Enterprise Asset Management (EAM) is not just a tool but a cornerstone of intelligent operations management. Good executives understand that managing asset lifecycles based upon a Total Cost of Ownership (TCO) will positively impact the profitability of the company by lowering operational costs. The additional margin gains can be used to for competitive pricing adjustments, the purchasing of new assets, or become part of the reported earnings. Key to achieving the desired gains is an understanding of the relationship between asset lifecycles and TCO and how an EAM maximizes the potential.
Understanding The Asset Lifecycle
In the simplest terms, an asset’s lifecycle starts with planning, continues through its regular operational phase and into the capital planning phase where retrofitting or major improvements take place. The assets lifecycle ends when it is either retired or replaced. A more detailed view can be found in a paper titled Asset Lifecycle Model for Total Cost of Ownership Management. The paper identifies 12 essential areas to consider for the TCO of assets. Of the 12 areas mentioned a properly implemented EAM can become the primary source of maintenance management and data collection/analysis for over 7 of the identified areas. The affected areas can be grouped into two major categories of MRO and Capital Expenditure Control. In these two categories an EAM becomes an indispensable tool.
EAM Managed Maintenance Repair and Operations (MRO)
This section describes the 4 operational areas where the total costs of ownership for assets can be influenced the most using an EAM solution for facility and building operations.
- Operations: Includes all daily activities including normal maintenance, minor repairs, predictive maintenance, inspections as well as the day to day related activities such as contract and vendor management. An EAM creates a database of all asset information including associated documents, descriptions, locations, work orders and their associated costs. All work request and work order details are recorded. Maintenance managers can then produce reports identifying scheduled work to be done or what maintenance tasks have been completed.
- Planned Maintenance: This includes all preventive maintenance programs as well as maintenance tasks that are periodic or whose cycle exceeds one year.
- User Requested Needs: This category covers the management of all emergency or unplanned/unscheduled maintenance. Ideally, there is never a need for emergency repairs or unplanned maintenance, however implementing an EAM system will ensure that maintenance management has the flexibility to address problems with minimal overtime through increased efficiencies brought about by planning regular and preventive maintenance tasks.
- Repairs: Repairs are separated under TCO from maintenance activities because it is important to understand the reasons for the repair as well as capture crucial information needed to make asset decisions. Repair work includes any work performed to return equipment to service after a failure, or to make significant improvements in efficiencies. The processing of all work orders and requests through an EAM will ensure that the costs, reasons for work request and solutions are all recorded and available for analysis to determine the appropriate cost/benefit solution going forward.
“A planned, controlled program of periodic inspection, adjustment, cleaning, lubrication and/or selective parts replacement of components, and minor repair, as well as performance testing and analysis intended to maximize the reliability, performance, and lifecycle of building systems, equipment, etc.”
Source: A Framework for Facilities Lifecycle Cost Management
An EAM system provides the tools needed to schedule preventive maintenance as well automate the work order and maintenance functions. All work is recorded for use in areas 5-7.
Capital Expenditure Control with an EAM
The next three areas draw upon the EAM capital budgeting planning tools available. By analyzing all the information recorded in areas 1-4, facility and building managers should be able to accurately access the costs of maintaining an asset versus the expected benefit to be received. This enables management to make financially sound decisions on capital expenditures for:
- Retrofitting/Upgrades: This type of capital expenditure covers the costs to make current assets achieve new levels of efficiencies or significantly lengthen the assets lifecycle.
- Improvements: Improvements refers to changes made to accommodate technological advances, regulatory requirements or adjust to new uses.
- Replacement/Retirement: Replacement or retirement marks the end of the useful lifecycle of an asset in its current capacity. The change may occur as a result of permanent failure, constant failures or part of a budgeted plan. Regardless of the reason, it is imperative that organizations be able to accurately project the end of an assets lifecycle.
The key to a successful use of an EAM/CMMS is in the setup. It is important to spend the necessary time upfront setting up the asset detail, conducting EAM training on the different features as well setting up the benchmarks to measure success.
Share with us the steps/procedures your company takes to manage operations and capital budgeting.
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