8.2: The Process of Managing an Asset
In capital procurement, procurement officers choose the best option for meeting delivery needs in acquiring investments and assets. Public sector capital procurement principles must act as a guide for the entire process.
Principles of Capital Procurement for the Public Sector
Allocation and Management of Risk
Procurement in the government must be fair, open and transparent, demonstrating public service values and ethics. Every opportunity must be given for potential partners to participate in government business. When making decisions, qualified bidders are those that best meet the requirements of the tender.
Competition
Capital asset procurement opportunities must be tendered out in a transparent way using competitive processes. Reasonable exceptions may be made in urgent and unusual circumstances.
Value for Money and Protecting Public Interest
Seeking value for money in the management of assets and acquired capital services helps protect the public interest. Strategic decision-making optimizes the use of government spending. Capital asset life cycle management is controlled by monitoring direct and indirect costs of assets and services to ensure the cost-effectiveness and performance of the procurement.
Legal Considerations
Procurement must align with the law, including inter-governmental agreements and applicable trade agreements.
Practical Procurement: Scenarios and Solutions
Alex Johnson, the Chief Procurement Officer at GreenTech Solutions, faced a critical decision regarding the management of the company’s aging fleet of delivery vehicles. The vehicles, essential for the timely delivery of GreenTech’s eco-friendly products, were increasingly prone to breakdowns, leading to higher maintenance costs and delivery delays. Alex needed to determine the best approach to manage these assets effectively, ensuring operational efficiency and cost-effectiveness.
GreenTech Solutions, a mid-sized company with 200 employees, specializes in manufacturing and distributing eco-friendly home and garden products. Their product line includes solar-powered garden lights, compost bins, and water-saving irrigation systems. The company prides itself on its commitment to sustainability and innovation, catering to environmentally conscious consumers, businesses, and municipal governments. GreenTech generates revenue through direct sales to consumers via its e-commerce platform, partnerships with major retail chains, and bids on tender opportunities with local and regional municipal governments.
Alex considered three potential options to address the vehicle fleet issue. The first option was to invest in a new fleet of electric delivery vehicles. This option aligned with GreenTech’s sustainability goals and promised lower long-term maintenance costs. However, the initial investment was substantial, and Alex needed to ensure it fit within the company’s budget constraints.
The second option was to lease a fleet of vehicles. Leasing would reduce the upfront costs and provide flexibility, allowing GreenTech to upgrade to newer models more frequently. However, leasing could result in higher long-term costs and potential restrictions on vehicle usage.
The third option was to implement a comprehensive maintenance and refurbishment program for the existing fleet. This approach would extend the life of the current vehicles and spread out the costs over time. However, it required a detailed analysis of the vehicles’ current condition and the feasibility of ongoing maintenance.
Alex needed to evaluate these options considering the principles of capital asset life cycle management. This included assessing the direct and indirect costs, potential risks, and alignment with GreenTech’s strategic goals. The decision was crucial for maintaining the company’s operational efficiency and upholding its reputation for reliable, eco-friendly products.
Discussion Questions
- Analyze the three options available to Alex using the principles of capital asset life cycle management. Which option would you recommend and why?
- How can GreenTech Solutions ensure that its procurement process for the new fleet (if chosen) aligns with capital procurement principles such as fairness, transparency, and value for money?
- Discuss the potential risks associated with each option and how Alex can mitigate these risks to protect GreenTech’s interests.
Source: Scenario and questions created with the assistance of Microsoft Copilot.
Capital Asset Life Cycle Management
Capital asset procurement generally follows the same procurement process, with the focus shifting to managing the contract and monitoring the asset life cycle performance. It is possible to divide an asset’s life cycle into four distinct stages. Let’s look at these four stages.
Stage 1. Make a Plan
Based on an examination of current assets, planning can assist in determining the need for a particular item and the critical skill needed for the project. This is accomplished by implementing a management system that can analyze trends and data, allowing the decision-makers to determine the need for the asset and the value it offers to the organization’s operations. The early stage of an asset’s life cycle is critical for all stakeholders, from finance teams to operators. The choice to acquire an asset is based on the asset’s ability to meet the demands of the organization and the needs of its projects, in addition to contributing to the company’s operations and creating income.
Stage 2. Obtain the Asset
Identifying, evaluating and purchasing an asset is the next step in the asset’s life cycle. In this process, the procurement officer ensures that enough research has been conducted to confirm that the asset is a critical resource required to improve operations and support the successful deliverables of the procurement. This step will also consider the financial aspects of acquiring an item within the budget parameters established during the planning stage. Using a data management system after the asset has been procured and deployed permits it to be tracked throughout its full life cycle, allowing for greater efficiency and accountability.
Stage 3. Operations and Maintenance
Operation and maintenance is the most time-consuming part of an asset’s life cycle. This stage describes how the asset will be used and managed, as well as any maintenance and repairs that may be required during its use. After being placed for its intended use inside the organization, the asset should improve operations while contributing to income generation. In addition, updates, patch fixes, licenses, and audits must be addressed immediately. During operation, an asset will be monitored and examined regularly for any performance concerns that may arise unexpectedly. This is the point at which maintenance and repairs become more frequent, and procurement officers are required to arrange for repairs.
As assets age and wear and tear grows, regular maintenance is required to extend the asset’s life and worth as much as possible. Additionally, alterations and improvements are necessary to ensure assets are current with the constant technology changes and ongoing disruptive environments. Maintenance strategies are unique to each organization. Many favour a reactive maintenance method, while others prefer a predictive or preventive maintenance plan. Even so, each maintenance approach strives to achieve certain goals, such as:
- Keeping downtime to a minimum
- Keeping emergency repair expenditures to a minimum
- Increasing the uptime of equipment
- Extending the useful life of an asset to perform better than it did originally by identifying and addressing possible improvement areas.
Stage 4. Disposal of Waste
Finally, at the end of an asset’s useful life, it is removed from service and either sold, repurposed, thrown away, or recycled, depending on the circumstances. Even though an asset has no commercial value at this point, it may need to be disposed of in an environmentally friendly manner. Depending on the circumstances, this procedure might include disassembling the item piece by piece or wiping it clean of all data. If, on the other hand, this sort of asset is still required for operating purposes, a replacement is planned, and the asset life cycle starts from the beginning.
Public Procurement Playbook
This video was created by Martin Kerr, Principal and Founder of Structured Change and Certified Fellow in Asset Management.
In every organization, it is essential to recognize and comprehend the interactions that occur among the primary roles involved in the process of asset management (AM). Martin Kerr describes the four responsibilities that influence the capability of achieving effective AM. The ideas of AM and change management are brought together under the umbrella of structured change to provide businesses with excellent AM over the long term.
Source: Structured Change. (2017, June 12). The Main Roles in Asset Management. [Video]. YouTube. https://youtu.be/CWSZOqY8G5k
Checkpoint 8.2
Attributions
“8.2: The Process of Managing an Asset — Capital Assets Lifecycle Management” is adapted from “Module 1. Definitions and Importance of Asset Management and Project Governance” in A Manual for Project Governance and Asset Management, copyright © 2022 by Carmen Reaiche and Samantha Papavasiliou, licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.
“Practical Procurement: Scenarios and Solutions” box was created with the assistance of Microsoft Copilot and is shared under the Creative Commons – CC0 1.0 Universal License.
The multiple choice questions in the Checkpoint boxes were created using the output from the Arizona State University Question Generator tool and are shared under the Creative Commons – CC0 1.0 Universal License.
Image descriptions and alt text for the exhibits were created using the Arizona State University Image Accessibility Creator and are shared under the Creative Commons – CC0 1.0 Universal License.
