In the second part of this three-part series (read part one) we explore how to pick the best slate of ideas. Money and other critical resources are in short supply, and we need to squeeze the most asset improvement possible from the resources we have available.
Aging assets are full of surprises, and new needs surface all the time. Those needs push their way onto a list of project ideas, while the projects already on the list produce surprises of their own. Meanwhile, the backlog of active projects and project requests continues to grow. Adding further uncertainty are the annual budget and its monthly or quarterly reforecasts. The target always moves.
Every project has its vocal champion. Managing this commotion seems to be getting harder, not easier, despite having more information and better tools than ever before.
How can we simplify what is becoming a very expensive challenge?
First, don’t start with the list of projects. Start with the asset and its business plan. We want to pick the slate of projects that does the best job (within our limited resources) of improving the odds that this aging facility can meet the growing business plan demands. It’s also important that all business plan stakeholders admit to the reality that the asset is, in fact, aging.
Next, don’t use one pot to hold all the budget money. Use several smaller pots – one for each budget category – because smaller pots drive clearer thinking. It is management’s job to allocate high-level funding between categories such as ROI opportunities, asset sustainment, regulatory, and HSE. Fine tuning can happen later at the margins.
Finally, within each budget category, we’ll rank project ideas in descending order of Bang for the Buck. Let’s illustrate this with Return on Investment ideas.
Every ROI job calculates a Net Present Value (NPV) and an investment value (I). The calculation NPV ÷ I is one formal economic definition of Bang for the Buck.
Rank all the ROI category jobs in descending order of NPV ÷ I
Note each job’s cost in an adjacent column, and the cumulative costs in the next column over (The costliest jobs will not necessarily be at the top of the list.)
Draw a line under the job where the money in the ROI pot is all spoken for
Above the line is the portfolio with the highest Bang for the Buck
The risk-mitigation budget categories of asset sustainment, regulatory, and HSE can each be handled with the same approach. But don’t look only at the initial risk state – look at the improvement in risk level that each job promises at completion, when it has improved the asset. The equivalent of NPV is risk reduction, not initial risk on its own. Rank the ideas in each risk-mitigation category by Δ Risk / $.
Rank each idea in the category by its Bang for the Buck, then take all the jobs at the top of the list that the category pot has money for. Here, 38 jobs ranked in descending order by Δ Risk / $ will make the best use of the $7M budget pot.
What if money isn’t the only constraining resource?
We can apply this same kind of thinking to rank work according to its use of whatever other resource is also limiting the rate of asset improvement.
We offer a range of services to help clients rank and prioritize project ideas, within budget categories and across the whole budget. Some organizations will prefer model-driven sophistication; others will opt for something quick and basic.
Read part three of the series: 'How can asset managers improve the asset faster?' Access all parts of the Asset Improvement Series.
For more information on how we can help your aging asset contact Stuart Elliot: email@example.com.