How are Total Cost of Ownership and Whole Life Value methods used? For AMNL 7 th June 2017

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1 How are Total Cost of Ownership and Whole Life Value methods used? For AMNL 7 th June

2 Findings 1 TCO Policy statement often part of AM-policy statement Only one of the companies has an explicit policy statement about Whole Life Value Framework as part of their AM Policy statement, other companies do not have an explicit policy statement on TCO or WLV. Company 1 is the only one which has a policy statement about TCO between Procurement and Asset Management. Some other Companies were surprised by the question and thought it might be a good idea to make a policy statement about TCO/WLV. 2

3 Findings 2 TCO methods most used in Planning/Design and Replacement decisions In most companies TCO methods are used in Asset Management (incl. Planning) and Procurement departments There was consensus that the long term impacts (costs) are taken into account for decision making during the Planning of large developments It was explicitly mentioned a few times that decisions about new Overhead Lines, new Transformers or specifications for new type of standard cable are only taken with an enhanced study of future costs and benefits (WLV and CBA) WLV and CBA methods are often used for decisions about replacement of assets (by new technology or end of life) In what life cycle stages do you use TCO/LCC? 3

4 Findings 3 TCO methods used in AM and Procurement Dept. In Procurement of assets methods are used to compare the same kind of assets from different Original Equipment Manufacturers (OEM s). The depth of it depends on what the policy of the company is. Some companies even require an OEM to test the asset at an external test laboratory to get good comparable information. Depending on Regulatory Regimes and sometimes short term objectives lowest purchasing price seems more important than future costs and benefits and this reflects conflict of objectives between different organisational silos. 4

5 Findings 4 Simple TCO-models most easy to use, less data needed None of the companies are using a small standard set of methods, most say they use a variety of methods - the method which is most suitable for the purpose. The companies which are most enthusiastic (and successful) in using TCO are using simple, not too complex models which has aided broad usage across the organisation. Regarding data usage: They use a mixture of their own data, OEM and sector data. But one of the respondents stated: we have a good model and policy but no data Other companies use also a sample asset for destructive analysis by an external research - laboratory to find the weak spots, failure modes, maintenance programs and can then confirm OPEX estimates. How do you regard applying it? Company 1 Company 2 Company 3 Company 4 Company 5 Company 6 OEM Difficult Yes Yes Yes Yes Yes Own Yes Yes Yes Yes Yes Yes Testing Equipment in external or internal research lab What data do you use? No Yes Yes Yes Unknown Yes Sector Want to Yes Yes Yes Yes Yes 5

6 Findings 4 Key Success Factors are Management Desire and Aligned Cooperation Procurement and AM Management Desire to make it happen is regarded as the key success factor. One respondent added: because large projects take a lot of time to decide on and in the mean-time people come and go, the application of TCO should be incorporated in processes. Another added: it is very important to find a Key Performance Indicator (KPI) for management to use for TCO. One respondent told about a KPI for Procurement to save on the total spend which was a KPI with the opposite effect. Another key success factor is the cooperation between Procurement and Asset Management. Although the respondents were asked about cooperation with Finance, few saw this as critical to successful application of TCO methods. Good Knowledge of TCO is not needed to be widely distributed in the organisation. It was viewed that a core expertise in the AM and Procurement departments is essential. 6

7 Conclusions 1. All the companies sampled use TCO or WLV calculations in some life cycle stages for decision making. Many use it as part of their Procurement Process. 2. Not many companies have a stated TCO policy. Most have it incorporated in their AMpolicy - but some did find it a good idea to be more explicit about use of it. 3. Be aware of complex models: use only sufficiently detailed models and data. Often TCO approaches have too much detail and too much complexity causing TCO to be poorly applied as - viewed as overly laborious. 4. Key success factors are: Management desire to make it happen Close cooperation between Procurement Asset Management departments Expertise for TCO/WLV needed, but is not needed widely across the organization. 7

8 Stelling 1 TOTEX en TCO is onze organisatie door Asset Management en Finance samen uitgewerkt. 1. Duidelijke afbakening van wanneer interessant en wanneer niet? 2. Duidelijke afspraken over uitgangspunten? Welke data gebruiken, welke methodieken 8

9 Stelling 2 Via KPI s van onze organisatie wordt nadrukkelijk op OPEX gestuurd waardoor TOTEX niet van de grond komt. 1. Voor operationele managers is OPEX het grootste stuurmiddel en zwaarste KPI 2. Als organisatie onder druk staat is de vlugge ingreep: besparing op OPEX, verschuiven naar CAPEX. 9

10 Stelling 3 Een goede TOTEX afweging vereist Data van hoge kwaliteit. 1. Data uit eigen systemin te halen door goed data management 2. Data van externen (leveranciers) nodig, hoe is de betrouwbaarheid? 10

11 Stelling 4 Bij onze organisatie wordt in de plannenmakerij (investment planning) van grote investeringen zeker naar TOTEX gekeken (de ene investering tov de andere) maar het wordt nauwelijks toegepast bij Operationele zaken (OPEX tov CAPEX). 11

12 Stelling 5 Er is een groot verschil tussen op de markt opererende organisaties en publieke organisaties mbt hun assets. Bij de eerste zijn alleen terugverdien tijden van binnen de 2 tot 5 jaar interessant. 12