Organization-Wide Physical Asset Management. Dharmen Dhaliah
inventories.
• Chief Human Resources Officer—Accountable for developing and executing human resource strategy in support of the overall business plan and strategic direction of the organization, specifically in the areas of succession planning, talent management, change management, and organizational performance.
• Chief Information Officer—Accountable for the implementation of suitable technology to streamline all internal operations and help optimize their strategic benefits. This includes designing and customizing technological systems and platforms to improve customer experience, data processing, and security.”
“Why are we going through the C-suite roles and responsibilities, and what does this have to do with physical assets?” Jerry asks after listening to Darren with great patience.
With an unhappy look, Darren quickly replies, “What I am trying to highlight is: Do we have such a function for physical assets in modern organizations? Do we need such a corporate-or senior-level function to exploit synergies and coordinate activities related to physical assets?” He adds in a serious tone, “Physical assets are no different from any other assets owned by the organization, where someone has to be accountable for them.”
Then he asks Jerry, “Can you imagine what percentage of an organization’s assets is fixed assets?”
Darren looks at Jerry in anticipation of an answer. But Jerry just shrugs his shoulders and stares at Darren.
“Well, of the 35 billion dollars of assets from municipalities, an average of 28 billion dollars is fixed assets, representing property, plant, and equipment as taken from their financial statements. This is around 80%! For the major companies, of the average 100 billion dollars of assets they manage, 18% are fixed assets.”
“This is quite a significant percentage, especially when you take into consideration how much value those fixed assets bring to the organizations,” Darren adds.
Jerry seems to be now more relaxed as he starts to understand where the discussion is going.
“Historically,” Darren continues, “management of physical assets was dispersed in the operations and maintenance functions. Over the years, the discipline of asset management has evolved from a normal routine set of activities of managing assets into a discipline that is now standardized by the International Organization for Standardization (ISO) and even regulated in some parts of the world. I have to admit that many organizations have come to realize the value that physical assets bring to their operations and are aware of the huge opportunities that exist to capture synergies and harmonize activities. Nowadays we see some proactive organizations already appointing vice-presidents, directors, and executives to be accountable for their physical assets and to lead their physical asset management strategy.”
Jerry’s job is actually a newly created position in Mouroum Inc. He left his job in maintenance and reliability to take on this new job, which is a move up for him in terms of pay as well as status. However, he did not realize that this is a completely different ballgame with a totally different approach. Jerry understands that he has already committed and he cannot afford to go back to his old position. With his current challenging family status—a newborn baby and a recently purchased new home—he badly needs to succeed in this job to make ends meet.
Jerry has been on the job for almost four months now, and he has been struggling—struggling to get an asset management program started, struggling to promote asset management as a priority for the department, and, most importantly, struggling to “fit in” in the organization.
Having known Jerry for quite some time, Darren knows what an intelligent and hardworking young man he is, and that he’s always keen to learn. One of the first things Darren did was to mail Jerry a copy of his book so that he could read it before the meeting.
“Did you have a chance to read the book I sent you?” Darren asks.
“Yes, I read most of it, and I am, I think, on Chapter 7,” Jerry replies.
“OK, that’s good. If you recall, Chapter 2 explores the evolving journey of organizations to better understand and adjust their focus over time, and how they adapted to the ever-changing landscape and requirements. Obviously, the way physical assets are managed has also evolved over the years, driven by new expectations, regulations, demands, and other requirements.”
Darren drinks a big sip of water from his bottle and lowers his voice. “Isn’t it interesting,” he says, “to understand how physical asset management itself has evolved as a discipline and what its roots were? How over time it has reached the level of the much talked about subject today? Look around you. There is not a day or week that you don’t hear about a webinar, conference, or some kind of training or certification in physical asset management.”
“The definition of asset management has come a long way, and, over time, there has been significant development across the globe in the field of physical asset management. It is beneficial for you to understand the evolution of asset management from a simple routine maintenance approach or a simple accounting/financial practice to combine and become a comprehensive field impacting whole organizations and in some areas even legislated (Figure 1.1).”
FIGURE 1.1 Evolution of asset management discipline.
“This is really interesting,” Jerry replies. “I always thought that asset management was a new discipline and never bothered about its roots.”
“Many say the coming together of the physical asset management discipline was triggered in the finance sector. Physical assets were engineered, installed, operated, and maintained since the beginning of time to support operations. On the other side, accounting and finance were reporting on physical assets in the balance sheet. At some point, organizations were required to provide more accurate reporting on tangible capital assets in their financial statements under the International Financial Reporting Standards (IFRS). With accurate reporting on physical assets in the fixed asset sub-ledger, we start seeing a disconnect between physical asset condition, consumption, and betterment and physical asset valuation and depreciation.”
“I think this is the situation currently prevailing at Mouroum Inc., where there is poor alignment between accounting data and technical data in the field. I notice multiple inaccuracies and data gaps when I work with the finance team!” exclaims Jerry.
“This is common in many organizations,” Darren continues. “This misalignment makes it very difficult for everyone to come up with a decent capital forecast and investment plan. Organizations need to improve planning for capital investment for their budgeting process. Private-sector companies need it to remain competitive and get the best returns on their investments, while the public sector needs to implement a rigorous process for asset management planning to forecast future expenditures. For example, municipalities in many countries are required to develop accurate asset management plans to be eligible for grant funding opportunities.”
Jerry sits up and, with a happy voice, says, “This is actually one of my main mandates at Mouroum Inc.: to develop accurate asset management plans to meet the strategic objectives.”
Darren nods his head to show agreement. He clears his voice and adds: “While considerable progress has been made by many organizations with respect to developing accurate asset management plans, there is still quite a lot to accomplish in terms of implementing the plans. We all know very well that ‘A plan remains a plan unless it is put in action,’ i.e., unless it is operationalized. In many organizations, the asset management plans are not being used in the operational and capital budgeting process, and, worse, they are not used to inform the decision-making process. By definition ‘operationalizing’ means setting something up (your asset management plan) so that it can be used, not only by a few functional areas, but across the whole organization.”
Darren