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.
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.
1.7 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
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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