Good morning, everyone. I’d like to welcome you all to the class. Our company is pleased to be collaborating with Tokyo Technical School to train you in asset management and asset management planning. Particularly for Japan, this is a pretty new academic discipline. So as the very first group of students, for the very first course, in a very new field of study, we hope you’re all as excited as we are. So let’s get started, and let’s start at the very beginning. The first question I want to ask you to think about, is what’s an asset? Assets are things like equipment, machinery, buildings and other items an organisation needs to deliver services. Assets are often large. They can be very expensive, and they usually last a long time.
What that means is that assets are things that need to be managed over their life cycle, which is why we plan asset management. Good asset management planning helps an organisation make good spending decisions. Let me ask you to take a moment to think about the assets your organisation has and what you might need to know to manage them. Well, first you need to know exactly what assets you have, don’t you? Then you probably need to know what to do to maintain each of them. And maintenance obviously comes at a cost. So you need to know how much it will cost to maintain your assets until they’re no longer useful and there’s no point maintaining them anymore.
The first step in asset planning, then, is to build an asset inventory, which are also called asset registers, but an asset register contains information about several things. Obviously an asset register lists what assets an organisation has, but an asset register should also record where those assets are, when they were built or bought, how long they’re expected to be useful, and what they’re worth. And an asset register is a living thing; it has to be continually updated, which means the organisation has to have systems in place for adding new assets to the register as they’re acquired.
Now, in asset management planning, the worth of an asset isn’t just how much it cost to buy or build. That’s what’s known as the capital cost. For planning purposes we have to take into account what’s known as the life cycle cost of our assets, because the point of planning asset management is knowing what maintenance is going to cost us, and we don’t want any surprise costs we haven’t thought of. The initial cost of an asset is only about 20 percent of its full life cycle cost. The other 80 percent is the costs of maintenance, and the costs of operating and finally disposing of the asset. So in our asset register we record life cycle cost, which is the cost from when the asset was acquired, to when it’s disposed of.
So now we know what assets we have, and we know what they’ll cost us over their life cycle. We now need to decide how often and how much we’re going to service them. There’s no point in incurring the cost of a high level of service, if a lower level of service would be just as good to safely maintain the asset over its life cycle. And that’s the key; safety. We need to think about what we’re prepared to pay for maintenance, but we also need to think about risk. Could doing less service mean that in the end we pay more to maintain the asset? Or, could doing less service increase the chance of asset failure and someone getting hurt, or even worse, killed? Thinking about risk lets us prioritise our maintenance spending.
Finally, we need to do the most cost-effective maintenance at the right time. We can be reactive and wait until something’s broken before we fix it, but being reactive may actually be more expensive. For example, let’s say we have a $30 million dollar shopping center with a $3 million parking lot. The life span of the parking lot is 30 years. After 20 years the condition of our parking lot is pretty poor. We’ve got pot holes, and customers are staying away. We have to pay for a full surface overlay, and that costs us $2.25 million. If we’d just done a surface treatment every ten years, while the condition of the asphalt was still fair rather than poor, it would have only cost us $730,000 a time. Over the life span of our parking lot we would have saved 35 per cent, and we wouldn’t have lost customers. Applying maintenance at the right time is a preventive, or proactive approach, and gives us the most effective asset management plan.