This article will show you how to create a powerful and effective business case that provides hard metrics which justify the investment in an asset management solution. This step-by-step article will walk you through the main themes so you can select the ones that fit your scenario, then use them to create a business case for your management team. We even include a complete Excel template that can be used to gather and model the likely costs and benefits associated with your investment.
The main motivations for implementing an asset management solution are:
- Asset loss prevention and recovery
- Increasing operational efficiency
- Business process automation
- Tracking and managing the asset register
- Completing an accurate inventory
- Maintaining an accurate inventory
- Elimination of ghost assets
- Tracking warranty and service records
- Regulatory compliance
- Industry best practices
How to use this list
You should use this list as the starting point to identify the key drivers for your business case. In most instances, your sponsors or leadership team will be focused on one to three main themes. Those are the ones you should focus on in your proposal. You can also include the others to strengthen your argument and further highlight other benefits which may not have been considered before.
We will run through the main drivers for asset management one-by-one, so that you gain a basic understanding of them before deciding which ones to highlight in your proposal.
Asset loss prevention and recovery
Studies have shown that the organization which lacks an effective asset management system, loses between 5 and 10% of their fixed assets each year. This is especially true for smaller, movable, valuable assets that are regularly transferred from person-to-person and location-to-location. The reasons for loss vary greatly from accidental loss to theft and organized crime. Unfortunately, we regularly hear from tool and equipment companies that have been victims of robbery (notably break-ins) and have had thousands of dollars of tools and equipment stolen. In these cases, the immediate challenge is to provide an accurate inventory list to law enforcement and insurance companies in order to receive judicial and financial recompense. However, without adequate tracking that can be a challenging task. We also discovered that some insurance companies require a serial number be provided for every item before paying the claim. You should check your insurance to see whether this clause applies to you and ensure you do receive recompense from your insurance, if you have to claim.
Increasing operational efficiency
In most cases there are also significant operational efficiency benefits that come from knowing what assets your organization has, where they are located and who is responsible for them. If you also keep good records and track financial information, warranty information and service records, the benefits can really add up. For example, to be able to answer simple questions such as “How many Chromebook computers do we have in ABC Community School?” can be beneficial, versus having to look up old purchase order records or perform a manual count. It’s simply a case of time costs money! And it doesn’t end there!
Over and over, staff need to quickly and securely gain access to accurate information about the assets they own. A simple system can drive significant cost saving efficiencies due to reduced manpower and delays in completing simple tasks like inventory checks. Another common example is when a person leaves an organization and you must take their equipment back. This is a surprisingly common source of accidental asset loss and over time, adds up to unnecessary costly lost. Questions like, “What equipment does Joe have assigned to him,” can be easily answered with an asset management system. Many systems automate the check in and check out process speeding it up to create additional labor savings too.
Business process automation
Many organizations need to be able to track and manage assets and inventory as they are used as part of the regular operation. For example, a rental company may need a simple but effective way to keep track of the items that are rented out, so they can be tracked and customers billed correctly when they are returned. A university department may need a way to loan out lab materials to students, and keeping track of these items through the school year, and ensure they get them back. These are just a few examples of how an asset management system can help automate key processes that an organization depends on.
Of course in some cases there’s a need to customize the solution so that it fits well with how the organization operates today. There’s also often a need to be able to customize reports and data extracts in order to get the most value. Sometimes these types of process automation alone are enough to justify the investment required.
Tracking and managing the asset register (Accountants love this)
If you’re an accountant or book keeper, your goals will most likely be focused here. You want a simple and secure solution that will allow you to create and maintain an accurate asset register, track and calculate depreciation and perhaps synchronize the data with your accounting system. You need to be able to complete an accurate inventory off your assets, recording their status and condition so that you can accurately track their value on your organization balance sheet and record depreciation.
Ghost assets may also be a problem; these are assets that you are still tracking as part of your inventory but that are actually impaired or permanently lost. The root cause of ghost assets is an inaccurate asset register usually caused by an out-of-date or inaccurate inventory of your assets. The financial impact of ghost assets includes over-paying maintenance, support and insurance for assets you no longer have available for use. The impact of ghost assets can also extend to operational costs through inaccurate information. For example, an engineer travels 3 hours to a site to perform a task assuming that asset ‘x’ will be there, only to find it missing which results in another trip to find a replacement for asset ‘x’. Thus several hours of lost time can ensue due to one piece of inaccurate information and as we know, time is money.
Tracking warranty and service records
Many organizations lack an effective tool or process for managing all the warranty and service records for the assets they own. As a result, they frequently fail to pay – or even overpay – for routine repair and maintenance work. In some cases, skipping key maintenance tasks can result in an impaired asset that causes other downstream problem and inefficiencies. For example, a test device that has not received its annual maintenance check and so is out of spec, creates incorrect test readings, which result in badly calibrated industrial processes, which lead to waste in the production process resulting in thousands of dollars of written off product. In this example, the implementation of an asset management system that includes tracking warranty contract details and maintenance recodes resolves this problem, would ensure this problem never occurred.
As a result of changes likes the Sarbanes–Oxley Act, companies are now required to have their executives sign off on their financial statements. Specifically, company leaders are required to sign off on the status of their fixed assets, balance sheet and depreciation recorded as part of their financial filing process. This binds them legally to the statements made and renders them liable to prosecution for misstatements and errors. So there’s a direct financial link between the need to track and manage fixed assets and financial regulatory compliance for Sarbanes-Oxley.
Many industries are also required to comply with other regulations, healthcare is a great example where a great deal of additional requirements are placed on companies.
Industry best practices
All industries develop common best practices for how they operate effectively. These practices become the table-stakes for success and therefore are top priorities for implementation and improvement. Take an equipment rental company for example, they need a system to track the assignment and usage for each piece of equipment so they can accurately bill the customer, track wear and tear, and plan for maintenance and repairs. Spreadsheets and lists just don’t cut it, today. With the advent of ubiquitous smartphones, Bring Your Own Device (BYOD), internet access and cloud-computer many companies want to be able to enable their employees complete all common business tasks on-the-go, using the mobile computing devices they already have.
Creating the business case
The core of a business case relies on well prepared recommendations that outline the current problem or challenge, recommends one or more solution options and includes an estimate of the resources required to implement the solution and the expected benefits. Ideally the resource costs and the benefits are shown in dollars and split out with one-time charges, recurring costs and other categories separated as needed.
If you follow this approach you will avoid the most common errors of writing an asset management proposal and maximize the chance that your recommendation will be approved. This way you will also demonstrate that you have completed a reasonable level of due diligence and can be trusted to make your recommendation based on more that ‘gut feelings’.
Here are the simple steps recommended to frame up your business case proposal:
- Decide on your problem statement. Pick the key problem/s your proposal will address. You can always reference additional benefits, but it’s best to start with a central theme that will resonate with your stakeholders and leaders.
- Document the requirements for your solution in simple terms. You may consider using the ‘Use Case’ model which is common in IT and ensures your requirements are all mapped to something a user is concerned about and follows a consistent format. One of the most common is like this… ‘As a [user role] I want to be able to [Requirement] so that [What it addresses]. Just insert your own text in each Use Case sentence.
- Prioritize your requirements. In practice, you are unlikely to find a single solution that will address every requirement at a price you can afford. So, it’s important to make sure you know what’s most important. Force ranking the requirements top to bottom can also help.
- Search for solution options and compare them with the requirements. Note, you may want to create a grid in Excel to do this. Ultimately you want to focus on one recommendation but no more than 3.
- For your recommended solution option(s), estimate the total costs to implement the solution and also maintain it going forward. You can to take a broad look at the costs, as well as the benefits so you can accurately depict the scenario and proposed solution investment.
- Estimate the financial benefits. Include the hard (dollars you will actually spend/save) and soft (dollars that may be absorbed or deferred and are harder to quantify) financial benefits of your proposed solution along with other benefits, which can be used to bolster your recommendation to make the investment. For example, your primary problem statement may be loss prevention, but you may also benefit significantly from tracking warranty and service records.
- Summarize the investment required and benefits in financial terms where possible, and recap the key business benefits of your solution
Creating a powerful and effective business case is central to securing funding for your asset management solution. The best way to create a business plan is to follow a common sense structured approach that clearly communicate the problem, recommends practical solutions and includes all costs and benefits. Show that you have done your homework and are being realistic.
Fixed assets, balance sheets & depreciation – a simple explainer your accountant will love!
What is a ‘fixed asset’: This is an accounting term for any item an organization has acquired, which is expected to have a useful life that extends beyond one year. Since the useful life extends beyond a year, the item needs to be recorded on the company balance sheet as an fixed asset and contributes to the overall valuation of the company. In practice most organizations have hundreds or even thousands of assets. Each year, the organization checks on the status of these assets (usually by performing an inventory) to confirm they are still in the company’s possession and in good working order. Then any adjustments are made to the asset register (the record of fixed assets) of the fixed assets, which are then reflected in the balance sheet and tax returns, financial reports and so forth.
The term ‘fixed’ may be misleading, as in many cases, these assets can be small and portable in nature as opposed to large stationary items. Here’s an example. Joe’s construction company purchases a heavy excavator for $200,000 in cash. This is a fixed asset and is recorded on the balance sheet as an increase of $200,000, while the cash account decreases by $200,000. So at the point of the transaction the value of the company balance sheet is unchanged, though cash has decreased by $200,000 and fixed assets have increased by $200,000. Each year the company will reduce the value of the assets through a process called depreciation, which is intended to approximately account for the wear and tear and reduction in the current value of the asset. Let’s say a machine has a 10-year life, then one approach (straight line depreciation) would be to record an expense of $20,000 each year and reduce the value on the balance sheet by the same amount. So from this, it’s easy to see that lost or damaged fixed assets materially affect an organizations financial health.