Coal

Understanding Enterprise Asset Management

An interview with Fred Jennings, executive consultant,
management advisory services group, R. W. Beck

By Nancy Spring, Senior Editor

With the latest enterprise asset management tools, utilities can consolidate existing systems and create more efficiencies. That could mean better management, more accurate compliance and best of all, cost savings, but what exactly is enterprise asset management and how do you use it? Who needs it, where do you get it—and most of all, what will it cost?

We spoke with Fred Jennings, an executive consultant in R. W. Beck’s management advisory services group, in hopes of getting a better understanding of the “what” and “why” of enterprise asset management. Mr. Jennings is an industry-recognized expert with more than 28 years of consulting experience in the energy, electric and water resource utilities and telecommunications fields. He has extensive experience in business assessment, financial governance, integrated planning, and cost management and performance management focused on value creation within all utility sectors.

In his practice, he has also focused on capital resource optimization, business information systems and enabling technology deployment to address evolving industry challenges—in short, he’s the perfect person to querry about enterprise asset management (EAM).

Let’s start with a basic definition of enterprise asset management.

That’s probably very appropriate, because the titling has evolved over the last decade, since it really took on any particular meaning. Today, in general, EAM refers to a whole-life way to examine the management of physical assets in an organization. From initial design, construction, putting it into service, how you operate, maintain and ultimately take it out of service, it’s the natural course of costs involved during its life. It’s really what we consider lifecycle costing—that’s the key attribute today.

“Enterprise” is kind of a modern term that’s been applied to virtually everything but it does have some applicability in that we’re trying to move away from functional or departmental asset ownership and recognize that assets indeed are the domain of the entire enterprise. For example, one organization may design and construct it and another totally different organization operates it, yet they interact with each other because the operating costs and maintenance costs are dependent upon the design consideration made earlier and in a different department.

Is newly developed software driving the adoption of EAM?

I’ve seen an enormous evolution of software since I started consulting in 1979, and unfortunately there is still some latent belief that the solution is in the software.

The best software still will not get you what you need, but that said, sound, well-implemented, enabling software applications can facilitiate this lifecycle costing much more easily than without, and so the industry’s focus on that need certainly helps drive the market and helps facilitate users to accomplish the goals of EAM.

Are rising costs making EAM more important to the industry today?

There is an increased focus on general cost management and improved performance. The entire floor of acceptable performance and competitive cost is more in the focus today than many years ago. My own observation is that in the investor-owned utility market space, the clearly focused if somewhat myopic drive toward shareholder value—the demand for shareholder value—is so prevalent today that it’s also driving much of the need for not just cost reduction, but performance and efficiency enhancement.

I can envision EAM for large IOUs and municipal utilities, but is it also helpful for smaller munis and co-ops?

The same benefits accrue to anyone. It’s sound management. The first step in EAM really starts with understanding what assets you have. A utility of any size needs to know what it has, where it is and its condition.

Do utilities need to structure themselves differently to make EAM really work well?

That’s critically important. There have been efforts in the industry under the title EAM that have had more of a process focus to help make more careful asset investment decisions, techniques that look at why one asset investment would be made versus another based on, for instance, categories of risk. That’s a process orientation that applies to the organization. Beyond that, irrespective of how widely EAM is deployed in the organization, it’s still imperative that the organization embrace the process changes in order to positively effect its decision making.

Would the first step be to reach out externally and get help? For instance, to help people move away from spreadsheets?

In any new applications like this that affect the enterprise, we believe it’s absolutely critical to establish what the success factors and the end-state goals look like. Define what you really want to accomplish then do a current-state diagnostic that looks at where you are currently. With the contrast, you can find the most efficient steps to help you on a roadmap to your end-state.

As far as spreadsheets, there are some organizations in which they may be acceptable. I’m working in a municipal right now where a couple of people have massive spreadsheets. They’re very attentive; they know everything about all their substation equipment.

The challenge is, does the enterprise have visibility into it? Of course, that’s limited. Can the enterprise harvest full value from that information? The answer is no, because it’s more limited to the perspective of the individual. But it’s a great starting point for this organization and a good place to launch from.

The aging workforce is one of our industry’s greatest challenges. Will EAM processes and systems make it easier for the next generation to take over?

We know that capturing institutional knowledge before it leaves is a critical need in our industry. In electric utilities, we really have a shortage of applicants coming into the industry, so we’re driven to be more efficient with fewer human resources. Leveraging technology is one of the strategies for accomplishing that, but technology needs to be leveraged with a sustainable, visible process that operates independently of the individuals who happen to be there for a particular period of time.

Have you any idea what this would cost for a medium-sized utility, for example? Or is that impossible to estimate?

It’s really difficult to answer that for several reasons. For one thing, I wouldn’t know what legacy and enterprise systems they have right now. But if they are starting anew, organizations are spending one to two years to build an inventory with outside resources helping them, and then there’s the cost of the application itself.

There are a number of success stories in the industry—pole attachments, for example. We’re losing millions and millions of dollars by not managing all our pole attachments and collecting allowed revenue. Some utilities have said, “We’ve had enough,” and they’ve hired temporary staff to do a very fast-paced, intensive effort, to get ahead of the boulder that’s coming downhill at them. For mid-sized utilities, I’ve seen that done in a year.

So in terms of asset inventory for a mid-sized utility, with overhead and underground infrastructure, substations, if they really had a mess—chaotic, inconsistent, low-accuracy, low-confidence data—and needed to start anew, that’s probably a pretty intensive three-year effort. For that, I could see several millions of dollars, easily.

The application installation itself depends on the vendor. We have Oracle, SAP, IBM’s Maximo, and others—among those, they’re pretty pricey, getting into seven figures, just by virtue of their size. I’ve seen them for less, but remember, they are enterprise-wide. The key objective is to achieve a single version of the truth, so if you’re going to put in a system like EAM, it needs to have validity so your decision-making processes can rely on the data. Do it right, or you’re going to go down the path, spend a lot of money and still not have the inherent confidence and that will really shorten the value for the time and the direct out-of-pocket cost. Process-wise, that’s a year to two.

To leverage the EAM, there’s probably a year in the design, a year to get it implemented and probably another year to get it humming.

Do you know how many IOUs have EAM up and humming along?

I really don’t have a good sense of that, but I can say there are relatively few that I have seen that I think are where they want to be or should be. It’s not nascent, but we’re young in the institutionalization of what, in my broad view, asset management can and should do to help a utility operate in a very high-performing, efficient and capital-deployment-effective mode. Is your capital deployed? Is it effective? Does it do the job and in a cost-efficient way?

What other observations would you like to share?

My personal pet peeve. I have worked in installations of financial management, financial forecasting, budgeting, cost management, regulatory management, tools and systems for a broad range of IOUs. I’ve done custom cost reporting, I’ve worked to “get their data out of jail,” I’ve worked in a broad range of applications, and the fact is that I still wind-up coming in after the fact to help utilities harvest the value out of these enormous applications that they put in. It is so difficult to get them to invert the process.

We see it a little bit in AMI, AMR and MDMS, where there’s a reluctance to put themselves in the breach before they have really thought through what they want. In the case of AMI/AMR, there are multiple technological paths and they’re concerned about making technologically obsolecent decisions. And they should take the same approach with EAM. In the first year, spend your time to really define, at an enterprise-wide level, facilitiated by someone like R.W. Beck, what the vision is, what the functional needs are, what the future vision will look like, because it’s profoundly different from where you are today, and then go about writing the functional specifications and finding, selecting and implementing these tools. Now you can do it with performance testing, and you can pick more astutely and you can select implementation scheduling better and really know what you want to garner out of those applications.

And I thought you could just slap in the software and use it.

The most difficult aspect and challenge in any organization is getting the human element to change. Tools are easy compared to us humans. And that’s the part that gets short-shrifted. If it’s not working perfectly, we blame implementation, but the fact is we don’t recognize how difficult change management is. Some people see the vision but how it translates down into the pragmatic implemented efforts gets lost. To the extent that we can keep that focused early, I think the end results and efficiency improve multifold.

In many ways, I think this industry is at a crossroad where truly enabling technologies can fundamentally change the way we do business for the better, but it’s going to take some very bold and insightful leadership that isn’t just enamored by technology but recognizes the long-term, difficult process it will be to institutionalize those changes in the human resource element of the organizations. If we can stop being manual and dated and leverage current technologies, I think we can get information that heretofor has been onerous to collect and then harness computing power like we’ve never seen and let it help us with these decisions. In an industry that used to be called old and stodgy, I think we could redesign our entire industry. We’re going to break the way we’ve done business in the past. And that’s very exciting.


Editor’s Note. This article originally appeared in the July issue of Electric Light and Power magazine. At the time it was published, Nancy Spring was its Managing Editor.