Asset Rationalization and Disposal Process
This area looks at how an organization rationalizes its asset portfolios after disposal has been identified under their strategic planning process.
"Asset rationalization" is the considered justification for keeping or releasing an asset from an agency's portfolio of assets, that is, does the benefit exceed the cost?
Asset Rationalization
How the organization rationalizes its portfolio. In particular, the way in which assets are identified for disposal, mothballing or transfer.
The review assesses the process followed to:
- Identify the assets at risk or in need of utilization decisions
- Determine the most appropriate rationalization strategy
- Assess the policy of the organization
- Identify the community consultation program.
Best appropriate practice includes:
A process for identifying:
- Assets not core to the business activity
- Assets that have a poor return or have a negative net present value on future expenditure and income
- Assets that represent a long-term liability to the organization.
The organization has clear policies on asset rationalization or disposal strategies that deal with "efficacy" or "probity" issues (that is, the "public good" aspects).
The organization finds ways of reducing its asset stock for core service delivery.
The organization looks at rationalization as a normal "trade off" of its community/customer consultation process.
Asset Disposal
How the organization disposes of assets, through sale, transfer of asset ownership or decommissioning.
The review will assess the process from a probity and equity perspective.
Best appropriate practice includes:
All assets rationalized for disposal will have "disposal values" calculated and these values will include all likely liabilities and issues such as "contaminated land rectification".
Case Studies Australia
Asset Preservation is not an End in Itself
The council had just spent $60,000 resurfacing the local airstrip and questions were raised at the following council meeting. It went something like this:
Q: “How many airplanes use that airstrip?”
A: “Well, none, actually, they prefer to go to the next town where the airfield is bigger, staffed and more convenient”.
Q: “You mean no-one uses the airstrip?”
A: “Not at all, it is used by gliders!”
Q: “Isn’t it true that gliders don’t like to land on hard surfaces and they use the unsurfaced edges?”
A: “Well, yes”
Q: (in exasperated tones) “Then why did you resurface the airstrip?”
A: (indignantly) “To preserve the asset, of course!”
Unfortunately, a true story!
Moral: Assets are only a means to ends. “Preservation” treats them as an end in themselves and leads to wasteful decisions. Doing only what is necessary to retain or enhance needed services maximizes the value of the asset - as well as the council dollar.
All Assets should be ”Owned ”
When Network South East was created from the former British Rail, the new CEO announced that every single asset should be pinned down to a single business owner and then down again to a single owner within a business.
Common assets "held centrally", he argued, were a recipe for waste.
Application of this principle reduced the locomotive fleet by 176% and wages by 25%.
Asset Disposals and Exit Costs
City Rail’s rolling stock, the “Red Rattlers”, had provided service from 1927 but now they lacked the passenger features modern travelers required, their maintenance cost was high and their reliability was only about 50% of that of the new Double Deck camshaft-controlled rolling stock – it was time for them to go.
But go where? Too old to be sold to another rail line, the best option seemed to be to cut them up for scrap.
At this stage, however, many of the carriages were found to be lined with asbestos. Not all of it, just about 10%. Trouble is, no one knew for sure which 10%.
Disposal consistent with environmental and occupational health and safety principles meant that scrapping was out of the question, the asbestos had to be stabilized. After stabilizing the stock was sold as hen houses and for other low value purposes.
Asset disposal can cost.
Mining companies are familiar with the costs of making safe the mine shafts and returning the site to an acceptable level.
This is the economic notion of exit costs.
Disposal needs to be planned for – and financed during the life of the asset, not after it ceases to be of use.
Asset Disposal - Remember not all Assets are Physical Infrastructure – Some are Data and Knowledge
Tip! After a while no-one refers to the manual that came with the piece of plant or equipment and they can easily get lost.
It pays to have them located in a readily recognizable place or else their location listed on the asset register.
Not only is this helpful for newcomers, many assets are easier to dispose of when they still have their operating manuals.