Development of an asset management strategy for a network utility company: Lessons from a dynamic business simulation approach

Abstract

Due to market deregulation, network utility companies are forced to transform their asset management to provide better-than-required service quality and maximize financial performance. The author uses a dynamic business simulation (DBS)-a modeling and simulation approach based on system dynamics-to support development of asset management strategies at a couple of network utility companies. The author describes the background and design steps of the DBS approach and evaluates its effectiveness in supporting development of the asset management strategy for one network utility company in the Netherlands, as well as its capacity to become a part of that company's business capabilities.

Asset management techniques

“…The system is made up of these feedback structures, which reflect the actions of one factor on the other. This allows the user to model highly complex systems with relative ease [1,18].…”

“…The four key challenges are (a) alignment of strategy and operations with stakeholder values and objectives; (b) balancing of reliability, safety, and financial considerations; (c) benefiting from performance-based rates; and (d) living with the output-based penalty regime. [1] For this reason fundamental asset management tasks cover aspects from technical issues like network planning or the definition of operational fundamentals to more economical themes like planning of investments and budgeting, and end up in strategic planning issues.…”

“…but instead, "Which network design will provide better-than-required service quality while maximizing financial performance?" [1] Asset management in electrical grid companies plays a key role in the detection and evaluation of decisions leading to long-term economical success and best possible earnings. For asset management to live up to these expectations, it has to meet a number of challenges.…”

Manoeuvring physical assets into the future

“…Many lists of disciplines exist, but one rather complete list is given by Amadi-Echendu, who argues that creating value with assets throughout their life cycle "requires a higher level integration of the synergies between the traditional disciplines in accounting, economics, engineering, finance, and humanities; as well as logistics, process and information systems technologies" (Amadi-Echendu, 2004, p. 1157. This is especially important as these different disciplines may each pursue their own, sometimes conflicting objectives (Wenzler, 2005). This is also acknowledged by ISO 55000 (2014), which argues that "cross functional integration" is crucial to manage assets in "an integrated manner" (2014, p. 5) to improve asset value.…”

“…The first challenge is to manage multiple actors, as many different stakeholders pursue different and conflicting objectives, which is widely acknowledged in the literature (e.g. Wenzler, 2005;Al-Turki et al, 2014;Shah et al, 2017). A second challenge is to clearly define objectives, not only to make these measurable, but also to allow performance management (Parida et al, 2015).…”