Assets can be both the foundation and future of any given business. They are often a goldmine of untapped potential, capable of generating revenue, appreciating in value, and significantly strengthening your financial position.
Given the importance of assets, effective business asset management should be implemented to oversee them, so that you can leverage their potential and propel your business towards greater longevity. To ensure efficient asset management, you’ll need to understand what it is and how it can be harnessed, which is exactly what we’ll cover in this article:
- What is asset management?
- Benefits of asset management
- Asset management issues
- Types of business assets
- Business asset management best practices
- FAQ
- Find out more about business asset management
What is asset management?
Asset management is a process used to efficiently acquire, maintain, upgrade, and eventually dispose of company assets (while ensuring maximum value and minimum risk). Not only does it include physical assets, it also involves financial considerations like monitoring investments, allocating resources, and protecting asset value against depreciation.
Effective asset management strategies offer organisations the opportunity to optimise resource utilisation, minimise costs, and extend the lifespan of their assets, helping to align business goals with financial objectives.
Consider a manufacturing company aiming to increase production. It may acquire new machinery to expand its production capacity. Asset management in this case oversees the entire process, from acquiring to managing assets in the manufacturing facility, including their maintenance, repair, and overall use. Finally, when assets become obsolete, they may be sold to offset costs.
What are the main components of asset management?
There are five core components of this essential process, which are:
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Asset inventory
This is a comprehensive record of all the critical information about every asset owned by the company, including physical, intangible, and financial assets. Information documented should include description, condition, value, location, license, etc. Maintaining this record
helps to keep track of assets, monitor their usage, mitigate risks, and prevent them from being lost.
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Service level
Service level defines the standard of performance expected from an asset, encompassing factors such as uptime, response time, and safety. It involves setting clear expectations for performance and regularly monitoring how well these expectations are being met. Additionally, it requires adjusting these expectations when necessary, taking into account factors such as cost, risk, and evolving needs. Understanding the service level is vital for ensuring assets fulfil their operational requirements while serving the objectives of the organisation.
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Criticality
The criticality component involves gauging the significance of assets and evaluating the potential associated risks/business consequences. This helps organisations prioritise and strategically allocate their resources to maintain and safeguard the most critical ones. By implementing risk mitigation measures like proactive maintenance, backup plans, or insurance policies, companies can ensure a robust strategy for maintaining continuity in critical operations (even in the event of an asset failure).
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Life Cycle Costing
Life Cycle Costing (LCC) involves carefully estimating all expenses associated with an asset throughout its lifespan, covering acquisition, maintenance, and disposal costs. By considering total costs rather than just initial expenses, LCC facilitates comparisons and prioritisation of assets based on long-term value. This process aligns costs with risks and benefits such as energy efficiency, aiding informed decisions on asset investment and management.
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Funding
Adequate funding is crucial for acquiring and effectively managing assets over their lifecycle. This might include exploring financing options like capital expenditure, loans, or leasing, ensuring consistent funds to cover asset expenses throughout their lifecycle.
Benefits of asset management
Businesses that invest in this core strategy can reap multiple benefits, that extend beyond just financial gains. Some of these include:
· Asset Lifecycle Management
As an integral part of the asset management process, Asset Lifecycle Management brings substantial advantages. It helps businesses to get the most out of their resources while reducing downtime too.
· Increased efficiency
When done well, it centralises all asset information, reducing the need for manual tracking and streamlining workflows. With better asset tracking, employees can quickly locate and
access necessary assets, increasing productivity too. This helps to keep assets in optimal condition too, allowing businesses to ensure reliable service delivery, leading to improved customer outcomes, and consequently enhancing the overall operation.
· Cost savings
Asset inventory provides vital information on each asset, aiding in the identification of redundant or underused resources. These insights empower organisations to make decisions such as eradicating unused assets from their inventory, leading to cost savings related to upkeep and freeing up valuable space. Companies can then leverage the surplus funds to invest in other areas.
Additionally, real-time asset monitoring facilitates proactive maintenance, swift replacements, compliance with regulatory standards, and risk mitigation around the likes of equipment failure and theft, leading to savings around the associated expenses.
· Reporting and data-driven decision making
By consolidating all the necessary information into a single platform, asset management simplifies reporting. With the ability to offer key data insights like usage trends, performance of assets, and lifecycle data, it empowers businesses to make data-driven decisions. Real-time information lets them forecast future needs, budget wisely, and distribute resources optimally, which ultimately results in more intelligent asset allocation and use.
Asset management issues
Assets vary in type, function, form, and value, making their management a complex task. Let’s examine the unique set of challenges that may be faced so that we can address them effectively:
· Data silos and inaccuracy
The vast scope of asset data often results in its storage across multiple systems or departments, creating data silos and making it difficult to access and consolidate. Furthermore, the data may be outdated or inaccurate, especially for older assets. This can lead to incorrect decisions, inefficiencies, and multiple versions of the truth.
· Complex infrastructure
With diverse assets spread across various locations and departments, it becomes increasingly challenging to track and manage them effectively. Decision-making in such a complex infrastructure is daunting. Without a centralised system, collecting data and coordinating maintenance schedules is challenging. This in turn makes identifying underutilised or over utilised assets difficult.
In addition, the absence of efficient monitoring and reporting makes it challenging to identify and counteract the risks tied to assets, including cybersecurity or regulatory threats. Implementing asset management solutions, whether on public, private, or hybrid cloud platforms, can streamline operations and mitigate these risks.
· Uncontrolled or shadow assets
Assets that exist outside of the official records or inventory are called uncontrolled or shadow assets, which are very difficult to account for. For instance, shadow assets could refer to machinery or equipment that is brought into a production process without the knowledge or approval of the operations or maintenance departments. This lack of awareness can result in increased expenses, maintenance issues, and potential safety hazards.
· Cross-functional assets
Cross-functional assets are resources within a company that serve multiple functions and are perhaps shared by different departments. Examples include company vehicles and software licenses. These assets can create interruptions in business operations if the same resource is needed by more than one unit at the same time.
Types of business assets
Assets include diverse resources of value, exhibiting distinct characteristics in form, functionality, and utilisation. Thus, they can be categorised in various ways. Tangible assets, such as machinery, have a physical presence and can be touched or felt, whereas intangible assets like intellectual property (IP) lack a physical form.
These assets can be further divided based on their liquidity factor into current and non-current or fixed assets. Current assets constitute short-term resources that can be quickly liquidated or consumed within a year, with cash and inventory being prime examples. In contrast, fixed assets represent long-term resources that pose a challenge in liquidation, encompassing assets like land, buildings, machinery, equipment, and other infrastructure.
Now that we’ve tackled some of the broader categories, let's delve into some of the more detailed classifications:
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Financial assets
These are valuable resources that represent a financial claim or ownership of an entity. They can be traded for investment purposes and income generation. Examples include equity such as shares and stocks, debt securities such as bonds, and cash equivalents.
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Infrastructure assets
This category encompasses physical structures and facilities that are essential for the functioning of an organisation, such as roads, bridges, water supply systems, and communication networks.
As the name suggests, it includes all the electronic content or media that hold value to the organisation, such as images, videos, documents, and design files. These assets play a crucial role in brand representation, marketing efforts, and overall business operations.
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Software assets
Often intangible in nature, software assets comprise of all the digital tools, applications and programmes a business uses to manage its operations, perform its tasks and support its employees.
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Enterprise assets
Also called business assets or company assets, these are resources that businesses own to generate revenue and propel the company to further success. This category can include aspects like infrastructure, technology, and human capital.
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Operating assets
These include valuable resources that are used in daily operations for generating revenue. Examples comprise inventory, accounts receivable, and property, plant, and equipment (PPE).
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Non-operating assets
Resources like investments which do not directly play a role in day-to-day operations of the business are categorised as non-operating assets.
Business asset management best practices
Here’s a helpful list to get you started with effective asset management:
- Keep asset inventory database up to date to ensure accuracy and avoid outdated information.
- Have a centralised asset management system that enables easy data entry, tracking, and reporting across all departments. This can enhance the use and maintenance of the asset inventory.
- Develop a proactive maintenance strategy which involves scheduling regular maintenance and monitoring assets to anticipate potential failures, enabling timely intervention, preventing breakdowns and prolonging asset lifespan.
- Gather data by utilising regular audits, technologies like sensor networks, and other metrics such as meter readings. Analysing this data can provide insights into asset performance and utilisation, which are helpful for optimising resource allocation and identifying risks.
- Maximise asset value by implementing a systematic approach, tracking assets from procurement to disposal. This includes life cycle costing during acquisition and identifying the most appropriate disposal methods at the end of their useful life.
- Adjust asset management budget from time to time to reflect resource allocation based on current needs and priorities of the company.
- Benchmark your asset management practices against industry standards. Conduct regular audits and assessments to evaluate the effectiveness of your asset management programme and identify areas for improvement. This can help bridge any quality gaps.
FAQ
Why should a business engage in asset management?
Put simply, businesses can get the most out of their assets. It offers valuable insights, empowering businesses to take data-driven decisions in leveraging resources, their allocation, and maintenance. These decisions are crucial for reducing downtime and maximising output.
It helps optimise resource utilisation, minimise costs, and extend the lifespan of assets too, while aligning business goals and financial objectives. The myriad benefits of asset management include increased efficiency, cost savings, improved decision-making, and enhanced operational efficiency, thus making it important for propelling the business forward.
How does a business categorise assets?
There are several ways in which a business can categorise assets. They can be teamed according to their usage, such as operational assets, investment assets, or strategic assets. They may be categorised based on their contribution to revenue generation or long-term value creation. They may be classified based on their duration like fixed assets, their ease to liquidity like current assets, or simply based on their physical presence as is the case with tangible and intangible assets.
What is the difference between asset management and wealth management?
Asset management focuses on optimising financial assets such as investments to obtain maximum returns. However, wealth management is a broad term used to describe a variety of services that includes investment management but extends beyond it by encompassing a wider spectrum of services and strategies such as financial planning, estate planning, tax optimisation, and overall financial advisory aimed at preserving and growing an individual's or organisation's wealth. The two are essentially differentiated by scope and what they deal with.
Find out more about business asset management
For growing organisations, managing numerous assets can become overwhelming without access to a scalable asset management solution. At OneAdvanced, we provide Financials, which is a Cloud-based financial management software solution. It provides a clear overview of all business assets and their associated value, allowing for the tracking of the entire life cycle, from planning to depreciation.
By consolidating all asset-related information in one place and integrating seamlessly with your other accounting data, Financials minimises the risk of errors and ensures faster access to what you need. The system offers built-in and customisable reports, simplifying the presentation of information. Financials is a scalable and innovative technology that can accommodate your growing asset portfolio now and into the future.
