1.5 Principles of asset management

Assets usually only exist within entities in order to either directly or indirectly support program delivery, and this underpins the five broad ‘principles’ of asset management used in this Better Practice Guide. These principles are that:

  • asset acquisition, disposal and life-cycle management decisions are integrated into an entity's strategic and organisational planning;
  • asset planning decisions are based on an evaluation of alternatives, which assesses risks and benefits, and applies the Government's core procurement principle of value for money across the asset's life-cycle;
  • an effective control structure is established for asset management;
  • accountability is established for asset condition, use and performance; and
  • disposal decisions are based on analysis of the methods which achieve the best available net return.

The principles of asset management derive from practical experience and reasoning, and inform both strategic asset management and its practical application to the asset life-cycle.

Asset management decisions should not be made in isolation from the broader decision-making and financial management of an entity. Asset management in better practice entities is part of the overall framework of decision- making in the organisation, integrating its asset portfolio within the entity’s strategic goals. Asset management is most effective when it is aligned to delivery of an entity’s outcomes and programs. The six phases of the asset life-cycle, which are described in Table 1.1 below, provide a structure to incorporate the entity’s asset requirements into its broader strategic and corporate planning documentation.

Table 1.1 - Phases of the asset life cycle

Activity Supporting documentation

Planning

An asset management strategy is an integral element of an entity's corporate planning and is based upon life-cycle methodologies. Assets usually exist only to support the entity's program delivery.

Capital Budgeting

A capital management plan consolidates the initiatives, objectives and strategies underlying the current and future management of an entity's asset base. It sets out a projected long-term outlook and details the asset budget funding strategies for asset acquisitions as well as projected financial impacts on the entity’s financial reports.

Acquisition

As an element of an asset management strategy, the acquisition plan sets out a rationale for the acquisition or replacement of assets and feeds into the capital management plan.

Accounting

A comprehensive asset management polices and procedures guide is important in identifying requirements for compliance with relevant legislation and accounting standards. An effective risk-based internal control structure will ensure that assets are safeguarded against loss, damage or misappropriation.

Management

Asset management is integrated into the organisational planning and strategic outlook. Asset performance indicators are applied to the non-financial asset base to establish the condition of an asset and the necessary level and frequency of maintenance. Required standards reflect the quality levels required for optimum asset efficiency and management.

Disposal

A disposal plan establishes the rationale for, and timing of, asset disposals, and considers the optimal strategy for disposal.