Asset Management - Key Part of Business Management

Most manufacturing companies have recently discovered that fixed asset management should be a key part of the success of the business enterprise. It is now realised that fixed asset management leads to economy of production and operation. This in turn can to increase in profits of 10 to 15 per cent, which cannot be ignored as it makes a significant contribution to the bottom line of the business.

There is no doubt that inventory and production management deserves the main focus of the management for effective functioning in a manufacturing enterprise. If asset management was neglected, then fixed assets were not being effectively and efficiently managed. But in recent years it has been realised efficient management of fixed assets like plant and machinery and other movable and immovable fixed assets can lead to economies of scale. Thus proper monitoring and regular maintenance of productive fixed assets will give a longer productive life. The net effect of this is more profits for the business.

Naturally in fixed asset management, the assets responsible for production, research and development etc., which have direct bearing on the productivity of the business, need to be managed more closely. There must be constant monitoring on the maintenance aspect to prolong the useful life of the asset. Even a movable asset like a vehicle needs proper maintenance. Otherwise without regular running and maintenance the vehicle can soon become corroded and useless.

Every category of assets needs a different focus of management. Fixed assets need regular maintenance to ensure normal life of the assets depending on the wear and tear on the asset. Adequate planning is also necessary for building up financial reserves over the life of the asset for replacing the fixed asset at the end of its useful life. Thus the new plant and machinery can be ordered well in time to replace the old one.

Management also has to weigh the advantage of replacing the plant and machinery and other production assets or continuing to maintain the present production assets. They also must consider from time to time whether the asset has become obsolete owing to new technological advances. In recent times, technology has advanced at a rapid pace and management has to be vigilant on this issue to avoid being left behind by competitors. Asset management also includes adequate insurance to cover any extraordinary losses due to fire and natural disasters.

A type of awakening has taken place in major industries during the past decade on the role of asset management. It has become attractive due to decreasing margins and competition growing day by day. To avoid major capital spending, companies are now developing strategies to get optimum performance from available fixed assets thereby getting increased returns. This involves proper schedule of maintenance to minimise breakdowns and consequent loss of production.

In order to have reliability in scheduling, regular planning in conjunction with various departments, at least on a monthly basis is absolutely necessary. Standards must be set as well comparative analysis within industry standards must be evaluated to determine whether the company is achieving optimum production in line with the industry. If not, then suitable targets and best practices must be set up within a reasonable time frame to reach those targets.

Logistical performance must also be evaluated to consider whether transportation costs are economical and advantages of location are met. The management tools for evaluation can be in form of comparison studies, which can set up in form of graphs and bar charts for easy visual comparison. If fixed asset performance is seen to be below par, then priorities can be fixed for the focus on improvement.

Asset management tracking is vital in large manufacturing plant and utilities. Integration of asset management with raw material and maintenance procurement systems as well as financial systems and their cost versus savings benefits must be monitored on a day-by-day basis. Senior financial officers must therefore be involved in asset management.

Depending on nature of assets in different businesses. For example, utility companies, mineral companies, oil and natural gas are having large properties as part of their assets. These have to be effectively managed and timely decisions have to be taken whether to buy or sell properties for the health of the business. Depending on their values and necessity to the running of the company, the assets can be categorized for better management.

To assist company management, there are a number of established consultant companies having qualified manpower whose help will be beneficial for asset management. They can be very effective to audit present practices and suggest best practices, problem solving and action plans. It may be well worth the expense to hire established consultants to improve performance.

Asset management data can be computerised to enable management to chalk out strategies on an overall basis. Integration of asset management systems with other financial systems would give better picture of whole operation of the enterprise. This will enable various key officials to give their timely input to top management in order to devise suitable plans. For example, government may come out with special tax incentives for certain industries to invest in fixed assets. In a scenario where management is monitoring and managing fixed assets, the Finance Manager may quickly recommend purchase of new fixed assets to take advantage of the government's tax incentive for that business.

Lastly, it is the assets of a business which enable the production and delivery of its goods and services. So when fixed assets are being purchased or replaced a few important questions arise. What is the cost and cost benefit for the business. What funds are available? Should the asset be purchased new or secondhand or should it be leased and how will it benefit the business? Questions relating to the use of the asset could be. What are the operating costs? How much skilled and unskilled manpower would be required for operation? What are the training costs involved? What are the installation costs? What is the useful life of the asset? Is it the latest technology? These and many more questions need to be asked and answered. This will ultimately factor into the long-term strategy of the business.

Michael Russell

Your Independent guide to Asset Management