The converging factor in Asset Management

I was talking to somebody today about the way that asset management strategies tend to align as companies become more and more economically accountable.

While mining and process industries are taking their first tentative steps in this direction, infrastructure companies have been walking the walk for many years. (The economic asset management arena, not the reliability and maintenance arenas)

And I think this they they converge regardless of whether they are in the Water, Electricity, Council or Infrastructure, Rail or any other sectors.



When Councils manage their buildings, for example, their focus is often on issues related to call centres, response capacity, and managing the repair and maintain contracts. However, when these same buildings are passed over to some form of PPP arrangement the focus tends to shift dramatically.

Instead of only the short term areas of response and serviceability, companies tend to put a lot of thought into capital maintenance or renewals programs. A lot more than occurred when they were run by government.

Why is this? Economic accountability, clear and simple. If the PPP asset manager gets it wrong, they come a cropper, and in a very big way. (RE: The Metronet implosion) But if a Council fails to accurately forecast its capital maintenance budget... well, it'll be okay really.

The government will subsidize it, or the buildings will be left in a state of disrepair, or the taxpayers will pay extra. No biggie really...

This became startlingly apparent to me when I compared the United Kingdom's financially regulated utility sectors with the PPP contracts existing under the London Underground.

These were startlingly different industries with almost nothing in common physically. In terms of the business model they both dealt with the general public, they both charged a nominal fee for usage, and both had implications for public health.

But as you dug further and further into it the alignment in terms of strategic asset management was quite striking. Under both arrangements the asset managers had to very carefully justify their capital spending across the board. And asset renewals (replacements and refurbishments) were no exception.

They were both party to similar, yet different, economic models. But in each case the value of the asset base, asset condition and the physical size of the asset base were influencing factors.

Getting to the point where they were able to make these forecasts with accuracy required a slew of techniques, data processes and systems, quality audits and a focused goal of continual improvement.

Why bother? Because if they didn't then there are heaps of historic examples of what could happen to them.

So my point in all this rambling is to state very clearly, and with some justification, that while industries DO take separate and winding roads down the path of Strategic Asset Management, there is a factor that will force a level of positive convergence on them.

And that factor is economic accountability.