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Almost everybody has probably heard the term “Asset Management” thrown around, but what does it really mean? This article sets out to answer that question.

Firstly, we need to clarify what we’re talking about. What is an asset? According to a recent draft of ISO 55000, an asset is something that has potential or actual value to an organization.

This is a very broad definition, and potentially includes a wide range of items, including financial assets and non-physical assets such as intellectual property. However, according to the British Standards Institute’s Publically Available Specification No. 55:2008 – Specification for the Optimised Management of Physical Assets (PAS 55), an asset is plant, machinery, property, buildings, vehicles and other items that have a distinct value to the organisation.

It is clear that we need to be sure about what type of asset we are considering. Could people, cash, information and goodwill be included as “other items” in the PAS 55 definition? The answer is both yes and no. Many things in these categories may appear on an accountant’s balance sheet as assets, but what we really want to talk about in this article is management of the engineering or (more commonly) physical assets. We are only interested in other types of assets to the extent that they interface with the physical assets and affect their performance, cost or risk. These interfaces are illustrated in the following table:

Asset classImportant interfaces with physical assets
HumanMotivation, Communication, Roles & Responsibilities, Knowledge, Experience, Leadership, Teamwork
InformationCondition, Performance, Activities, Costs, Opportunities
Intangible (reputation, goodwill, etc)Reputation, Image, Morale, Constraints, Social Impacts
FinancialLife Cycle Costs, Capital Investment Criteria, Operating Costs, Value of Asset Performance

So let’s put some definitions of asset management on the table and look for similarities. According to the UK Institute of Asset Management (www.theiam.org) and as published in PAS 55, asset management is:

Systematic and coordinated activities and practices through which an organisation optimally and sustainably manages its assets and asset systems, their associated performance, risks and expenditures over their lifecycles for the purpose of achieving its organisational strategic plan.

The New Zealand Asset Management Support organisation (www.nams.org.nz) defines it in their International Infrastructure Management Manual (IIMM) as:

The systematic and coordinated activities and practices of an organisation to optimally and sustainably deliver on its objectives through the cost-effective lifecycle management of assets.

Finally, the Asset Management Council of Australia (www.amcouncil.com.au) suggests the following in its Asset Management Body of Knowledge (AMBOK):

The life cycle management of Physical Assets to achieve the stated outputs of the enterprise.

What are the common themes?

We see the following:

  • Line of sight – asset management is about linking asset performance and management practices to the goals of the organisation
  • Life cycle focus – asset management explicitly considers the whole life cycle of the asset
  • Business focus – asset management is ALL about the needs of the specific organisation

If we think about the complexity of the physical asset portfolio in most organisations – the number of assets, technical sophistication, interdependencies and those interfaces with the other asset types – it is easy to see that asset management is not going to be a simple activity. It requires tools to understand the business objectives and the relationship with asset performance, tools to predict future performance, tools for acquiring, maintaining, operating and disposing of assets in the most efficient and effective way, tools for monitoring and adjusting performance and many more. All of this requires the sort of cross-divisional cooperation and information sharing that we human beings are notoriously bad at. Consequently, asset management is usually delivered through a formal system of procedures and practices referred to as the “asset management system”. These are often based on one of the documents mentioned previously (PAS 55, IIMM or AMBOK), though it is worth noting that the ISO 5500X series of International Standards is currently in draft. This will be released late 2013 or early 2014 and include the following documents:

  • ISO 55000 – an overview and definitions document
  • ISO 55001 – requirements for an asset management system
  • ISO 55002 – guidance on implementation

To conclude, asset management in its broadest sense is not even a specific discipline. It is a new and fundamentally different way of thinking about physical assets and how to use them to deliver value to an organisation.

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