Asset related enterprise risk – going beyond the data

Enterprise risk management (ERM) is a methodology that assesses holistic strategic and operational risk management across an entire firm or organization. This definition aligns well with the ERM framework published originally by COSO (the Committee of Sponsoring Organizations) in 2004.

Let’s look at an example of an asset related enterprise risk assessment through this lens:

A large government owned  holding company, managing significant infrastructure asset investments, acknowledged that to understand risk across the asset portfolio, a deep dive review of the physical asset holdings’ broader technical and operational structure was required. A combination of a qualitative and quantitative review of risk was required to support the forecast revenue growth story. By assessing beyond the quantitative data available, a review of the broader technical and operational structure which included also evaluating soft implications and physical asset conditions was conducted. This provided a comprehensive view of the forward-looking enterprise Risk related to assets. This holistic analysis delivered the required transparency of enterprise risk related to assets and eliminated the blind spot.

To comprehensively understand the enterprise risk related to assets requires a strategic review of the organization in relation to how assets are managed combined with a tactical and practical review of how the assets are maintained in operation. The skill set to undertake this requires an appreciation of the commercial, strategic and leadership needs of an organization combined with knowledge of the technical aspects required for the maintenance and reliability of assets and the preservation of their condition.

Asset risk – why lifecycle considerations matter

Asset risk is exactly as it sounds, risk related to the condition of assets and the maintenance of their reliability. While this sounds straightforward, maintaining assets so that they deliver the value expected from the investment can be a challenging undertaking when competing for limited resources across an organisation. Across the lifecycle of an asset, it is often the case that the investment in the asset, be it in the capital used to create the asset, or the operational cashflow used to maintain it, is suboptimal. Competing organisational priorities and the pursuit of short-term returns draw resources away from assets which inevitably undermines their condition and reliability.

Most often this begins in the asset creation stage where assets are installed in suboptimal conditions due to constrained resources while equally time and resources are not dedicated to establishing the necessary maintenance and operations plans to maintain the asset in the future. This can be observed in the completeness of the project scoping, planning and execution process and the subsequent state that this leaves the asset in. Once in operation, asset risk can be observed by the condition of the asset but equally through how the asset is being maintained. The nuances of what to look for can only be gained from experience and are evident in the operating environment and characteristics of the systems and processes in place around the asset.

Asset risk, related to the condition the asset is maintained in, is an output of the organisational strategy, systems and processes, including organizational culture and leadership, in place around the asset. This is typically the underlying driver of asset risk and can be observed by undertaking a review of the more holistic aspect of asset management and using the global standard as a guideline.

Asset management risk – coordination a remedy for managing and mitigating risk

Asset Management as per the global ISO 55000:2014 standard is described as:

‘The coordinated activity of an organization to realize value from assets’

While the standard primarily relates to the activities directly pertaining to the assets, from an enterprise perspective it is important to take a higher-level view and look at how broader aspects of the organisation are contributing to the culture, strategy and systems and processes utilised to maintain the assets. Oftentimes leaders are far removed from the assets themselves, however their actions and undertakings have a ripple effect that ultimately impacts asset reliability and condition.

Understanding the broader perspective of an organisation and the subsequent impact it has on asset condition, reliability and asset risk is the process of uncovering Asset Management risk. The process has three elements:

• Review of documents and artefacts: Documentation demonstrates the intent of leadership to support ongoing asset reliability.
• Interviews with key stakeholders: Key stakeholders model behaviour and the culture of the organisation. The intent of interviewing key stakeholders is to establish the culture around asset reliability and whether the intent of the documents and artefacts are adhered to.
• Review of asset condition: Combining the observation of asset condition with the review of documentation and input from stakeholders gives a holistic of enterprise related asset risk and the underlying causes across the organisation.

The conventional industry approach to undertaking Asset Management assessments is to provide a spider chart of compliance to the clauses in ISO 55001:2014. While this is something Concordia Asset Management can do and applicable to those organisations seeking ISO 55001 alignment, compliance or certification, it’s not the suggested approach for asset management firms. The key insight is to understand enterprise risk across the organisation and get a detailed understanding of the impact that this is having on the condition of assets and their reliability. To undertake this process requires a combination of structured strategic and systems reviews guided by the standard as well as a more pragmatic maintenance and asset assessment at the asset level to observe asset condition and reliability from an operational perspective.

A case study

The risk team within a government owned holding company had conducted a quantitative review of data and information available pertaining to the risk related to the transport and logistics portfolio of the infrastructure investments it was managing. The review findings suggested a risk within the portfolio companies; however, this risk was not observable nor physically evident.

A strategic and tactical review spanning onsite asset condition inspection, maintenance practices review, strategic documentation and artefacts, stakeholder interviews and leadership observation was conducted. The assessment for an ISO 55001:2014 alignment and compliance was used as a guideline. However, it was amended and augmented to introduce practical and pragmatic experience gained from years of grassroots technical asset exposure, as well as executive and senior leadership experience. The approach maintained an assessment against a structured best practice approach aligning to the global standard while at the same time introducing real life experience from technical and commercial leadership to provide an assessment that was relevant for the risk team within the holding company.

The following discoveries were outcomes from the review.

• Significant safety related issues were identified due to ineffective safety controls and practices requiring significant improvement.
• Asset condition was found to be extremely poor and onsite maintenance teams were not adequately trained for the work required.
• A large portion of automated controls for process and safety operation had been decommissioned during asset installation because of poor project scoping and execution
• Senior leadership in multiple areas lacked the skills and know how to effectively identify the risks apparent at the asset level.
• Mid and senior leaders were misaligned in their objectives and understanding of what the assets required to be operationally reliable.
• Corporate strategies were also detached from the needs of the organisation and hence held no relevance to the employees they intended to engage and inspire.

The scenario uncovered was one that had been previously overlooked. While the evidence was available, the skills and experience required to identify risk across the enterprise had not been available.