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.

Fundamentals of Asset Management - 6

Asset management fundamentals - continuation

8.0 Asset condition and performance

8.1 Asset condition is the physical state of the asset at the material time of assessment whilst asset performance is the ability of the asset to provide the required level of service. We understand that every physical asset will deteriorate due to normal wear and tear or through other factors such environmental degradation and so forth. In this respect, some assets will deteriorate faster from other assets and vice versa. As such, we must assess the asset periodically in order to have a quantifiable physical condition of the asset. Furthermore, the condition of the asset relates to the degree of performance of the asset and performance of asset relate to achieving its service level. At the end of day, we will have a database of asset condition, which will allow the organization to make a strategic decision on the asset. The figure below illustrates a typical performance cycle of an asset.

8.2 There are numerous ways to assess the condition of asset and the most common method is by visual inspection. However, visual inspection will only give the apparent deterioration but not the physical attributes of the assets such as material strength and so forth. Therefore, a far better and comprehensive method of assessment need to be formulated. As such, a good assessment will give the organization an overall and accurate picture on the physical condition of its assets.

8.3 For a typical condition assessment, the methods used are:

a. Documentation and desktop review
b. Visual inspection
c. Sampling for laboratory testing
d. Analysis on the present and future rate of deterioration

8.4 It is important that the necessary documentation depicting the details of the asset and record of maintenance works must be available for a conclusive assessment. If no documentation is available, the organization must start from zero base, build up the documents especially as-built plans, and so forth. Hence, by accepting asset management, the organization will be building an excellent documentation system.

8.5 It is also equally important to have a rating or a grading condition system to identify the physical state of the assessed asset. With this rating or grading system, the organization will at anytime know the physical condition of the asset and the funds needed to maintain the assets. The combination of the physical condition and performance will be the basis to determine the actual service level of the asset at that particular time. With further analysis, the economic life span can be determined at different scenarios and the expected performance of the asset in the future.

8.6 In general, asset performance is the ability of the asset to provide the required level of service and can be measured in terms of reliability, availability, capacity and meeting customer needs.

8.7 The assessment of asset condition and performance must be a cyclic programme either yearly or frequency determined by the organization, based on condition of the asset or maintenance cost. If the resources to implement the assessment are readily available, the assessment must be on a regular interval. Without this assessment programme, a number of outputs, which are important inputs to the organization’s decision making process, will not be known amongst others such as:

a. The residual life,
b. The maintenance or renewal cost ,
c. Prediction of asset failure,
d. The rate of consumption,
e. Failure pattern and so forth

Nevertheless, due consideration must be given to short and long-term benefits to the organization when implementing an assessment programme.

8.8 Without these assessments, the organization will be back to the normal maintenance programme and doing things without having a justifiable and value for money programme that is fixing asset when it breaks down. By doing so, the asset will continue to fail and dysfunction prematurely resulting in the deterioration of asset performance and customer’s expectations as shown in the figure below.

Fundamentals of Asset Management - 5

Asset Management Fundamentals - continuation

7.0 Service criteria

7.1 Service criteria are a set of guiding principles defining the standard of quality of service provided by an asset or assets. Amongst the generic service criteria are:

a. Quality
b. Quantity
c. Availability
d. Safety
e. Responsiveness

7.2 Even though the above generic criteria encompass all that the organization need to formulate service criteria, the other important factors to include are legislative, user, availability of funds and the organizational strategic requirements. With all these criteria and linking it to the asset’s objective, the asset’s service criteria can be developed and implemented by the organization. The figure below shows the formulation of asset criteria, asset service level and asset performance.

7.3 It is simpler to define the service criteria for a single asset compared to a network of assets such as road, buildings and so forth. This is because a road will have a multiple service in terms of the items in a road such as road signage, pavement, drainage, street lighting, road markings and so forth. It is the same for a building, which consists of air conditioning system, elevators (or lifts in some part of the world), lightings, signage, water supply system, sanitary and so forth. The building is, basically, a system of assets working in tandem to provide a service.

7.4 Each of the assets mentioned have its own service criteria and maybe, multiple level of service for each of the assets. For example, a road pavement has multiple service level, but it can be consolidated into a single service level for the road pavement. Furthermore, a level of service is the defined quality of a particular service area in which measurements of performance or compliance can be made. In this case, the road pavement provides a smooth riding quality but signage and drainage will have a different service criteria and service level.

7.5 It is important for the organization to determine the current service level of the asset in order to see whether the asset is within the service criteria set forth and to enable the gap closed between current service level and the newly defined service level. If the asset is below the service criteria and the defined service level, the asset need to be renewed, upgrade or disposed of. This method also allows the gap determination between customer expectations and the service provided.

7.6 The above figure illustrate two (2) gaps to closed and once, the two (2) gaps are closed the actual service delivery will be the same as the customer’s expectations. The closing of gaps will sometimes involve capital expenditure or it could just inform the customer the value for money for having that level of service. Nevertheless, it most cases, the organization has to disburse funds for modifications or renewal of the assets in order to elevate the current level of service towards customer’s expectation. This exercise could take years depending on the availability of funds. For a local council, the funds are limited and usage of the limited funds must be prioritized on assets which in a poor condition. This is the most important aspect of using service criteria, which can help an organization to manage its financial needs and spending.

7.7 The diagram below shows the relationship between the individual service level and ultimate service level of a network of assets:

7.8 Lastly, every asset must have a service level and sometimes, an asset consist of numerous assets acting in a system to provide a service. The determination of service level is important, as the organization will be able to demonstrate to its customer the performance of the assets to their expectations.

Fundamentals of Asset Management - 4

Asset Management Fundamentals - continuation

5.0 Roles and responsibility

5.1 In any management system, role and responsibility is important and given due recognition as one of the leading factor of a successful management system. Hence, the key success factor is always the clarity of role and responsibility in an organization. Without this clarification, everyone in an organization will assume a role but will not assume the responsibility. In such case, we have organization full of people but none is doing tasks or activities towards the organization’s objectives.

5.2 In asset management, the organization must know:

a. What is the role and responsibility of each person or unit sections;
b. Why the role and responsibility is formulated in such a way;
c. When to execute the role and responsibility;
d. Who is the custodian of the assets;
e. Who is responsible for the operation and maintenance of the asset;
f. How to execute the role and responsibility;

5.3 Once the organization has established the roles and responsibilities in the organization, the role and responsibility must be properly documented and maintained. As mentioned earlier, the role and responsibility in an asset management system is utmost important, as it will determine the successful implementation of an asset management system.

5.4 Even though it is not a necessity to create a new unit, but an asset management team must be in place either using an existing manpower or outsourcing the expertise. The asset management team will necessitate qnd implement an asset management system in the organization with emphasis on review, coordinating and monitoring asset management activities.

5.5 At the end of the day, the organization will be accountable if the asset fails to deliver the desired or the expected service delivery.


6.0 Asset objectives

6.1 It is a norm that an asset acquisition’s proposal must be accompanied with reasons and objectives of acquisition or creation. One does not build, acquire or construct an asset without any justifiable reasons or objectives unless the organization has surplus funds, which the organization does not know what to do with it. An asset will become a liability if it ceases to function and perform its primary objective. Therefore, it is necessary that an objective(s) be attached to an asset.

6.2 Clearly, all assets must have a defined objective(s). By having an objective, the asset is created with a purpose. With this objective, service criteria for the asset can be created and the asset performance can be measured and monitored. Typical assets’ objectives are:

Fig. 6.2: Typical asset objectives

6.3 At the initiation and acquisition stage, the asset’s objectives are in general adequate and justifiable. If the users’ expectations on the service provided change during the asset operational life, then the objectives of the asset must be renewed or modified to reflect the change. Cases such as this would entail a modification, a renewal or even an upgrade of the existing asset(s). There are other factors that affect the current asset’s objective such as obsolescence, technology changes, environmental changes and lastly, legislative changes. If these factors do affect the existing asset, modifications to the existing assets must be made to ensure that the asset continue to provide the necessary service and not becoming a liability.

6.4 By having assets’ objectives, the service criteria and the service levels can be determined. With these service levels, the organization can informed the public, determine the assessment rates need to be paid by the taxpayers, the budget needed to maintain the service levels and so forth. This action creates transparency and justifiable measures to the customers and the organization as a whole.

Fundamentals of Asset Management - 3

Asset Management Fundamentals

4.0 Asset regisrty

4.1 These are a few questions that an organization need to ask or answer about their assets:

a. What assets are owned or owned by others
b. When the assets are acquired;
c. When the last date repaired?
d. Why the assets are acquired;
e. Where the assets are (that is the location of assets);
f. Who is the custodian of the assets
g. How the assets are maintained;
h. How much is the cost of acquisition and maintenance of the assets

4.2 If the organization has all the answers for the above questions, the organization has a good asset registration system, which is a pre-requisite to a good management system.

4.3 If the organization is able to only a few of the questions, it is high time now to start registering all the assets acquire, owned or leased by the organization. The asset register must be able to answer the basic questions whilst a more advance asset register will be able to do analysis and data drilling. The assets to be registered must comply with the two (2) requirements listed below or whatever the organization policy.

4.4 Once we have done the asset register, the organization now has a complete picture of the organizational assets. It is easier to say than doing it, but the task is needed before anything else.

4.5 Earlier, we have defined an asset 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

4.6 1.1 The above criteria are the basis of an asset register. When setting up an asset registry, we must also realize that assets have generic or similar characteristics between other assets in the organization. As we know that physical assets deteriorates with time through normal wear and tear or even technology changes, these factors must be incorporated in the asset registry especially on its designed or intended life.

4.7 Usually, an asset has these generic, familiar and typical characteristics, that is:

a. Design life;

Design life is the period from acquisition to a time determined by the designer, which the asset expected to work or function within the specified design parameters.

b. Economic life;

Economic life is the period from acquisition to a time when the asset becomes a burden or too costly to operate and maintain the asset to a particular level of service (that is ceases to be the lowest cost alternatives in delivering its service)

c. Functional life;

Functional life is the period from acquisition to a time when the asset ceases to perform the function specified

d. Operation and Maintenance regime;

Operation and maintenance regime are planned activities necessary to retain the assets as near to its original condition or function. The planned activities includes operating the asset, doing repair works, and so forth. Maintenance may come as planned maintenance, routine maintenance or even breakdown maintenance

e. Service provided or its function;

The service provided is meant by the performance or function expected from the asset during its life span and characterize by either quality, quantity, availability or safety. The service provided always relates or links to the strategic objectives of the organization.

f. Dynamic or passive assets;

Asset is ether a dynamic or a passive asset. Dynamic assets have moving parts while passive assets have none.

4.8 To relate the design, economic and the functional life of an asset, the figure below explain in a graphical form the relationship between those three (3) live spans.

Fig. 4.8 – relationship between design life, economic life and functional life


4.9 Once we have known our assets and an asset registry, we can go to the next fundamental that is role and responsibility.

Fundamentals of Asset Management - 2

2.0 Definition of Asset Management

Asset Management Definition

2.1 Asset management is commonly defined as:

a. Systematic and coordinated activities and practices through which an organization optimally and sustainably manages its assets and asset systems, their associated performance, risks and expenditures over their life cycles for the purpose of achieving its organizational strategic plan; or

b. A systematic process of maintaining, upgrading and operating physical assets cost-effectively;

2.2 In short, asset management is a systematic approach in managing assets in order to realize the asset stated benefits and service provision. Most management system will have two (2) separate management system that is the procuring stage and the maintenance stage of an asset, but in asset management, it encompasses the two (2) stages, as the acquisition stage will have a deep effect on the maintenance stage.

2.3 We can generally say that asset management is to ensure that all our assets will continue to provide reliable services.


3.0 Asset Management Fundamentals

3.1 To understand asset management, we must understand the fundamentals in asset management. The fundamentals are as follows:

a. Roles and responsibility
b. Asset registry
c. Asset objectives
d. Service criteria
e. Asset condition and performance
f. Asset life cycle
g. User expectations
h. Asset stakeholders
i. Asset management objectives
j. Asset planning

3.2 It is important to understand the above fundamentals in order to formulate and have an excellent asset management system in the organization. In addition, we must embrace system thinking and furthermore, asset management is a multi disciplinary.

In the next post

3.3 In the next post, I will try explain in detail, each of the fundamentals above

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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