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CHAPTER 2

THE GOVERNANCE FRAMEWORK

It is a beautiful Wednesday evening, and Darren drives into the parking lot of the coffee shop. He has just finished a busy day at work reviewing a few draft papers that his students have been working on. Darren knows that Jerry is desperate to talk to him. It’s been two weeks now since they last talked. He twice postponed Jerry’s meeting requests, and he thinks that it won’t be good to postpone a third time.

As he enters the coffee shop, he sees Jerry sitting at a table in the far corner next to a large window. He must have seen him when he drove in. Actually, maybe he did not notice him, as he seems to be deeply immersed in reading something on his laptop, and he has a stack of papers next to him.

“I see that you have been killing a few trees. Think about sustainability, my friend,” Darren says as he stands right in front of Jerry’s table. “So what have you found out, and how is Mouroum Inc. coping with asset management and its governance framework?” Darren asks.

Darren actually startled Jerry, as he suddenly looks up almost toppling his laptop.

“Good evening, sir,” Jerry greets him. Jerry has always been a very respectful and polite gentleman, and that is maybe why Darren likes him so much. Darren finds it very difficult to turn him down and not respond to his request for help, even though he is himself running around like a headless chicken.

Darren takes a seat at the table and puts his bag on the vacant chair next to him. Jerry orders two coffees and then starts providing Darren with an update on his progress.

“First of all,” he starts, “you were right in saying that there is a ton of information out there available on the internet. I can see that there is a broad range of asset management approaches and methodologies, varying in complexity and sophistication, that are in use in different industries and organizations.”

“Yes,” Darren nods. “However, while there are existing pockets of best practice, it is recognized that a more consistent approach to the management of physical assets will yield significant benefits. Therefore, organizations are recommended to adopt a corporate approach to the physical asset management framework spanning across the whole organization.”

“What do you mean by that?” Jerry asked. “I mean by a ‘corporate approach’?”

“What I mean,” Darren starts to explain, “is that the approach must be blessed, endorsed, and championed from the top to the whole organization. It does not matter the size and complexity of the organization, but if organizations recognize and agree for the need of an asset management program, then the commitment has to come from the top down. No matter if it is called corporate or not, but the commitment and buy-in must be there. Otherwise, it will be another of those initiatives that fizzle out after some time without any accomplishments. The ultimate aim is to develop and implement consistent asset management approaches across all functions and departments of the organization.”

“This is exactly the challenge I am facing in my job at this moment. I am having a hard time getting our asset management program started, and there is no buy-in,” Jerry exclaims.

Darren drinks a sip of his hot coffee and says: “I understand what you are going through, and I would advise you take a well-calculated approach as you are about to take your organization on a long transformational journey. You’ll definitely want to get off to a good start.”

Step 1: Develop an Asset Management Governance Framework

“The first step I would recommend to you is to start developing an asset management governance framework. Too many times we see organizations diving into projects or programs focusing on short-term gains only. They do not bother to have a framework or structure in place to sustain the long-term outcomes of what was started. The result is that either the project or program does not deliver expected outcomes, or it just dwindles over time and loses momentum or interest. If you want to build a long-lasting physical asset management system in your organization, a governance strategy is the foundation piece that I recommend you start with.”

Jerry looks excited, and he starts taking notes on his laptop as Darren speaks.

“The governance framework will be a key component of your physical asset management system that will ensure consistency in asset management strategies across the organization via the adoption of policies, practices, procedures, templates, and standard tools,” Darren explains. “A governance structure provides effectiveness and efficiency by constantly sharing reliable and relevant information in the asset management decision-making process through a standard approach and formal definition of asset management roles and responsibilities. The governance framework takes into account both the short-term delivery and the longer-term asset management system sustainability. The key objectives for an asset management governance framework can best be described as follows:

• To provide an organizational design that will strategize implementation of a physical asset management system

• To provide an organizational design that operationalizes integrated and comprehensive asset management practices across all functional areas

• To provide clear strategic roles and responsibilities for staff involved to enable and facilitate the transformation process as required

• To ensure consistency in asset management concepts and practices across the whole organization at the strategic, tactical, and operational levels”

“How do I get started with developing such a framework?” Jerry calmly asks. “I think this is what is missing in our organization, where I am constantly struggling to pull everyone together to dedicate time to work on the asset management program.”

“In Chapter 12 of my book, I talk about ‘ownership’ and the ‘ideal organizational structure’ to lead the implementation of and maintain a physical asset management system. It also elaborates on three different governance models and does mention the fact that a lot will have to do with the context of your organization. First of all, you will have to understand the external and internal context of your organization: What are the social, cultural, political, legal, financial, economic, and environmental factors having an impact on the strategic objectives of the organization? What are the organizational culture, values, size, complexity, policies, strategies, and capabilities driving the needs for a physical asset management system?”

Darren watches Jerry type on his laptop as he takes a swig of coffee.

“Then you will need to identify the stakeholders relevant to your organizational physical asset management system and understand their needs and expectations,” Darren says. “Make sure you consider both internal stakeholders such as the shareholders, owners, different departments, functional areas, and employees, in general, as well as external stakeholders such as customers, users, suppliers, contractors, regulatory authorities, and other agencies.”

Darren takes a pause and adds, “Mind you, the lists I mentioned to you are just examples. I would suggest you have a few sessions with your team at different levels in your organization to brainstorm and come up with a list of external and internal factors that would define your organizational context, as well as a list of applicable external and internal stakeholders with their needs and expectations.”

“This looks like quite a lot of work!” Jerry exclaims. “It will take quite some time to get this done.”

“I couldn’t agree more,” Darren continues. “I can guarantee you, though, that it will be time and effort well spent. At the end of this exercise you will get a pretty good idea of the context of your organzation, and, on top of that, you will have started engaging key stakeholders in the process. You will be able to recommend a governance structure that will fit your context. The governance model chosen will have to provide stakeholders with the necessary autonomy and flexibility to interpret, adopt, and implement physical asset management approaches and practices into their existing activities.”

Darren adjusts himself in his chair before cautioning, “Always keep in mind that the purpose of a governance model is to ensure that:

• There is an organization-wide common and standard approach to physical asset management.

• Roles and responsibilities of stakeholders are clearly defined and communicated.

In short, the governance model should embody the strategies, policies, and structures that provide the mandate for the strategic/tactical framework. This, in turn, structures the necessary procedures and practices to guide appropriate decisions and actions. Hence, you would want a governance structure that will engage key stakeholders at different levels in the organization as well as having a championing body that will endorse and support the physical asset management system.”

“Governance models can be different for different organizations based on their size, complexity, and context,” Darren adds as he reaches into his bag and pulls out a piece of paper and a pencil.

Jerry watches in silence as Darren starts drawing a few rectangles. After a few minutes Darren hands Jerry the paper (Figure 2.1).

“Here you go,” Darren says. “This is a governance model that I used in my previous job and worked pretty well. You can start playing around with it to adapt it to your organizational context.”

FIGURE 2.1 Centralized asset management governance model.

“Thank you so much, sir!” Jerry grabs the paper in delight. “This will definitely help me getting started.”

Right away Darren warns Jerry, “Mind you, Jerry, this is only an example of a governance model: a centralized corporate asset management office, and an asset management steering committee, and a decentralized asset management network team. The steering committee is responsible for giving directions and supporting the asset management initiatives, while the asset management office is responsible for developing and implementing an asset management system. The network team is responsible for rolling out and operationalizing the asset management initiatives.”

Darren leans over the table and clasps his hands as he says: “Your organization may require a completely different model that will suit your organizational context and ensure consistency and sustainability of your asset management system. It will also need to deliver expected results while maintaining a certain autonomy and flexibility for asset owners and operators to interpret and implement the asset management processes and procedures.”

Jerry looks at the sketch for a couple of minutes and then looks up with a smile. This indicates to Darren that he agrees and is on board with the concept.

“The next thing I suggest you focus on,” Darren continues,“is education and awareness.”

Jerry looks at him a little bemused.

“Yes, you heard it right,” Darren continues. “At this stage, it is of utmost importance to get to know your stakeholders and to engage them early on to set the tone for a collaborative and supportive environment across all the functional areas.”

Step 2: Develop an Asset Management Framework

“To do that, you need to reach out to the different stakeholders not empty-handed but with something to help them understand what asset management is, what you are planning to do, and where they fit in. At the end they should see how the whole process would benefit them in their day-to-day job. It is basically answering the obvious question, ‘What’s in it for me?’”

“This seems to be a reasonable thing to do—especially in my situation,” Jerry says. “I often get asked questions such as ‘What is asset management?’ or ‘Why do asset management?’ I do my best to explain, but I guess I do not do a good enough job as staff still look confused,” Jerry continues.

“Don’t be too hard on yourself,” Darren tries to encourage Jerry. “It’s not you; it’s just the way things have evolved and, with it, lots of misconceptions about asset management.”

Darren goes on, “In this situation an asset management framework does address those misconceptions. Imagine you have a puzzle with different individuals looking at the different pieces of the puzzle on their own. You would agree that it won’t make any sense whatsoever even if you take all the pieces of the puzzle and place it on a table. It is only when you have assembled all the pieces together that you will see the real picture of what the puzzle represents.”

Darren mimics building a puzzle on the table as he continues. “That’s exactly what an asset management framework will do,” he says. “It will assemble all the pieces from different functional areas and put them together to show how they are connected to each other and, most importantly, what asset management is all about.”

“Oh, I see,” Jerry replies. “Then if I show this to the different departments, they will be able to see where their pieces of the puzzle fit in the whole scheme of things.”

“True, and they will also be able to understand how their work relates to other work in the organization and how this can impact the overall objectives. There are many asset management framework templates out there, and it is easy for you to review them and create your own based on your organizational context. I have seen simple ones as well as some complex ones.”

As Darren continues to talk, he pulls the paper with the governance model sketch from Jerry, turns it over, and starts working on another sketch.

Darren is a very visual person and thinker. He likes to draw concepts and images. It is not a surprise that one of his hidden talents is actually sketching and drawing. This time he could not stop himself from having some fun with quickly drafting an asset management framework for Jerry.

Darren is sure Jerry will appreciate the sketch as he watches him do his artwork with a smile.

After a few minutes of drawing and shading, Darren hands the paper over to Jerry once again (Figure 2.2).

FIGURE 2.2 Asset management framework.

Jerry grabs it and starts studying it closely as he tries to follow and make sense of the lines and boxes.

As Jerry studies the sketch, Darren explains to him what he should look for when he develops the asset management framework: “The asset management framework needs to consider the broader view of the organization, meaning it has to consider the different levels in the organization, from strategic, to tactical, to operational. It also needs to show the line of sight from a whole lifecycle physical asset management perspective across all the different levels and demonstrate how everything fits together.”

“Can you please provide some examples of what needs to considered in the framework?” Jerry asks.

“Key elements of the framework are:

• The stakeholder’s requirements and expectations

• The organizational plan and objectives

• The different strategies needed for the asset management strategy, namely, lifecycle management, level of service, risk, and demand management strategies

• The tactical planning required for different asset classes: financial, operational, capital, and maintenance planning

• The actual execution of the lifecycle delivery activities over the entire life of physical assets to deliver required performance

• The enablers to support execution such as technology, people, data, and processes

• Performance monitoring and reporting

• Continuous improvement”

Darren lets out a deep sigh and continues: “Remember, asset management is intended to provide for the sound stewardship of physical assets, meet customer service commitments, and manage assets in the most cost-effective and efficient manner. This essence is clearly captured in the framework.”

“Once you have created your own asset management framework, I suggest you meet with your stakeholders, give them copies, and explain to them what the framework represents. Clearly show them where they fit in the framework, how their work relates to others, and how their work is important to achieve the goals of the organization.”

”Finally, you can point to them what your role is in the whole framework and how you fit in.”

Jerry looks at Darren as if he does not quite understand how he fits in the asset management framework. He carefully folds the sketch once and places it in one of his folders lying on the table.

Darren glances at his watch to check the time. He figures he still has around thirty minutes before he should really head out, as Debbie will be waiting for him for dinner.

“There is another key document that I would like you to think about or even start working on,” he continues.

Jerry stares at Darren with a surprised look on his face. He must be feeling really overwhelmed with what Darren has been throwing at him so far. However, he does not say a word, and Darren keeps going, cautioning, “Next it is very important that you have an asset management policy in place.”

Step 3: Develop an Asset Management Policy

“Jerry, do you have a health and safety policy in your organization?” Darren asks.

“Yes,” Jerry replies.

“How about an environmental policy, do you have one?” he again asks.

“Yes, I think we do have ... not so sure, though,” Jerry responds.

“I am pretty sure you do have, especially with the business you are in. You must also have many other policies at different levels in your organization, such as an accounting policy, personnel policy, procurement policy, and many others. Therefore, the question is why we do not have one for asset management yet?” Darren replies. “We have policies to protect and manage other types of assets, so why not for our physical assets?”

Then Darren reminds Jerry, “Last time I did mention to you the significant value of fixed assets that organizations end up owning and managing. These same fixed assets can be the source of many health and safety, environmental, or other consequences. The irony is that not having a commitment to manage physical assets in the form of a formal asset management policy can directly impact the goals of the other policies.”

Darren takes a pause and asks, “Isn’t this weird? Physical assets and their contribution have always been taken for granted or gone unnoticed in organizations—especially at the boardroom level.”

He pauses again to collect his thoughts and then says: “This has to change, and, actually, I should correct myself ... things are already changing these days. Many organizations have started to recognize that there is a gap in their commitment to responsibly manage physical assets. Organizations in general do an outstanding job in developing their strategic plan to outline their vision, mission, and strategic goals and objectives. From there they develop their long-term and short-term financial, marketing, and operating plans. The physical asset management portion is dealt with to some degree in the operating plan. However, there exists a considerable gap in this area, and this is what many industries are trying to address these days.”

Then Darren starts on a relatively long explanation of what an asset management policy is all about: “A corporate asset management policy helps formulate the commitment to look at the strategic aspect of managing physical assets. The policy outlines the multiple approaches and requirements the organization endorses and commits to for better asset management planning. It spells out the underlying guiding principles to follow when developing and deploying asset management practices to meet legislative requirements and the organizational strategic objectives. In order to ensure that the asset management system is compatible with the rest of the organization, it has to be clearly specified and defined through a formal policy statement by the organization as a whole. This action is essential so that the organization places the asset management system in context within its overall range of strategic objectives and goals. This is necessary both to give the development of the system visible and distinct credibility within the organization, and to ensure that the goals of the system and the goals of the organization are correctly aligned and calibrated. The establishment of a policy is also the first step in a longer process of developing individual and specific asset management objectives for different functional areas of the organization.”

During all this time Jerry has been listening carefully while trying to capture as much as he can in his notes. Clearly he is trying his best to absorb all the information.

Darren takes notice of that and understands that maybe it is a bit too much for the young man. He looks at his watch and notices that they have been meeting in the coffee shop for more than two hours already.

Darren gets up and says, “I think that’s enough for today. I think you have enough to work on for the next two or three weeks. Don’t worry about the rest; just be patient and focus on engaging and educating your stakeholders. Next time we meet, you will tell me of your progress and how things went.”

Jerry does not say anything. He just shakes Darren’s hand and gives him a little, almost hesitant smile.

“All the best,” Darren says as he walks toward the exit.