Research shows asset management is increasingly important for an organisation’s future. Not only is it linked to the health and maintenance of its assets but its financial fortunes in the medium and long term.
Asset management experts say they have difficulty overcoming the challenges and costs associated with implementing asset management strategies effectively. But they also talk about evolution in asset management in the last decade that requires a fresh approach by organisations; one that is neither ‘reactive’ nor ‘segmented’ and encompasses whole-company integration as well as new paradigms in innovation and technology.
In this approach, value-based decision-making is championed, as are the people who manage the assets. Here we investigate how this holistic approach to asset management gives organisations a better chance for financial success.
How asset management has evolved
Asset management for public infrastructure has evolved considerably since the first plans appeared about a decade ago, says Jacqui Hansen, Senior Adviser in Asset Management at IPWEA.
“Early asset management plans told decision-makers that more money was needed to take care of existing assets,” says Hansen. “Assets were in such bad condition, they needed an urgent injection of funds for renewal and upgrade.
“But in reality the ageing infrastructure was continuing to provide a service to the community. Whilst there was real need, it was exaggerated. The early AM plans were not credible and often poorly disguised ambit claims for additional funding.
“It didn’t reflect well on the financial management of some councils and as a result many were amalgamated with other councils.”
Another outdated ‘reactive’ approach is where asset management is seen as a way to just fix problems arising from infrastructure assets.
“I’ve seen asset managers so busy ‘putting out fires’ that there is no opportunity to consider asset management in a broader context,” says Hansen. “This is often because management didn’t understand the importance to the organisation and didn’t provide enough support.”
A more enlightened, modern approach to asset management is where financial realism dominates, allowing organisations to take better control of their financial futures, Hansen explains.
“Organisations are learning to tell a more truthful story in their asset management plans,” she says. “They now document their assets, consider the condition of the assets and assess the future demand and risk associated with assets, giving their organisations the ability to be more financially self-sufficient and to increase the lifespan and value of their assets. They find the people they need to do this.”
While financial self-sufficiency has obvious financial benefits, namely allowing organisations to operate within their means, it also has the benefit of transparency. “Stakeholders like local communities and state governments have a clear understanding about what services are being offered as part of public infrastructure initiatives, which makes them more likely to invest in crucial projects,” says Hansen. “It makes it a lot easier for organisations to get funding.”
A holistic approach to asset management
According to a benchmarking study of asset infrastructure management by global consultancy Arthur D Little, some of the world’s leading infrastructure organisations struggle to implement even basic predictive maintenance techniques effectively. They are also facing mushrooming costs to maintain and replace ageing assets, while dealing with increasing demands for capacity and reliability.
While this may be somewhat due to operational and financial challenges, it can also be because asset management techniques are not fully understood or have not been implemented in a holistic context, says Hansen.
The US, for example, has an estimated US$2 trillion worth of underutilised assets. Clearly lacking in some organisations is a fully integrated approach to asset management where demand forecasting, demand management, asset planning and whole-life costing is considered part of a whole-of-business approach.
“These aspects of asset management are seen time and time again in successful asset management case studies,” says Hansen.
Where asset management leads to financial success, organisations reject a segmented approach in which core business operations are considered independent of asset management or where assets are seen merely as entries in spreadsheets. They adopt instead fully integrated asset management strategies where establishing interrelationships is key.
Research supports this. Organisations in which business success is inextricably linked to asset management tend to place importance on integrated asset management systems, as highlighted by Scarf and Dwight in their study of asset replacement in MTR Corporation in Hong Kong.
“Technological innovation, too, now plays a big part in asset management, especially in regards to maintenance and data collection,” says Hansen. “It provides both predictive and prognostic benefits that can be extremely important to financial success.”
Organisational culture and training
Hansen says having the right organisational culture is essential to successful asset management. “You need people at the top who understand the vital role asset management plays in the financial success of the organisation and you also need at least one person in the organisation who has knowledge in asset management and can drive the strategies that will lead to success,” she says.
“Appropriate training of staff is also necessary to ensure organisations have the expertise to understand the many facets of successful asset management.”
IPWEA has already assisted organisations in achieving training through the Professional Certificate in Asset Management Planning. Next year, IPWEA will offer the Professional Certificate in Infrastructure Financial Management, which will equip asset and financial management professionals with the capability to achieve their required infrastructure management objectives.
Having completed IPWEA’s Professional Certificate in Asset Management Planning, the Director of Corporate Support at Hornsby Shire Council, Glen Magus, says: “The biggest challenge the course helped me overcome was explaining to other asset owners and custodians, and other engineers within the organisation, the importance of good financial asset management and planning and how asset management planning links directly to long-term financial management.”