The foundations of infrastructure asset management | Considering financial and engineering asset registers
From a physical asset management perspective, it is essential to remember that asset registers fulfil more than a compliance role. Operationally, asset registers are critical for proper record keeping, managing physical assets, and validating spend on assets to track the return on investment.
Pragma recently hosted a colloquium focusing on the foundations of infrastructure asset management and the differences between technical or engineering and financial asset registers, focusing on the public sector. It provided for a vigorous and informative discussion as Dr Emmanuel Ngcobo, Chairperson of the Centre for Municipal Asset Management and Andre Jordaan, Pragma Partner Consultant debated the topic under the guidance of Pragma’s head of sales and CRM, Julia Mamakoko.
The panellists agreed that both the engineering and finance departments have a role to play with asset registers. Both need to understand the exact requirements of the asset registers to comply with government regulations. Below is a summary of the most important themes touched on during the session.
An engineering view on the role of the asset register and assets in reaching organisational goals
The infrastructure provided by the public sector forms the backbone of a country’s economy. Essentially all public-owned assets must perform in support of their mandate to deliver services to the public. The engineering department must know which services must be delivered and measure how well these services are delivered. Continuously assessing assets based on these needs will indicate the suitability and performance of the said assets. To ensure the ongoing performance of an asset, measured against its functional specification and service requirements, requires a suitable maintenance management plan that extends over the life of an asset. Furthermore, this continuous evaluation enables the engineering team to take the necessary actions to improve the performance or replace inappropriate, poor performing or ageing assets as needed.
To keep track of each asset’s ‘life’, an accurate reflection of that asset is required. Usually, the financial asset register is the starting point that shows what assets you own, where they are located, and each asset’s value. The engineering asset register builds on the financial register to become the DNA of an asset. The engineering asset register supports all aspects of the prescribed functional care (specific maintenance tactics). It contains a performance history of the asset and all the interventions taken to ensure its optimal performance.
The public sector’s widely dispersed asset base covers large geographical areas.
Keeping track and taking care of such dispersed asset-based is a major challenge. For the best result, the asset register should be captured in a computerised system to integrate with maintenance work management tools. When the asset register is linked to a work application that inherits geographical information, the engineer or tradesperson can easily find the asset to do preventative inspections or maintenance work and give feedback to keep the asset register updated.
The criticality of an asset register and associated infrastructure maintenance plans
An asset management strategy is an essential element of an asset register. Without a proper strategy and plan in place and in use, the asset register and the assets will not be maintained. In the South African context, municipalities have different maturity levels, resulting in varying levels of service delivery. In Andre’s experience, the lack of understanding of maintaining infrastructure assets is a big problem. You cannot use infrastructure assets until they fall apart and then decide to replace them. No. You must maintain them and ensure that you get value out of them for the longest term. Something like a light bulb is switched on and never maintained. It runs to failure, and you replace it. But roads, buildings, water networks and alike must be maintained so that you get proper service and value from it. If you don’t, it ultimately results in financial waste.
Engineering and finance must work together to ensure efficient service delivery by commissioning the right assets and maintaining them to avoid irresponsible and wasteful expenditure.
A financial management view on the asset register and asset management
Emmanuel agrees that there must be alignment between the financial and engineering teams to get the basics right. One must be mindful of where the South African public sector finds itself in asset management maturity. Some municipalities have an asset management division within their engineering department. But, most municipalities house asset management within their finance department, where their focus is asset register compliance.
Some education is required to help from other teams to understand exactly how to develop an asset register. Within the finance space, standards such as GRAP and MFMAs guide the structure of the asset register. The finance department also focuses on the definition of an asset in financial terms. As an example, the definition says that assets must be controlled. Tangible or intangible assets such as IT software must be recorded in the asset register with its monetary value associated with its service potential in the communities where it will offer service. From an asset management perspective, the finance department ticks all the boxes apart from the actual management of the assets.
According to Emmanuel, the use of technology deems to be a challenge for the financial departments of the public sector in South Africa. To move in the right direction, they need a proper understanding of these technologies, and they have to be mindful of the maturity of information technology in, for instance, municipalities. There are much to gain from technology, such as the Internet of Things (IoT). However, the truth is that we still have some municipalities and communities without good network infrastructure that, by implication, withholds them from the use of technologies to use computerised systems successfully. Currently, some of the larger metros are starting to address these challenges.
Andre agrees that from a financial perspective, asset registers are ordered as is required in an audited environment. Due to these audits, red flags on non-compliant asset registers are quickly raised and addressed. With the rise of poor service delivery associated with failing infrastructure assets in South Africa, more focus is placed on the asset register and controlling assets from an engineering perspective. But, where should asset management be hosted, and who should take responsibility for the scope and putting it all in place?
ISO 55010, the standard for managing assets, states that finance and asset management defines assets and their material differently. Finance has the responsibility to account for it, while engineering has to look after it, deploy it, and take care of it. Finance is concerned about its cost, while engineering wants to say what services you need me to bring.
Emmanuel says that secondary to your compliance guidelines is your organisation’s policy. The policy must specify some aspects in the asset register, such as the classification of asset types. Within infrastructure assets, you have water and sanitation or electricity. These assets can be further classified from an assembled perspective, and when considering GRAP 17 requirements, the components for each infrastructure asset must be accounted for.
Bringing asset registers together
Emmanuel would ideally like to see one source of information for both sides. However, there is a good reason for different asset registers. The financial register is not built with all the engineering requirements in mind, and if it were, the asset register would be nonsensical to the financial team members.
On the other hand, engineers like Andre look at the asset register with questions like:
- Is it performing the way it should?
- What is its condition, and can the guys use it?
- What is its availability?
- How many potholes, how many broken pipes per period or how much water are we losing?
- How much downtime do we have on our electricity network?
Emanuel and Andre concluded that asset registers could be successfully linked on the asset level. The financial register will have fewer assets, like a range of buildings with sections. In contrast, the engineering register can include the next level of components like rooms in the building sections.
To help South Africa’s local governments, and more specifically, municipalities improve their service delivery, we need to educate and encourage the struggling municipalities by sharing the best practices that the better performing municipalities and the private sector have to offer. All our municipalities are dealing with multiple challenges such as a growing population that place a higher demand on already overloaded systems, continual energy price hikes, droughts and labour issues. They need proper systems and procedures to manage better the assets that play a critical part in service delivery.
Watch the full webinar recording here.