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foreign [Music] ERS and welcome to get smarter in lce podcast in an earlier episode we talked about the future of operations this episode is going to be a bit related as we're discussing Investments and risk that's right folks any Improvement or expansion requires Moolah AKA capital and we're going to talk about the balance of making Capital Investments while managing risk throughout the life cycle of an asset I am joined today on this episode by David Monroe Dave Murrell is a licensed professional engineer managing principal consultant and Senior reliability engineering expert here at lifecycle engineering for over 20 years he has held senior operations and Engineering leadership positions in the pharmaceutical and discrete manufacturing Industries so welcome to the podcast Dave thanks Tara thanks for having me I appreciate it uh you know excited to be here today to talk about this topic and uh you know looking forward to our discussion great well let's jump in a common complaint um that we hear from clients and and partners in the industry is about the amount of unplanned unplanned Capital spend they incur each year we'll call them surprises right where a critical asset breaks down unexpectedly uh and and the organization has to make an unplanned replacement or a super expensive rebuild and they hadn't budgeted for it at all in the capital process so Dave what do you think are are some reasons or or some factors that make this a common occurrence so you know even though you make surprises sound exciting right it's not right this is not a good surprise kind of stereo so um yeah I mean nobody likes these kinds of surprises right you get the call in the middle of the night hey this particular piece of equipment is down uh we can't get it restarted right these are all not fun situations to be in unfortunately I've been in those quite a few times in my past um you know I've gotten a call in the middle of the night hey we've got a chiller down it supports one of our critical operations and uh you know we're gonna have to do a temporary backup type Arrangement you know to keep the process running but yeah you know I think a lot of times organizations get in these situations you get what you get in terms of investment dollars every year right so Capital funding is always tough to come by it's always tight um and you know companies have to make decisions year over year and even months and months right what are we going to spend our limited capital on um so you know something like that killer I mentioned uh I think that was even on our Capital list a few times right hey this is uh something we need to address we know it's getting towards the end of its operating life uh but it gets pushed right it's not uh it's not an exciting project it's well right you know million dollar chill replacement who gets excited about that um so it gets pushed right and that I think it's pretty common in companies where things don't make the list right and uh you know it just sort of gets moved out for for some other things but you know I think the other way to look at this right we we think about capital in a couple different ways um you know as an organization or at a corporate level you have Capital portfolio management uh so this is where you're looking at all the potential Investments that the company may need to make with their Capital uh and then you have Capital project management right that's the more smaller scope I need to replace that Chiller or I need to replace this other piece of equipment so uh you know there's it's really two different areas that um you know what we call life cycle Asset Management can come into play and can really help organizations out and these are some of the things I've used in the past with a little bit of success um but you know looking at the traditional things of what's the ROI on this investment what's the simple payback what's the internal rate of return right those are typical things that organizations look at when they are thinking of capital Investments and budgeting yeah and budgeting exactly um so you know when when you take a little bit more of a life cycle Asset Management approach looking at the big picture you know the goal is really to proactively get ahead of these surprises um and avoid them right avoid the bad surprises and you know in addition to just being interruptions right you've got the downtime cost you've got the potential safety issues the compliance issues right so there's a lot of things that okay yeah it's it's an interruption but there's also potentially other risks to the organization when these things happen right so it's not only looking at those financial aspects of the capital planning Capital uh budgeting process but then thinking about it from a larger reliability and other cost aspects um or cost avoidance aspects that should be considered your decision making so can you um explain or talk to me a little bit more about uh life cycle Asset Management sure yeah so this is a you know this is a topic I think maybe some organizations don't really think about from an asset-centric point of view right they they may think of projects right or they may think of capital portfolio that I mentioned right here's all the different things that are on our list what do we want to do but when you look at it more from an asset-centric point of view when when I have a particular asset right uh and I have a project idea hey I need I need a new uh production line or something like that right that's a concept and typically from a concept you work your way into some sort of detailed design process where if the hearing gets involved you're doing some equipment selection um you know you're putting together very traditional engineering design drawings layouts Etc um and then you go into your build or installation phase through procurement to write commissioning and qualification then you get to the big operate and maintain phase which is where a lot of us live right when the when the asset is operating it means you know you're creating value yeah right that's when the value essentially is being delivered exactly um and then eventually right is the asset ages and uh even if you're maintaining it well you get to these points where you need to decide okay do we need to look at refurbishing an asset do we need to look at replacing it um and then you know beyond that point potentially it's a decommissioning or retirement phase for that asset but you know essentially looking at things from a concept uh through design through commissioning qualification as sort of one piece of the asset life cycle and then you have that operate maintain as well as the refurbished replacement decision making that's a little more to the back end of the asset life cycle um you know but having that holistic view I think is really important uh because you know you want to make sure you have an understanding in a clear picture right for what activities are your support teams doing right what are your engineers working on during those early phases of an asset life cycle right when you're going through the conceptual design and the procurement activities and the factory acceptance testing and then what activities are happening during the operating maintain phase right that's where a lot of focus but if you're a project engineer you're focused a lot on those early pages so you know some questions to ask are you know do you know how old your assets are do you know what their expected life is when you look at a list of assets within your organization uh you know do you feel like you have a good handle on well this particular asset has a couple years left or does it have a couple decades left you know that's operating life right right what kind of physical condition are they in and how is that related to um the life cycle phase of the Assa as well as how um how it connects to daily operations right so um correct yes I think it's also important you know to keep in context what's the big picture of the site or the organization right in terms of are you expanding your operation right do you are you capacity constrained where everything that you make is sold right there's a lot of companies in that situation today um you know there's others that are just looking to maintain retain their current level of output or their current level of service um you know and then there's others that maybe for whatever reason are on more of a decreasing Trend and they're moving on to other uh products or other services right so I think it's important not just to understand where your asset is and its life cycle and its condition but also where's the organization from a strategic perspective in terms of growth versus maintaining its current level of output versus our thing winding down in this particular area where the asset resides wow that's a I mean that is a lot to consider so we just went from looking at things from Spirit uh strictly a project management or portfolio management um uh perspective to thinking about the the larger view of the asset lifecycle to thinking about the Strategic Outlook of the of the organization and how all that's connected you just made this really important thank you [Laughter] um so let's talk about let's go back down um into into some details um let's talk about some of the capital projects that you know you've been involved with or or had experience with successful and you know not so successful maybe um what would you say are the top three to four things that companies are are doing that that increase the likelihood of some large Capital project surprises so these would be the things that you don't really want to continue doing talk to me about a couple of those a couple of those things please yeah so in terms of things that you know you don't want to get in the Rut of right you don't want to find yourself in these situations but um you know it's real easy for organizations and sites to get excited about these growth projects right so hey we've got a new product coming in and you know we need to put a new production line in or there's uh this new technology that we want to deploy right those those are things that are really easy to get excited about right and everybody wants to work on those right their promotion opportunities they're you know their great publicity for the company event or the organization um you know what's not as exciting unfortunately is uh you know hey we need to replace this 20 year old air handling unit or um you know right those aren't making headlines right they're not as exciting but you know when that happens and you're looking at your Capital portfolio and you're making decisions based on do I replace the boiler uh that's 30 years old or do I work on this new exciting technology deployment like people are going to go the the exciting route typically so what the less what they'll convince themselves of is right well this spoiler is operated for 30 years can't take go one more year right how about we just we got this really important uh initiative right now and we have to work on it so let's just defer that for one more year right and they essentially convince themselves that it's okay you know it's going to make it another year um but you know that's where people start to get in trouble right that's where organizations get in trouble when you know the one more year becomes the year right like I mentioned that sure earlier I I think that Chiller was on that uh Capital list for several years right with exactly thinking unfortunately um you know and if you're if you're taking a diligent approach to this right companies they don't need to invest a lot in maintenance Capital right if they're focusing on it regularly on a year-over-year basis uh but if you start deferring things too long the maintenance capital is going to start to take over your overall Capital portfolio because you defer defer and defer and then right all of these little problems start adding up to big problems yeah you don't just have one or two assets that are an issue now you've got 10 or a dozen or more assets that are an issues so you know I think being very diligent through that Capital portfolio management activity when you're right typically in your business planning right that's when you want to look at data that you have available and information that you have available whether it's uh condition monitoring Trends whether it's maintenance Trends it could be costs it could be labor hours you know these are all things that should feed into or the amount of deferred maintenance that you have the maintenance that you haven't been doing exactly exactly yes so if it's uh you know the organization understands hey we've knowingly been deferring this because of cost reduction reasons or cost management purposes you need to keep track of that right because people change roles as well and you know the person who was managing that for a couple years they say well next year we're for sure going to do this and then you know sure enough they move on to another role and then the talk resets right so right keeping a close eye on that but using data and having a way to manage that information so that you're making an informed decision uh rather than sort of a gut feel decision when you're looking at your Capital Investments uh is really critical and making sure you have high quality data feeding into those processes to put the heat on the risk factor because uh that is that that's the the turning point right that's the the where the not so exciting projects may become the no we really need to do projects right so um well thank you for that and let's continue talking about um because we we started to a little bit but um about considering both the um the maintenance and the and the investment Capital we started to talk about growth capital and and and maintenance Capital but um let's go ahead and dig a little bit deeper into that and talk about more of those financial terms the rois the the Net Present Value which personally I kind of understand but not really sure so it's an important concept and I think looking at your Capital Investments um you know and maybe trying to bucket them into a couple different areas right I mentioned maintenance Capital earlier right maintenance Capital maybe is considered the less exciting of the two right but it's necessary and uh you know there's some Savvy investors out there that will look for that type of information um and other stakeholders right uh Executives and the boards of organizations right they're looking at well how much of our investments are going towards maintenance Capital right versus growth right um you know to keep what we have and not just continuing to push but to maintain um you know the the assets that are currently delivering value exactly and that that is the definition of Maintenance Capital right the definition of that is this is what I need to invest year over year just to maintain my current level of operation right it's it's it's maybe nothing additional uh maybe you get some minor efficiency gains out of a new piece of equipment versus an older technology but you know the growth Capital piece um you know is something that is more focused on the production increases or throughput increases or service level increases um and you know if you're working on this year over year and you're diligent about it your maintenance Capital doesn't have to be a huge percentage of your overall investment it can be less than one percent even of your annual revenue uh and that's okay right it doesn't need to be a huge number um the overall portfolio is typically three to four percent of your annual revenue uh but if you're not investing in that regularly and the maintenance Capital side of things it'll eventually catch up to you right and if it's slowly going to need to be more and more uh of a percentage of your overall capital investment so you know in terms of the return on investment or the Net Present Value piece of things right the npb um sometimes the npv on uh you know an asset replacement doesn't look great financially it could even break even or it could even be a loss you know from an from a Net Present Value perspective or a return on investment so the other reason it's important to combine these things in your overall portfolio the growth and the maintenance is the growth projects can often uh surpass right in terms of net present value or return on investment and essentially fund some of the compliance or the maintenance Capital things that you need to do so isn't that a nice reciprocation you look at it bigger picture right and then it doesn't all of a sudden look like a bunch of losing projects right right when you combine it with the good things now overall your Investments are positive right because they're the really good stuff is making up for the things that aren't necessarily generating lots and lots of value for the organization um you know the other thing that probably doesn't get looked at enough it doesn't get enough time is this concept of design for reliability so yes talk to me about that yeah so when you when you hear this term I think it means maybe something a little different to different people and uh it's it's typically focused in those early phases of the asset life cycle so all the way back to what type of equipment are you selecting part of your detailed design process right you know even through commissioning and qualification you can catch things but you know the whole purpose of design for reliability is to have a very deep understanding of all the different ways an asset can fail yes all of its different causes of failure votes and making sure you have very robust maintenance plans in place to address those causes so um you know it could be very traditional time-based preventive maintenance you could have condition monitoring you could have online condition monitoring or in our world today asset Performance Management with some AI Incorporated you know all of these things need to address specific failure modes but if you're not evaluating those failure modes from the very beginning you're always going to be playing sort of this catch-up game behind yeah catch up with these failures you know and have and have the not so good surprises they'll be all around exactly yeah if your root cause analysis is great right and you need to do that for sure once you're into the operate maintain phase of the life cycle right trying to prevent those events in the first place uh is a little bit of time and a little bit of investment in that regard can say huge things down the road because it could lead to a slightly different equipment selection and even though the equipment is a little more costly at the front end it saves you a lot of money on the back end once it's in that 10 20 30 years of operation uh so that design for reliability piece understanding the details of equipment failure and making sure you have these robust maintenance plans in place can't you know overstate the importance of that that that's a really critical uh concept here that feeds into both your Capital project management primarily but also big picture right it makes your Capital portfolio look better as well not just that individual project because as you're doing those things well systemically across multiple projects it all adds up for value at the portfolio level right so you should theoretically um if you're designing for reliability and you know doing your failure modes to effects analysis pre-operation Etc you should be able to not only have an understanding of the overall maintenance um ecosystem or whatever you know the variety of of Maintenance strategies that will best serve you but it's life cycle cost uh management as well so it's not only the the asset the physical you know asset management but also the costs that are involved you could have that an understanding of that in the in those early phases of the life cycle which is yeah that's very concept of TCO or total cost of ownership total cost of ownership right initial investment but then it's everything else during its life cycle that you need to uh invest in which you know can be a combination of capital expenditure as well as operational expenditure as well so Dave for someone who's interested in in how they can get started adding a lifecycle Asset Management mindset to their current strategic Capital planning process what would you recommend well I think there's a few different things to look at here um you know there's some things within your teams that you need to look at but there's actually quite a few different groups that I think can help in these situations and some of them may be things that you know are common knowledge some of them maybe not so much so you know I think the first thing to do is think about you know what's your understanding of your critical assets uh do you you understand the difference uh between the levels of risk that assets present to your organization so you know if you have an office error handling unit that serves administrative space right when that type of asset fails um you know it's never a fun thing right it still could be bad people could be uncomfortable it's an inconvenience yeah but you're not stopping production right the financial impact of the organization is typically not very high right when that type of failure occurs um now if you're talking about uh a production asset or an asset that a large portion of your revenue or throughput goes through that's a whole different story right that now you have a large impact to the organization when that asset fails and those are what we would call critical assets so we like to stratify all the different assets within an organization into different levels and criticality so where this comes into play right is you know more critical assets whether it's a growth opportunity or whether it's a maintenance opportunity those need to really uh have first consideration right for your Capital Investments at your organization so um that's really the first thing to consider and and that's an activity typically accomplished within the engineering teams but you need to include other stakeholders in that you need to include business counterparts so from the finance team uh safety and quality and all these different teams that have different aspects of risk right not just downtime or not just Financial but the safety aspects the environmental aspects so criticality is a multi-faceted concept but it's very important to understand relative to each other how your assets Stack Up and compare within your particular site or your organization um yeah so and then totally different sort of gear here right what you know working with your financial teams um you know have a conversation with someone from your financial group and do they even consider the difference between growth capital and means Capital are you even looking at that today right do you understand okay of what we're investing in maintenance capital is it increasing is it decreasing are we holding it flat um do they understand the trend of unplanned Capital spending which typically falls into that maintenance bucket sure even if it's retrospective right so um you know not just from a plan perspective but what happened recently or what happened this past what were our surprises exactly yeah total of the surprises financially and you know are your financial teams looking at that today are they tracking it those are really good questions to ask because they can help right with avoiding uh the surprises through different methods and different processes like we've been talking about here with the analysis piece the design for reliability piece as well as understanding the reliability analytics uh if you're in the operate maintain phase right um so you know I think looking within your own organization uh and understanding what's the recent Trend right what's my recent unplanned Capital Trend and if you have some uh concerns right if you have some things that show up on that list then ask yourself what are you doing today from a life cycle Asset Management perspective um are there processes that you could put in place are there some evaluation activities like the failure mode assessment right to develop a failure mode based maintenance strategy rather than just taking whatever the the equipment manufacturer says in implementing that um and then doing that cost comparison really uh between the proactive Asset Management right versus your actual uh you know the the avoidable costs you know essentially you can help prove your point right hey we need to do things differently and I've ran some numbers and here's what this would have looked like if we would have taken more of a design for reliability or a life cycle Asset Management approach versus just waiting for the issues to happen the surprises to occur um you know and I think a word that fits really well with life cycle asset management is stability and stability is something investors like if you're a publicly traded organization investors don't like surprises and volatility right is uh is bad it's common Unfortunately today but it's still a bad thing from an investor perspective right investors and stakeholders in general right even even your board for your organization they want to see stable uh operations they want to see stable financial performance if you say we're going to spend this much capital on these things that's what they want to see at the end of your fiscal year that you did what you said you were going to do right those those are really the important Concepts here stabilization both from an operational perspective and from a financial perspective uh lifestyle Asset Management helps both and you know it helps both the engineering and operational aspect of things but also the financial piece um you know and if if this seems a little daunting right if it seems like oh my gosh where do I start you know this is a big deal I need to create processes and procedures and standards right there's help available certainly uh but also consider start with one asset start with one department or a critical asset we want to make sure that we know that exactly so look at what's critical understand that first and then maybe start there right pick your top five critical Assets in your organization and prove the concept out refine the things that you want to do maybe you don't have to do everything we talk about here but start to get some things in place with condition assessments or look at current maintenance Trends or your bad actor list and start to incorporate those into your Capital Management discussions that those are good places to start at least from a from a you know overall life cycle asset management and Capital Management perspective I really think that's excellent advice Dave thank you um so much and to to summarize if I can uh livestock Asset Management can help stabilize your company's Capital Management approach and help minimize identify and minimize risk of unplanned expenditures and you can if you take if you have that mindset if you start installing that mindset it's going to help you get more of the desired benefits that you want for your not only your critical assets already in operation your existing assets but new assets too with um with that designed for reliability um perspective and that you don't have to you know just start with start with one critical assets if if this is not something that's currently installed in your organization or or it's not a common awareness of all those stakeholders that we talked about before engineering safety Finance maintenance operations the whole the whole the whole kit in caboodle um that is all it's also uh help is there and uh the to have someone help refine your processes with life cycle Asset Management in mind so um you don't have to do this alone that there is there is help out there too um well I just I want to thank you so much for this discussion today had a great time thank you for joining us on on the podcast um and we we we kind of hit on it but I want you to uh have one more uh final thought if you would um one final thought that you'd like to leave um with our audience today regarding uh positive impact of applying uh lifestyle Asset Management mindset to to Capital planning sure I think you know maybe maybe think about the tools uh that your organization is using today uh you have designed for reliability tools do you have uh reliability analytical tools reliability analytics in the operating maintain phase uh of the asset life cycle what sort of tools are you deploying today even a way to assess asset criticality right like even even the beginning phase of asset criticality right all of these things are going to contribute when you're ready to tackle life cycle asset management and just starting with some of those fundamentals uh and some of the basic tools you know I think are easy steps to at least get get started and uh you know you can work your way into the bigger picture you can work your way into the financial discussion and the capital portfolio management discussion right those are big high level executive discussions and if you're not ready to immediately go there um start with the sphere of influence that you have and look at start and start implementation of tools such as the failure bone effects analysis and the technical tools that you can use to provide information to those decision makers uh to start to help stabilize the operation and if you hear concerns hey how can we avoid these surprises how can we avoid this unplanned downtime go to your toolbox get some help understand here's the right things to implement first and here's the right critical assets to implement initially with so those are all things I think that we want everyone to think about you know immediately after this right okay if I'm going to go do something with this where can I start today and what are some simple tools I can start using to head in this direction well I think that um that is that is great guidance um and makes it um not so insurmountable this is something that you can do um with tools that are in your current um sphere of influence and control so that's empowering um this has been a great podcast and so listeners if you'd like to explore more about the topic um head to lc.com we'll provide some resources in in the podcast episode show notes uh but also you could search in our in our resources library and I find some of these tools and some guidance along the lines of design for a liability uh the foundations like criticality analysis and FMEA um and capital capital planning and and some of the other things that we discussed in our podcast today so thanks again Dave so much for joining us and thank you listeners for joining us too and until we see you next time let's stay smarter people [Music] [Music]