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How to use APM to increase ROA

December 22, 2023

Can APM influence ROA? Yes! Check out how to increase return on assets through management actions.

According to ISO 55000, asset management (APM) involves balancing costs, opportunities and risks against desired performance to achieve organizational objectives. It may even be necessary to consider this balance on different time scales in order to obtain results that are closer to reality.

This group of activities allows the organization to examine the need for and performance of assets and systems at different levels. In addition, efficient management allows for the application of analytical approaches to the management of an asset during the different phases of its life cycle (which can start with the conception of the need for the asset through to its final disposal and includes the management of any potential obligations or liabilities after disposal).

You may be familiar with the concept of asset management, but what about asset performance management? Asset management encompasses a set of principles related to the functions of planning, organizing and controlling a company’s assets, whether tangible or not, with the aim of extracting the value they can generate for the organization. Thus, management refers to activities aimed at extracting value from assets: balancing costs, opportunities and risks, monitoring the expected performance of assets, among others.

How can APM increase ROA?

Perhaps one of the greatest benefits of performance management with an APM is the increase in Return on Assets (ROA). ROA helps to understand how profitable a company is in relation to its assets. In other words, it measures whether the company is making or losing money on its assets.

The calculation is made by dividing Operating Profit by Total Assets. 

Operating Profit is taken from the Income Statement, while Total Assets are taken from the amount available on the Balance Sheet. In addition to this formula, there is another called NOPAT, which deducts taxes and depreciation to calculate Operating Profit. Therefore, choosing one or other form of calculation will depend on the company’s financial strategy.

Regardless of the formula, efficient asset management is an ally for increasing ROA. This is because an asset (or a group of assets) that breaks down frequently tends to reduce profitability. After all, an idle asset is a synonym for loss and the more critical it is, the greater the financial loss tends to be.

Therefore, thinking about asset performance management becomes strategic. In other words, imagine a company that only works with the corrective maintenance model. In this case, the repair is always urgent or an emergency, and the tendency is for the problem to have already evolved, often compromising the equipment (or all of it) as a whole.

Companies that work with the predictive model, on the other hand, have a greater margin of safety. But they can end up wasting parts that have not yet reached the end of their useful life. This behavior can have an impact on ROA by increasing the cost of maintenance as items are underused and replaced more frequently.

Predictive maintenance: APM strategy

Predictive maintenance is a maintenance strategy that allows us to monitor the condition/performance of assets so that condition-based maintenance can be carried out, using techniques that allow us to make better use of the useful life of parts/components by monitoring assets and detecting early failures. In fact, the Dynamox solution not only indicates the potential failure stage, but also allows you to find out which component caused it by analyzing vibration and temperature. 

Thus, with this information, it is possible to identify signs of progression to functional failure and identify when maintenance is needed, making the process faster and more assertive, avoiding major impacts on availability and productivity. And, of course, increasing asset reliability.

So, if your company can detect failures early, it can avoid urgent corrective maintenance, and it also doesn’t have to scrap parts that haven’t yet reached the end of their useful life. As such, predictive maintenance – which is one of the pillars of asset performance management – is a great advantage in terms of better resource allocation.

But even more important than that is to think about the set of assets. In other words, monitoring them constantly and systematically to obtain data. From there, organize them to enable accurate analysis and facilitate decision-making.

Managers who understand the impact of assets on profitability tend to manage them strategically, aiming for maximum performance and profitability. 

What is APM and how does it relate to ROA?

Asset Performance Management (APM) is part of asset management. It focuses on conditions related to the condition and performance of assets, with the aim of minimizing unplanned repair work, reducing equipment failure, increasing asset availability, and avoiding the anticipation of the end of the equipment’s useful life.

Remember: Assets are everything a company has and can keep track of, whether they are tangible or not. Based on this, they can be divided into tangible (material such as tools, machinery and vehicles, for example) and intangible (part of the intellectual field such as know-how). Thinking about tangible asset management is easier, but managing intangibles is also part of management, using both strategically.

Efficient managers see this as an opportunity to increase performance efficiency and optimize resources. Thus, management, when done well, can improve internal processes, increasing productivity and reducing costs. In other words, APM has a direct impact on ROA!

In addition, management helps the organization to comply with procedures and technical norms in accordance with national and international standardization. ISO 55001 even specifies the requirements for establishing, implementing and maintaining an Asset Management System at international level. 

Benefits of asset performance management (APM)

  • Increase reliability
  • Reduce asset maintenance costs
  • Reduce total cost of ownership (TCO) for assets and plants
  • Increase return on assets (ROA)
  • Improve Overall Equipment Effectiveness (OEE)
  • Minimize machine downtime
  • Increase asset availability and reliability
  • Maximize the use of assets
  • Optimize machine maintenance
  • Reduce the risk of functional failure
  • Provide strategic decision-making

To manage asset performance, it is necessary to collect and monitor performance data, as well as organize it for analysis. Based on this information, decision-making becomes more practical, objective and, above all, assertive.

In this sense, the Dynamox solution is an ally of APM and ROA, consequently. It provides a platform for analyzing data from assets monitored by triaxial sensors. Its use improves asset reliability and availability.

This is why implementing it is essential for anyone looking to become more competitive in the market, promoting continuous improvement and increasing efficiency as a whole. In fact, asset management can be applied by companies of any size and regardless of their segment.

Asset management also has an impact on reliability. Read the article!

Where to start with asset performance management (APM)?

For good asset performance management, it is important that asset maintenance management is well established and organized.

Companies that have not yet implemented asset performance management can be left behind by their competitors – regardless of their segment and size. That’s why it is important to plan and think about implementation strategically – with a view to optimizing costs and maximizing resources.

When we talk about maintenance management, we have basic processes that should provide support for implementing asset performance management.

APM steps with a focus on ROA

The first step is to register the industrial assets, as well as all the information related to type, technical specifications and operational context in an organized manner. Another point that must be taken into consideration is the analysis of the criticality of the assets, i.e., what is the impact that asset has on the company’s business.

In addition, something extremely important that should be evaluated is the LCC: a cost management methodology related to the asset’s life cycle, a cost that encompasses everything from its conception to its disposal.

Among other things, it is necessary to analyze the replacement cost of each one, the fair and residual value, maintenance values and the estimated price it will have at the end of its useful life. Thus, at this stage, the manager must estimate the economic useful life (estimated time that the item should last) and also the elapsed life (period in which the asset was used) of each of the assets. 

To conclude this phase, it is essential to carry out an analysis that evaluates maintenance costs. It is worth considering the replacement cost of each asset, as well as the residual value (estimate of how much the item is worth at the end of its useful life).

Remember that there are standards and procedures for asset management. At this point, it is interesting to consider aspects such as maintenance management. That is, which maintenance strategies we will use based on the criticality of each asset, creating maintenance plans and schedules that include inspection routes.

Dynamox’s solution for APM

If you’re looking for APM strategies with ROA in mind, Dynamox offers tools that will help you!

The solution can make asset performance management much more practical and simpler. Automated data collection via sensors communicating with the gateway, information made available on the Platform for analyzing asset performance via established parameters and the various tools for diagnosing failures.

In addition, the Dynamox Solution’s Visual Management dashboard offers complete visibility of selected health indicators and customizable flows for complete predictive maintenance management.

It allows you to easily identify whether an asset has a triggered alarm and its impact on the production system. This makes it possible to make more assertive decisions based on the condition of the asset and its performance, i.e., action will be taken before the asset goes into functional failure.

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