Is reducing operating and maintenance
cost the only way to improve profitability?
What is the impact to reducing asset management
Increased profitability can be achieved through
reducing the per-unit costs of the output. This can indeed be achieved through reducing operating costs,
including asset management and maintenance budgets. The difficulty is that typically the impact is negative to
the individuals who need to make the changes.
Increased profitability can usually be more easily be accomplished
by increasing output within the existing infrastructure, if all the output
can be sold. To help drive
this behaviour, one common performance measure used for production is OEE
(Overall Equipment Effectiveness). OEE
is the product of Availability, Production Rate, and Quality Rate; or
simply: how long you can run it, how fast you can run it, and how much of
the output is good.
If focusing only on costs and not results, it is
possible to reduce the asset management budget to the point where the
physical assets are not able to perform at the desired level, resulting in
loss revenue and reduced profitability.
Taken to the extreme, is the situation where the organization is
not replenishing or refurbishing the infrastructure, but instead is
“consuming the assets” required to produce the product or deliver the
service. This may be required
in a crisis situation, where the long-term is sacrificed as the future
beyond the short-term remains in question. If
the situation of consuming the assets is left to continue, the expectation
is the organization is not looking to remain a “going concern” in that
Are you focusing on the right financial drivers?
Do you fully understand the implication of the
financial decisions made?