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The Asset Maturity Model: A New Method of Managing Information Technology Investments

Investment in information technology typically returns a less than expected benefit. The usual post mortem suggests that the project was not properly scoped or that changes throughout the project led to cost overruns or that the client and IT provider were not communicating. There is, however, another possible explanation. Technology purveyors seek to maximize the "sale," while buyers hope to reduce the cost. This buyer-seller relationship is as old as the human condition, and most likely, despite a variety of business models hoping otherwise, will continue. This may not be the best approach to optimizing IT investments. The Asset Maturity Model
A review of a company’s portfolio of assets will most likely reveal a collection of resources that span a variety of exposures or risk, differing performance, and dissimilar stage of life, or level of maturity. The life-cycle curve is well understood and, by default, organizations make assessments of the investment they expect to undertake in each asset. The Asset Maturity Model (AMM) is not focused on the asset life-cycle model, but on the robust nature of a revenue-producing asset. In other words, what is this resource producing and if X investment is made, what additional performance can be expected? Each revenue-producing asset has its own unique life cycle. Power generating plants, grid infrastructure, and last mile components require differing assessments of the investment to made to insure maximum performance over a given period. Firms decide when to upgrade, and when to dispose of assets against given criteria determined by the portfolio management model the firm uses to manage its business. AMM ties IT investments to the firm’s portfolio of assets. In this sense, it is a more realistic approach than traditional net present value (NPV) models. Every asset has an individual characteristic. The investment criterion for each asset differs and IT expenditures are no different. Moreover, many IT solutions are focused at the enterprise level and therefore are not specific to individual assets. One size, however, does not fit all, and each asset requires a specific management process. For example, an aging low revenue-producing asset most likely cannot be enhanced by significant IT investment. Other revenue producers may have a higher impact on the bottom line. Each must be assessed independently, and then rolled up into the total portfolio. Components of AMM
Version 1.0 is a five-step model similar to the approach that others have used to describe the maturity of business and technical processes, most notably the Capability Maturity Model® for Software developed by the Carnegie Mellon Software Engineering Institute. AMM provides the principles and practices underlying the investment of IT in each asset class and is intended to provide organizations with a logical methodology for making IT decisions.
  1. Basic – Assets in this class are managed with minimum IT infrastructure. Processes are ad hoc and robust systems are not required to deliver the maximum value.
  2. Standardized – These types of assets capitalize on IT solutions composed of a COTS (commercial off-the-shelf) solution with a minimum of customization – strictly limited to minor configuration with no code change.
  3. Structured – IT solutions are configured to support well-defined and documented management and engineering processes. Information systems may be customized to specific the needs of an asset.
  4. Integrated – Assets in this category are networked together and back to an operation center(s). Operators manage performance capitalizing on sophisticated systems that integrate field assets to Enterprise Resource Planning (ERP) systems. A diverse set of software applications from a number of vendors may be deployed.
  5. Optimal – Asset management is enabled by a continuous improvement (six-sigma) intelligent solution (comprised of smart devices with human oversight systems) that fully integrates field performance with the back office. Feedback and feed forward loops capitalize on all aspects of this approach, driving asset performance to its Pareto optimal equilibrium.
It is important to realize that each organization’s asset portfolio may include all levels of asset maturity; however, a more optimal enterprise level approach may be to focus on fewer asset classes – in much the same manner that firms emphasize specific core competencies. Value Proposition
Optimal enterprise performance is defined as obtaining maximum value from the portfolio of assets using appropriate investment levels in information technology. Suitable expenditures in technology will increase the yield of a particular asset. Putting a large-scale enterprise wide IT solution in place for all assets may not be necessary or cost effective. Moreover, there is a cost associated with each step in the model. Management must assess whether the cost of taking a step or two will result in a return that meets organizational goals. Adhering to the model will help assess whether the time and cost required is the best use of capital. It is an instrument for both the end user community as well as IT suppliers and holds the promise of better alignment between these two parties. Vendors can focus on those firm’s that are the most likely consumers of their products and solutions, and customers can more effectively ascertain the value proposition of a technology offering, as it relates to their specific portfolio of assets. Next Steps
The Asset Maturity Model methodology is relatively new. It continues to evolve as the knowledge base grows. Work is underway to codify the detailed context of each step, enabling users to effectively operationalize its use as part of their core asset management processes. AMM is showing to be an effective tool that assists management in the capital decision-making process as the world moves towards “real-time” asset management. This methodology aligns the firm’s portfolio management core competencies with its information technology portfolio. The next full version if due to be released in the summer 2004. Interested parties should contact the author.
Scott Shemwell's picture

Thank Scott for the Post!

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