U.S. Utilities Weigh The Cost And Benefit Of ISO 55001 Certification

on July 28, 2016 at 10:00 AM

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Over the last few years there has been an increasing uptake of asset management by U.S. utilities, largely as a response to the challenges posed by the need to replace or rehabilitate aging infrastructure, coupled with the ever more stringent demands of customers for improved levels of service. All this has to be seen in the context of the post-2008 financial downturn, with utilities ‘C-suite’ laser focused on the perpetual question of “when and where is my next dollar best spent?”

The benefits of good practice asset management implementation are well documented. They include better management of risk; effective prioritization of investment; breakdown of organizational silos with increased collaboration and alignment around asset life cycle management; documentation of key processes and procedures; and structured training and retention of key skills.

As an example, some utilities in the UK that  implemented asset management programs and standards several years ago have achieved, among other benefits:

  • A 20 percent reduction in capital costs
  • A 10 percent reduction in operational costs
  • Improved environmental compliance (from worst to first)

However, the journey to implementing an asset management approach in utility organizations can be tortuous if the organization doesn’t have a clear picture of where their starting point or current “maturity level” is, nor a clear picture of what constitutes “good practice.”

ISO 55001 A Framework for Asset Management

In early 2014, an ISO standard was published that defined for the first time an internationally recognized view of good practice asset management. ISO 55001 is largely based on the PAS55 standard from the UK and is rapidly becoming the global benchmark for utilities to compare their current maturity against and define the future end-state of their asset management system.

Typically, utilities undertake an assessment of their current maturity against the standard and use the results to help understand the gaps between the “as-is” and “to-be” states of their asset management system. Often third parties are used to accurately assess the current maturity. These assessors should be endorsed by the Institute of Asset Management as competent to undertake the gap analysis.

To Certify or Not to Certify?

Globally, utility organizations, both public and private, are realizing value from ISO 55001 certification. This entails independent audit of the asset management system or framework as well as annual surveillance audits. As with other ISO certifications, there are costs and benefits associated with it.

In the UK, certification has been largely driven by regulatory requirements. In the Middle East, clients view certification as a demonstration of prestige and best-in-class capabilities. In North America, however, certification has not yet become a widespread priority.

Typically in the U.S. utility sector, opinions as to the business benefits of ISO 55001 certification are sharply divided.

The Case for Certification – Compliance

On the one hand, some organizations see the benefit of being able to prove to customers, shareholders, financial institutions (such as bonding agencies) and regulatory bodies that they are demonstrably following asset management best practices. These organizations see the benefit of certification as providing a clear indication to internal and external stakeholders of their performance against their other business objectives.

In many cases, the decision to go for certification of their asset management system is in response to an operational incident or as part of a bid to secure rate increases or capital injections. In these circumstances, the C-suite balances the commitment and cost of certification and annual audits against the benefit of being able to show its operations, maintenance, investment planning, training and risk management approach are comparable to some of the world’s best utilities.

Black & Veatch is currently engaged with a large, North American oil and gas pipeline transmission company in support of their ISO 55001 certification efforts. The rationale for pursuing certification is a new regulatory requirement for reliability. This organization is working to build the cost of a certified asset management program into its rate case so that it can demonstrate compliance with the requirement and that the company has a culture of continuous improvement.

An Alternative Viewpoint – ‘It’s not about the badge on the wall’

On the other hand, other organizations are still skeptical as to the value of going through the certification process. These organizations buy in to the benefits of implementing a good practice asset management system, but stop short of accepting that the costs of certification are worthwhile. They believe that, although the 27 aspects of their business that the ISO standard examines are important, they would prefer to focus on “maturity” rather than compliance/certification.

In some cases the difference is just that the utility sets up an asset management system compliant with ISO 55001, but does not want to expend the organizational and management time and effort associated with the initial audits and annual surveillance.

In other cases, management feels that they can implement a fully functional asset management system while not being absolutely compliant with all aspects of the standard. In these utilities, scrutiny of the costs and benefits of each of the 27 elements takes place, and a value judgement is reached on what areas to prioritize.

Clients have also realized significant benefit early in their asset management journey without certification. Black & Veatch is currently working with a large Midwest water utility that has implemented an asset management system that is compliant – but not certified – against the ISO 55001 standard. One key benefit that they achieved was through implementing a risk-based capital prioritization approach which allowed them to defer a significant proportion of their planned capital program without significantly increasing risk of asset failure. This deferral meant that they did not need to raise rates, which, in turn, raised the profile of their asset management program and ensured it is a sustainable initiative within the utility.

Unifying Thoughts

There is no universal right or wrong in the decision whether utilities should achieve certification of their asset management systems to ISO 55001. The decision is personal to each utility and is taken within the specific business context in which it operates.

The ISO 55001 standard provides a practical and demonstrably successful framework for implementing good practice asset management in a sustainable way. The standard encourages a utility take a 360-degree look at the way it manages its assets and challenges it to get better at deriving value from those assets.

With increasing focus on reliability, customer satisfaction, safety and cost performance, utilities leaders are challenged to do more with less. Developing, implementing and embedding an asset management framework that is based on the ISO 55001 standard provides validation that organizations have a proactive, continuous improvement culture that drives efficiencies and enhanced performance. Perhaps most importantly, organizations using the ISO 55001 standard demonstrate to their regulators and customers that they make wise and efficient use of customer charges in order to provide essential services.

Finally, it should be remembered that transformation of business practices of this scale cannot take place quickly. Typically, implementing asset management practices throughout an organization is an undertaking that lasts approximately 18 months. Achieving ISO 55001 certification represents a three- to five-year commitment with people and cultural elements being key to make it all “stick.” This should not put utilities off, however, as the investment in implementing good practice asset management is a fraction of the life cycle for most assets. Investments in this type of organizational change are proven to provide substantial, sustained benefits.

Published originally on Black & Veatch Solutions.