Fundamentals of Asset Management - 7

Asset management fundamentals - continuation

9.0 Asset life cycle

9.1 We do sometimes just fix the asset after it breaks down because it is the easiest way to maintain assets. It might be the right strategy but it is the best option and relative easy to undertake. In doing so, the cost of maintenance might not be justified and there is no value for money. There is also high probability that the cost is more than expected and the maintenance is sometime “overdone” and repeatable. Nevertheless, without proper planning, design and construction or acquisition, the asset may cease to have value to the organization. By doing this, the asset has become a liability and a burden to the organization. With asset management, these practices are things of the past as asset management starts from the inception of the asset until the end of the asset life, which is the life cycle of an asset and giving prominence to the operation and maintenance of the asset. Asset life cycle does not start from the day it is operating or maintained, but it starts from its inception and asset life cycle is an important element in asset management. Control starts from the inception stage, making its way up to end that is the disposal. Some would say that we must design to maintain rather than design to build which is easier.

9.2 Any asset would have a typical and simplistic life cycle, that is:

a. Initiation

Initiation involves such activities as planning and designing. This is the most crucial activity for it involves monetary decision such as is the type of funding, the benefits that can be derived, cost of the asset, the operational and maintenance cost, and most of all, the value of the asset at disposal. This stage is actually a major business decision for an organization.

b. Procure or acquire

This stage will usually involve activities such as constructing the asset, installation, or even buying an asset. Construction or installation activities will also involve sub-activities such as supervision of the works including formulating and implementing procurement strategies.

c. Operate and maintain

Once we acquire or complete the construction/installation of an asset, we need to maintain and operate the asset. The life span of an asset is the longest at this stage, which is usually at the range of 90% of the life cycle period and 80% of the whole life cost of the asset. At this stage, the asset is vulnerable to the lack of maintenance resulting in a low disposal value.

d. Dispose or renew

As the asset reaches its lifespan, an organization must make a decision whether to dispose or making a complete renewal of the asset. If the asset is disposed, the organization will have to start to plan for a new asset, if the need arises.

9.3 For infrastructure assets, a more comprehensive and detailed life cycle must be developed to reflect the actual activities an stages of the asset such as buildings or roads. The figures below llustrate typical examples:

9.4 Briefly, every activity that is pre-requisite to materialize an asset (no matter what asset it is) is detail out in sequence in order to manage and control the output of each activity including measuring the outcome of each activity. In this context, the output of each activity must reflect back the asset intended objective. If the asset does not meet its objective, the asset’s specification needs reviewing, amendment or even a total revamp, to ensure the asset’s objective is met in all the activities. This is the importance of an asset life cycle. The life cycle ensures reviews and allows immediate amendments or modifications to its specification before any preceding activities to proceed.

9.5 The above statement is in line with the previously stated asset definition, that is:

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

In order for the asset to give service well within the designated objective, we must manage and control the activities at its infancy that is during the inception phase and up to its disposal or renewal or even upgrade.

9.6 At the end of the day, whatever asset that is constructed or installed, the asset is what the organization wants in order for the organization to realize its service delivery.