Kuis Manajemen Aset I

3 The challenges facing public sector
asset management
Steven Male Professor of Property and Infrastructure Asset Management,
School of Civil Engineering, Institute for Resilient Infrastructure, University
of Leeds, UK
This chapter presents the challenges and options facing central government
in the domain of physical asset management. It explores these through the
outcomes of two government-funded research studies in this area conducted
by the University of Leeds. It argues that a paradigm shift is required in the
discipline of asset management – moving it away from being seen predomi-
nantly as a technically-focused discipline to one that has three interacting
and mutually-reinforcing components; an organisational-strategy component,
a government-policy component and the conventional technical component.
The chapter deals primarily with the consequences of this shift for the
management of the public sector asset base and the skills and capabilities
that are required.
1 Introduction: the challenges facing asset management

Public infrastructure assets are essential for continued national
economic, social and environmental development and prosperity. Infra-
structure assets take many forms. They can be civil engineering structure
type assets, such as roads, railways, airports, flood defences, ports and
harbours, water treatment plants, oil, gas and power plants, and the
distribution infrastructures of utilities. Alternatively, they can be asso-
ciated with building engineering structure type assets, such as schools,
healthcare facilities, manufacturing plants, retail and industrial outlets,
commercial offices, housing developments and different types of govern-
ment buildings. Many of these types of infrastructure assets are owned
and managed by the public sector, and many by the private sector.
Increasingly, however, with the privatisation of the public sector asset
base through forms of public–private partnership (e.g. private finance
initiatives (PFIs)), there are now combinations of public and private
sector organisations working in closer collaboration to manage the
public sector physical asset base.
As an emerging discipline, asset management will need to regularly
redefine its boundaries to encompass not only its traditional strengths
Asset management – Whole-life management of physical assets # Thomas Telford 2010
978-0-7277-3653-6 All rights reserved
Section 1: The challenges facing public sector asset management 51
at the technical level, but also its contribution to achieving organisational

strategy. More importantly, it will need to increase its influence on govern-
ment policy. The redefinition of the boundaries of asset management
requires a sense of urgency. Organisations – whether public, private or
hybrids – that rely heavily on physical assets to function will face
unprecedented challenges over the coming decades. Many of these
challenges will be due to the difficulties posed by climate change. The
recent report produced by the Intergovernmental Panel on Climate
Change (IPCC, 2007) observes that warming of the climate system is
indisputable. Simple extrapolations indicate that the costs of extreme
weather alone could reach 0.5–1% of world GDP per annum by the
middle of the 21st century, and will continue to rise as global warming
continues. The Stern Report (Stern, 2007) provides three examples of
potential impacts of climate change in the developed world:
. In the USA, a 5% or 10% increase in hurricane wind speed linked
to rising sea temperatures could result in a near doubling of the
annual damage costs.
. In the UK, annual flood losses alone could increase from 0.1% of
GDP today to 0.2–0.4% of GDP once the increase in global
average temperatures reaches 38C or 48C.
. In Europe, heat waves similar to those in 2003 when 35 000 people
died and agricultural losses reached $15 billion, will be common-
place by the middle of the century.
The report adds that, at higher temperatures, developed economies face a
growing risk of large-scale shocks. Swiss Re (2009) notes that, over the
coming decade, Europe is likely to experience increasing levels of storms
and flash floods as a direct result of climate change. These rising costs
could affect global financial markets through higher and more volatile
costs of insurance (Stern, 2007). Freeman and Warner (2001), using data
from the World Development Indicators, note that some 24% of invested
capital stock is public infrastructure. Clearly, the impact of climate change
on public infrastructure will be considerable and measured in billions of
pounds. Ralph Rayner goes into a great deal more detail on this subject
in his Chapter 8, ‘Incorporating climate change within asset management’.
UK infrastructure assets will need to handle greater uncertainties
arising from:
. changes in the demand and supply of finance, people, communities,
services and skills, and in society’s needs and expectations
. the need to be become more adaptive to, in particular, the impact
of climate change, to terrorist attacks and other crisis events
52 Asset management – Whole-life management of physical assets
. the need to be responsive to changes in technology, design, con-

struction methods and materials, procurement and, not least,
UK government and international policy, especially around
moves to low-carbon economies.
In categorising these changes, the first group can be termed ‘incremental

changes’, while the second group can be termed ‘shock changes’
(Fletcher, 2009). The third group can be termed ‘transitional changes’,
and these are a direct consequence of the impact of either incremental
or shock changes, or of both acting in tandem. In terms of shock and
transitional changes, the Stern Report notes there are three essential
elements of policy for mitigating the impacts of climate change and
moving to a low-carbon economy: a carbon price, technology policy,
and the removal of barriers to behavioural change. The report notes
that not addressing all these elements will significantly increase the
costs of subsequent action (Stern, 2007).
Governments are increasingly concerned about a range of
factors that are likely to impact safe, secure and sustainable forms of
new physical assets, but also about extending the life of existing
structures. The primary problem with physical assets is the lengthy
time it takes to create them. They also have differing operational and
performance parameters and requirements, which are also related to
differing timeframes. Finally, their longevity, which can often be
measured in decades, centuries or millennia, depending on their
heritage and cultural importance, means they need to be conserved,
protected, maintained, modernised or upgraded. This requires
different timed intervention strategies, and this is the domain of asset
management.
Against this backcloth, this chapter focuses on asset management in
the public sector. It brings together research findings from two studies:
one, conducted for the Office of Government Commerce (OGC), into
the asset management of the central government estate; and the
second, conducted for the OGC and the Commission for Architecture
and the Built Environment (CABE), into major capital investment in
procured constructed physical assets. The chapter addresses, in
particular, the challenges and options facing the public sector around
the third element of the Stern Report, i.e. inducing behavioural change
in the management of public sector assets to meet the challenges
ahead. In so doing, it considers the meaning of the term ‘resilient infra-
structure’, drawing out how the challenges identified above might be met
in practice, and the consequence for public sector skills and capabilities
in asset management.
2 Definitions
For clarity, this chapter has adopted the following definitions from BSI
PAS 55 (BSI, 2008):
. Asset management is the ‘systematic and coordinated activities and
practices through which an organization optimally and sustainably
manages its assets and asset systems, their associated performance,
risks and expenditures over their lifecycles for the purpose of
achieving its organizational strategic plan’ (BSI PAS 55, Part 1,
p. 2).
. An asset management system is the ‘organisation’s asset management
policy, asset management strategy, asset management objectives,
asset management plan(s) and the activities, processes and organiza-
tional structures necessary for their development, implementation
and continual improvement’ (BSI PAS 55, Part 1, p. 2).
In this context, the government as a whole, from central through to local

government, has placed an increasing emphasis on asset management.
Recently, central government, in particular, has focused on the need
for efficiency gains through increased embedding of asset management
across the central civil government estate.
3 The central civil government asset management base

The OGC, an independent office of HM Treasury, commissioned the
University of Leeds to investigate and report on the asset management
of the central civil government estate, which is worth some £220 billion.
The Leeds research was an outcome of a study conducted by Sir Michael
Lyons, concerned with asset management, covering tangible and
intangible assets (Lyons, 2004). Central government has under its
custodianship and stewardship a diverse and diffuse estate of physical
assets. These assets support service delivery to a wide and significant
customer base, including the machinery of government. The Leeds
study adopted the term ‘property assets’ to include land and built
assets comprising buildings and civil infrastructures. The term ‘property
asset management’ (PAM) was adopted to indicate a structured, holistic
and integrating approach for aligning and managing over time the
service delivery requirements and the performance of property assets
to meet departmental business objectives and drivers.
Comparisons were made with the USA and Australia. The experience
of UK local authorities, which had by that time been developing asset
management plans for at least 5 years, was also drawn on. The Leeds
study informed what was subsequently called the OGC ‘high performing
property’ (HPP) initiative and the programme for embedding PAM
across central civil government.
3.1 The public sector and property assets

In the UK public sector, a wide variety of organisational models deliver
the various outcomes required by Ministers of State (OPSR & HMT,
2002). In March 2005, the Cabinet Office noted that there were 910
public bodies sponsored by UK central government departments
(Cabinet Office, 2005). This figure comprised 21 public corporations,
the Bank of England, 26 National Health Service bodies and 862 non-
departmental public bodies (NDPBs). The NDPB group is made up of
211 executive NDPBs, 458 advisory NDPBs, 42 tribunal NDPBs
(tribunal systems rather than individual boards) and 151 independent
monitoring boards. The increase by 71 bodies since 2004 includes the
42 Courts Boards (the then Department for Constitutional Affairs
Advisory NDPBs) and 27 bodies that were already in existence but
had not been brought within the formal classification system. In
addition, there are around 390 local planning authorities, which have
an interest in physical infrastructure. The highly decentralised nature
of UK central government provides a substantial challenge for the
implementation of asset management across the central civil government
estate. This is addressed in the next section. The decentralisation of
government is set to continue.
3.2 The asset management organisation at central government

departmental level
There are a number of cross-government structural implications
involving the management of property assets. The Leeds study used
the International Infrastructure Management Manual (IAM, 2002) as a
benchmark for addressing the structure-of-government implications of
enhancing asset management across the central civil government
estate, including differences between a basic and advanced asset manage-
ment organisation. The Leeds study concluded that, depending on the
starting position, the successful implementation of PAM requires a
concerted and coordinated effort across any government organisation,
and could involve substantial organisational change. As a minimum,
an asset management coordinator is required who has sufficient
authority and resources to drive through the process and seek and
obtain inputs from personnel across the organisation. From the

published literature and fieldwork interviews, the study identified
issues regarding who should occupy this role and at what level in the
organisation it should be located. The experience of another central
government organisation, which had been seeking to embed asset
management in its ways of working, indicated that, at the very least, a
cross-function team would be needed. It was clear that these issues
needed to be addressed at many levels in government.
One of the key findings to emerge from a report produced by the UK
National Audit Office (NAO) is that, in situations where major organi-
sational change is required, perhaps through the adoption of a new
business model, property can become an enabler and a driver of that
change (NAO, 2006). For example, one government organisation
implementing a new service delivery model brought together expertise
at senior levels, from finance, information technology, human resources
and estate management, to think through and subsequently implement
the changes required across the organisation. This is an example of the
cross-functional, interdisciplinary demands of asset management that
Chris Lloyd discusses in his Chapter 7, ‘Developing the competence of
asset management staff ’.
Figure 3.1 sets out the framework within which PAM was to be
considered within central government departments. It shows PAM as
an activity and capability that fits between business strategy and plan-
ning, and involves the effective and efficient estate management by a
department, agency or other sponsored body. It was proposed that a
PAM Board should be set up, with a differentiation made in the asset
management framework between:
. Effectiveness, which is outcome and objectives driven, where the
focus is on ensuring the organisation does the right things in the
first place in terms of managing its assets. The outcome of this
analysis will be an appropriate property portfolio that is linked
to business strategy and services delivery. This also forms the
basis on which judgements can be made about appropriate prop-
erty asset ownership structures and the consequent impact on
estates strategy.
. Efficiency, which is process driven, follows from effectiveness, and
is concerned with ensuring that the right things are done with the
appropriate balance of inputs to outputs.
The federal structure within many government departments is still seen
as one of the more significant obstacles to rolling out a coherent, consis-
tent and common approach to PAM across the civil estate.
Organisational
forward direction, Business strategy
service delivery strategy.
Consider stage of organisational and planning
development and
feedback loop
Learning and
levels of organisational flux
Cross-unit and/or Locus of property

cross agency, asset management
NDPB, etc, Directing, influencing and challenging resources Gateway decisions on:
coordination, surrounding property asset base. Property asset/service
depending on Right portfolio, right location. dependency
organisational size, Integrating strategic thinking surrounding
Asset utilisation
business strategy, HRM, IT, change management,
stage of organisational Property asset location
finance and the property asset base.
development Developing, managing and signing-off
Property asset capacity
and asset management plans Property asset functionality
property asset base
Effectiveness: doing the right

For example, things, business outcome and
on buildings: objectives driven
PFI/PPP
Leasehold
Freehold Delivery strategies
Mixed
Moto
Efficiency: doing things well and
in the right way,
process and performance driven
Estate strategy for property assets

Infrastructure Buildings
Systems, networks Facilities Accommodation

and components management and work place
strategy strategy
Fig. 3.1 Locating the public sector strategic PAM capability (adapted from
University of Leeds, 2006)
The role of the PAM Board, its function and constituency was
informed by workshops involving representatives from the larger
government departments. It brings together strategic and operational
aspects of PAM into one organisational unit. Hierarchically, it resides
just below executive management board level in a large department,
and has a policy function for managing property assets strategically,
i.e. integrating policy decisions on property assets made by the executive
management board with the operational management of those assets.
The PAM Board is seen as the focal point for a strategic PAM capability
in a department with a significant federalised and decentralised struc-
ture. For unified or smaller departments or organisations, implementa-
tion of the PAM Board would occur within their existing structures
(e.g. within an extended Investment Board structure). A set of character-
istics for the PAM Board was developed to ensure the board is structured
and operates appropriately. PAM Boards have since been implemented
across many government departments.
The first Leeds study placed PAM as a corporate governance require-
ment at executive management board level, and located responsibility
for the implementation of PAM just below that level with the PAM
Board. The second Leeds study built on this work and investigated the
management of significant capital investment in physical assets through
major construction programmes and projects; this is the subject of the
next section.
4 The OGC/CABE study of major construction

investment programmes and projects
The UK construction industry is an enabling industry for creating and
recreating the physical built environment. The Construction Industry
Council notes that the UK construction industry:
. has an annual turnover of more than £100 billion and accounts for
almost 10% of the UK’s GDP
. is five times the size of the aerospace industry and more than three
times the size of the automotive industry.
National Audit Office reports typically indicate that public sector
construction, covering central and local government, accounts for of
the order of 40% of industry turnover, with approximately 30% of that
figure attributed to central government investment (NAO 2001, 2005).
The Major Construction Investment Programmes and Projects
(MCIPP) research study was commissioned jointly by CABE and the
OGC on behalf of the Public Sector Construction Clients Forum

(PSCCF). The PSCCF comprises significant public sector clients
procuring major construction programmes. The research aim was to
build a picture of the current capacity and capability of government
departments and sponsored bodies to procure, manage and deliver
major capital construction programmes and projects, and the mechan-
isms through which this capability is currently developed. The research
scope was to investigate the skills of those involved in the investment
decision-maker (IDM), senior responsible owner (SRO) and project
sponsor/project director (PS/PD) roles working in the central govern-
ment departments, agencies and sponsored bodies involved in the
procurement of major capital investment in construction programmes
and projects. Five major spending departments featured in the investiga-
tion, together with a number of departments, agencies and central
government organisations that had participated in the first study.
The research identified that 39% of Civil Service staff occupying Grade
6, 7 or Senior Civil Service roles are aged 50 years and over. The knowledge
and skill of this group of staff represents a significant capability for the
IDM, SRO and PS/PD roles in delivering construction investment. Over
33% of these staff will retire within the next decade, and the impact of
this will be felt, in particular, in those departments with experienced,
centralised procurement teams. The evidence from a range of sources
also indicates that the UK Government’s Efficiency Programme is not
assisting in the replenishment of this capability at senior levels of the
Civil Service, where these types of programmes and projects are dealt with.
The study also identified that, in departments with devolved struc-
tures and significant numbers of localised business units delivering
major capital construction expenditures, no more than 20–30% could
be classed as having best-in-class capabilities. Of the remaining 70–
80%, there are major difficulties in both capacity and capability.
Around £14–20 billion per annum of capital expenditure on construction
is being delivered through these types of devolved structures – some
involving central government managed structures, others within the
local authority remit. With some notable exceptions, within centrally
procurement teams (where close to 100% of an individual’s time is
spent on major construction activity), SROs and PS/PDs in central
government will, typically, spend 5–30% of their time on capital
expenditure programmes in construction; in decentralised structures
these individuals’ time commitment is at the lower end of this spectrum.
Similar figures have also been identified across other types of major
investment programmes, such as centrally procured information
technology programmes and projects within central government.
The MCIPP study concluded that the public sector, and central
government in particular, has and will continue to have a significant
capability, knowledge and skills deficit surrounding the procurement
of its major construction investment programmes and projects. Front-
end capacity and capability difficulties have emerged from the study as
threats to the delivery of the £20 billion per annum public sector invest-
ment in construction, resulting in the lost opportunity of reinvesting
some £300 million in central government and £2.1 billion in local govern-
ment for improving the whole-life value of its physical asset base.
4.1 Major construction investment through programmes and

projects
A current trend identified in the MCIPP research study is for most major
construction investment clients to undertake a significant part of their
infrastructure delivery through multi-project delivery mechanisms.
This has been, in part, due to changes in procurement practices. The
study identified a number of interlinked levels of organisational deci-
sion-making that impact investment decision-making, namely decisions
relating to organisational strategy, asset portfolio, programmes and
individual projects.
The OGC (2007) has established the following definitions:
. A Programme is ‘a temporary, flexible, organisation created to co-
ordinate, direct and oversee the implementation of a set of related
projects and activities in order to deliver outcomes and benefits
related to the organisation’s strategic objectives. . . . During a
programme life cycle, projects are initiated, executed, and closed.
Programmes provide an umbrella under which these projects can
be co-ordinated. The programme integrates the projects so that it
can deliver an outcome greater than the sum of its parts’.
. A Project is ‘also a temporary organisation, usually existing for a
much shorter duration, which will deliver one or more outputs in
accordance with a specific business case. A particular project
may or not be part of a programme’.
The MCIPP research uses the term ‘portfolio management’ to represent
the organisation-wide coordination requirements of numerous pro-
grammes, which, in turn, have their own project coordination require-
ments. Portfolio management and programme management function
as strategic business disciplines within the strategic management
domain. They lie at the heart of configuring, shaping, scoping, managing
and delivering investment priorities for physical assets. Programmes
support an organisation’s core business, translate investment decisions

into a multi-project environment, and move the organisation forward
through time in terms of creating a future capability to realise benefits.
The investment process was also seen within the study as flowing
through a six-level organisation configuration shown in Fig. 3.2. This
commences with (i) vision, (ii) mission, and (iii) policy and strategies,
which flow into (iv) the portfolio level and then through (v) programmes
and (vi) projects. This provides the ‘line of sight’ for investment decisions
flowing into physical assets, and hence comprises the internal organisa-
tional ‘value chain’ of asset management capabilities. Martin Pilling
discusses the asset management value chain in more detail in his
Chapter 4, ‘Beyond BSI PAS 55 compliance’.
The shaded area in the centre of Fig. 3.2 provides the organisational
domain of asset management. While the study identified, and then
confirmed, programme and project management as core skill require-
ments of senior civil servants, the data also revealed that senior civil
servants are rotated through posts every 2–4 years on average. The
MCIPP study has major implications for the ongoing asset management
of the government estate, and the fieldwork investigation provided a
direct link into the HPP initiative on a number of levels, as is discussed
in the next section. The only feasible options to overcome these
capability deficits at senior levels are:
. to ensure portfolio, programme and strategic project management
skills continue to be emphasised as core skills for all senior civil
servants
. to emphasise delivery skills, as well as policy skills, in career
grading
. to regularise longer-term career placements at senior levels of the
civil service.
This will consolidate organisational capabilities in capital investment,
revenue investment and procurement around construction, and retain
and embed asset management capabilities within departments and
agencies. This will become even more important as climate change
impacts on the management of the public sector physical infrastructure
asset base.
4.2 Linkages with the HPP initiative

A key factor identified in the fieldwork interviews for the HPP research
study was the impact of the high levels of organisational flux encoun-
tered across those departments interviewed. Typically, interviewees
Section 1: The challenges facing public sector asset management
Investment decision
The domain of Vision framework for
asset management construction and
physical assets
Mission
Organisational strategy and objectives
ge
an
ch
Portfolio management
c
gi
te
ra
Programme management
St
High-level operations Strategic project

planning and management management
Op
er
Tactical management of
at
Management of ongoing operations
io
(recurring activities) authorised projects
na
(projectised activities)
lc
ha
ng
Operating core
es
Organisational resource
Fig. 3.2 The organisational context of investments, portfolio and programme management. (Adapted from PMI, 2006; OGC,
2007)
61
commented that the time horizons for the impacts of organisational

change to be felt within the property asset area varied between less
than 1 year (or even months), especially where ad hoc task forces were
concerned, to typically 3–5 years. This was also noted as the typical
time horizon within the Australian Commonwealth and state govern-
ments (Barrett, 2003). One interviewee summed up the point well, by
indicating that the organisational development cycle of any one
department, agency or NDPB would be unlikely to span more than
two parliaments, regardless of the party in power, giving a maximum
time frame of between 8 and 10 years, assuming a normal parliamentary
cycle of elections.
One case study investigated in the above studies demonstrated an
extensive rethinking of the property portfolio as a result of organisa-
tional change. This required a total rethink of the business model and
a comprehensive approach to PAM at a strategic level. Other depart-
ments encountered were also going through a total rethink of their
business and service-delivery models. As a consequence, the direct
linkage between organisational functioning and development, together
with the opportunities and constraints imposed by the estate and its
further rationalisation, were clearly in evidence and at the forefront of
managers’ thinking. These departments were in the stage of late maturity
and early transformation and organisational reinvention.
A model was developed to capture these insights from fieldwork, and
this is set out in Fig. 3.3. Each of the phases in the figure, identified from
the fieldwork, will have different implications for the focus of strategic
asset management. For the administrative government estate, which
deals with the machinery of government, in the growth and reinvention
phases it is highly likely that close integration will need to be fostered
between business strategy, human resources, information technology,
finance and PAM. This is where the strategic elements of PAM – the
links between organisational strategy, investment decisions, and the
configuration of the physical asset base as a corporate resource – come
to the fore as an organisational capability. Asset management capability
clearly has an integrating function between business strategy, organisa-
tional development and the estate as a business enabler.
During the established/mature phase, when the property asset port-
folio has reached a level of stability and organisational rationalisation
has become embedded, the need for an integrated and strategic focus
on property asset related matters will subside to some extent. However,
it should not go off the corporate radar. The transition between phases
will most likely need to be managed, and senior management will
need to be able to recognise when this transition may be required. This
Section 1: The challenges facing public sector asset management
De-merger phase Start-up phase
Departments are
Departments merged or reconfigured
rethinking;
reshaping or
reconfiguring Departments go
service delivery Business and through
with consequent property asset strategy organisational
impact on the rationalisation,
property portfolio which includes
rationalisation of
property portfolios,
and may include
Reinvention phase – Growth phase – relocation. No
strategic change strategic change major service
reconfiguration
Business and
Organisational property asset strategy
development cycle
Business and
property asset Departments have gone
strategy Established and mature phases: through organisational
Recurrent change: permitting and estate rationalisation.
standard procedures to be adopted
The property portfolio is
Competitive change: necessitated by
efficiency programmes relatively stable; focus on
performance
measurement, contracts
management, further
efficiency gains and
Business and
property asset strategy continuous improvement
across the portfolio
Fig. 3.3 The HPP organisational development cycle, property asset management and its impact on procurement strategies.
63
(Adapted from Male et al., 2003; University of Leeds, 2006)
transition may be triggered by external events. This is a strategic skill,

and the information and knowledge it requires can only reside at, or
near, executive management board level, as the changes will normally
be business strategy or policy driven. They will require, and result
in, an appropriate and timely subsequent response from the estate.
Transitional triggers can occur any time during the life of a parliament.
There have been numerous examples reported recently in the press of
departments being reorganised, ministers resigning over expenses
scandals, a Cabinet reshuffle following the European elections, and
Prime Minister Gordon Brown looking towards the general election in
early to mid-2010.
The fieldwork evidence also indicates that the stage at which a depart-
ment finds itself within its organisational development cycle will
influence the relative importance placed on capital investment and
procurement strategy. Equally, this may also change with time. The
HPP research and the MCIPP study identified a number of departments
in the organisational growth phase that were having to adjust to the
impact of bringing together two separate departments, where the
property asset base, procurement strategies and associated contractual
arrangements had to be realigned. In such situations, there is a signifi-
cant learning curve, with implications for public sector capability
enhancement, the solutions to which can become available for wider
dissemination across government as the learning curve is addressed
and resolved.
Departments that were in the reinvention stage, either through de-
merger, or rethinking totally their service delivery strategies, were also
involved in rethinking procurement policy and strategies, with the
associated additional skills requirements. Departments that were in the
established/mature phase built up a substantial knowledge about
procurement. The organisational options encountered included con-
solidation into centralised teams or centres of excellence. However,
these departments were also finding that:
. a move to, for example, a greater emphasis on collaborative

procurement approaches for construction investment was having
a direct impact on organisational structures, processes and
procedures, and there was a substantial need to upgrade skill
requirements to accommodate this
. they were having to fine tune existing procurement approaches, to
take account of changing internal and external environments
. they were rethinking their approaches to procurement totally due
to government efficiency requirements
. in situations where decentralised structures were operating, at the

localised business unit level there is a significant reliance on private
sector skills, especially in collaborative procurement structures, to
address public sector skills gaps.
The resultant impact is the potential creation of significant power differ-

entials between the public and private sector knowledge levels, favouring
the latter rather than the former. Equally, in the HPP initiative, certain
departments had gone through the growth phase, perhaps by integrating
separate PFI structures. They were exploring options to address an
increased focus on contract management activities and the ongoing
management of an established PFI structure. This is an example of
competitive and then recurrent change.
Through the consequent exploration of the organisational develop-
ment cycle in the two research studies, it became evident that there
was a close alignment with certain aspects of the HPP research in asset
management, procurement regimes and certain aspects of the OGC
Gateway Review process. The Gateway Review process is an assurance
and developmental review, not an audit process, and is the subject of the
next section.
4.3 Linkages between asset management, portfolio, programme

and project management
The study also investigated the influence of the OGC Gateway Review
process on construction investment. Gateway Review 0 has clear
linkages with the PAM structures identified under the HPP research
and the front-end requirements for major capital programmes and
projects identified in the MCIPP research. Gateway Review 0 is a
programme-only review concerned with investigating the direction and
planned outcomes of a programme and the progress of its constituent
projects, and is repeatable over the life of the programme, as required.
However, the MCIPP study identified through fieldwork the need for
a review preceding Gate 0. For simplicity, this option was termed
‘Gate 1’. It is not to be taken as linked to the OGC review process at
this point in time. Gate 1 needs organisational capabilities favouring
a close alignment between policy, organisational strategy, investment
decisions and the requirement for a physical asset solution, compared
to non-asset solution, to be addressed. Discussions with senior managers
in the OGC also identified that they are also actively pursuing develop-
ments in this area. Figure 3.4 sets out the linkages between Gate 1 and
Gate 0 that were developed as part of this research.
Gate 0 and Gate –1
Commercial strategy
Policy and strategies
Corporate
Non-asset solutions and options
portfolio board
Change
SROs and PS
initiatives
Physical Construction
asset capital investment
Gate –1 requirements programmes and
projects
Construction related
programmes and
projects
(a)
Gate 0 and Gate –1

Procurement strategy
SRO and PS
Gate 0
Programme manager
Programme
Projects
SRO
Project
PS/PD PM
Internal
PM
External
Procurement strategy
(b)
Fig. 3.4 (a) Gate 1 to Gate 0. (b) Gate 0 onwards (adapted from University of
Leeds, 2008)
Within the Gate 1 process, departmental policy and strategy will be

developed, and may involve policy initiatives resulting in service
changes, organisational changes, associated investment requirements,
programmes and projects and, potentially, changes to the physical
asset base. Figure 3.4 shows that a decision arena, or ‘decision node’,
will be reached at some stage, where either a physical or non-physical
asset-based series of options should be forthcoming. The physical asset
solutions will result in the initiation of capital investment programmes

and/or projects, and subsequently construction-related activity. Field-
work evidence indicates that there is often an iterative process in play
within the Gate 1 and Gate 0 activities, and that some form of
impartial review is required prior to a major capital investment
programme being launched. From Gate 0 outwards, the OGC Gateway
Review process continues to operate as normal.
It has been noted from fieldwork that the Procurement Capability
Reviews currently underway within the OGC follow the decision flow
from investment to procurement, and may well identify areas of impor-
tance within the Gate 1 and Gate 0 domains. Equally, these two areas
and Gateway Review 1 are the areas where the ‘informed client role’
comes to the fore in the public sector, as discussed in the next section.
4.4 The informed client role

Successive research studies have identified the informed client role –
simultaneously a corporate, team and individual role – as critical for
the public sector. The NAO (2006, p. 6) defines the intelligent client
as: ‘An organisation with the knowledge, skills and authority required
to negotiate with and manage both suppliers and users and to contract
with suppliers’. The MCIPP research defined the informed client role
as one where the organisation knows what it does not know, and also
knows how and where to fill that knowledge gap and manage the
interfaces that result. There was extensive consensus around this defini-
tion in both the public and private sectors. It indicates clearly a high-level
organisational capability requirement. The NAO report defines capacity
building as ‘measures to increase the knowledge and skills needed to
deliver a programme or project’. It would not be unreasonable to include
the linkages to asset management within this definition. The NAO report
adds that every major IT change programme or project should have an
SRO, normally a senior civil servant, with responsibility for ensuring the
programme or project meets its objectives and delivers the projected
benefits. The role has associated key tasks, including developing the
business case, monitoring, and liaising with senior management on
progress and risks to delivery. These tasks would be identical to major
construction capital investment and asset management and, indeed,
they feature strongly in John Woodhouse’s descriptions of the asset
manager role in Chapter 2, ‘Asset management in the oil and gas, process
and manufacturing sectors’.
The recent UK Department of Business, Enterprise and Regulatory
Reform Select Committee on Construction noted that there is a
common assumption that the public sector cannot manage large-scale

procurement because it is not subject to the same market pressures as
the private sector. The evidence reviewed by the Committee demon-
strated that it is a false dichotomy to differentiate between the public
and private sectors on their performance as construction clients.
Rather, the key distinction is whether a client is frequent or
infrequent – experienced or inexperienced. Frequent clients are respon-
sible for the greater part of the value of construction work, about 60%
by value. However, the Committee noted that, at any one time, about
95% of the industry’s customers are one-off or occasional clients, and
have little or no experience of working with the construction industry.
As such, they are less likely to understand how the sector operates and
the importance of their role in ensuring success.
The informed client role has strong linkages to corporate governance
and the management of the interface between the public sector and
private sector supply chains. It is also the locus of the capability and
skills difficulties with the SRO and PS/PD roles. The MCIPP research
fieldwork identified consistently – across the public and private
sectors – that these roles required a 3608 skill set. This skill set comprised
a vertical component covering an understanding of the departmental
strategy, political context and policy requirements, together with an
understanding of technical delivery requirements, including asset
management and construction procurement issues (but not in-depth
knowledge of this activity). The horizontal component involves under-
standing the cultural, political and stakeholder management issues
associated with the management of assets, programmes and projects.
Figure 3.5 sets out the locus of the anticipated skill set requirements
for the SRO and PS roles. It is clear from the descriptions given, by
both public and private sector senior interviewees, that skills in this
area can only be built up through wide experience. The informed
client role is seen as having both capacity and capability problems in
private and public sectors. It is this role that will have to deal with the
implementation of infrastructure solutions to meet the challenges arising
from the impact of climate change, for example, which is an issue
addressed in the next section.
5 Resilient infrastructure
There has been a recent upsurge of interest in the capability of infrastruc-
ture to support communities, society and economies during times of
turbulent change. Terms such as ‘critical’, ‘vulnerable’ and ‘resilient’
Policy and strategy skills

Senior
responsible
owner
Stakeholder engagement
and management skills
Project
sponsor
Technical skills
Fig. 3.5 The likely skills profiles of the SRO and PS roles (adapted from
University of Leeds, 2008)
infrastructure have entered the arena. This chapter does not intend to
enter into this debate per se, but to utilise the ideas around the term
‘resilient infrastructure’ to explore further the skills issue in the public
sector and the management of its asset base.
The notion of resilient infrastructure has emerged and is evolving.
O’Rourke (2007) observes that definitions of ‘resilience’ typically include
linking it to recovery after physical stress. Fletcher (2009) notes that
‘resilience’ has entered policy language globally, adding that resilient
infrastructure is that which can consistently deliver outcomes in a
changing social, economic and environmental context, which is also
uncertain and accelerating. He poses the question of what must be
done differently to design, deliver and operate such infrastructure
under these conditions.
In this context, Fletcher notes that, in an assessment conducted for
England’s Environment Agency early in 2008, it was estimated that
close to two-thirds of the main road network and the rail network in
the Yorkshire and Humber region could be at risk of a flood event.
He noted that it was not just the length of network that might be
under water, but the entire length of the system, through a cascade
effect of that flood event. Fletcher concluded that the transport network
in the region is not particularly resilient to flood risk, and that the cost to
the region’s communities, businesses and the regional economy from this
cascading disruption would be severe. He adds guidance on what needs
to be considered for the future, namely:
. There needs to be a shift away from the traditional linear thinking

towards thinking about complex systems. This demands complex
solutions, and may also require using probabilistic data to
inform and make decisions.
. A paradigm shift is required in the policy arena. Fletcher argues
that infrastructure investors are making complex, long-term
decisions, but the policy debate that enables or disables them
rarely occurs.
. He proposes that delivering resilient infrastructure requires
flexibility and adaptability, dealing with complexity and change,
and, finally, recognising the existence of self-organising systems
and how they can be influenced by a variety of stakeholders.
The above has to encompass the domain of asset management, especially

in the public sector. This chapter argues that the frontline for the public
sector in dealing with these issues at the physical infrastructure level are
those involved in the IDM (a corporate, team and individual role), SRO
and PS/PD roles.
6 Conclusions
It is clear from the evidence presented here that physical infrastructure as
an enabler will have to become more resilient to a diversity of changes.
Some of these changes will be incremental, some transformational,
and some the result of ‘shock’ events. It is also clear that incremental
thinking alone is no longer appropriate when dealing with the investment
horizons required for designing, creating, maintaining, operating and
disposing of physical infrastructure for such an uncertain future. A
paradigm shift is required from dealing at many levels with physical
infrastructure – namely, nationally, regionally, locally, and at policy,
strategy, investment, organisational, team and individual levels. The
HPP and MCIPP research, while policy focused, addressed options
and solutions in managing the public sector asset base. These options
were associated with dealing with competitive (efficiency) or recurrent/
incremental change (operational). The HPP initiative put in place the
structural elements at government level that would be required to

address the paradigm shift needed to deal with transformational and
shock changes through, for example, the creation of PAM Boards.
They have a clear strategic role in linking government policy with
those physical asset options and investment requirements to make
infrastructure more resilient. This has been reinforced further by the
MCIPP research. This study addressed not only complementary
structural and governance requirements, through an investigation of
the informed client role, but also skill requirements at an organisational,
team and individual level. These are key for the behavioural change
requirements noted by Stern (2007).
As noted in the recent House of Commons Committee report on
engineering (HoCC 2009), engineering expertise should be better
represented, not only within the generalist civil service, but also in the
area of more specialist policy advice, especially when considering
solutions to global problems such as climate change, food and water
supply, energy, security and economic instability. For asset manage-
ment, especially in the public sector, this means moving away from a
technically focused discipline to one where practitioners are comfortable
in providing advice at organisational strategy and policy levels, and
where probabilistic, and often ambiguous and complex, information
may be in evidence.
Significant ‘churn’ at senior levels has been noted, not only across
central government due to the machinery of government changes, but
also due to the policy-driven mobility of senior civil servants. These
are the people typically occupying the SRO and PS roles that the
study encountered. They are also the people needed at the interface
between policy, departmental organisational strategy, asset manage-
ment, and programme and project management. These roles require a
3608 skill set, the locus of which often occurs at the informed client
interface between the public and private sectors, where policy, strategy
and investment meet supply chains to create, modify and adapt infra-
structure for greater resilience. People occupying SRO and PS roles
who have that skill base, even without the challenges arising from
climate change, are already in short supply. The difficulty is exacerbated
by the ‘churn’ factor noted earlier and the consequent loss of ‘organisa-
tional memory’, and difficulties in embedding change deeper within the
public sector. This chapter argues that this state of affairs cannot be
permitted to continue, as it will inevitably have an impact on ‘UK plc’
at many levels. Government has to put in place initiatives to deliver
the 3608 skill set that those in SRO and PS roles require in order to
deal with the needs of the future.
Acknowledgements
I would like to acknowledge the financial support provided by the OGC
and CABE for the two research studies. At a personal level, I would like
to thank Mike Burt, Bridget Hardy, John Iannou, Mike Raynsford,
Andrew Howarth and Yvonne Hardy (now of the Metropolitan
Police) from OGC, and Richard Simmons and Paul Ducker from
CABE. I would also like to thank those individuals across central and
local government, and the private sector, too many to name, who gave
their advice and time freely and without reservation to inform, guide
and steer the studies reported here.
References
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Optimized Management of Physical Assets. British Standards Institute,
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Fletcher, M. 2009. The Challenge of Creating and Maintaining Resilient Infra-
structure. Working Paper, Arup, May.
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Variability: How Does This Affect Infrastructure Lending Policies? Report
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5 Asset management strategy: leadership
and decision-making
Penny Burns Editor, Strategic Asset Management and Director, AMQ
International, Australia
Asset management strategy can be thought of as three separate, but inter-

connected, layers of decision-making: deciding goals and objectives (Where
do we want to go?); determining the best organisational structure for these
goals (How do we get there?); and assessing performance, making directional
change and reinforcing organisational values (How are we doing?). These
aspects are discussed in this chapter, with illustrations and applied techniques.
1 Introduction
Asset management strategy can be thought of as three separate, but
interconnected, layers of decision-making:
. The outer circle, where the organisation connects with the wider
world and makes decisions concerning its goals and vision. These
decisions answer the question: ‘Where do we want to go?’
. The inner circle, where the organisation’s strategic decisions con-
cern how the organisation should be structured to best achieve
its goals and vision. These decisions answer the question: ‘How
do we get there?’
. The core, where the organisation monitors its achievement of its
goals and vision, where it reinforces its values, and where it receives
and analyses feedback. These decisions answer the question: ‘How
are we doing?’
After a short introduction to the concept of asset management strategy,
each layer is discussed, some tools and techniques are introduced, and
some short case studies presented.
2 Asset management and its strategy

Asset management developed over a period of relative political stability
and economic growth, when the usual answer to an asset problem was
to devote more money to it. Whether the preferred answer was more
Asset management – Whole-life management of physical assets # Thomas Telford 2010
978-0-7277-3653-6 All rights reserved
maintenance, more renewal or more assets, the common element was

‘more’. But, with the change in economic climate, the ‘more money’
solution needs to be challenged. Extra funds for maintenance, renewal
and new assets, in the absence of general growth, means there are
fewer funds for other uses. The same applies to more resources for
asset management itself. The need now is not for ‘more’ spending, but
for smarter, more strategic spending – for understanding the role of
asset management strategy.
2.1 Asset management is concerned with activity

Twenty or so years ago, when asset management was developing as a
discipline related to, but separate from, maintenance and its manage-
ment, it was common to indicate the wider breadth of asset management
by listing the activities involved, of which maintenance was but one.
Thus, for example, in the late 1980s we would see definitions such as
‘Asset management covers the acquisition, maintenance, operation,
rehabilitation and disposal of assets’. These activities would normally
be shown in the form of a ‘lifecycle’ (Fig. 5.1) representing movement
from ‘birth to death’ of the asset (or from ‘lust to rust’ as some more
colourfully referred to it). Now known collectively as ‘engineering
asset management’, these lifecycle activities and the theory behind
them are taught in engineering schools around the world.
To these must be added the activities of accountants, planners,
designers, and regulators amongst others, for asset management is a
multidisciplinary activity. The initial engineering focus was ‘asset
centric’. This has broadened in recent years by recognition that the
purpose of the activity is a critical determiner of what is to be done
and by increased recognition of the importance of the longer term.
Thus, the content of the above definition is expanded by the addition
of ‘to meet a required level of service in the most cost effective/profitable
way’ and ‘for present as well as future communities/customers’. Nor
would we today omit the rider ‘and to protect the environment’. This
Fig. 5.1 Life-cycle activities

Section 2: Asset management strategy: leadership and decision-making 95
Fig. 5.2 Expanded multi-disciplinary activities within a decision context
broader definition sets the decision-making context, and Fig. 5.2 shows
asset management activities set within this purpose-driven decision-
making context.
Most of the developmental effort to date has been applied to creating
better tools and techniques and to training asset managers within their
professions. Yet, with greater awareness, understanding and, to a
degree, accountability of the existing investment in infrastructure and
the associated issues of risk, opportunity and resource allocation, has
come the realisation that it is not sufficient for each group, each silo,
acting in isolation simply to do its job better. To achieve more effective
outcomes for the organisation itself, a whole new level of decision-
making is required to bring each silo into line with the others, as well
as with the organisation’s goals and outside pressures, and this is asset
management strategy.
2.2 Asset management strategy deals with decision-making

Asset management strategy is still relatively new. It transcends
engineering and accounting, for it is not an activity – rather it comprises
the decisions that take place before and between activities. It is corporate
in focus.
It is helpful to think of this strategic decision-making in terms of three
distinct, but interconnected, levels: an outer level that looks outward – to
the community or customer, and to the future; an inner level that looks
inward – to the organisation itself, and how it is structured and operates;
and a central core that serves as a focal point – its role being to monitor
the achievement of the corporate vision and to reinforce corporate
values. This three-level decision-making concept is illustrated in Fig. 5.3.
2.2.1 Level 1: the outer circle – vision and values

The outer level is the highest, most strategic, level of decision-making. It
takes place in that space where the organisation connects with the rest of
the world. It looks outward.
Fig. 5.3 The three levels of decision-making
Decisions here answer questions such as: What is it that we wish to

achieve in the longer term? What won’t we do in order to achieve
these things? That is, What are our values? What drives us? How do
we balance our short-term needs with our long-term desires? How do
we balance profitability with community awareness, on the one hand,
and environmental sustainability, on the other? Are we sustainable?
The answers to these questions set the organisation’s asset and asset
management parameters.
The critical dimension of the outer circle is breadth. The most strategic
of organisations will have a very broad outer circle. Their vision setting
will be inspired, energising and will take a long-term perspective. Consid-
erable effort will be put into setting goals and aspirations, testing them
against a range of future scenarios, and examining the consequences of
each for the most effective asset portfolio and asset management struc-
ture that will best serve the organisation. Non-strategic organisations
will have a narrow outer circle, and most of their energies will be devoted
to management of the current situation. Any vision statement will be
broad and hazy.
2.2.2 Level 2: the inner circle – organisational structure

The inner circle is concerned with the design of the organisational
structure, and how relationships between each organisational element
serve the corporate good and help it to achieve its vision. It thus has a
corporate, but inwards, focus.
Decisions here answer questions such as: What does a good
organisational structure look like? Which is the best structure to
adopt? Where do we start? How do we create incentives for initiative
yet control change? How do we balance innovation and risk? For infra-
structure organisations and those with a major asset component, these
organisational questions are clearly asset management questions.
Charles Johnson discusses these issues further in Chapter 6, ‘Creating
an asset management culture’.
The critical dimension of the inner circle is balance. The best strategic
organisations ensure an appropriate balance between the power of
different activity sectors, with no one dominating others to the detriment
of the corporate whole. Corporate guidance is strong. Values of coopera-
tion for the overall good predominate. Staff share the corporate vision
and values. Good-quality and timely information exchange between
activities is easily facilitated. Non-strategic organisations allow power
imbalances to arise for structural reasons or because of personalities.
This is often seen in the dominance of engineering or finance. Planning
may be disconnected with both. There is little cooperation between
silos. Activities drive decision-making rather than corporate decision-
making driving activities. Mindless compliance with minimum standards
prevails. Intelligent questioning and improvement is hampered by lack of
a shared corporate vision and values.
2.2.3 Level 3: the central core – performance

The central core performs two tasks: it monitors achievement and it
reinforces values.
Decisions here answer questions such as: How do we stage our
aspirations? Is asset management evolutionary or revolutionary? Are we
on track to meet our vision, goals and aspirations? How do we know?
And, if we are off-track, how do we regain direction? How do we create
incentives to go beyond mere compliance? How do we get key personnel
to think beyond their own area and beyond their own tenure?
The critical dimension of the core is focus. The core is what anchors the
organisation and keeps it on track. The core is where we reinforce the
vision/values through internal communications of all kinds – what gets
rewarded and punished, what gets praised, what gains promotion, etc. It
is here that we see the practical application of the organisation’s values.
If there is inconsistency between actual performance at the core and the
stated vision, the core wins! This is where the ‘rubber hits the road’ as
far as values, goals and aspirations are concerned. Highly-strategic organi-
sations have clear values and goals. Outcomes, not merely outputs, are
monitored. Effort is directed to ensuring that the values are reinforced
and that the vision is a shared vision. There is a focus on the longer
term. Non-strategic organisations lack clear values and goals. Reward
practices are inconsistent, and often contradictory. A short-term focus
predominates. Desired outcomes are not clearly stated or monitored.
2.2.4 Summary
The best asset management organisations are ones that have a tightly
focused core that mirrors the vision and values of the outer circle, a
balanced inner circle, with no one section dominating the whole, and an
extensive outer circle that reaches far out to the community and the
future.
These terms are, of course, purely symbolic, but they represent key
ideas.
There are, and can be, no objective tests by which you can determine
how you fare on each of these scores. Your needs are your needs. Your
circumstances are your circumstances. Benchmarking can be, at best,
indicative of areas to re-examine, not a tool for setting targets or
objectives. In this sense, then, asset management strategy is as much
an art as a science.
In each of the next three sections, we expand on the questions raised
above, indicate briefly some of the fields of knowledge that are relevant
to the strategy task, provide some illustrations of the problems that
can arise when strategic thinking is not applied or is misapplied, and
introduce some useful new techniques.
2.3 The outer circle – vision and values

The most strategic, or direction-setting, decisions are made at the outer
circle (Fig. 5.4). Asset management strategy is a corporate, not a middle
management, occupation.
What is your vision for the future? How far forward do you look?
What scenarios have you considered, what analysis of trends have you
conducted? What constraints must you overcome or live with in
achieving this vision? Without a good understanding of the past, and a
thoughtful, analytical, approach to the future, a strategy is not a
strategy, it is just a wish.
What are your organisational values? What will you not do, no matter
what? What are you prepared to give up in order to achieve your main
objectives? Value decisions are not easy decisions to make, if you
really intend to implement them, but without them you have no strategy.
Fig. 5.4 The outer circle

You may have a so-called ‘vision statement’ or ‘strategic plan’ but,

unless you have thought through what the achievement of your vision
or plan means and what you are prepared to give to achieve this
vision, and unless you have communicated this throughout your organi-
sation and brought everybody on board, you actually have no real
strategy, no real plan – only a wish.
Together, your vision and your values, and how well developed they
are, determine your organisation’s success.
2.3.1 Vision – the ability to ‘see’ the future

A company’s vision is a picture of what it wants its future to look like. If
the organisation is to buy into that vision, it must seem possible to
achieve, even if it is a challenge (as with the best of company visions).
Any vision that does not take account of the likely future is more a
wish than a vision. While the future is unknown, it never comes as a
complete surprise. Looking back, there were always indications. The
trick is to see them ahead of time. This field of inquiry is ‘thinking
forwards’. It is more than projection, although projection is involved.
2.3.2 Tools and techniques

Straight-line extrapolation is the most common form of future projec-
tion, yet it is rarely useful for more than a year or so ahead, if that.
We need to consider the rate of change – and even changes in the rate
of change. This means understanding the ‘reasons why’ and not simply
the ‘what’. For example, demand may be increasing, it may have
increased 3% p.a. for the last 2 years; are we, therefore, safe to assume
a continuance of growth of 3% p.a. over our planning period of
10 years or more? Until recently, this was a common practice for
many organisations. Now it is realised that we need to know what was
driving the growth in recent years. Maybe population was expanding,
and we need to consider whether it will continue to expand, and, if so,
at what rate. Maybe new technology was driving demand, and we
need to consider what point on the take-up curve the new technology
has now reached and will reach over the planning period. Maybe it
was a combination of these things – and also of old technology becoming
more affordable, or regulatory action encouraging change in demand.
Each element of demand will change at a different rate, and thus
future demand can seldom be represented by a straight line.
Trend impact analysis, for example, the effects of trends in markets,
population, oil prices, etc., over a given time period, is an improvement
over the simple straight-line extrapolation described above, and, better
still, is cross-impact analysis, which is analysis of complex systems in
which the analyst looks for ways in which forces combine to generate
effects greater than the sum of the parts. The Delphi method is designed
to create a consensus view among experts, and is widely used in tech-
nology futures. Delphi goes beyond mere extrapolation, but, as with
the other techniques, it still seeks a single-point future.
Thinking forward is difficult for asset management strategy, for the
following main reasons:
. all ‘hard’ data or facts relate, by definition, to the past
. the data relates predominantly to supply rather than demand
. organisations may know what they have sold, but they do not, and
cannot, know what they would have sold had the price, or circum-
stances, been different.
To get from the past to the future requires the use of assumptions. This is
true of supply (all renewal projection models, lifecycle models, etc., need
assumptions), and it is also true of demand. But, whereas there are many
techniques for analysing data, there is almost nothing for analysing
assumptions. Most assumptions are implicit, i.e. not documented, and,
even if explicit, are not often subject to much examination. This creates
circumstances where assumptions are not widely understood, not
necessarily consistent with each other, and difficult to change when the
world changes. This is illustrated in the ‘case in point’ at the end of
this section.
2.3.3 New technique: scenario analysis

Scenario analysis is a strategic planning method that combines known or
likely facts about the future with a range of plausible alternative social,
technical, economic, environmental and political trends representing the
driving forces for change. This produces different scenarios reflecting
different assumptions, and thus enables the assumptions themselves to
be analysed by their impacts. Elaborate scenarios have been developed
by Shell, but even more moderate constructions can help organisations
in their vision development, by switching the focus from trying to predict
a certain future end-point to determining what needs to be done, and
what it is possible to do, to cope with whatever the future may bring.
The importance of using scenarios in the regulation of asset management
is discussed further by Richard Edwards in Chapter 9, ‘Regulating asset
management’.
Scenarios allow decision-makers to position themselves in the future
and to think through their reactions to a range of situations – before
they have to do it for real. Burns (2003b) provides some simple examples
for constructing scenarios.
2.3.4 Organisational values

The difference between a ‘motherhood statement’ and an ‘organisational
value’ is that values cost something. A real value always means that
something is given up in order to achieve it. The values of importance
to an organisation are determined in the outer circle; it is part of setting
the vision, but they are promulgated at the core by what gets rewarded.
2.3.5 Tools and techniques

Leaders in reputation risk management have put the following compo-
nents at the heart of their approach (Davies, 2004):
. a clear vision – what we stand for and are prepared to be held
responsible for
. clear values, supported by a code of conduct, setting out expected
standards of behaviour
. policies clearly stating performance expectations and ‘risk toler-
ance’ in key areas
. understanding of stakeholders’ expectations, information require-
ments and perceptions of the organisation
. an open, trusting, supportive culture
. a robust and dynamic risk management system that provides early
warning of developing issues
. organisational learning, leading to corrective action where neces-
sary
. reward and recognition systems that support organisational goals
and values
. extension of vision and values to major partners and suppliers
. open and honest communications tailored to meet the needs of
specific stakeholders.
The first of these, advisedly so, is a clear vision. Many vision statements
are far from clear. For example, most organisations would nowadays
claim to have sustainability amongst their goals and aspirations, but
what does this mean? Whether we are talking economic, social or
environmental sustainability, just what is to be sustained, and for how
long and at what cost? For example, what particular attributes of a
complex asset are to be sustained and which aspects are not important?
Consider the Shinto shrine at Ise. It has been rebuilt every 20 years
since 04 CE. The design uses ephemeral materials, yet it has done some-
thing that Stonehenge and the Great Pyramids have not – it has
sustained the beliefs of the Shinto institution. The Shintoists are not
concerned about the longevity of the asset (in fact they do not think of
their shrine as an asset), they are focused on outcomes.
It is important to ask whether the task is to sustain assets, or rather to

sustain service, and, given that needs change, for how long?
2.3.6 Linkages within the decision circles

While, for clarity of discussion, we are considering each decision layer
separately, they are interconnected within the organisational structure.
For example, an inner circle consideration can have significant impact
on how the organisation sees the future and determines its vision (an
outer circle consideration).
A case in point
For many years the state power company had operated on the basis of
building a new power station every 2 years. So predictable was this,
that the company’s organisational structure was based on it. The
design team spent 2 years designing the new station, and when the
design was handed over to the construction team, it started on a new
one. Two factors contributed to the success of this approach – rapid
population growth and rapid technological change. The first generated
the demand, while the second resulted in each new generation of
power stations being larger, more fuel efficient, and, particularly, more
labour efficient, than the one before, so that only a new design and a
new plant was a viable option.
Inevitably, the time came when both population growth and techno-
logical change slowed. The slow-down in population growth meant that
the cycle of expansion needed to be extended beyond the customary
2 years. And the slow-down in technology meant that rehabilitation of
existing stations, previously not an efficient option, became by far the
cheapest means of meeting demand.
Asset growth in this organisation was driven by a computer model
that the CEO ruefully admitted no one in the organisation, except the
modeller, understood. Actually, the model had grown so complex over
the years that it transpired that even the modeller was no longer able
to explain what input factors were really driving the model’s outputs.
He did not understand, but did not question, the model’s logic.
What can be learnt from this illustration?

The organisational structure meant that individuals gained benefit from
a continuance of the status quo. It was a comfortable, well-worn path
and required little thinking. There was no customer focus.
When the predictive model required the next plant to be decommis-
sioned as a base-load station in half the normal time, alarm bells
should have gone off. They should have asked what was in the model
that caused this output. But they did not. The organisational structure –
reliance on a computer model that no one understood – conditioned
them not to look, and therefore not to see. Yet the signs were there.
The state of technological development and growth was no secret.
This company had a very narrow outer circle – its field of vision was a
mere 2 years, at the most, with the assumption that the next 2 years
would be the same as the past 2 years. It took outside intervention, a
parliamentary inquiry and change of Minister to force broader consid-
eration.
Shortly after the event described, the electricity industry was
commercialised and regulated. The company did not see this coming.
Yet commercialisation was happening in other industries, and it was
widely discussed. It would have featured in even an elementary approach
to scenario planning.
This illustrates that, while the role of the outer circle is to look
outwards, it can be compromised by the organisational structure
decisions that have been made (explicitly or implicitly) at the inner
circle level (Fig. 5.5).
Fig. 5.5 The inner circle
2.4 The inner circle – organisational structure

What is the right structure for asset management? The following is a true
story – it might be yours.
A rail company had, for many years, been organised according to
traditional functional divisions – finance, operations, IT, planning, etc.
Each division was run as a separate fiefdom, and the emphasis was on
inputs and process (Fig. 5.6).
CEO/executive panel
Finance Engineering IT Planning/environment
Fig. 5.6 Function-based organisation

But the company believed that it had become large and unwieldy, and
its organisational structure did not allow it to respond rapidly to the
changing nature of its market. So, it restructured, this time based on
service-focused divisions (Fig. 5.7).
CEO/executive panel
Service 1 Service 2 Service 3 Service 4
Fig. 5.7 Service-based organisation
After a number of years of operation, the service heads became

strong, and the service divisions themselves became fiefdoms. Because
of the divisional focus, asset management took place with limited
consideration of how to best manage assets from a corporate perspec-
tive. In addition, it was noted that there was a lack of standardisation
in certain asset classes, which caused inefficiencies in procurement,
inventory and lifecycle maintenance. So, it restructured again
(Fig. 5.8).
CEO/executive panel
Asset class 1 Asset class 2 Asset class 3 Asset class 4
Fig. 5.8 Asset-based organisation
This time, the company decided to base its structure around, not
functions, not services, but assets. Thus, it created one division to
manage its buildings, one to manage its plant and equipment, another
to manage its fleet and yet another to manage its infrastructure. As all
services used each of the asset groups, the company considered that
this would enable it to impose some greater consistency over service
delivery.
Is this the final answer? You know it isn’t. There are many structures
that have worked for some organisations for some of the time, but no
single structure that is right for all and for all time (Burns, 2003a;
Wijnia, 2004).
After the enthusiasm for change management and re-engineering, in
which organisations were restructured every few years, we are starting
to question the damage this has done and to query whether it was
ever necessary, mindless change being no better than mindless stability.
Are there tools and techniques that work with any or, at least, most
structures? Yes, and one such is ‘we’ statements, which accomplish
the dual task of establishing and communicating the guiding value

statements of the organisation.
2.4.1 Tools and techniques: ‘we’ statements

The following is an excerpt from a much longer article by Harlow (2004).
We are dedicated to understanding our customers’ expectations and provid-
ing levels of service that they find of value.
We set clear service level policies and fund operations to meet these service
levels.
Our management shares a common vision of asset management and commu-
nicates it clearly with staff.
We know our assets. More importantly, we know what it is we need to know,
and we strive for better asset knowledge in all areas where it makes business
sense. We know our risk exposure and our costs of ownership now and into
the future.
We are extremely cautious in capital spending because we know that new
facilities impact our capital and O&M budgets on a continuing basis.
We maintain our assets for appropriate reliability. We know which assets

must not be allowed to fail as well as the reliability requirements for all
other assets. We monitor asset condition or use predictive maintenance
wherever it makes economic sense.
We provide service as if we were the customer. We spend our customers’

money as if it were our own.
2.4.2 New technique: investment logic maps

An asset investment is a response to a change in direction designed to
provide benefits to meet desired objectives that derive from the problem
or opportunity that is the driver: driver–objectives–benefits–change–
enabling asset. That is, the asset investment is at the end of the line.
Yet, people routinely jump in at the end-point and start considering
what the investment should be and how it should be funded. This is
the wrong starting point, argues the State Treasury of Victoria, where
the use of investment logic maps (ILMs) has been developed to a fine
art. Instead of wasting many thousands of dollars on ‘business cases’
for projects that have no real purpose, the ILM approach has enabled
departments to drastically cut back the number of projects that they
submit to cabinet – and to drastically increase the percentage accepted.
The ILM process:
‘starts with a focus on the ends, rather than the means; on engaging investors
in a dialogue, rather than overwhelming them with detail; on being clear about
the practical enabling actions required; and on unambiguous assignment of
accountability for the proposed benefits. The right approach is to think like
an investor, not a project manager. . . Also, an investment’s life cycle is
longer than that of the project. Often, the value is not fully realised until
after the project team has disbanded. The investment life cycle starts with the
initial idea and ends only when the investors are happy with the return on
their capital or have revised their benefit expectations’ (Hodgkinson, 2008).
2.5 The core

2.5.1 Performance tracking
Decisions made at the core (Fig. 5.9) anchor the vision, goals and
values of the organisation. Consciously or unconsciously, decisions
made here determine the actual values held by the organisation, regard-
less of public pronouncements. Decisions at the core determine the
morale of the organisation, and thus how easy it is to recruit newcomers
and to hold onto staff. It is at the core that decisions determine the
credibility of your organisation and your success in achieving its goals
and vision.
The core is where you find the answers to ‘How can I encourage the
organisation to perform beyond mandatory levels of compliance?’,
‘How can I ensure that key performers think ahead beyond the end of
their term or tenure?’ and ‘How can I get key performers in different
divisions to work together for the common good?’ It is also where you
determine whether your people will be prepared to take sensible risks,
take ridiculous risks, or take no risks at all.
The two critical factors are what you measure and respond to, and
what you reward. The design of these measures and response mechan-
isms, and the reward practices established, are key strategic decisions
Fig. 5.9 The core

that determine whether your goals and vision will be achieved and
whether anything, including organisational structure, needs changing.
2.5.2 Measurement at the core is not by key performance indicators

Key performance indicators (KPIs) are useful efficiency measures for
divisions, but they make poor effectiveness decisions, as shown in the
following illustration, an actual case of a new quality control manager
in the white goods industry. The new manager tried to make a change
that would net the organisation an improved, more reliable product
for its customers, a pleasanter work life for workers and a sizeable
profit. One would think that the change would have been welcomed by
all, but this ‘case in point’ study shows how adherence to individual
KPIs blocked the achievement of a good organisational outcome
(Riegel-Huth, 2000).
A case in point – KPIs and the corporate good

The company’s statistics showed that the V-belt in their washing product
was the cause of a high percentage of machine failures and call-outs.
When called out to fix a fault, the technician fitted a different brand of
belt to that used originally, a brand widely regarded as a ‘fit and
forget’ belt, as the service technicians had used them for 5 years with
only one known problem. A few sums by the new Quality Control
Manager showed that the ‘fit and forget’ belt cost 10 cents more than
the one the factory used but, in terms of warranty costs, the ‘cheaper’
belt was costing about $1.10 for every washer produced. Switching to
the new belt would save $1.00 per washer – a small amount but, with the
quantities produced, this would amount to $200,000 per year per plant.
But, although it was a clear corporate gain, the KPIs by which indi-
viduals were measured meant it could not happen.
1. Engineering – the washer division’s chief engineer had been aware

of the problem, but had not seen it quantified. Could he specify this
fit and forget belt? Only if he wanted his performance to look bad,
because he was assessed on the basis of keeping down the factory
variable cost (FVC).
2. Purchasing – the purchasing manager could appreciate the advan-
tages of the new belt, but was also reluctant to take action. He
could introduce a FVC saving immediately, but if the cost of any
item went up then he had to be prepared to be grilled unmercifully
at each monthly meeting. His primary yardstick was the FVC-
reduction target – and if by his actions there was a saving in
warranty it would give him no kudos (all pain, no gain).
3. Production Manager – the factory belt, as it came through the

door, had too hard a surface and would slip on the pulleys. Thus
the special equipment people had built a machine that wire brushed
the faces of the belt to scuff them. The extra labour cost of this
operation was about 10 cents/belt. Not only that, but the special
machine fouled the air with fine rubber dust, with the result that
the nearby lunch area was never used. What an opportunity!
Using the new belt would get rid of a particularly messy operation
and save the cost of an operator. A great opportunity? No, the
Production Manager was evaluated by the ratio of direct operators
(good guys) to indirect operators (bad guys). Removing a direct
operator, even an unneeded one, would send the ratio the wrong
way.
4. Divisional Manager – at least the divisional manager would under-
stand! Sure he did. His yardsticks were the collective sum of the
other yardsticks – so the below-deck logic applied at the top. He
was also responsible for the warranty cost of the product. But,
being no fool, he knew what his main yardsticks were – he had
his grilling each month in front of the Board and he knew exactly
what was important.
5. Chief Financial Officer – could Divisional Managers increase
the FVC and offset this with greater warranty savings? ‘Well I
suppose if a divisional manager actually wanted to increase the
FVC he could always come to Head Office and make a proposal.’
There it was again. The number one yardstick – FVC – was all
pervading.
Fortunately, the company had a good CEO who had the foresight to
have asked the Quality Control Manager to sit with him and his key
managers on an irregular basis and advise them on what they could do
to improve quality. He raised the story of the V-belt, prefixed by
‘Here’s a story that I think might amuse you’.
6. The CEO – was not amused!
If not KPIs, then what?

Here, it is necessary to distinguish between asset performance and asset
management performance. They are different, and each is important.
As we saw in the above case in point, KPIs are related to processes,
not to outcomes and not to assets, and, while their original purpose
was to ‘measure unit performance’, they quickly become objectives in
their own right for the units concerned, producing the distortions that
the story illustrated.
The measures that are needed for asset management strategy

decisions are those that relate assets and asset performance to the
organisation’s desired outcomes. They are easy to distinguish from
KPIs because they all require analysis and interpretation, i.e. thought.
3 Asset performance and asset management

performance
Most asset-based companies have in place some indicators of current
asset performance. Ideally, these show the assets’ contribution to service
or production outputs. For example, if you have a service measure of lost
customer minutes (as in electricity generation), you will wish to see what
is causing the loss. Is it a failure of the assets (plant breakdowns), or is it a
failure of overall capacity (a strategic issue)? If your service measure is
the number of trains delayed, as in some rail companies, the reports
will usually tell you whether this is a problem with the assets, such as
the track, signals or train, as opposed to, say, drivers not being available.
Working out the ‘asset’ and the ‘asset management decisions’ contri-
bution to outcomes is not always straightforward, but the principles
need to be clear. Why did an asset fail to deliver? Is it because of a
failure of the asset (undermaintained or the wrong thing done during
maintenance), or is it a failure of the asset decision – the wrong asset
in the wrong place?
3.1 Measuring good asset management performance

Performance indicators for asset management can be tricky, because
asset managers’ decisions are inevitably related to future circumstances.
Ruth Wallsgrove (2005) argues that part of the answer to the question
‘How good are we as asset managers?’ is the extent to which we can
relate our plans to future demand, and the quality of the processes
used to produce the demand estimates, as well as the plans. She argues:
Providing more data is not the answer. Giving other people ever more
information doesn’t really help them if they don’t have the resources to use
it. So the way forward is not so much about more performance indicators,
more data per se, but transparency about decision-making.
If our methods and models are clear, we should be able to show how we come
up with our answers with the inputs we used. The Board, owner or regulator
can check our input data and prod our models. If we’re halfway competent,
they can’t know more than us, not about the assets; we’ll have the data
and should have the knowledge, the access to best practice methods and the
means to develop them for our business. Then, how efficiently the plans were
implemented is the success or failure of Asset Delivery, of programme and
project management and maintenance – not asset management.
Martin Pilling goes into more detail on how good-practice asset manage-
ment can be defined and measured in Chapter 4, ‘Beyond BSI PAS 55
compliance’.
3.2 Measuring performance of the vision

A clearly stated vision makes it possible for everybody in the organisa-
tion to understand it and to be able to see what they, individually,
need to do to make it happen. Also, when circumstances change in a
way that makes the goals temporarily, or even permanently, unattain-
able, they can be changed so that the goals are still credible and
believable. To take a recent example (Holland, 2009), British Waterways
had a clearly stated vision statement that read ‘By 2012 we will
have created an expanded, vibrant, largely self-sufficient waterway
network used by twice as many people as in 2002. It will be regarded
as one of the nation’s most important and valued national assets.
Visitors will be delighted by the experience and many will become
active participants’. While the ‘vision’ this statement embodies is resis-
tant to economic downturns, the immediate 2012 goal may need to be
adjusted to ensure that the goal is credible and believable in the new
circumstances.
4 Values – what gets rewarded?

Many a company claims to have a high regard for their excellent staff,
but their actions belie their words. Many a company claims to put
environmental sustainability first, but then focuses on short-term profits.
What you do trumps what you say.
So what do you reward? Rewards are not only monetary rewards or
promotions. In fact, non-monetary rewards speak louder. What gets
praised in your organisation? What stories are told with pride at board
meetings and social functions? What do you write about in in-house
journals? What papers are selected for presentation at conferences?
Who gets chosen to head up prestigious interdepartmental or inter-
company groups?
If you want your key people to look beyond their term or tenure, ask
yourself whether this is something that the company publicly rewards.
Are previous key people recognised for their contribution to present-day

successes? Is cooperation publicly recognised and rewarded, or are the
plaudits saved for individual gains and excellence? Who gets extra
staff, the leader who puts effort into working with other divisions, or
the leader who jealously guards information within his own division?
The rewards mechanism in any organisation will determine what is
valued by the staff – and therefore what gets done. Is the reward struc-
ture consistent and transparent? Does it seem fair? If so, morale will
be high and it will be easy to attract new staff and retain the staff you
already have. Charles Johnson explores this further in Chapter 6,
‘Creating an asset management culture’.
A case in point
Recently, I was considering with a group of 20 middle management
council officers a project that had been hovering for about 10 years
and, if it went ahead, was scheduled to cost at least $35 million, and
quite likely a lot more. We were using the ILM framework. The group
found it very difficult to define the problem that the ‘solution’ was
expected to solve. They could find no drivers, objectives and, especially,
no benefits that could come anywhere near justifying the $35 million
price tag. Despite this, not a single one thought to challenge the status
quo and suggest that the project be cancelled – or, at the very least,
rethought at a senior level.
Were these people stupid? Not at all! But the ‘system’ did not provide
any means by which the appropriateness of the project could be
challenged. And this story can, I am sure, be replicated in many other
organisations.
A second case in point

In another example of examining a project from the standpoint of the
ILM framework, the project was one under active discussion with
another group of senior middle management. Again, the project was
unanimously seen to present no benefits that could anywhere near justify
the costs. Moreover, the project was also seen to present the possibility of
creating a dangerous precedent, whereby other similar projects could
also be justified. But the group believed that they were obliged to go
ahead with it. The possibility of not doing so did not occur to them.
So they applied their considerable ingenuity to ‘creating’ a justifying
case – a case that no one in the room believed in!
Again, were they stupid? Not at all! But a system that does not
encourage full consideration of project worth is a stupid system. This
situation is replicated many times in many organisations.
The use of good-quality investment decision techniques such as the ILM

framework can reveal where measurement and reward systems are
counterproductive, as well as create more effective decisions. The officers
in these two case studies were well intentioned but demoralised. How
could they optimise outcomes when they had no idea what was to be
optimised?
5 The role of information in asset management strategy

In their enthusiasm, and perhaps owing to a lack of understanding, many
software producers will tell you that they have a program to ‘do asset
management strategy’.
Programs can help illustrate the consequences of a given set of
assumptions, but they cannot generate, or test, or choose between
those assumptions. Programs do only what their programmers tell
them to. If your programmer has not foreseen the (many possible)
consequences for your particular assets in your particular current
configuration, in your location, with your current and future likely
customers, customs, rules and regulations – and under a wide range of
future possibilities for climate change, commodity prices, demand
change, etc. – then you may have a generated list of works orders, but
you do not have an asset management strategy. And no program can
make the many reward and appreciation decisions that determine a
successful company.
6 Information at the core

It is surprising, yet true, that when it comes to strategic (as distinct from
operational) decisions, less information is required. A real-time system
may be excellent for tactical decision-making, but is not only not
needed for one-off, long-term direction setting, but can result in overkill
and be detrimental if it detracts from the strategic nature of the decision-
making required.
A good proportion of the information needed at the strategic level
does not come from the asset information system (AIS). At best, the
AIS can tell you what is required to maintain and renew the current
assets in their current formation and for current needs. But this is only
part, and often a small part, of what the strategic decision-maker
needs to know. Strategic decisions require to know, or rather need to
‘best estimate’, future client demand, likely technology changes, possible
future scenarios with respect to legislation, and the impacts of such

things as global warming, political regime changes, peak oil, etc., and
none of this information comes from an AIS, be it real-time or otherwise.
Nevertheless, some AISs are more useful than others in supporting
strategic decisions:
. History – systems that reset to current data are ideal for opera-
tional tasks, but not for strategic decisions, as these require a
sense of where we are in time, and for that a system that retains
history is necessary.
. ‘What if ?’ – systems that allow simple (or complex) ‘What if ?’
analysis are desirable for strategic decision-making. Trend analysis
is essential to strategic decision-making.
. Aggregation – systems that allow different levels of aggregation,
such as a ‘roll up’ of all expenditures and interventions by asset,
asset type or region, lend themselves to strategic decision-making
more so than do systems that provide only one type of aggregation.
For example, accounting systems that record expenditure by
facility, but do not distinguish what assets or components in
that facility are requiring intervention, may serve the accounting
function but are of limited use for strategic decision-making.
. Asset life – systems that record only remaining life but not
economic or useful life are sufficient for short-term operational
interventions but are of limited value for longer-term strategic
decision-making.
7 Conclusions
A good asset management organisation integrates both effective
decision-making (asset management strategy) and efficient actions
(operational asset management). Efficiency reduces costs, while effective-
ness increases value.
Most of the effort, and most of the asset management tools and tech-
niques that have been developed, have been directed towards efficiency
gains. However, there is an absolute limit to the extent that costs can
be reduced. At a maximum, and then only by ceasing to exist, costs
can be reduced by 100%. But there is no limit to the gains that can be
made from greater effectiveness.
This is illustrated in Fig. 5.10. The heavy borders around the
trapezoids showing integration between and within asset classes (greater
efficiencies in operational asset management) represent the limits to
efficiency gains. The open trapezoids showing integration of corporate
Strategic
Effectiveness gains – boundless
Integration with
corporate aims
and objectives
Effectiveness gains – boundless

Efficiency gains – bounded
Integration Integration
between Measuring with the
asset classes success world outside
Integration
with asset classes
Operational Efficiency gains – bounded
Fig. 5.10 Effectiveness gains from asset management strategy unlimited
aims and objectives and with the world outside (greater effectiveness
from asset management strategy) represent boundless effectiveness
gains.
For all the above reasons, asset management strategy is as much an
art as it is a science. It is continually evolving. Like the law, it develops
by the acquisition of cases.
References
Burns, P. 2003a. What organisational structure best suits asset management?
Strategic Asset Management, 110: 461–463.
Burns, P. 2003b. Scenario planning: the Christmas game. Strategic Asset
Management, 129: 623–628.
Burns, P. 2008. Investment logic maps. Strategic Asset Management, 246: 1–8.
Davies, D. 2004. Reputation risk: ignore it at your peril. Strategic Asset Manage-
ment, 152: 807–814.
Harlow, K. 2004. We are an asset management organisation. Strategic Asset
Management, 151: 752–754.
Holland, G. 2009. A compelling case for vision, part 2. Strategic Asset Manage-
ment, 265: 1–8.
Riegel-Huth, R. 2000. Troubleshooter’s casebook: when individual performance
measures give the wrong company result. Strategic Asset Management, 39:
102–104.
Wallsgrove, R. 2005. A basic primer on how to measure asset management
performance – with practical examples. Strategic Asset Management, 176:
1001–1004.
Wijnia, Y. 2004. The challenges of a risk based asset management organisation.
Strategic Asset Management, 155: 832–838.
Useful websites
Scenario planning: www.gbn.org
Strategic asset management: www.amqi.com
Investment logic maps: www.dtf.vic.gov.au/ (choose ‘Investment Management’
quick link)
10 Asset management: the way forward
John Woodhouse Managing Director, TWPL and Chair of Faculty, Institute
of Asset Management
This chapter examines the emerging consensus on what comprises good

asset management, and speculates on future trends. Asset management is
still evolving, but has already yielded significant value in both the private and
public sectors. It will play a critical role in resolving competing demands and
priorities arising from global challenges in climate, economics, demographics
and natural resources.
1 Introduction
The overall jigsaw puzzle of asset management still has a number of
rough edges and missing pieces, and is subject to wide variations in its
implementation and sophistication. Nevertheless, the underlying picture
is clearly emerging. There are big differences between merely ‘managing
the assets’, which organisations have been doing for centuries, and
leading-edge examples of joined-up, risk-based, whole-life, optimised
and sustainable asset management. These qualifying attributes, which
BSI PAS 55 (BSI, 2008) identifies as key principles (Fig. 10.1), represent
both the challenges and the opportunities for better asset management.
Whether you are responsible for some aspect of public services or running
a commercial enterprise, whether dealing with the latest telecommunica-
tions systems or heavy construction or mining equipment, there is scope
for delivering better value, at lower risk and with greater sustainability,
if we adopt them and their associated practices. As Steven Male observes
in Chapter 3, ‘The challenges facing public sector asset management’,
this opportunity is not limited to businesses or organisations – it has
social, national and global implications. Indeed, the consequences of not
changing and of not being cleverer with what we have got are unthinkable.
In a review of what has been learnt so far, we can see a number of
common threads and trends. There are also cases, of course, where asset
characteristics, industry sector, societal culture or regulatory environment
require variations in approach, but these tend to be of lesser significance
than the common elements. They are mostly flavours or differences in
weighting rather than fundamental contrasts. Such common elements and
sector-specific or asset-type differences are discussed in more detail below.
Asset management – Whole-life management of physical assets
978-0-7277-3653-6
Holistic
Sustainable Systematic
Integrated
Optimal Systemic
Risk based
Fig. 10.1 Key principles and attributes of asset management
Extrapolation into the future is a mix of confident optimism and

unprecedented uncertainty. On the one hand, common sense, logic, the
increasingly evident tangible benefits and growing stakeholder expecta-
tions will inevitably push for wider adoption of better asset management
practices. On the other, it is difficult to see how we can truly resolve the
head-on conflict between the big sustainability issues, such as environ-
mental, financial and demographic projections, and the short-termism
of political cycles and individual self-interests. Until we move from
intellectual acceptance of what is needed to the point where business
processes, tools, human behaviours, measures (including accountancy
criteria) and legislation are brought into line, we are going to remain
vulnerable to reversion. Throughout human history, the crisis often
has to occur before the need for change is accepted (Russell, 1982).
The good news is that the interconnected world is increasingly aware
of the alternative: bad asset management, e.g. silo behaviours, short-
termism, poor risk management, inefficient work programme delivery,
becomes more easily recognised for what it is.
2 Common threads
The evolution of modern thinking in asset management has yielded a
number of common conclusions from widely disparate starting points.
Several of the preceding chapters provide examples, which include the
following:
Section 3: Asset management: the way forward 203
. Pressures on local municipalities in Australia and New Zealand

forced a fundamental reappraisal of investment planning, service
delivery and measurement, and cross-disciplinary coordination.
. Very similar changes were found to be necessary in the North Sea
oil and gas sector in response to the combination of an oil
price crash, the Piper Alpha disaster, new safety legislation and
globalisation of the industry.
. The privatisation of the UK electricity, gas and water utilities, after
initial rounds of cost-cutting and gaming with regulators, has
evolved a very similar set of processes for investment prioritisation,
risk management and value/performance alignment.
. National and local government initiatives have been patchier but
have also recognised the need for data-driven decision-making,
more transparent criteria for investment planning and better
connectivity between the organisational goals, plans, resourcing
and the delivery of front-line activities.
Indeed, the development of BSI PAS 55 was a direct recognition of

these common threads and 28 universal requirements for good asset
management. Rather than repeat the full list here, however, I will high-
light the ones that stand out as representing both the greatest challenges
and the most important success criteria.
2.1 Line of sight

Clearer and more consistent corporate values as reflected directly in
strategic prioritisation, investment planning and day-to-day work are
crucial. Historically, the language of senior management and various
stakeholders has often been fuzzy and impenetrable, using generalisa-
tions, qualitative terms and politically correct phraseology that avoid
specific commitments and accountabilities. Operational levels of the
business have been expected to deliver ever-increasing performance or
service levels in an environment of conflicting and changing messages,
resource constraints, risks and uncertainties. Modern, joined-up asset
management, in contrast, requires much greater clarity and coherence
between the high-level business goals and the practical realities of what
gets done, by whom, why, when, where and how. Chris Lloyd discusses
how this can be achieved in Chapter 7, ‘Developing the competence of
asset management staff ’. This requirement for better connectivity or
line of sight between organisational strategic intent (where are we
going and why?) and asset-management activities (how do we get
there?) is a vital feature of all manifestations of good asset management.
2.2 Asset Management strategies and (lifecycle) plans

Within the line of sight chain of logic and clarification, the development
of asset management strategies and long-term management plans are key
steps. Various templates and ideas have developed about what should be
included in such documentation, as Richard Edwards discusses in
Chapter 1, ‘Asset management in the rail and utilities sectors’, but
important features clearly include:
. Timescales which are not limited to the traditional annual or other

accounting, regulatory or reporting cycles. Asset management
strategies and plans need to be able to select and demonstrate the
optimal choice of investment options with whole-lifetime usage
benefits, costs, risks and the sustainability attributes obtainable.
. The why? justifications for what is planned. It is not enough simply
to document what needs to be done, by whom and when. The
reasons for the actions are critically important, both to those
who will be responsible for delivering them and to the processes
of change management. Plans must be flexible to accommodate
the unexpected, so an understanding of the consequences of not
doing something is valuable in determining how to adjust priorities.
. Cross-disciplinary input to, and acceptance of, the best combined
approach to overall value-for-money, irrespective of local vested
interests or departmental implications. This often involves revising
budgets, resources, responsibilities and performance measures to
align with the agreed optimal mix.
2.3 Criticality, risk and prioritisation methods

A common backbone of values and their respective importance to the
business greatly helps in targeting the biggest problems or chasing the
greatest improvement opportunities. In contrast to simplistic statements
such as ‘safety is paramount’ or ‘no expense will be spared’ – which are
easy to say and sound good for public relations purposes but do not
generally pass the test of practical implications – a robust, risk-based
criticality method is an essential tool for determining priorities. Such a
method must consolidate competing attributes, e.g. cost, health and
safety, environmental impact, reputation and performance, and provide
a single corporate view of importance or scope for improvement. It
provides the starting point for improvement activities by identifying
where the biggest headaches and opportunities are, helps in the
prioritisation of asset management activities according to improvement
value-for-money and urgency, and provides the balancing mechanism
for performance scorecards by defining criteria and ranking their impor-

tance. Furthermore, it is an excellent method for resolving competing
departmental objectives and developing a shared understanding of
priorities across the organisation.
Criticality scoring and risk analysis methods have emerged in various
guises and manifestations, ranging from the dangerously simplistic to the
oversophisticated. Some organisations still try to hide behind ‘linguistic’
variables such as high, medium or low attributions of importance, but
most adopt a scoring system to merge combinations of factors. And
an increasing number now recognise the value of assigning scales of
importance directly in economic equivalents, including intangible factors
such as reputation or customer satisfaction. Whatever the maturity and
level of detail, however, it is clear that an asset risk management and
criticality system is a vital enabler.
2.4 Asset management decision-making

Asset management introduces a more holistic view of value-for-money.
As Fig. 10.2 indicates, it requires us to consider all the aspects of costs,
performance, risks and longevity, and to identify the optimal compro-
mise between competing factors within any non-negotiable constraints.
Such optimised decision-making is now recognised to be one of the
most critical attributes of good asset management, and represents a
significant change from many common ‘false economy’ practices such
as just buying the cheapest alternative, or working to a budget without
considering the ‘value added’ of challenging or changing that budget.
In particular, as explained in the BSI PAS 55 guidance document
(BSI, 2008), there are at least three levels of requirement for optimised
decision-making:
. individual intervention decisions such as an investment decision,
maintenance strategy or operational task
. asset lifecycle optimisation, which blends the various activities of
initial investment, utilisation, inspection, maintenance and renewal
in the optimal overall way
. activity programme optimisation, which coordinates the delivery
of capital investment, operations, maintenance or other activities
in the most efficient and effective way.
Unfortunately, there is still a great deal of confusion about how to
address these requirements. A significant education gap certainly
exists, and the various decision-support tools, either home-grown or
commercially available, vary widely in credibility, robustness and
1. Specific intervention Portfolio of assets and system

optimisation (types, criticalities, condition, performance)
(cost/benefit/risk/timing)
Lifecycle activities
Acquire/create
Utilise
3. Activity programme
Maintain optimisation
(cost/benefit/risk/timings)
Dispose/renew
2. Asset lifecycle optimisation

(cost/performance/risk/sustainability)
(a) Individual assets (whole-lifecycles)
(b) Asset system integration level (performance sustainability)
Fig. 10.2 Optimisations required in asset management decision-making (from

BSI PAS 55, Part 2)
flexibility. The European MACRO project (www.macroproject.org), for

example, revealed the need for a multi-threaded approach to handle
around 40 common scenarios in a consistent value-for-money manner.
It also generated important guidance on the appropriate usage of tacit
knowledge or expert opinion in combination with quantified risks,
costs and performance data. In particular, MACRO identified the
process steps, mathematical handling and importance of decisions that
involve risk or performance that changes with time, such as inspection,
condition monitoring, planned maintenance, shutdowns and asset
renewal timing (Fig. 10.3).
Yet, despite widespread recognition of the importance in asset
management decision-making and good progress in the introduction
of more value-for-money oriented methods in specific cases, there
remains plenty of scope for further improvement. For example, global
or system performance assumptions, budget-setting processes and
strategic investment prioritisation are often handled quite separately
from the individual case decisions about which new pump to purchase
or when next to inspect the current one. Better integration of these
decision methods will yield a more bottom-up budgeting process and
greater clarity about which specific interventions or options best deliver
the overall system goals or value.
This remains one of the greatest challenges to the refinement of asset
management practices in the future, although leading edge organisations
are busy developing asset health indices, deterioration models, advanced
condition monitoring methods and simulation tools, and the cross-
industry SALVO project (www.salvoproject.org) is currently addressing
it with regard to the management of ageing assets.
2120 OFM
20
Total
15
£ thousands/year
10
Restore failure
Continue failure
5
Planned maintenance
0
10 15 20 25 30
Renewal interval: year(s)
Fig. 10.3 MACRO (APT) example of optimal equipment renewal timing,

showing planned expenditure versus various failure mode risks: train track
rerailing (conductor rail) base case
2.5 Data, information and knowledge management

Decision-making, data and information requirements are tightly inter-
dependent, and the essential need to sort out the underlying data and
information management issues as part of a robust asset management
system is well recognised. Indeed, many get so engrossed with this area
that they presume that asset management involves just the implementa-
tion of an enterprise asset management information system, usually
comprising such modules as an asset register, maintenance work
management, materials management/procurement, inspection and
condition monitoring, and history capture and reporting. There is no
doubt that some such enabling software is vital to fact-based asset
management, and vast sums are sometimes spent on such systems and
their implementation. Great debates are still occurring, however,
about levels of integration that are necessary and worthwhile, what
data models are appropriate, what data quality is needed or achievable
or affordable, and the fit or adjustments necessary to support desired
business processes. There remains, for example, significant confusion
about what data is really worth recording, to what level of detail and
how it should be used. The business case for many such investments
has sometimes proved very difficult to make in conventional cost–benefit
terms or to demonstrate in resulting efficiency or effectiveness improve-

ments. Indeed, the record for exploiting such systems to the full is poor,
with functionality deemed important at the design and acquisition stage
often found to be unused a few years later. In many cases, I think this can
be put down to a combination of three factors:
. The lack of loop-closing processes that explicitly link the identifica-

tion of improvement opportunities, the exploration of possible
options and the decision-making to the requirements and usage
of specific information (Fig. 10.4).
. Lack of methods, processes and understanding of how to combine
tacit knowledge or engineering expertise with the collectable hard
evidence, including the handling of uncertainty and data quality
in a proportionate manner, e.g. the required granularity and
precision of information should be related to the criticality of
decisions that will be dependent upon it.
. Inadequate provision for the education, engagement and motiva-
tion of those who will be gathering or providing data in the reasons
and processes of using it. The training budget is a common target
for cost-cutting when IT systems start to run over their planned
budget and timescales, and training is also often limited to opera-
tional competency and does not cover the educational elements of
‘why are we doing this?’ and ‘what could or should be achievable as
a result?’
2.6 The human factors

Many organisations have started out thinking that asset management is
primarily a technical subject. However, there is a near-universal recogni-
tion amongst those who make significant progress in the subject that
getting the human factors right is even more important than the tools,
processes and technical ‘solutions’ that are adopted.
Motivation, education, communication, leadership, team-working
and sense of ownership are absolutely critical enablers to the establish-
ment of a joined-up, sustainable approach to asset management. Part
of these requirements are covered by the formal aspects of organisation
structure, roles and responsibilities, and a substantial revision to the way
competences are developed. These matters are dealt with in more detail
by Penny Burns in Chapter 5, ‘Asset management strategy: leadership
and decision-making’, and by Chris Lloyd in Chapter 7, ‘Developing
the competence of asset management staff ’. Certainly, asset manage-
ment has profound implications for future recruitment, training and
Section 3: Asset management: the way forward
Project design
and construction
Materials
and labour
Operating and Change

Resource maintenance control
control strategies
Evaluation of
solutions
Resource estimating
and task assignment
Problem/opportunity
investigation
Work programme
scheduling Inspection
Work
and CBM loop
control
Problem/opportunity
identification
Preventive, detective
Data
and corrective work
collection
Cost
control
209
Fig. 10.4 Asset management processes and their primary linkages
education requirements, and the de-conflicting of departmental silos and

their localised interests, budgets and performance goals is a necessary
objective. There is also, as Charles Johnson explains in Chapter 6,
‘Asset management culture’, a significant element of change manage-
ment required. In particular, there is a need for leadership styles that
do not just rely on command and control, more active workforce and
stakeholder consultations, communication and consistency of purpose,
and new behaviours in cross-disciplinary team-work that can reduce
the effects of functional tribalism or departmental silos. And it is not
just the traditional, mechanistic aspects of change management we
need to cover: the psychology, culture and habits also need to be
addressed in a transition management manner (Bridges, 2003) if we
want the new approach to become the norm. Otherwise, old behaviours
will creep back into the picture, and asset management risks becoming
just another temporary enthusiasm.
This area is so important, yet so often underestimated and under-
funded or under-resourced, that it is worth making an explicit example
of what is at stake. In BP’s transition to a fully asset-centred organisa-
tion, moving from a total production cost of $15/barrel to just $2/
barrel over 15 years, it has been observed that the great majority of
the improvement came not from technology breakthroughs (although
horizontal drilling did make quite a difference) but from thousands of
individually small, common-sense ideas coming from an informed,
engaged and motivated workforce. As the saying goes, ‘For every pair
of hands we hire, we get a brain for free’ (Clutterbuck and Kernaghan,
1994). Good asset management involves, at its core, the harnessing of all
the brains and hands to a clearer, common purpose.
3 Sector-specific and asset-type differences

3.1 Industry sector differences
As the preceding chapters illustrate, there are significant differences in
the maturity or state of evolution of asset management in the public
sector, electrical, water utilities, rail/transport, oil and gas, process and
manufacturing industries. The most obvious differences, however, are
found simply in the stage of evolution of the subject in different public
and private ownership structures and commercial, geographical,
industrial and regulatory environments. As Martin Pilling describes in
Chapter 4, ‘Beyond BSI PAS 55 compliance’, there is a broad spectrum
of maturity and many intermediate levels of innocence, understanding,
development, integration and optimisation. Indeed, the path has no
Safety Reliability
Risk
Life
exposure
expectancy
Regulatory
sure
Cap e
expo k
valu
Ris
ital
Environmental Capital cost
‘S cy
hin
e’ ien
fic
Ef
Operating costs
Public image
Performance
Quality output
Customer
impression
Fig. 10.5 ‘Shamrock diagram’ of competing business drivers and their (quan-
tifiable) influence on asset management priorities. (Reproduced by permission of
TPWL)
natural end-point, for asset management is a subject that holds indefinite

future scope for refinement and innovation.
Where necessary variants do occur, however, they reflect the different
importance of various business drivers (Fig. 10.5), the imposition of
certain constraints, usually legal or licensing, or certain industry
attributes that limit the available options, e.g. mining or oil and gas
production, where the exploitable reserves are finite, or mobile phone
production, where the rate of technology change favours very short
lifecycles.
Richard Edwards discusses the impact of regulation in Chapter 9,
‘Regulating asset management’. Heavily regulated organisations are
often characterised by passive or reactive rule-driven habits. In such
an environment, there is a difficult cultural shift to make from just
seeking the least cost, compliant option to a more proactive engagement
and influencing of regulators and other stakeholder expectations. As
Edwards identifies, however, new regulatory models, such as those
evolved from the UK utilities and rail privatisations, offer scope for
quite a different relationship, and it is instructive to note that Ofgem,
the gas and electricity regulator, promoted BSI PAS 55 as a requirement
for all UK network operators, and that ORR, the rail regulator, is now
giving it a similar level of priority.
Edwards also covers the utilities sectors, and these have been, in the
UK, the torch-bearers for asset management over the last 5–10 years.
The catalyst of privatisation and de- or re-regulation shaped them along
asset management lines. Such sectors, however, are often dependent on
very long-life assets, 100 years plus in some cases, so they encounter
particular challenges in measuring condition, quantifying asset value,
predicting residual life and justifying pre-emptive investments.
Steve Male provides a good insight into national and local govern-
ment interest in the subject in Chapter 3, ‘The challenges facing public
sector asset management’. This reveals a big gap in understanding
about which assets are in what condition and how to establish some
basic plans for long-term investment or disposal, utilisation and care.
Local authorities and municipalities are now one of the fastest-growing
areas of interest in the subject, with strong top-down and bottom-up
pressures on them to deliver better value, reduce costs and risks and
simultaneously ensure long-term sustainability. Like other public service
organisations, whether publicly or privately owned, local governments
often struggle with putting a value on their output (many are ‘shine’
factors), so it is initially harder to establish consistent criticality and
prioritisation methods, and more stakeholder engagement and indirect
measures become necessary.
In Chapter 2, ‘Asset management in the oil and gas, process and
manufacturing sectors’, I covered the North Sea oil and gas story, and
these industries arguably led the way with modern asset management.
These sectors have specific attributes, however, in that the oil and gas
reserves have a finite extent, so lifecycle asset management plans involve
horizons that are self-constraining e.g. do we extract it faster, for a
shorter period, or more slowly for longer? On the other hand, innova-
tions in exploration and production methods are already creating
more re-usable infrastructure such as floating production storage and
offloading vessels that can be moved from one field to another, so
maybe the sector-specific influence is reducing in its effect.
Manufacturing and other process sectors, in contrast, have not yet
really embraced the asset management message. They are at early
stages on the maturity scales, with priorities set on fairly short-term
horizons, particularly in the current financial crisis. Survival and
efficiency are measured day to day, or at best year by year. This problem
is exacerbated by a more general barrier to good asset management,
namely the traditional annual accountancy and reporting cycles.
Organisations and industry sectors which are locked into annual cycles
of budget approval, performance reporting and planning, face big

challenges in the introduction of strategic, optimised whole-life asset
management. This is particularly difficult in public sector environments
subject to government treasury approvals and the usual 4–5 year poli-
tical cycles of distorting self-interests. The defence sector is an interesting
case: one of the leading developers of lifecycle costing as a basis for
procurement, it faces constant attrition on operating costs, as well as
changing expectations and functional requirements, so short-termism
and lowest-cost solutions are common in much day-to-day decision-
making. To be fair, government accounting regulations in the USA
(GASB, 1999), the triple bottom line concept of corporate reporting
(Elkington, 1994) and balance scorecard techniques (Kaplan and
Norton, 1996) have all helped to provide a more comprehensive view
of asset value and corporate performance. Nevertheless, short-termism
is still rife, reinforced both by accountancy and regulatory cycles
and, in some cases, by senior managers’ or politicians’ personal interests
of reputation or reward mechanisms. A robust model for an ‘asset
management scorecard’ is still not available: one that can demonstrate
short-term and long-term trade-offs and include the ‘lost opportunity
costs’ of asset unavailability, performance shortfalls, risks, sustainability
effects and ‘shine’ factors (see Fig. 10.5).
3.2 Asset-type differences

3.2.1 Different types of physical assets
Most of this book is focused on the management of physical assets, and,
of course, these vary considerably in their characteristics, asset manage-
ment opportunities and available options. For example, electrical and
mechanical systems exhibit very different mixes of degradation processes
and failure modes in their maintainability and condition measurability.
Such variations must naturally be reflected in their optimised lifecycle
management strategies. Techniques for developing such strategies have
evolved to match these differences. For example, the reliability-centred
maintenance methodology, used to determine what type of maintenance
is appropriate, is most suited to complex systems that exhibit a variety of
failure modes which need to be systematically considered, and criticality
filtered, for different detectability, predictability, preventability or
mitigation options. Simpler, static equipment systems such as pipelines,
rail track or electrical distribution networks tend to exhibit fewer
degradation mechanisms, but there is often greater uncertainty about
the progress of such deterioration, so risk-based inspection techniques
may provide more appropriate strategy development rules.
One of the commonest errors, however, in acknowledging asset-type

differences is the overshoot into fully developed, distinct asset manage-
ment strategies for different asset classes. Whole-system performance
cannot be optimised by developing separate plans for instrumentation,
the mechanical systems, the electrical circuits, etc. Yet there are still
many organisations that make their primary divisions of the asset
portfolio by equipment type and then develop roles and responsibilities
by corresponding specialist discipline, e.g. railway signalling, track and
electrical protection experts. More mature asset management organisa-
tions start with the customer-facing (or other stakeholder expectations)
viewpoint of how service or value is delivered, subdivide the portfolio
by the functional systems (e.g. rail routes, individual power stations, oil
platforms) and, only then, consider the sorts of interventions that different
components require to assure system performance and value for money.
Asset-type specialists contribute a horizontal, fine-tuning contribution
across multiple instances of particular equipment in different functional
contexts, locations and/or criticalities. This allows the asset management
strategies to be both consistently business-oriented and to reflect the diver-
sity of asset types and opportunities within the systems. A systems integra-
tion view is an essential stage in developing asset management strategies
and plans which align bottom-up component asset management needs
and opportunities with top-down corporate priorities and value delivery.
3.2.2 Other types of assets and their management

When BSI PAS 55 was being developed, there was significant discussion
about the interdependencies between not just different physical assets
within operational systems but also between physical and other asset
classes such as financial assets, human assets, information, intellectual
property and reputation (Fig. 10.6). The priority seemed to be addres-
sing the need for physical asset-centric organisations, but the principles
of good asset management apply to all asset types. Reputation and
brand value, for example, require investment and protective care, and
are exposed to risks, degradation and lifecycle sustainability concerns.
Financial assets have long been treated in the same cost–risk–perfor-
mance and short- versus long-term sense as is now being adopted for
physical infrastructure. Indeed, as Chris Lloyd points out in the Intro-
duction, the financial services sector has been using the term ‘asset
management’ for decades. The 2008 banking crisis merely reinforces
the importance of appropriate risk assessment and better performance
measurement criteria for net value-for-money.
Some asset types undoubtedly do introduce special considerations,
such as the low cost of duplication in the case of data assets, or the
Section 3: Asset management: the way forward
Important interface: To t a l b u s i n e s s Vital context: business
objectives, policies,
motivation, communication, regulation, performance
roles and responsibilities, Human requirements, risk
knowledge, experience, management
leadership, teamwork assets
Scop
eo
f
PA
S
Financial
Physical Information
assets assets assets
Important interface:
lifecycle costs, capital
investment criteria, Important interface:
operating costs condition, performance,
activities, costs and
opportunities
Intangible
assets
Important interface:
reputation, image, morale,
constraints, social impact
215
Fig. 10.6 Asset types within the total business context
difficulties in quantifying the value of intangible assets such as reputation

and knowledge. Nevertheless, these are primarily adjustments in the
calibration of asset management factors or vulnerabilities, rather than
fundamental differences in the underlying principles. National Air
Traffic Services, for example, treats each air corridor above the UK as
an asset to be managed. Likewise, various organisations treat their
data, information and in-house knowledge as discrete assets to be
managed in a full lifecycle, value-optimised manner. However, while
we often hear the phrase ‘people are out greatest asset’, there are only
a few cases where this visibly translates into proper asset management
strategies, including adequate education, empowerment, utilisation,
risk management and succession or sustainability planning.
4 The future of asset management

There can be no real doubt that the emerging discipline of integrated,
optimised, risk-based, whole-life asset management is here to stay and
has significant potential to change our lives. Indeed, the financial,
environmental and demographic pressures that we face ahead serve to
heighten the criticality of getting it right – doing the right things for
the right reasons, in the right way (i.e. good asset management). Gone
are the days when it was enough to seek ever-cheaper and quicker
ways of doing the same thing more efficiently; now we have to get
smarter, including challenging, regularly, what it is we are doing in the
first place, why, and with what net effect. The tangible benefits of
doing this are evident and substantial, and the consequences of not
adopting such practices are potentially very severe (ranging from
corporate inefficiency, non-competitiveness and loss of credibility to
societal damage, national and even international crises). Clearly, however,
the rates of change will vary across different industries, countries and
cultures – every organisation needs its own asset management roadmap
to reflect priorities, capabilities, constraints and readiness.
Along the overall path into the future, we can expect some intellectual
battles and the inevitable tension between those who desire standardisa-
tion of approaches and those who feel they are different. BSI PAS 55 will
evolve into a full ISO standard, and a range of sector-specific guidelines,
already being developed, will emerge to bridge the gap between generic
requirements and the languages and special characteristics of different
asset types or industrial contexts. Along the way, I hope that we see
an increasing consistency of terminology and meaning, including the
end of a few false messages and impressions that are still quite common.
4.1 Disposing of a few myths

4.1.1 Asset management is the same as maintenance
Asset care (maintenance) is just one contributory factor in whole-life
asset management, which includes capital investment decisions, oper-
ating or utilisation (asset exploitation), asset care (maintenance) and
end-of-life decisions (renewals, upgrades, disposals, etc.). Maintenance
and reliability personnel need to understand this bigger picture in
order to reduce this confusion.
4.1.2 Asset management is an IT solution

Software vendors are sometimes guilty of perpetuating this myth, styling
their products as ‘enterprise asset management’ tools instead of focusing
their correct and important asset information management role. An
asset management system, as defined in BSI PAS 55, is much more
than just the tools used to store information or facilitate planning or
other component business processes.
4.1.3 It requires a major reorganisation

This is not always true: certainly the oil companies benefited greatly
from creation of discrete, multi-disciplined teams and single-point
accountable asset managers to manage ‘mini-businesses’. However,
there are cases where existing functional departments have been retained
and cross-disciplinary processes established to generate the shared
roadmap, priorities, respective contributions and delivery responsi-
bilities, performance measures and inter-departmental service level
agreements, etc. The creation of a separate asset management depart-
ment can also cause problems if it is not accompanied by adequate
competences, decision-making responsibilities, communications and
credibility establishment. Many businesses spend months, great energies
and emotion debating organisation structure, whereas a great deal of
progress can usually be made within existing structures if common
sense is allowed to apply.
4.1.4 Asset management is just common sense

This is mostly true, but there are some critical, very non-intuitive
elements that make a disproportionate difference to success or failure.
In the area of optimisation, for example, there are big pitfalls for the
unwary. It is easy to talk about balancing costs and risks, short-term
and long-term effects, capital and operating expenditures, etc. Data
uncertainties and mathematical relationships between the factors,
however, mean that subjective judgement or even simplistic calculation
is unlikely to select the right mix. Indeed, ‘balancing’ is the wrong
term in the first place – the optimum solution is where competing factors
are equal in significance; it is where their combined effect is minimised in
terms of ‘cost’ or other scale of business impact. Such pitfalls and errors
are particularly common in decisions about intervention timing, main-
tenance intervals, asset replacement and other decisions where costs or
risks are changing with time.
4.1.5 There is an ideal model

No there isn’t. Whereas many of the requirements for good asset
management are independent of asset type, industry, geography, regula-
tory or other environment, every organisation has a different mix of
business goals, priorities, strengths, weaknesses and constraints. So,
every asset management roadmap is different and, given that a core
feature of good asset management is continual improvement, there is
no end-point. While it might be tempting to look for templates and
off-the-shelf solutions, considerable customisation or configuration is
always needed. This is why BSI PAS 55 only specifies what must be
done: the how must be adapted in each case to the circumstances of
the organisation.
4.1.6 Standards and consensus

The development of BSI PAS 55 has proved to be a valuable aid to the
international debate about the meaning of asset management. Clearly,
however, it is only one part of the unfolding story. In Australia, Holland,
New Zealand, Canada and other countries, there is work underway to
address complementary aspects of process definition, guidance and
clarity about the subject and how organisations can apply the principles
in practice. Sector-specific groups and trade associations are expanding
such guidance in the construction industry, property sector, water
industry and others. The UK Institute of Asset Management (IAM)
has launched a series of working groups to harness, support and align
such initiatives and collate a ‘body of knowledge’ so that common
threads can be shared and reinvention of the wheel is minimised. And
an international network of professional bodies is being established to
share experiences and coordinate efforts internationally.
As the subject gets wider visibility and attention, therefore, we can
expect to see a phase of further accelerating activity. Despite the efforts
of the IAM and other bodies, there is bound to be some resulting
confusion and competing messages.
In the end, however, there will also need to be a consolidation phase,
with agreements on terminology and compromise about what represent
‘adequacy’, ‘good practice’ and generic or sector-specific requirements.
The obvious international platform for this is the International Stan-

dards Organisation, and proposals are already in place and accepted
for developing an ISO standard, at least for the elements of asset
management that are generic, i.e. based on the BSI PAS 55 specification.
It is not difficult to visualise an asset management ISO standard com-
plementing the ISO 9001, ISO 14000 and OHSAS 18000 families, as
part of an expected set of demonstrable capabilities that provide assur-
ance to customers, owners, regulators and other stakeholders. Like the
other standards, however, it will be essential to avoid the cynical levels
of implementation and certification based on just paperwork and good
intentions. Asset management, in particular, depends upon clear and
traceable links between the high-level goals of the organisation and the
day-to-day realities of what people are doing, why, where, when and
how.
4.2 Global trends and future uncertainties

As I write, the world is facing unprecedented concerns and uncertainties.
This ‘perfect storm’ includes:
. the ‘credit crunch’ and economic recession
. the environmental projections of global warming
. the energy crisis
. world population growth, food and water distributions
. highly distorted demographic profiles of both nations and organisa-
tions, including the age–experience–knowledge distribution within
organisations
. ageing physical infrastructure and significant reinvestment
challenges.
Combined with the human tendency to be reactive rather than proac-
tive in any fundamental changes, plus political short-termism and the
distorting accountancy measures of annualised corporate success, we
could be forgiven for being extremely gloomy about the future. Thank-
fully, however, there is another human tendency that helps to mitigate
these concerns – when the crisis is credible, it is amazing what we can
do. Collective commitment, creativity and positive action are all
features of good asset management, and these attributes are certainly
going to be needed in the decades ahead. In fact, the emerging picture
of joined-up, sustainable, risk-based, optimised asset management
might well prove to be the framework for not just physical equipment
and infrastructure but also for society, nations and even the planet
(Russell, 1982).
In the meantime, the pressures we face simply add to the importance

of being extremely careful with what we own, and maximise value for
money in all aspects of investment, utilisation, care, renewal and
disposal. Risk management and sustainability are important factors in
such value maximisation, so the acknowledged big future uncertainties
simply highlight their vital consideration.
5 Conclusions
This book has assembled some of the leading observers and thinkers in
the emerging field of asset management. Their chapters cover the human
dimension to this, the levels of maturity along the way, the benefits
obtainable, the mix of methods, tools and processes that are necessary,
and some of the past and future influences on the discipline as we
currently understand it. Inevitably, there is a mix of views and flavours,
but the underlying themes are increasingly robust and clear. We are on
an exciting road to better integration, understanding, clarity of purpose
and value delivery. Modern asset management provides the framework
and philosophy within which each organisation can construct its way
forward and satisfy the competing expectations of stakeholders to the
greatest degree possible.
I have been impressed, over the last 20 years, by the great openness
and community feeling of those engaged in this story. This bodes well
for the future of mutual assistance, development of the discipline and
consolidation of good practices in asset management.
The future clearly holds big challenges, but also exciting possibilities.
If we keep our heads clear, invest adequately in understanding and
competencies, and adopt an incremental, stepwise approach to improve-
ments, very big prizes are within our reach.
References
Bridges, W. 2003. Managing Transitions: Making the Most of Change. Da Capo
Press, Cambridge, MA.
BSI 2008. PAS 55: 2008. The Specification for the Optimized Management of
Physical Assets, Parts 1 and 2. British Standards Institute, London.
Clutterbuck, D. and Kernaghan, S. 1994. The Power of Empowerment. BCA/
Kogan Page, London.
Elkington, J. 1994. Towards the sustainable corporation: Win–win–win business
strategies for sustainable development. California Management Review,
36(No. 2): 90–100, CA.
GASB 1999. GASB Statement No. 34. Basic Financial Statements – and Manage-
ment’s Discussion and Analysis – for State and Local Governments. Governmental
Accounting Standards Board, Washington, DC.
Kaplan, R. S. and Norton, D. P. 1996. The Balanced Scorecard: Translating
Strategy into Action. Harvard Business School Press, Boston, MA.
Russell, P. 1982. The Awakening Earth: The Global Brain. Routledge and Kegan
Paul, London.

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3 The challenges facing public sector

1 Introduction: the challenges facing asset management

at the technical level, but also its contribution to achieving organisational

. the need to be responsive to changes in technology, design, con-

In categorising these changes, the ﬁrst group can be termed ‘incremental

In this context, the government as a whole, from central through to local

3 The central civil government asset management base

3.1 The public sector and property assets

3.2 The asset management organisation at central government

obtain inputs from personnel across the organisation. From the

Cross-unit and/or Locus of property

Effectiveness: doing the right

Estate strategy for property assets

Systems, networks Facilities Accommodation

4 The OGC/CABE study of major construction

OGC on behalf of the Public Sector Construction Clients Forum

4.1 Major construction investment through programmes and

support an organisation’s core business, translate investment decisions

4.2 Linkages with the HPP initiative

Organisational strategy and objectives

High-level operations Strategic project

commented that the time horizons for the impacts of organisational

transition may be triggered by external events. This is a strategic skill,

. a move to, for example, a greater emphasis on collaborative

. in situations where decentralised structures were operating, at the

The resultant impact is the potential creation of signiﬁcant power diﬀer-

4.3 Linkages between asset management, portfolio, programme

Gate 0 and Gate –1

Gate 0 and Gate –1

Within the Gate 1 process, departmental policy and strategy will be

solutions will result in the initiation of capital investment programmes

4.4 The informed client role

common assumption that the public sector cannot manage large-scale

Policy and strategy skills

. There needs to be a shift away from the traditional linear thinking

The above has to encompass the domain of asset management, especially

structural elements at government level that would be required to

Asset management strategy can be thought of as three separate, but inter-

2 Asset management and its strategy

maintenance, more renewal or more assets, the common element was

2.1 Asset management is concerned with activity

Fig. 5.1 Life-cycle activities

Fig. 5.2 Expanded multi-disciplinary activities within a decision context

2.2 Asset management strategy deals with decision-making

2.2.1 Level 1: the outer circle – vision and values

Fig. 5.3 The three levels of decision-making

Decisions here answer questions such as: What is it that we wish to

2.2.2 Level 2: the inner circle – organisational structure

2.2.3 Level 3: the central core – performance

2.3 The outer circle – vision and values

Fig. 5.4 The outer circle

You may have a so-called ‘vision statement’ or ‘strategic plan’ but,

2.3.1 Vision – the ability to ‘see’ the future

2.3.2 Tools and techniques

2.3.3 New technique: scenario analysis

2.3.4 Organisational values

2.3.5 Tools and techniques

It is important to ask whether the task is to sustain assets, or rather to

2.3.6 Linkages within the decision circles

What can be learnt from this illustration?