Asset Management:   Determination of Criticality

Prioritizing the value of performance failure for individual equipment or systems

~ Original concept & document source unknown; adapted by Alan R. Bessen, P.E. ~

Introduction

The high number of individual pieces of equipment in any given operation that could be classified as core assets results in potentially expending enormous effort in merely measuring performance.  Therefore, a level of criticality should be used as a test to determine how much effort can be justified for each core asset and which core assets should have a definitive Asset Management Strategy applied.  The development of an Asset Effectiveness Strategy includes definition of the effort that is appropriate to attain an acceptable level of productivity for a given asset or group of assets.   Determining the Criticality of assets will enable strategies to be established for ensuring the productivity of these assets. 

Criticality reflects:  Lost Production Cost of Downtime (LPCD) and Average Cost of Repair (ACR)

Process Steps

1. Determine Lost Production Cost of Downtime (LPCD)

To measure a plants performance, the Lost Production Cost of Downtime (LPCD) should be known.  LPCD simply is an estimate of the impact of lost profit due to plant downtime.  Knowledge of this value will help determine the significance of work stoppages.  This is effective in the improvement process because it gives management a tool for developing justifications for capital expenditure to improve the production process. In its most basic form, LPCD can be calculated as:  LPCD = Lost Sales Volume x (Estimated Average Selling Price - Estimated Production Cost)

LCPD also can be calculated by taking an average annualized profit number and dividing by average operating hours. 

This is the recommended method for rating criticality, but is not appropriate for use in capital justifications. 

 

Equipment Redundancy Effects

The LCPD is related to equipment, by assuming that if a specific piece of equipment breaks down, it automatically shuts the entire plant down.  If this is not true as in the case of redundant equipment, the downtime would have a zero profitability effect and the LCPD would be zero

2. Determine Average Cost of Repair (ACR)

To help with determining criticality, the Cost of Repair should be known for each core asset.  Generally, the Average Cost of Repair is best suited for this as it indicates, on average, the cost to repair the malfunctioning asset.

3. Rank Criticality

Criticality Ranking is performed on the basis of the LPCD and the ACR.  Below are the tables for establishing criticality:                                                                                              

LPCD (Dollars per operating hour)	Rating
< $499	5
$500 - $999	4
$1,000 - $4,999	3
$5,000 - $24,999	2
$25,000<	1

 

ACR (Average Cost of Repair)	Rating
< $99	5
$100 - $499	4
$500 - $999	3
$1,000 - $4,999	2
$5,000<	1

 

 

 

 

 

 

 

 

 

 

4. Combine Ratings

Multiply rating numbers for equipment, and use the table below to determine whether the criticality is High, Medium, or Low.

 

Criticality Index	Rating
>16	Low
15 - 10	Medium
< 9	High

 

 

 

 

                             

 

 

 

5. Apply

Equipment in the "High" Criticality Index category should have performance, maintenance & overhaul strategies clearly documented & implemented.

Note:    LPCD & ACR dollar values should be adjusted to reflect current operating and repair cost for each site.