AIPM Overview
Imagine building a long-term performance plan for your major assets and then refining it during each budget period. It would be much easier to undertake periodic assessments of your long-term spending relative to value, and then to provide broader strategic context for specific funding requests. It would also help you establish an historical record of asset cost and condition, as well as documentation of risk and performance, which would in turn help you meet governance requirements. Using the same criteria and data for both short-term and long-term resource allocation means that your decisions would become more transparent and easier to communicate.
It's called Asset Investment Planning and Management (AIPM), and it is the new core competency required to manage risk effectively, ensure reliability, and achieve capital efficiency in asset intensive industries.
The CopperLeaf team conceived of AIPM as a new approach to capital planning and budgeting for asset intensive organizations. You can use it to establish a common platform throughout your organization for developing, approving, and executing plans that integrate capital, operations, maintenance, and administrative spending. AIPM employs a variety of strategies, tools, and processes that you can use to care for, invest in, and dispose of your organization's physical assets while aligning with overall corporate objectives and business environment.
AIPM typically spans the areas of:
- Development of a Strategic Framework, based on your organizational strategic plan and asset management policy, which codifies your objectives, KPIs, risk tolerances and constraints
- Asset Planning, based on your asset and asset risk models, which delivers an optimized long-term asset investment plan and defensible backup documentation, synchronized with your current committed spend
- Investment Planning, based on optimizing your capital and operations & maintenance requirements and supported by business cases, which delivers approved current and near-term asset investment plans justified by detailed and documented business rationale based on a consistent strategic framework
- And, a Performance Management approach which enables variance analysis and a continuous improvement cycle, identifying trends, gaps and documenting corrective actions which can be audited for accountability
Although a complete implementation of all elements of the AIPM process will bring the most value, implementing AIPM in stages can enable you to introduce the new processes in an incremental fashion to aid in the change management process ensuring the organization is progressing to the end goal in a smooth, measurable, and predictable manner.
Each of the AIPM elements above have impacts on the performance of the organization and, in particular, affects the financial and risk levels which will be assumed by the organization now and into the future.
The top graph (green and purple) shows the financial plan as a bar chart with total dollar investments on the vertical-axis and fiscal years depicted on the horizontal-axis. The lower graph (red) shows the corresponding risk assumed for the major risks facing the organization over the same fiscal time periods. The risk level is generated based on the investment level and how those investments will mitigate the baseline asset risk. A different investment level would result in different assumed risk level. The orange line simulates a financial constraint that caps the amount of money that can be spent in any one fiscal period, and the "wall" that is formed after the constraint is relaxed is depicting a build-up of investment liability that could not be satisfied within the constrained financial envelope.
- The Strategic Framework, drives the alignment between the organizational strategy and the asset investments. Strategies and objectives are codified into value functions, KPIs and constraints that guide the formulation of the asset investment plan.
- The Asset Planning horizon defines the longer term investment forecasts which are created based on the value functions and constraints set by the strategic framework, and the asset and asset risk models developed. These investments are generated for optimal asset replacement timing and subject to the constraints.
- The Investment Planning horizon defines the currently executing and soon to be executed investments which have been optimized according to the strategic framework and are supported by business cases. As well, once investments have been linked to the assets and the asset risks they are mitigating, the investments are considered AssetAwareTM. This linkage will define and quantify the level of risk the organization is assuming based on the specific investment scenario.
- Performance Management primarily relates to the management of investments that impact the current and next budget period. It encompasses both investment and risk levels and is subject to the strategic framework. Budgeted and re-forecasted investments are compared against actual performance, and re-forecasting considers emergent work as well as deployment of funds freed up from under-execution.
All these AIPM elements are intrinsically linked and adjustments in one area affect other areas. For example: if an asset degrades more rapidly than expected then the risk is increased which in turn can affect the financial requirements to maintain service levels under an acceptable risk regime; or, if an investment is running behind its expected execution timeframe, the financial levels are affected in both the current and future periods and the risk assumed by the organization is altered and may be unacceptable.
Learn more about AIPM by exploring the following steps:
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