By: David Jenkins
Asset management practice has had a lengthy evolution. However, it has arguably arrived at a point today where all of the relevant factors converge in one overall goal: long-term financial sustainability.
The term ‘financial stability’ recognises so many things. Firstly, there is the need to make the best use of limited public funds and ensure they deliver on service and equity not just today but into the future.
Then there is the issue of the life cycling of assets, to understand when it is best to repair them and when it makes financial sense to replace them.
Building new may only sometimes be the best option when well-maintained existing assets can also deliver more than adequate service and amenities.
Financial sustainability also contributes to other sustainability issues around climate change and energy efficiency, and also takes demographic changes into account.
The profession has responded to these factors with new frameworks which combine engineering and financial accounting in a much more holistic and multi-disciplinary approach. Aligning the financial and non-financial functions of asset management while communicating the trade-offs is key to success.
Asset managers today are dealing with a considerable stock of legacy assets dating from the last century and modern assets designed with features such as low energy use and water conservation to the fore.
Old assets are being retrofitted to make them fit for purpose in the future, while armies of sensors from the Internet of Things are giving us unprecedented quantities of data on asset condition and performance, intelligence which also plays into financial sustainability frameworks.
This is a far cry from even two decades ago, before the development of new standards for asset management practice, before an understanding of the climate crisis and before the advent of so many new technologies and data analysis tools.
Even so, asset management has been around for a long time, long enough for organisations whose balance sheets are swamped by property, plant and infrastructure to be well on top of the economic, environmental and social sustainability imperatives.
There are metrics for success. Financial sustainability entails maintaining, on average, an operating breakeven result or better in the medium to longer term, looking both backwards and forwards.
This requires a keen understanding on what it will cost for the infrastructure to deliver levels of service in a 10-year Asset Management Plan that clearly communicates the trade-offs on performance, cost, and risk.
A coherent 10 year plan is critical, and it must be closely adhered to, regularly reviewed and updated because it is the key to having sensible conversations about the sustainability and affordability of the future.