Asset Life Cycle Management: Importance, Stages, and Best Practices

December 16, 2022
Lease Management

If one considers today's industry dynamics and economic landscape, can a business afford to go complacent on its asset management techniques and systems? The answer is simply a big no

Ultimately, it's a matter of long-term sustainability and relevance in the market. Businesses should look to innovative methods and strategies for the best feasible financial and economic outcomes. 

Complete transparency into a company's assets is essential for increasing efficiency and maximizing profits. This is where asset life cycle management (ALM) steps in.

This article covers prominent aspects of asset life cycle management and why it holds immense importance for businesses. 

What is the Asset Life Cycle? 

Asset life cycle management is a method that takes an analytical and strategic methodology to the maintenance and administration of a company's assets.

The stages of an asset's life cycle are identified and tracked using a reliable data-collecting system, such as Asset Management Software Solutions.

The asset life cycle commences from planning, the initial stage of the process. The lifecycle of an asset begins when its necessity is recognized and ends when it is no longer needed or functional.

The lifecycle of any given asset can be broken down into four distinct phases:

  • Planning
  • Procurement/Acquisition
  • Operation and Maintenance
  • Disposal

A business must understand the lifecycle of its revenue-generating assets, irrespective of the asset's characteristics.

When this issue gets handled well, organizations can evaluate the value of an asset based on criteria like how much it costs, how reliable it is, and how efficient it is.

What is the Importance of Asset Life Cycle Management?

The maintenance of assets and the consistent optimization of their dependability and functionality throughout their lifetime are crucial components of asset lifecycle management.

Businesses can determine when an asset will achieve its optimal performance and analyze its remaining life before ultimately organizing for maintenance or the asset's replacement if they have successfully implemented a strategic plan for asset life cycle management.

This approach is data-driven and meticulous, so it also ensures that companies maintain their assets operational for the longest period possible. 

Asset-intensive businesses use ALM to:

  • Scale operations - ALM is capable of handling all of the heavy liftings, whether it be sophisticated real-time planning or long-range scheduling for maintenance.
  • Anticipate and identify asset failure - It is essential to maintain the reliability and safety of assets by monitoring their condition in real-time using sophisticated Internet of Things (IoT) sensors.
  • Monitor asset-oriented projects - The team will have an easier time planning, designing, and delivering complicated asset operations and maintenance with ALM's assistance.
  • Harmonize the operations and maintenance - With the assistance of asset lifecycle management, organizations can effectively express priorities and restrictions in their plans for corrective or preventative maintenance by accurately factoring in resources, manpower, and timeframe.
  • Optimize project maintenance and operations - ALM helps businesses recover lost production time, reduce the likelihood of equipment breakdown, and simplify collaboration with other contractors.

The integration of ALM software solutions that take a data-driven approach is another component of asset lifecycle management. These solutions ensure that your assets continue to be valuable for the maximum amount of time possible. It accomplishes this by:

  • Determining the roles of operational assets
  • Assuring conformity with the policies governing regulation
  • Determining asset depreciation value
  • Incorporating assets into tracking systems
  • Developing methods for preventive maintenance and repairs
  • Performing a cost analysis on the acquisition and replacement of assets. 

The Four Stages of an Asset Life Cycle

It depends on a company's organizational structure as to which stages of the asset lifecycle take precedence over others. However, to make the best use of their resources, it is essential to pay attention to each phase of the process.

During their existence, all assets—no matter how large or small, expensive or low-cost—pass through these four stages:

1. Planning

Planning helps in determining the need for an asset by basing that need on an analysis of the current assets.

It is accomplished by putting into place a management mechanism that can perform data and trend analysis, providing the opportunity for the decision-makers to determine whether or not the asset is required and the value it can provide to the ongoing operations.

This initial stage of an asset's life cycle is particularly crucial for all stakeholders involved, particularly the financial teams and the operators.

The requirements of a company should be satisfied by an asset before making a decision to acquire that asset in addition to revenue generation and contributing to the business's overall operations.

2. Acquisition

After an asset gets identified, the next step is to acquire it. It indicates that an asset has been subjected to the appropriate analysis and determined to be a resource that is urgently required to improve the business's operations.

During this stage, companies would also concentrate on the financial aspects of purchasing an asset while adhering to the predetermined budget cap established during the planning stage.

When the asset is finally acquired and put into use, it may be monitored through the entirety of its life cycle in real time by employing an asset management system.

For this purpose, the vast majority of today's management systems use efficient asset-tracking technologies such as GPS tracking, RFID labeling, and barcode labeling.

3. Operation and Maintenance

After the asset gets deployed, the following step in the asset life cycle is operations and maintenance, which is the phase that lasts the longest. At this point, the asset is being put to use and managed, which may involve any necessary maintenance or repair.

Now that the asset is ultimately being utilized in the manner intended within the company, it is assisting in enhancing operations and contributing to revenue generation in addition to responding to upgrades, patch updates, licensing work, audits, and other compliance requirements.

Regular maintenance is needed to extend the useful life of an asset and preserve its value as it ages and gets worn down due to constant usage.

This does not just entail making repairs but also necessitates making upgrades and modifications so that assets may continue to be used effectively within an ever-evolving operating environment.

There is room for diversity in the maintenance procedures employed by various businesses. While some favor a predictive or preventative maintenance technique, others rely on a reactive approach to the problem. Nevertheless, the following are some of the goals that each maintenance approach strives to achieve:

  • Keeping unexpected repair expenditures to a minimum
  • Minimizing machinery downtime and boosting uptime
  • Increasing the durability of assets

Maintenance can assist an asset to operate even more effectively than it did by zeroing in on prospective areas of improvement.

4. Disposal

When an asset has reached the end of its useful lifespan, it is taken out of service and then either sold, recycled, discarded, or repurposed, depending on the condition and type.

Even though an asset at this point has no commercial value, it may nevertheless have to be disposed of effectively to ensure that it does not cause damage to the environment.

This method could even comprise disassembling the asset component by component or destroying all of the data from it.

On the other hand, a replacement is arranged for when there is still an operating need for this type of asset, and the asset life cycle can start over again after it has been completed.

5 Best Practices for Asset Lifecycle Management

Here are the key best practices companies can adhere to, to safeguard the quality and efficiency of their asset lifecycle management processes:

1. Identification of Assets 

One can't build a successful business without first establishing a solid foundation with their assets.

They are essential to the production, development, and delivery of the offered products and services. Managing assets requires awareness of their ownership, placement, and utilization.

By keeping track of their assets, businesses can determine whether and when they need to be replaced.

A prime example is replacing an asset before it breaks down and leads to interruptions in operations since we knew it was getting close to the conclusion of its service life.

Knowing the value of their assets also allows businesses to monitor their performance with time.

Companies can utilize this data to refine their asset management strategies and settle on more prudent acquisitions going forward.

2. Licensing Management

After all vital assets have been identified, they must be checked thoroughly against the most recent certifications and licenses of authority. Renew expired licenses, procure new licenses where applicable, and pay penalties in lieu of lacking documentation.

With the aid of license management, businesses may retire unused licenses and focus on the equipment that counts. It's a paperwork saver and a compliance booster all in one.

To avoid any lapses in licensing, keeping an accurate and comprehensive record of all of the company's licenses is beneficial. There will be severe consequences for noncompliance in this setting.

3. Develop a Comprehensive Strategy Covering the Entire Asset's Lifecycle

Having a strategy in place for the utilization and maintenance of a newly acquired asset is crucial. Timelines for replacement and final disposition of the asset should be clearly outlined in this strategy.

In the grand scheme of things, you'll save time and money if you take the time to make a thorough strategy in advance to reduce the likelihood of unanticipated breakdowns and costly repairs. As a result, the asset's maximum potential can be achieved.

4. Employ a Dedicated System for Asset Monitoring and Performance Reporting

Wear and tear on assets increases gradually with time. As a result, efficiency may suffer, and downtime may escalate.

If employees keep tabs on an asset's performance throughout time, they'll know right away if it's having issues. Decisions on when to perform maintenance or replace a component can be made relying on this data.

Reporting on asset performance also aids in making better investment choices. If you've learned that a certain asset class frequently needs repairs, you can choose to put your money elsewhere.

Other recommended practices for asset management during an asset's lifecycle include the setting of performance targets. If the value of an asset drops below a predetermined level, an alert could be triggered. It implies the asset either has to be replaced or repaired.

Different thresholds can be set depending on criteria, including the number of cycles, the duration of time since the previous maintenance, and the number of operating hours.

In this way, companies can prevent excessive wear and tear on assets and save money on repairs and replacements.

5. Strive for Consistent Evaluation and Process Enhancement

The requirements for managing company assets will evolve in tandem with the growth of the business.

Sometimes, the best course of action is different from year to year. Using the best practices for asset management requires a commitment to consistent process improvement, which may be achieved through monitoring and analysis.

Furthermore, as new technologies emerge, companies should assess whether or not incorporating them into their asset management process would be beneficial.

For instance, cloud-based asset management systems were scarce a few years ago, but now they can offer enormous benefits over more conventional on-premise options.

Last but not least, it's crucial to regularly solicit input from the personnel. They are the ones actually putting the asset management systems to use, so they know firsthand what performs and what may be improved.

Final Thoughts

Every facet of the business gets impacted by asset life cycles.

From the moment they are acquired until the moment they are disposed of, strategic assets in operation play an imperative role in the process.

When assets are expertly acquired, designed, and managed, they can generate an even more extensive return on investment while reducing the likelihood of unforeseen problems.

Therefore, companies need to keep in mind that asset life cycle management could be a tremendous instrument for increasing revenue and profit generation prospects, asset longevity, overall operational efficiency, total productivity, employee satisfaction, and other aspects of business success, provided that best practices are followed.

LeasO is a cloud-based lease management software that brings Lease accounting, Lease administration and Lease management all under one easy to use interface. With LeasO, you can track, manage, and centralize all your lease data in ONE place while avoiding any manual accounting error. Book a demo to know more.

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