Profitability and Asset Management Software
How to enhance your Profitability with Asset Management Software
A balance sheet at its highest level only has two components, 1) Assets and 2) Liabilities. Equity or Profitability of any company = Assets – Liabilities.
For most asset-intensive businesses, profitability is almost a direct function of how the assets are chosen, managed and disposed of. For example, we looked at Tesco’s and BP’s balance sheets—two big companies in completely different domains. Both of them list Facilities, Plant and Equipment under their assets category.
Whilst BP and Tesco are multi-billion pound companies, the dynamics of managing assets and making a profit remain the same. We all agree that managing assets has a direct impact on profitability of the companies we work for, or own.
It is for this fundamental reason that asset management software should be a well thought out decision. It should not just be viewed as a means for maintenance management, service management, asset register or any other tactical feature.
# The next logical question is how to link profitability with Asset Management Software.
Taking a simple approach, calculate the total value of your assets. Let’s say £10 million. Assume two scenarios;
1) An asset management software deployed incorrectly and
2) An asset management software deployed correctly.
Let’s assume in the first case you get 6% more return/value from your total assets across 5 years—this will be £600,000.
In the second case, you get 10% more return/value from your total assets (across 5 years) – this will be £1,000,000.
So your company will make £600,000 to £1,000,000 more with the right asset management software, deployed correctly. By the way, getting 10% total efficiency from well-managed assets is realistic.
You now have the data of how much more profitable your company can be with the right asset strategy and its execution.
The next step is to relate your profitability to features of asset management software.
The starting point here is classification of your assets. Let’s say 40% of your assets are Facilities, 40% are Equipment and 20% are Consumables and Inventory.
In other words, if we take £1,000,000 as total possible profit from our assets, then £400,000 will come from Facilities, £400,000 from Equipment and £200,000 from Inventory Management.
In theory this should be the case, but in practise it is entirely possible to get profitability of £600,000 from Inventory Management, £300,000 from Equipment and £100,000 from Facilities.
The profit percentages from your asset types will vary based on your individual business circumstances. The message here is, appreciate to split your estimated profits by asset types.
Let assume £400,000 will come from Facilities and Equipment each and the additional £200,000 from Inventory. This means your asset management software should have strong Facilities and Equipment Management features. Inventory Management features can be just okay or satisfactory.
A parallel perspective is, there is hardly any asset management software that is good at everything—every product has some strengths and some weaknesses. The software you choose should be strong in Facilities and Equipment, because that’s where your profitability is going to come from.
This can be the foundation of choosing and deploying your asset management software. The approach can also be extended to features and implementation of each category.
For example; for Facilities Management, if time tracking and booking is going to make you more profitable, then the product you choose should be really strong in time tracking and booking management. Even a bespoke development or customisation could be considered on the basis of profitable features.
# How to get buy-in from your management?
The above profit by asset areas and its links to asset management software is a powerful way to get buy-in from your colleagues and management. In many ways, it will be difficult for anybody to pick holes in your approach if you say, “We can make a profit of £1 million from our assets across the next five years, 40% of it will come from our Facilities, 40% from our Equipment and 20% from Inventory Management. Hence, the asset management software that we have chosen is strong in Facilities and Equipment and costs £200,000 across five years, giving us a 500% return on our investment.”
An entirely different approach to saying we need asset management software to manage our assets efficiently…
# How to review your asset strategy?
It is not just for management buy-in or to choose your asset management software, but the profitability approach can be used to implement and review your software decision till you meet the expected profitability targets.
For example; two years into your asset management strategy, if you realise the market conditions have changed and your profits are now going to come from Inventory Management and not Facilities, then you know you either need an advanced inventory management module or you need to get it developed as a custom offering (in fact this is how most companies end up buying different tools. It is recommended to adapt and modify the current tools rather than adding new ones—most businesses underestimate the value of data consistency and integrity that you get from one system).
# In summary
Make a calculated and well thought out estimate of the profits you can make from your assets, break the profits down by asset type and use it as a common thread to choose, implement and review your asset management software.
Good Luck with your asset management software.