
- Disposal decision
Assets, be them tangible and intangible, or be they products or business units, employees or equipment, are usually expensive to acquire and develop. That is why there must be a very good reason for changing the status quo and spending money and effort on finding a good new asset. The process requires multiple steps: preparing requirements, scouting, assessment, making choices, saying “no”, accepting compromise if the found assets are not the ideal match, preparation, installation, etc. And sadly, by the end of the day, the asset may end up below expected performance. These painful chores are a common reason why managers don’t like to replace their current people and equipment. Even if they are unhappy with their current set of assets, they tend to hold onto them as long as possible. Although some of the assets are not effective enough, they are at least predictable, while the search for a replacement takes a lot of effort and risks only worsening the situation.
Another big problem is the variability of assets. Business likes standardization. Similar assets are interchangeable, they are easier to manage and maintain, and their performance is easier to predict and monitor. When a business is forced to acquire new assets from another supplier or another source, they start to suffer from the variability and they need more spare parts, more complex processes, and more experienced managers or technicians. This is why businesses love standards and hate to have a zoo of motley assets. The acquisition of new assets, especially if they are not fully compatible with the existing fleet, is a risky endeavor.
There are a lot of benefits to a business being able to develop assets in-house instead of buying them from outside vendors. The company can set up their own standards, reduce variability and costs, and keep their trade secrets protected. However, developing assets takes a lot of time, mature development processes and secure sources of components and aspirants. Only companies with established business models and predictable revenue streams can afford such a luxury.
As we may see, every asset is always a subject of an investment. They are built or bought with the expectation that over time they would be generating profits and pay back for the expense and risk taken. Thus, if they stay idle, it is a big problem. Idle time and downtime are periods when the assets burn money instead of generating a return on investment. The most painful moments are when one broken asset blocks the utilization of many connected others. It stays down and others stay idle. These situations generate huge losses. That is why oversight, monitoring, and maintenance are so important in large structures with multiple connected assets.
It is not always possible to keep all assets busy all the time. There may be peaks in utilization caused by uneven demand, and that requires keeping idle resources for such occasions. Also, high efficiency of a single asset does not always mean the best outcomes overall. That is why in a structure of interconnected assets, overall effectiveness is more important than individual efficiency. That means the importance of multi-level management and monitoring of existing resources.
As discussed above, a lot of managers dislike the disposal of existing assets. They tend to utilize an asset until the very end when it is completely broken and unrepairable or when an employee is burned out and quits. This is easy to understand, but an efficient “up or out” process may be very helpful in finding a better application for the assets that are not in their best form and place.
Leveling guide — Asset lifecycle
Let us observe 4 levels of maturity of asset lifecycle management procedures.
New assets are purchased only when there is an immediate need and the existing ones have finally fallen into disrepair. The purchase is done at the lowest effort, considering only two or three options from the nearest source. Acquired assets are then used based on the urgency of their need. The most important take all the attention while the remaining assets are not maintained and are left unsupervised.
There is a pool of assets. Procurement procedures are emerging. Tracking, resource utilization monitoring, and allocation procedures are introduced. However, as the number of assets grows, conflicts arise about who owns the resource and who should bear the cost of maintaining it when the resource is not utilized. The productivity of resources is not deeply analyzed and unproductive assets accumulate and cause losses until a company has a major crisis, and as a result massive cost reductions become inevitable.
A process for obtaining new assets has been established. Performance of resources is monitored and improved. Maintenance and upgrade plans are implemented in order to keep assets from malfunctioning. To prevent failures and downtime, reserves exist to replace a temporarily inoperable asset. There are decision-making processes for inefficient resources, including regular farewell procedures for those no longer of use.
The business actively discovers and creates channels for attracting assets with high potential. Afterwards, they conduct development programs and increase the level of their assets multiple times. Suppliers, recognizing the company’s strong brand, strive to offer their assets to procurement, enabling the business to build a quality funnel and buy high-quality resources below market value. An advanced monitoring system allows optimizing performance, and predictive repairs prevent major failures and long downtime. When time comes to say farewell, a business knows how to sell assets at a non-zero cost, receiving compensation even from resources that have served their purpose.