Whether you manage a small or multinational business, fixed assets are crucial to your operations. From buildings and machinery to software and equipment, effectively managing these assets is important for your company’s success. That’s why understanding fixed asset management is essential. It helps you maintain an accurate inventory, ensures maximum utilization of your assets, and enhances operational efficiency. To help you start, check out this comprehensive guide on using a fixed asset management system.
What is Fixed Asset Management?
Fixed asset management refers to the practices used to track, monitor, and maintain a company’s physical assets and equipment. This includes things like vehicles, computers, furniture, and machinery. Organizations often use tools like QR codes, RFID tags, or barcodes to simplify asset tracking with mobile devices. An effective fixed asset management system allows companies to:
- Track and monitor the location and condition of assets.
- Manage equipment across different locations.
- Reduce maintenance costs by scheduling repairs proactively.
- Improve overall business efficiency by keeping assets operational.
- Maintain a record of assets that are no longer in use, sold, or lost.
By monitoring equipment conditions and performing regular maintenance, fixed asset management helps minimize lost inventory, equipment failures, and downtime. This ultimately extends the lifespan and value of a company’s assets.
Why is Fixed Asset Management Critical for Maintenance Teams?
Fixed asset management systems offer several advantages that directly help maintenance teams in their work:
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Improved Asset Tracking
Having a good system in place allows teams to accurately track and locate all assets. This includes knowing the physical location, current condition, and past maintenance history for each asset. This information is essential for scheduling preventive maintenance, identifying upcoming maintenance needs, and ensuring equipment is readily available when needed.
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Streamlined Maintenance Planning
By having a clear understanding of all fixed assets, their specific maintenance requirements, and their lifecycle stage, maintenance teams can effectively plan and schedule maintenance activities. This allows them to prioritize tasks, efficiently allocate resources, and minimize equipment downtime.
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Cost Savings
Keeping track of equipment through fixed asset management helps maintenance teams manage maintenance costs. By looking at past maintenance records and how different assets perform, they can identify problems that keep happening and develop ways to prevent them. This can help avoid major breakdowns and expensive repairs. Regular maintenance based on how much an asset is used can also help with this. Finally, good asset tracking helps reduce the risk of losing or having equipment stolen, which saves money on replacements.
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Meeting Regulations
There are rules that many industries have to follow when it comes to maintaining equipment and inspecting it. Fixed asset management helps maintenance teams stay on top of these regulations by keeping track of maintenance schedules, inspection records, and any paperwork that shows compliance. This helps organizations avoid fines, legal problems, and any damage to their reputation by making sure they’re following the rules.
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Optimizing Asset Lifespan
Fixed asset management helps maintenance teams get the most out of the equipment they work with. By tracking things like the condition of the equipment, how often it’s used, and past repairs, they can make better decisions about when to fix something, replace it entirely, or upgrade it. This proactive approach can extend how long the equipment lasts, keep it working better, and ultimately save the company money.
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Data Makes Decisions Easier
Having a good fixed asset management system gives maintenance teams valuable information to work with. By analyzing things like equipment performance, maintenance history, and costs, they can spot trends and figure out where improvements can be made. Using data to guide decisions helps maintenance teams work smarter, not harder, and make the best use of the resources they have available.
What’s the Difference Between Asset and Fixed Asset Management?
Asset management and fixed asset management, though connected, handle different things.
Asset management has a wider scope, looking at all a company’s assets, both physical (like buildings and equipment) and non-physical (like brand reputation and intellectual property). Its goal is to get the most value and efficiency out of these assets. This involves making strategic decisions about buying, using, and allocating them. It also includes tasks like tracking performance, assessing risks, and putting plans in place to make sure all the assets contribute best to the company’s success.
Fixed asset management is a more specific part of asset management. It focuses only on physical assets that a company will use for a long time. These are called “fixed assets” because they can’t be easily turned into cash and are needed for the company to run its day-to-day business. Examples include buildings, machinery, vehicles, and furniture. Fixed asset management involves carefully tracking and keeping records of these assets, making sure they’re properly maintained and repaired, and following all the relevant rules. It also involves calculating depreciation (which reflects how much the value of these assets goes down over time) and making informed decisions about replacing or upgrading them when needed.
How are Assets Tracked?
Managing a large number of fixed assets can get complicated fast. To streamline this process, many businesses rely on various tools and software solutions. These are often called fixed asset management systems. Here’s a look at some commonly used options:
- Asset Management Software: This category includes programs like CMMS, or computerized maintenance management systems, that offer dedicated features for tracking and managing assets.
- Spreadsheets: Simple spreadsheet programs like Excel can be used for basic asset tracking, though they may not be ideal for complex setups.
- Enterprise Resource Planning (ERP): Some ERP systems include asset management functionalities alongside other business operations.
- Enterprise Asset Management (EAM): These specialized EAM software solutions are designed specifically for asset management.
- Internet of Things (IoT) and Artificial Intelligence (AI): Emerging technologies like IoT sensors and AI can be used for real-time asset tracking and analysis in some cases.
What is a Fixed Asset Turnover Ratio?
The fixed asset turnover ratio is a financial metric used to assess how well a company utilizes its fixed assets to generate sales. It’s calculated by dividing net sales by the average balance of net fixed assets during a specific period. This ratio helps finance teams understand if the company is getting a good return on its investment in fixed assets, like property, plant, and equipment (PP&E).
Formula to calculate Fixed Asset Turnover Ratio:
Fixed Asset Turnover Ratio = Net Sales / Average Net Fixed Assets
Net sales are your total sales revenue after subtracting any returns or allowances. Net fixed assets are the current value of your property, plant, and equipment, minus any depreciation you’ve accounted for.
Example:
Let’s say a company has:
- Net Sales: $1,000,000
- Net Fixed Assets (beginning): $500,000
- Net Fixed Assets (end of the year): $600,000
To find the average net fixed assets, we add the beginning and ending values and divide by 2:
Average Net Fixed Assets = ($500,000 + $600,000) / 2 = $550,000
Now we can plug that number into the formula:
Fixed Asset Turnover Ratio = $1,000,000 / $550,000 = 1.82
In this example, a ratio of 1.82 means the company generates $1.82 in sales for every dollar invested in fixed assets. A higher ratio generally indicates better efficiency in using those assets.
Fixed Asset Management Best Practices
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Define Project Boundaries
In a large industrial setting with numerous fixed assets, tracking every single data point for each asset can quickly become overwhelming. To avoid this data overload, it’s crucial to establish clear project boundaries before diving into the planning phase. Unbounded plans often lead to never-ending projects with significant cost overruns and minimal results.
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Establish a Clear Command Chain
Even with the help of software, leadership is essential for effective fixed asset management. This means assigning responsibility for tracking and monitoring assets with well-defined and measurable metrics. The designated operations or asset manager will ultimately decide which assets require tracking. Depending on the organization’s structure, additional personnel may be needed to support and execute asset maintenance plans and programs. Therefore, it’s important to set up a clear chain of command, outlining the responsibilities of each team member and department involved.
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Make Use of Proper Tagging and Tracking Systems
Each organization has unique needs when it comes to tracking fixed assets. For instance, businesses that frequently move assets to remote locations with limited network connectivity might rely on GPS tracking equipment to maintain visibility. Beyond GPS, various options exist for location tracking and asset identification, including Bluetooth, RFID tags, and physical asset tags. Implementing any of these technologies without a well-defined tracking methodology can lead to wasted resources.
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Get Rid of Ghost Assets
Assets listed in the fixed asset register but physically unusable or nonexistent are termed ghost assets. Keeping ghost assets on the books has significant financial drawbacks. Since they are still tracked, businesses incur unnecessary costs like property taxes and insurance premiums. Additionally, ghost assets distort the enterprise’s true value reflected in financial statements. To combat this issue, businesses should conduct periodic physical audits of their assets to identify and eliminate ghost assets.
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Use Fixed Asset Management Software
Digital tools can significantly streamline fixed asset management. However, choosing the right software is a long-term decision. It’s an investment that requires careful consideration of your organization’s needs and budget. Here are some key factors to keep in mind when selecting software:
- Cost and Payment Model: Ensure the software (and any required hardware) fits your operational budget and offers a suitable payment plan, such as a one-time purchase or monthly/yearly subscription.
- Support: Prioritize vendors with strong technical and customer support teams.
- Functionality: Choose a solution that meets your specific requirements.
- Updates and Security: Opt for a vendor that guarantees regular updates and security patches to protect your system.
- Deployment Options: Consider cloud-based solutions for ease of access, but on-premise installations might be an option depending on your needs.
You can automate significant portions of your workflow by implementing a fixed asset management system. This automation can reduce the personnel required to manage physical assets, ultimately leading to lower overhead costs.
Streamline Fixed Asset Management with NEXGEN’s CMMS
NEXGEN’s CMMS solutions can be a valuable tool for managing your fixed assets. We offer several features that can help you:
- Build and maintain an accurate asset list: Easily create and update your asset registry for better organization.
- Simplify asset tracking: Utilize GPS trackers, Bluetooth, and barcodes for flexible tracking options.
- Monitor equipment health: Connect to condition monitoring equipment to gain real-time insights into equipment performance.
- Optimize maintenance schedules: Schedule and coordinate maintenance and repairs efficiently, including tools, parts, and labor.
- Gain valuable insights: Track extensive asset data to generate reports and manage costs associated with your fixed assets.
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