South African businesses are working hard to maximise the return on their technology investments. However, while the initial procurement and deployment of new IT assets may receive significant attention, the ongoing management and optimisation of these assets is frequently misunderstood and often neglected.
For governance, risk and compliance leaders, this neglect doesn’t just cost them money; it could be adding unforeseen risk to their operations.
Asset management is not just about the initial procurement, but rather a continuous process of tracking, maintaining and optimising the value of assets throughout their entire lifecycle.
Organisations must overcome the out-of-sight, out-of-mind mentality. When an asset is new, it is perceived as valuable and important. However, as the asset ages, the attention and care given to it tends to diminish, even though it may still be critical to the organisation's operations.
This problem is not unique to South Africa. According to a 2023Gartner study, 30% of enterprise IT hardware may be lost, missing, or ‘ghosted’, where they have never been entered into a system of record. Almost a quarter of organisations in the same study hadn’t verified their asset inventory in five years.
When organisations fail to adopt a comprehensive approach to asset lifecycle management, the consequences can be severe.
The goal is to establish a comprehensive, technology-enabled and value-driven approach to asset lifecycle management.
One of the primary risks is compliance and audit issues. Without proper documentation and tracking of assets, discrepancies are highlighted during audits, potentially leading to unexpected tax bills or other penalties. Auditors and even SARS may scrutinise asset management practices more closely, putting organisations at risk of non-compliance. This can have significant financial implications, as well as reputational damage.
Money left on the table for no good reason
Aside from compliance risks, the absence of proper lifecycle management can also lead to financial losses. When organisations lack visibility into asset utilisation and management, they may find themselves paying for assets that are no longer in use or have been lost, resulting in wasteful spending.
Organisations also often miss opportunities to optimise their initial investments, such as better utilisation, resale, or repurposing of assets.
What’s more, without a comprehensive understanding of the asset portfolio, planning for replacements, upgrades, or maintenance becomes a significant challenge, potentially leading to operational disruptions and service downtime.
Security and data risks associated with untracked or unmanaged assets should also not be overlooked. Older devices that are not properly maintained and secured can become vulnerable to cyber threats, putting sensitive data at risk of breaches or loss.
While all the cost analyses may have been done prior to the purchase, CFOs are often preoccupied with urgent operational requirements. So, while the original business case may have predicted an asset would deliver a specific return within a set timeframe, there is often no follow-up, leaving businesses none the wiser to the real return of their investment.
By way of example, suppose a company invests R10 million in a new construction asset. The business case projects a 10% return within 10 years. To achieve the internal rate of return (IRR), the business would need annual net cash inflows of R1 627 454. If actual inflows differ from projections, the company should recalculate the IRR using real data.
However, this is not as simple as it seems. Many businesses may not be “properly” tracking the asset. There may not be a process or reporting on the asset status, and it is not even functioning, having broken down in the interim. What’s more, finance departments may not be aware that the asset is underutilised, and all costs (such as maintenance, repairs and insurance, etc) may not be appropriately captured and allocated. All of this adds up to businesses making bad decisions based on bad data.
Smart tech, clear policies and great systems to better manage assets
To overcome the misunderstanding and unlock the hidden value in their assets, organisations need to adopt a more holistic approach to asset management.
For many organisations, this starts with implementing a centralised, automated asset management system that can track and monitor all assets from procurement to disposal. However, the real challenge is ensuring the system is scrupulously accurate and is always kept up to date.
To achieve this, it is essential to establish robust data governance frameworks, conduct regular data validation and cleansing exercises, and integrate data from multiple sources, such as financial systems, maintenance logs and procurement systems.
Alongside the technological solutions, establishing clear policies and responsibilities is crucial. Organisations need to define and communicate clear practices around asset management, including roles and responsibilities for different stakeholders. Ensuring accountability is assigned for asset management activities, from procurement to end-of-life, is key to driving a culture of ownership and proactive management.
Integrated approach reduces unexpected risk
When organisations embrace a comprehensive approach to asset lifecycle management, the benefits can be substantial. By integrating asset management with financial and risk reporting, organisations can ensure asset depreciation and reporting are properly aligned, reducing the risk of unexpected bills or penalties.
Leveraging asset management data can also help organisations better understand whether an asset is actually delivering a meaningful return on investment. After all, you can’t manage what you can’t measure.
When organisations have detailed, real-time data on their asset portfolio, they can make more informed, data-driven decisions about business strategies. This can help shift the focus from reactive, compliance-driven approaches to more proactive, value-driven asset management, where businesses are motivated less by the risks of not meeting compliance obligations, and more by the opportunities of maximising the value of their asset.
Proactively managing end-of-life assets is another key advantage. By closely monitoring assets as they approach the end of their useful life, organisations can ensure timely upgrades, security updates and proper disposal, mitigating risks and exploring opportunities to extract value through resale or repurposing.
The goal is to establish a comprehensive, technology-enabled and value-driven approach to asset lifecycle management. By addressing the compliance, financial, security and operational challenges associated with ineffective asset management practices, organisations can unlock the hidden value in their IT assets, driving a more competitive-edge in the market.
Share