Looking at today’s regulatory environment and increasing shareholder activism seen in the marketplace, Operational Risk Management (ORM) is becoming a critical skill for many manufacturing and asset intensive businesses. The costs associated with events like environmental violations or safety incidents—and their related potential fines and penalties—can be significant. Below, I’ll explain how Asset Performance Management (APM) ties into ORM.
With the regulatory burden growing in a large part of the world the need to avoid accidents is becoming a prime business objective. Moreover, today’s economic environment has emboldened shareholders to hold management more accountable not only for the environmental incidents, but also for the failure to operate the business with what would be considered reasonable parameters. This could take the form of loss of business, or claims for failing to deliver products as previously committed, or for failure to regularly meet quality specifications. All can result in potential litigation from shareholders, who are demanding higher performance levels from management. In turn managers are reacting by more effectively assessing and managing risks associated with their business.
At LNS Research, we use an axiom to categorize the value that APM brings to a business: “Healthy assets are the foundation of a healthy business.” Our research indicates that enterprises that have invested in strong APM programs and moved beyond reactive or break-fix maintenance to deploy more advanced tools like condition-based maintenance (CBM) or even reliability-centered maintenance (RCM) experience far fewer process upsets.
More importantly, asset failures are always in the top three causes of accidents that result in either safety issues or pollution releases. Additionally, equipment that is poorly maintained invariably produces products of lower quality because it lacks the ability to maintain tolerances. Frequent start-stop cycles often associated with poorly maintained equipment mean less time operating at steady state, and this is where quality is best maintained. Finally, it should be obvious that equipment that is out of service clearly impacts production volumes, which can lead to myriad issues with customers.
Just applying APM will improve reliability and consequently reduce risk, but this is not the same as managing risk. To really leverage APM in your ORM program you need to implement predictive analytics to be able to gauge the consequences of each potential maintenance scenario. When you collect RCM data and use it to judge the impact of deferring maintenance to meet a production commitment, you are then performing risk management and not just risk reduction. Likewise, when you use those same tools to assess the likelihood of failure that could lead to an accident, and then base maintenance priorities on that information you are also proactively practicing ORM.
How to Leverage APM as Part of Your ORM Program
Just migrating from reactive to preventive, or predictive maintenance, or even CBM, is going to reduce your risk, but it is the investment in RCM tools and predictive analytics that allow you to truly make APM part of your ORM program.
That means you need to identify those assets that have high risk, then use predictive analytics to assess the risks associated with potential maintenance actions. Fortunately, with Cloud-based solutions that are available today it is an affordable option for virtually any company to make APM part of their ORM program.