How Can Managing an Asset's Life Cycle Reduce Its Total Cost of Ownership?
Asset performance is essential in a plant, factory, or service provider company to deliver value for any organization. In the past, we have focused on optimizing maintenance to reduce failures and costs. However, in the last few years, we have learned that asset performance depends a lot more on other phases of the asset life cycle, including how assets are designed, built, installed, and commissioned.
This article discusses the asset life cycle and the impact of design, procurement, installation, commissioning, and operations and maintenance (O&M) phases on total life cycle costs. It has been documented at many organizations that errors and omissions introduced during the design, build, and installation phases can increase both failure rates and O&M costs, thereby increasing total asset ownership costs.
This article is also designed to help us understand how to avoid costly mistakes and reduce the total cost of ownership.
Asset Lifecycle Phases
Assets—ranging from a piece of equipment to the whole plant/factory—have four key stages in their life cycle.
- Need: A need for the asset is established to provide a service or to make a product.
- Acquisition: An asset is designed, built, purchased, installed, and commissioned.
- Utilization: As the asset is operated, maintained, and improved to provide a service or to make a product.
- Disposal: The need is over, and the asset is decommissioned and disposed of. (Note: for the sake of simplicity, the term asset will be used for the assets or the plant/factory.)
The utilization phase (also known as O&M) and the acquisition phase are the key phases where most of the cost is incurred during the asset life cycle. Figure 1 shows the estimated costs distributed across the different life cycle phases, based on my experience and reported in many papers at major conferences.
During the acquisition phase of the asset, when we are writing specifications, designing, procuring, building/constructing, and installing/commissioning the asset, we have ample opportunities to implement best practices. These practices would make the asset more reliable and safe to operate during the utilization phase. In addition, they will reduce the total cost of ownership for the entire life of the asset.
Suggested Reference Material
- 10 Rights of Asset Management by Ramesh Gulati & Terrance O’Hanlon. Reliabilityweb.com, 2017
- Maintenance & Reliability Best Practices, 2nd Ed. by Ramesh Gulati. Industrial Press, 2013/2009
- Making Common Sense Common Practice by Ron Moore. Reliabilityweb.com
- International Maintenance Conference (IMC), The Reliability Conference (TRC), SMRP’s annual conference proceedings, and Uptime magazine articles.
Ramesh Gulati, PE, CRL, CAMA, CMRP
Ramesh Gulati is an Asset Management & Reliability Specialist at Jacobs - Asset Management Group, Tullahoma, TN. He is a world-renowned leader in the maintenance, reliability, and asset management field, and the author of more than four books, including the award-winning "Maintenance & Reliability Best Practices." His new book, "10 Rights of Asset Management," was released in 2017.
Ramesh is also known as the "Reliability Sherpa" in the reliability and asset management arena. He has worked at Aerospace Testing Alliance/Jacobs, Arnold Engineering Development Complex - TN, Carrier A/C, True Temper Corp., Bethlehem Steel, Foundry Forge Plant, and more.
He is an active member of ASQ, AMP, IIE, SMRP, and has authored numerous papers in maintenance, reliability, asset management, productivity improvements, application of standards, and workforce development. Ramesh holds BSME, MSIE, and an Executive MBA.
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