Set A Specific ROA KPI Per Business Unit To Monitor & Manage ‘Project Centric’ Mtce & Its Eventual Potential Impact On Total Asset Turnover At OTML

In the last six (6) years there appears to have been an increase in major projects within the OTML project site and especially within its existing production facilities with focus on asset relocations and renewal as well as this noticeable increase in ‘project/engineering centric’ maintenance and ‘maintenance-centric’ maintenance focus getting swooped up in this frenzy in following the former in maintaining the existing production facilities in OTML. This is expected given the aged and old production facilities. It is also important to recognise and acknowledge this trend because most often these evolutions in how the maintenance function is organised will eventuate without the end-in-view foresight on the undesirable and strategic business financial health outcomes. One such unwanted outcome is that practicing 'project centric' maintenance will have a real and now proven potential to reduce Total Asset Turnover and eventually the Shareholders' Value in the long run.

The link below is an example case study of such an outcome that I have been following.

But with the benefit of hindsight in knowing what we now know, this must now give rise to the need to have a specific KPI to be set at the business unit level as well as at the overall OTML business organisational level to monitor the rise of ‘project/engineering centric’ maintenance and mitigate its strategic inadvertent risk (or negative impact) on the Total Asset Turnover and Shareholders' Value at OTML.

To further understand this from the RCM Practitioners' perspective, especially for the uninitiated, let us first look at the ways in which the maintenance function can be organised. The first snippet below shows the several ways that the maintenance function can be organised as given by Terry Wiremen in his book 'Benchmarking Best Practices for Maintenance, Reliability And Asset Management.’ Often these formations are not done with intent but as RCM Practitioners and once we know the unintentional strategic business outcomes of such formations then we can be intentioned in avoiding the long term effects of a poorly organised maintenance function.

In his book Terry Wiremen wrote “Maintenance organisation must have the proper focus. Maintenance is a technical discipline. Maintenance personnel are the stewards of technology in a plant or facility. If the maintenance organisation does not have a technical focus, the assets and equipment will be sub-optimised. Therefore if maintenance is sacrificed to achieve short-term production goals or to support engineering construction projects, the maximum return on investment in the existing assets is never achieve. This situation weakens a company’s competitive position in its marketplace. If any organisational redesign is proposed for maintenance, both short-term and long-term issues must be examined.”

The long term issue of a poorly organised maintenance function is strategic and will become evident in the bottom line financial result of the firm. The DuPont schematic below show some of the expected KPIs to measure organisational financial performance.

Of all the financial ratios category that interest executive management and board of directors, return on assets (ROA) is perhaps the closest to a direct link to our efforts in physical asset maintenance/management seen from their elevations.

A ROA measures the overall effectiveness of management in generating profits with its available assets. OTML should consider setting a specific ROA KPI as our high level KPI for physical asset maintenance/management and push it down next level to each of the business units. These can be set up internally by the management accounting function using DuPont’s Analysis. DuPont’s holistic financial framework connects very well physical asset maintenance/management to the financial KPI measures of ROA, ROI and ROE.

This is how engineering or project centric maintenance organisation and the asset intensive organisation’s bottom line come together. When a ‘project oriented’ manager looks after or provides an oversight to the maintenance function, the focus will shift to the financial aspect of ‘Asset Management’ where capital investments will appear to be increasingly be used to resolve operational issues in operations and especially in maintenance. The promise to deliver shareholder gains will be short lived if sales drop as production assets are maintained in a ‘project’ mode.

A ‘project mode’ is when maintenance takes on a project approach to complete maintenance on time and under budget. This type of maintenance regime is often found in project centric organisations (where maintenance function is overseen by a ‘project oriented’ manager) and where maintenance resources often gets diverted from PM and other routine tasks. Existing equipment suffers due to lack of maintenance. Maintenance personnel developed less of a maintenance attitude and more of a project attitude (i.e. less maintenance work, more replacement work). Maintenance personnel become parts replacement specialist rather than maintainers or repairers. This will often and always lead to excessive parts and components inventory and new equipment purchase, increasing capital and when plant breakdown is not reigned in, production falls, sales falls and total asset turnover is lower.

For OTML it should not be a surprise to see the rise in parts and components inventory, increase in new equipment purchases, an overall increase in capital and lower total asset turnovers in the past six (6) years. But going forward, this needs to be properly monitored to keep tab on the impact of ‘project/engineering centric’ maintenance on shareholder’s value.

Below is an analysis done on OTML’s latest Annual Statements from 2018 to 2021 (which is now officially company released public knowledge in 2022 and depending on individual understanding, analysis and interpretations). From my analysis of this statements and especially from a RCM practitioner’s perspective, this now show the decline in ROA with the rise in ‘project/engineering centric’ maintenance and the decline in shareholder’s value (ROE). I stand to be corrected on these interpretations.

Consolidated Summary Analysis From OTML’s Annual Statements From 2018 – 2021

From the consolidated summary table hereunder, you can see the high level ROA declining over the years (as well as a corresponding declining trend with the ROE). Given the rise in a ‘Project/Engineering Centric’ Maintenance in OTML and if we can have this ROA KPI set up internally and specific for each business unit in OTML then I believe this should help us to control and manage deviation from a ‘Maintenance Centric’ organisation culture which will safeguard and have a favourable impact on shareholders’ value in the long term.

2021 Summary

2020 Summary

2019 Summary

2018 Summary

As I stated above, I stand ready to be corrected on these interpretations. But knowing what we now know, this must now give rise to the need to have a specific KPI to be set at the business unit level as well as at the overall OTML business organisational level to monitor the rise of ‘Project/Engineering Centric’ Maintenance and its strategic impact on Total Asset Turnover at OTML.