Chapter 3.1 - Apply whole-life asset management principles in a range of sectors and industries Flashcards
Whole life asset management
Process of evaluating the total price and all associated costs of a product to make an informed decision as to which option will provide the organisation with the best value for money option
Whole life costing
In depth costing analysis used to help buyer determine the end-to-end cost of providing a service, manufacturing and procuring a product
Fixed assets
An accounting term used to describe items acquired by an organisation which are not routinely sold but used within the organisation. Typical examples are land and buildings, fixtures and fittings, office and warehouse equipment. Fixed assets are also known as non-current assets
Discounted cash flow
An investment appraisal method based on future cash flows and the time value of money
Name 4 ways whole life asset management can help organisations
- Encourages procurement to consider cost elements beyond just the initial purchase price, and ensures the costs are examined for a long-term perspective
- Forces procurement to consider the impact of the purchase, hire or lease of an asset, item or service may have on other functions
- WLAM can also account for discounted cash flow
- Forced to consider environmental aspects of asset management, in relation to the sale and responsible disposal of waste materials required over its use and maintenance, in addition to end of life options available for the asset itself
Name the 9 steps in the CIPS WLAM cycle
- Analysis of historic performance
- Lessons learned feeds into identification of needs/specification
- Pre-acquisition costs
- Acquisition costs
- Installation and commissioning costs
- Operating costs
- Maintenance costs
- Performance / Downtime monitoring
- End of life disposal / recycling
Name 14 examples of value
- finance
- economics
- marketing
- operations
- maintenance
- through life performance
- sales
- ethics
- sustainability
- obsolescence
- environmental
- quality
- IT
- disposal
Name 8 elements to consider from the CIPS WLAM cycle
- Identify need / objectives / risk
- procurement
- construction
- commissioning
- deterioration / maintenance
- condition performance monitoring
- decommissioning
- renewal / replacement
Give 5 examples of why a need has developed
- Current asset is becoming unfit for purpose
- Competition in the marketplace
- Raised/reduced demand
- Regulations / legislation
- Financial concerns
Name 5 factors linked to risk
- Downtime
- Lost sales/revenue
- Associated costs
- Incompatibility
- Resistance
Mass production
Continuous production of standard products that can benefit from economies of scale
What does construction mean in terms of WLAM
The designing and manufacturing of the asset
Commissioning
Bringing something new into working condition
Name 6 costs included in commissioning an asset
- Installation
- Training
- Insurance
- Testing
- Operational efficiencies/performance
- Quality
Name 5 things that training is likely to include
- Operational capabilities
- Health and safety
- Accountability
- Risk assessment
- General maintenance
Name 4 specified losses within insurance
- Fire
- Theft
- Accidental damage
- Force Majeure
Insurance premium
Amount per annum the insurance costs an organisation
PAT (portable appliance testing)
A process in some countries where electrical are safety checked
Name 5 types of test you may need to run to ensure equipment is working effectively
- Virtual tests
- PAT
- Health and safety test
- Emissions test
- Production run
Name 5 examples of operational efficiencies
- Electrical consumption
- Products produced per minute
- Miles per gallon
- Noise levels
- Pollution levels
Is cost attributable to both good and poor quality
Yes
Name 6 maintenance costs that need to be accounted for
- Reliability
- Price of spare parts
- Availability of spare parts
- Skilled technicians or engineers
- Frequency of service requirements
- Downtime due to maintenance
What is the purpose of calculating the depreciation of an asset
To give the organisation a fair and current view of what the asset is worth at a particular time
Up time
The time in which an asset is performing or functioning effectively
What is condition performance monitoring
Focuses on selected elements if the asset that are integral to its performance
Name 7 things condition performance monitoring can measure
- Temperature
- Vibration
- Output
- Speed
- Noise
- Emissions
- Quality
Name 5 options for condition performance monitoring
- Do nothing: use like a commodity
- Reactive: fix it when it breaks
- Preventative: scheduled maintenance
- Predictive: fix it before it breaks
- Proactive: continuous improvement
What happens when an asset reaches the end of its expected life cycle
It needs to be decommissioned in its current state
Name the 3 processes in which decommissioning can happen
- Removal of asset
- Recommissioning
- Disposal
Name 3 types of removal costs
- Transport
- Hired expertise/labour
- Downtime
Recondition
To overhaul, repair or make good a once-redundant asset
Primary sector
Industry sector that extracts raw materials
Secondary sector
Industry that manufactures things
Tertiary sector
Industry sector that provides services
Name an asset for each of the below organisations
1. Manufacturing company
2. Agriculture
3. Legal firm
4. Transport business
- Machinery
- Machinery, land or livestock
- Office building
- Vehicles
Name 4 factors that influence whether an asset is purchased in full or leased
- Cash flow of the organisation
- Tax implications
- Depreciation value
- Is ownership required?
Name 3 advantages of buying assets
- Ownership
- Changes (upgrades) can be made
- Usage is not limited
Name 3 disadvantages of buying assets
- Depreciation has to be calculated
- More difficult to upgrade
- Maintenance costs are incurred
Name 5 advantages of leasing assets
- no initial capital outlay
- Total amount payable is known
- Budgeting is easier
- Fewer tax and depreciation calculations
- Tax efficiency in some instances
Name 5 disadvantages of leasing assets
- Commitment to payment over an agreed period of time
- Overall price may be higher than if bought outright
- Ownership never transfers
- Could be limits on usage
- Could be onerous maintenance or contractual stipulations
Name 3 reasons why WLAM is generally only undertaken for large value procurements
- It takes considerable time
- It requires numerous resources
- It involves many stakeholders
Name 8 departments involved in WLAM
- Marketing
- finance
- research and design
- operations
- sales
- human resources
- procurement
- maintenance
Name a practical example of WLAM in the primary sector
Farming organisation looking to buy a combine harvester
Name a practical example of WLAM in the secondary sector
A printed circuit board manufacturer looking to buy and install a new surface mount technology (SMT) machine
Name a practical example of WLAM in the tertiary sector
A hair and beauty service organisation looking to buy or lease a new building space to provide services to customers
What are hidden costs
costs that do not always present themselves at the onset of a project
World Trade Organisation
The only global international organisation dealing with the rules of trade between nations
What is the purpose of global sourcing
To enable the procurement profession to take advantage of international economies to achieve cost savings
Global sourcing
The practise of obtaining products or services from the worldwide market
Whats the purpose of extended supply chains
To ensure all organisations meet the same standards, have the same end goal and work to achieve ethical and sustainable processes
Name 5 things an extended supply chain includes
- Raw material suppliers from the primary sector
- Producers from the secondary sector
- Distributors from the tertiary sector
- Retailers from the tertiary sector
- Customers/consumers
Name the 3 economic industry sectors
- Primary
- Secondary
- tertiary
Business case
A justification for a proposed project or undertaking on the basis of its investment and cost implications balanced against its expected benefits
Name 4 costs that can be incurred which relate to internal overheads
- Administering the global strategy
- Researching suppliers
- Travel expenses
- Agent fees
Out of hours
Working at a different time from the contracted paid hours of employment
Siesta
An afternoon rest common in countries that experience high temperatures
Webinars
Platforms such as MS teams, zoom and google classroom are more advanced versions of skype that allow remote audible and visual communication along with other meeting functionality such as breakout rooms, polls and whiteboards
Name the 6 sections of Hofstede’s Cultural Dimensions model
- Individualistic / collectivistic
- Masculine / feminine
- Uncertainty avoidance
- Power distance
- Time perspective
- Indulgence / restraint
Facilitation payment
A form of bribery in which a sum of money is payable to speed up or secure the performance of an action to which the payer has legal entitlement. In some cultures this is considered unethical whereas in others it is often seen as normal practise
What should companies do in regard to facilitation payments
Recognise facilitation payments as bribes and prohibit them, reporting them as part of their anti-corruption programme
What is reputation
An intangible asset but is of value to the organisation - it takes time to build up and maintain, yet it can be instantly destroyed through one bad decision
What costs cancel out the savings you would have had if the contract had stayed global instead of returning to its home contry where the savings were predicted?
- Relocation of tooling/equipment
- Resources on supplier evaluation
- Travel expenses to try and reclaim products/stock
- Expenses payable to agents working on the buying organisation’s behalf
- Delays in supply
- Reputation damage of failure to supply
- New supplier costs are higher than those of the global supplier
What can reduce the risk in the global supply chain
Fixing an exchange rate
Name 4 advantages of fixing exchange rates
- Eliminates fluctuation
- Eliminates risk
- Prevents depreciation of currency
- Enables effective budgeting
Name 4 disadvantages of fixing an exchange rate
- Potential savings could be missed
- May incur higher rate than live vaue
- No flexibility
- Rate could be fixed at the wrong time
Logistics
The movement of something from one place to another
Localised supply chain
A supply chain that is based in one area / region / country
Name 12 stages that make up global logistics
- Customs brokers
- Retailers
- Business service providers
- Manufacturers and distributors
- Regulatory agencies
- Rail carriers
- Ports and terminals
- Customer transit points
- Ground carriers
- Air carriers
- Ocean carriers
- Forwarders / NVOCC’s
Name 7 costs and risks that are associated with the logistics process
- Delays
- Loss of freight
- Poor / incorrect communication
- Confiscation at customs
- Incorrect export / import paperwork
- Transport breakdown
- Force majeure
Name 3 reasons why lead times are usually longer in global sourcing
- Longer periods of transportation
- Import / export requirements
- Cultural differences
Name 6 costs associated with storing additional products
- Insurance
- heating
- lighting
- Staff
- Rent of additional space
- Secuirty
Soft commodities
Plants and animals that can be traded - these can be bred to generate an increase in supply
Hard commodities
Minerals and periodic table elements, of which there is finite quantity on the earth
General Data Protection Regulation (GDPR)
European regulations which sets out how personal data must be managed, applying to any data relating to any person in the EU - and the UK following brexit - whether they are a European citizen or not, and to all organisations doing business in Europe, regardless of the nationality of the business ownership
Trade war
An economic conflict where countries make it difficult for global trading to happen
Name 5 benefits of global sourcing
- Access to lower acquisition costs
- Enables a wider selection of suppliers, giving procurement more choice
- May give the procurement organisation access to special skills, resources or technologies that are not available in their home country
- Another country may be able to produce a better quality asset than the buyer is able to source locally
- Sourcing from international suppliers may increase the availability and accessibility of an asset
What is one of the biggest risks with WLAM
Inaccurately predicting the useful life of an asset
Name 4 ways the upfront cost of an asset will normally be funded
- retained profits, reinvested back into the organisation
- Funding borrowed from a lender, such as a bank
- Credit obtained from a supplier
- Lease agreement, paid in agreed timely installments
Name 2 ways costs can be mapped with WLAM
- One off costs
- Ongoing costs
Name 3 ways you can allow for cost fluctuations in the detailing of costs
- Looking at historic general cost increases or decreases, and extending the trend for the lifetime of the asset for each of the non-fixed costs
- Taking the best current estimates for future costs from industry or national statistics and applying these to the non-fixed costs.
- making individual assessments on each cost element
Name 3 categories of stakeholders
- Internal
- External
- Connected
Connected stakeholders
Those external stakeholders who usually have a financial interest in an organisation, such as customers, or banks
Name the 4 ways of handling stakeholders based on the Mendelow Stakeholder Management matrix
- Minimum effort
- Keep satisfied
- Keep informed
- Manage closely (key player)
Key stakeholders
Individuals or organisations who will be directly affected by a decision
Buy in
When people believe and support an idea
What is the most important part of stakeholder management
Ensuring that the relevant individuals or organisations receive the required level of information
Name 7 elements of effective stakeholder management
- Communication
- Consultation
- Empathy
- Planning
- Relationships
- Risk
- Compromise
Name 3 ways you can get confidence by ensuring senior management are aware of a project
- Authority
- Buy in
- Support
What is a conventional way of presenting benefits to senior managers
Business Case
Name 5 objectives when creating a business case
- Demonstrating strategic thinking
- Improving the efficiency and quality of decision making
- Enabling senior management to evaluate proposals
- Enabling management to compare alternatives and options
- Checking whether justification for the business case is valid
Name 5 aspects of a business case for WLAM
- Introduction
- Objective
- Approach
- Resources
- Benefits
Name 3 things senior managers need to be able to provide support
- regular feedback on progression and outcomes
- Understand what level of input is needed from them
- Understand any areas of support or specialism that is required
Name 5 problems that could occur when you dont have the support of senior managers during the application of WLAM
- Inability to secure resources
- Lack of sustainability of project
- Confusion of end goals
- No way of escalating problems or concerns
- Lack of an ally during difficult times
What is crossfunctionality about
People with different levels of experience from different departments working together to achieve a mutual goal
Name 5 ways members of a WLAM could receive support
- Believing in the end goal
- Assisting during difficult times
- Helping troubleshoot any issues
- Providing the required resources
- Sharing information
Name a benefit of working cross functionally
The skillset is changed from the usual resources and this can empower individuals to think differently and potentially come up with solutions or proposals in areas in which they would not usually be involved
Name the 3 categories and their associated roles according to Belbin’s team roles
- Action - implementer, shaper & completer finisher
- People - coordinator, teamworker & resource investigator
- Thought - plant, specialist & monitor evaluator
Name the 5 stages of Tucman’s Team Development
- Forming
- Storming
- Norming
- Performing
- Adjourning
Name 2 types of knowledge
- Explicit
- Tacit
Explicit knowledge
Information that is written down or documented information such as books or databases
Tacit knowledge
Information that is in a persons mind, knowledge gained from experience, values and practises or difficult to document
Name 5 features of primary data
- Gathered directly from the original source
- Takes a long time to gather
- Collected from surveys, interviews or experience
- Relatively expensive to gather
- Specific and accurate
Name 5 features of secondary data
- gathered by a third party
- quick to gather
- collected from books, journals or websites
- Relatively cheap to gather
- May not be exactly what is required
Name 4 aspects of the decommissioning process
- Preparation
- Dismantling
- Processing
- Disposal
When are assets usually decommissioned
At the end of their lifecycle when they are no longer cost effective or require upgrading to keep up with the competition
Name 5 unexpected circumstances that can force an organisation to decommission an asset
- Environmental reasons
- Sustainability issues
- Requirement of product/service ceases rapidly
- Legislation
- Regulations
Name the 4 stages of decommissioning
- For the project leader to gain a full understanding of the plan
- Resources need to be secured to carry it out
- Dates can be agreed relating to when its going to start
- Inform stakeholders
Name 5 stages of disposal
- Taking it to landfill
- Taking it to a recycling plant
- Taking it to a new owner
- Exchanging it for another asset
- Storage for future cannibalisation
Name 2 things that can happen to an asset when it comes to the end of its life
- It can be full depreciated
- It can be partially depreciated
Fixed asset register
A document which typically details the fixed assets in the possession of an organisation, their date of acquisition, age, original cost and current cost. Some organisations also annotate maintenance costs and likely cost of disposal or current sale value
Net income
The total amount of profit an organisation makes within a specified period
What must happen before an organisation can remove an asset from its fixed asset register
The organisation must sell or dispose of it
Where should it be reported if an asset sale results in a loss
It should be reported against net income within the accounts
Part-exchange
Giving an asset to form part of the payment for a new one
Recycling plant
A factory that breaks down and reprocesses used materials, to minimise the environmental impact of disposed items
Name 6 factors that should be considered when disposing of an asset
- Transport method
- Risk
- Environmental impact
- Legislation
- Reputation
- Cannibalisation or recovery of operational components or modules
Name 4 risks associated with the disposal of assets
- Damage to premises
- Health and safety
- Contamination
- Secuirty
What may happen if you dont remove waste correctly
It could cause damaging, destructive effects on the environment and organisations can be fined if rules are broken
Name 2 things laws around waste management are in place to protect and preserve
- Human health and wellbeing
- The environment
DEFRA
Department for environment, food and rural affairs
WEEE
The Waste Electrical and Electronic Equipment directive
Name 5 UK waste management laws, regulations and governing bodies
- Animal By-products regulations (ABPR)
- Environment agency
- Landfill allowance trading schemes (LATS)
- Landfill tax
- Waste Management Licensing Regulations
Name the 4 EU waste management regulations
- Battery directive
- Landfill directive
- Hazardous waste regulations
- WEEE directive
Name 4 things each business must know in regard to waste
- Each business should know what waste and how much waste it generates
- Each business should ensure that its waste carriers are registered or exempt under the Control of Pollution Amendment Act
- Each business must use waste transfer notes, describing the waste and the way it is packed and contained and keep those on file for at least two years at the place of production
- Each business must satisfy itself that waste is dealth with properly and legally
