page | 1
Extended research results - performance
Introductory remark.
This document contains the digested data related to performance out of the interviews and can be used as a reference book.
Data of all 32 companies is included in this document and mainly concentrates on qualitative data. The answers provided by the respondents contains both facts and opinions. The description consists out of startling phrases and quotes of respondents and in some cases is summarized based on the researcher’s interpretation. Needless to say all statements in the description below are based on the managers answers. Not all statements are shared equally amongst all respondents. The information provided in this document is used in the main document; the thesis.
In order to make the difference between the industries Chemicals - Energy - and Utilities managers are quoted respectively as: C-manager - E-manager - and U-manager. There is referred to subdivision of sectors as described in paragraph 1.1 of the thesis and shown in the figure below.
In this section answers of respondents are related to the question: how is [company] performing on performance indicators, compared to industry players on
• Availability
• Maintenance Cost as % of Asset Replacement Value • Number of Safety, Health and Environment incidents
Availability
Availability is measured on a scale from lagging - basic - advanced - to leading. Respondents are asked to identify their performance compared to the industry average in order to get a good sense of the important elements.
Utilities and availability I.
page | 2 A U-manager said that “The availability we deliver is high, maybe too high considering the norm. If the availability is much more higher than demanded by the client, you should ask yourself if you are over-maintaining”. Another U-manager adds “Over here the operations side of maintenance is aiming to fix anything immediately, that is not always necessary and I want to change that. This way of doing maintenance presses on the flexibility and I like to organize it more efficient.”
Utilities and availability II.
In contrast with the Energy and Chemicals industry demand fluctuates heavily from time to time nowadays. Utility companies that generate energy respond to this by turning installations off.
Drawn from the interviews with U-managers a difficult situation regarding the conjuncture of the utilities industries prevails, the facts can be summarized as:
i. Produced electricity must be immediately sold since electricity cannot be stored;
ii. High capacity is required because utility companies are not allowed to be unable to deliver energy or gas (high fines when citizens/industry are not served);
iii. The utilities industry invested a lot in traditional production capacity the last two and a halve decades (e.g. gas power plants, coal power plants, nuclear energy) which has led to overcapacity on the Dutch market.
iv. In the past decade popularity of sustainable forms of energy increased (water, wind, solar) and strict Dutch regulation about the increase of sustainable forms (e.g. Dutch ‘Energieakkoord’) has led to another direct increase in the capacity.
v. Meanwhile, a high share of sustainable energy has the negative feature that there cannot be trusted on in the sense that delivered capacity vary from time to time (since the amount of energy depends on the weather, that is rain, wind and sun). And therefore, capacity becomes even more overrated.
vi. Meanwhile, Germany invested heavily in the sustainable energy. Since German regulation states that sustainable energy has to be used at any time, for any price, international trading of energy has led to even more fluctuation in the operating times (read: required availability) of Dutch generation companies.
Thus, standard capacity plus irregular sustainable capacity on some moment can cause a too high supply which eventually leads to small margins and high downtime. These circumstances combined with the chancing course imposed by politics results in a fragile market conjuncture.
Utilities and commercial availability.
These insights has led to the introduction of the term commercial availability within utilities as already described in literature paragraph 2.5. Based on current prices on the energy market the trading department determine if installations are put on or off. Since there is experienced a low utilization there is high downtime. For maintenance this is an important fact; high downtime means much time for effective and cheap corrective maintenance (only repair if something brakes). Next to that, the crucial assets in most cases are redundant. In other words, there can be said maintenance departments in utilities do not have a hard job to keep assets technically available.
page | 3 Values for availability differ between industries and sectors
Utilities as already explained can offer high technical availability, there is little difference between planned maintenance to prevent from failure and planned maintenance to repair a breakdown. These in principal fundamental differing issues are rewarded the same within utilities, since the level of redundancy is extremely high and, subsequently, there is enough time to repair. In other words, breakdowns hardly influence downtime and therefore technical availability. This remains in very high technical availability figures, some respondents say and report in their annual report, only 20 minutes per year they were not able to deliver their product to clients.
A C-manager mentions there is a high difference within the sectors gases - liquids - solids. Some indicative figures are provided by the respondents:
• Gases factories +/- 99% - 99,8% • Liquids factories +/- 96%
• Solids factories +/- 83% en 96%
The C-manager explains this is because of the influence of wear which has its direct impact on the number of failures. Typically, higher cost per asset are also reported in the solids sector. Another factor of high importance are the low margins in the gases sector, this market is highly competitive and partnering is not a common phenomenon.
Availability suffers from mandatory inspections.
Nowadays the availability is highly affected by inspection jobs. According to different managers there is an increase in mandatory inspections, or, the time between two mandatory inspections decrease. This, has to do with Dutch safety regulations, which in many cases is found legitimate but not always. Nevertheless, maintenance performance is suffering from this tendency regarding the international position. C-Managers tell some type of assets had to be inspected once every 10 years and nowadays once every 6 years. It seems little but when this applies to multiple assets of the same type, and when cleaning and inspection can take up to a few days which equal one million of revenue loss per day, it has a huge impact.
Interdependency between KPI’s.
Not in all cases the availability is rewarded as high and steady. An E-manager tells about the ongoing pressure from the production department. There is shown how much interference there is in the production process due to failures. The maintenance department is not in control, this is emphasized by statistics about their back-log in maintenance jobs. He explains: “Best-in-class performers accomplish 95% of all maintenance jobs. Our target is to accomplish 75% of all maintenance jobs at all time. However, the last year this target is not met once.” and ”The share of corrective maintenance is very high at our plant.” However, compared to the industry average, this E-manager says the availability is not underperforming. On the contrary, other KPI’s in this case are clearly suffering, he says “The maintenance cost are out of control and the risk level is unacceptable”. Availability a misleading indicator.
page | 4 means the asset needs to be less available. Low utilization for maintenance means lower ‘demand for availability’, and therefore more time for maintenance servicing.
Another E-manager explains that availability is an important measure for maintenance but in some context it is suffering under the influence of business decisions. “Within the upstream business, the margins are low which result in cautiousness towards CAPEX investments. When technically-retired assets cannot be replaced for new ones, maintenance has to ensure lifetime extension of assets. In general this increases the chance of breakdowns (e.g. corrective maintenance) and more and more replacements are required to keep the asset in service. The consequence is a lower availability, as such it is a KPI which is subject to economic and strategic desires.”
Other measures related to availability.
In many companies operating within the resources industries (upstream, electricity, gas) availability of assets is very important. Moreover, utilities companies are fined when they are not able to deliver electricity or gas to the inhabitants or industry. In some sectors availability of 99,9% is demanded. In order to do so, redundancy is built into the process. Concretely, this means that there is invested in very important assets (e.g. hard to repair, critical part of the process, high SHE risk) to double capacity and failure of one asset is allowed. The ‘level of redundancy’ is also in other industries an important parameter to reduce the risk of a failure and consequently control availability.
Unplanned capacity loss is based on availability figures, however to review the performance of a maintenance department in the downstream sector it is more effective to judge them on this measure. The unplanned capacity loss is calculated as a percentage of all revenues that could have been made when the assets were fully available (excluding planned maintenance). When there is constant demand and utilization is preferably 100% this measure quantifies maintenance performance for the business.
Maintenance cost
The measure that has been tested is maintenance cost as % of asset replacement value. In order to compare all participating companies on high level regarding costs respondents are asked to classify themselves compared to industry average as low - medium - high - or very high. As already described in paragraph 2.5 in literature, calculating maintenance cost as % of asset replacement value is doubtful in the sense that it can be calculated in three ways (acquisition value - insured value - value on the balance sheet). As explained in paragraph 3.2 the acquisition value is tested, respondents judge this parameter in principal as most genuine. However, there is some criticism on all three parameters and is summarized as follows:
• The acquisition value is difficult to determine and therefore relies on an educated guess; • The insurance companies only employ very generic indicative values on an industry level
which are hardly based on the type of asset;
page | 5 similar asset nowadays.
In higher management the maintenance cost as % of asset replacement value however is of great importance to assess maintenance performance. Drawn from the interviews indicative figures for this parameter vary between 1,5% - 3,5%.
In most cases the respondents are quite confident about how they perform compared to the rest. Next to the replacement value each company uses industry specific measures such as:
• Maintenance cost per barrel in the oil sector; • Maintenance cost per ton in the chemicals industry; • Maintenance cost per cubic meter in the gas sector; • Maintenance cost per kWh in the electricity sector;
The research has shown Maintenance cost and Availability are clearly the most important performance indicators for the Energy business. The products out of crude oil after refining by company X is exactly the same as the refined products of company Y, in such a commodity market the margins are small and a competing price is of vital importance. An E-manager tells that there is a lot of pressure on cost within the downstream sector. This is due to the overcapacity in refining, he states: “the margins are decreasing, the smaller downstream sites become economically unhealthy. In Europe 30% of the refining capacity has to be dismissed.”
According to a manager within midstream there is also overcapacity in the market of storage capacity. Apart from the pressure on the margin this has a negative effect for maintenance; usually within midstream contracts last long and ensures a stable cash flow. Nowadays, contract duration decreases extremely which has a direct negative impact on the possibilities for CAPEX investment for maintenance.
Compared to other industries Utilities companies have relatively little pure maintenance (repair and replacement) since wear of equipment under influence of gas and electricity is much less than chemical and oil products. The general view of U-managers is that maintenance cost are highly affected by the required technical availability they have to deliver. However, compared to other players in the industry 86% rewards the maintenance budget as low or medium. And only 14% think they are high on maintenance cost.
An E-manager explains their position in the business is of great value to their clients. There is explained what maintenance needs to be done in the coming five years. In such a way a onetime investment is done of over €50 million euros for the use of CAPEX investment and maintenance development in the next 5 years. According to the respondent this impulse will in the future be of great value for the long term vision of maintenance. The investment contributed to the overall development of maintenance in which specifically predictive maintenance played a large role. There is stated that the benefit of the investment will have its impact on KPI’s overtime. There is expected that learning from condition data and failure behavior takes five years at minimum.
SHE incidents
page | 6 regulation and different certificates are comparable in terms of content there is a high extent of similarity in the definition of this measure. Respondents are asked to qualify themselves as lagging - basic - advanced - or leading compared to industry average.
The majority of the companies show a sign at the entrance of the plant with the number of days the last SHE incident took place. It reminds visitors of the importance of this indicator and makes people aware of their behavior and the possible hazardous environment they operate in. This resounds in each interview. Overall the measure of SHE incidents is seen as very important to the company. All respondents realize and emphasize the fact they are operating in a rather dangerous sector, and the role of maintenance is a critical factor in this. The aspects acknowledged as possible consequence when SHE is not in control are:
• (Fatal) injuries to people; • Damage to the environment; • Damage to the reputation; • Levied license-to-operate.
Some respondents stress the fact maintenance also experiences a lot of inefficiency on account of safety regulation. A C-manager said: “Safety, compliance to safety and regulation of safety is in many cases is overabundant and disproportionate.” There is meant the maintenance organization from high to low is overloaded with actions that serve SHE regulation. As explained; it starts with an ambitious executive that pushes a popular standard on account of higher SHE, increased value to partners and less risk of damage to the reputation. Subsequently, this is being translated to many sessions and increased administration on management level. And, disproportionate and a number of self-imposed and unnecessary permits on operations level.
Contractors
Many companies keep track of the injuries happened to their own staff and injuries happened to contractors. Since a significant share of the specific maintenance jobs is performed by contractors companies see this as a potential risk. During turnaround time the plant is loaded to up to thousand unique third-party individuals one manager of a great Energy company said. All contractors who perform jobs on the side location are trained and permitted for each activity. A lot of effort is done to make every worker compliant. However, many respondents share the viewpoint contractors are of high influence on this indicator.
Third party risk management
In the resources industries also ‘third party risk management’ is applied. With this method there is tried to prevent from breakdowns caused by third parties. An interesting method for companies in the ‘midstream’, ‘transmission & distribution’ sectors and who have dangerous or vulnerable assets outside their own area or site. One U-manager explains they bought a helicopter and weekly inspect the most important subsurface piping, to prevent from construction companies accidently digging up their pipes.
Other measures related to SHE
page | 7 Starting with the original measure defined by OSHA and described in literature paragraph 2.5 as the number of injuries per 200.000 hours worked, which is translated in LTI rate. LTI is an acronym for Lost Time Injuries and counts the number of lost time injury claims that are reported where an employee or contractor is lost from work for one workday or more. This is calculated as a percentage of the number of employees (FTE) - or - as the number of occurrences per year - or - as the number of occurrences per 1 million hours worked.
The environment component in SHE is in a part of the research scope undoubtedly present. It specifically concerns the sectors upstream - midstream - downstream - gasses - liquids - and distribution as defined in the scope paragraph 1.1. An important term that was frequently used by respondents operating in these areas is ‘loss-of-containment’, which is explained as measuring the extent to which leakages appear. Loss of containment usually happens in storage tanks or pipelines which are insufficiently maintained.
The standards who specifically aim for lower SHE ratings were mentioned and summarized as follows:
• PAS-55 (British Puclicly Available Specification standard) • ISO 14001 (Safety)
• ISO 31000 (Risk management)
• ISO 55001 (Asset management integrity) • PGS-29 (Publicatiereeks Gevaarlijke Stoffen) • OHSAS 18001 (Health & Safety)
Other KPI’s
Typical in upstream is the indicator ‘deferment’, actually this measure tells you how much revenue you loss when your assets are not in service.
This measure is very important, and is confirmed by multiple managers related to the upstream sector. The reason behind it has to do with many things:
i. The assets utilized for upstream (oil rigs, off-shore plants) are in general very costly to maintain;
ii. The business case for the initial investment is calculated based on the size (e.g. volume in barrels) of the oil field. In other words the revenues and total cost over the whole period can be calculated beforehand, which result in cost per barrel. Considering the production capacity (e.g. output) there is calculated how long the assets have to last before the oil field is empty. And, since these assets need to be maintained even when they are out of service, every day the assets have to endure the total cost over the entire period increase. While at the same time the revenues remain.
iii. In terms of cost-price the first oil out of the oil field is the easiest to extract and therefore the cheapest. Besides, all extracted crude oil can be, and will be immediately refined and sold; iv. So, all in all, the earlier the oil is extracted, the higher the revenues are.
