Importance of Managing Fixed Assets Appropriately

Best Practices

Managing the Fixed Assets

Two years ago, I discussed the Importance and Fixed Asset Management in our two-weekly newsletters — in simple terms, I discussed the importance of plant maintenance.

We all well aware of the statements coming from Eskom that Load-Shedding is as a result of a shortage of generating capacity due to them doing some necessary maintenance at the generating stations to ensure that the lights keep on burning well into the future. Because of my experiences in this field of expertise — Fixed Asset and Infrastructure Management and in particular Maintenance Management — and my frustrations when I hear and read such comments, I have decided to revise part of the content of some of my previous newsletters to put it into a new series of newsletters, trusting that those who truly read them will understand the consequences of a lack to proper maintenance planning and will ensure that processes are put in place to look after the assets under their control.

Importance of Managing Tangible Assets Appropriately

Asset Management is a systematic, strategic and complete approach to maintaining, upgrading and operating physical assets, such as electrical infrastructure, roadways, traffic control structures, bridges, water treatment plant, etc., and in a cost-effective way. Asset Management therefore delivers benefits that are realized in the areas of improved accountability, sustainable service delivery, risk reduction and financial management and forecasting

What is Asset Management?

The Management of Fixed Assets is a process of logic to guide the planning, acquisition, operation and maintenance, renewal and disposal of assets. Its objective is to maximize asset service delivery potential and manage related risks and costs over their entire lives. Through appropriate Asset Management, one would ensure that assets are capable of providing services of an agreed quality, in a sustainable manner for present and future generations. Asset management is implemented through an asset management program and typically includes a written asset management plan.

Very few people overseeing the Asset Management activities appears to know exactly what Asset Management entails

Identification of Immovable Asset

This has to be done thoroughly to ensure that each and every asset is identified. If the correct processes are followed, it would not be necessary to repeat this afterwards.

Because of the expense involved, it is generally avoided, which means that any of the steps that follows is lacking subsistence, and, essentially, meaningless.

The Asset Register is a key to understanding in detail what assets are owned and controlled and, depending on the complexity of information entered, can be used to determine:

  • The likely current condition of assets;
  • When assets need to be replaced;
  • Information required in meeting accounting standards and other regulatory requirements;
  • Asset locations and asset custodians for stock-takes;
  • The level and frequency of asset maintenance programs; and
  • Life-cycle costs by asset, program and business activity.

Verification of Fixed Assets

A physical verification of assets is a process that is used to determine that the assets in the Asset Register are in fact in the possession of the company. Usually, the goal is confirm the physical existence of the assets and ensure that they are accounted for.

But that is only part of the process. For insurance purposes, you need to verify that the records match the asset's nameplate detail. Apart from the engine, gearbox and differential, the remaining part of a vehicle could have over ninety specification fields that have to match. Make, type, model and serial numbers are simply not enough.

First Step in Managing Immovable Assets

One need to know what you have before you can start with any of the Asset Management processes. Maintenance planning can only be done if you know what you have, where does it reside, what is its current condition, when was it last serviced and when is the planned next maintenance intervention. For that, you need an Asset Register. I am talking about a proper Asset Register, not a Spreadsheet with a list of items accompanied by information such as it cost, expected life expectancy, etc., etc.. This is not and can never be considered an Asset Register, because it lacks the accompanied history records of those assets.

What is an Asset Register? It is most definitely not simply a list of assets with financial details.

An Asset Register is the cornerstone of Asset Management and it is the place where asset information is kept, including the financial and non-financial information over each asset's life-cycle. Without the historical records, you would find it extremely difficult to do any of the following tasks:

  • Assisting in meeting accounting standards and legislative compliance;
  • Monitoring performance; and
  • Ensure Accountability.

Consequences of Not Managing Fixed Assets Effectively

By deferring maintenance, it can be expected that future expenses are equal to or greater than the cost of the part squared or 15 times the total repair cost.

To prevent the accumulation of deferred maintenance, government organizations have got to have an effective preventive maintenance program to minimize the rate of decay.

Additionally, at the onset of deterioration, action should be taken to implement a repair. By intervening early, government organizations are going to have a positive cash flow. It will start recouping a positive cash flow with every early intervention.

If the Municipal Manager and Chief Financial Officer are really creative, they will find a way to fund the repair of every maintenance event at the earliest practical moment after detection. Every other philosophy will produce a higher cost and, if a failure occurs, the cost will be up to 40-times the early intervention cost.

Spend money now or spend more money later—once everyone understands the rapid escalation of costs, obtaining adequate funds should be easier. By making the business case for funding and

 

Roles and Responsibilities of Board Members (Councillors)

It has become obvious that the Public Service Board Members — Councillors — have very little to no clue of what their Roles and Responsibilities are in terms of Asset Management. As a result, we have sent out the first two in a series of special "newsletter" in which the Roles and Responsibilities of those involved with Non-Monetary Asset Management is discussed. Should you have missed any of these or want to read the extended versions of those special newsletter, you click on the following links:

  1. Asset Management — Roles and Responsibilities
  2. Asset Management — Framework

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