Measuring and Incentivising Sustainment in the Age of Asset Management

In the early 1990’s when various western defence organisations started outsourcing the sustainment of complex materiel[1] they focused heavily on measuring and incentivising the four related “ilities“; that is availability, reliability, maintainability and supportability. Through the “ilities” we make sure that materiel was available to the user when they needed it, reliable when they used it, and maintainable and supportable when they eventually broke it, thereby allowing them to repeat the cycle again and again.

International and domestic evidence continues to prove that this approach to measuring and incentivising the sustainment of complex materiel has proven successful[2]. Indeed, this approach, enacted through Performance Based Contracting (PBC) or Performance Based Logistics (PBL), is the mainstay of the Defence approach to sustainment for almost two decades.

As we move toward longer term, strategic relationships in sustainment, however, we need to revisit whether our focus on the four “ilities” still proves the best approach to measurement and incentives. One area that we believe need addressing is asset preservation as this ensures the longevity of our complex materiel not just today or tomorrow, but also next month, next year and next decade. So the question is, how do we preserve our asset over its Life of Type (LOT)?

One possible approach is to utilise the recently released Asset Management methodology (ISO55000) which focuses on performance, cost and risk in both the short and long timeframes. Using this methodology as the foundation my colleagues propose that we consider three areas of measurement and incentives; (1) Asset Usage, (2) Asset Optimisation and (3) Asset Preservation. Before we look at each of these in more depth we need to recognise that this discussion does not intend to address specific performance measures that would be used to represent these areas. Rather, this selection would vary depending on the scope and the domain (e.g. Maintenance Repair and Overhaul (MRO) vs. supply chain or aerospace vs. maritime vs. land) they reflect. So let’s look at each in turn.

  • Asset Usage – the focus of this area is on user effectiveness and is equal to the earlier approach using the “ilities“. Simply put, Asset Usage is focused on whether an asset is available to be used, reliable once used, and able to be fixed and reused, again and again.
  • Asset Optimisation – unlike Asset Usage, the focus of this area is on the efficiency of the sustainment solution. Here activities such as Reliability Centred Maintenance (RCM), Condition Based Maintenance (CBM) and inventory optimisation all seek to minimise the both Contractor and Commonwealth resources consumed in sustaining the asset over both the short and long-term. Of note, there are those[3] that highlight that this constant optimisation through techniques such as Lean may result in highly optimal solutions but which have very little resilience to a single failure in the support system. Accordingly, the buyer need to be very careful that delivering efficiencies does not result in our sustainment solution being so lean that it becomes fragile. Not a desired quality, especially when supporting materiel that may be required at a moments notice.
  • Asset Preservation – the last area, and one that most buyers are especially interested in, is the focus on ensuring longevity of the asset. Indeed, given the trend towards longer-term, more strategic sustainment contracts, this need becomes even more critical.

Underpinning these three areas are the constants of Safety Culture, Cost Consciousness and Positive Behaviours. The reason for these being constant is that an asset that is available and reliable, both today and in the future, does not guarantee safety for the user or maintainer, affordability or a positive, collaborative relationship. This paper will not discuss or cover these common factors, but rather focus on the three areas above. However, we will revisit this topic in greater detail in a future post.

The illustration below shows the relationship between these three areas (i.e. Asset Usage, Asset Optimisation and Asset Preservation) and the constants of Safety Culture, Cost Consciousness and Positive Behaviours.

Relationship between Asset Usage, Asset Optimisation and Asset Preservation

Relationship between Asset Usage, Asset Optimisation and Asset Preservation

As illustrated, the three areas are in tension, and necessarily so. However, by ensuring these areas are adequately covered within the contractual measurement and incentive framework it explicitly defines the trade space that the asset manager (the seller or Contractor), as opposed to the Asset Owner (the buyer), can move around.

For example, there are times when we need to conduct preventative maintenance needs to preserve the asset regardless of whether the user needs it. That is not to mean that the asset cannot be used if there is an overriding, critical need such as Humanitarian Aid / Disaster Relief. However, what it does do is forces the understanding that the deferral of preventative maintenance, while appropriate, may reduce the longevity of the asset which needs to be eventually addressed; that is, it is a conscious choice. It is this conscious choice, or trade, that is at the centre of this approach. While we would never advocate that the sustainment organisation stop an asset being used, especially where the use can save lives, the asset users, asset managers and asset owners need to take a considered approach to both the short and long-term effects of any decision made. So where does this leave us?

If we accept this framework then the next step would be to look at the individual performance measures that we would assign to each of these areas, noting that while some may be constant, others will invariably change based on the scope of work and domain.

Please feel free to leave a comment on your thoughts on this framework.

[1]     Complex materiel is defined as those assets that support military operations through flying (e.g. aircraft and helicopters), sailing (e.g. ships, boats and submarines), driving (e.g. wheeled and tracked vehicles) and transmitting (e.g. satellite ground stations).

[2]        See BOYCE, J. and BANGHART, A., “Performance Based Logistics and Project Point Proof: A study of PBL Effectiveness”, Defense AT&L: Product Support Issue March-April 2012; GUAJARDO, COHEN, NETESSINE, KIM, 2010, ‘Impact of performance-based contracting on Product reliability: An empirical analysis’ INSEAD Working Paper No. 2011/49/TOM.

[3]        See TALEB, N.N., ‘The Forth Quadrant: A Map of the Limits of Statistics’, in “Thinking”, BROCKMAN, J., (Ed)

This entry was posted in Asset Management, Behaviours, Definition, Performance Measure, the How and tagged , , , , , , . Bookmark the permalink.

1 Response to Measuring and Incentivising Sustainment in the Age of Asset Management

  1. Pingback: The Allure of a Single Measure | The Performance Based Contracting (PBC) Blog

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