What Is Asset Management?
Asset management is a term used in the financial sector to describe the proper management, development, usage, and maintenance of assets in a way that is both efficient and cost-effective, mostly with the aim of value increment. Asset management is professionally done by firms or organizations that maintain assets on behalf of other organizations, companies, or even individuals. Assets such as machinery, goods, money, investments, and buildings, to mention a few, are belongings that have economic and/or future benefits.
Asset management is crucial for wasting assets whose value decreases over time. As an individual, you can effortlessly plan the smart investment of your assets and increase the value of your entire asset portfolio using an asset management plan template. This management template will guide you on prioritizing your assets carefully and making the smartest decision when trying to sell or develop them. Asset managers may go by different names depending on the nature of the asset they manage and their service level.
Asset management is also popular in public infrastructure sectors and businesses. The maintenance and development of infrastructures that are defined by their prolonged length, like roads, bridges, railway tracks, power lines, and pipelines, is known as linear asset management. Linear asset management is a crucial task overseen by the government and federal agencies. Within organizations, it is essential to optimize overall cost, sustainability, efficiency, performance, and risk. The importance of asset management is further emphasized with the establishment of management requirements, ISO 55000, by a standardization organization like ISO TC 25.
The ISO 55000 presents principles, requirements, and procedures for maintaining a good asset management system. In addition, it guides asset managers, individuals, institutions, and establishments on how to keep track of each asset and determine which would yield optimal returns when employed.
In this article, we’ll discuss the following:
What Is The Importance Of Proper Asset Management?
Concerning assets, there are more than enough reasons to keep them safe and, most importantly, accumulate them over time. While the most apparent responsibility, security, is important too, it’s also paramount to pay keen attention to the value of each asset, track them, and develop them to maintain their economic value and usefulness. With both tangible and intangible assets,it’s important that proper management is in place to ensure optimization and high return value on investments. Here are some key importance of effective asset management:
- Steady Accountability: Every asset management organization needs to keep track of all assets in custody to ensure clarity and accurate inventory. One of the major purposes of asset management in firms and establishments is to create a steady data stream through consistent tracking, thereby enhancing accountability. As an asset manager or investment manager, you’ll be provided with enough knowledge on every asset to make the best short-term and long-term considerations to meet the need of the asset, from the point of acquisition to the end phase of disposal.
- Accurate Inventory Management: In asset inventory, there are often cases where you’ll find assets that have been either stolen, sold, lost, or damaged when they’re supposed to have been cleared off the list. A proper asset management system allows you to keep track of your inventory, making sure they are accurate, accounted for, and up to date by clearing those ghost accounts and assets.
- Predictable and Sustainable Cash Flow: Proper asset management can be very beneficial for deciding how to best maintain a high level of increment in value. Most firms who handle storing and maintaining assets can indulge in appropriate asset management to gain insight into the commodities, goods, and properties with a high probability of return when invested. By keeping up proper brainstorming and management, profit opportunities can be predicted, thereby maintaining the steady flow of income.
- Save Time and Resources: The proper management of assets creates free time and saves resources like money, goods, machinery, etc. This is because it assists in evaluating how you can best optimize the utilization of human factors, cost, and time you spend developing and maintaining each asset’s value. Due to improvements in scheduling and planning, the capital cost is slashed, thereby saving money. As well, the asset management system has a risk management plan that creates strategic plans against thefts and losses.
- Better Risk Management: As highlighted above, asset management systems include planning a risk management system to reduce the number of unexpected losses and pain points. Asset management will create a safe and secure system where legal risks and theft attempts are averted by implementing security systems where necessary. An asset management firm will always be prepared to mitigate impending and unexpected risks.
- Improved Government Compliance: Every organization and asset firm is usually asked by government agencies to provide a detailed and accurate report on how they acquired their assets, how they plan to utilize them, and how they will dispose of them. To be able to provide accurate and precise reports on their asset database, asset managers and portfolio managers need to practice proper asset management.
How To Develop An Asset Management Plan
Asset management can be used in almost any enterprise that deals with assets, from small-scale to big organizations. The key to implementing an asset management system that will prove effective over time is to follow a strategic process that will help you streamline your activities. Follow these steps to develop a proper asset management plan:
Perform an Asset Inventory
One of the major activities in a proper asset management system is recording and completing an asset inventory report. This means having an accurate, informative, and detailed record of the assets in custody. You can do this by listing all of your assets and classifying them according to their location, description, and evaluation. If an asset management firm doesn’t know the exact number of assets in its custody, it’ll be impossible to manage them effectively.
Listing and recording them down won’t be enough to complete the task; you also have to inspect them physically and record their condition. For example, an asset that has been lightly damaged should be indicated on the inventory list. This might cause a decrease in the value of that particular asset. Below are some basics question to help guide you on completing an asset inventory:
- How many assets do you have?
- Where are the assets?
- What is the total value of each asset?
- When were the assets acquired?
- What is the lifespan of each asset?
Estimate Life-Cycle Costs
Upon acquisition and re-acquisition of new assets, asset management firms or managers should estimate each asset’s life-cycle cost. The life-cycle cost refers to the constant number of resources needed to maintain an asset. Apart from what it costs to acquire an asset initially, additional costs will be to aid an effective asset management system, like maintenance fees, functionality, productivity examination, etc. Hence, to make your asset management system more precise and effective, classify all assets you have listed in your inventory, and reach an estimate on the total cost demand to keep the asset up and running until it’s time for disposal.
Note that the disposal cost should also be recorded. Though figures might change and your cost expectation might differ from what will happen, doing this prepares you physically and mentally for any future diversions.
Determine Assets Level of Service
After finding out the total count of all your assets and computing their life-cycle, the next step is determining each asset’s level of service. This means you will analyze and clarify the overall quality, performance level, capacity, and function of each asset in your custody. This will enable you to accurately pinpoint the costs and factors needed to keep up with each assets maintenance, operation, and development.
Doing so will also guide you on how much human and material resources you’ll need as well as inform you on which assets need to be prioritized for rapid development and which assets you can relax with. For asset and investment managers, determining an assets level of service helps them report an accurate financial statement analysis and portfolio management strategy.
Create a Long-Term Financial Plan
After doing the following tasks above, you must start creating a long-term financial plan in line with the needs and expectations of the assets you have in stock. Having a good financial plan for your assets will signify the completion of an asset management plan. With a good financial plan in stock, the possibility of achieving a stated output will be imminent.
Different Types of Asset Management Systems
Understanding different asset management systems and plans will give you an insight into the type of asset management system your company or organization needs. There are different types of asset management depending on how they work and what asset class they deal with. The types of asset management includes:
Digital Asset Management
This asset management type deals with the digital media contents of an organization or firm. Digital Asset Management or DAM is an asset management system that ensures all digital media content such as audio, video, websites, and images are controlled in a way that has sufficient security and transparency. When a digital asset system thrives, it allows for accountability, data efficiency, instantaneous data distribution, fast searching and tracking of digital assets, and asset repurposing.
Additionally, a successful DAM system allows organizations to record when digital assets are being accessed, what type of data, and by whom. A successful DAM system can help asset managers build marketing and investment strategies.
Fixed Asset Management
Fixed Asset Management is a permanent system for every business organization, enterprise, or establishment. Fixed assets are the types of assets that cannot be moved, but more crucially, are assets that an organization uses to generate income, making them an integral part of the company’s assets that need management. Examples of these are installed machinery and in-place appliances. Most organizations are also referred to as PP & E (property, plant, and equipment).
Fixed assets are an important and useful item that an organization needs to build its net income and productivity over time. Therefore, they must be constantly tracked to ensure their effectiveness and maximize value over time. Activities such as protective and preventive maintenance, productivity analysis, temperature tests, and the like can be done to manage and sustain their effectiveness properly.
IT Asset Management
This involves the hardware and software components that control the process of information and improvement of networking. Hardware components such as computers, printers, hard drives, routers, and other IT equipment are properly managed to provide enough security and processing speed. Software programs, such as SaaS, network infrastructures, and licenses, are also tracked and updated from time to time.
The proper management of information and technology (IT) assets assures reliable and consistent processing of real-time and accurate data. This also allows the strengthening of security systems and the creation of a technological footing for the future.
Financial Asset Management
Financial assets entail the tracking of intangible assets such as monetary investments, brokerage accounts, real estate holdings, etc. The main goal of Financial Asset Management is to make and maximize profit while accepting a considerable rate of risk. Financial asset managers or investment managers mostly keep track of taxes, market and commodity rates, and financial liabilities such as interests, debts, and the like.
Infrastructure Asset Management
Infrastructure refers to physical construction that contributes to the habitability of both residential and commercial areas, such as roads, highways, buildings, civil engineering, electrical, water access systems, etc. The proper management of these components ensures that they stay functional over time. Most organizations that provide management activities such as construction, designing, modeling, and maintenance, merge with government organizations to perform effectively and efficiently.