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Asset Management Council Meeting, 8 November, 2007, Melbourne A Systematic Methodology for Holistic Risk Assessment in Asset Management John Mo Manufacturing.

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Presentation on theme: "Asset Management Council Meeting, 8 November, 2007, Melbourne A Systematic Methodology for Holistic Risk Assessment in Asset Management John Mo Manufacturing."— Presentation transcript:

1 Asset Management Council Meeting, 8 November, 2007, Melbourne A Systematic Methodology for Holistic Risk Assessment in Asset Management John Mo Manufacturing and Materials Engineering RMIT University Ph: or Em:

2 Asset Management Council Meeting, 8 November, 2007, Melbourne Outline of Presentation Risks in asset management The change process and holistic approach Analytic Hierarchy Process Internal quantifiable factors External non-quantifiable factors A worked example

3 Asset Management Council Meeting, 8 November, 2007, Melbourne Risk Issues in Asset Management Long service life Changes in external factors, e.g. climate change, market, supply and distribution networks Changes internal factors, e.g. production, loss time, organisations

4 Asset Management Council Meeting, 8 November, 2007, Melbourne AS 4360 Frame- work

5 Asset Management Council Meeting, 8 November, 2007, Melbourne Capability expected on risk assessment system Determine the physical and mechanical properties of the asset Establish scenarios for potential disruptions in the operation of the asset (e.g. maintenance, replacement, upgrade, etc) Identify the events that trigger asset failures, based on the established disruptions scenarios Identify the types of failures Based on primary failures, identify interdependency

6 Asset Management Council Meeting, 8 November, 2007, Melbourne Capability expected on risk assessment system (cont’d) Analyse the impacts of failures, their probability of occurrence Prioritise the failures based on their magnitude Identify relevant risk mitigation alternatives Prioritise the mitigation alternatives to formulate an optimum risk management plan Capture lessons learned from previous disruptions (simulated and actual) Improve the mitigation plan

7 Asset Management Council Meeting, 8 November, 2007, Melbourne Commercial off the shelf tools The COTS tools partially address the risk management issues & challenges in asset management No COTS tools completely meet the baseline requirements Critical limitations of COTS tools for asset management applications: –Knowledge management: inability to capture and reuse organisation knowledge in order to formulate better mitigation plans –Risk propagation analysis: fails to consider the propagation of risks based on their interdependencies –Quantitative risk analysis: highly dependent on user judgements resulting in inconstant risk analysis –Treating incomplete information: inability to compute risk likelihood using incomplete information

8 Asset Management Council Meeting, 8 November, 2007, Melbourne Difficulties in Asset Management Decisions Many factors are non-quantifiable Major decisions such as replacement, upgrade, overhaul should be based on optimising business performance Effective decision making needs a single value indicator that combines other indicators in a logical way

9 Asset Management Council Meeting, 8 November, 2007, Melbourne The Change Process

10 Asset Management Council Meeting, 8 November, 2007, Melbourne Holistic Approach All factors considered Multi-criteria, capable of handling large number of factors Deal with both quantitative and qualitative data Systematic, unbiased methodology Analytic hierarchy process (AHP) has been used in many areas in business enterprises for priority setting, resource allocation, decision making The process is to be supported by quantitative means wherever it is possible

11 Asset Management Council Meeting, 8 November, 2007, Melbourne Analytic Hierarchy Process Collect the facts Define the hierarchy Establish criteria Pairwise comparison Normalise to Vector of priorities Compute overall vector of priorities

12 Asset Management Council Meeting, 8 November, 2007, Melbourne Level II Asset performance indicator AHP Structure for Asset Management Decisions Level I System reliability Production capacity Customer satisfaction Frequency of power failures Enterprise activity under existing asset conditions Enterprise activity under new asset conditions Level III (Large no. of factors)

13 Asset Management Council Meeting, 8 November, 2007, Melbourne Pairwise Comparison For each factor, compare two states to determine the relative importance Internal factors are often quantifiable. For quantifiable factors, use available numerical values –Actual production data –Historical failure rates –Test results –Sales or marketing data

14 Asset Management Council Meeting, 8 November, 2007, Melbourne Pairwise Comparison of Data ReliabilityOld asset New asset Vector of priority Old asset1 New asset1 1

15 Asset Management Council Meeting, 8 November, 2007, Melbourne Remote Process Monitoring

16 Asset Management Council Meeting, 8 November, 2007, Melbourne Capturing Process Performance

17 Asset Management Council Meeting, 8 November, 2007, Melbourne New Equipment Operation Data from Vendor

18 Asset Management Council Meeting, 8 November, 2007, Melbourne Reliability Data Comparison ReliabilityOld assetNew asset Old asset16132/7800 New asset7800/61321 Available time for old asset per year = 6132 hrs Anticipated available time for new asset per year = 7800 hrs Invert from cell (1,2)

19 Asset Management Council Meeting, 8 November, 2007, Melbourne Vector of Priority To address inconsistency in dimensions, units of measurement, importance or criticality Computed by normalising the factors for both old and new asset conditions

20 Asset Management Council Meeting, 8 November, 2007, Melbourne Normalise Data ReliabilityOld assetNew asset Old asset New asset

21 Asset Management Council Meeting, 8 November, 2007, Melbourne Compute Vector of Priority ReliabilityOld assetNew assetVector of priority Old asset New asset ___ ( ) 1.786___ ( )

22 Asset Management Council Meeting, 8 November, 2007, Melbourne CAPEX (Negative Factor) CAPEXOld assetNew assetVector of priority Old asset110/10.91 New asset1/ CAPEX for old asset = $0.1M Anticipated CAPEX for new asset = $1.0M

23 Asset Management Council Meeting, 8 November, 2007, Melbourne External factors External factors are often non-quantifiable. They are often uncontrollable. For non-quantifiable factors, use expert judgement: –Customer satisfaction –Competition –Market share

24 Asset Management Council Meeting, 8 November, 2007, Melbourne Define the scale of comparison Extremely preferred/favourable Very strong to extremely Very strongly preferred/favourable Strongly to very strongly Strongly preferred/favourable Moderately to strongly Moderately preferred/favourable Equally to moderately Equally preferred/favourable

25 Asset Management Council Meeting, 8 November, 2007, Melbourne Pairwise Comparison of Customer Satisfaction Customer satisfaction Old assetNew assetVector of priorities Old asset11/30.25 New asset Total Customer preference: Old asset is moderately preferred than new asset

26 Asset Management Council Meeting, 8 November, 2007, Melbourne Pairwise Comparison of Insurance Premium Insurance premium Old assetNew assetVector of priorities Old asset110.5 New asset110.5 Total221 No perceived change of insurance premium

27 Asset Management Council Meeting, 8 November, 2007, Melbourne Vector of Priority for Each Factor Governing factorsOld PLNew PL Operating cost Insurance cost Capacity Reliability Payback period Staff morale Capital expenditure No. of workers Customer satisfaction Area occupied Expected reject/ rework Competitive advantage Change over time

28 Asset Management Council Meeting, 8 November, 2007, Melbourne Weighting of Governing Factors To distinguish the importance of some factors as compared to another in the context of the business (asset to be managed) Pairwise comparison and then normalised in much the same way

29 Asset Management Council Meeting, 8 November, 2007, Melbourne Pairwise Comparison for Factors Governing factors Op. cost Insur. Capa city Relia bility Payb ack Moral e CAPE X Work ers Cust. sat. Area Rejec t Cmp. adv. C/O Operating cost Insurance cost Capacity Reliability Payback period Staff morale CAPEX No. of workers Customer sat Area occupied Reject/ rework Competitive adv Change over time

30 Asset Management Council Meeting, 8 November, 2007, Melbourne Vector of Priority for Factors (Normalised) Governing factorsVP Operating cost Insurance cost Capacity Reliability Payback period Staff morale CAPEX No. of workers Customer complains Area occupied Expected reject/ rework Competitive advantage Change over time

31 Asset Management Council Meeting, 8 November, 2007, Melbourne Overall Vector of Priority Governing factorsOld PLNew PL Operating cost Insurance cost Capacity Reliability Payback period Staff morale Capital expenditure No. of workers Customer satisfaction Area occupied Reject/ rework Competitive advantage Change over time TOTAL Benefit indicator:

32 Asset Management Council Meeting, 8 November, 2007, Melbourne Sensitivity Analysis Old/NewVP 1/ / / / /

33 Asset Management Council Meeting, 8 November, 2007, Melbourne Summary Many other factors are also governing the operation of the asset Some of these factors are non-quantifiable Major decisions such as replacement, upgrade, system overhaul are risk sensitive The existing and new asset conditions can be analysed as a transition from AS-IS state to TO-BE state by Analytic Hierarchy Process AHP can take both quantitative and non-quantifiable factors together in an equitable way Internal factors are mostly quantitative factors External factors are generally non-quantifiable factors. They are analysed by expert judgement This holistic risk approach can convert all factors into a single indicator value assisting decision making on asset management

34 Asset Management Council Meeting, 8 November, 2007, Melbourne A Word of Caution Like any risk analysis, there is always a factor of uncertainty The indicator should be used as a reference for decision making, rather than dictating the outcome of the decision More expert involvement will give a fairer judgement on non-quantifiable factors

35 Asset Management Council Meeting, 8 November, 2007, Melbourne Thank you Questions? Professor John Mo Discipline Head, Manufacturing and Materials Engineering RMIT University Building 251, Bundoora East Campus, Bundoora, VIC 3083 Contact: or


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