08 September 2011

The meaning of
life (cycle)

What is an asset lifespan? What do we mean when we say “life cycle”, recognition of need through to disposal
and any residual risks or liability period
and “whole life planning”? John Woodhouse, Chair of the Experts Panel
thereafter (“from lust to dust” – see figure
for the IAM, has been addressing these issues in his role as representative 1). This proved a good catalyst towards
for the UK on the ISO PC251 development of asset management standards “long-termism” and better consideration of
(ISO 55000 family). Here, he outlines the issues and some of the options asset requirements in the first place. And it
certainly has helped to break down barriers
being considered.
between engineering design and projects,

T
here is plenty of lively debate underway
about the appropriate terminology
and scope for such things as asset life
cycles, whole lives and life cycle activities.
At the simplest level, the principles are clear:
for a discrete component – with a creation
stage and a period of usage, leading to
ultimate disposal – we have no problem with
the concept of a life cycle. It becomes more
complicated, however, when we acknowledge
two common realities:
Asset life cycle stages
and responsibility periods
The first issue arises from the difference
between seeing the asset from a physical
existence point of view, or from an asset
management (stewardship, ownership,
usage, responsibility) viewpoint.
In PAS 55, we defined life cycle from the
asset management perspective – from the
Figure 1: A simple asset life cycle
procurement, operations or asset usage,
maintenance or asset care, and renewals
or decommissioning.
But what is optimal “life cycle asset
management” for the assets that pass from
one organisation to another – for example,
buying and selling (see Figure 2 on page 10).
Or, indeed, for which responsibility might be
split, either functionally (such as construction

1. The “cycle” stages may not be clear-cut, and

may even be iterative rather than a one-off
Identification Residual
sequence – for example, assets that pass
of need liabilities
Acquire/ Dispose/
through multiple “lives” via sale/purchasing, create renew
recycling and changed usage.

2. An asset can have an infinite life if it is seen

as a functional system, rather than just an Utilise and maintain
individual free-standing component.
Through maintenance and periodic renewal
of component elements, some asset
systems can be sustained indefinitely.

by one company, and usage entitlements by
others), or by systems elements – for example,
when part of a complex system is owned or
managed by one organisation, but managed
or assigned to the responsibility of another?
Who then is the ‘asset manager’ with a whole
life cycle viewpoint and optimisation motives?
We clearly need a wider range of terms
with which to define the various expectations
and responsibilities for better management of
assets. The workshops at the IAM conference
in June reinforced this message; over 90 per
cent of participants confirmed the need to
differentiate between the physical existence
period for an asset (whoever owns or manages
it) and the responsibility period, during which
different activities must be optimised to deliver
best value for money by a specific organisation.
Clearly, we also have to constrain the life cycle
term to one or other of these viewpoints,
because it cannot be used for both without
causing confusion!
In the ISO discussions, we have
been exploring Lifespan, Whole Life and
Responsibility Period as potentially useful
additions to the asset management vocabulary.
There are also many other existing standards
already using such terms, albeit with varied
application. The jury is still out, therefore, on
which words or phrases will be adopted for
what purposes in ISO 55000, so any good ideas
are still welcomed.
Life cycle costs (LCC)
Combining capital and operating
expenditures into a total (life cycle) cost yields
better decision-making than segmented
budget thinking. Just think about the
purchase, operating costs and technology
overtake horizons of, say, ink-jet printers.
Even though several LCC standards exist,
and desirable good practices are widely
understood, there is still broad variation in
actual practice. Opinions also differ around
what elements should be included, over what
presumed time periods, how “time-cost of
money” (discounting) should be applied and
what other “cash flows” should be included –
such as risks and lost-opportunity costs.
In the context of this article, it is the
determination of life cycle that is a problem.
Even if the asset’s whole physical life lies
within a single organisation’s responsibility
period, the assumptions about achievable
life can be crude, and can ignore the fact that
different mixes of capital investment and
operating/maintenance expenditure might
have a substantial effect on the economic
lifespan (up to and including infinite life if
not constrained by other factors). The only
solution for this is to quantify lifetime costs
in units that allow comparison between
different options with different life cycles – for
example, EAC instead of the overly-used Net
Present Value.
September 2011 09
Life cycle and other
planning horizons
One of the most important practical
requirements for sorting out the asset life
cycle language is in the establishment of
appropriate horizons for strategy, planning
and optimisation of what to do, when and why.
PAS 55 does provide a useful starting point in
linking asset management strategies and plans
to the fulfilment of an organisational strategic
(business) plan. Such strategies and plans
should aim to cover the whole life cycle
of assets or – in the event of indefinite asset
lives, for example – they should cover at least
the duration of the business plan.
This presumes, however, the pre-existence
of a strategic business plan! If this is not
available, or is insufficiently long-term to
enable good value optimisation across asset
life cycle stages, then good asset management
practice will need to select an horizon for
achievement of optimised steady-state costs,
risks and performance. It will also need to
demonstrate the longer-term impacts of any
shorter-term business goals.
While on the subject of planning horizons,
it is worth emphasising the differences
between strategic plans for managing
the assets and any plans for developing
and improving asset management –
that is, the capability and performance of
continued on page 10
10 September 2011

the management system. Figure 2: Sequential responsibility periods for an asset

The strategies and plans for assets –
ranging from individual equipment life cycle
plans, to asset systems and their long-term
management plans, right up to whole portfolio
management plans – will have appropriate
horizons that are widely different, depending
on technology turnover rates (obsolescence),
demand forecasts, asset degradation
timescales, asset maintainability, optimal
renewal timings, and so on. (See Figure 3.)
Plans for the progressive improvement
of the management systems and the maturity
of asset management, on the other hand,
have remarkably consistent practical horizons.
They are strongly influenced by three things:
human factors, industry sector volatility/
uncertainty, and any regulatory or political
accountability cycles. Of these, it is the
first that usually has the greatest practical
impact on deliverability of the plan. A time
horizon of less than three years has little
chance of truly embedding any necessary
behavioural or process changes. Yet, a plan
of longer than five years tends to be too
remote and full of uncertainties to engage
the full commitment and motivation of
those who need to deliver it.
Finally, we must not forget that some
horizons are forced upon us. Contractual
or license periods, finite resources (such as
mining or oil/gas reservoirs), or loss of
demand for a particular service or asset
function can create hard-edged boundaries
in terms of asset management remit and
Figure 3: Different planning horizons in asset management
Planning
horizons Corporate/
Organisation
Management
Manage Asset Portfolio
Manage Asset Systems
Utilise and maintain
Create Dispose
Indentification
of need
Responsibility period
for organisation 1
opportunities. Clearly, this can have an
override effect on plans and realisable asset
value, so any optimisation must occur within
these non-negotiable constraints.
Don’t forget, that even in these apparently
predetermined horizons, there lies a surprising
Corporate/
business planning horizons
PA5 55 AM System 3-5 years
Indefinite optimised steady
state, or to constraint horizon
Responsibility period
for organisation 2
Identification Residual
of need liabilities
Acquire Dispose
Utilise and maintain
Residual
liabilities
amount of secondary opportunity. For
example, the end-of-mine- (or end-of-field-)
life, or a declining demand for a service,
is actually an economic cut-off decision.
Managed decline – including progressive
re-optimisation of expenditures, residual risks
and life extension opportunities – holds good
scope. Even in contractual/license termination
cases, the hand-back condition, assurance
of on-going sustainability and performance
or condition criteria may be justified by
future business, stewardship reputation or
re-licensing opportunities.
It is a short-sighted and foolhardy asset
manager who plans for assets to fall to pieces
shortly after the end of his or her responsibility
period. Remember too that, whatever life
cycle terms we use, a good asset manager
will consider any residual liabilities after
decommissioning, sale or termination of the
asset utilisation phase.

Individual asset or Author’s biography

Manage
Assets asset class lifespans John Woodhouse is Managing Director of The
Woodhouse Partnership Ltd, which he launched
Create Utilise Maintain Renew in 1995. He is also a founder and Fellow of the
/Acquire /Dispose UK Institute of Asset Management, and author of
Managing Industrial Risk (Chapman & Hall, 1993)