As companies move towards risk-based asset management, they need to be confident that their decisions will increase the profitability and productivity of their asset bases while minimising the exposure to the risk of catastrophic events. According to Knowledge Based Management's Daryl Mather and Lloyd's Register's Paul Davies, this is particularly important for the chemical industry where the integrity of physical assets is a source of competitive advantage.
For chemical and process plant engineers the integrity and performance of assets is a key requirement to the safe and efficient manufacture, storage and distribution of products.
In simple terms: “It's looking after the plant, the kit, the tools we need to do the job – it's common sense, it ain’t rocket science, and we've been doing it for years.”
All true, but as we know, common sense isn't that common and rocket science certainly isn’t beyond the wit of the chemical engineer. So why is asset integrity management (AIM) moving up the process industry's agenda?
Asset maintenance first hit the headlines during the late 1980s when it became a target for efficiency improvements throughout the process and chemical industries globally. Initiatives at the time focused upon traditional methods of improvement such as reducing the numbers of staff and trying to work smarter with fewer resources. Despite these cuts, the pressure remained for asset managers to continue to reduce costs and increase efficiencies.
At a similar time, industry in general began to be more aware of the unique responsibility of asset managers in minimising asset failures and so reducing the potential for incidents involving injury. This is reflected in global legislative changes, including the following examples:
*Changes to the way corporate incidents are investigated within the Australian state of Victoria in the wake of the Longford explosions of the late 1990s. A change that has altered the way jurisprudence is applied within that state.
*The introduction of bill C-45 into applicable law at the beginning of 2004 in Canada in response to the Westray mine disaster; bringing with it fines of up to CND$100 000 (Euro 70 000) and prison terms of up to 25 years for negligent actions or omissions leading to a safety event.
*Efforts to reinforce UK laws relating to corporate killing in response to the trial and acquittal of five people after the Hatfield train disaster.
Society in general is becoming less tolerant of preventable incidents causing harm or death, or incidents leading to degradation of the environment. Today we see the reaction to this in the response to recent events within BP, and the investigation into the Buncefield explosion in England.
For those of us who are active in the management of physical assets, as opposed to financial assets, there is one startling observation to be made from the above examples. There is no doubt that in the future, when things go wrong, there will be a requirement for greater accountability of individuals and organisations.
These twin pressures, continuing economic pressure combined with growing accountability for safety and the environment, are driving asset-intensive organisations to seek a more sophisticated means of managing physical assets, one that reduces risks of failure to a tolerable level, while enabling companies to increase the net present value (NPV) of the asset base.
When considered in conjunction with pressures from industry watchdogs, contractual obligations, and pressures from insurers, financiers and stakeholders, as noted previously, something more than common sense is needed. Asset integrity management becomes business critical requiring rigorous and professional management.
In response to these pressures an institutional change is taking place in the way that assets are managed and maintained. In the UK for example, back in 2002 the British Standards Institution (BSI) accepted the proposal for a Publicly Available Specification (PAS) that could be used to help manage asset integrity. Commonly referred to as BSI PAS 55 (specification for the optimised management of physical infrastructure assets), the specification was sponsored and developed by a team drawn from industry, regulatory bodies, and other interested parties from a wide range of sectors. It was formally launched in May 2004 .
On 2nd February 2006, UK water regulator Ofwat issued letter MD212 for managing directors in that industry. This letter spoke of the progress of the Common Framework, an initiative of the UK Water Industry Research (UKWIR), and referred to its evolving role as a framework to guide capital maintenance planning .
On the 14th July 2005, Ofgem, the regulator of the UK energy utilities released a letter titled “refocusing Ofgem's Asset Risk Management (ARM) activity” which referred to a voluntary comparison process against the principles contained within PAS 55 as a tool that “promotes requirements, which allows operators to demonstrate effective asset management”.
Recent history has also included a report commissioned by the Office of the PPP Arbiter (OPPPA) to review good practice in asset management evaluation and to draw on this to develop an Asset Management Evaluation Framework, using PAS55 as one of the key evaluating tools. PAS55 has also been used in recent signalling management evaluations prepared for the UK Office of Rail Regulation.
Regardless of the nuances between the various benchmark tools, and the differing approaches in each of them, it is now obvious that there has been a fundamental step change within asset intensive industry towards a risk-based approach to managing physical assets.
Only recently have the first companies achieved certification against PAS 55; examples include: National Grid’s electricity transmission business in the UK, and Essent Netwerk’s electricity and gas distribution activities in The Netherlands. As it becomes more widely known that the specification ‘fits’ well with modern “risk-based” standards such as ISO14001 and OHSAS 18001 the number of organisations undergoing, or planning for assessment is growing in Europe, Asia, and America.
This provides welcome guidance for companies as they make the change towards higher yields from their physical assets for lower risk of asset failure. As with every new method of management there are challenges as well as rewards. The change to risk management brings with it a range of polemical problems such as the lack of the right quality and quantity of data, the need to consider aspects such as man-management issues relating to communication, leadership, roles and responsibilities; the intangibles of reputation; information on performance and condition of assets; and costs such as capital investment and operating budgets.
The future is clear for those of us engaged in asset management in the early part of the 21st century, particularly within the process and chemical industries where the integrity of physical assets is a source of competitive advantage.
Companies need to be able to make high confidence asset integrity decisions, enabling them to increase the profitability and productivity of the asset base while minimising the exposure to the risk of catastrophic events. Failure to do so will allow competitors to gain a significant lead with regulators, financial markets, stakeholders and profitability.
Daryl Mather has assisted companies to increase the profitability of their physical asset base in over 23 countries including the USA, European, Asian and Latin American countries and is the author of several books on the subject, including “The Maintenance Scorecard”. He works with Knowledge Based Management (KBM), a joint venture between Lloyds Register and WSP Group.
Dr Paul Davies is the Global Business Manager for Risk Management Services at Lloyd's Register. Paul has 20 years experience in the field of oil, gas and process risk analysis, with particular experience in the speciality-chemical and pharmaceutical industries. Email paul.davies@lr.org
1. British Standards Institution. PAS55, Specification for the optimised management of physical infrastructure assets.
ii MD212, 2nd of February 2006, Ofwat, www.ofwat.gov.uk
iii Refocusing Ofgem's Asset Risk Management (ARM) Activity,14th of July 2005, Ofgem, www.ofgem.gov.uk
ivAsset Management Evaluation Report, © Lloyds Register, prepared for the Office of the PPP Arbiter, 2005
v Independent Assessment of SICA using PAS 55 as a guide, © Lloyd's Register Rail, prepared for the Office of Rail Regulation, July 2005
vi www.nationalgrid.com/uk/Media+Centre/PressReleases/12112005.htm and
www.lr.org/Industries/Industry/News/PAS+55+asset+management+award+to+Essent+BV.htm
vii Mathematical Aspects of Reliability-centered Maintenance, H. L. Resnikov, National Technical Information Service, US Department of commerce, Springfield
