The Business Case for Capital Asset Management By James Reyes-Picknell

Sunday, April 3rd, 2016

Approved Business CaseEven where there is a high level of dependency on physical capital assets and poor performance, making improvements is a tough sell.

We must be the translators of our technical ideas into financial terms for the consumption of those who approve the spending we need.

How’s Your Credibility?

Many of us are technical people, not business people. That is a handicap when seeking capital funding from those who speak “business” language. We may have also suffered failures in the past because much of what do to create improvement relies heavily on others who are not within our control.

It’s possible that we’ve oversold past improvement initiatives then under-delivered, especially if you’ve ever tried implementing a computerized maintenance “solution”. Success is never entirely in your hands and the systems are always sold by very slick salespersons who are expert at highlighting the potential benefits and hiding the true costs and effort. Even implementing comparatively simple improvement programs like Root Cause Failure Analysis can run afoul because of overly simplistic approaches that missed the need to engage many outside your own department.

Approvers Don’t Understand Us

Usually our technical programs are complex and they touch on many aspects of the business. We usually see and understand the complexity but we fail in explaining it. We keep to our technical language and jargon. Financial folks glaze over. They just don’t speak our language and if we want their approval, then we must translate what we know into terms they understand – usually financial. They don’t need or necessarily want to know the details of our proposed inspection program, but they will need to know that it will enable us to forecast future capital spending requirements accurately.

Accounting systems have no real way of measuring benefits received, let alone attributing them to specific capital investments. Benefits are either cost reductions (but where?) or revenues gained – always from production / sales, not from specific improvement programs. Benefits of our programs won’t always show up in the same accounts as the spending we need to achieve them and we are the ones to show them what to expect. You can tell them that you need to spend money training the maintenance planner but the payback will show up as reduced trades overtime and less spending on contractors.

Are We Bad Communicators?

We often blame ourselves as being poor communicators. Business people want things netted out, but we do love our details. We need to get past our own need to explain things in depth. Appreciate that they will trust our skills and ability even more if we present things clearly and concisely, then deliver. If we overdo the details we will lose them and they will wonder if we really know what we are doing. Using analogies makes it easier for others to understand you and it shows that you really know things well enough to come up with those simplified explanations. For instance, comparing predictive maintenance for equipment to regular checks on tire pressures on your car gets the point across.

Business cases for capital must be crystal clear and concise. Don’t assume the reader will understand the underlying details. Don’t use detailed technical language or you’ll lose them. Speak in operational and financial terms they understand. We are not delivering higher availability (a poorly understood term), promise them greater assurance that backup systems will work in an emergency.

Qualitative Business Cases – The First Step

You probably have no shortage of examples of disasters that could have been averted had you done what you are now proposing. Use them. Tell your listener what happened (it’s best if you use recent examples that they may even recall), tell them why it happened, how it hurt them, and what could have been done differently. Provide insight into where the benefits will become evident: lower costs of maintenance and materials consumption, fewer accidents, lower emissions, etc.

Describe your solution at a high level using examples. If you find it hard to keep out of the details, then get help. Your financial people or outside consultants can be useful.

Once you have agreement in principal, then ask for capital funding to carry out the studies you may need to quantify benefits more precisely. In some cases you may have an enlightened executive who “gets it” and you get immediate approval, but don’t expect that to happen. Your financial people can help you build those quantified business cases.

A Health Care Example

In a recent assessment of asset management at a hospital complex we saw clear signs of under-maintaining that had resulted in failures having impact on patient care.

A long history of fixing only what breaks had left them vulnerable to long term deterioration. Steam heating systems, the supporting hangars for exterior wall panels on older buildings, sidewalk gratings and roofing had all suffered. Failure to forecast potential failures resulted in incidents – in one case a contractor fell through a deteriorated sidewalk grate, in another concrete spalling from a garage ceiling nearly missed a family member who came to visit a patient.

Roofing leaks resulted in the use of water buckets in one operating room! Failure of old and less reliable emergency generators forced them into a multi-million dollar electrical system upgrade that could have been deferred for years had they been more proactive.

We saw where doing things differently would have made a difference and explained that in qualitative terms. Doing that freed up money for detailed reviews of systems by qualified experts to determine what work is needed and at what cost.

Asset Management Business Cases

The only difference between specific examples and a whole Asset Management program is the scale of what you propose. Enough examples in different areas where asset care and risks are an issue add up quickly. In the case of that hospital above, we introduced them to the concepts of Asset Management and they jumped right on it relieved that at long last there was way to manage all these problems they had been plagued with for many years.

 

James Reyes-Picknell

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James Reyes-Picknell is the best-selling author of “Uptime – Strategies for Excellence in Maintenance Management“, now in its 3rd edition.

His 39 year career in Maintenance and Asset Management spans a wide range of industries, public and private sector, all dependent on physical assets for their success. Through his books, feature articles, public speaking, training, consulting, webinars, a column and a blog he is recognized among the world’s thought-leaders in Reliability, Maintenance and Asset Management.

His firm, conscious Asset, has been operating for 12 years and is regarded as a high quality specialist firm ensuring the delivery of value from physical assets.

Jim can be reached at www.consciousasset.com

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