Consider recent disasters such as the Fukushima nuclear plant meltdown, Hurricane Katrina and Deepwater Horizon oil spill. Think about the devastating effects which resulted from these events – socially, economically and environmentally. Consider that flawed risk assessment methods could have been one of the causes for insufficient planning for the effects of these disasters. Now apply this logic to your business. What are your organisation’s biggest asset related risks? If these risks occur, what will the effects be?
Asset management experts and industry practitioners advocate the integration of relevant and purposeful risk management practices for the optimal utilisation of physical assets. Says Wyhan Jooste, Research and Development Engineer at Pragma: “Risk management works synergistically with physical asset management and is defined as the coordinated activities in support of directing and controlling an organisation with regard to its risks. It’s a high priority in today’s business environment.”
According to Jooste, risk management is the identification, assessment and prioritisation of risks and the associated plans and actions to minimise the probability of occurrence and the negative impact that these risks might have on an organisation.
Jooste continues that the effective management of an organisation’s risks is an essential part of business continuity. “A benchmark report on risk management reports that 47% of companies indicate the improvement and reduction of their risk profile as one of the top pressures on their organisations. While the less mature often see risk in isolation, and perceive it as a departmental function, industry leaders are 25% more likely than their competitors to have a standardised risk assessment process across all of their operations.”
Physical assets have inherent risks and the potential of failures, but the link between risk and asset reliability is not always obvious. ISO 55000 states that an organisation should take the necessary action to address risks when planning for its asset management system. This implies that an organisation shall establish, implement and maintain documented processes for the ongoing identification and assessment of asset related and asset management-related risks, and the identification and implementation of the necessary control measures throughout the life cycle of the assets.
An asset manager in today’s business environment is faced with three challenges in managing asset related risks: the confidence that the asset risk management framework which is in place is effective, the scope of what business aspects to manage as part of asset risk management activities, and the isolation of risk management from daily asset management.
Asset managers not only play an important role in asset risk management, but also act as facilitators to reduce organisation-wide risk. Says Jooste: “In 63% of organisations, risk management is already performed as part of the asset management function – the highest percentage of all other organisational departments. In some cases a third of non-asset management practitioners are neutral about considering risk in decision-making, while 7% consider risk as not important. This is in comparison to 84% of asset managers who regard risk management as integral to asset decision making.”
A benchmarking study by Pragma shows the current effectiveness of asset risk management practices are below average compared to industry best practices. These ineffective methods will lead to ultimately harming the business and potentially put business continuity at risk. It is therefore important for asset managers to play the part of ensuring effective asset risk management practices to benefit the whole business.
“At Pragma we believe the effectiveness of your asset risk management framework determines the success of your risk management efforts. Your framework should serve as the basis for ensuring risk is successfully managed by all asset risk stakeholders. It should also facilitate the management of risks through the application of a tailored risk process which is specific to the various stakeholders in your organisation and relevant to each of their contexts. Through The Pragma Way, we assist our clients in developing an asset risk management framework and process,” Jooste concludes.
The white paper can be downloaded from www.pragmaworld.net/white-papers/.