Fixed Asset Management - Unlocking the hidden meaning & value.

Are assets a poor relation?

Many organisations use leading edge technology for production, inventory, supply chain, general financial and customer management. Some are working hard in the realm of intellectual capital.

Fixed assets may not be that exciting, but that doesn't mean that they aren't important or that an improved and coherent strategy for asset management won't improve a company's competitiveness and shareholder value.

Is anyone interested?

Studies conducted with CFO's in the U.S.A. show that 70% highlighted that the management of assets, both tangible and intangible, stands out as an area of vast inefficiency. High levels of inefficiency exist from the moment assets are procured, and they persist throughout the asset life cycle. More than 60% of respondents are dissatisfied with their company's ability to procure assets efficiently and this problem is even more pronounced when it comes to asset disposal and redeployment. Financial executives surveyed indicate that their companies do not always know what assets they own or where they are located. 70% were not satisfied with the ability to locate assets, and 47% cited this as the reason for periodic write-downs. 79% of respondents were dissatisfied with service and repair records, 30% were unable to estimate the size of their idle or surplus assets, 80% could not track asset utilisation effectively. Internal redeployment of idle or surplus assets did not prevent the purchase of new fixed assets in 77% of cases.

Internet technology is now also becoming key as senior financial executives become aware of the need to maximise shareholder value by improving asset knowledge, utilisation and liquidity.

What is Asset Management?

A variety of articles have been written on the subject of Asset Management from a particular perspective, and numerous suppliers offer software products and services by describing 'Asset Management' in terms of the scope of their particular offerings. In addition, many claim to be a 'market leader.' This very definition requires one to question 'for which market' and 'who exactly is a leader'?

The general public, due to heavy sponsorship at sporting events, will normally see Asset Management advertised by companies who deal in the management of stocks and shares and general investment portfolio. This particular aspect of Asset Management, which is quite well defined by financial institutions, is not intended to be covered here.

Asset Management could be described as the full life cycle management of tangible fixed assets, but also embraces intangible assets in terms of financial reporting, revenue items requiring particular control such as computer software and mobile equipment, and associated resources used in the capital investment and maintenance cycle such as parts and labour.

The following definition, offered by an 'Asset Management' solution provider, does appear quite worthy and comprehensive. 'Our solutions enable businesses to maximise the profitability of assets in the four distinct phases in their lifecycle: buy, track, manage and sell. As a result, assets perform for longer periods of time, reducing requirements to procure new capital assets and increasing the total profitability of existing assets.' However, this particular company specifically offers a Purchasing, Maintenance Management and Spare Parts Control system.

Fixed Asset Management of course embraces the above, but should also include full financial control and tax accounting for these assets and associated lease agreements, plus capital planning and control of the investment process. In addition, specialist assets such as IT equipment and software, fleet vehicles and property, have a need to be managed in a particular manner. Bar coding and audit services must be considered for the purpose of physical verification of the financial records. Asset recovery is required to deal with the internal re-deployment, sale and disposal of surplus assets.

Resolve the conflict

It is not possible to fully describe here the many different areas of integration and detailed functionality of different components of the Total Asset Management concept. However, it is worth noting that ultimately success is dependent on the coming together of different company disciplines for the purpose of satisfying corporate objectives. For example, financial asset control and maintenance activity can only function as a consolidated whole and enable the total cost of asset ownership to be identified if engineers and accountants work in harmony.

One often hears of accountants accusing engineers of crisis management, claiming they only work on a day to day basis with no respect for budgets, costs or purchasing constraints. Engineers frequently criticise accountants for enforcing unnecessary administrative practices on those responsible on the shop floor for keeping production plant operational.

Let us examine just a few of the benefits of an integrated approach to just the engineering and financial aspects of Asset Management.

Benefits of integration.

Reconciliation of the financial asset register with the plant inventory.

Financial asset records may be held at a different level to an item of maintainable plant. However, an integrated system, fed from a common source such as a capital projects system, provides for easier cross referencing and accurate descriptive information.

Improved accuracy of information.

Financial asset registers frequently become inaccurate when physical activity after installation, such as asset movement, refurbishment and replacement is not relayed from engineering to finance. Recording of such events in a maintenance system can be reflected in the financial records, subject to adequate controls.

Elimination of duplicated records

Capital spend and commitment recorded in accounts payable and purchasing systems can be reflected in terms of project spend and commitment and against the maintenance and financial records subsequently created. Engineering work on capital projects affects both maintenance resources and project finances. Plant movements and removals can be reflected as transfers and disposals in the asset register. The general ledger should be automatically updated with items affecting the P&L or balance sheet.

Improved decision making.

Financial decisions can be facilitated by input from engineers. Plant maintenance, refurbishment, or breakdown can influence the re-lifeing, revaluation or replacement of assets. Asset replacement decisions can benefit from full life cycle costing which takes account of maintenance and repair costs, depreciation charges, tax allowances, new technologies and replacement prices.

Easier auditability.

Access to asset location and status information, either simply through improved search and find enquiry facilities, application of bar codes, or the use of advanced tracking technologies, enables assets to be audited, utilisation monitored, and surplus plant identified.

Tighter control of capital investment

Project authorisation, spend and commitment can be monitored against budgetary targets, cash flow and capital forecasting can be enhanced, work in progress more easily identified and capitalisation policy optimised.

The whole capital process should be considered in terms of, and fulfilled by, an integrated systems approach. The challenge is to co-ordinate the inter-functional relationships within companies. FMIS have developed Asset Intelligence, a suite of Asset Management products and services which are available as web based or client/server applications. Asset Intelligence is used by organisations in most business sectors in over 40 countries.