Carl’s ( http://www.fredericksburgguidebook.com/fredericksburg-carls-icecream.html ) is a landmark in Fredericksburg, Virginia, where we currently live. There is always a long line of people waiting for cones, shakes and sundaes and they will all say that Carl’s has the best ice cream in the world. My wife and I tried Carl’s shortly after moving to this area. I still remember my anticipation as we waited for our turn at the window, and the let down when we discovered that Carl’s ice cream was nothing special. I gave Carl’s a second try yesterday. Surely, everyone in this area couldn’t be wrong, but the result was the same.
Jim’s Hot Dogs, in my hometown of Pittsburgh may not be an official historical landmark, but it has the same kind of following. I spent a lot of time at Jim’s in my youth and spread their praise far and wide as I went out into the world. So you can imagine how I felt when I stopped there a few years ago and found that there was nothing really that special about Jim’s hot dogs or their special sauce. Perhaps they changed their recipe? Maybe my tastes changed? Or, possibly my friends, neighbors, and I just didn’t have enough experience with other hot dog shops to make a fair evaluation?
Frozen custard and hot dogs are not capital assets, but the issues raised by these stories are relevant for asset management programs. How do you know if your asset management program is “really” good? Is benchmarking against industry peers enough to drive excellence? Or, do you have to go outside your “neighborhood” to get a true, unbiased evaluation? Should you worry about finding the “Best” approach, or just focus your efforts on pleasing the people in your own local “community”?
Ice cream and hot dog comparisons are generally subjective and we all understand that there can be different opinions of what’s “Best”. But are asset management programs really that much different? Certainly, organizations can compare quantitative data on costs, efficiencies, and effectiveness. However, the same could be done for ice cream using things like price, fat content, service time, etc. In both cases, we can quantify performance in a variety of categories, but how these individual factors are combined to give an overall score is still subjective.
Organizations in the same Industry share certain challenges, so benchmarking against industry peers should help to address this problem. For example, safety is critical for oil & gas companies and everyone considers incidents a key performance factor. Yet, disasters, like the Deepwater Horizon, show how comparisons of factors still need to be tempered. Different organizations have different tolerances for risk that drive diverse behavior and investment strategies and this impacts other performance factors like cost, parts inventories, etc. Comparisons must consider these local preferences, which brings us back to the fact that “Best” will always be somewhat subjective.
Generally speaking, technical people, like those found in asset management, hate subjectivity because it complicates decisionmaking. There are no clear criteria for choosing among alternatives and no solid way to justify actions to others. Lacking such guidance, they are forced to proceed based upon their own best judgement and suffer constant criticism from others who have different “opinions”. Likewise, subjectivity makes it difficult for external stakeholders to ensure that organizations are being managed properly.
Subjectivity may be unavoidable, but it can be managed. There are various methods for assessing qualitative preferences and these can be used to drive consensus and understanding of the tradeoffs organizations implicitly make with their actions. Some of these methods can also convert preferences into the quantitative factors needed to combine individual measures into an overall performance score. These methods could be used on an industry basis to establish a common standard for performance. Like ice cream, “Best” would still be in the eye of the beholder, but we would at least have a way of understanding and accommodating these differences in taste.