No matter the reason behind acquiring wealth, it’s not enough to simply hold onto the assets you’ve amassed. Perhaps you’ve saved for retirement over a long career or built your business from the ground up. Today, you may have considerable assets. What now? An asset management plan (AMP) is the solution to protect the wealth you and your company have worked so hard to develop.
Asset Management Plans Defined
Let’s set aside personal asset management for now and focus on business assets. Asset management plans (AMPs) are defined by the International Infrastructure Management Manual as “a plan developed for the management of one or more infrastructure assets that combines multi-disciplinary management techniques over the life cycle of the asset in the most cost-effective manner to provide a specific level of service.” For business purposes, this means a company’s or corporation’s infrastructure assets – equipment, inventory, property, vehicles, etc. – must be managed over their lifetimes to deliver some standard of service. That service could be the production and distribution of consumer goods, engaging in some other factory or industrial operation, or even something like delivering legal assistance as an attorney.
What Does an Asset Management Plan Contain?
Asset management plans are strategic plans that attempt to look at:
- What physical assets are currently held by the company
- What the value of those assets is
- What the future value of those assets will be in X years
- What the expected lifespan of those assets is
- What the costs associated with maintaining, replacing, or disposing of those assets are
In addition to physical assets, AMPs may also take into account any intangible assets a company may possess, such as intellectual property, patents, and brand. Business operations absolutely need a strategic plan in place in order to get the most from their assets. By doing so, those assets can be managed efficiently, resulting in optimum service delivery.
The Objectives of an AMP
What is the purpose of an AMP? There are two main objectives to these plans, and they are justification and optimization. Justification gives meaning to the costs of providing an agreed standard of service and the benefits associated with that service delivery, while optimization is geared toward minimizing the costs associated with the use, maintenance, replacement, and disposal of company assets across the business operation.
Complex businesses, of course, demand a complex AMP. Many parts go into the preparation of the plan and its implementation. AMPs must be reviewed frequently, making adjustments as company assets come and go, business operations change with the times, or when average operating costs to provide a service are high.
How Can a Company Create an Asset Management Plan?
The first step in creating a workable AMP is to investigate what assets the company currently possesses, what their current and future value is, and how critical they are to the operation. By examining assets carefully, companies can make use of them as efficiently as possible as they deliver services. This can also help companies realize whether or not current assets are being utilized.
Future value of assets can be discovered and planned for. As machinery, vehicles, and physical infrastructure depreciate over time, the value can change dramatically. Tax deductions on that depreciation are part of the overall future value of assets. The property, such as in buildings or land, may increase in value well into the future.
By looking carefully at the current value of assets and determining future values, it becomes possible for companies to dispose of unnecessary or costly assets in order to streamline operations. This also generates revenue from the sale of equipment or other physical property, while tax deductions also free up funding for company growth.
Next, it is time to collect information about the assets held by the company. Accounting records are a goldmine of information about the costs associated with the acquisition of assets. Physical audits of infrastructure and equipment ensure the pinpoint accuracy of current holdings. Those involved in the development of the AMP must look at how those current assets are being used and whether or not they are serving the goals the company has laid out in service delivery. Projected future costs, such as maintenance, replacement, or disposal of equipment, must also be considered. It is possible to take charge now to head off any potential problems with projected costs.
Focusing on Assets
The third step in developing a working AMP is to decide which assets the company will focus on. Certain physical assets will be of more current value than others; similarly, future values of assets may offset current maintenance and operation costs of some of the equipment the company uses in its daily operations.
When looking at the assets to concentrate on, it is crucial to understand how often the assets are used and how important they are to the delivery of agreed-upon levels of service. For example, specialized machinery that performs an important manufacturing task but is not used regularly may be better sold and replaced with sale-lease equipment or a shorter-term rental agreement. Other things to consider:
- Certain physical assets may be necessary to the overall operation but may need regular maintenance or upgrades.
- Some assets may be found to be unnecessary or extraneous, making them ideal candidates for disposal.
Value to cost ratios plays an important role in this focus on current assets and their future value to the company’s operation. For example, a manufacturing plant may be part of the assets a company holds. If the value of continuing to operate that plant exceeds projected future costs, it can be considered a worthwhile asset to retain. An office building that is underutilized or sparsely occupied, on the other hand, could be removed from the asset inventory at substantial cost savings.
A Final Word on Asset Management Plans
For large companies, it can take the teamwork of many players to formulate a workable AMP that serves the purposes of the organization. Accountants, department heads, equipment maintenance personnel, and operators may all have valuable contributions to make as the plan is developed. Efficient delivery of products or services should be the goal of any company, and an AMP helps maximize that efficiency, ensuring continued growth of the company without unforeseen financial surprises in the future.