Nov 07

Asset Management in Business 2

The economics of asset management

So now let’s look at the economics of asset management:

These vessels earn about $2,000 per hour when they are operational. Time literally was money in this case. (That would be at least $20k an hour at present day prices).

The failure of an exhaust valve would mean stopping the engine and changing it out, which would take about one hour, a loss of $2000.

For every hour the ship is out of commission that was $2000 lost. A day out of commission, about $48k lost.

In one true disaster on another ship, the engineers had bypassed the air/oil interlock that prevented the engine from starting when it had no oil pressure. The interlock had failed and there was no replacement immediately available. They shut down for a failed exhaust valve, and when they restarted, no one turned the lube oil pump back on. The engine was destroyed, and replacement cost $1 million.

In addition, about 1/4 of the revenue of the vessel for a whole year was lost while waiting for a replacement engine to be built and delivered, adding about $2.2 million in losses.

The failure of an intake valve was another potential disaster that could destroy the engine, and thus the assets of the company.

In general, the valve head would drop into the cylinder, where it would get mashed into pieces about the size of a marble. In the process, it would destroy the other intake valve, the head, the piston and liner. This would generally cause an emergency port call and take a full day or two to repair, which at $48k a day lost, was again a costly mistake.

In about 14 years of operation this ship never experienced a head failure due to the computer program which charted all the repairs appropriately.

So preventive maintenance was essential, but before the advent of computers, there was no good way to keep track of it.

When the company which owned the vessel discovered this program existed, they went into high gear and replaced every part of the ship that was overdue.

However, this story does not have a happy ending. After they finished with the ill-fated other ship, the engines were started one morning and the lube oil pump failed to provide full pressure to the port engine.

It was severely damaged but not destroyed as had been the starboard one in the previous incident.

But the money was not there to repair it, and the company finally went bankrupt as a result and had to sell their remaining functional ships for a fraction of what they were worth.

All of this is a real world example of how critical asset management can be to the lifeblood of a company, and how even one hour of ‘downtime’ with computers or other essential pieces of equipment can be make or break for a company.

Finally, this is also a real world example of how important it is to keep track of all your assets, and plot out where you’ve been, where you are, and where you plan to go. Your path to profitability will be as smooth or as rough as you want it to be depending on the preparation and planning you make beforehand.

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