Asset Management

Topics: Government, Investment, Decision making Pages: 7 (1622 words) Published: June 11, 2013
This part of the Asset Management Series describes the purpose and fundamental principles of effective asset management and provides a strategic framework through which agencies can achieve its benefits. The principles outlined in this part must be reflected in agencies’ corporate and business planning and form the basis of asset management performance.

Who should read this part?
This part is intended for:

Chief Executive Officers and senior managers who are ultimately responsible for asset management in their agencies; and all staff in agencies who make decisions about assets.

In this part, 'agency' is used to mean all departments, service agencies and statutory authorities in the Victorian public sector.

What is asset management about?
Asset management is the process of guiding the acquisition, use and disposal of assets to make the most of their service delivery potential and manage the related risks and costs over their entire life.

The principal objective of asset management is to enable an agency to meet its service delivery objectives efficiently and effectively. Effective asset management also: •

makes the most of the service potential of assets by ensuring they are appropriately used and maintained; reduces the demand for new assets and saves money through demand management techniques and non-asset service delivery options; achieves greater value for money through economic evaluation of options that take into account life cycle and full costs, value management techniques and private sector involvement; reduces unnecessary acquisition of assets by making agencies aware of, and requiring them to pay for, the full costs of holding and using assets; and focuses attention on results by clearly assigning responsibility, accountability and reporting requirements.

Figure 1.1 Key activities Asset management is a continuous process covering the whole life of the asset. An agencyís asset management program should encompass all the activities illustrated above.

Key activities
Needs analysis
The starting point for asset management. Agencies must thoroughly examine the need for service and infrastructure provision and consider the full range of options for responding to it. These include both non-asset and asset solutions as well as demand management strategies and the possible role of private sector providers.

Economic appraisal
The second step. This is a systematic weighing up of the costs and benefits of the various asset based and non-asset based solutions identified. Value management is one technique that assists in this process. The appraisal, taken together with Government policy objectives, should lead agencies to develop recommendations that make the best use of scarce resources.

The essential tool for achieving service delivery objectives by means of assets. Agencies' asset management plans, decisions and activities must be fully integrated with the Government's planning processes, including departmental corporate and business plans. Risk assessment and allocation must start at the planning stage. Agencies must continue to verify service needs throughout the planning process.

Planning of funding for the asset. Assets require the commitment of funding over their entire lives ñ capital expenditure for their purchase or construction and recurrent expenditure for their ongoing maintenance and operation. The disposal value at the end of their service life must also be considered. Expenditure requirements must be covered by identified sources of funding.

A determination of the charge or price for the use of an asset. It should be based on the true cost of creating, operating, maintaining and eventually disposing of the asset, and should reflect the agency's service objectives and market conditions. The true cost includes a rate of return (ie the opportunity cost of capital investment),...
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