1.5 Strategic Asset Management: Asset Performance, Assessment & Configuration Control

1.5 Strategic Asset Management: Asset Performance, Assessment & Configuration Control

Quick Summary: Section 1.3 introduced the two overarching cycles of the TCM Framework. Almost every remaining chapter of this guide develops the Project Control cycle — estimating, scheduling, earned value, procurement, risk. This section develops the other one. Strategic Asset Management is where capital decisions originate and where they are ultimately judged: asset planning, asset implementation, asset performance measurement, asset performance assessment, and asset change (configuration) management. AACE RP 11R-88 lists all of these as required skills and knowledge, and the CCT's Process & Technical domain draws on them directly.

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1. Where Strategic Asset Management Sits

The TCM process model is a Plan–Do–Check–Assess loop applied twice, at two very different timescales:

The two loops meet twice — at capital authorisation (asset planning hands a funded project to project control) and at handover/commissioning (project control hands a completed asset back to operations). Everything in this section happens on the asset side of those two gates.

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2. The Asset Planning Sub-Process

Asset planning answers the question which assets should this enterprise own, and in what condition? Its cost-engineering content is:

1. Requirements and business need — what capacity, service level, compliance obligation, or market opportunity drives the investment.
2. Asset portfolio screening — ranking candidate investments against a decision policy. RP 10S-90 defines decision policy as the definitive position of an organisation on how investment or project decisions will be made; it establishes the basis for decision models and defines authority and accountability. In practice this is the document that fixes the hurdle rate, the approval thresholds, and who may sanction what.
3. Business case economics — NPV, IRR versus MARR, life cycle cost, payback, and a probabilistic range rather than a single point.
4. Capital budgeting under constraint — when the sum of positive-NPV opportunities exceeds the capital available, the portfolio is optimised, typically by ranking on profitability index (NPV per dollar of constrained capital) rather than on raw NPV.
5. Stage-gate authorisation — each gate releases only the funding needed to mature definition to the next estimate class.

[!TIP] The distinction between asset planning and project planning is a standing exam item. Asset planning selects what to build and whether to build it. Project planning determines how to build the thing already sanctioned.

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3. Asset Performance Measurement (the "Check" of the Asset Loop)

Once the asset is in operation, earned value is meaningless — there is no finite baseline to earn against. The asset loop measures instead with operating metrics.

Core Physical Metrics

Worked example — OEE. A packaging line is scheduled for 720 hours in a month and runs 648 of them (Availability = 648 ÷ 720 = 0.90). While running it produces at 95% of its ideal rate (Performance = 0.95). Of the units produced, 98% pass inspection (Quality = 0.98).

$\text{OEE} = 0.90 \times 0.95 \times 0.98 = 0.8379 \approx \textbf{83.8\%}$

Three individually respectable rates compound to a line that is delivering barely five-sixths of its theoretical output. OEE always multiplies; it never averages. Averaging the three rates gives 94.3% and is the classic distractor.

Core Economic Metrics

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4. Asset Performance Assessment (the "Assess" of the Asset Loop)

Measurement produces numbers; assessment interprets them against the commitment that released the capital.

The Post-Investment Review (PIR)

Conducted typically one to three years after handover, the PIR asks four questions:

1. Did the asset cost what we said it would? Actual total installed cost versus the sanction estimate, decomposed into scope growth, escalation, productivity, and estimating error.
2. Did it arrive when we said it would? Actual first-production date versus sanction schedule.
3. Does it perform as we said it would? Sustained throughput, availability, and unit operating cost versus the business case assumptions.
4. Did it earn what we said it would? Realised NPV or IRR recomputed with actuals to date plus a revised forecast.

Why the PIR Matters to a Cost Technician

The PIR is the only mechanism that closes the loop back onto estimating quality. Its outputs feed the historical database: normalised actual unit rates, actual productivity factors, realised escalation, and realised contingency draw-down. Without it, the enterprise's Class 5 and Class 4 estimates never improve, and its contingency setting stays a guess.

[!CAUTION] A frequent exam trap contrasts project closeout with post-investment review. Closeout happens at the end of the project and reconciles cost, closes purchase orders, and archives records. The PIR happens after operation has begun and tests whether the business case was delivered. A project can close on budget and still fail its PIR.

Asset-Side Corrective Actions

Assessment findings trigger asset-side, not project-side, responses: change the maintenance strategy (run-to-failure, preventive, predictive, reliability-centred), re-rate or de-bottleneck the asset, mothball it, re-purpose it, or bring forward its termination. Each of those is itself evaluated with the same engineering economy tools used in Chapters 3 and 4.

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5. Asset Change (Configuration) Management

Configuration management is the discipline that keeps the documented state of an asset identical to its physical and functional state, for the whole of its life.

The Four Activities

1. Configuration identification — define the configuration items (CIs) and freeze the baselines. The classic three are the functional baseline (what it must do), the allocated baseline (how the requirement is apportioned to subsystems), and the product baseline (the as-built article and its documentation).
2. Configuration control — no change to a CI without formal evaluation and authorisation. In operating plants this is usually delivered as Management of Change (MOC): a hazard review, an engineering review, a cost/benefit review, and a documented approval before any modification is made.
3. Configuration status accounting — maintain the record of the approved configuration, every approved change, and the implementation status of each.
4. Configuration audit — verify physically that the asset matches the documentation. A functional audit confirms it performs as specified; a physical audit confirms the as-built article matches the product baseline.

Configuration Management vs. Project Change Management

[!WARNING] Undocumented modification is the classic configuration failure. A field change made under schedule pressure and never back-drafted into the as-builts means the next turnaround is planned, estimated, and executed against a drawing set that is simply wrong. The cost consequence surfaces years later as scope growth on someone else's project.

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6. Real-World Scenario: A Compressor Station Over Its Life

Year 0 — Asset planning. Portfolio screening shows a throughput shortfall. Business case: $28M capital, forecast 96% availability, unit operating cost $0.42/Mcf, IRR 17% against a 12% MARR. Capital is sanctioned at a stage gate; the mandate crosses to project control.

Years 0–2 — Project control. WBS, Class 3 estimate, CPM schedule, PMB, earned value reporting. The project closes at $29.4M, a 5% overrun, and hands over.

Years 2–5 — Asset performance measurement. Availability averages 0.91, not 0.96, because a seal design requires unplanned outages. Performance rate 0.97, quality rate 0.99, so OEE = 0.91 × 0.97 × 0.99 = 0.874. Unit operating cost runs at $0.51/Mcf.

Year 3 — Asset performance assessment (PIR). Recomputed IRR falls to 11.4%, below the 12% MARR. The PIR isolates the cause as an availability assumption, not an estimating error: the $29.4M capital number was within tolerance, but the 96% availability assumption in the business case was never validated against vendor field data. Corrective action: a seal upgrade project is justified on its own NPV, and the enterprise's business case template is amended to require vendor-verified availability evidence.

Year 4 — Configuration management. The seal upgrade changes impeller clearances and the lube oil schematic. MOC is raised, hazard and engineering reviews are completed, the change is authorised, and the P&IDs, spare parts master, and preventive maintenance task list are all revised. A physical configuration audit at the next turnaround confirms the as-built matches the product baseline.

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7. Exam Watch: High-Yield Traps & Rules of Thumb

[!CAUTION] OEE multiplies. Availability × Performance × Quality. Any option that averages the three rates, or that adds their shortfalls, is wrong.

[!TIP] Which loop is the question in? Words such as baseline, earned value, control account, EAC, closeout place you in Project Control. Words such as portfolio, availability, utilisation, ROA, business case, post-investment review, MOC place you in Strategic Asset Management.

[!WARNING] Closeout is not PIR. Closeout reconciles the project at the end of the project. The post-investment review tests the business case after the asset has been operating. They have different owners, different timing, and different questions.

[!CAUTION] Configuration management protects the asset record; change management protects the project baseline. An option that describes configuration management as "approving scope changes to the project cost baseline" has swapped the two.