Bruno Leal and Tiago Leite | Digital Strategy Manager and Digital Strategy Consultant | everis Brazil

Asset Management Transformation: How to Leverage Asset Management in Companies

According to the accounting definition, fixed assets (or property, plant, and equipment) consist of a set of goods necessary for the maintenance and continuance of business activities, and they are composed of tangible assets (buildings, machinery, equipment, and others) and intangible assets (software, licenses, and patents). Resources used in or already allocated to the acquisition of tangible goods are also considered assets, even if they are not in operation yet, such as ongoing constructions.

Asset Management is a highly-relevant topic for any business segment, public or private organizations of any size. As asset management affects safe operations, regulatory obligations, and from an accounting point of view, the value of fixed assets — acquisition, depreciation, or residual value — is used in financial reports addressed to investors and creditors for the valuation of the company.

Thus, asset management encompasses a set of actions focused on ensuring the efficiency and effectiveness of activities related to these assets’ lifecycle on identifying the resources and requirements necessary for the management of these assets along the entire value chain.

The asset value chain can be summarized in five big processes. Namely:

· Acquisition: The acquisition process is part of the entire CAPEX planning up to the actual acquisition of a good/material. This pillar’s sub-processes refer to all demand planning, budget, CAPEX allocation to the necessary cost centers, drafting of materials supply agreements, price quotation, up to the actual purchase of the good.

· Activation: After acquiring the assets, the next step in the chain is activation, in which step assets will be classified, installed/implemented, and fixed. The latter refers to the bookkeeping of the asset’s value, at which point, the good starts to depreciate — that is, goods lose value over time due to wear and tear, use.

· Operation: From the moment the asset becomes a fixed asset, its operating cycle begins. In this step, specific monitoring by the accounting area is essential to ensure the asset’s correct valuation over time.

· Maintenance: The maintenance step is carried out by the operational departments responsible for managing field assets. Depending on the conditions of use, obsolescence, and performance, it may be necessary to perform maintenance or replace an asset. In this case, structuring integrated processes between the operation/maintenance departments and the accounting structure is essential to ensure that any changes and/or updates to assets be reflected both in the physical control systems and in the organization’s accounting control systems.

· Asset Retirement: An asset can be retired due to several factors, such as obsolescence, wear and tear, theft, vandalism, technological update, etc. To this end, it is important to have effective controls for the processes to ensure every asset that is physically removed be reflected in the accounting control; thus ensuring that every such asset of the company is correctly written-off

Source: own authorship — authors

For companies with high use of CAPEX, asset management is a highly relevant business process; as the asset is directly related to the end customer, it is necessary to ensure a certain level of service and deliver a quality product.

Also, different types of assets, such as equipment with different technologies and models, resulting in a high-complexity process to ensure asset traceability and identification, i.e., constantly identifying and tracking each asset’s physical location, affects the correlation of physical-accounting inputs throughout the lifecycles of the assets. Low traceability makes it difficult to forecast demands and resources, and it causes excessive and undue expenses.

However, to manage assets effectively, organizations need to overcome unnecessary bureaucracies and challenges that slow down activities, such as:

· Complex and decentralized processes, which provide low control of activities related to fixed assets;

· Use of several departmental, legacy, and obsolete systems, particularly systems that are not integrated. This is one of the main factors that causes loss of information, the duplicity of record, and divergences in inputs regarding the same item — when compared between physical (what is in the field, in operation) and accounting perspectives, assets recorded and valued in the accounting systems of the organizations.

· Inputs and procedures that are shared by all employees who perform these activities without defined standards will result in different ways to perform the same activity;

· Low use of resources with a high rate of manual and repetitive activities that do not require decision making or careful analysis;

· Therefore, as a result of all the other complexities, it isn’t easy to track an asset throughout its lifecycle.

Key challenges of Asset Management. (Source: own authorship — authors)

Given such complexities, everis proposes the use of emerging technologies for process digitization and automation, which, in addition to a transformative organizational culture, can create an optimized and collaborative asset management model with e2e visibility of the assets’ lifecycle.

Thus, we have identified the need to adjust the activities involved in the assets’ lifecycle through the assessment of the current scenario, identification of gaps, and proposal of improvements. Many of the improvements will be based on the precise application of techniques such as:

· Lean: adoption of a lean work model oriented to continuous improvement, focusing on the review of operational processes, simplification of unnecessary activities and bureaucracies, ensuring the efficiency of processes with the implementation of control points through the monitoring of performance indicators;

· Automation: In addition to Lean, automation is a proposed action to reduce the volume of manual actions in processes using technologies such as Robotic Process Automation (RPA). This kind of solution aims at reducing operational errors (often caused by incorrect manual insertions/interference in the process); as well as optimization of the lead time of a process, as robots can perform repetitive tasks much faster, more accurately, and with a better control level than humans.

· Cultural transformation: Ensure that employees responsible for asset management activities are the lead players in the improvements, monitoring, and independently controlling the assets’ lifecycle towards an end-to-end vision. Besides, ensure the effectiveness in the operational relation between automation and humans, maintaining the level of service, integration, and proposing improvements that ensure the constant evolution of asset management;

· Blockchain: In short, we can characterize blockchain as a technology that allows us to track the submission and receipt of some types of inputs in an online and autonomous way. It works as bits of codes generated online, which carry connected inputs — like data blocks that form a chain — thus the name blockchain.

Blockchain provides the integration of all inputs generated and transmitted along the entire asset chain into a single platform within the scope of asset management. Such management is made possible with the implementation of calibrated Blockchain to capture the assets’ physical data, such as storage, movement, defective status, theft, and inventories, reconciling such physical data with the accounting data. Thus, blockchain promotes a high level of accuracy of inputs so that asset management can generate all the necessary financial reports. Also, concentrating data in a single platform benefits control through KPIs with real-time updates.

The transformation of the asset chain, using more fluid processes and technologies that simplify operationalization, provides a more comprehensive view of the assets, facilitating CAPEX control, audit, and management processes. Also, they guarantee better quality in the service level of companies, positively impacting the end-customer experience.

To start this transformation, companies must have a comprehensive understanding of the processes that are part of the chain, implementing an effective governance model, critical digitization processes, and strategic control points that allow us to evaluate any non-compliances with rules and breaking points.

everis has extensive experience transforming clients’ asset chain, from understanding scenarios and challenges to building more efficient operational models, applying an integrated approach of strategy, technology, and human capital, and it guarantees structural

Exponential intelligence for exponential companies