8.3: Benefits and Drawbacks of Capital Asset Investment

Benefits

There is no doubt that organizations that invest in capital receive a variety of rewards. However, not all advantages are associated with financial rewards. Asset monitoring in real-time provides an ongoing stream of data, encourages accountability, and, with the support of an appropriate data management system, helps keep planning and equipment maintenance on schedule and within budget.

As we know, nothing is flawless, and there will never be a truly ideal trade-off between performance, cost, and risk that can be identified. However, the strength of the AM approach is that it recognizes this imperfection and builds a continual feedback loop to alter the way assets are bought, managed, maintained, and disposed of to attain a reasonable approximation to optimal performance.

Other benefits include the following:

Recognition of Business Requirements

All asset management techniques recognize the variability in “optimal” conditions connected with the business environment and support logical decisions based on such aspects, whether or not they are explicitly stated.

Promote Best Practices

Adopting techniques such as systems engineering is implicit in standards such as ISO 55000 and explicitly stated in more general AM literature.

Support for Decision-making

The idea of the line of sight expressly demands that decision-makers at all levels are aware of both the business goals coming down from above and the asset performance, cost, and risk information flowing up from beneath them. Decision-makers are thus in a position to respond to the following questions:

• What kind of performance is being provided?
• Exactly what level of performance and value is desired?

Challenges

Unfortunately, not everything is perfect. AM presents a few difficulties. In today’s corporate world, AM is a vital and critical component of any successful operation. AM guarantees that all assets are appropriately bought, operated, and managed per industry standards and specifications, as well as with company policies and procedures. At every stage of a project’s lifecycle, from conception to completion, it is critical to ensure that asset management is properly structured and managed. However, issues faced by project managers who oversee the management, tracking, or simply monitoring of assets are numerous and varied. Here are some of the most common issues.

Choosing the Right Assets

Many business leaders are unaware of their company’s organizational structure and strategy. In such circumstances, deciding what assets to acquire becomes more difficult. The asset procurement teams can make poor choices and spend money on new assets without properly comprehending the necessity for the assets in question. When acquiring new equipment and software, the procurement officer can only make informed decisions if they know what assets they have, who else has them, what is currently in use, and how old or expired existing assets are. It becomes a challenge to gather all this information if the organizational structure does not support the right communication and documentation processes required for this decision-making step.

Acquisition of Assets Not Under Control

A traditional asset strategy focused on procurement is frequently responsible for introducing additional ungoverned assets into the business. We call ungoverned assets shadow assets. These are assets that are deployed within a firm without the permission of the senior management or procurement department. This might result in the introduction of unchecked assets into the organization, resulting in increased expenditures and security and compliance difficulties. This is a common challenge for organizations lacking a procurement department or a formal project management unit.

Cross-Functional Assets

Managing assets across functional departments (i.e., marketing, IT, HR, Finance, etc.) is a significant problem for organizations that want to run efficiently. This is because the various departments desire to use assets in a way that makes sense for their particular internal structure and often neglect the demands of other departments. Assets are frequently borrowed or shared collaboratively by many departments, raising the likelihood of an operational disruption when an asset is required by more than one department but is already in use by another.

Public Sector: A Different Set of Challenges

We can see that the policies and processes of private sector organizations that practise asset management are well aligned. For example, the importance of AM to the organization’s operations and profitability is clearly communicated throughout the organization and is aligned with encouraging highly effective management practices. However, there are different challenges for the public sector (i.e., government agencies and/or public organizations).

The nature of the organizational structure, administrative and financial environment, and the limits imposed by other authorities all contribute to the difficulty of applying AM concepts to the public sector. The following are some of the attributes of this environment that might make AM more difficult:

• Responsibilities for different areas of the public sector are dispersed among various government entities.
• Funding is frequently confined by prescriptive operations, restricting the freedom to allocate funds and often distributing these to what senior management perceives to be the most critical areas of need.
• Senior management does not often have access to adequate high-quality information that would help them undertake an analysis to assess asset trade-offs and make funding allocation decisions, making successful judgements regarding asset needs difficult.
• Systems and databases are frequently standalone and/or the result of many changing trial versions; often, they are cumbersome and outdated and require modernization. Such issues lead to poor system infrastructure and compound the challenges of system integration integrity, as well as the quality and timeliness of the data.

As a result of some of these issues, implementing capital purchases inside public sector organizations is prone to various difficulties.

Attributions

“8.3: Benefits and Drawbacks” 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.

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.