Utility shareholders and regulators are demanding dramatic business improvements in a corporate environment that limits the utility’s options. Today’s utilities are smaller, leaner companies facing fixed utility rates, more regulations, and increased insistence on better performance from existing resources and assets. The demands on senior management have increased while the opportunities for quick results through staff reductions and process improvements are limited.
Some utilities are making minimal investments and talking about continued process improvement – doing what they are doing now, but doing it incrementally better. However, incremental changes won’t make the substantial improvements that senior management and company shareholders are expecting.
Leading utilities are not settling for incremental improvement. They are seeking dramatic improvements through unification of their asset, systems and data. They are rethinking who they are, what they need, and how they do their work. If they don’t, they will be left behind by those who do.
Utility managers are realizing that they are asset owners in asset-intensive companies. As owners, their objectives are to maximize the utilization of their assets. This leads the owners to ask different questions than their predecessors did, seek new performance measures, and require new asset-oriented systems.
In Part I, of this two-part series, we will review the questions asset managers are asking and why a new asset registry capability that determines asset life cycle history and accumulated costs is required for business improvement. We will also discuss applying a new investment measurement, Return on Asset Investment (ROAI), to compare potential investments in different assets. ROAI considers the value of the assets in producing revenue.
Traditionally, utilities have been organized along capital and operations activities in the office and the field. Enabled through the implementation of “best-of-breed” systems, this culture results in organizational silos that prevent employees from operating at their fullest potential. As utilities recognize these silos and seek to remove them, they can operate more effectively as a unified organization.
Part II of this article presents a recommendation for the unification of office and field capability as a method to reduce costs and make the office and the field more effective. Unification requires organizational, cultural, and system changes. By moving more office capability to the field and aggressively removing barriers between the office and the field, utilities can make dramatic productivity improvements.
The relationship between the utility and its contractors is similar in many ways to the relationship between the office and the field. By expanding access to corporate systems to the contractor, in the contractor’s office via the Internet, the contractor’s role can be expanded, redundant effort eliminated, and the overhead of contracting minimized.
In short, utility organizations can make dramatic improvements by focusing on their existing assets and unifying their workforce. New systems and cultural changes are required to reduce costs and achieve the full potential of the utility workforce. This article discusses both.
Utilities – Asset Intensive Companies
In a utility that has generation, transmission, distribution, and retail segments the transmission and distribution segments will spend most of their revenues on the extension and maintenance of the utility network – that is, the utility’s assets. These regulated business segments (Wires and Pipes) acquire and maintain assets rather than generate or sell energy. As the utility environment continues to change, the managers of these business segments are recognizing that they are managing asset-intensive companies and asset ownership is their core business. Even vertically organized utilities, with all the business segments present in a single company, spend most of their non-energy acquisition budget on their assets.
As asset owners, the regulated utilities face conflicting issues:
Asset Managers Ask Different Questions
Managers who have recognized the importance of asset management are exploring ways to measure return on asset investment, extend the useful life of their assets, and better utilize their existing assets. They are also changing the way they deploy their resources, what they expect of their resources, and how they measure asset impact.
Utility managers, motivated to manage their assets better, ask questions like:
• What is the full life cycle history of an asset?
• What impact does the asset have on delivery of energy and revenue production?
• What expenditures has the utility made on the asset?
• What is the return on asset investment?
• How can the maintenance and inspection budget be allocated to increase asset life while maintaining reliability standards?
Asset Life Cycle Components
To answer these questions, asset managers need data that is captured and organized differently. For each asset, they need to know each life cycle event, its associated costs, and its effect on the asset’s reliability and expected life time. With this history, managers perform an asset oriented analysis to drive asset based decisions. Asset life cycle history should include:
• Implementation including cost of equipment and installation prorated to the individual asset
• Design parameters – the distinguishing features of the asset and the engineering parameters required for detailed analysis
• Compliance, inspection, and maintenance events including the evaluated status
and associated costs
• Asset utilization parameters and events (sometimes called condition factors) – faults, loads, power factors, etc.
• Maintenance procedures performed on
the asset and associated costs – refurbishments, treatments, reconfiguration, etc.
• Special environmental conditions (temperature if unusual, salt water conditions, etc.)
• Decommissioning events and associated costs
Since the information is organized by asset, the cost of operations that are performed on several assets should be prorated in a consistent and meaningful manner to the individual asset.
Life Cycle History Drives Cost Reductions
The asset life cycle history provides the raw data that drives an analysis that helps determine:
• The most cost effective manufacturer based on the total cost of ownership for new asset purchases
• Configuration changes and how they affect the expected life of the asset
• Maintenance procedures and budgets that meet compliance requirements, reduce costs, and increase asset useful life times
• Replacement strategies – if the status of the asset indicates it has minimal degradation, should the utility replace the asset as it nears the end of its design lifetime?
Measuring Return on Asset Investment
Return on Investment (ROI) is a popular financial measurement used to determine whether an investment should be made and which of several investment alternatives offers the most financial benefit. ROI compares major projects such as acquisition of a new system, the extension of a gas main, or the implementation of a pole life extension effort. ROI is based on best guess estimates of future productivity, value appreciation, etc. Uncertainty is often part of the consideration and is compensated for by the mangers who perform the assessment.
Return on Asset Investment (ROAI) is a different measure that helps evaluate the relative importance of different asset investments. While ROI is typically a measure of the value of a complete project, ROAI is used to compare asset alternatives within the context of a larger project.
A Maintenance Example Using ROAI
For example, suppose your company has decided, based on an ROI analysis, to invest in increased maintenance. As a regional manager you want to apply that investment to provide the most ROI by determining the most effective maintenance (or replacement) strategy for each districts. You want to determine a more reasoned strategy than giving each division an equal share of the budget. ROAI provides a consistent, objective way to compare the long-term impact of various operations on the assets in each division.Suppose investing in the maintenance of a particular type of facility reduces the probability of failure for ten years and also extends the facility’s expected life ten years. Other maintenance procedures for different assets offer different advantages. With a limited budget, the problem is to determine an optimal maintenance strategy for all assets in order to maximize the ROAI. The comparison is between doing nothing to an asset against doing specific maintenance to selected assets.
One component of the value of performing the maintenance is the cost avoidance of buying and maintaining a new asset over the additional expected life time minus the cost of implementing the maintenance. However, there is more to computing ROAI.
If the asset is critical to a sub-transmission line located near the substation, it is more valuable than the same asset controlling the energy provided to the local dry cleaners. It may be the same type of facility but the impact of a potential failure is dependent on the use of the facility in the network. The impact is also a function of the level of redundancy in network paths and the time required to repair the asset or reconfigure the network. Thus the manager should consider the reduced probability of asset failure and the cost avoidance of the failure if the asset is better maintained within the context of the network.
Some utilities offer different grades of service at different rates. The value of the asset can also consider the revenue of the downstream customers prorated to the asset.
Not surprisingly, the general result of the complete ROAI analysis is that the most expensive facilities and those that are responsible for more downstream load (or downstream revenue) will be maintained first. However, once these facilities are maintained and the probability of failure for these facilities is reduced, other facilities with less impact will offer further ROAI and they can be scheduled for maintenance. The strength of the ROAI calculations is to determine various tradeoffs for the expenditure of a finite pool of dollars, based on a technical analysis rather than time-based maintenance that treats each asset as having equal importance.
This example is a variation on Reliability Centered Maintenance or RCM. The difference is that instead of using reliability as a measure of the value of a maintenance strategy, the ROAI investment uses evaluated cost avoidance.
Asset Oriented Systems
Most utilities have a wide range of systems that were developed to manage specific aspects of the life cycle of their assets. These are mature systems developed over the last twenty years and typically they perform their functions very well. See Figure 1.
However, managers are quickly learning that their specialized systems don’t maintain a life cycle history of the assets, can’t determine all the costs associated with the asset, and don’t have a measure for return on asset investment. The systems don’t provide the relative value of the asset in delivering energy or producing revenue.
To retain the required asset information, managers need an asset data repository that provides a definitive record of all the assets and unifies all the activities and information associated with each asset. Without new tools and new data stores, utility managers are forced to manage assets in virtually the same manner as their predecessors did fifteen or more years ago.
New Capability Required – Asset Repository
The data necessary to determine an asset’s life cycle history and ROAI
is available from the existing asset systems but the systems are scattered throughout the organization, making manual computations impractical. The asset data needs to be organized by asset and aggregated into an Asset Repository.
The Asset Repository stores the following data for each asset:
• Basic asset data including engineering parameters, location,
and distinguishing attributes such as manufacturer and serial number
• Current network configuration
(if not available via the other systems)
• All life cycle events for each asset
• Complete cost history from procurement to abandonment including maintenance and configuration changes
• Compliance history (inspection, maintenance, or repair); the Repository may also be the system of record to demonstrate
compliance
• Revenue billed and collected prorated to the assets
• Load profiles
• Measures of the financial value of the asset
The Asset Repository will include the analysis tools to present life cycle history (events and costs) and ROAI for potential plans, alternate configurations, and system betterment evaluation.
The representative distribution utility system architecture presented in Figure 2 has many different components. These components all capture and maintain data associated with the asset and the work processes. Understandably, the utility doesn’t want to add another complicated process, redundant data entry and more system maintenance to implement the Asset Repository.
But in today’s system architecture, adding another system doesn’t have to mean redundant data entry and increased maintenance effort. Modern integration capabilities with service oriented architectures and Enterprise Application Integration (EAI) capabilities allow systems to “steward” data for other systems without any additional user effort.
An Example of EAI in Action
For example, consider a network expansion job. Assuming the work management and GIS systems have been integrated using a graphical design tool (GDT) capability, the work process proceeds non-redundantly. The GIS and the GDT capture the new assets, modify the connected network, and determine location based data. In the process, the GDT automatically designs the job for the work management system using compatible units. The work management system captures the work process, requisitions material, schedules the work, and stores all labor, equipment, and asset costs. As the work is completed and approved, the GIS posts the version of the work in progress to the as-constructed spatial database.
The work management system, integrated with the financial system, captures all the costs of each process step.
During these work finalization processes, the GIS and work management systems issue messages to the enterprise. Systems like the Asset Repository are waiting to receive and process these messages. The message processing inserts the new assets into the Asset Repository, associates the attributes and connectivity from the GIS, prorates the cost to the assets involved, and starts the maintenance and inspection process. All of this takes place transparently to the user through the automatic generation, transmission, and processing of messages.
As described here, this EAI process is called a “loose coupling” because component systems can be modified, upgraded, or replaced without changing the integration capability. If a new system can create and process the messages in a compatible manner the integration continues to work unchanged.
By focusing on the true cost of assets and unifying their systems and data, utilities can improve their reliability and safety records while reducing maintenance and inspection costs, and increasing the expected life time of their assets.
By analyzing asset life cycle information and by maintaining, designing, and implementing assets guided by return on asset investment or ROAI, utilities can get more from their assets for less investment.
The end result will be a greater capability for the utility to meet shareholder and regulator demands, as well as the service expectations of the utility’s customers.
Once a utility has effectively decided what should be done and when it should be done, it needs to consider how, where, and who should do the work. This is the subject for the second part of this article appearing next month in Electric Energy T&D, March/April issue.
About the Author
Chuck Drinnan is Executive Consultant for LogicaCMG’s energy and utilities division located in Houston, Texas. He has over 30 years of experience in asset and resource management for the utility industry. Chuck can be reached at chuck.drinnan@logicacmg.com or call 1-800-334-7101.
LogicaCMG is a global IT solutions company, providing systems integration, consulting, products and services. LogicaCMG’s Asset & Resource Management (ARM) product suite includes work management, mobile computing, asset management, compliance tracking, scheduling, and reporting capabilities delivered as a pre-integrated, seamless solution. For additional information visit our web site at www.logicacmg.com/us.
Some utilities are making minimal investments and talking about continued process improvement – doing what they are doing now, but doing it incrementally better. However, incremental changes won’t make the substantial improvements that senior management and company shareholders are expecting.
Leading utilities are not settling for incremental improvement. They are seeking dramatic improvements through unification of their asset, systems and data. They are rethinking who they are, what they need, and how they do their work. If they don’t, they will be left behind by those who do.
Utility managers are realizing that they are asset owners in asset-intensive companies. As owners, their objectives are to maximize the utilization of their assets. This leads the owners to ask different questions than their predecessors did, seek new performance measures, and require new asset-oriented systems.
In Part I, of this two-part series, we will review the questions asset managers are asking and why a new asset registry capability that determines asset life cycle history and accumulated costs is required for business improvement. We will also discuss applying a new investment measurement, Return on Asset Investment (ROAI), to compare potential investments in different assets. ROAI considers the value of the assets in producing revenue.
Traditionally, utilities have been organized along capital and operations activities in the office and the field. Enabled through the implementation of “best-of-breed” systems, this culture results in organizational silos that prevent employees from operating at their fullest potential. As utilities recognize these silos and seek to remove them, they can operate more effectively as a unified organization.
Part II of this article presents a recommendation for the unification of office and field capability as a method to reduce costs and make the office and the field more effective. Unification requires organizational, cultural, and system changes. By moving more office capability to the field and aggressively removing barriers between the office and the field, utilities can make dramatic productivity improvements.
The relationship between the utility and its contractors is similar in many ways to the relationship between the office and the field. By expanding access to corporate systems to the contractor, in the contractor’s office via the Internet, the contractor’s role can be expanded, redundant effort eliminated, and the overhead of contracting minimized.
In short, utility organizations can make dramatic improvements by focusing on their existing assets and unifying their workforce. New systems and cultural changes are required to reduce costs and achieve the full potential of the utility workforce. This article discusses both.
Utilities – Asset Intensive Companies
In a utility that has generation, transmission, distribution, and retail segments the transmission and distribution segments will spend most of their revenues on the extension and maintenance of the utility network – that is, the utility’s assets. These regulated business segments (Wires and Pipes) acquire and maintain assets rather than generate or sell energy. As the utility environment continues to change, the managers of these business segments are recognizing that they are managing asset-intensive companies and asset ownership is their core business. Even vertically organized utilities, with all the business segments present in a single company, spend most of their non-energy acquisition budget on their assets.
As asset owners, the regulated utilities face conflicting issues:
- • Demand for profits and ROI
• Retiring institutional knowledge
• Increased reliability requirements
• Performance based rates
• Aging infrastructure
• Reduced capital budgets
Asset Managers Ask Different Questions
Managers who have recognized the importance of asset management are exploring ways to measure return on asset investment, extend the useful life of their assets, and better utilize their existing assets. They are also changing the way they deploy their resources, what they expect of their resources, and how they measure asset impact.
Utility managers, motivated to manage their assets better, ask questions like:
• What is the full life cycle history of an asset?
• What impact does the asset have on delivery of energy and revenue production?
• What expenditures has the utility made on the asset?
• What is the return on asset investment?
• How can the maintenance and inspection budget be allocated to increase asset life while maintaining reliability standards?
Asset Life Cycle Components
To answer these questions, asset managers need data that is captured and organized differently. For each asset, they need to know each life cycle event, its associated costs, and its effect on the asset’s reliability and expected life time. With this history, managers perform an asset oriented analysis to drive asset based decisions. Asset life cycle history should include:
• Implementation including cost of equipment and installation prorated to the individual asset
• Design parameters – the distinguishing features of the asset and the engineering parameters required for detailed analysis
• Compliance, inspection, and maintenance events including the evaluated status
and associated costs
• Asset utilization parameters and events (sometimes called condition factors) – faults, loads, power factors, etc.
• Maintenance procedures performed on
the asset and associated costs – refurbishments, treatments, reconfiguration, etc.
• Special environmental conditions (temperature if unusual, salt water conditions, etc.)
• Decommissioning events and associated costs
Since the information is organized by asset, the cost of operations that are performed on several assets should be prorated in a consistent and meaningful manner to the individual asset.
Life Cycle History Drives Cost Reductions
The asset life cycle history provides the raw data that drives an analysis that helps determine:
• The most cost effective manufacturer based on the total cost of ownership for new asset purchases
• Configuration changes and how they affect the expected life of the asset
• Maintenance procedures and budgets that meet compliance requirements, reduce costs, and increase asset useful life times
• Replacement strategies – if the status of the asset indicates it has minimal degradation, should the utility replace the asset as it nears the end of its design lifetime?
Measuring Return on Asset Investment
Return on Investment (ROI) is a popular financial measurement used to determine whether an investment should be made and which of several investment alternatives offers the most financial benefit. ROI compares major projects such as acquisition of a new system, the extension of a gas main, or the implementation of a pole life extension effort. ROI is based on best guess estimates of future productivity, value appreciation, etc. Uncertainty is often part of the consideration and is compensated for by the mangers who perform the assessment.
Return on Asset Investment (ROAI) is a different measure that helps evaluate the relative importance of different asset investments. While ROI is typically a measure of the value of a complete project, ROAI is used to compare asset alternatives within the context of a larger project.
A Maintenance Example Using ROAI
For example, suppose your company has decided, based on an ROI analysis, to invest in increased maintenance. As a regional manager you want to apply that investment to provide the most ROI by determining the most effective maintenance (or replacement) strategy for each districts. You want to determine a more reasoned strategy than giving each division an equal share of the budget. ROAI provides a consistent, objective way to compare the long-term impact of various operations on the assets in each division.Suppose investing in the maintenance of a particular type of facility reduces the probability of failure for ten years and also extends the facility’s expected life ten years. Other maintenance procedures for different assets offer different advantages. With a limited budget, the problem is to determine an optimal maintenance strategy for all assets in order to maximize the ROAI. The comparison is between doing nothing to an asset against doing specific maintenance to selected assets.
One component of the value of performing the maintenance is the cost avoidance of buying and maintaining a new asset over the additional expected life time minus the cost of implementing the maintenance. However, there is more to computing ROAI.
If the asset is critical to a sub-transmission line located near the substation, it is more valuable than the same asset controlling the energy provided to the local dry cleaners. It may be the same type of facility but the impact of a potential failure is dependent on the use of the facility in the network. The impact is also a function of the level of redundancy in network paths and the time required to repair the asset or reconfigure the network. Thus the manager should consider the reduced probability of asset failure and the cost avoidance of the failure if the asset is better maintained within the context of the network.
Some utilities offer different grades of service at different rates. The value of the asset can also consider the revenue of the downstream customers prorated to the asset.
Not surprisingly, the general result of the complete ROAI analysis is that the most expensive facilities and those that are responsible for more downstream load (or downstream revenue) will be maintained first. However, once these facilities are maintained and the probability of failure for these facilities is reduced, other facilities with less impact will offer further ROAI and they can be scheduled for maintenance. The strength of the ROAI calculations is to determine various tradeoffs for the expenditure of a finite pool of dollars, based on a technical analysis rather than time-based maintenance that treats each asset as having equal importance.
This example is a variation on Reliability Centered Maintenance or RCM. The difference is that instead of using reliability as a measure of the value of a maintenance strategy, the ROAI investment uses evaluated cost avoidance.
Asset Oriented Systems
Most utilities have a wide range of systems that were developed to manage specific aspects of the life cycle of their assets. These are mature systems developed over the last twenty years and typically they perform their functions very well. See Figure 1.
However, managers are quickly learning that their specialized systems don’t maintain a life cycle history of the assets, can’t determine all the costs associated with the asset, and don’t have a measure for return on asset investment. The systems don’t provide the relative value of the asset in delivering energy or producing revenue.
To retain the required asset information, managers need an asset data repository that provides a definitive record of all the assets and unifies all the activities and information associated with each asset. Without new tools and new data stores, utility managers are forced to manage assets in virtually the same manner as their predecessors did fifteen or more years ago.
New Capability Required – Asset Repository
The data necessary to determine an asset’s life cycle history and ROAI
is available from the existing asset systems but the systems are scattered throughout the organization, making manual computations impractical. The asset data needs to be organized by asset and aggregated into an Asset Repository.
The Asset Repository stores the following data for each asset:
• Basic asset data including engineering parameters, location,
and distinguishing attributes such as manufacturer and serial number
• Current network configuration
(if not available via the other systems)
• All life cycle events for each asset
• Complete cost history from procurement to abandonment including maintenance and configuration changes
• Compliance history (inspection, maintenance, or repair); the Repository may also be the system of record to demonstrate
compliance
• Revenue billed and collected prorated to the assets
• Load profiles
• Measures of the financial value of the asset
The Asset Repository will include the analysis tools to present life cycle history (events and costs) and ROAI for potential plans, alternate configurations, and system betterment evaluation.
The representative distribution utility system architecture presented in Figure 2 has many different components. These components all capture and maintain data associated with the asset and the work processes. Understandably, the utility doesn’t want to add another complicated process, redundant data entry and more system maintenance to implement the Asset Repository.
But in today’s system architecture, adding another system doesn’t have to mean redundant data entry and increased maintenance effort. Modern integration capabilities with service oriented architectures and Enterprise Application Integration (EAI) capabilities allow systems to “steward” data for other systems without any additional user effort.
An Example of EAI in Action
For example, consider a network expansion job. Assuming the work management and GIS systems have been integrated using a graphical design tool (GDT) capability, the work process proceeds non-redundantly. The GIS and the GDT capture the new assets, modify the connected network, and determine location based data. In the process, the GDT automatically designs the job for the work management system using compatible units. The work management system captures the work process, requisitions material, schedules the work, and stores all labor, equipment, and asset costs. As the work is completed and approved, the GIS posts the version of the work in progress to the as-constructed spatial database.
The work management system, integrated with the financial system, captures all the costs of each process step.
During these work finalization processes, the GIS and work management systems issue messages to the enterprise. Systems like the Asset Repository are waiting to receive and process these messages. The message processing inserts the new assets into the Asset Repository, associates the attributes and connectivity from the GIS, prorates the cost to the assets involved, and starts the maintenance and inspection process. All of this takes place transparently to the user through the automatic generation, transmission, and processing of messages.
As described here, this EAI process is called a “loose coupling” because component systems can be modified, upgraded, or replaced without changing the integration capability. If a new system can create and process the messages in a compatible manner the integration continues to work unchanged.
By focusing on the true cost of assets and unifying their systems and data, utilities can improve their reliability and safety records while reducing maintenance and inspection costs, and increasing the expected life time of their assets.
By analyzing asset life cycle information and by maintaining, designing, and implementing assets guided by return on asset investment or ROAI, utilities can get more from their assets for less investment.
The end result will be a greater capability for the utility to meet shareholder and regulator demands, as well as the service expectations of the utility’s customers.
Once a utility has effectively decided what should be done and when it should be done, it needs to consider how, where, and who should do the work. This is the subject for the second part of this article appearing next month in Electric Energy T&D, March/April issue.
About the Author
Chuck Drinnan is Executive Consultant for LogicaCMG’s energy and utilities division located in Houston, Texas. He has over 30 years of experience in asset and resource management for the utility industry. Chuck can be reached at chuck.drinnan@logicacmg.com or call 1-800-334-7101.
LogicaCMG is a global IT solutions company, providing systems integration, consulting, products and services. LogicaCMG’s Asset & Resource Management (ARM) product suite includes work management, mobile computing, asset management, compliance tracking, scheduling, and reporting capabilities delivered as a pre-integrated, seamless solution. For additional information visit our web site at www.logicacmg.com/us.
