Valuing chief executives and asset life cycles
John Woodhouse, chief executive of TWPL and chair of the Panel of Experts at the Institute of Asset Management comments in John Osborne’s article ‘Valuing chief executives and asset life cycles’. For any new chief executive, the task of transforming a business used to defining its assets in terms of technical standards and terminology can be formidable.
The concept of asset management has grown up in the infrastructure and transport sectors. In so doing it has generated a raft of concepts and technologies which may seem alien to a chief executive with a track record of improving the fortunes of businesses focused on managing financial assets or IT systems.
To make things even more complicated, any newcomer has quickly to get to grips with terms which even asset managers say are not precisely defined.
John Woodhouse, chief executive of TWPL and chair of the Panel of Experts at the Institute of Asset Management, says:
“There is plenty of lively debate about appropriate technology and scope for such things as asset life cycles, whole lives and life-cycle activities. At the simplest level, of course, the life cycle concept is clear: for a discrete component that goes through a creation stage, a period of usage and possible maintenance, leading to ultimate disposal or replacement.
“It becomes more complicated, however, when we acknowledge two common realities. The life stages may not be clear-cut, and may even have physical existence periods that span multiple cycles of acquisition, usage and disposal by different organisations.
“Secondly, an asset could have an infinite life if it is defined at a functional system level rather than just a free-standing and disposable item. It may be possible, for example, to sustain a system-level ‘asset’ indefinitely through maintenance and renewal of component elements.
“So the development of asset life-cycle plans or evaluation of investments based on life cycle costs, and ‘optimising’ horizon for such plans and costs, can be problematic. What horizons should we use in such complex cases? What does life cycle mean in these cases, if anything?”
The first complex case arises from the differences between seeing the asset from a physical existence viewpoint or from an asset management perspective that is to say responsibility, usage and value realisation.“In developing the [British Standards Institution] PAS 55 standard, we defined life cycle from the asset management perspective – covering the period from recognition or need for the asset through to disposal and any residual risks or liability period thereafter.”
This provided a good catalyst for organisations to consider operations, maintenance and longevity when specifying or investing in assets, and in developing strategic maintenance and renewal plans. “It has certainly helped to break down some of the departmental barriers between engineering design and projects, procurement, operations or asset usage, maintenance or asset care, and renewals or decommissioning.”
You can read the full article ‘Chief Executives and asset life cycles‘ on pages 6 – 7 of The Times special report on Asset Management dated 17 May 2017. Download The Times special report now.