The definition of Asset Management

I recently saw the following definition on the Asset Management Council's website in Australia. Definitions are hard going at the best of times. You always come in form criticism, but I am going to have a go at this one in any case.

The life cycle management of physical assets to achieve the stated outputs of the enterprise.

All very generic really, and a sad example of what happens when comittees get involved in risky business sectors such as this. it basically says "whatever you want, over it's life".

It is really trying to be everything to everyone, and doesn't challenge anybody to think very much.



What could those stated outputs be, really? Anything is the answer from the people who wrote it, naturally, but still not very helpful is it.

The role of asset managers has changed dramatically since the privatization of the UK water industry.  No matter how you look at it this was a key watermark in the development of this high end discipline.

The tendency is to wrap it all into project management of new installations, modifications, capital maintenance and other delivery type works.

This dramatically misses the point and is generally the overriding thought in industries where there is still very little economic discipline.

The key role of asset management is all about the trade off between performance and cost. In fact, the key event in any asset management calendar is either the development of the asset management plan, or the review , adjustment and auditing of that plan...

And what exactly is an asset management plan? There are many definitions out there and I am not digging into that one here, but suffice to say that it represents the strategies, tactics and (very importantly) cost forecasts and assumptions, for a given future period.

Many companies tend to stop at the first two, particularly when there is no overriding pressure for tight justification of capital spending.

But it is the last element that reinforces the key elements of the asset managers role, performance AND cost.

For the past 7 - 8 years now I have been using a different explanation. One that drew from my own experiences with RCM and Whole of Life asset management, and one that I think is far more specific to what we do. (Feel free to criticise, I would do)

Minimum whole of life costs for a given level of performance and risk

I have used this in training and engagement snow for almost a decade. And in the road to explaining it I am able to flesh out all of the key aspects of the asset managers role.

Minimum whole-of-life costs - Not LCC, that is a very limited cost only term that belongs in the 1980's with terotechnology. Instead Whole of Life costs relate not just to costs but to value; Net Present Value to be precise.

This means not only the shorter term, OPEX or operational costs, but also the longer term CAPEX or capital maintenance costs. (leaving out issues related to technology, obsolescence and demographics for this explanation)

...for a given level of..: This is the "whatever you want"section. prompting people to think very clearly about their OPEX budgeting process, their establishment of levels of tolerable risk, and their quantifiable performance requirements from the physical asset base.

...performance and risk. : Okay, I know that performance and risk are actually the same thing. I didn't want to put risk in there for many years but I seemed to come across far too many pedants to leave it out.

The bottom line here was to really get to the nitty gritty of what we were talking about. Achieving minimum costs without focusing on serviceability, uptime or risk levels is like driving blindfolded. (And just as dangerous)

So this part of the definition generally prompts discussion on performance, serviceability, uptime, tolerable levels of risk and establishing them. And it also helps people to draw out yet another distinction... one that has been lost considerably in the haze of economists rushing into our area.... that of consequence definition.

Consequences of asset or asset management process failure are either operational, economic, safety or environmental. Anything else, such as bad press, is just the result of an initial incident affecting one of these four issues.

If they are economic or operational, then the decisions are made based on the likelihood of occurrence and the costs of occurrence. Not just costs and not just likelihood.

If they are safety / environmental then the only implication is the likelihood of occurrence and how that can be managed to your companies stated objectives of tolerable risk.

It is a subtle difference, and probably one for a separate post I think...

In any case...


This is the definition I have been using for many years now to define, not maintenance, but the larger picture of asset management.

I hope it not only informs, but helps to provide a guide for you on the fundamental elements of Asset Management in the modern world.

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