1. Risk-based Asset Management for Networks
Competitive Advantage through Innovative Maintenance and Investment Strategies
17th International Conference on Electricity Distribution
Barcelona, 13th May 2003

2. Preliminary note
This document represents a summary of A.T. Kearney‘s risk-based asset management approach. The focus of the presentation is on risk-based maintenance and investment management. The paper is not as meaningful without the presentation, supplementary comments and empirical project figures.

3. Risk-based Asset Management
Increasing cost pressure from regulatory authorities is triggering an unrelenting squeeze on the grid budget.
Europe
Pressure from industrial associations
Pressure from national chain customers
Comparison of grid usage fees in Germany, England & Wales1) (in € Cts/kWh)
Pressure from over 100 antitrust procedures
-50%
-25%
-3%2) p.a.
Pressure from global industrial customers
Pressure from disclosed fees
Pressure from international market players
Source: Office of Gas and Electricity Markets (Ofgem) 2001, A.T. Kearney research
1) Typical medium-voltage consumption
2) Regulatory scenario - Ofgem

4. Risk-based Asset Management
Risk-based asset management optimises cost and risk jointly by focusing on important and less reliable pieces of equipment.
Evaluation of pieces of equipment of same type1)
according to reliability and importance
Intensified main- tenance of important equipment
Earlier replacement of particularly unreliable and important equipment
 Minimization of risk
Low
0,5
Probability that piece of equipment does not break down
20% 5%
0,6
High risk
Reliability
0,7
0,8
The joint optimization of costs and risks can be achieved by the differentiation of the equipments according to their reliability and importance in the network
"Reliability" expresses the probability that a given equipment does not break down; it is usually determined by analyzing the statistics of past failures and deriving rates of the equipments and deriving the
"Importance" represents the financial loss in case of a breakdown of the equipment considered. Apart from the immediate repair costs this can be the lost revenues for the energy not supplied, possible claims for compensation of the customer in case of a production stop. It could also be regulator penalties or compensation for accidents, a.s.o.
The risk of an incident for a given equipment is nothing but the multiplication of the non-reliability with regard of this incident and the importance of this incidence. equipment.
The classification of equipments of the same type according to their reliability and importance – as represented on this diagram – leads in a natural way to the following recommendations for action:
Focus on important and less reliable equipments and thus reduce the risk,
Perform less maintenance for less important and reliable equipments and thus reduce costs.
Less intensive main-tenance of less impor-tant equipment
 Reduction of main- tenance costs and replacement investments
0,9
Low risk
17%
58%
High
1,0
1000
2000
3000
4000
Importance [€]
Low
High
Economic damage in case of breakdown
1) Example: Medium-voltage overhead lines

5. Risk-based Asset Management
The determination of the optimal maintenance and investment strategies is done in four steps.
Overview of risk-based asset management
Costs by network segments
Reliability/
Importance matrix
Maintenance and investment strategies
Target parameters
Segment B
Segment B
Network costs
Segment A
Segment A
Risk
Segment B
Reliability
Reliability
System availability
Segment A
Network costs
Importance
Importance 1 2 3 4
Network segmentation and prioritisation of segments
Evaluation of equip- ment per segment with respect to impor- tance and reliability
Definition of possible maintenance and investment strategies
Evaluation of alternative strategies and determination of optimal strategy

6. Risk-based Asset Management
A recently implemented risk-based strategy of pole replace-ment combines a condition-based change with the systematic prevention of grid deterioration.
Client example
Risk-based strategy of pole replacement
Strategy
Strategy definition for pole
replacement for MV overhead lines
Area-covering: change of poles according to centralized controlling of condition
Important and less reliable overhead lines: additional change of poles to prevent grid deterioration:
High importance: Operational lifecycle < 55 years
Average importance: Operational lifecycle < 60 years
Currently: consumption of 1,490 pole rods p.a.
Low
Condition-based change of poles + change of poles to prevent grid deterioration
Relia- bility
0,6
0,8
Fewer pole changes
Condition-based change of poles
High
Low
2000
4000
High
New: Consumption of 1,052 pole rods p.a.
Importance [€]

7. Risk-based Asset Management
To determine the optimal maintenance and investment strategy, we evaluate time-based cost/risk development of alternative strategies.
Client example
Simulative calculation of anticipated time-based cost/risk development for alternative strategies
Definition of optimal maintenance and investment strategy
Budget target
Strategy 1
200
400
600
800
1.000
1.200
1.400
Planned costs
High
Legal target
Planned costs/ risk [€]
Strategy 2 (low-cost)
Actual strategy
Risk
Overall risk [€]
2003
2020
Year
Strategy 2
Strategy 1 (certain)
200
400
600
800
1.000
1.200
1.400
Planned costs
Low
Planned costs/ risk [€]
Low
Costs [€]
High
Risk
Maintenance
Replacement investments
2003
2020
Strategy 1 = optimal strategy regarding costs and risk
Year

8. Risk-based Asset Management
Risk-based asset management saves approximately 15% of controllable network expenses with virtually no change in overall risk.
Savings potential of operational asset management
cash effective grid expenses
Remarks
Maintenance
Costs
Replacement
Investments
-15%
Expenses
Overall, an implementation project saves 15% of controllable network costs
In certain segments of the network, savings potential is even considerably higher
In our experience, the savings potential amounts to about 1% of the total revenue1)
Systematic training of staff assures that savings will continue.
Newly trained staff will easily achieve additional savings over time.
1) for integrated utilities with own power generation

9. Risk-based Asset Management
Based on our project experience, a four step approach is recommended to design the concept for the risk-based asset management approach.
Approach to develop risk-based asset management
Project Phase I: Short Assessment 1 2
Quick Scan
Cost Analysis
Assessment of cost and risk optimization potential to be expected from risk-based asset management
4 Weeks
Project Phase II: Concept Development
Project
Phase IV:
Implemen-
tation 3 4 5 6
Expanded
Data
Capturing
Reliability
Analysis
Importance
Analysis
Strategy
Design
Project Phase III: Concept Specification 7 8
Planning &
Controlling
System
Data
Structures &
IT Support
12 Weeks

10. Frank Heinz Dr. Orlando Wagner
Risk-based Asset Management
Your contact:
Frank Heinz
A.T. Kearney GmbH
Jan-Wellem-Platz 3
D – Düsseldorf
Dr. Orlando Wagner
A.T. Kearney GmbH
Trattnerhof 1
5. Stock
A – 1010 Wien
Mobile:
Direct:
Fax:
Mobile:
Direct:
Fax:
atkearney.com