Have you ever felt like your engineering teams, financial teams and operational teams are speaking a different language? You know they all have a role to play in the decisionmaking process but aligning their viewpoints, terminology and objectives seems difficult. How many of you are challenged by fragmented systems and processes that don’t talk to each other, hamper the decision-making process and make it difficult to see if objectives have been met?
Organisations have lots of processes and sophisticated systems in place and great skilled people to manage the different functions and organisational requirements, but there are challenges in bringing these together to work as an integrated whole.
Many organizations have financial and non-financial asset management functions in
different departments which results in:
- Poor communication channels between these functional areas;
- Lack of transparency;
- Misalignment between the financial accounts and the technical inventories;
- Lack of internal coherence; or
- Missing information in reporting on assets to stakeholders.
Senior executives in organizations often struggle with many asset-related questions
and problems related to finance and accounting. Some typical issues are:
- What level of expenditures or funding do I need to make in assets over both short and longer term (both
CAPEX and OPEX) to deliver my organizational objectives; and how do I prioritize this expenditure?
- What is the cost of delivering products or services to my customers; and how can I use this to inform my pricing?
- How can I know the total cost of ownership of each major asset or group and how near term decisions impact longer term TCO?
- How can I give assurance that the activities in the field are registered accurately, completely and timely in my financial accounts?
- I don’t obtain enough information on the asset base for reporting purposes or to enable correct and timely
decisions. I get conflicting information from different sources.
The engineering and operations team in a fastmoving logistics organization are convinced that a production asset needs replacing.
Engineering want it replaced because its poor condition results in excessive corrective and breakdown effort to keep it available for production use. This distracts from planned maintenance on other assets starting a wider spiral of decline.
Production want it replaced because it frequently breaks down and they can’t rely on it. So they use other assets more heavily contributing further to the spiral of decline across the asset base.
Finance have declined the CAPEX required to replace the asset as it still has several years left to fully depreciate it off the balance sheet.
This is a typical example of silo thinking that drives the need for financial and non-financial alignment.
So, given these challenges, how can we better manage these important relationships across the various functions to support and provide for better asset management decision making? This is where “Alignment” comes in.
Alignment the Asset Management Functions
Alignment of processes and functions in asset management in an organisation is a way forward to help overcome this problem. More than just managing the assets, this concept of alignment, helps you to achieve your organisation’s objectives and goals and deliver better performance in a more holistic way.
To help achieve this, the ISO standards on Asset Management focus on alignment as a critical/key part of creating value through assets. ISO 55001 includes explicit requirements to encourage organisations to align these functions better.
…ISO 55000 Asset Management gives you the tools to enable your organization to: …realize value from assets in the achievement of its organizational objectives. Asset management supports the realization of value while balancing financial, environmental and social costs, risk, quality of service and performance related to assets. (ISO 55000 Cl 2.2)
The organization shall determine the requirements for alignment between its financial and non-financial terminology relevant to asset management throughout the organization. (ISO 55001 7.5 d))
The organization shall ensure that there is consistency and traceability between the financial and technical data and other relevant nonfinancial data, including, to the extent required to meet its legal and regulatory requirements, whilst considering its stakeholders’ requirements and organizational objectives. (ISO 55001 7.5 e))
Alignment of asset management functions helps with more accurate costing across the lifecycle of assets knowing whether you are meeting service performance requirements and gives you a more accurate view/picture of your finances. Additionally, it will help organizations to understand better the impact of today’s decisions on the total cost over the lifecycle and how they will impact organisational risk to achieving objectives through the life cycle.
ISO is not alone in this thinking, the Australian Infrastructure Financial Management Manual acknowledges the importance of alignment through joint action across your organisation:
It is essential that asset management practitioners (both financial and non-financial) work closely together with the joint objective of delivering the agreed level of service at the appropriate life-cycle cost and reporting accurately on the achievement of those outcomes in service performance and financial terms. (Adapted from Australian Infrastructure Financial Management Manual, 2015 Edition, www.ipwea.org/aifmm)