Physical assets are goods held by a public or private organization (buildings, infrastructure, equipment, stocks of parts, etc.). Together with intangible assets, they constitute the capital of the institution and generate value, provided that they are well defined beforehand so that they can be managed efficiently, which is synonymous with performance.
The term physical assetis derived from the accounting definition, according to which a tangible capital asset is a tangible asset used during the operating cycle of an organization to achieve its mission. First and foremost, it is associated first and foremost with general use, a utility, to a building or infrastructure, such as a school, a sports or cultural venue, a hospital, an airport, a road, a factory. The primary purpose of a physical asset is therefore to generate value. However, a physical asset is also and by essence a complex system with a variety of specific uses (a school has classrooms, offices, a gymnasium, etc.). Its useful life is influenced by its original design and construction as well as by the efforts made to maintain it in good condition, in correlation with regulations, uses with varying durations and frequencies of use, climate change, the effects of pollution, energy control, etc.
It is in this context that the need to optimize the value of physical assets by better coordination of the actions to be taken, by arbitrating between the conflicting parameters of cost, performance, and risk, has emerged. This new discipline was born around 2004 with the implementation of the British PAS55 standard on asset management. Since 2014, the international standard ISO 55000 has replaced PAS55 and now provides a framework for asset management activities.
The ISO 55000 standard defines the term as follows: “an asset represents an item, thing or entity that has potential or actual value to an organization. The value will vary among different organizations and their stakeholders and may be tangible or intangible, financial or non-financial”. Its value and its declinations are therefore the ones you consider. It is therefore fundamental to precisely define your assets and then optimize these resources.
Knowing your assets in order to control them
There are two types of assets:
- physical assets, which usually refer to assets owned by the organization, such as buildings, infrastructure, equipment, parts inventories…
- intangible assets, by definition non-physical assets, such as leases, trademarks, digital assets, user rights, licenses, intellectual property rights, reputation, or agreements.
In a good asset management system, the main challenge is to determine what information is associated with the assets and the appropriate level of detail for each of these items of information. It is this set of information that determines both the human resource requirements and the successful achievement of the organization’s missions. In order to better understand the context in which its assets live, an organization must therefore necessarily have a microscopic view, but also one that looks at the bigger picture, one that is large scale and panoramic. This more macroscopic level is defined in the ISO 55000 standard by the term asset portfolio.
Each organization, according to its missions and fields of activity, determines its own variants of the definition of assets and asset portfolio; it is nevertheless possible to illustrate several types of portfolios :
- the set of buildings that make up an organization’s assets;
- all the technical equipment in a building;
- the set of spare parts for a piece of equipment.
Carefully determining the portfolio(s) to be included in the scope of the asset management system, and therefore mastering the definition of its assets, is a prerequisite for any asset portfolio optimization. For example, a local authority, as part of a building management policy through a property master plan (SDI), may define a portfolio of assets by asset typology (sport, culture, worship, social, etc.) and one building per asset.
Arbitrating judiciously between cost, performance, and risk
Generally speaking, asset management systems apply to both physical and intangible assets. In addition, ISO 55000 and its variants can be used in conjunction with other relevant standards and technical specifications depending on the type of asset and the business sector.
Asset management is suitable for all types of organizations, whether large, small, private, or public. When it is effective, it greatly enhances the organization’s ability to:
- control risk;
- know regulatory requirements;
- identify opportunities;
- reduce the costs of managing assets throughout their life cycle.
In short, it balances cost, performance, and risk to maximize asset value.
Choosing a custom-made and robust toolbox
In an increasingly digital ecosystem, software or web solutions coexist and make it possible to frame information, make it available, and relevant to all the actors of an organization. In the case of physical assets, the knowledge aspect is generally associated with management, through tools such as Computerized Maintenance Management Systems (CMMS), Geographic Information Systems (GIS), Enterprise Resource Planning (ERP), Decision Support Tools (DST), Building Information Modeling (BIM), etc. There is no single solution. Moreover, it is not desirable because only the combination of several tools and their interoperability confers robustness and “anti-fragmentation” to information systems and, consequently, to physical assets.
Managing means deciding and acting!
Asset management is no exception to this adage. Without taking into account all the characteristics of its assets, an organization is exposed to making its assets unreliable, unsafe, and ultimately unusable. Thus, maintaining the value in use, the utility, or the revaluation of your physical assets will guarantee the accomplishment of your mission under the best possible conditions.
Precisely identifying your physical assets and associating the relevant information with them is the guarantee of optimal and therefore profitable management of your property portfolio. Neglecting this step would quite simply be tantamount to jeopardizing your assets!
Keywords: Physical asset, Asset management, Value, ISO 55000, Building, Infrastructure, Equipment, Inventory, Assets, Real estate master plan, Risks, PACKiT, myA
Date of the article: 22/04/2020
Editors: Joël BOCK, Jean-Pascal Foucault
Sources: Afnor, ISO 55000 Gestion d’actifs – Aperçu général, principes et terminologie, Version corrigée 2014-03-15 / The Institute of Asset Management, Asset Management – an anatomy, Version déc. 2015
