Petroknowledge

Objective Decision Grounds for Outsourcing Maintenance

18 May 2017 by Mr. Diederik van Leeuwen, MSc.

Organizations do have numerous reasons to outsource maintenance activities to third parties. The most important question to ask might be: Is there any reason for changing the current situation? And why? And under what conditions? Possible reasons to outsource could be that the assets are not part of our core business, doing maintenance yourself might be too costly, there is little or no in-house expertise in the service area concerned, the continuity of knowledge is not a critical factor, the overheads associated with providing in-house resources are (too) high and/or downsizing/reducing the number of employees is on stake.

But of course, there might also be good reasons not to outsource: the activities are of strategic importance for the availability of the operational process, it is critical to have the knowledge or do the task by your own, there are no or very few service providers to execute the task, the service level of the available service providers is insufficient, it is cost-effective to do the task by your own, it is important to execute the task for educational reasons and/or the task must be executed in a classified environment.

The trouble is: what could be objective decision grounds to take the decision to in- or outsource maintenance activities? The so-called ‘Business Process Outsourcing Matrix’, as shown in the figure, could be a simple and useful instrument to determine whether to outsource a specific maintenance activity on an asset or process.

The basic approach is to consider the strategic criticality of the asset or process combined with the vulnerability of the asset to specific knowledge or experience needed to maintain the asset or execute the process.

In principle, we maintain the assets which are very critical for our business process asset ourselves, specifically if we have the knowledge in house (low vulnerability). We can and we will. Preferably, we do not want to take the risk to be dependent on an external party for such an important asset or process, if we have the choice.

At the other side of the spectrum is the situation where we the asset or process is not critical for our business process, in combination with the situation that we do not have the knowledge in house to maintain the asset, for instance because it is very specialist work (high vulnerability to knowledge specialism). In that case, we principally outsource the activity. To do it ourselves will take too much effort in terms of costs or time. Specifically when a lot of ‘flying hours’ are needed (experience) to solve complex problems or maintain it. Luckily, we may find external (specialist) firms who can do the work with high added value. We cannot, but don’t need.

The situation that the strategic criticality of the asset is low combined with a low vulnerability to knowledge specialism is even more suited to outsource. We are able to do it ourselves (relatively easy work, everybody can do it), but we do not want to do it, because other ones can do it much better, faster, cheaper or in combination. Often, scale factors influence the execution cost. This kind of activities are called commodities, like cleaning, basic preventive and corrective maintenance, scaffolding, etc. In principle we outsource these activities.

The last category is the combination of a highly critical asset or process with a high level of knowledge or experience needed to execute the activity. Preferably, we would like to do the maintenance ourselves, because of the criticality of the asset for our business process. The problem is, that we don’t have the knowledge or are not able to realize sufficient ‘flying hours’ to do it effectively. We cannot but would like to. A possible solution is to outsource the maintenance activity to a strategic partner, share responsibility and risk and go for a long term trusted relationship, to minimize the risk.

If you do not see this as a plausible solution in the long run, the organization could focus effort and resources to move in in the direction of a lower criticality: de-criticalising the asset, for instance by adding redundancy. In case of failure, we have time to organize repair and could rely on a specialist contractor with a more or less standard (performance) contract at a lower risk level. A strategic partnership is in that case not really needed. The alternative is to lower the vulnerability to knowledge specialism. In that case you do organize the strategic partnership, but you ask the strategic partner to train and coach your mechanics during a significant period, so that you can do the maintenance yourself after a while. As a backup, you could ensure 2nd line support by the strategic partner. In this case, you organize together with your strategic partner a knowledge transfer. Not cheap, but acceptable when you would like to be independent of an external contractor.

The ‘Business Process Outsourcing Matrix’ is only one of the numerous interesting subjects in PetroKnowledge’s highly-anticipated training course titled “Effective Contractor Management in Maintenance & Technical Projects”. The training course ensures that delegates are focused on the essential and rational elements in sourcing and outsourcing and to make the best choice. This course will be held in Amsterdam and Dubai, two exciting places to visit and stay. The course will be presented by Mr. Diederik van Leeuwen, an renowned expert on Asset and Maintenance Management.

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