The Added Value of Maintenance for

the Energy Industry

22.11.2013
Energy industry is a collection of various types of industries: offshore and
onshore extraction of oil and gas, refinery and fuel production, transport of
oil and gas, power generation and power distribution, etc. All technical assets
in this industry have their own different characteristics, used technologies,
age, remaining lifetime and operational usage.

Rob van Dongen
Executive Consultant
Mainnovation
rob.van.dongen@mainnovation.com
The major question for most companies in the current economic climate is
how can maintenance create value for the company and how can it
contribute to a sustainable business during the remaining lifetime or even
longer? It is obvious that a lot of internal and external influences have an
impact on the way that maintenance can contribute to the companys
business values and results
Maintenance Strategy and Business Objectives
Adding value to the company from maintenance perspective is most of the
times interpreted by the companys board as maintenance budget reduction.
During economically bad times this can be the right strategy, but there is
more. In Mainnovations Value Driven Maintenance-methodology (VDM),
added value is defined as the sum of all free future cash flows discounted to
today generated by maintenance initiatives on an asset during its remaining
lifetime. As shown in Figure 1, VDM distinguishes four value drivers:
Cost Control is the most common. By reducing the costs for
maintenance execution (less expenses, less negative cash flow), value is
created.
Asset Utilization is focusing on uptime optimization or increasing
availability of the asset. By realizing this, the companys revenues can
increase and a positive cash flow is generated.
Safety, Health & Environment (SHE) control is focusing on maintaining
the license to operate for the company. Once applicable legislation and
regulations are not met, the company will have problems in keeping the
assets (partially) operational. This business risk can be converted into
negative cash flow once it occurs. Besides that, the penalties from
regulators for violating laws or regulations are certainly negative cash
flows. To avoid this business risk will generate added value to the
company.
Resource Allocation helps generating value by reducing the amount of
investments needed to operate an asset during its lifetime or longer. In
case a company invests in lifetime extension and the total investment
including the business benefits from operating the asset longer
exceed the interest of investing in a new asset, added value has been
created.

Figure 1. Maintenance value drivers.

Figure 2. Value drivers during asset lifetime.
Value optimization is only possible by focusing on only one value driver, the
dominant value driver which is the one which, based on the current
performance of the maintenance department and the achievable
improvements, will add the most value to the company.
Case: It is interesting to see how the maintenance strategy of a multinational
Corporate has been changed based on the calculation of the value drivers.
The company assumed that cost reduction was the right maintenance
strategy. Based on achievable value creation, it became obvious that
improving asset utilization added EUR 38 million more than cost reduction
during the remaining lifetime with equal performances on SHE and Cost
Control.
Maintenance Strategies During the Asset Lifecycle
What is the impact of the remaining lifetime on the dominant value driver?
Figure 2 shows an example of a general asset and the impact of the market
developments and dominant value drivers. During a strong market demand
growth, focus on asset utilization optimization seems logical. That is however
only true when the company is able to sell the extra products that are
produced. During a phase of stable market demand, it is sometimes possible
to sell extra products and focus on asset utilization becomes dominant and in
other phases Cost Control will be dominant. During the lifetime of an asset,
this cycle of growth and maturity may occur more than once.
During the last phase of the assets lifecycle resource allocation may become
dominant. A rule of thumb is that about 57 years before end of life, the
added value of lifetime extension exceeds the achievable value creation of the
other value drivers.
Case: The asset manager of a distribution network implemented a Long
Term Asset Planning (LTAP) to determine when critical assets in his network
reached end of life. Once this LTAP was established he determined the total
investments needed to replace those assets. As a second scenario he
determined was the investments for lifetime extension of the same group of
assets. Based on the achievable lifetime extension, the reduction of capital
investments was about 11 %. An interesting side effect of this lifetime
discussion was also the fact that the annual maintenance costs decreased by
7 % and in total the added value was about EUR 25 million. The company
switched from the past practice of replacing old to the new strategy of
lifetime extension.

Figure 3. Overview key elements in
performance management.
Value Creation with Performance Management
To be able to create value, the determination of a dominant value driver is
just the start and based on this, the maintenance strategy can be developed
to reach the achievable improvements. Implementing and executing this
maintenance strategy is necessary to create value. Professional maintenance
and asset management organizations are capable of changing their
maintenance strategies with respect to corporate objectives, but more
importantly with respect to their dominant value driver. Such maintenance
organizations have certain characteristics in common. The relationship
between those elements is shown in Figure 3.
A clear and detailed overview of their own performances based on
internal and/or external benchmarking information.
A translation of the targeted business objectives to maintenance
objectives and a set of Key Performance Indicators (KPIs) and
Performance Indictors (PIs) that will help them to measure their
current performance versus those targets.
Implemented best working practices as a part of the corporate
processes, which can be used when the maintenance strategy asks for it
and are implemented in the overall EAM/CMMS-solutions.
Clear responsibilities linked to roles and functions in combination with
a performance oriented meeting structure that covers the complete
plan-do-check-act cycle.
Based on benchmarking information, the maintenance organization
determines to which extent its performances can be improved (realistic and
achievable improvement targets). Many companies with multiple sites or
with a large number of similar assets, use internal benchmarking to
determine this.
External benchmarking databases with relevant maintenance information
are available but in limited numbers. The use of a standardized set of
corporate maintenance KPIs and PIs is crucial in order to translate the
corporate objectives to maintenance targets and to measure actuals versus
targets.
On the organizational side of performance management, it is necessary to
have clear responsibilities in your maintenance department who is
responsible to achieve which target is the main question. During
performance review meetings deviations between actuals and targets are
explained, but more important are the follow-up actions set to reach the
targets and to add value to the company.
Case: A global player in the oil and gas industry soon will launch operations
of a brand new plant. This plant has to meet extreme high performance
characteristics to be profitable. Taking into account that the operating
outlook of this plant is less than a day, the organization needs to be very
flexible and accurate. It is obvious that full attention will be paid to asset
utilization as the dominant value driver during the first years of the lifecycle.
But the owner of the plant has a long term focus and wants a best in class
organization that is capable of changing its maintenance strategy in case it is
needed. Therefore, a complete operations and maintenance process map has
been developed including best practices for asset utilization, cost control,
SHE-control and resource allocation. Together with a standardized set of
KPIs and PIs, supporting ITsystems have been configured and a
performance dashboard will be implemented.
Conclusion
Once a maintenance strategy has been determined, it is necessary to realize
targets. But this does not mean that only the dominant value driver and the
related performances need to be managed. Creating value means that you
have focus on improving one performance (for example asset utilization), but
that the performances on other topics (cost control, SHE control) remain
stable.
Taking into account the variety of assets in the energy industry and their
different remaining lifetimes, it is wise to have an integrated methodology in
place to cover the complete asset lifecycle.