Fundamentals of Asset Management

Asset Management

Asset Management can be defined as the coordinated activity of an Organization to optimally realize value from its Assets. ISO 55000 defines an Asset as an item, thing, or entity that has potential or actual value to an individual or an organization. An asset can be tangible or intangible. Examples of tangible assets are real estate, infrastructure, equipment, inventory, etc. while Intangible assets include patents, trademarks, copyrights, goodwill, brand recognition, intellectual property, etc. The goal of asset management is to create a long-term strategy that aligns with the needs and goals of the organization, while also managing risks and optimizing returns.

Categories of Assets

Asset Management broadly divides into 5 categories or types.

1. Physical Assets

These are tangible assets that have a physical existence and can be touched or seen. They are usually long-lived and can provide value to an organization over several years. Examples include real estate, buildings, infrastructure, machinery, vehicles, tanks, inventory, etc.

2. Human Assets

This is also known as human capital, and it refers to the knowledge, skills, abilities, and experience of people in an organization. Human assets are becoming increasingly important in today's knowledge-based economy, where the success of an organization is largely dependent on the quality and expertise of its workforce. It also covers areas of motivation, communication, roles and responsibilities, leadership, teamwork, etc.

3. Information Assets

This refers to the data and information that an organization owns or controls, which are valuable to the organization. Information assets can take many forms, such as customer data, financial records, intellectual property, and business plans. Effective management of information assets is critical to the success of an organization, as they play a vital role in decision-making, competitive advantage, and risk management.

4. Financial Assets

These are assets that have value based on a contractual claim, such as stocks, bonds, currencies, and derivatives. They are typically liquid, meaning they can easily convert to cash without significant loss of value.

5. Intangible Assets

They are assets that do not have a physical existence but have economic value. They are often unique to a specific organization and can provide competitive advantages in the marketplace. Examples of intangible assets include brand recognition, goodwill, etc.

FUNDAMENTALS OF PHYSICAL ASSET MANAGEMENT

Physical asset management is founded on a set of fundamentals. They include the following.

1. VALUE

Asset typically exists to serve the organization and its stakeholders by providing value. They have actual or potential value to the owner. The focus of asset management is not on the asset itself, but instead on the value that the asset can bring to the organization, whether it is tangible or intangible, financial or non-financial. The organization and its stakeholders will identify or determine the value by the organizational objectives. The objectives will take account of the needs and expectations of its stakeholders such as investors, customers, regulators, employees, and local communities.

To ensure that the organization achieves the desired value from assets, it is essential to follow these guidelines:

1. Clearly define how the asset management objectives align with the organizational objectives.
2. Implement a life cycle management approach to extract value from assets.
3. Establish decision-making processes that reflect stakeholder needs and determine the value of assets.

2. ALIGNMENT

Alignment involves the translation of organizational objectives into asset management policies, strategies, and objectives, and further cascades down into more detailed decisions, plans, and actions. These decisions, which include technical, financial, and operational considerations, work together to facilitate the achievement of organizational objectives.

Alignment requires that senior management decisions, strategies, and plans take account of shop floor fact-based realities including asset capabilities, performance, opportunities, and constraints. It also gives the shop floor staff responsible for delivering asset management activities direct visibility to the high-level purpose of the work. This alignment buds commitment, creativity, and innovation within the workforce.

To achieve this, asset management requires the implementation of risk-based, information-driven planning and decision-making processes and activities that transform organizational objectives into asset management plans. Additionally, it involves integrating asset management processes with the functional management processes of the organization, such as finance, human resources, information systems, logistics, and operations.

Finally, the asset management system should be specified, designed, and implemented to provide support for these processes.

3. LEADERSHIP

Leadership and workplace culture are crucial factors that determine the successful realization of value through asset management. All managerial levels must demonstrate commitment and leadership to establish, operate, and improve asset management within the organization.

To achieve this, there must be a clear definition of roles, responsibilities, and authorities, along with ensuring that employees are aware, competent, and empowered. It is also essential to consult with employees and stakeholders to create a workplace culture that fosters collaboration, innovation, and continuous improvement.

4. ASSURANCE

The need for assurance arises from the need to effectively govern an organization. Assurance is the combination of monitoring and auditing of the processes and outcome to confirm they are operating as intended. For the good management of assets, there is a need to assure that acquisitions would fulfill their required purpose and that the asset management activities would be delivered consistently and sustainably over time as intended.