Rob van Dongen

Executive Consultant

Mainnovation

rob.van.dongen@mainnovation.com

The major question for most companies in the current economic climate is how can maintenance create value for the company and how can it contribute to a sustainable business during the remaining lifetime or even longer? It is obvious that a lot of internal and external influences have an impact on the way that maintenance can contribute to the company’s business values and results  

Maintenance Strategy and Business Objectives

Adding value to the company from maintenance perspective is most of the times interpreted by the company’s board as maintenance budget reduction. During economically bad times this can be the right strategy, but there is more. In Mainnovation’s Value Driven Maintenance®-methodology (VDM), added value is defined as the sum of all free future cash flows discounted to today generated by maintenance initiatives on an asset during its remaining lifetime. As shown in Figure 1, VDM distinguishes four value drivers:

• Cost Control is the most common. By reducing the costs for maintenance execution (less expenses, less negative cash flow), value is created.
• Asset Utilization is focusing on uptime optimization or increasing availability of the asset. By realizing this, the company’s revenues can increase and a positive cash flow is generated.
• Safety, Health & Environment (SHE) control is focusing on maintaining the license to operate for the company. Once applicable legislation and regulations are not met, the company will have problems in keeping the assets (partially) operational. This business risk can be converted into negative cash flow once it occurs. Besides that, the penalties from regulators for violating laws or regulations are certainly negative cash flows. To avoid this business risk will generate added value to the company.
• Resource Allocation helps generating value by reducing the amount of investments needed to operate an asset during its lifetime or longer. In case a company invests in lifetime extension and the total investment – including the business benefits from operating the asset longer – exceed the interest of investing in a new asset, added value has been created.

Figure 1. Maintenance value drivers.

Figure 2. Value drivers during asset lifetime.

Value optimization is only possible by focusing on only one value driver, the dominant value driver which is the one which, based on the current performance of the maintenance department and the achievable improvements, will add the most value to the company.

Case: It is interesting to see how the maintenance strategy of a multinational Corporate has been changed based on the calculation of the value drivers. The company assumed that cost reduction was the right maintenance strategy. Based on achievable value creation, it became obvious that improving asset utilization added EUR 38 million more than cost reduction during the remaining lifetime with equal performances on SHE and Cost Control.  

Maintenance Strategies During the Asset Lifecycle

What is the impact of the remaining lifetime on the dominant value driver? Figure 2 shows an example of a general asset and the impact of the market developments and dominant value drivers. During a strong market demand growth, focus on asset utilization optimization seems logical. That is however only true when the company is able to sell the extra products that are produced. During a phase of stable market demand, it is sometimes possible to sell extra products and focus on asset utilization becomes dominant and in other phases Cost Control will be dominant. During the lifetime of an asset, this cycle of growth and maturity may occur more than once.

During the last phase of the assets lifecycle resource allocation may become dominant. A rule of thumb is that about 5–7 years before end of life, the added value of lifetime extension exceeds the achievable value creation of the other value drivers.

Case: The asset manager of a distribution network implemented a Long Term Asset Planning (LTAP) to determine when critical assets in his network reached end of life. Once this LTAP was established he determined the total investments needed to replace those assets. As a second scenario he determined was the investments for lifetime extension of the same group of assets. Based on the achievable lifetime extension, the reduction of capital investments was about 11 %. An interesting side effect of this lifetime discussion was also the fact that the annual maintenance costs decreased by 7 % and in total the added value was about EUR 25 million. The company switched from the past practice of replacing old to the new strategy of lifetime extension.  

Click Image to Enlarge

Figure 3. Overview key elements in performance management.

Value Creation with Performance Management

To be able to create value, the determination of a dominant value driver is just the start and based on this, the maintenance strategy can be developed to reach the achievable improvements. Implementing and executing this maintenance strategy is necessary to create value. Professional maintenance and asset management organizations are capable of changing their maintenance strategies with respect to corporate objectives, but more importantly with respect to their dominant value driver. Such maintenance organizations have certain characteristics in common. The relationship between those elements is shown in Figure 3.

• A clear and detailed overview of their own performances based on internal and/or external benchmarking information.
• A translation of the targeted business objectives to maintenance objectives and a set of Key Performance Indicators (KPI’s) and Performance Indictors (PI’s) that will help them to measure their current performance versus those targets.
• Implemented best working practices as a part of the corporate processes, which can be used when the maintenance strategy asks for it and are implemented in the overall EAM/CMMS-solutions.
• Clear responsibilities linked to roles and functions in combination with a performance oriented meeting structure that covers the complete plan-do-check-act cycle.

Based on benchmarking information, the maintenance organization determines to which extent its performances can be improved (realistic and achievable improvement targets). Many companies with multiple sites or with a large number of similar assets, use internal benchmarking to determine this.

External benchmarking databases with relevant maintenance information are available but in limited numbers. The use of a standardized set of corporate maintenance KPI’s and PI’s is crucial in order to translate the corporate objectives to maintenance targets and to measure actuals versus targets.

On the organizational side of performance management, it is necessary to have clear responsibilities in your maintenance department – “who is responsible to achieve which target” is the main question. During performance review meetings deviations between actuals and targets are explained, but more important are the follow-up actions set to reach the targets and to add value to the company.

Case: A global player in the oil and gas industry soon will launch operations of a brand new plant. This plant has to meet extreme high performance characteristics to be profitable. Taking into account that the operating outlook of this plant is less than a day, the organization needs to be very flexible and accurate. It is obvious that full attention will be paid to asset utilization as the dominant value driver during the first years of the lifecycle. But the owner of the plant has a long term focus and wants a best in class organization that is capable of changing its maintenance strategy in case it is needed. Therefore, a complete operations and maintenance process map has been developed – including best practices for asset utilization, cost control, SHE-control and resource allocation. Together with a standardized set of KPI’s and PI’s, supporting ITsystems have been configured and a performance dashboard will be implemented.  

Conclusion

Once a maintenance strategy has been determined, it is necessary to realize targets. But this does not mean that only the dominant value driver and the related performances need to be managed. Creating value means that you have focus on improving one performance (for example asset utilization), but that the performances on other topics (cost control, SHE control) remain stable.

Taking into account the variety of assets in the energy industry and their different remaining lifetimes, it is wise to have an integrated methodology in place to cover the complete asset lifecycle.