Fundamentals of Asset Management -1

1.0 Definition of Assets

Asset Definition

1.1 Before we embark on the fundamentals of asset management, we must actually understand the meaning of assets. An asset is usually defined as:

a. An item/physical component/facility that have a distinct value to the organization; and/or

b. An item/physical component/facility that enable services to be provided

1.2 Most organizations would have a minimum monetary value or economic life before the item can categorized as an assets. These criteria differ from one organization to the other based on its business activities (either on the type of trade or services provided). In a government environment, the minimum criterion would usually be base on a monetary value rather than economic life. This is true because in a government environment, the government provides multiple services and they have abundant resources to fund their development projects or buying items or assets. Now, the trend is that most government is accepting and implementing asset management rather than maintenance management. For instance, Government in Australia, United Kingdom and New Zealand has implemented asset management and other countries are following suit.

1.3 When we talk about asset (s), we usually talk singular, but truthfully, asset(s) comes in various tangible and intangible forms. One must remember that the most important thing is that assets are sometimes a network of assets such as buildings or roads, or as a standalone such as land (for example a vacant land), or a system consisting of network of roads, water supply system, bridges and buildings in a community. Moreover, most of the time, it is a system consisting of many assets functioning together, providing a service.

Asset Category

1.4 Usually, the assets mentioned above is categorized into two (2) categories that is:

a. Current assets; and

· These assets are investments, cash in hand, assets sold or consumed.

b. Non-current assets

· All assets other than above, including assets held, assets intended for use in its business activities and physical resources (not manpower)

1.5 The figure below shows the difference between current and non-current assets.

Fig. 1 – Typical assets in an organization

1.6 1.1 Figure 1 shows some basic information on the type of assets under each category of assets. Some countries or organizations have a well-registered and detailed assets category even to the smallest item in the organization. Basically, registration of assets must be based on the two (2) criteria as mentioned in paragraph 1.1. If asset registration takes into account assets that do not meet the two (2) criteria mentioned, then the exercise would be futile and fruitless as some of the assets are actually an inventory or consumables, which is not an asset.

1.7 Due care must be taken to define the assets that have a distinct value to the organization and satisfy the two (2) criteria as mentioned whilst putting those assets in the correct category.

1.8 By defining the organization’s assets and having a definitive asset registration system, the organization is making a giant leap towards implementing an asset management system.
Asset Life Cycle

1.9 All assets must have a life cycle which runs from:

a. Initiation;
b. Procure;
c. Maintain; and
d. Dispose or Renew

1.10 The method, in which we initiate, procure, maintain or even dispose of assets, is different in each category and sometime, the sub category of assets. Nevertheless, the system used would be the same but the process or approach would be significantly different for each category of asset.

1.11 Generally, asset has a single life cycle or multiple life cycles such as roads or even buildings.

Asset Depreciation/Appreciation

1.12 The other important that we need to understand is that asset depreciates or appreciates in terms of monetary value or condition over a period. In this aspect, investment or livestock do not depreciate, but physical assets will definitely depreciate over a period depending on the type of asset. The rate of depreciation will depend on several factors such as economic value, environment and so forth. For example, heritage building depreciates, but when a heritage building is preserved, there will be an extension of its depreciation period.

In the next post

1.13 To explain the meaning and the fundamentals of asset management, I would concentrate only on the physical assets only (which is under the category of non-current assets) especially on infrastructure assets.

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Perspectives in Asset Management

The Government's Perspective

The biggest asset owner in any country is always the government. When a country needs to grow, the main emphasis would be to have the best and a complete infrastructure. Each year, the government will create and dispose of assets. Most of the time, the creation of an asset is always justifiable but sometimes, it is not.

The Malaysian Government spends nearly RM 20 billion a year just to operate and maintain the asset. That figure does not include expenditure by local councils and other statutory bodies. If we take into account the private sector expenditure, the amount could be well over RM 100 billion a year.

In Malaysia, asset management is in an implementation stage but in other parts of the world especially Australia, Great Britain, United States of America, asset management has been in practice and numerous manuals and guidelines in asset management are available to the public.

Asset management is important to the government as 98% of government assets are infrastructural assets, which include roads, public utilities, and government buildings. These assets are for the proper delivery of government’s policies and services. If we do not manage the assets properly, whatever government services provided will be affected or in jeopardy. The service delivery will not reach the desired level as promised to the public. The public expects the government to deliver or provide a service and the government must ensure that the delivery of the service level.

For your information, the service level varies from one asset to the other based on the criteria set for that asset. For instance, safety for the road users must be the most important criteria for all roads but the service level of a road (this service level is not the same as the level of service in the geometric design of a road) would be different for each category of road for example a secondary, tertiary, or a primary road. There is also a possibility of roads having the same service level whether the road is located in the countryside or in a town area if safety the only criteria. However, bear in mind, a road in the countryside does not need to have street lightings, sidewalks or even landscape when compared to a road in a town area.

Service level sometimes construed as the functionality of the road based on its geometric design and pavement design. Nevertheless, at the end of the day, the service level we need to provide on a road must based on certain criteria whether it is functionality (which include safety, accessibility and mobility), condition, utilization or intervention period, is the most important factor and this is what the public needed and to be informed.

With the same principle, service level must be determined for all assets, be it park and recreation facilities, buildings, water supplies, waste and sanitary facilities and so forth.

This is the fundamental of asset management.

The Public’s Perspective

When the public facilities lack some of its basic functions or it frequently breakdown, the public would express their feelings towards that public facilities or would oppose the creation of that facilities.

We must ponder on these frequent questions about the public; that is:

a. Why should the public have all these opinions?
b. Why should the public show their dissatisfactions?

It is all because the public are contributing for services provided by the government, for example transportation system, parks and recreation facilities and so forth.

It is also because the public want a good quality of life for the contribution they have made. They want a sustainable environment even though developments are in progress. They want a better environment. They want value for money from our assets. Without all these, human would not have a desired level of liveability.

These assets provide essential services for providing people with the acceptable quality of life. If the assets failed in providing out the service, then, they do not have want they want, that is an acceptable quality of life.

Therefore, it is imperative that the government need to adopt a good asset management system in order to ensure all our valuable assets will continue to provide reliable public services.

The coming post.

Next, I will briefly explain the fundamentals of asset management.

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The Frequent Asset Management Questions?

The Frequent Asset Management Questions?

1. Is it a new management system?
2. My assets are functioning properly even though occasionally it breaks down (which is manageable).
3. My assets are working properly and if it breaks down, I will repair it.
4. As long as it does not cost a bundle, I will replace the asset.
5. I maintain my assets regularly so I do not need an asset management in my organization.
6. I have a good asset maintenance program and I do not need an asset management.
7. Why I should bother about asset management when I only used it?
   

These are amongst questions frequently asked regarding asset management. Whether you are the public or the asset owner, we are, somehow or rather, will associate to the assets. The roads that we travel in, the buildings that we do our business, the buildings that will be our home or the parks in which we rest our tired bodies are all assets.

In the next post, I will try to explain the government and the public perception on asset management.

Also, I will also try to explain what is asset management and the fundamentals of asset management.

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Why Do We Need Asset Management?

Definition of asset

To the average person, an asset is a property/item purchased and owned by a person, which can sometimes be a necessity but most of the time; that person need the asset to function in his/her community or in other words, providing a service. Typically, a person might own a house, a car and a piece of land and these are his assets.

When a person owns a cat, can we categorize the cat to be an asset to that person? Is our existing and future environment an asset?

Well, the cat is not an asset to an average person so is the environment. But, the environment will be affected when we procure and dispose of our asset.

Generally, an asset is plant, machinery, property, buildings, vehicles and other items that have a distinct value to the organization. The distinct value always relate to the provision of service by the organization. In other words, the assets are for the proper functioning of the organization in delivering its services.

The need for asset management

We cannot run away from expressing an asset as something that has value to us, whether it is monetary or not. The irony is that by creating an asset, we destroy some of our existing environment and possibly our future environment.

We need trees to build houses. We use raw materials to create anything that we need or want to use. We use natural resources to operate our assets. In a way, what we use now meant for our children, our great grandchildren and so forth.

We must manage the way we create an asset in order to sustain our vulnerable environment. We do not simply just dispose and recreate assets to satisfy our undying needs for material richness.

In short, we must manage the creation, operation, maintenance and disposal of our existing and future assets, not because we have to but it has become a necessity. The relationship between man, asset and the environment has always been in place but most of us tend to ignore it. When man creates an asset, the creation has an impact to the environment. Likewise, the environment will also determine the choice of asset. Man, asset and the environment must complement each other and co-exist in a sustainable environment. I once heard from an asset practitioner a phrase befitting this that is “We’re living in our children’s time”. We must ensure nothing will affect our environment now and forever.

Finally

At the end of the day, we need asset management principles to manage our assets and a good asset management will sustain today and the future environment besides deriving economic benefits from the assets.

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