What is asset management?
The process of creating, running, maintaining, and selling assets in a cost-effective way is referred to as asset management. Individuals or organizations that manage assets on behalf of individuals or other entities are referred to as asset managers in finance. When you are into capital markets investments, you should have a strong understanding on asset management. That’s because the overall understanding you have on asset management can deliver some prominent benefits to you. You will appreciate the support that the knowledge you have on asset management can deliver.
Asset management is about managing assets
ICMA says every business should maintain track of its assets. As a result, its stakeholders will be aware of which assets are accessible to be used to generate the best possible profits. Any company's assets are divided into two categories: fixed and current assets. Assets bought for long-term usage are referred to as fixed or non-current assets, whereas current assets may be turned into cash in a short period of time.
When it comes to asset management, managers are frequently faced with two issues. The first question is: what function does asset management play? Second, how can a company create an effective asset management strategy?
The importance of asset management.
There are numerous reasons why asset management might be a priority for organizations. Let’s take a look at some of the most prominent reasons that highlight the importance of asset management. Upon understanding these facts, you may proceed with asset management on your own.
1. Allows a company to keep track of all of its assets.
The method makes it simple for businesses to maintain track of their assets, whether they are liquid or fixed. Firm owners will be able to see where assets are situated, how they are being used, and whether they have been modified. As a result, asset recovery may be done more effectively, resulting in better profits.
2. Assists in ensuring the correctness of amortization rates
Because assets are reviewed on a regular basis, the asset management process guarantees that the financial statements accurately reflect them.
3. Aids in the identification and management of hazards
Asset management is the process of identifying and managing risks associated with the use and ownership of certain assets. It implies that a company will always be prepared to deal with any risk that may arise.
4. Removes phantom assets from the inventory of the firm.
There have been instances where assets that have been lost, destroyed, or stolen have been incorrectly reported on the books. The firm's owners will be informed of any assets that have been lost as a result of a strategic asset management strategy, and they will be removed from the books.
How to create a plan for asset management?
Asset ownership is an element of any business, whether public or private. A company owner must establish a strategic plan in order to successfully manage the assets. Some people believe that creating a plan for asset management is just a waste of time. However, there are some key benefits that you can get out of the plan you create. Let’s explore some of the benefits that you can get out of the plan.
1. Make a list of your assets.
Before doing anything else, an owner must inventory all of his assets. He won't be able to manage his inventory efficiently if he doesn't know how many assets he has. The following items should be included in an inventory of firm assets:
- The total number of assets
- Where are the assets located?
- The worth of every asset
- When were the assets purchased?
- The assets' anticipated life periods
2. Calculate the total cost of ownership.
If a business owner wants to be exact with his asset management strategy, he should evaluate each asset's complete life-cycle expenses. Many business owners make the mistake of simply considering the initial purchase price.
Additional costs, such as maintenance, condition and performance modelling, and disposal costs, are expected to arise over the asset's life cycle.
3. Service levels should be defined.
Following the computation of life-cycle costs, the next step is to determine service levels. Simply said, it entails describing the overall quality, capacity, and function of the many services provided by the assets. As a result, a company's owner can determine the necessary operating, maintenance, and renewal actions to keep the assets in excellent working order.
4. Make long-term financial planning a priority.
A firm's asset management strategy should, in theory, readily convert into long-term financial goals. With a solid financial plan in place, the business owner can determine which goals are achievable and which should be prioritized.
Asset Management's Advantages
There are several advantages to implementing an asset management plan, including:
1. Improving the gathering and utilization of information
A business owner may enhance their strategy for acquiring and using assets by keeping track of them throughout their entire cycle. Cisco Systems is a wonderful example of a company that was able to save money by using PC asset management. When putting such a plan in place, the firm identified inefficient purchasing habits, which it remedied by creating a better procedure for acquiring the equipment that workers require.
2. Improving adherence
Government agencies, non-profit groups, and businesses must provide detailed reports detailing how they acquire, use, and dispose of assets. A majority of them keep track of their assets in a single database to make reporting easier. As a result, when it comes time to create the reports at the end of the fiscal year, they will have easy access to all of the information they want.
Asset management is a system that allows businesses to keep track of all of their assets, including cars, equipment, and investments. Keeping track of assets may assist expedite operations, especially when it comes to selling or disposing of them. Because all accessible assets are adequately accounted for, the approach reduces the risk of registering ghost assets.