Asset Management - Performance - Risk - Cost

.

Asset management is a delicate balance between performance, cost and risk. Assets are acquired and used for the benefits they provide to the organisation. These benefits are normally tied to the manner in which the assets perform. The organisation’s success and strategic outcomes are dependent on the performance levels of the organisation’s assets. Optimised performance of the assets delivers the appropriate benefits and returns to the organisation.

There is an argument that the organisation's assets should deliver total efficiency. In most cases organisations have multiple assets and the manner in which they determine what is adequate performance is managed in this environment. The interaction between assets is important alongside external challenges from the macro environment.  There is a constant trade-off between performance and risk. What are the implications for the organisation if the asset does not perform at maximum efficiency? At one level, this performance may not be needed for the asset to provide the necessary benefits. At another level, the inability to perform at maximum capacity might have reliability or safety implications. This has far greater consequences as it might result in the organisation failing to deliver on services, products or operations. If an asset fails to perform there is the possibility of asset failure. This is where the asset is not providing the desired benefits, the denial of benefits or the level of benefits needed by the organisation. The organisation has to decide how it wishes to quantify and manage this risk. Various types of risk may arise ranging from loss of profit, accidents, inadequate service to damage to reputation. The organisation has to balance asset performance with acceptable risk. What is the acceptible risk to the organisation?

 The level of risk and its mitigation has a cost. The organisation has to determine what is the cost associated with keeping an asset performing, at the optimum level, against the cost of risk of non-performance. In this constant trade-off there are likely compromises made on asset performance, cost and risk. During the life cycle of the asset, managers will be seeking to extend the performance of the asset, while keeping costs associated with performance under control and ensuring the risk associated with the performance is acceptable. Over the operational life the performance, risk and cost interaction will be monitored and managed to deliver value for money.

The "iron triangle" for asset management is performance-risk- cost working together to deliver the goals and vision of the organisation.