Framework: An Integrated Approach to Portfolio, Program and Project
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I. INTRODUCTION TO TOTAL COST MANAGEMENT - CHAPTER 2 - THE TOTAL COST MANAGEMENT PROCESS MAP
2.3 Strategic Asset Management Process Map
.1 Definition of Strategic Asset Management (SAM)
Strategic Asset Management refers to the macro process of managing the total life cycle cost investment of resources in an enterprises portfolio of strategic assets. The portfolio will contain many assets in various stages of their life cycles (including those assets that are nothing more than ideas). Although investments are made in an asset through the performance of a project or program, SAM is not concerned with day-to-day project tasks; SAM focuses instead on initiating and managing the overall portfolio of projects in a way that addresses the strategic objectives of the enterprise. To paraphrase an old saying, the SAM process is more concerned with doing the right projects than with doing the projects right.
The main financial objective of many enterprises is to maximize the total long-term economic return or profit from its asset investments. The economic performance of existing and proposed assets is often difficult to measure, yet the pressure to improve performance is relentless. Resources available to invest in assets are often limited or scarce while various parts of the enterprise may be in competition for those resources. In addition, the business environment is dynamic and uncertain. The SAM process therefore attempts to balance opportunities and risks against demand and supply for resources in such a way that the enterprises objectives are met.
As discussed in Section 2.1, SAM is built on the PDCA cycle steps of (1) planestablishing resource investment plans in assets, (2) domaking measurements of asset and project performance, (3) checkcomparing the measurements against the plan, and (4) assess/acttaking corrective, mitigating, or improvement action as may be determined. This section translates those overall steps into sub-processes that will be more generally recognizable by practitioners.
.2 The Strategic Asset Management Process Cycle
Figure 2.3-1 in this section illustrates strategic asset management as a process. Each step or sub-process in the figure is covered in a section in the Framework. The SAM process starts with the established enterprise business strategy, goals, and objectives. From there, the needs and desires of customers and stakeholders are elicited, analyzed, and translated into asset performance requirements (Section 3.1). Considering the requirements and opportunities from performance assessment, asset investment options are identified and developed (Section 3.2), and then evaluated and decided upon (Section 3.3). Asset investment plans and requirements are communicated to and executed by project teams (Section 4.1).
Asset performance is then measured, including cost accounting measurements (Section 5.1) and non-cost performance measurements such as quality (Section 5.2). Asset performance assessment (Section 6.1) includes techniques for determining if the profitability, cost of quality, and other parameters vary from established plans and benchmarks. Also, adverse or positive trends or changes in performance are evaluated. Benchmarking and other means are used to identify improvement opportunities for new or existing asset performance. If everything is according to plan, the process continues. If there are performance deviations noted in assessments, action should be taken to correct or improve the asset performance trend. If performance corrections or improvements will affect asset portfolio investment plans, or changes to stakeholder needs, requirements, or resource availability occur, then these changes must be managed using a change management process (Section 6.2). Finally, asset and project performance, history, and lessons learned are captured in a historical database for use in future asset management (Section 6.3).
.3 Organization for Strategic Asset Management
In smaller enterprises that have few and/or low value assets, the strategic asset management process may be managed by whoever controls or operates the asset, be it the proprietor, the facility operation manager, the financial manager, or so on. In larger enterprises, there may be a dedicated asset management organization that includes managers, strategic planners, cost estimators, financial and budget analysts, value specialists, cost accountants, and other specialists. In large enterprises, there may be a tiered organizational approach where major investments are managed centrally by a dedicated organization while minor investments are taken care of by the operators of the asset.
The asset management organization may also be responsible for development of project management personnel, processes, and procedures for the enterprise. This organization may also manage relationships with key resource providers.
2.3.2 Process Map for Strategic Asset Management
Figure 2.3-1 below maps the major steps or sub-processes of Strategic Asset Management.
Figure 2.3-1. The Strategic Asset Management Process Map
The processes mapped conceptually above have each been diagrammed at a detail level in the sections noted. Those detail diagrams have also been combined into an integrated process diagram for strategic asset management, which is included in the Appendix.
2.3.3 Inputs to Strategic Asset Management
.1 Business Strategies, Goals, and Objectives. Guiding information, directives, and imposed requirements are elicited for analysis and translation to asset requirements.
.2 Stakeholder and Customer Needs and Desires. Information is elicited for analysis and translation to asset requirements.
.3 Asset and Project Performance. Relevant physical and performance characteristics and behavior of each asset and project are described in a timely manner in sufficient detail to support strategic asset management.
.4 External Benchmarking Information. Performance improvement ideas may be obtained through the benchmarking of practices and results for external enterprises and their assets and projects.
.5 Project Actual Data. Information and data from projects are captured for use in future asset planning.
2.3.4 Outputs from Strategic Asset Management
.1 Project Implementation Basis. The scope of asset solutions to be implemented in a project or program is described in sufficient detail to provide a basis for project scope and execution strategy development (Section 7.1). The asset performance requirements (Section 3.1) are also conveyed so that the project team may address them in its project control planning. Cost, schedule, and resource requirements such as target costs, capital and maintenance budgets, schedule milestones, enterprise resource constraints, and other information is included.
.2 Non-Project Decisions. The investment decision may select a non-project solution (change to operation practice, expense, etc.) for implementation by the asset operator or user.
.3 Performance Information. The performance of the enterprises asset and project portfolio is reported to enterprise management for its consideration in business strategy formulation.
.4 Asset Historical Data. Information and data from asset management may be used for project control purposes.
2.3.5 Key Concepts for Strategic Asset Management
The following concepts and terminology described in this and other sections are particularly important to understanding the strategic asset management process of TCM:
.1 Benchmarking. A process that compares the processes and performance of an enterprises endeavors to the processes and performance of the endeavors of a set of peers or competitors selected because they are considered to be the best in whatever endeavor is being assessed.
.2 Planning. A management or control sub-process that consists of defining scope and establishing baselines or targets against which work performance can be measured. In strategic asset management, integrated asset project plans for cost, schedule, and resourcing are established. All plans should address risks.
.3 Economic Evaluation. A set of financial analysis techniques that considers all the relevant income and costs associated with an asset or project investment during all or part of the asset or project life-cycle.
.4 Profitability. A financial measure of the excess income over expenditure during a period of time. In terms of asset management, it is the net economic benefit resulting from an investment in an asset or a project.
.5 Decision Analysis. A set of analysis techniques that considers all relevant performance and requirements data about a set of asset investment options and produces a decision to pursue or not pursue one or more of the options evaluated.
.6 Resource Allocation. In terms of asset management, resource allocation is the end result of a decision when actions are taken to invest resources (human, time, or monetary) in an asset investment option to be realized through performance of a project.
Further Readings and Sources
The concept of strategic asset management as presented in the Framework as an integrated process is not well covered in industry literature. Most literature focuses on product and project planning and investment decision making practices. Less attention is given to following up on the decisions with asset performance measurement and assessment. To find sources on the various sub-processes of strategic asset management, readers should refer to each sections readings and sources list. The following references provide a broader context:
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