Part 2: The essentials of asset management

Asset management for public entities: Learning from local government examples.

There are some asset management essentials that you must get right. This Part gives a guidance to those who have wider management responsibilities as well as to hands-on asset managers.

Asset management is integral to strategic, operational, service, and financial planning

Asset management has to be recognised for what it is – an essential part of effective business planning – particularly for organisations whose services rely on assets to support their service delivery. It links together an organisation’s objectives with the levels of service needed to deliver them, the work required on the assets to sustain those levels of service, and the finances needed to support that work.

  • Case study 2.1: Hauraki District Council – the context for managing assets

Asset management needs a planned approach, with those involved well organised and clear about what is expected of them

The process of asset management planning needs to be planned. We have concluded that this is most effectively done in three ways:

  • first, by making it clear who is responsible for which elements of planning;
  • secondly, by freeing up technically skilled staff from administrative and other tasks that do not need their professional disciplines so that they can focus on planning; and
  • finally, by being clear about how sophisticated planning needs to be to effectively support the particular service, so managers know what they are working towards.

An asset management policy can be a good way to set this out.

Asset management planning needs to consider funding sources and available finance

Effective asset management needs to consider funding. Planned work should be both necessary and affordable. If it is unaffordable, a reduction in work should be matched by a reduction in service level.

Sometimes, the funding sources influence what is planned. For example, in local government there are "development contributions" (payments that developers can be required to make towards the costs of meeting growth). A council needs firm policies and a well-planned approach to justify the contributions it takes from developers.

Other organisations will find that their own funding sources often have associated limitations and conditions. Asset managers need to recognise these factors and work with them.

Good planning relies on good quality data

You require data to analyse a network of assets to determine the work it needs. Financial planning also depends on accurate asset valuations that use reliable asset data. Any analysis will only be as accurate as the data that it is based on. Verifying a theoretical programme of work before implementing it requires inspecting the assets, which results in more data.

Having good quality asset data means recognising the limitations of the data inherited from previous owners or asset managers. You will also need to improve the quality and reliability of the data. If an organisation does not have a record of when a particular asset was installed, it never will, but it can gather data on the current condition and performance of that asset to provide a firmer basis for planning its replacement.

Data systems can only be as good as the way in which they are operated

One of the critical decisions that asset managers have to make is how they will store asset data. There are many alternatives. These range from simple spreadsheets to advanced data management systems that are capable of performing a variety of asset management functions such as lifecycle modelling. Organisations must match the capabilities of their data systems to their data needs and the capacity of their operational staff. There is little point in buying an advanced data management system that gets used for only the most basic of data inventory purposes.

  • Case study 2.7: North Shore City Council – taking data collection seriously

Levels of service need to be clear, explicit, and make sense to asset managers and service users alike

The purpose of asset management is to provide a desired level of service through the management of assets in the most cost-effective manner for present and future customers. Unless the desired levels of service are defined, clear, and understood by asset managers and users alike, there cannot be effective asset management.

  • Case study 2.8: Kapiti Coast District Council – connecting elements in a performance framework
  • Case study 2.9: Masterton District Council – level of service expectations

Lifecycle asset management strategies need to be comprehensive and must clearly set out the rationale for what is planned

Lifecycle asset management is the cycle of activities associated with planning for, creating, operating, maintaining, replacing, rehabilitating, and disposing of assets. All of these elements need to be included in an effective asset management plan. They are all interrelated, and so the rationale in one area will influence plans in another.

  • Case study 2.10: Upper Hutt City Council – documenting lifecycle strategies
  • Case study 2.11: Invercargill City Council – optimal work mix and standards for performance

Service delivery arrangements need to be clear

An organisation needs to be clear about how service delivery is organised. This includes:

  • how it organises its own in-house resources; and
  • how its relationships with contractors are structured and managed.

An asset management plan is a good place to document these arrangements and record the rationale for them. That way, the structures and contracts become a means of implementing the plan, and, if the rationale changes, the arrangements can be reconsidered as part of planning.

  • Case study 2.12: Horowhenua District Council – effective structure, roles, and responsibilities
  • Case study 2.13: Auckland City Council – service delivery arrangements

Demand needs to be understood in order to respond to it

The demand placed on assets is not fixed. Additional use can lead to an asset deteriorating more quickly than had been assumed, so its replacement may need to come earlier, or additional maintenance may be needed. Similarly, additional demand may leave an asset with inadequate capacity to meet that demand.

Conversely, the tastes, expectations, wants, and needs of users change over time, and this in turn influences the demand for assets. Some assets may become obsolete, even though they are still serviceable. Other assets may last longer if fewer people are using them. Demand is about much more than changes in the number of people locally, and good planning needs to recognise this.

Risks need to be recognised and managed

To own and operate an asset is to take a risk. There are risks that assets will break down and/or fail to deliver the planned level of service. There can be risks to health and safety if assets are not adequately maintained. Assets are also at risk from natural disasters. Even though these are rare events, the effects could be large.

Asset failures can damage the reputation of an organisation.

Managing risk is integral to managing assets.

  • Case study 2.15: Invercargill City Council – standardised risk management approach

Financial forecasts need to be complete and ready to inform the budget

We said at the start of this Part that asset management is an essential part of effective business planning. For assets to influence the budget, rather than being constrained by it, planning needs to be done at a time that allows completed financial forecasts to be ready to underpin the budget. In that way, those making decisions on budgets can be better informed and able to consider the effect of their decisions on the assets and levels of service that the assets support.

Planning improves only if the improvement is planned and monitored

Improvement is always possible and in most asset management plans is desirable. Most organisations focus well on improving their assets but to a lesser extent on improving the planning and information systems that support the assets. As a result, the improvements they carry out may not be the most cost-effective.

Asset management plans should include plans for improving assets. These should be understood and approved at senior levels within the organisation. The most effective improvement plans, as well as identifying tasks, will identify the financial and staff resources necessary to achieve them, the time-scales, priorities, and who is responsible for ensuring that the improvements are achieved.

Progress made with the plan should be regularly monitored by senior managers, and action reported to the overseeing governance structure.

  • Case study 2.16: Selwyn District Council – planning and managing asset improvements