8 Ways to Manage Assets Effectively
In any competitive business environment, business profitability is not just a function of revenue, but also the efficient management of resources. For manufacturing firms, and increasingly for high-end service firms, fixed assets often comprise a significant portion of the total assets of a business, and account for a significant portion of the company balance sheet. Since these assets are physical and yet can be moved around, this can lead to a weak tracking mechanism and therefore inadvertent loss of the assets – either in actual loss (damage, pilferage, etc.) or in terms of their utilization – lost machine-hours, poor service or utilization leading to higher maintenance cost, etc.
In order to extract maximum value from the assets available, a robust tracking mechanism is a requirement that any financial and operational exercise needs to have. Here are 8 key aspects of ensuring the right way to manage fixed assets.
1. Accountability and safe custody of assets:
When any asset is bought by a company, its ownership needs to be assigned to the right department or function. A robust attribution and ownership tracking system ensures that the asset once assigned is recorded on the list of assets assigned to that team and the latter is held accountable for the utilization of that asset. Since an asset depreciates over time, ensuring that its optimal utilization is achieved becomes the responsibility of that department. Any incidence of misuse or pilferage can be tracked better with ownership allocation in the system. Owners should be required to provide a timely periodic verification of the assets in their custody and its utilization, along with revenue generation if possible.
2. Fixed Asset Tracking:
Any enterprise as it grows will add on fixed assets. Unlike the term, many of these fixed assets are indeed mobile – that is they can be relocated from one place to another, one department to another. Laptops, different kinds of machinery, vehicles, mobile equipment, are all fixed “mobile” assets that need to be tracked and transferred as per the project, department or business they are allocated to. In order to keep these assets safe and productive, tracking mechanisms such as barcode or QR code tracking and even RFID / GPS tracking may be needed. Maintaining up to date asset information by keeping track of their location, usage, custodian, maintenance, insurance etc. could help managers maintain the safety, productivity and efficiency of these fixed assets.
3. Asset Value Tracking:
Another important aspect of asset tracking is depreciation, servicing and revenue generation. Assets once utilized need to be amortized and their replacement needs to be budgeted for. Similar is the case for servicing and maintenance to ensure equipment works at efficient levels. Keeping track of warranty, annual maintenance contract and insurance reduces undue costs due to mismanagement. Planning for redundancy is another aspect. For example, cell phones provided to field sales or service teams need to be serviced and tracked for life of equipment and their timely replacement planned to ensure the devices remain up to date with current application needs. Value generated by these assets can also be measured through tools like Fixed Asset Turnover ratio (refer our previous post)
4. Asset audit trail and history:
Asset life-cycle management is the process of controlling, monitoring and accounting for assets throughout their life cycle. Tracking and recording every detail of every action ever made by any user from acquisition date through the date of disposal; while preserving the entire history of the asset.
This process also ensures robust audit trail and enforcement of internal controls to meet compliance norms as well as detect, analyse, and correct any significant errors and omissions before they affect the accuracy and profitability in financial statements.
Further, linking ‘parent/child’ assets (e.g. PC as parent, software as child) can enable establishing hierarchical relationships and dependencies. This interconnected information can ease tracking, depreciating, maintenance and disposal of child assets.
5. Tagging physical assets:
Practice of asset labelling provides an effective and appropriate management and control system for assets. Unique identifiers coupled with gatekeeping like RFID tracking ensures efficient tracking of asset movement and allocation. This is particularly useful in the case of multi-locational and multi-project utilization of fixed assets. For example, equipment used in one project when transferred to another location to a different project needs to be tracked in terms of handover from previous owner/location/business, etc. This keeps physical asset audit simple and efficient when coupled with fixed asset management software like Tracet. QR codes, bar codes and RFID tags are the most popular forms of tracking physical assets.
Where an enterprise owns multiple fixed assets that are nearly identical, for example laptops, it can result in errors by creating duplicate asset records or failing to dispose of the correct asset when identical assets are retired. RFID tagging is one of the best ways to ensure minimization of such errors in the system.
6. Physical asset verification:
Physical asset verification is part of the audit process and needs to be done periodically to prevent ghost assets. A ghost asset is one that is in the records but is physically not present, being lost, stolen, damaged or sold. For the purpose of optimal management, asset managers should resort to periodical physical asset verification to ensure existence of asset, and reconcile the same with the records of assets kept with the finance department. As part of the reconciliation, exceptions should be identified and reported for action if any. Sometimes, surplus assets may also be found, i.e. assets which are being used but not recorded in the system. For example, a new employee is allotted a laptop but the same still resides on the books of the IT/Purchase department.
Best practices may include matching, scanning, and attaching corresponding invoices to your asset records. This provides management with accurate assessments of the fixed asset across the entire organization as to where critical assets are located, in what condition and how efficiently they are being used.
7. Adhering to compliances:
Complying with various legal, statutory and tax rules and regulations (e.g. Companies Act, Income tax act, Internal auditing standards; etc.) can be accurately carried out by maintaining complete asset information across its life cycle along with timely and reliable reporting. Computing accurate depreciation, impairment testing and allowances would establish credibility of financial statements and provide tax benefits as eligible.
For businesses operating across the globe, consolidating multiple books allows important asset information to be shared across multiple companies, enabling compliance with both local and group depreciation practices and policies. Consolidation at one single place can provide insights for quick and informed decision-making. It also means that multiple lines of business can share and act on the same asset information including financial depreciation, net book value, shipping, asset locations, customer issues, recalls, life, and replacement value.
8. Establish SOPs & strong internal control and analysis process:
Standard Operating Practices (SOPs) create a consistent and repeatable means to effectively manage all fixed assets throughout an organization. Fixed assets being normally high value items, establishing SOPs and internal controls would ensure their acquisition; maintenance and disposals are adequately managed leaving little risk of incidences such as existence of ghost assets, theft, misuse & errors that eventually erodes profitability of business.
Conducting regular fixed asset analysis of its usage, installed capacity, utilization, functionality, etc. would provide deep insights for critical decision – making and action that would substantially upscale return on investment (ROI) of assets and overall business profitability.
A good asset management strategy will ensure that the business can:
1. Maximize the return on capital investment;
2. Reduce risks and increase efficiency of asset management, saving costs and administrative time;
3. Improve the accuracy of both financial and tax reporting and compliances