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- Riley Draper
Assets are an important part of any organization, whether physical assets like equipment or digital assets like software. But like any other property, assets have a life cycle that begins with planning and concludes with its disposal.
Understanding an asset’s life cycle is critical to maximizing its value and ensuring that it contributes to an organization’s success. In today’s growing business world, assets are the backbone of any successful organization, and its 5 stage life cycle is the roadmap that outlines the various stages of its existence.
Looking to own an asset? Here’s all you need to know about an asset’s life cycle.
What is an Asset?
An asset is a resource that an individual or organization owns, controls, or has the right to use and that has value, and the potential to provide economic benefits in the future. Assets can be tangible or intangible, and they can be used to generate revenue, increase the value of the organization, or support business operations.
Types of Assets
Although assets are primarily classified as tangible or intangible, they can also be classified in various ways, depending on the organization or individual in charge. Some examples of common asset types include:
- Fixed Assets: These are long-term assets that are unlikely to be converted. Land, buildings, equipment, and vehicles are some examples.
- Current Assets: Current assets will be converted to cash within a year or business cycle. Cash accounts receivable, and inventory are all examples.
- Tangible Assets: Physical assets that can be touched, seen, and quantified are referred to as tangible assets. Buildings, vehicles, and equipment are all examples.
- Intangible Assets: Non-physical assets with value, such as intellectual property, patents, trademarks, and copyrights, are examples of intangible assets.
- Operating Assets: These are assets that generate revenue in the normal course of business operations. Inventory, machinery, and equipment are some examples.
- Non-operating Assets: Non-operating assets are not directly used in business operations but may generate income, such as investments in other companies or real estate holdings.
- Financial Assets: They are income-generating assets such as bonds, stocks, and cash equivalents.
What Is An Asset Life Cycle?
Each stage of an asset’s useful life within a company is referred to as its lifetime. The asset life cycle begins with planning and purchase and includes asset utilization, upkeep/maintenance, and final disposal. Because different asset types have different usable lifetimes, this method will vary depending on the item.
The useful life of an asset may differ from different perspectives. Operationally, the useful life may extend until the cost of maintenance and repair eventually exceed the cost of replacement, even though from an accounting perspective, the useful life will be the period over which depreciation occurred.
Asset Life Cycle Management
Asset management manages an organization’s assets to maximize value, reduce costs, and improve profitability. It entails a systematic approach to asset acquisition, use, maintenance, and disposal throughout their life cycle, from planning and procurement to decommissioning and disposal.
Asset management is critical for businesses of all sizes and types because it allows them to make informed decisions about their assets and align them with their strategic goals. Identifying and asset tracking, assessing their value and performance, identifying opportunities for improvement, and making informed decisions about asset acquisition, use, and disposal are all part of effective asset management.
Physical assets, such as real estate, equipment, and vehicles, and financial assets, such as stocks, bonds, and other investments, are some of the most common types of assets managed. Furthermore, intellectual property, human capital, and intangible assets such as IT software are assets that are frequently managed as part of an organization’s asset management strategy.
Overall, effective asset management can assist organizations in improving their financial performance, reducing risk, and maintaining a competitive edge in a rapidly changing business environment.
The 5 Key Stages In Asset Life Cycle Management
An asset management team manages a company’s assets. Their goal is to assist the company in tracking changes to their assets, how they are configured, and where they are located. An asset, no matter how large or small, cheap or valuable, goes through five key stages and the asset life cycle.
1. Planning Stage
The asset life cycle begins with the planning stage. It is the first stage, and it occurs when the current asset is not meeting the organization’s needs. The asset is identified, and its requirements are defined at this stage.
Following that, a plan is developed outlining how the asset will be acquired and used to meet the current and future needs of the organization using data from an asset management system and input from key stakeholders.
This stage entails determining the asset’s purpose as well as its expected life span. The asset’s purpose is determined by the needs of the business, which may include increasing productivity, lowering costs, or improving the quality of a product or service.
Factors such as technological advancements, changing regulations, or environmental factors can all impact the asset’s expected life cycle. However, it is critical to consider the total cost of ownership during the planning stage, including the purchase, installation, training, and maintenance costs, to ensure that the asset is cost-effective and can be integrated into the organization’s operations.
It is also critical to consider the asset’s potential impact on the environment, health, and safety and to plan for any necessary risk-mitigation measures.
2. Procurement Stage
The second stage of the asset life cycle is asset acquisition. This is the stage at which the asset is obtained, whether by purchase, lease, or construction. Negotiating the purchase or lease agreement, supervising the construction process, and ensuring that the asset is delivered on time and within budget are all part of the acquisition stage.
It is important to ensure that the asset is purchased from a reputable and reliable supplier and that the supplier provides adequate warranties and support. Additionally, the asset should be tested to ensure that it meets the required specifications, is identical to the gathered asset data, and is compatible with other systems and processes.
Assembly, setup, testing, inspection, and asset tracking in your computerized maintenance management system (CMMS) or enterprise asset management (EAM) software are all activities included in this stage.
3. Utilization Stage
This is the most time-consuming stage of asset management. At this point, the asset is finally being used for the purpose for which it was purchased. It generates revenue and generates returns on capital. This stage includes upgrades, patch fixes, the purchase of new licenses, compliance audits, and cost-benefit analysis.
Typically, the operations team is in charge of an asset’s utilization stage. When the asset is on the production floor, it is constantly monitored for performance issues that may arise unexpectedly. During the “utilization” stage, the primary focus is on getting the most out of the asset.
4. Maintenance Stage
The maintenance stage is the fourth stage in the asset life cycle. This stage is critical to ensure the asset functions properly and efficiently. The maintenance stage involves servicing, repairing, or updating the asset to maintain its functionality and ensure it operates at peak efficiency.
Regular maintenance and repairs are necessary to prolong the asset’s life and prevent costly downtime. This stage involves planned and unplanned maintenance activities, such as routine inspections and repairs, upgrades, and replacements.
It is important to follow the manufacturer’s maintenance schedule and keep detailed records of all maintenance activities during the maintenance stage. The asset’s performance should be monitored to identify potential issues, and proactive maintenance measures should be implemented to avoid equipment failures.
When repairs or replacements are required, it is critical that qualified technicians perform the work and that the proper parts and materials are used. Although newer equipment( assets) require fewer repairs, they age and require more frequent attention, which increases the risk of unplanned downtime.
So, some maintenance activities are put in place to best care for them;
- Routine maintenance
- Preventive maintenance
- Predictive maintenance or other maintenance strategies.
5. Disposal Stage
The disposal stage marks the end of an asset. It is usually done after a business has optimized or maximized the return on investment (ROI) an asset offers. An asset must be disposed of at the end of its useful life. Once the asset’s maintenance costs exceed the total cost of replacement, or the asset becomes obsolete, it’s time to dispose of it.
At this point, an organization must decide how to best dispose of the asset. Depending on the type of asset, this may entail selling, repurposing, recycling, or disposing of it. It may also involve removing or transferring all data in the case of IT asset management.
When disposing of certain assets, the process may include dismantling the asset so that it can be recycled in an environmentally friendly manner.
Benefits of Asset Life Cycle Management
There are numerous benefits of asset life cycle management, these include:
1. Reduced Downtime
Adhering to the life cycle management plan of an asset reduces the need for reactive maintenance, resulting in less downtime. You can control the asset’s downtime by planning preventive maintenance before the need for reactive maintenance arises.
Preventive maintenance reduces the possibility of unplanned, excessive downtime caused by reactive emergency maintenance. The maintenance can be scheduled outside of facility operating hours to avoid disrupting productivity.
2. Cost-effective Asset Management Approach
Longer asset lifespans and fewer replacements result in a more cost-effective approach to asset management. Preventive maintenance is often less expensive than reactive maintenance, allowing businesses to save money on asset maintenance.
3. Better Decision-making Process
Asset life cycle management provides information about your facility that you would otherwise overlook. This information can help you make better decisions and plan for the future. Like when you are trying to decide whether to repair or replace something, you’ll have financial data to back up your reasoning and help you find the most cost-effective solution.
4. Improved Visibility and Accountability
An effective asset life cycle management gives organizations visibility into the status and condition of their assets, which can help to increase accountability and reduce risk.
5. Cost Savings
An efficient facility is a low-cost facility. All of the benefits of asset life cycle management result in cost savings – Longer lifespans result in less frequent purchases of new equipment, which saves money. Reduced downtime eventually means more uptime, which means more money.
Reactive maintenance is typically 3-9 times more expensive than preventive maintenance. You can save a lot of money on maintenance by planning ahead of time with asset life cycle management. And by managing the entire life cycle of an asset, including acquisition, operation, and disposal, organizations can identify cost-saving opportunities.
For example, proper maintenance can help to extend the lifespan of an asset, which reduces the need for replacement and disposal costs.
6. Improved Asset Performance
Effective asset life cycle management ensures that assets perform optimally throughout their life cycle. This can assist organizations in avoiding downtime, lowering maintenance costs, and increasing productivity.
7. Regulatory Compliance
Regulatory compliance means following laws and guidelines set by regulatory bodies. Asset life cycle management includes adhering to regulations for environmental management, health and safety, and industry-specific standards (including the OSH Act of 1970).
Compliance reduces the risk of legal penalties and reputational damage. By considering compliance requirements in asset management processes, organizations can reduce the risk of non-compliance.
8. Enhanced Asset Tracking and Inventory Management
Asset life cycle management can help organizations track and manage their assets more effectively, reducing the risk of lost or stolen assets and improving inventory management. In conclusion, understanding the five-stage life cycle of an asset and its management is crucial for organizations to optimize their operations, reduce costs, and ensure the longevity of their assets.
Implementing an asset management solution, such as asset management software, can streamline the management process, automate repetitive tasks, and provide valuable metrics to measure performance. From the acquisition of a new asset to its disposal, each stage requires careful planning and execution.
Regular maintenance and inspections are essential to prevent breakdowns and extend an asset’s lifespan. When breakdowns do occur, quick and effective responses can minimize downtime and prevent further damage.
By utilizing asset management software, organizations can track an asset’s entire life cycle and gain insight into its performance, maintenance history, and overall value. This data can inform future purchasing decisions and enable organizations to make informed decisions about retiring or replacing an asset.
Applying Asset Life Cycle Theories In Your Business
Asset life cycle management solutions can greatly benefit organizations by helping them optimize asset management and improve overall operations. By being aware of every stage their asset passes through as it completes its useful life, businesses can maximize them properly.
Are you planning to get new assets for your business? It is essential to carefully consider the five-stage life cycle of an asset and implement best practices to ensure the long-term success of an organization. With our guide, you can understand how to maximize assets better and get the most results in the long run.If You Like Please Share It: