According to Investopedia, asset management is the practice of increasing total wealth over time by acquiring, maintaining, and trading investments with the potential to grow in value.
It is the systematic management of an organisation’s assets to optimize usage and improve value. The assets can include tangible assets like buildings, equipment, and infrastructure, as well as intangible assets like intellectual property, brand reputation, and human capital. The primary goal of asset management is to maximize the return on investment (ROI) while minimizing the costs and risks.
Asset Management Professionals
Asset management professionals perform this service for others. They are also called portfolio managers or financial advisors. Many of them work independently while others work for investment banks or other financial institutions.
As explained by Forbes, an asset manager is a financial professional who manages money and securities on behalf of a client, with the goal of growing the value of the assets. Asset managers are known by many names: investment advisors, financial advisors, wealth managers, institutional wealth managers, registered investment advisors (RIAs), robo-advisors and stockbrokers, to name just a few.
Types of Assets
These assets can be broadly categorised into two:
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Tangible assets
They are physical assets that can be seen, touched, and measured. They include:
- Property like buildings, land, and other real estate assets
- Equipment like machinery, vehicles, tools, and other physical assets used in operations
- Infrastructure like roads, bridges, power lines, and other physical assets used for transportation and communication
- Inventory like raw materials, work-in-progress, and finished goods.
- Cash and equivalents cash, bank deposits, and short-term investments.
Effective management of tangible assets ensures that they are well-maintained, repaired, and upgraded when necessary, and that there is optimized usage to generate the highest possible returns.
2. Intangible assets
They are non-physical assets that cannot be seen or touched, but they have value because of their contribution to the organization’s performance. They include:
- Intellectual property including patents, trademarks, copyrights, and trade secrets
- Brand reputation comprising the goodwill and reputation of the organization and its products or services
- Human capital like the skills, knowledge, and experience of the organization’s employees
- Customer relationships involving the loyalty and satisfaction of the organization’s customers
- Data and information containing the organization’s data, analytics, and information systems
Effective management of intangible assets comprises protecting and enhancing their value through strategies such as innovation, marketing, talent development, and data analytics.
Aside from these broad categories, assets can be classified based on ownership, liquidity, and other factors. For example, assets can be owned by an individual, a business, or a government. Depending on how easily they can be converted to cash, they can also be classified as liquid or illiquid.
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Importance of Effective Asset Management
Effective asset management benefits organizations in several ways including:
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Improved asset performance
Effectively managed assets results in improved asset performance, increased reliability, and reduced downtime.
2. Cost savings
To effectively manage assets, you have to focus on identifying opportunities to reduce costs associated with maintenance, repair, and replacement. This leads to significant cost savings over time, which can be reinvested in other areas of the organisation.
3. Increased asset lifespan
Effective asset management results in the longevity of assets. By ensuring they are properly maintained, repaired, and upgraded when necessary, the need for replacement and capital expenditures reduces.
4. Improved risk management
Effective asset management manages risks related to asset ownership like safety, regulatory compliance, and environmental risks which minimizes the impact of these risks on the organization’s performance and reputation.
5. Better decision-making
Effective asset management ensures decision-makers have access to accurate data on asset performance. This enables informed decision-making, improved resource allocation, and optimized use of assets.
6. Enhanced stakeholder engagement
Another importance of effective asset management is that it improves communication and collaboration with stakeholders, customers, suppliers, and employees inclusive. This builds trust, improves satisfaction, and enhances the organization’s reputation.
7. Improved sustainability
Effective asset management results in sustainable development by minimizing waste, reducing energy consumption, and promoting conservative resource use, which aids the organization’s environmental and social goals and enhances its reputation as a responsible corporate citizen.
Asset Management Approach
Asset management can be approached from different angles. These are:
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Life-cycle approach
This approach of effective asset management considers the entire asset lifespan, from acquisition to disposal. It also understands the asset’s usage patterns, maintenance requirements, and potential for value generation over its lifespan.
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Risk management approach
This involves identifying, assessing, and managing the risks associated with asset ownership. It caters to regulatory compliance, safety, environmental, and financial risks.
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Information management approach
Asset management requires accurate and reliable information for decision-making, planning, and performance management. Information on asset condition, usage patterns, maintenance history, and value should be managed properly.
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Performance monitoring and reporting approach
Effective asset management comprises monitoring asset performance against predefined metrics and reporting results to stakeholders. This gives insight into the value, use and performance of the asset.
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Continuous improvement approach
Asset management is an iterative process comprising continuous improvement over time. Reviewing asset management practices, identifying opportunities for improvement, and implementing changes to optimize asset use are all ways to .
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Strategic alignment approach
Asset management should align with the objectives, mission, and values of the organization. This ensures that asset management practices support the organization’s overall goals and contribute to its long-term success.
Asset Management Tools
They are tools and techniques designed to aid effective asset management practices. They provide organizations with information and capabilities to optimize asset usage and reduce costs. The following are some commonly used asset management tools and techniques:
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Asset management software
Asset management software is a computer program that tracks and manages assets throughout their lifecycle. It provides a centralized platform for managing asset information, schedules, usage patterns, and financial data.
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Risk management tools
Risk management tools help organizations identify, assess, and manage risks. This includes tools for conducting risk assessments, analyzing potential impacts, and developing risk mitigation strategies.
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Performance monitoring tools
Performance monitoring tools provide real-time data on use, performance, and value generation of assets. This includes tools for monitoring the condition, utilization rates, and maintenance schedules of the assets.
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Predictive maintenance tools
These tools use data analytics and machine learning techniques to predict asset failures before they occur. With this, organizations can schedule maintenance activities proactively, which reduces downtime and maintenance costs.
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Asset tracking tools
Asset tracking tools use technologies like Radio Frequency Identification (RFID), Global Positioning System (GPS), and barcoding to track asset locations. Organizations can optimize asset usage, reduce theft, and improve security.
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Life-cycle costing tools
These group of tools help organizations to evaluate the total cost of asset ownership over its lifespan. These comprise tools for estimating cost of acquisition, maintenance and disposal.
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Performance benchmarking tools
Performance benchmarking tools help organizations compare their asset performance against industry standards and best practices, giving insights into areas for improvement and opportunities for saving cost.
Challenges of Asset Management
Asset management can be a complex and challenging process for organizations due to several factors. Some of the common challenges of asset management include:
- Lack of accurate asset information
- Limited resources
- Technological complexity
- Regulatory compliance
- Changing business requirements
- Risk management failure
- Inefficient stakeholder engagement
Despite being necessary, asset management can be challenging for organizations, for several reasons discussed above. For asset management to be effective, these challenges should be addressed by a systematic approach that involves investment in technology, personnel, processes, and commitment to continuous improvement.
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