Why is whole-of-life asset management not working?
The implementation of life cycle maintenance planning is greatly aspired to by facility managers. RODNEY TIMM questions why this holy grail of asset management is not often achieved.
Facility managers with large portfolios of assets all aspire to implement life cycle maintenance planning to reduce overall maintenance expenditure and improve asset performance. Yet this seldom seems to occur. Client organisations, which expect industry professionalism and more predictable asset outcomes, are usually underwhelmed by substandard, reactive facilities performance levels. The engineering logic is sound, the mathematics compelling and the industry desire seems ubiquitous. So, why is this holy grail of asset management not often achieved?
THE PINNACLE SOUGHT
Whole-of-life (WOL) maintenance is defined as planning maintenance based on the total estimated cost that will be incurred over the anticipated useful life of the facility or asset, covering the initial creation, ongoing operation and management, as well as the final disposition at the end of its life. The analysis is based on choosing the most cost-effective maintenance approach from a series of alternatives, so the long-term least cost of ownership or use can be achieved. This analysis can be applied to owned or leased facilities.
Typical cost components included are: the initial construction and development costs; ongoing maintenance, servicing and management costs; rental and financing costs; other related operating costs, such as energy usage, insurances and statutory charges; and exit costs or revenues, such as capital receipts, remediation and make-good obligations. This analysis is undertaken incorporating any tax savings that may occur over the life of the asset, as well as the time value of money by using discounted cash-flow modelling.
In the Private Public Partnership (PPP) financing arrangements that are used in the provision of social infrastructure, the transfer of the maintenance, management and revenue risk to the private sector partner underpins the need for detailed WOL models. This is required to estimate the total cost of the asset creation, service delivery and exit over the infrastructure PPP concession period.
Despite frequent discussion papers in industry forums and ongoing rhetoric in service plans about commitments to move to planned WOL maintenance outcomes, however, there is little evidence of this actually occurring in the less complex property and facilities management sectors to date. As a result, the overwhelming current asset maintenance delivery method is still reactive focused.
THE OBSTACLES THWARTING SUCCESS
Why does the status quo remain? What will cause the industry to change? The issues relating to the non-implementation of WOL maintenance management are many and varied.
Diabolical current state of repair
Because of many years of neglect, most large portfolios of facilities and asset portfolios have significant maintenance backlogs. Before any WOL maintenance regime can be implemented, these assets need to be brought up to standard. The costs involved are likely to be enormous.
Lack of detailed asset condition audits
Without detailed up-to-date asset condition reports that define the maintenance requirements – both deferred and ongoing – with cost estimates, work-plans and prioritisations, realistic WOL maintenance programs cannot be structured. To start the cost of regular, detailed condition audits, however, preparation and updating needs to be included in budgets. Too often, subjective statements of condition, without details and cost estimates, are commissioned at low prices. These are not much use.
Not willing to spend money to save money
With assets requiring significant deferred maintenance expenditure before moving to a WOL program, money needs to be spent in the short-term to bring the quality of the assets up to a reasonable level. There seems to be, however, a lack of understanding of (or willingness to commit to) the concept that to save money over the medium- and long-term, maintenance budgets are likely to have to increase significantly in the short-term.
Maintenance budgets cut first
When operating revenues are down and net profits need to be bolstered, maintenance budgets are usually the first port of call to cut costs and bolster returns. This approach may work well in the short-term, but the asset condition will deteriorate further and it will cost significantly more in asset upgrades in the future.
Maintenance budgets not quarantined
Too often, approved maintenance budgets are not quarantined. As a result, these budgets are often diverted to alternative operational expenditure that is deemed essential, but is unplanned. This is obviously to the detriment of the WOL maintenance plan and asset conditions are likely to deteriorate.
Lack of upfront planning
Despite the oft-stated objective of WOL planning for new or refurbished assets, there is still a lack of proper upfront planning and budgeting. With initial budgets having to be higher to support lower ongoing running costs, initial return-focused project feasibilities drive inferior building specifications. This is made more complicated by the misalignment of the objectives of property developers, investors and/or users and can perpetuate the lack of proper application of WOL maintenance principles. Developers are focused on short-term profits, investors seek sustained longer-term net income and users are driven by lowest total cost of occupancy.
Poor maintenance management system implementation and data capture
Despite the availability of many maintenance management systems with different price levels and server applications, there is a lack of commitment to systems implementation and ongoing robust data capture. Not having the data is a key failure in attempting WOL asset management. Issues relating to implementing and ensuring the data is regularly populated include: not properly defining the system’s hierarchy and coding, no consistency in data capture and reporting, maintenance expenditure not being captured at appropriate levels or coding, and not capturing warranty information and maintenance terms for new assets, to name a few.
Lack of industry benchmarks
Comparable industry benchmark data that demonstrates the advantages of increased initial expenditure for future savings based on planned maintenance is generally lacking or not readily available. Without credible benchmarks, projected savings in business cases are usually challenged, particularly if there is a bid for increased upfront expenditure.
Lack of WOL commitment
Despite all the commentary and obvious logic of WOL maintenance, there appears to be a lack of commitment to the proper implementation, budgeting and management of the WOL approach. Few in the industry appear to really understand the approach and know how it should be implemented. In many companies and government organisations, property and facilities are not regarded as core to the business or service delivery charter and tend to be neglected. Although there are many models for estimating and modelling WOL costs for both property assets and infrastructure projects, these tend to remain the control of researchers and academics.
Focus on short-term net returns
In today’s world, short-term net returns appear to be the primary focus. This is notable in the listed property investment market, with investors’ expectations being based on the next six months’ projections. This means strategies to maintain and improve assets’ conditions are largely dependent upon competitive market return benchmarks. This is most often to the detriment of planned maintenance and often results in major unplanned future liabilities, which ultimately lead to asset disposition strategies.
CONTRACTUAL OBLIGATIONS KEY
As the outsourcing industry matures further and true comprehensive maintenance contracts with maintenance risk transfer become more prevalent, by necessity the understanding and commitment to WOL will become more entrenched. Because of the contractual obligations inherent in these types of contracts, maintenance expenditure budgets will be quarantined based on contractual payment obligations.
Current PPP social infrastructure models, where WOL maintenance and management models are core to the financing model, are likely to set the pathway. With more comprehensive maintenance contracts and the correct assessment of the financial implications of projected WOL costs, hopefully the sector’s focus on market share and winning contracts at all costs – often by underquoting and under resourcing – should start to abate.