What CEOs Need to Know About Physical Asset Management

Management

What CEOs Need to Know About Physical Asset Management

29 Oct. 2023
11 min read

Physical asset management is the process of managing the physical assets of an organization, such as buildings, equipment, vehicles, and infrastructure. It involves planning, designing, operating, maintaining, and disposing of these assets in a way that maximizes their performance, value, and lifespan, while minimizing their risks, costs, and environmental impacts.

One of the key aspects of physical asset management is physical asset reliability and maintenance. This refers to the ability of an asset to perform its intended function under specified conditions for a given period of time, and the actions taken to ensure that it does so. Reliability and maintenance are crucial for ensuring the availability, safety, quality, and efficiency of an organization's products and services.

Another important aspect of physical asset management is asset life cycle stages and their impact on cost implications in operation and maintenance. The asset life cycle consists of four stages: acquisition, operation, maintenance, and disposal. Each stage has different costs and benefits associated with it, and requires different strategies and decisions to optimize them. For example, acquisition costs include the initial purchase price, installation costs, commissioning costs, and training costs. Operation costs include the energy consumption, consumables, labor costs, and taxes. Maintenance costs include the preventive maintenance, corrective maintenance, spare parts, and downtime costs. Disposal costs include the decommissioning, dismantling, transportation, and disposal or recycling costs.

A key challenge for physical asset management is to balance the trade-offs between these different stages and costs, and to align them with the organization's strategic objectives and stakeholder expectations. For instance, investing more in acquisition may reduce operation and maintenance costs in the long run, but may also increase the capital expenditure and reduce the cash flow in the short run. Similarly, investing more in maintenance may increase the reliability and availability of the assets, but may also increase the labor and spare parts costs.

To address this challenge, physical asset management relies on reliability engineering. Reliability engineering is the application of engineering principles and techniques to analyze, measure, improve, and optimize the reliability of physical assets. It involves identifying and quantifying the factors that affect the reliability of an asset, such as material degradation mechanisms, component failure modes, equipment failure consequences, failure rates, failure distributions, failure causes, failure effects, and failure prevention methods.

Reliability engineering also involves formulating and aligning maintenance policies and procedures with business processes. Maintenance policies are the rules and guidelines that define how an asset should be maintained, such as what type of maintenance should be performed (preventive or corrective), when it should be performed (time-based or condition-based), how often it should be performed (fixed or variable intervals), who should perform it (in-house or outsourced), how it should be performed (standardized or customized), and how much it should cost (budgeted or actual). Maintenance procedures are the detailed steps and instructions that describe how to execute a maintenance task.

By applying reliability engineering principles and techniques to physical asset management, CEOs can ensure that their physical assets are managed in a way that supports their organization's vision, mission, values, goals, objectives, strategies, tactics, plans, programs, projects and activities