Physical asset life cycle costs can be considerable and are often not transparent to budget managers. Hidden operational costs relating to physical assets cause significant problems for budget forecasting and managing cash flow.
When new capital assets are purchased it is critical that asset life cycle costs are identified, so they can be challenged, compared to alternative purchases and included in future budget forecasts.
To meet the 21st century challenges of reducing and controlling operating costs, it is essential that all businesses have embedded processes to control and monitor their physical asset life cycle costs.
Once transparent life cycle costs are in place savings can be made year on year. Future changes can then be made that are business resilient, save money and aligned to long-term business aims.
Business benefits of asset management
1. More effective use of operating budgetsDetailed physical asset life cycle cost planning will deliver significant savings to your asset related operating budgets.
Different budget centres often operate independently. To make the best business decisions, there should be transparency across budget centres that enables cross-referencing of information. ASSM can help you achieve total transparency of all business activities including those outsourced with business partners, through business process mapping.
ASSM can also assist with implementing processes to ensure that asset related OPEX costs are captured when planning and budgeting CAPEX expenditure, including the critical phase of budgeting and procuring new assets.
Typical areas of a business that have relatively high operating costs and may benefit from review are:
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By having transparent operating costs, associated with capital assets, you can more accurately estimate costs, enabling informed decisions and the opportunity to identify savings in the following areas:
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2. Pro-active use of maintenance budgets
Maintenance budgets are all too often fixed and stagnant. Without regular reviews based on accurate information, costs can begin to rise.
By implementing an effective asset management system containing accurate, good quality data, budgets can be maintained and reviewed regularly to make business-focused decisions, which add value.
Keeping transparent information relating to a single asset, allows reports to be quickly generated to inform business decisions. Organising information on maintenance, calibration, validation, statutory, regulatory, reliability, utilisation, capital and revenue costs, dilapidation, depreciation and other asset related data into one system, provides the whole picture for a single asset.
By having all asset related information in one system, a business is in a very powerful position to make good business decisions that will lead to controlled and reduced costs, often relating to improved business performance.
Typical assets that are critical for a business to make asset related decisions include:
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By having transparent operating costs, associated with capital assets, you can more accurately estimate costs, enabling informed decisions and the opportunity to identify savings in the following areas:
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3. An improved ability to manage current resources and new capital assets
The key challenge when managing assets and resources is a lack of clear, transparent information. With the help of ASSM you can install a new asset management system, or upgrade your current system to hold all the related information in one place.
To make the best business decisions it is extremely important to have access to all asset related information, including obtaining life cycle costs when setting annual budgets for new purchases.
Managing life cycle costs
Some examples of asset life cycle cost considerations are:
- Energy consumption
- Cleaning
- Fixed asset maintenance
- Equipment maintenance
- Statutory inspections and regulatory compliance
Developing embedded processes and control measures is critical for managing asset life cycle costs. This includes:
- Early stage planning of all new facilities and capital purchases that include lifecycle costs.
- Identifying key facility performance requirements to ensure the business is delivered with commercial effectiveness and minimised asset life cycle costs.
- Asset registers created at the earliest opportunity for new facilities and companies.
- Asset audits carried out every two to three years.
- Recording annual costs for each asset in the asset register. For example, operating costs and forecast maintenance and repair costs.
- Identifying support costs for each asset including maintenance, routine repairs, calibrations and regulatory requirements.
- Implementing support and maintenance regimes that meet user requirements for keeping equipment fit for purpose, reliability data, utilisation, and regulatory requirements.
- Identifying dilapidation costs and developing a schedule for dilapidation management. This may include:
- Building maintenance
- Refurbishment
- Damage correction at the end of a lease, or the cost of returning to original condition.
- Full consideration of how assets will be disposed of at the end of their life cycle and any costs incurred. This may include:
- Legislation to be complied with for disposal
- Recycling capability
- Specialist material disposal costs
- Hazardous material disposal costs.
In summary, ASSM can help you to improve the management of current resources and new capital assets by:
- Ensuring that new facilities and asset purchases have life cycle costs identified.
- Identifying whole life costs for the business life cycle and not just the project life cycle.
- Including life cycle costs for all capital purchases in annual budgets.
- Implementing asset registers that are accurately maintained.
- Mapping business process flows from high level to detail level.
- Developing support regimes that keep assets fit for purpose and meet regulatory requirements.
4. Informed, more accurate financial planning and reporting
Financial planning related to assets is very often disjointed, as the information required by accountants for finance reporting is very different to the asset life cycle costs that operations groups require.
Asset reports are required by a large number of business groupsincluding accounts, procurement, quality, health and safety, maintenance, business operations, budget managers and equipment users. In fact almost every business group needs some information relating to assets to carry out their business functions.
Managing assets and resources requires transparency of both the asset and its associated information. With the help of ASSM you can install a new asset management system, or upgrade your current system to hold all the related information in one place.
It is extremely important to have all asset related information in one place to produce the reports required for making effective business decisions.
