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Overcoming the Challenges of Traditional Asset Management

Modern business has reached an inflection point where the complexity of our asset management and capital planning has outstripped the capabilities of the available tools.

Building manual projections using spreadsheets and traditional asset investment planning (AIP) software doesn’t cut it when you have portfolios of millions of assets in complex, dynamic models. Environmental, social and economic uncertainty doesn’t make long-term forecasting any easier, either. Instead, you need to take a proactive approach to asset investment planning.

This article unpacks the three primary challenges asset managers in the energy sector face in sticking with traditional asset management tools. It then explores how optimized capital planning software can help asset managers overcome those challenges.

Traditional asset management challenges

Traditional asset management tools struggle with managing timeframes, complex asset life spans and adverse events.


Human beings tend to underestimate the number of variables and decision points that creep into projects with long timeframes. Costs and options are spread over many years, and different options must be considered on different time scales. As a result, it can be difficult to generate meaningful insights that can inform short-term decision making from within those long-term models.

Complex lifespans

Deterministic models look for an average, most likely outcome. That has value, but that specific outcome is unlikely to occur. Organizations with expensive assets—like power grids or highway networks—need to consider multiple variables to provide assumptions for each specific asset.

Using deterministic projections also makes end-of-life decision making exceedingly difficult when you are considering large asset sets. For example, say you are responsible for managing solar farms. Your manufacturer says your solar panels have a projected lifespan of 15 years. A traditional deterministic model will assume these panels will all reach the end of life on the exact same day, 15 years from now.

Unfortunately, real life doesn’t work that way. The panels will reach the end of life at quite different rates, depending on their local environment and usage patterns.

Adverse events

In real life, planning for the unexpected is crucial. Unfortunately, traditional modeling that shows average outcomes doesn’t help much when utilities are face catastrophic adverse events. Assets fail in a catastrophe, or they don’t. There is no middle ground.

A major storm that affects 20% of your power lines will have major real-life consequences for both your short-term operating expenses (OpEx) and long-term capital expenditure (CapEx). Not to mention, power is down for millions of people.

Trucks need to get on the road and know where to go. Executives will want new budgets and projections on their desks in the morning. So, you must recalibrate all the time.

Overcoming these asset management challenges with capital planning solutions

Balancing short-term and long-term decision making is challenging because so many factors influence each timescale, and at the same time influence each other. Thanks to its advanced suite of stochastic modeling and other tools, capital planning software helps you determine whether you are underinvested or overinvested for different assets on a wide range of time scales.

AIP helps utilities make informed short-term and long-term optimization choices. You want to do both, but it is important to strike a balance. Choosing a solution which offers a few key capabilities will help utilities do just that:

  1. Business focused digital twin modeling
  2. Decision trees
  3. Real option valuation
  4. Stochastic integrated modeling and Monte Carlo simulation
  5. Calculating real risk and risk tolerance
  6. Advanced projectization and optimization tools

Business-focused digital twin modeling

Digital twin modeling is a vital tool in the kit of modern asset managers. But existing digital twin technology tends to focus on the small scale minute-to-minute and second-to-second operational data streams from IoT sensors and technicians on the ground. While this is important data, it isn’t necessarily what capital planners need to know.

That is why next generation decision analytics software focuses on building business focused digital twins of your assets that capture relevant data from weekly, monthly or quarterly data streams that matter for your specific asset types.

Consider an electric utility pole. Not much happens to individual poles minute-to-minute that an asset manager cares about. But let’s say your engineers perform a vegetation survey on that pole once a year. That’s the data you want for next generation capital planning for your budgeting and forecasting.

By building a business digital twin, you’re looking to consolidate data from those various important sources so you can answer questions such as:

“When do I touch that asset?” “How do I optimize maintenance intervals?” and “When am I going to have to replace it?”

Implementing business digital twins doesn’t have to be a complex data gathering or endless integration project. You can seamlessly integrate your organizational expertise and different data sources into one platform in its native form without having to change it, stage it or put it into a custom repository, enabling you to keep costs down and to create real value from your data.

Decision trees

Asset management requires solid math; optimized AIP provides that in its business digital twin system, stochastic modeling along with real risk calculations. But that is all just data. Capital planning software helps asset managers make decisions from the data.

We display decisions graphically in a decision tree to help you visualize your assets. For example, you might have millions of poles, transformers and thousands of substations.

What tradeoffs do you need to make? When should you choose this way versus that way? If you suffer a catastrophic event, you want to adjust the underlying logic of your decisions. That is what a decision tree does for you. It is a set of logic that allows for rapid adjustments in decision modeling.

So, if you need to recalculate after an adverse event and your C-suite wants to know what unexpected inflation might do to your projections, instead of convening a series of meetings and working for months, you just drag and drop a few variables. It is now possible to have a modeled decision tree in hours instead of months.

Real option valuation

Real option valuation (ROV) is another way AIP software helps you model real world choices and consequences to find value. For example, ROV helps you take complex forecasts and identify the opportunity cost of continuing with a given project on a certain track or shifting to take a different action.

Stochastic modeling and Monte Carlo simulation

Power grids, transit systems, and municipal pipe networks are complex. You can’t deal solely with averages and generalities. You need nuanced, specific scenarios. Stochastic modeling helps you understand realistic asset behavior, not just ideal projections.

For example, an electrical transformer next to a hospital has more value than a transformer next to your house. If the power in your house goes out for a few hours, it is inconvenient. But if the power in a hospital goes out for a few hours, you must repair it before its generator runs down.

That’s a real-world human concern. Stochastic modeling can take those factors into account.

Many existing asset management solutions include Monte Carlo simulation capabilities. But they are especially powerful when combined with stochastic modeling capabilities. As a result, you can easily model viable projections for decades into the future.

Calculating real risk & risk tolerance

AIP helps you perform risk calculations based on the aggregation of all possible outcomes of each probable future paired with confidence intervals. AIP includes rigorous tools for risk identification, risk analysis and risk mitigation. The focus is, again, on real-world outcomes.

Projectization & optimization

These capabilities give you a clear picture of your choices over the long term and how they will help you meet your strategic goals. But in the here and now, your organization must make choices to keep the lights on—often literally. You might have a hundred projects going during any given month. You need to keep those projects structured and optimized in the right order, with the right resources, in the right location and time.


Sophie Furnival

Sophie Furnival is the Senior Content & Marketing Communications Manager for DIREXYON Technologies.

Other articles written by Sophie Furnival:

Building Resilience in Utilities: The Why, the What and the How

6 Currencies Utilities Should Consider When Prioritizing Capital Planning Optimizations

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