STRATEGIC ASSET MANAGEMENT
for performance aspects, such as safety, quality, reliability,
schedule, operability, and, of course, cost. The owner investi-
gates any variances found to determine if they are caused by
isolated events or systematic problems. In many cases, the
immediate user of the asset, or the manager of the project sys-
tem, identifies the cause of the variance and fixes it through
an immediate corrective action. In other cases, the problem
requires further assessment.
At the highest level of abstraction, owners assess the total
long-term economic return or financial profit from its asset
investments and project system performance. Return-on-
investments (ROI) and return-on-assets (ROA) are common
financial measures. The pressure to improve financial per-
formance is relentless, while the availability of resources to
make improvements is limited. Various parts of the enter-
prise will be competing for those resources. Because the busi-
ness environment is dynamic, competitive, and uncertain,
the strategic asset management performance and require-
ment assessment steps attempt to balance opportunities and
risks against demand and supply for resources in such a way
that the enterprise’s objectives are met.
The enterprise’s objectives are inputs to the strategic asset
management requirements assessment step. These objectives
are determined in the enterprise’s strategy formation process
(e.g., what is our mission?; what business should we be in?;
etc.). For those with interest in the topic, one source identifies
at least 10 schools of strategic management thought [2]. Cost
engineers should be aware that strategic asset management,
as defined in TCM, is related to, but not synonymous with,
strategic management as a general field of study.
A key requirements assessment tool for the asset owner is
“benchmarking.” Benchmarking compares the enterprise’s
asset and project system performance measures to external
peer enterprise measures. Benchmarking also identifies inter-
nal and external best practices that have been shown to
improve performance. Internal benchmarking recognizes that
there is diversity in practices and performance within most
enterprises. External benchmarking helps ensure that per-
formance is not only on plan, but competitive with industry.
When asset or project system performance problems cannot
be fixed without the investment of significant resources,
investment opportunities for improving performance must
be identified and evaluated. The effort to identify and devel-
op improvement ideas can itself be a project that consumes
considerable resources; therefore, the owner needs to
reassess their overall business objectives, requirements, and
resource constraints in the strategic requirements assessment
step. In this step, constantly changing regulations, industry
standards, competitive positions, and market strategies are
monitored and evaluated. External benchmarking can help
identify competitive positions and strategies.
26.4
AACE INTERNATIONAL
With their analytical skills and knowledge of both the techni-
cal and cost characteristics of the owner’s assets and projects,
cost engineers are often called upon to lead or support per-
formance assessment endeavors, such as benchmarking and
profitability evaluations.
ASSET PLANNING
In the performance assessment step, the owner identified
asset or project system improvement challenges that required
the investment of significant resources to resolve. In the asset
planning steps, the owner identifies asset investment and
project system options, defines and evaluates them, and
decides upon which option(s) to pursue. Every investment
decision is made in consideration of strategic objectives and
requirements. Once an investment decision is made, owner
management communicates the decision to the asset opera-
tor and/or the project team, making sure that the scope of the
decision and performance objectives for the asset and/or
project are clearly understood.
The investment options identification step in the top left cen-
ter of Figure 26.2 finds ways to improve asset or project sys-
tem performance. This step is highly creative; it seeks to
understand both the nature of the opportunity, as well as the
entire range of alternative solutions. A major challenge in this
step is to get fresh ideas from both partial and impartial per-
spectives. Options identification includes a wide variety of
continually evolving practices, such as benchmarking, cost
driver analysis, brainstorming, problem solving, market
research, business process analysis, and so on.
Larger enterprises often have centralized asset planning
departments; common department titles include strategic plan-
ning, capital planning, facility planning, or product planning.
Whether there is a planning department or not, the asset
owner’s business management creates special teams to tackle
specific challenges identified by the assessment step. The plan-
ning team thus formed includes a cross-section of personnel
with technical, operating, and finance experience. The asset
planning effort is generally business-driven (i.e., led by busi-
ness managers, not technical personnel) because of the need to
keep a close eye on enterprise business objectives and strategies
at this phase. Owner cost engineers are key participants
(though generally not leaders of) the planning effort because of
their skills in key planning practices and their knowledge of
asset and project system technology and life cycle costs.
In brainstorming or other option identification sessions, the
planning team generates improvement ideas; most are dis-
carded out of hand, while others pass subjective evaluation
tests of their potential. For those ideas that look promising,
the planning team further develops the scope and definition
to a point where their feasibility in terms of potential cost,
risk, value, and profitability can be quantitatively analyzed
and measured. At some point, the measures reach a level of