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By RIAN vAN dER MERwE

MANAgEMENT OptimisatiOn

There is a range of different tools used by firms to ensure that equipment is managed effectively. Some of these tools are briefly discussed below.

ACCOuNTiNG TOOls

The first responsibility of a company is to account for an asset in their financial accounts. Companies either buy or rent assets. The accounting process differs depending on whether the client buys or rents the asset.

The accounting process mainly deals with the costs associated with the asset and needs to ensure that this cost is accounted for accurately.

The only interaction with the physical assets are controls put in place by companies to ensure that the asset is received in good working order before the asset is paid for and thereafter the asset could be chosen annually to be verified as part of the

external auditor’s function (provided that the asset is a capital asset).

There are several factors that generally determine the buy versus lease options:• Cost of the asset. • Expected life cycle of the asset.• Application of the asset.• Internal return on capital.• Redundancies.

An asset that is bought cash or on a finance lease is required to be recorded on the fixed asset register. This is a general accounting function that will add the asset to the company’s balance sheet and depreciate the asset over a period in time.

The depreciation will be passed through the income statement with a monthly journal that would reduce the capital value of the asset. An asset

that is on the company’s balance sheet is deemed to be owned by the company and is subjected to verification processes to ensure that the company keeps track of all assets on their asset register.

Assets that are procured through operational leases remain the property of the lessor. These assets are also referred to as non-capital assets. The lessee therefore rents the asset for a set term. The ownership of the asset remains the property of the lessor. Non-capital assets are deemed not to be owned by the lessee who therefore has no official obligation to constantly verify the asset.

The latest trend in non-capital assets is to register these assets on a rental asset register and account for the contract within a contract management application.

The absence of governance relating to financed

Companies often install systems to monitor the effective utilisation of assets. such systems collect data that need to be analysed in line with projected levels. For an asset to perform optimally, it needs to function within a specified range stipulated by the manufacturer. if an asset continually exceeds the recommended output, it creates a real risk of fatigue that will lead to excessive downtime, early termination, etc. Under-utilisation on the other hand poses a direct cost implication as the asset will not be used at maximum efficiency. 

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assets is a loophole that exists in the accounting process that clients need to pay close attention to. There are now new solutions on the market that will assist companies to manage financed assets with the same level of governance as that required for capital assets. These systems will control the finance contract, enforce annual verification, etc.

Another limitation currently exposed by financial auditors is the insufficient nature of the general spot-check verification process. The asset base of modern large enterprises have become so excessive that the value of a small spot check on assets once a year does not offer sufficient control of secure assets. Within the new audit principles defined in Computerised Assisted Audit Techniques (CAAT), companies now find automated computerised methods to validate financial controls. Assets are one of the easiest cost categories to validate and control using CAAT principles. These techniques will ensure that your asset base is monitored at all times and that confirmation can be passed electronically to the financial accounting process to ensure financial control of assets.

uTiliTiEs MANAGEMENT sysTEM (uMs)

Utilities management systems gathers data from the asset during operation. This information is presented to the user in a range of operational reports. These tools interact with the asset either through an electronic interface or through a manual capturing process. The accuracy and integrity of the received data is essential for maintaining and sustaining the asset throughout its life.

Most UMS’s offer bi-directional communication. This allows the device to talk to the system, but will also allow the system to talk to the asset. The UMS can be configured to switch assets on or off during operational and non-operational hours, ensure that the latest firmware updates are constantly installed, etc.

slA MONiTORiNG (hElPdEsk APPliCATiONs)

There is scheduled and non-scheduled maintenance

that is generally regulated by an SLA between the company and its supplier. Maintenance is generally classified in three levels ranging from first line support (elementary, non-skilled support) to third line support involving highly skilled technicians and artisans.

The Service level agreement between a client and the supplier of an asset determines the service levels that need to be maintained. The latest trend in SLA’s monitors product availability and controls the basic procedures with rewards and penalties so that all acceptable levels of maintenance is available. Availability is the product of a range of elements that need to work together to ensure that the asset is functioning correctly. Some of these elements are required from internal resources and some from external role players. An SLA monitoring tool should therefore monitor the responsibility of internal and external service providers.

To manage the commitments stipulated in an SLA, it is recommend that the following simple steps be followed:• Split all responsibilities between internal and

external role players. Internal could be IT, procurement, finance, etc. and external could be one or more suppliers.

• Document the required process governing the execution of this commitment.

• Build controls with supporting documentation to regulate the execution.

• Build these processes into a management tool.

BusiNEss iNTElliGENCE TOOls

Business Intelligence (BI) is defined as the set of techniques and tools for the transformation of raw data into meaningful and useful information for business analysis purposes. Business intelligence tools would rely on data from the above systems (Accounting packages utilities, management systems, SLA management tools and help desk) and process this information within a set of automated or manual interpretations that would produce intelligence. All business strategies and decisions should be based on intelligence rather than information.

Business intelligence can differ in value. The following criteria should be evaluated by companies when applying a suitable BI tool to assist with the optimisation of an environment:• Official standards embedded in the

evaluation.• Qualifications of a supplier’s technical team.• Past results.• References.

The implementation of a Business Intelligence application within any environment changes the status of that environment from a non-managed to a managed environment. There is generally a substantial financial and operational reward when managing a traditional non-managed environment. The bigger the environment, the bigger the percentage of savings one could expect. During the past twelve years we have been involved in a large number of projects where we have implemented management disciplines within non-managed environments. To date we have not had a project where the auditable savings did not exceed a 40% drop in the original cost.

In these projects we have found that a management system costs between 5-10% of the TCO of the environment it monitors. There are also additional costs with the initial consulting and installation that will absorb around 40% of your savings in the first year and thereafter, the cost of these tools will only absorb around 15-20% of the savings it generates.

Companies buy assets with the exclusive aim to use these assets optimally in the running of their businesses. Companies cannot afford for assets to go missing or to be under-used. It is a company’s duty to ensure that assets are controlled and maintained to secure and optimise the performance of these assets.

Rian van der Merwe +27 (0) 83 257 2601(+27 11) 234 8116 rian@fine-print.co.za

COMPANIEs BUy AssETs wITh ThE ExCLUsIvE AIM TO UsE ThEsE AssETs OPTIMALLy IN ThE RUNNINg OF ThEIR BUsINEssEs. COMPANIEs CANNOT AFFORd FOR AssETs TO gO MIssINg OR TO BE UNdER-UsEd. IT Is A COMPANy’s dUTy TO ENsURE ThAT AssETs ARE CONTROLLEd ANd MAINTAINEd TO sECURE ANd OPTIMIsE ThE PERFORMANCE OF ThEsE AssETs.