Asset Management 

What is Asset Management?

Asset management refers to the process of developing, operating, maintaining, and selling assets in a cost-effective manner. Most commonly used in finance, the term is used in reference to individuals or firms that manage assets on behalf of individuals or other entities.


Every company needs to keep track of its assets. That way, its stakeholders will know which assets are available to be employed to provide optimal returns. The assets owned by any business fall into two main categories: fixed and current assets. Fixed or non-current assets refer to assets acquired for long-term use, while current assets are those that can be converted into cash within a short amount of time.


Importance of Asset Management : 

1. Enables a firm to account for all of its assets

The process makes it easy for organizations to keep track of their assets, whether liquid or fixed. Firm owners will know where assets are located, how they are being put to use, and whether there have been changes made to them. Consequently, the recovery of assets can be done more efficiently, hence, leading to higher returns.

2. Helps guarantee the accuracy of amortization rates

Since assets are checked on a regular basis, the process of asset management ensures that the financial statements record them properly.


3. Helps identify and manage risks

Asset management encompasses the identification and management of risks that arise from the utilization and ownership of certain assets. It means that a firm will always be prepared to manage any risk that comes its way.


•Developing a Strategic Asset Management Plan

Asset ownership is part of any public or private enterprise. To manage the assets effectively, a firm owner needs to develop a strategic plan.


1. Complete an asset inventory

  • Total count of assets
  • Where the assets are
  • The value of each asset
  • When the assets were acquired
  • The expected life cycles of the assets

2. Compute life-cycle costs
If a business owner wants his asset management plan to be precise, then he should calculate the entire life-cycle costs of each asset. Many company owners make the mistake of calculating only the initial purchase costs.



3. Set levels of service
After computing the life-cycle costs, the next step is to set levels of service. Put simply, it means outlining the overall quality, capacity, and role of the different services that the assets provide. In doing so, a firm’s owner can then determine the operating, maintenance, and renewal activities needed to keep the assets in good condition.

 

4. Exercise long-term financial planning
Ideally, the asset management process that a firm owner adapts should easily translate into long-term financial plans. With a good financial plan in place, the owner can then assess which objectives are feasible, and which ones need to be prioritized.



Benefits of Asset MANAGEMENT

• Improving Acquisition & use
• Improving compliance




Summary
Asset management is simply a system that helps companies keep track of all their assets, such as vehicles, equipment, and investments. Keeping tabs on the assets helps streamline operations, especially in relation to their sale or disposal. The process also minimizes the chance of recording ghost assets since all the available assets are well accounted for.


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