Home Finance What Is Asset Management? The Overview, Benefits, And Process

What Is Asset Management? The Overview, Benefits, And Process

what is asset management

Whether you are an individual or a company- an asset is what defines you. We all know what assets mean. But managing an asset is something different from just having assets. Asset Management Process is one essential aspect of the financial world. So, what is asset management? You have heard of this before, but you may not have a clear concept on the same. Your assets need regular maintenance like all other things in your company and life. The following sections will describe it in detail.

An Easy Definition of Asset Management

In short words- asset management means cost-effectively managing your assets. Managing assets involves its development, operation, maintenance, and selling. Some firms or individuals engage themselves in working the same for you or your company.

Categories of Assets

There are mainly two types of assets in a company- fixed assets and current assets. In short, the fixed assets are the ones that are intended for long-term use. On the other hand, the current assets can convert themselves into cash within a brief period.

You must always keep track of your assets. When your assets are managed efficiently, it becomes easier for the stakeholders to understand what assets are available from your company and what assets they can use for appropriate returns.

You should be aware of two main questions before going into details of the topic.

  1. What is the function of asset management and what is so important?
  2.  2. How can you develop the best strategic plan for asset management?

Importance and Value

Managing your assets is essential for you and your company and the reasons are many. The pointwise description will help you to get a better view of this.

1. Proper tracking of assets

As mentioned earlier, proper tracking of assets is essential for your business. Whether it’s your current asset or your fixed one, a proper track on both will help you get higher returns. Experienced personnel or firms can help you with guiding correctly. They have profound knowledge of where the assets are located and how and when they can be used. They also know the changes required in your assets with time. The result is, assets are recovered more effectively and you are getting higher returns out of it.

2. Risk management and identification

When you have assets, you have risks with it. These risks arise as a result of having ownership or using certain assets without adequately knowing about it. The firms that deal with the asset management process are experts in this matter and can counter the risks that come in the way.

3. Assurance of accuracy of paying-off rates

Financial statements require regular updating. When your assets are well managed they remain synchronized with your financial statements. As a result, this guarantees the accuracy of your company’s paying-off rates.

4. Removal of invisible assets

Sometimes, assets are lost, damaged, or stolen. There are many such instances when these so-called invisible assets are recorded without being noticed. The expert personnel or the firm engages themselves in removing these invisible assets from the record and making sure not to include them in their future records. The process with a proper strategic plan helps them in these matters.

Advantages of Asset Management

So far, you have gained knowledge of asset management and its importance. But, it is essential to know the benefits of you or your company.

1. Healthy business practice

When you properly manage the complete process, you start making better decisions because you have clear scenery of what you have and how you can use it. With a proper strategic management plan, you will get the direction towards your future objectives and missions. This, in turn, will lead to long-term success for your company.

2. Compliance improvement

Non-profit organizations, companies, and even government organizations must provide a detailed and precise report where they need to mention the use, dispose, and acquisition of assets with clarity. This is not a matter of a day. So, some companies prefer to keep the records in a central database. In conclusion, this helps them effortlessly assemble the reports at the end of the financial year and quickly access the required information from the database.

3. Perpetual System Integration

It is essential to sustain a business with proper assets. When you can relate the costs with the condition of assets, you move a step ahead to each asset’s comprehensive planning. The result is, you will have adequate reinvestment for infrastructure. A proper asset management process will help you to sustain the infrastructure too.

4. Cost-effectiveness

It is already proved that a proper asset management plan will not only reduce the maintenance and operating cost but also reduce the long-term capital expenses. This happens because the asset management system manages the infrastructure in a consistent state and curtails the life cycle costs. In a life cycle point of view, the utility always gets the maximum assets for its money.

5. Reliability

How would you feel if you face an unexpected failure in your asset system? Of course, you will not like to face such a situation. Regular scrutiny of your asset condition is needed to reduce emergency repair, customer-related issues, and unexpected failures. In this case, the assessment of the risk of asset failure minimizes the risk and focuses on vital priorities involved.

Asset Management Process

Firstly, Knowing about your assets is not enough. A proper strategy for managing your assets is what you need. Appropriate management of the asset process has sequential steps to follow.

1. Completion of asset inventory

Before starting anything else, you should count your ownership assets. It is pretty sure that if you don’t know the exact number of assets you own in the inventory, you will not manage it effectively.

So, the first step of the asset management process includes the following:

1. Counting the total number of assets

2. The position of assets, i.e., where they are located

3. Valuation of each and every asset

4. Period of asset acquisition

5. Estimated life-cycle of the assets

2. Computing the life cycle costs

The word ‘life cycle of assets’ has been mentioned quite a several times. What is it?

Asset Life Cycle is the number of phases in the journey of your company’s assets that it covers under your ownership. The life cycle is the period when you can effectively use your asset to achieve your goals.

So, you see, this is a crucial step in the process. If you want an accurate plan, you have to calculate the life cycle of each asset. The major inaccuracy is to calculate the initial purchase cost only.

There are additional costs like maintenance cost, cost incurred in changes in its performance and condition, and last but not least is the cost of disposal should be included in the life cycle cost.

3. Setting the tiers of service

The third step in the process is to set the tiers of services. What does this mean? In short, your assets provide varied services in its life span and you should outline the quality, competence, and roles of different services that each of your assets provides.

You are pre-determining the maintenance and renewal actions of assets by following this step.

4. Working on Lifelong Financial Planning

This step in the asset management process involves understanding and visualizing the continuing financial planning of your business. Therefore, Your main motto is to convert your assets into long-lasting financial plans. Thus, you can choose which objective is more critical and needs a priority.

Improving asset management

You, as a company owner, should focus on seven questions that can improve your asset management to a large extent.

1. What is the reason behind the existence of the asset?

2. What is the purpose and present condition of your asset?

3. Is your asset useful and valuable to be managed?

4. What are your future demands based on the asset to be managed?

5. What is required to maintain and improve your asset’s lifecycle?

6. What is the risk associated and the depreciation rate of the asset?

7. When are you going to withdraw your assets permanently for use?

The Two Views

Asset management has two views. It has one view for a company owner and a separate view for a firm’s personnel who have expertise in the asset management process.

In the first case, the company owner defines asset management as the process of maintaining the company’s physical and insubstantial assets and utilizing them for the best. The owner knows about the company’s assets at its best.

In the second instance, the asset advisor of the asset management firm manages the asset by correlating and supervising the concerned company’s financial status. It will look into account insurance, budget, taxes, and investments while working on asset management.

When the asset information from the company owner and the asset management firm’s expertise meet together, it is evident that a precise and commendable asset management plan will be formed, which will benefit the company.

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