The asset lifecycle is considered one of the key processes by which asset management decisions are made. If you are in charge of your organization’s assets, you’re probably familiar with the asset lifecycle.
The specific criteria for each element of the asset lifecycle differ from one organization to another, but it is commonly broken down into four stages:
- Operation and Maintenance
For more details on each phase of asset lifecycle, check out our Asset Lifecycle Infographic.
It is important to maintain proper stewardship of your organization’s assets throughout each phase of the lifecycle. However, there are some common challenges that can occur during the operation and maintenance phase.
Below, we explore two of these common crises, and how to avoid them.
Asset Lifecycle Crisis 1: Your Auditor Finds Inconsistencies in the Useful Lives of Similar Assets
The useful life of an asset is the average number of years that it is expected to be useable before fully depreciating.
To estimate the useful life of an asset, GASB34 recommends using “(a) general guidelines obtained from professional or industry organizations, (b) information for comparable assets of other governments, or (c) internal information.”
If you choose to use internal information to determine the useful lives of assets, there are some factors that should be considered. These include the age of the asset, frequency and type of use, current condition, and quality.
During your organization’s audit, your auditor will test for consistency. If an audit reveals inconsistencies in the useful lives among assets, your auditor will likely call for corrective action, which may lead to some massive headaches for your organization.
Solution: Be Consistent
Regardless of where your useful life guidelines come from, it is critical that you maintain consistency among similar assets. Similar (or identical) assets should have the same useful life, and depreciate similarly.
For example, let’s say that last year, you purchased an industrial tractor for grounds maintenance, and determined its useful life to be 15 years. This year, you purchase another similar product, like a riding mower. If all other factors—like age and condition—remain the same, your organization should determine the riding mower to have a useful life of 15 years, as well.
With an asset management software solution, useful lives are often pre-determined based on an asset’s category and description. This helps to ensure consistency among the useful lives of similar assets within your organization, which can result in compliant reports, financial savings, and more.
For more information on useful life, and to see some of our suggested useful life estimates, click here.
Asset Lifecycle Crisis 2: Costly Assets Break or Fail Prematurely
So you’ve purchased a new asset, like a forklift for your company warehouse. Based on your research, as well as relevant factors including age and condition, you determine that the forklift will have a useful life of approximately 11 years.
However, just eight years later, the equipment malfunctions. After speaking with your organization’s technicians, you find that the forklift hasn’t received routine maintenance in five years. Furthermore, you discover that the equipment is broken beyond repair. It sounds like a scene from a scary movie, but this nightmare is not uncommon.
Now, the asset must be removed, properly disposed of, written off from your books, and finally, replaced. Depending on the timeline, this premature write-off can be extremely costly.
If you’ve experienced the trauma of losing a fixed asset before it has fully depreciated, you know what a pain it can be.
Solution: Establish a Maintenance Plan
No matter the size of your organization, fixed assets like vehicles, land improvements, machinery and equipment can be costly. By tracking your asset’s condition, your organization can increase the longevity of the assets that you already have.
A proper asset tracking plan should include a schedule for maintenance on all of your organization’s fixed assets. If you’re tracking assets in-house using documents like spreadsheets, be sure to set up automatic maintenance reminders to ensure that your assets are getting the attention they need.
Instead of spreadsheets, your organization might want to consider an asset management software solution. In addition to tracking the depreciation of assets, an automated solution can provide notifications for equipment maintenance and repair, and preserve a detailed maintenance history for simplified reporting.
To learn more about how asset management software can help increase operational efficiency for your organization, view our Asset Management Software Solution Sheet.
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