Management Of Capital Intensive Assets Is Crucial For Business Success. (70 Characters)

1. Conduct a literature search for relevant resources (journal and conference papers) on Terotechnology, Capital Investment analysis and balancing capital expenditure and operational expenditure including maintenance and write a brief report on potential application, in your industry sector along with references at the end.

2.What is time value of money? Explain using Excel on how compounding and discounting are used in capital investment decisions. Select one of the plants or equipment recently installed/ planning to be procured or already replaced. Any alternative make and or capacity was/ is available which was not considered.

3. What are the different types of availability measures and how those are used in maintenance effectiveness analysis?
Calculate the achieved availability for equipment, knowing the following related data:
(a)
M ct
= 0.5hr
(b)
MTBMu = 2.0hrs
(c)
M pt
= 2.0hrs
(d)
MTBM s
= 1,000hrs
N.B. MTBMu = Mean Time Between Maintenance (Unscheduled)
MTBMs = Mean Time Between Maintenance (Scheduled)
Use excel and attach file as embedded file in word document/ upload file in Moodle for your analysis. 

Comment on what measure is used for analysing availability of plants and assets in your workplace or the workplace you have worked in the past or in your work experience/ project. Use one illustrative example from workplace on issues and challenges with current availability and propose plans for improving availability to achieve best practice in your industry.

4. Explain how maintainability is measured in your organisation. The Mct requirement for an equipment item is 65 min. and the established risk factor is 10%.
 

Expectations from Capital Intensive Assets

A capital intensive asset is a significant portion of the component of the balance sheet of the company. Many giant companies like Reliance Industries; General Electric invests heavily in machineries and equipment. The industries which are highly capital intensive encompasses aviation, automobile, oil exploration etc.The investment in assets in such companies generally forms greater than 50% of the total assets of the company. The amount of these assets runs in Billion and huge cost is spent in marinating these assets. Further, among the pool of assets which are core and highly capital intensive and encompasses major chunk of the asset cost. The report deals with these heavy capital intensive assets. Few examples of such assets are detailed as under: Spectrum under telecommunication, oil exploration machinery under offshore drilling, airplane under aviation etc. Further, since no specific detail of asset of company is available, general highly capital intensive machinery used for manufacturing of FMCG is considered from public domain. The chosen organisation is a Mid Size company engaged in manufacturing of FMCG goods and the machinery is RH 24 which is a FMCG good machinery. 

In case of capital intensive industry, the following expectations from such highly capital intensive unit:

• Shareholders: Maximisation of Profit and high Return on Investment
• Government: Taxes and Compliance with Pollution limits and other environmental regulations;
• General Public: High Production
• Others: Proper running and repayment.

Further, the need encompassed the following:

• Higher Performance of Machinery
• Low down time;
• Longevity;
• Lower cost of Maintenance;
• Lower rate of Failure

The maintenance organisation to meet the above expectation shall plan properly the purchase of capital intensive asset along with establishing the technical specification of the machinery to be purchased. In addition, the maintenance organisation shall take Insurance of the asset. Further, the scope of maintenance shall comprise the following:

• Primary Scope : Inspection, lubrication and cleaning, Any alteration to existing plant and machinery and building, maintenance of existing grounds and buildings, installation of any new equipment, purchase, generation and distribution of utilities and maintenance of existing plant and machinery.
• Secondary Functions: Control of pollution including noise pollution, plan protection against fire, Insurance of plant and machinery, accounting, store keeping, disposal value, salvage treatment, services of caretaker and provider.(Jain, 2019) 

Some form of documentation of formal nature is necessary like collection, storage of data, interrogation of data, analysis of data and processing information for the effective working of the maintenance department of the organisation. Further, the system of documentation can be manual or computerised. In the present case a general functional model of the system shall comprise of seven interrelated principal modules which perform different documentation functions. In addition, significant amount of clerical and engineer effort is required in the department to maintain an effective function.

Module 1: Start with Plant Inventory;

Module 2: The information which is significant for maintenance department to be held in the information base egg life plans ;

Module 3: Preventive work listed in the life of asset- Inspection and preventive schedule;

Module 4:  Encompass Module 3

Module 5: Work and any correction and modification work is fed into short term work planning system;

Maintenance Requirements for Capital Intensive Assets

Module 6: Long term work planning system;

Module 7: Feedback of information and up dation of base of information. 

(Kelly, 2019) 

Under risk based maintenance management, priority is given to those resources that carry the significant risk if they fail. The management finds out the most economical way of managing resources and the chance of risk of failure is minimised. Under this phase, the leadership follows two step. The steps have been detailed as under:

• Assessment of Risk;
• Maintenance Planning based on the risk assessed.

Further, in this area the type and frequency of maintenance is prioritised based on the probability of risk of failure. Under this, the leader commits to pay greater time for inspection and management of those assets which have a greater chance of failure and assets which have a lower risk are subject to lower maintenance. Thus, by implementing risk based maintenance management commits to deliver lower failure under the most economical way. (Fiix Inc, 2019) 

The Life cycle of a plant comprises of designing of equipment, establishing of technical specifications, procuring the equipment, installation, commissioning, operating and maintenance and removal. 

Further, the cost involved in the life cycle comprises Operational Costs, Maintenance Cost, and Development Costs, Design Purchase and Construction Cost and Disposal cost.

In addition, life cycle costing is used in the organisation to understand in detail the requirement of input over the life cycle of the asset, improvement of design of the system by understanding the trends of input like utilities, labour over the life cycle, resource accounting i,e resource used now and in the past.

Also maintenance cost shall include the following costs:

• Cost of Preventive Maintenance;
• Cost of Corrective Maintenance;
• Cost of Predictive Maintenance.

Life Cycle costing helps to better analyse the cost and reduce the above three components of maintenance cost while minimising the risk. ( Water Research Foundation, GWRC, GHD Consulting Inc., 2019) 

In the present system of asset management some of the shortfalls that have been identified with goods practices or international standards like ISO 5500X standards, ISO 55000-55002 Standards, EN 16646- Maintenance with Physical Asset Management and ISO 15686-5:2017:

• Training provided to staff are not in alignment with the international standard and best practices;
• There has been chances were procedures have not been strictly complied with;
• The staff departments are inadequate and lack in quality;
• The investigations conducted for identifying the root cause of failure are inadequate (Non Conformances and CAPA).
• Documentations are not in strict compliance with module. 

Conclusions with opportunities for improvement (along with reasons for your conclusions)  

On the basis of above, it can be inferred that the maintenance department of the organisation is in place and is performing actively in mitigating the downtime through a seven module documentation and risk based maintenance management. Further, the stakeholders and the leaders are also playing an active role in the maintenance of asset along with minimisation of risk and cost. Further, there has been certain gaps which are not in alignment with international standard or best practices. The same needs to be corrected by implementing the policies set out in the standard. Further, the following course of action shall be followed by the organisation to manage the asset more effectively:

• Strict compliance to documentation module with special focus on feedback;
• Proper and adequate training to staff from experts;
• Strict compliances to procedure and details;
• Proper staffing of department with focus on staff quality;
• Proper investigation to be conducted for identifying failure and taking proper actions to weed out the cause so that they don’t repeat in future;

Documentation Practices for Capital Intensive Assets

This are some of the actions that organisation can take to weed out the gaps. 

The time value of money represents a concept that money available today is more than the money available tomorrow on account of numerous factors like Inflation and earning capacity of rupee. This is a core principal in Finance and is sometimes represented as present discounted value. (Defmacro Software Pvt. Ltd., 2019)

The concept derives its idea that a rational investor shall always wish to receive money today rather than tomorrow on account of potential capacity of money to grow in value in a given time frame. Further, from utility point of view the utility is higher under present consumption rather than deferred consumption. (CFI Education Inc., 2019) 

Let us take an example to illustrate the same. Suppose a firm x has 10000 in US $ today and 20000 in US $ 5 days later. It shall prefer US $ 10,000 today as it shall earn an interest in saving account for 5 days.

Further, the formula for computation of present value under time value of money has been presented as under:

FV= Future Value of Money;

PV= Present Value of Money;

I= Rate of Interest;

N = Number of compounding periods per year;

T = Number of Years

FV= PV x[ 1+ (i/n)]^(n*t)

On the basis of above formula let us take a sample sum

PV = $10000

T= 1year

I = 10%

FV =PV x[ 1+ (i/n)]^(n*t)

FV= $10,000 x (1 + (10% / 1) ^ (1 x 1) = $11,000

Further, under time value of money compounding is done for calculating the future worth of present money and discounting is done to calculate the present worth of future money. Further, annual worth is annual equal amount of money over a given period. There are various tools for time value of money.

The different types of availability measures like MTTR,MTBF and MTTF .These are very much essential for the organization who have equipment related opearation.Tracking the assets reliability is a very big challenge that the managers of the assets generally faces on a daily basis. To use all the metrics very carefully one should know the proper meaning of all the words and how to compute all those and what does that tell you about your assets.

MTTR is the minimum amount of time required to repair the full functionality of the system and restore to its original condition. To compute the effectiveness it is computed through the following formula: (LimbleCMMS LLC, 2019)

Risk-Based Maintenance Management

MTTR=Total maintenance time/Total number of repairs

MTBF is the second metric which means the estimated time that passes between one previous failures of an electrical system to the next failure to a normal function. (WCM Consulting AB, Vaxholm, Sweden, 2019) To compute the effectiveness it is computed through the following formula:

MTBF=Total Operational Time/Total number of Failures

MTTF is a very basic measure used for the system which is non repairable. It shows the maximum length of time the machine will lasts until it fails to operate.

MTTF=Total hours of operation/Total number of units.

The above three methods are used to compute the availability of machinery in the plant and helps to better analyse the uptime & down time and control the same for effective maintenance in the concerned organisation.

Further, availability and maintainability of asset in the work place can be improved through following actions:

• Proper Scheduled Maintenance;
• Experienced staff handling;
• Capacity as per requirement;
• Proper Haulage and repair;
• Appropriate back up. 

Measurement of Maintainability in the Organisation

Maintainability is measured by computing mean time to failure, Constant rate of failure and mean time to repair. The said measure is used in the organisation to compute the maintainability and availability of machinery.

 The methodology of measurement has been described here-in-below

MTTR is the minimum amount of time required to repair the full functionality of the system and restore to its original condition. To compute the effectiveness it is computed through the following formula: (LimbleCMMS LLC, 2019)

MTTR=Total maintenance time/Total number of repairs

Maintainability = 1- Exp (-T/ MTTR)

The above method is used to compute the availability of machinery in the plant and helps to better analyse the uptime & down time and control the same for effective maintenance in the concerned organisation. (Beaumont, 2019)

If the time taken to repair the machinery is greater than 1 day then appropriate action is taken. However, , the engineer always try to maintain the time within 6 hours.

Further the measurement of maintainability is enclosed in the excel.

Also, based on the computation it can be said that the process is under control.

Yes, the process is under control 

References

Water Research Foundation, GWRC, GHD Consulting Inc. (2019, March 26). Overview: What is Life Cycle Costing? Retrieved from simple.werf.org: https://simple.werf.org/simple/media/LCCT/index.html

Beaumont, T. (2019, March 31). Availability, Reliability, Maintainability, and Capability. Retrieved from https://www.barringer1.com: https://www.barringer1.com/pdf/ARMandC.pdf

CFI Education Inc. (2019, March 31). Time Value of Money. Retrieved from corporatefinanceinstitute.com: https://corporatefinanceinstitute.com/resources/knowledge/valuation/time-value-of-money/

Defmacro Software Pvt. Ltd. (2019, March 31). Time Value of Money ( TVM ) – Definition, Formula & Example. Retrieved from cleartax.in: https://cleartax.in/s/time-value-money-tvm

Fiix Inc. (2019, MArch 26). Risk Based MAintenance. Retrieved from www.fiixsoftware.com/: https://www.fiixsoftware.com/maintenance-strategies/risk-based-maintenance/

Jain, M. (2019, March 26). Maintenance of Equipment’s: Meaning, Scope and Types | Industries. Retrieved from www.yourarticlelibrary.com: https://www.yourarticlelibrary.com/maintenance-management/maintenance-of-equipments-meaning-scope-and-types-industries/90693

Kelly, A. (2019, March 26). Maintenance System and Documentation. Retrieved from tpm4u.files.wordpress.com: https://tpm4u.files.wordpress.com/2010/03/maintenance-systems-documentation.pdf

Komonen, K. (2019, March 31). Maintenance within Physical Asset Management. Retrieved from www.slideshare.net: https://www.slideshare.net/SFSedu/maintenance-within-physical-asset-management

LimbleCMMS LLC. (2019). MTTR, MTBF, or MTTF? – A Simple Guide To Failure Metrics. Retrieved MArch 26, 2019, from limblecmms.com: https://limblecmms.com/blog/mttr-mtbf-mttf-guide-to-failure-metrics/

WCM Consulting AB, Vaxholm, Sweden. (2019, March 31). he WCM App for Lean, 5S, Continuous Improvements, Preventive Maintenance, and Lean Leadership. Retrieved from world-class-manufacturing.com: https://world-class-manufacturing.com/KPI/mtbf.html