Three keys to building a game-changing asset management system
If done well, an effective asset management system can be a game-changer for your business, but most asset management systems end up falling far short of this. An overly narrow approach to asset tracking in any company is one of the quickest ways to ensure that you will end up wasting time and money when managing assets and equipment.
As an asset management software company, our primary purpose at FMIS is to help companies track, manage and account for their assets more effectively and efficiently. Years of experience in assisting companies to plan and implement all asset management programs have highlighted the common three factors that lead to wasted hours and higher costs over the asset lifecycle.
Considering these three T’s can significantly increase payback when building your asset management program. They are:
- Teams – Building synergy
- Transitions – Managing the asset lifecycle
- Tools – Make sure you have the right tools
Teams – Building synergy in Asset Tracking
Specialist siloed team-specific asset management systems are fairly standard but can also be wasteful. Maintaining multiple asset registers can mean significant overheads and costs for the business. These costs may include a lack of visibility, missing or lost assets and almost always duplicating data.
You are almost certainly paying to enter the same asset data into multiple systems without a centralised asset register. For example, an asset manager for a company with 10,000 assets that has to repeat 1 minute worth of data entry per asset each year is likely to cost around 7,000 a year!
Double data entry could easily cost an average UK company £7,000 a year in wasted working hours
There may be good reasons to have specialist asset management tools for individual areas of the business, but often the primary reason for multiple asset registers is a failure to build a top-down asset management strategy. Too often, asset management projects are driven by one specific business area to meet a particular business need.
In 8 meetings out of 10, I can guess pretty accurately what sort of system a new client will be looking for, from the person’s job title and the type of business. Finance professionals are usually looking for fixed asset management and depreciation. IT teams are typically looking to track equipment and software within the company, and a facilities manager will be more interested in location tracking and management.
It makes sense that we are primarily concerned with delivering results in our specific business area, but effective asset management needs to start at the top. Get a board-level sponsor with a remit to plan and build a program for the whole organisation, not just one area.
Transitions – Managing the asset lifecycle
In the same way that individual teams will focus on their own narrow requirements, asset management systems often focus on specific stages of the asset lifecycle and ignore others. Failure to manage the whole lifecycle can significantly increase the lifetime cost of an individual asset. However, perhaps more importantly, it also makes it very difficult to manage the company asset portfolio efficiently. Assets are unavailable when needed, replaced when they don’t need to be and not managed efficiently during their useful life.
We estimate that, on average, 10-30% of tracked assets are no longer owned by the company. Considering the number of still owned assets that are unavailable because they have been misplaced, this number is probably much higher.
At a very simplistic level, the asset lifecycle will have four stages. Acquisition, Utilisation, Maintenance and Disposal or Renewal. This is very simplistic, and you could add in different stages such as planning or other flows such as Renewal to Utilization, but it is helpful for this example.
Finance teams are often most interested in the start and end of the lifecycle. Purchases need to be matched to Capex forecasts, and additions or disposals are essential for generating the relevant period-end and year-end reports. Whether or not an asset’s real useful life matches its useful financial life is not as important as getting the numbers to match.
In the same way, a factory floor manager is less likely to be concerned about whether the asset register is still showing equipment that was disposed of 2 years previously than ensuring that maintenance schedules are being kept up to date to improve utilisation.
I recently spoke with a firm providing environmental consultancy. Engineers require water testing kits that cost upwards of $2,000 per kit. Project managers were responsible for resourcing each project. As a result, whenever a kit was needed, the project manager would order a new one and bill the client. Without central purchasing control, project managers paid between $2,000 and $4,000 for new kits, often when existing kits were available at the same office or, if not, at other regional offices.
A lack of coordination between the different stages of the lifecycle creates inefficiency and, in this case, it cost tens of thousands of dollars in wasted inventory.
Make sure you have the right tools
The final T is to make sure you have the right tools.
Excel is not often the best tool for asset tracking unless you are a very small company with very few assets, but it is probably the most common. Even large companies place considerable trust in spreadsheets that are often poorly maintained or understood.
A few years ago, the new IFRS 16 Lease accounting regulations came into force. I got a call from one of the ten largest Real Estate firms in the UK looking for a lease accounting package compliant with the new standard.
All company leases were tracked on a spreadsheet set up years before by someone who had now left the company. The new regulations were expected to result in an £80 million adjustment to their balance sheet as operating leases became finance leases and were now treated as fixed assets. It is hard to imagine any other situation where a business would trust such a material calculation to a manual spreadsheet.
“IFRS 16 meant that we were managing an £80 million adjustment to our balance sheet using spreadsheets that no one in the company properly understood”
Whatever the reason, a failure to consider any of the three keys above will mean wasted time and expense. In the end, building a game-changing asset management system is less about having a big budget or the latest techniques (although these will help) and more about the willingness to think about asset management like any other company-wide challenge and then to adopt a corresponding approach that builds synergy, manages the asset lifecycle and uses the right tools. When companies do this, the ROI will be significant.
