Optimizing Asset Management: How to develop a Long Term Asset Planning (LTAP)?

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Michiel Zantinge

S2193159

m.r.zantinge@student.rug.nl

MSc Technology & Operations Management

University of Groningen, Faculty of Economics and Business

20-06-2016

First Supervisor Second Supervisor Company Supervisor

Dr. Ir. W.H.M. Alsem Dr. J. Veldman Dhr. P. Drijfhout

w.h.m.alsem@rug.nl j.veldman@rug.nl piet.drijfhout@akzonobel.com

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Abstract

Asset Management is a multidisciplinary practice with the purpose to realize value from assets involving a balancing of costs, risks, opportunities and performance. In capital intensive industries where assets play a dominant role it is important to properly use asset management tools and methods. It is determined that many companies have problems with the exploitation and use of asset management tools. The purpose of this thesis is to design a model to develop a Long Term Asset Planning. To make an LTAP different steps need to be executed to determine the optimal moment for the right asset interventions. To achieve the goal of this thesis a design science is executed at AkzoNobel Delfzijl. Due to resource constraints the company wants to improve their LTAP in order to prevent current problems from occurring in the future. The designed model in this thesis will help the company execute the main steps needed to develop an LTAP considering these budget constraints. The designed model shows how the portfolio selection framework of Archer & Ghasemzadeh (1999) can be used to prioritize and defer asset interventions to make the optimal LTAP. Furthermore, this thesis shows that design science is a useful method to bridge the gap between practical problems and literature.

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Preface

This thesis is the final work of my MSc Technology & Operations Management at the University of Groningen. Throughout the year I obtained a lot of knowledge about managing the different processes within a company and the technologies which facilitate these processes. One of the courses I followed was Asset Management. I learned that managing assets is a challenging practice. Therefore I hope that this thesis can contribute to the current available methods and tools.

I would like to thank all the people who have supported me in writing my thesis. First, I want to thank AkzoNobel for the opportunity they give me to do my thesis at their salt factory in Delfzijl. I appreciate the collaboration with Piet Drijfhout, other colleagues and fellow master students at the company. Second, I want to thank Wilfred Alsem and Jasper Veldman for their knowledge, feedback and discussions. Last, I want to thank my family and friends for their mental support.

June, 2016

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List of Figures

Figure 1. Salt production process ... 11

Figure 2. Design research steps ... 14

Figure 3. The Asset Life Cycle. ... 23

Figure 4. Life Cycle Costs of an asset¹ ... 24

Figure 5. Development of the LTAP (Adopted from (Hastings, 2010) ... 27

Figure 6. Project portfolio selection (Adopted from Archer & Ghasemzadeh, (1999)) ... 32

Figure 7. Designed model to develop an LTAP ... 34

Figure 8. Preparation phase ... 35

Figure 9. Asset base register ... 36

Figure 10. Steps for making the individual asset plans. ... 37

Figure 11. Consolidation of asset plans ... 40

Figure 12. PDCA - cycle ... 44

List of tables

Table 1. Summary of sub-research questions and instruments ... 16

Table 2. Critical Success Factors of developing an LTAP ... 20

Table 3. Steps to make individual asset plans ... 28

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Abbreviations

ALCM – Asset Life Cycle Management

CapEx – Capital Expenditures

CSF – Critical Success Factor

MCA – Monochloroacetic Acid

MEB – Membrane electrolysis

MTBF – Mean Time Between Failure

MTTR – Mean Time To Repair

LTAP – Long Term Asset Planning

OEE – Overall Equipment Effectiveness

OpEx – Operational Expenditures

RUL – Remaining Useful Life

SLT – Site Leadership Team

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1. Introduction

Over the last decades, many firms tried to improve the efficiency of their business and processes. As a result of several circumstances, such as IT improvements, economic crises and increased global competition, the desire for optimization is constantly increasing. These changes drive asset managers to take a more critical look at managing their assets. Asset managers search for different ways to optimize the utilization of an asset. An asset is doing well, when it achieves the optimal balance between performance, risks and costs (Campbell, Jardine, & McGlynn, 2010). These three requirements often contradict, which makes it difficult for asset managers to find the optimum.

An important part of managing the balance between performance, risks and cost is the search for the right moments for asset replacements and other large maintenance expenditures (Tam & Price, 2008). On the one hand these large expenditures can improve performance and decrease total cost of ownership (TCO) and risks. On the other hand it is essential to consider the available resources for these investment projects. When a large number of assets require high capital expenditures and there are resource constraints, such as restricted budgets and manpower, it is important that a proper planning is made to keep a satisfactory asset performance and risk profile (Johnson, Strachan, & Ault, 2012; Ruitenburg, Braaksma, & van Dongen, 2014). Schneider et al. (2006) argued that the right knowledge and information are the basis for planning methods. Therefore, the right tools and information should be found to make an appropriate and suitable asset intervention planning. An asset intervention decision is made regarding the future of an asset (Haffejee & Brent, 2008). Examples of interventions are repair, refurbishment, overhaul and replacement. An appellation for such a planning is: Long-Term Asset Planning (LTAP). An LTAP consists of asset interventions, resources and time elements (ISO 55000, 2014).

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Page | 10 Current models to develop an LTAP are designed for assets in the utility sector (Edwards & Lloyd, 2010). Examples of these assets are sewer and electricity distributions systems. In this research the focus will be on company in the process industry. For companies in the process industry, proper planning methods for asset management are essential (Dennis & Meredith, 2000). The companies in the process industry can be marked as capital intensive companies with low product differentiations and a high throughput (Fransoo & Rutten, 1994). In this research it is examined how different models, which are designed for companies in the utility sector, can be used to develop An LTAP at a process industry company. In the utility sector companies are more inclined to a life cycle approach when compared to the manufacturing industry (Too, 2010). In the process industry the focus of asset management has mostly been on maintenance management instead of on a holistic life cycle approach (Amadi-Echendu, 2004). Because there is a need to move to a more holistic approach (Schuman & Brent, 2005), a roadmap to develop An LTAP can enhance to this need.

A design study is executed at AkzoNobel Delfzijl. In Delfzijl, in the North of the Netherlands, the company has a salt processing cluster on the ‘chemiepark’. The company wants to know how they can improve their long-term planning of their assets in order to optimize the asset management function. Nowadays, it is unclear when and how to make investments on their assets and how this process should be organized. The goal of this research is to design a model for the development of an LTAP. To design such a model the following research question is established:

How should AkzoNobel Delfzijl develop a Long-Term Asset Planning in order to improve their asset intervention decisions?

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2. Problem statement

In this problem statement the problems addressed by the company are presented. Firstly, information about the case is given. Secondly, a summary of the main issues, mentioned by the company, is described and evaluated.

2.1 Case description

AkzoNobel Delfzijl is a plant within in the business unit Industrial Chemicals of AkzoNobel.

On the chemiepark in Delfzijl AkzoNobel has four different clusters and one joint venture1. The

four cluster are Salt, MEB (Membrane electrolysis plant), MCA (Monocholoroacetic Acid plant) and Delesto (Thermal power plant). Delamine is a joint venture between AkzoNobel and a Japanese company which produces ethylene amines. This thesis will focus on whole cluster Salt. On the Chemiepark salt is one of the most important raw materials for other plants and factories, this cluster is therefore an essential link in the chain. The company produces salt in Delfzijl since 19592 with an current annual production of around 2,7 billion kilograms. The production of Salt consists of five production steps. First, salt is dissolved in water in caverns. From this caverns the created brine is pumped to the Chemiepark in Delfzijl. Here, the brine is purified. Then, the brine is evaporated using steam or electricity. There are three evaporators that evaporate with steam and one, relatively new, installation which evaporates with electricity. The evaporated brine results in salt slurry, which is transported to centrifuges, where the slurry is dried. From the centrifuge salt is transported to the final inventory. During this transportation extracts are added to improve the quality and reduce the lumping of salt. Figure 4 summarizes the described production process. The triangles represents the inventories between the steps.

Figure 1. Salt production process

AkzoNobel Delfzijl can be defined as a capital intensive company. Lots of equipment with a high carrying value facilitate the operations of salt. Therefore asset management plays an essential role in the company. The asset management department is responsible for all the four

1_{http://www.chemieparkdelfzijlnl/nl/bedrijven}

2_{Presentation Salt Production 2013, by process technologist at AkzoNobel Delfzijl Salt (Appendix A)} Brine

production

Brine purification

Brine

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Page | 12 clusters in Delfzijl. The department consists of maintenance management, maintenance support, reliability engineering, and project and turnover management. The asset management group is responsible for ensuring asset integrity and performance at the lowest costs. Nowadays there are two types of planning. For the first type, the maintenance department come up with recommendations for large maintenance expenditures based on inspection reports. These projects should be executed within 3 a 4 years. Together with the production department and the process technologist the maintenance department discusses these proposed Capital Expenditures (CapEx). The other type of planning is the annual planning. The annual planning is more detailed and all the CapEx made in that specific year are included. In appendix B it can be found when expenditures are CapEx. Most investment projects above €5K are labeled as CapEx. The other expenditures are Operational Expenditures (OpEx).

2.2 Problem description

The Salt cluster started with the production of salt in the late fifties. Some of these assets are still in use. These assets are far beyond their expected life. Also assets constructed in later years operate longer than expected. Due to the aging of assets maintenance investments are often needed to keep the equipment at the required level of condition and performance. In some cases it was concluded that a replacement or renewal of an asset at an earlier stage would have resulted in a lower TCO. Due to resource and budget constraints it is often chosen to defer or delay replacement or renewals. The mentioned reason for this problem is the frequent lack of long-term planning of the assets. A long-long-term planning is a planning exceeding 5 years (Barberá, Crespo, Viveros, & Stegmaier, 2012). In the current situation the planning horizon is within 5 years.

An example of such a case is the sea side shipper. This asset fills ships with salt from the final inventory. Every year approximately one million euro is needed to maintain this equipment. The deteriorated condition has resulted in a reduced capacity of the asset of 50%. The seaside shipper is not able anymore to fill large ships it was able to fill before. A replacement or alternative for this asset was considered, but due to budget constraints it was chosen to maintain or refurbish the asset rather than replace it.

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3. Methodology

In this chapter the method to finding an answer on the research question will be described. Also the sub-research questions are established and the corresponding research instruments are described. At the end of the chapter a summary is given.

3.1 Research method

A design study is conducted to find an answer on the following research question:

How should AkzoNobel Delfzijl Salt develop a Long Term Asset Planning in order to improve the asset intervention decisions?

This research question is established in collaboration with AkzoNobel Delfzijl. The first goal of chapter is to find out how AkzoNobel Delfzijl can develop an LTAP. Another goal is to develop an LTAP that can be generalized for other companies in the process industry. To achieve both goals it is important to have a structured methodology to conduct the research. Holmström, Ketokivi, & Hameri (2009) argued that the focus on practical problems is the strength of a design study. The goal of such a study is developing means – ends propositions. Means will be developed to achieve a certain future state. AkzoNobel Delfzijl wants to know how they can develop an LTAP in order to improve asset investment decisions. The steps which should be taken to make an LTAP are then the means to come to the desired end.

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Figure 2. Design research steps

3.2 Sub – Questions and research instruments 3.2.1 Problem investigation

The goal of the problem investigation is to identify the problems and predict what would happen without changes. A way of executing this phase is the solution-driven investigation (Wieringa, 2009). This kind of investigation is done when the focus is on solutions to achieve new or existing goals. Questions concerning the stakeholders and their goals are important in solutions driven investigations (Wieringa, 2009). After the identification of the goals the Critical Success Factors (CSFs) are determined. The CSFs are the criteria to achieve the goals. CSFs can be divided in two types. Functional CSFs describe what the solution should do and non-functional CSFs describe how the solution should behave. The following sub – research questions are established for this stakeholder analysis:

1. Who are the stakeholders of developing an LTAP?

2. What are the goals of the stakeholders to develop an LTAP? 3. What are the CSFs and to reach the goals of the stakeholders?

The stakeholder analysis is done by interviews with the different stakeholders. In these interviews the funnel model is applied. In this model first open and broad questions are asked followed by more specific and detailed questions to make sure that all the topics are covered (Voss, Tsikriktsis, & Frohlich, 2002).

3.2.2 Solution design

An important part of the design science is the solution design phase. In this phase a model to develop an LTAP is designed. The goal of this development is to reach a desired end. This desired end is established in the previous step, the problem investigation. The means to reach this end is the solution design. To find an answer to the research questions and to take the

Problem

investigation Solution design

Solution validation

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Page | 15 stakeholders’ goals and CSFs into consideration the following sub-research questions are established for the design of a solution:

4. What are the characteristics an LTAP needs to have?

5. Which steps can be found in the literature to develop an LTAP? 6. How can the proposed steps be executed at AkzoNobel Delfzijl?

In this step several research instruments are used to answer the established sub – research questions. Firstly a literature study is performed to find answers on the first two sub-research questions. It is examined how the elements and their interrelations are considered in this literature. Secondly semi – structured interviews are held with other companies in the industry about how they organize the development process of their LTAP. These companies are a maintenance provider, a waste treatment company, and an oil and gas company. Thirdly historical studies and analysis on asset planning are analyzed by data analysis and semi – structured interviews with employees of AkzoNobel Delfzijl.

3.2.3 Solution validation

In this phase of the research it is asked whether the design model will bring the stakeholders closer to their goals (Wieringa, 2009). To test if the solution is valid, the internal and external validity will be measured. Internal validity shows the degree to which the solution design satisfies stakeholders’ goals and criteria. External validity shows to what degree the solution design can be generalized beyond the immediate case (Voss et al., 2002). The model to develop an LTAP should be generalizable for the whole plant in Delfzijl. Therefore it is important to consider this validity. Next to these types of validities, trade – offs in the solution design should be evaluated (Wieringa, 2009). Some trade – offs in the solutions design can influence to what degree the goals and Critical Success Factors (CSF) of the stakeholders will be met. In solution validation the following sub – research questions are established:

7. What is the internal validity of the model? 8. What is the external validity of the model?

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Page | 16 external validity the model is also presented to a reliability engineer of MCA to test if the model can also be applied on the other clusters of AkzoNobel Delfzijl.

3.2.4 Solution implementation

The last phase of the design science is the implementation of the model to develop an LTAP. In this research it is examined how the model will be implemented. Due to time constraints it is not possible to implement the model during the research. Therefore the sub – research question in this phase is as follows:

9. How can the model to develop An LTAP be implemented at AkzoNobel Delfzijl? To find an answer on this question a literature study on the implementation of new models in an organization is performed. Furthermore, the users of the designed model of the LTAP should be considered in this question, because they have to work with this model. The users of the models are therefore interviewed.

Table 1. Summary of sub-research questions and instruments Chapter 4. Problem investigation

1. Who are the stakeholders of

developing an LTAP and what are their goals?

2. What are the CSFs of the stakeholders to develop an LTAP? 3. What are other important requirements of making an LTAP?

Interviews

Chapter 5. Solution design

4.What are the characteristics an LTAP needs to have?

5.Which steps can be found in the literature to develop an LTAP? 6.How can the proposed steps be executed at AkzoNobel Delfzijl?

Literature review Data Analysis Interviews

Chapter 6. Design validation 7. To what extent are the CSFs are met?

8. What is the external validity of the model?

Focus group Interviews

Chapter 7. Design Implementation 9. How can the model to develop an LTAP be implemented at AkzoNobel Delfzijl?

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4. Problem investigation

In this solution driven problem investigation the goals of the stakeholders are identified. To identify the goals it is important to know who the stakeholders are. The stakeholders can be divided into four groups: the asset management group, the site leadership team, the management team of AkzoNobel Industrial Chemicals, and other departments. The stakeholders are described first. Then the goals are presented and explained. To achieve these goals CSFs are made. The chapter will end with a discussion of these CSFs.

4.1 Stakeholders

First, the stakeholders in the asset management group are described. After that, the other departments and the stakes of the focal company are elaborated upon. To keep the overview, the departments as stakeholders are presented in their entirety.

The asset management group consists of maintenance management, maintenance support, reliability engineering, and project management. The asset manager is responsible for these sub-departments and should measure and coordinate the management of the assets. This department is responsible for the assets of all the four clusters of AkzoNobel Delfzijl (Salt, Delesto, MEB and MCA). The maintenance and reliability management will be the users of the model and will therefore be described below.

The maintenance management is responsible for the condition monitoring and daily preventive and corrective maintenance tasks. The maintenance management also makes inspection reports when a repair, overhaul, replacement or renewal is needed. This department can be regarded as one of the most important input resources for making an asset planning, because this sub – department is responsible for the data collection and importation in an electronic database. This data consists of data about condition and maintenance expenditures. The goal of the maintenance management is to keep the condition of the asset at the required level at the lowest costs.

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Page | 18 LTAP for the assets in the future. Therefore the reliability engineering is also an essential stakeholder in this research.

The Site Leadership Team (SLT) is responsible for the management of the site. In this team goals and objectives are determined and high level strategic choices are made. This team consists of the site director and the department- and plant managers. There is a plant manager for Salt & Delesto and there is plant manager for MEB & MCA. For developing a LTAP the SLT is responsible for establishing the strategy and objectives. The strategy and objectives are essential for making right investment decisions. Also the SLT has information about market developments and requirements of the focal company. The goal of this stakeholder is to achieve the established business goals and make proper budget decisions.

The management team of AkzoNobel Industrial Chemicals is another stakeholder in the process. This team determines the annual budget for AkzoNobel Delfzijl. When AkzoNobel Delfzijl is convinced that more budget is needed for investments it has to debate with this stakeholder. The budgets are often based on budgets needed in the past. Therefore these budgets are often comparable with previous years. Besides the budget the focal company also sets the production requirements. The goal of the focal company is to efficiently spend the budget so that the assets are able to achieve the production targets.

The asset management group has to work in collaboration with other important employees and departments. In collaboration with the production manager, process technologist and the plant manager, the maintenance management makes proposals for investments. This research will focus on the process how projects from the asset management perspective will be included on the planning. Investment proposals from the process technology and production have an influence on available budget for maintenance and replacement investments. Also the investments proposals of the production and process technology can have an influence on the asset management planning. Both stakeholders are shortly described below.

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Page | 19 The process technologists generates ideas for investments such as technical developments and energy saving projects. For this department it is difficult to make a long-term plan, because developing or energy saving projects are dependent on recent developments. The SLT wants to spend a part of their budgets to these business investments to contribute to the growth of the company.

4.2 Goals of the stakeholders

The stakeholders are interviewed about defining the goals and requirements for an LTAP. After the analysis of the interviews the goals and CSFs are established. The goals of the LTAP are described first. After that the criteria for developing process is explained and discussed. The first goal is to decrease the TCO. A planning should provide the most optimal alternative interventions at the right time. Decreasing the TCO could increase the profit of the AkzoNobel Delfzijl. The TCO consists of a combination between CapEx and OpEx. The goal is to find the optimal combination of both.

Another goal is to ensure the reliability and availability of the assets. On the one hand the availability and reliability of assets has an influence on the risks. Risks include safety, health and environmental issues. On the other hand the availability and reliability is essential because the company is producing close to its capacity.

The last goal of the planning is to improve the strategic decision making. Nowadays a lot of decisions are made ad – hoc and on the basis of the current conditions. As described in the problem statement the current planning looks for a period up to 5 years. When a planning is made for a longer period more strategic choices can be made. When it is known when assets needs to be replaced or have to be refurbished better strategic choices can be made over the asset life cycle.

4.3 Functional and non-functional CSFs

To meet the goals that are established with a stakeholder analysis CSFs are determined. The success of these CSFs determines if the goals can be met. The CSFs can be divided in functional and non – functional success factors. Functional CSFs represent what the model should do, and non-functional CSFs describe how the solution should behave. Table 2 shows the CSF

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Table 2. Critical Success Factors of developing an LTAP

Functional CSFs Non-functional CSFs

(1) Make a CapEx planning for a long period (6) Generalizable

(2) Provide decision making on different levels (7) Manageable

(3) Incorporate different perspectives in decision making (8) Suitable

(4) Make optimal investment portfolios (9) Reliable

(5) Provide feedback loops

1. Make a CapEx planning for the long – term

The first functional success factor of the LTAP is to make a planning of asset interventions for a period of at least 10 years. This 10 year is the determined in interviews with the asset manager and reliability engineering manager.

2. Provide decision making on different levels

The model to develop a LTAP should provide decision making on asset, functional and factory level. Decision making on different levels is needed to improve completeness of possible interventions. For example, it can be better to replace a whole function instead of several assets within that function.

3. Incorporate different perspectives in decision making

In the process of determining optimal asset interventions different perspectives should considered. Besides technical perspectives other perspectives such as economy, compliancy, commercial and organizational also need to be considered.

4. Make optimal investment portfolios

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5. Provide feedback loops

Because there is always uncertainty in making a planning and realizing it, feedback loops should be provided in the model. Also the deferring of asset interventions can have an influence on condition and performance, which might result in other needed interventions.

6. Generalizable

The models should be used on different assets and clusters. Therefore the generalizability of the model is essential. The model should first be tested on the Salt cluster. When the model is tested and improved it should be used in other clusters.

7. Manageable

Because the model has to be executed by one reliability engineer (in collaboration with other departments) the model should be well-structured and not too complex to make it manageable.

8. Suitable

The model should be linked to the current systems and tools used into the company to increase the fit of the model into the company. Also for the communication and collaboration it is essential that the same systems and tools are used.

9. Reliable

The last CSFs is that the model should be reliable. To make the model more reliable the availability and reliability of data and methods for analysis is essential to make informed decisions.

A lot of CSFs can be restricted by the requirement to make the model manageable. The less perspectives used for determining asset intervention the more manageable the model will be. There are numerous methods and techniques to determine the optimal investment based on different perspectives. A balance should be found between the complexity and the completeness and depth to make decisions in intervention alternatives. The model should also be generalizable for other clusters of the company. Therefore the steps cannot be filled with models and methods for asset specific methods and tools.

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5. Solution Design

In this solution design a model is designed to develop an LTAP. First, the literature is reviewed. After this review a model is designed for the AkzoNobel Delfzijl case to satisfy the CSFs. The chapter ends with a review how AkzoNobel Delfzijl can improve or execute the different steps of the model.

5.1 Literature review

According to the ISO 55000 standard (2014) asset management can be defined as follows: “Asset management is coordinated activity of an organization to realize value from assets involving a balancing of costs, risks, opportunities and performance benefits”. The standard argued that assets can be tangible or intangible, financial or non-financial. In this paper the focus will be on the management of tangible physical assets. Asset management involves the management of all the asset life cycles. The asset life cycle starts with a strategy and ends with the disposal. Campbell et al. (2010) described different stages of the asset life cycle. Their described stages are visualized in Figure 3. According to Schuman & Brent (2005) the first four stages cover the acquisition phase of the asset, while the last four stages cover the utilization phase. After the disposal the process starts over again (Campbell et al., 2010).

Figure 3. The Asset Life Cycle.

According to Brown & Spare (2004) asset management has three different goals. These goals are:

 Balance performance, risk and cost

 Align asset management with the business objectives

 Create a multi-year asset plan

As described in the definition of asset management different dimensions should be managed. The performance of an asset is essential for achieving the production and business objectives and goals. To ensure the performance the asset should be supported by maintenance and investments. The goal is to optimize performance with minimum cost or the best optimum when there are budget constraints (Tam & Price, 2008). The third dimension risk, can be defined as

Strategy Plan Evaluate design

Create/

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Page | 24 the volatility of reliability (Brown & Spare, 2004). In finding the optimal balance between performance and costs the risk profile should be below a predefined level. Figure 4 shows the relation between the three dimensions in an asset life. In this figure, adopted from the Asset

Management Consulting Limited3, it can be seen that an Asset Life exists of a degradation in

condition and increasing in costs and risks. To find a balance between these three elements expenditures must be made and maintenance activities should be executed.

Figure 4. Life Cycle Costs of an asset¹

Another goal of the asset management is the alignment of asset management decisions with the business objectives. Komonen et al. (2012) described how the business objectives should influence the objectives on lower levels. From top – down it should be clear what the capacity and the reliability plans are (Hastings, 2010). From lower levels information should move bottom-up to influence the establishment of business objectives (Komonen, Kortelainen, & Räikkonen, 2006). This information consists of data of risks, costs and performance analyses. The interrelation between business and objectives is an essential criteria for an efficient asset management function (Ruitenburg et al., 2014).

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Page | 25 The third goal of asset management is to make a multi-year asset plan. The ISO 55000 defines an asset management plan as follows: “The asset management plan consists of documented information that specifies the activities, resources and timescales required for an individual asset or grouping of assets to achieve the organization’s asset management objectives”. An asset management plan is developed to identify the best way to achieve objectives and inform the stakeholders (Brown & Spare, 2004). According to Hastings (2010) there are two types of plans. The first type is the Life Cycle Asset Management plan. In this plan the maintenance, repair and overhaul activities are planned over the life of a particular asset. The other type of plan is the Planning-Period Asset Management Plan or the Long-Range plan (Campbell & Reyes-Picknell, 2015). This is a plan with activities of a whole portfolio of assets over a given period of time. This period of time can differ from 1 year to 30 years dependent on the wishes of the company and the dynamics in the markets and technology (Komonen et al., 2006). This research will focus on the second type of plan, because the business problems of AkzoNobel Delfzijl are about this type of plan. At AkzoNobel Delfzijl this type of plan is named the Long-Term Asset Planning (LTAP). Because a solution is designed for the business problem of AkzoNobel Delfzijl, their denomination for Planning-Period Asset Management Plan is used in this thesis. The following paragraph will elaborate on this type of plan.

5.1.1 Characteristics of an LTAP

An asset planning consists of capital plans, operations plans and maintenance plans, which are influenced by the targets for performance, risk and budget target (Brown & Spare, 2004). These three plans the LTAP can furthermore specified in the following elements (Hastings, 2010):

 Changes in resource allocations

 Schedule of proposed acquisitions

 Schedule of major maintenance activities

 Schedule of disposals CapEx and OpEx proposals

 Allocation of responsibilities

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Page | 26 a schedule of the proposed acquisitions. The life cycle of an asset starts with the acquisitions phase (Schuman & Brent, 2005). In this phase assets are acquired and constructed. The expenditures related to this phase should be included in the schedule of the LTAP. The expenditures are made for engineering, development, construction and implementation of the asset (Woodward, 1997). Third, the major maintenance activities are planned to deliver the desired levels of service, condition and performance (Too, 2010). Major maintenance activities are CapEx. CapEx are the expenditures for the acquisitions or upgrades of assets. These expenditures are often depreciated over several years (Hastings, 2010). OpEx are deducted from the income of the current year. Regular maintenance activities are not included in the schedule, but the estimated budget for those maintenance activities are included in the OpEx proposals within the LTAP. The fourth element is a schedule of the disposals. Next to acquisition and utilization costs, the disposal of an asset can also be a large part of the TCO (Amadi-Echendu et al., 2010). Disposal costs are related to the decommissioning of the asset (Utne, 2009). When the different activities and needed investments are determined, the budgets for CapEx and OpEx should be established. A budget is the allocation of financial resources and is based on argued proposals (Hastings, 2010). The last element in the plan is the allocation of responsibilities. In the plan it is mentioned who is responsible for the management of acquisitions, executions of investment projects, time management, capital outflows and etc. (Brown & Spare, 2004).

5.1.2 Developing of the LTAP

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Figure 5. Development of the LTAP (Adopted from (Hastings, 2010))

In this plan the individual projects are analyzed, assessed, and perhaps prioritizations have to be made (Hastings, 2010). When the resources are limited the optimal portfolio of investments and strategic decisions needs to be made (Rosqvist, 2010). In such situation some plans have to be prioritized and other plans have to be deferred. When the prioritization is done and strategic decisions are made the planning can be developed. In this planning the timescales, resources and responsibilities are mentioned (Hastings, 2010). The development of the individual asset plans and the consolidation of these plans are important steps in making the final LTAP. Both steps are further elaborated below.

5.1.3 Making the individual asset plans

Hastings (2010) proposed a list of steps which needs to be done for making the individual asset management plans. Other authors have designed comparable models (Edwards & Lloyd, EPA, 2016; Johnson et al., 2012; Lemer, 1998; Parsons, 2006). These models also exist of different steps to substantiate the choice for proposed asset interventions. The comparison of the steps

Business plan Condition of assets

Continuity Plans Maintenance plans

Consolidated Asset Management plan

Long Term Asset Planning with

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Page | 28 can be found in Table 3. Most of the models are partly influenced by the guidelines of the PAS55 or ISO55000. The different steps are described in the next part. From the table it can be concluded that the other models describe comparable steps as Hastings (2010). However, the risk analysis and scenario analysis are not always considered or broadly explained.

Table 3. Steps to make individual asset plans

*Environmental Protection Agency, federal agency in the United States

1. Asset identification

In the first step the asset has to be identified. In this step the function, the dependency with other assets and the criticality should be determined (Hastings, 2010). The functionality is about the role in the production process. The dependency is the relationship with other assets in the

Steps Authors (Hasting s, 2010) EPA, 2016* (Edwards & Lloyd, 2010) (Parsons, 2006) (Lemer, 1998) (Johnson et al., 2012)

Sector General US Civil

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Page | 29 process. The last element of the identification step is determining the criticality of the asset. The goal of this element is to estimate what the criticality is from a financial, operational, safety and environmental perspective (Campbell et al., 2010; Hastings, 2010).

2. Asset Targets

The objectives of an asset can be determined by forecasting the demand and determining the required levels of service, performance and condition (Campbell et al., 2010; Edwards & Lloyd, 2010; Laue, Brown, Scherrer, & Keast, 2014). To set targets for long term it is desirable that there are low dynamics in markets and technology developments (Komonen et al., 2012). Demand forecasts result in the production targets of an asset. These targets have an influence on the required level of service, performance and condition. Also other requirements from stakeholders and regulators can have an influence on the required level of service, performance and condition (Haffejee & Brent, 2008).

3. Historical analysis

In the historical analysis the economic and technical data are reviewed and analyzed. First, from the economic data it should be clear which acquisitions and major maintenance expenditures are made (Parsons, 2006). From this analysis it should be clear what typical expenditures were and how these expenditures were divided over the different assets. Second, the degradation, failure rate and failure patterns should be analyzed and what the effects were of historical interventions (Parsons, 2006). Furthermore, the effectivity of an asset over a certain period can be used to determine performance (Haffejee & Brent, 2008). The overall Equipment Effectiveness (OEE) is an example of a method to measure the effectivity of an asset over a certain time (Rosqvist, 2010). In this method the failures, performance and quality losses are incorporated.

4. Current state analysis

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Page | 30 compared to the targets set in the earlier stage. A deteriorated condition will often has a negative effect on the performance.

5. Risk analysis

In this step the risk of an asset or groups of asset are analyzed. In this analysis the potential consequences of unexpected or unplanned incidents or failures are identified. Risks can be calculated by the impact and the likelihood of unexpected failures (Johnson et al., 2012). According to these authors risks can have an influence on different dimensions such as financial, environmental, process, health and safety. As described, risk is, next to costs and performance an important dimension within asset management.

6. Remaining useful life determination

The determination of the RUL can be done on different ways. Woodward (1997) described five different perspectives of the RUL:

 Functional life: The period a specific function needs to be performed.

 Physical life: The period a large repair, refurbishment or replacement is needed.

 Economic life: The period when a renewal action will result in lower total cost.

 Technical life: The moment in time when there is a technical development or a superior

alternative for the current asset.

 Social & Legal life: The period social standards or legislation dictates an investment

action.

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Page | 31

7. Scenario analysis

When the RUL is determined, several scenarios should be generated with potential asset interventions. Haffejee & Brent (2008) mentioned different options after the RUL is known. These options arrange from leave as it as to the renewal of the whole asset. For the generation of intervention some creativity and imagination of the management is needed (Lemer, 1998). For more critical assets it is important to do a more comprehensive generation of alternative interventions. When the potential interventions are generated it should be analyzed what the influence would be on the different perspectives of asset management. These perspectives are technology, economy, commerce, compliance and organization (Ruitenburg et al., 2014; Woodward, 1997).

8. Decision making

To make the decision the different alternative interventions should be compared to each other. Espie et al. (2003) developed a multi criteria decision making technology for making investment decisions for an electricity distribution system. In their model a cost/benefit analysis is executed to make the optimal solution. Next to a multi-criteria decision making method, other methods to evaluate the different scenarios can be used (Lemer, 1998). In decision making it is essential that the right criteria are set when multi-perspectives need to be compared with each other (Espie et al., 2003).

10. Make the individual asset plan

The last step in making the individual asset plan is to determine the financial budgets and resources needed for the execution of the asset interventions. To do a financial proposal the influence on CapEx and OpEx needs to be considered. To determine other resources the spare parts, facilities, tools and manpower needed to execute the plans should be estimated. For the mid-term and short – term plans this needs to be done more specific than for the LTAP, because on the long term there is more uncertainty.

5.1.4 Consolidation of the individual plans

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Page | 32 Archer & Ghasemzader (1999). These authors developed a model especially meant to choose the most optimal set of new product or system development projects. Figure 4 shows this developed model. The heavy outlined boxes represent the main steps for making the portfolio. The figure shows that some feedback loops and inputs, such as guidelines and resource allocations, are included.

Figure 6. Project portfolio selection (Adopted from Archer & Ghasemzadeh, (1999))

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Page | 33 than the delay of the initial proposal for the asset intervention. The last step is the execution of the projects. When projects start several things could have be occurred in the meantime (Rosqvist, 2010). Therefore it should be re-examined if the target, condition and failure rate of the asset is still the same. If it is not the same it might be needed to modify the asset intervention. In such case the LTAP should also be changed.

5.1.5 Development of the solution design

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Development of the LTAP A s s e t / G ro u p o f a s s e ts l e v e l F a c to ry l e v e l

3. Consolidate indivual plans 4. Execution

1. Preparation

1. Corporate

objectives setting 13. Screening

14. Indivual project evaluation 16. Make the LTAP 3. Asset identification 7. Risk analysis 8. Remaining Useful Life 4. Asset Targets 9. Scenario analysis 5. Historical data analysis 6. Current state analysis 17. Execution of the LTAP 15. Prioritization and delay of projects 11. Make individual asset plans 10. Decision making 2. Asset database registry

Input: investment proposals,

strategy, changes in legislation and stakeholders requirements

Deliverables: first screening on

strategic fit, feasiliblity and compliancy

Input: Screened investment

proposals, methods to rank evaluate investments

Deliverables: Scored investment

proposals technology, economy, commercial and organizational

Input: Budget, human,

scored individual project evaluation.

Deliverables: Prioritized

and deferred investment proposals Input: investment portfolios Deliverables: Planning of investment execution, responsiblities, CapEx and OpEx budgetting

Input: Asset system,

supplier data, remarkable technical and economic trends

Deliverables: Determination of the functionality, criticality and dependency of the asset Input: Production

targets and other related objectives Deliverables: Required level of service, performance and condition

Input: Production data,

failure data, maintenance and financial data

Deliverables:

Expenditures trends deterioration patterns and failure rates, maintenance performance and OEE

Input: Asset targets,

condition analyses, historical data analysis,

Deliverables:

Current service level, physical condition and current performance.

Input: Inspection

reports, failure rate, experts

Deliverables: Likilihood

and severity of failures on dimensiosn such as environment, safety, reputation and process.

Input: Asset targets, historical

analysis, current state analysis, risks analysis and methods to model and simulate asset

Deliverables: Determinations of

physcial lifes, economical lifes, technical lifes, Social and compliance lifes

Input: Set of feasible

intervention options: repairs, replacement of components, overhauls, replacement, renewals

Deliverables:

Consequences of each option on service, condition and performance and costs.

2. Individual asset plans

Input: Scenario analysis, criteria, weights Deliverables: Optimal set of asset intervention over planning period

Input: set of optimal

asset interventions

Deliverables:

proposal of planning of the asset interventions, CapEx and OpEx budgetting and other resources needed.

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5.2 Execution of the model

This section shows how the designed model from the literature review can be executed at AkzoNobel Delfzijl. For every block it is analyzed if and how it should be executed nowadays. For every block conclusions and recommendations are made.

5.2.1 Preparation of making the LTAP

The first step of making the LTAP is to do a preparation before making the individual asset plans. In this phase corporate objectives are determined and an asset database register should be developed (Figure 9). 1. Preparation 1. Corporate objectives settign 2. Asset database registry

Figure 8. Preparation phase 1. Corporate objective setting

In the current situation it is hard for the company to set corporate objectives. The demand for salt is uncertain and dynamic. Therefore it is difficult to set corporate objectives for production. It is often uncertain if some assets are still needed in the future and therefore no long-term planning is made for these assets. Afterwards it often turns out that a lot of assets were operating near to its capacity and that availability and reliability had to be high. The uncertainty in corporate objective setting makes it difficult to make decisions in developing the LTAP. For AkzoNobel Delfzijl it is difficult to change the stability of the markets. The company is already trying to improve the information sharing with headquarters about demand predictions and developments, what can decrease the uncertainty.

2. Asset database registry

The second step in this phase is the establishment of an asset data base register. The company

uses a software program, called SAP4, as register for their assets. This program can be used to

control all the assets’ CapEx and OpEx. Figure 10 shows how the assets are registered into this program. In this figure the different asset levels of the factory are shown. The figure shows an example of the assets in the evaporation process step. A disadvantage of the used system is that it only includes expenditures of the assets. Failure data and condition analysis should be collected from other sources and programs. Another disadvantage is that software updates result

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Page | 36 in more complication in doing analysis, because historical data have not been transferred to the newer versions. Historical data is still approachable, but it takes some effort to combine data from several software updates. To conclude, SAP is a useful tool to categorize data over the different assets. It is essential that the maintenance department and production department realize the importance of data gathering for further analysis. Further, to make the model more manageable it is desirable to transfer historical data into one system for doing analysis.

Figure 9. Asset base register

5.2.2 Individual asset plans

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Page | 37 2. Individual Asset Plans

3. Asset identification 7. Historical analysis 8. Remaining Useful Life 4. Asset Targets 9. Generation of different scenarios 5. Condition analysis 6. Risk analysis 11. Make individual asset plans 10. Decision making

Figure 10. Steps for making the individual asset plans.

3. Asset identification

The first step in the model is the identification of the assets in the section. In this step the most challenging aspect is to determine the criticality. In SAP the assets with the highest OpEx over a given period are ranked. This can be used as an indicator of the criticality. Also the inspection reports of the maintenance reports give information about the current condition of the asset and how this influences the performance or service level. In the production department the OEEs and the bottleneck calculations are determined. All these information should be collected to determine the criticality of the individual asset plans.

4. Asset targets

The demand for salt is dynamic. Therefore it is hard to make a clear business plan for the coming period. Therefore, the company does also not determine long term targets for the assets. To improve optimal decision making about interventions on the assets it is essential to determine the desired state. In the interviews with the maintenance provider and the waste treatment company it is mentioned that predictions and assumptions are made and used to determine the required level of service, performance and condition. Throughout the years it should be checked if these predictions and assumptions do still account or need to be changed.

5. Historical analysis.

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Page | 38

6. Current state analysis

The current state of the assets should be measured by comparing the current state with the required level of service, performance and condition. The maintenance management and production department monitors the current level of service, performance, and condition of the assets. The condition can be measured on different ways dependent on the asset. For some assets the condition is monitored and reported by their maintenance provider. This maintenance provider execute vibrations analysis, wall thicknesses and oil analysis. For other assets the analysis is done by the maintenance department itself. The maintenance department makes inspection reports of these inspections. Also a combination of both ways can be used to determine the condition. This condition analysis is on asset level. The condition of the function is a combination of all the asset conditions. Also other perspectives such as performance and employees feedback should be included in the current state analysis.

7. Risks analysis

To determine the risks of a functional group of assets the risks matrices designed by AkzoNobel can be used. These risk matrices described the frequency and severity of failures (Appendix C). The severity can be divided into different categories. These categories are people, environmental, assets, reputation and security. The category “asset” represents the financial consequences when an asset cannot fulfill its function due to a failure. Due to the risky environment of a chemical process industry risk is an important dimension in decision making. Recently, the risks matrices are made by the maintenance manager, process technologist and production manager. This collaboration reduces the subjectivity in risk determination and makes it more useful for later decision making and project prioritization. Therefore there are no recommendations to improve this step for developing the LTAP.

8. Remaining Useful Life

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Page | 39

9. Scenario analysis

The scenario analyses require some imagination and creativity of the reliability engineer. The engineer should generate different options on different levels to make the analyses comprehensive. For critical sections it is more needed to do a comprehensive scenario analysis than for less critical sections. For some assets it is possible to use a software program for the scenario analyses. In this software program the technical and financial changes of a scenario can be simulated. It is essential that all the required data is included into the software to receive reliable results. Furthermore, the software program is especially designed for assets on unit level. Scenarios to replace a whole section cannot be included. The result of the scenario analysis is that it should be clear what the effects are of the different interventions on the perspectives technology, economy, compliance, commercial and organization and how this will relate to the required level of service, condition, and performance.

10. Decision analysis

From the scenario analyses the most optimal scenario has to be chosen. The most optimal scenario depends on the established criteria. The different interventions will have different influences on the different perspectives of asset management. In the thesis of my co – researcher Johannes Drop a decision tool is made to determine the optimal asset interventions over the planning horizon.

11. Make individual asset plans

When the asset interventions are chosen the CapEx and the OpEx budgets needs to be established and divided over the years for this section. To predict the total amount of the expenditures all the related costs to realize the different interventions should be considered. Also the influence of the asset intervention on the future OpEx needs to be estimated.

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Page | 40 for commercial and organizational consequences are considered in step 4-10. The economic perspective is included to a lesser extent.

5.2.3 Consolidation of individual asset plans

In the current situation there is no clear approach to evaluate investment proposals. Current evaluation of investment proposals are only done in the annual planning and at the mid-term planning. Therefore the model of Archer & Ghasemzadeh (1999) is included into the model to develop an LTAP. In the annual and mid-term planning the investments are especially assessed on the likelihood and the severity of a failure if no intervention is done. Large investments with low risks are often deferred, due to the limited budgets. The goal of the LTAP developing process, presented in this research, is to improve the asset interventions and make an optimal planning with the existing limitations. In this section the consolidation of the individual asset plans are evaluated. Next to the four steps, the execution phase is also considered because this phase has a loop with making the LTAP.

3. Consolidation of individual plans 4. Execution

13. Screening 14. Indivual project evaluation 16. Make the LTAP 17. Execution of the LTAP 15. Prioritization and delay of projects

Figure 11. Consolidation of asset plans 13. Screening individual projects

In this step the individual plans which must be executed should be filtered from the other projects. Some projects must be done within a certain period due to risks or compliance. In the chemical process industry risks, legislation and agreements with stakeholders are important factors and should therefore be included in this screening step. Strategic fit and feasibility are to a lesser extent important. These factors can be considered in the individual project evaluation.

14. Individual project evaluation

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Page | 41 perspectives. Furthermore, the project risks of doing an asset intervention should be taken into account.

15. Prioritization and delay of projects

The most difficult step is to prioritize projects when not all the projects can be executed due to resource constraints. AkzoNobel Delfzijl has an annual budget for doing their CapEx and OpEx. As described in the problem statement this budget is comparable to the available budgets determined in the other years. Available money is the largest constraint and therefore also the most important one to consider. In a year wherein large CapEx are made there is less budget available for other projects. In these years other projects should be brought forward or deferred to other years. When projects needs to be deferred it should be examined what the consequences are on the different perspectives and the required level of service, performance and condition. In this step also a feedback loop has to be made to the scenario analysis when projects needs to be deferred. Due to a deferring another asset intervention is possibly more optimal.

16. Make the LTAP

When the annual portfolios are made the LTAP can be made. In this LTAP the CapEx and OpEx needs to be determined and other resources to execute the projects should be identified. The shorter the period before an execution the more detailed this analysis should be done. The company has already a comprehensive excel sheet to specify the projects. In this excel sheet the specific information such as investment reasons, risk matrix region, year of approval and project leader are described.

17. Execution

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Page | 42

6. Solution Validation

In this chapter the internal and external validation of the model is described. First, the internal validity of the model is measured by presenting the model to the different stakeholders and users and include their feedback into the developed model. Due to time constraints it was not possible to validate the steps with an example from practice. Secondly, interviews with employees of other companies are executed to compare the proposed model with models from these companies. In this comparison it is examined how the steps of the model can be executed and how feasible the steps of the proposed model are.

6.1 Internal validity

In the focus group the model is presented to the asset manager, maintenance manager, manager engineer, two reliability engineers and a project leader. After the presentation questions were asked and remarks were made regarding three functional CSFs and one non-functional CSF. The red marked boxes showed these four functional CSFs.

Table 4. Criticized CSFs

Functional CSFs Non-functional CSFs

(1) Make an investment planning for a long period (6) Generalizable

(2) Provide decision making on different levels (7) Manageable

(3) Incorporate different perspectives in decision making (8) Suitable

(4) Make optimal investment portfolios (9) Reliable

(5) Provide feedback loops

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Page | 43 input is needed to achieve these outcomes. Third, it is mentioned in the focus group that prioritization is a problem within the company. In the initial model the prioritization consists of one step. This is changed to the four steps mentioned by Archer & Ghasemzadeh (1999). Also these steps are explained and it is recommended how these steps need to be executed. To improve these steps decision making methods can be designed to improve the prioritization. The last discussed CSFs is the reliability. Attendees mentioned the importance of data availability and data reliability. To analyze the historical data and determine the RUL it is essential that this data is collected neatly. When the model is tested more changes can be made to better meet the stakeholders’ goals. This process is further explained in Chapter 7: Solution Implementation.

6.2 External validity

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Page | 44

7. Solution Implementation

The last step of the design science is the implementation of the design solution. This chapter describes how the proposed model can be implemented in the company. From the interviews with an employee of an oil and gas industry it becomes clear that the development of the LTAP is a living process. A very known improvement cycle is the Plan Do Check Act (PDCA) – cycle of Deming (Nicholas, 2010). In this cycle (Figure 12) plans are made, executed, checked and changes are made to the process. Then, the cycle starts over again.

Figure 12. PDCA - cycle

First, a planning should be made to develop an LTAP. The LTAP will be executed by the reliability engineers. To make a plan for the whole factory lots of time is needed. In the planning of making the LTAP it should be clear when and how the different assets are approached and for which assets a more detailed and comprehensive individual asset plan should be made. Therefore the steps to measure the criticality of the assets is an important step in the developing process. Also the business objectives should be determined before the reliability engineers can start with making the planning. When there is a lot of uncertainty, assumptions needs to be made in collaboration with the asset manager.

The second phase is the execution (Do) of the different steps of the developed model. When the individual asset plans are made the reliability engineers should make a planning for a period of 10 years. In the evaluation and prioritization of the individual asset plans it is essential that this done in collaboration with more experts of the asset management group. For this phase it is essential that the data and tools are available and reliable.

When the planning is made for a period of ten years the performance of the planning should be

checked. When there is a lot of deviation between the planning and the execution the causes

this deviation should be analyzed and reviewed. Also the steps to develop an LTAP should be reviewed. In this phase it is researched how different steps were executed and if right tools and methods are used. Also other researches in the future within the firm can focus on how to

Do

Check Act

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Page | 45 improve the different steps. An example is the research of my co-researcher, Johannes Drop, who develop a model to improve step 8-9. He developed a model to determine the RUL and make the best asset intervention decision.

When the process to develop an LTAP is reviewed changes should be made (Act) to improve the execution of the steps. In this “act” step methods and tools are developed or chosen to improve the execution of the steps.

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Page | 46

8. Discussion & Conclusion

In this section the results are discussed. The results consist of the problem investigation, design solution and solution implementation. To structure this discussion the chapter is divided in a theoretical contribution, practical contribution, limitations and ends with the conclusions. 8.1 Theoretical contribution

The goal of asset management is to find balance between costs, risks and performance (Campbell et al., 2010). In this research different steps are designed for making an LTAP. In these different steps the three perspectives of asset management are incorporated. It is found that involving all the three dimensions is difficult, what supports the negative results in the applications of asset management tools mentioned by van der Lei (2012). The asset management tool developed in this thesis is a model to make an LTAP, especially designed for AkzoNobel Delfzijl. In the LTAP the large asset interventions are displayed over a period of 10 years.

The first contribution of this research is the use of design science. The phases in this type of research facilitates bridging the gap between practice and literature (Holmström et al., 2009). In this research the current situation and goals of AkzoNobel Delfzijl are defined first. This step is used to design a model substantiated with literature. When the model is designed it is researched how AkzoNobel can execute the steps to make an LTAP. During the design phase the model is validated in cooperation with the company. Furthermore, it is recommended how the model could be implemented. The research shows that a design science is a useful type of research to bridge the gap between the practice and asset management tools developed in the literature.

Optimizing Asset Management: How to develop a Long Term Asset Planning (LTAP)?

Michiel Zantinge

S2193159

m.r.zantinge@student.rug.nl

MSc Technology & Operations Management

University of Groningen, Faculty of Economics and Business

20-06-2016

Abstract

Preface

Table of contents

List of Figures

List of tables

Abbreviations

1. Introduction

2. Problem statement

3. Methodology

4. Problem investigation

5. Solution Design

6. Solution Validation

7. Solution Implementation

8. Discussion & Conclusion