ASSET Management.

4097 WANAO cover 31/8/98 2:21 PM Page 1
Acquisition
Control Structure Asset
Planning
Management
Operation
Handbook
Disposal
Asset
Management
Handbook
© Commonwealth of Australia, 1996. Designed by WhizzbangArt
Asset Management Handbook
Preface
This handbook will help asset managers interpret and implement the asset management principles developed
as part of the recent Financial Control and Administration Audit on Asset Management (The Auditor-General,
Audit Report No. 27 of 1995-96).
The principles are not definitive but are consistent with current thinking on, and trends in, improving asset
management in the public sector. They are common-sense and inter-dependent. Each principle is simple
enough and reflects a fundamental notion of good practice, although they are not, collectively, widely practiced
today in the Commonwealth sector.
The challenge of making the principles work is not to be under-estimated, not least because there is a need to
exercise judgement in their application. For example, the approaches adopted for maintenance of personal
computers or a suite of furniture will be different to those required for a major piece of machinery. Similarly,
planning for the construction of a building will be more comprehensive than that required for the purchase of a
motor vehicle.
A number of agencies contributed to the development of this handbook. In particular the advice and assistance
of the Australian Valuation Office and the Department of Administrative Services is acknowledged. Thanks are
also extended to Coopers & Lybrand who assisted in writing the handbook and to officers of various State
treasuries who provided valuable information on their asset management frameworks.
P.J. Barrett
Auditor-General
June 1996
Contents Asset Management Handbook
PART 1: OVERVIEW
What’s it all about? 1.1 Introduction 2
Everything you wanted to know, but.. 1.2 Basic Concepts 3
Paradigms lost 1.3 Management Principles 10
Where do we go from here? 1.4 Suggested Methodology 16
PART 2: BETTER ASSET MANAGEMENT
Setting the scene 2.1 Management Control 21
Laying better plans 2.2 Integrated Planning 27
To buy or not to buy? 2.3 Acquisition Decisions 32
For whom the bell tolls 2.4 Operations 40
Trash and treasure 2.5 Disposal 46
Revenge of the bean counters 2.6 Accounting and Valuation 49
PART 3: APPENDICES
3.1 Case Studies
3.2 Glossary
3.3 References & Further Reading

OVERVIEW PART 1
1-1 Introduction This Part provides an overview of asset

management principles and the underlying
1-2 Basic Concepts
concepts employed in management of non-
1-2-1 Assets Defined current physical assets.
1-2-2 Planning Framework
1-2-3 The Asset Life-Cycle
1-3 Management Principles
It should be read by all levels within the

1-3-1 Integrated Planning
organisation.
1-3-2 Acquisition
1-3-3 Accountability
1-3-4 Disposal
1-3-5 Management Control
1-4 Suggested Methodology
1-4-1 Determine Asset Needs
1-4-2 Evaluate Existing Assets
1-4-3 Demand and Supply
1-4-4 Management Strategy

Overview Asset Management Handbook
1.1 Introduction
The Commonwealth is asset ‘rich’ in Asset Management involves processes of planning and monitoring physical assets during their useful lives to
comparison to other levels of an agency. Managing effectively requires an appropriate level of management interest and concern be
government and to the private sector. maintained well beyond the ‘ribbon cutting’ stage of acquisition.
The consolidated value of Commonwealth The objective of asset management is to achieve the best possible match of assets with program delivery
physical asset holdings is $66 billion, of strategies. This is predicated on a critical examination of alternatives to the use of assets. The expectation is
which $16 billion is held by general that ‘non-asset’ solutions will enable delivery of the program at a lower cost.
government and some $29 billion are
With pressure on resources available to deliver programs, it is important asset managers understand that
defence-related assets. These figures exclude
asset consumption is a real and significant cost of program delivery. The application of life-cycle costing
a significant number of cultural assets and
2 techniques and the establishment of appropriate accountability frameworks are integral to achieving this
heritage estate, which are difficult to value.
understanding. Effective implementation of the principles of asset management will address program costs in
The replacement cost of all assets is
terms of:
significantly higher than the current value.
• reduced demand for new assets by adoption of ‘non-asset’ solutions;
Many assets are held by Government
Business Enterprises which operate with • maximising the service potential of existing assets;
commercial imperatives. However, a • lowering the overall cost of owning assets through the use of life-cycle costing techniques; and
significant amount of land, buildings, plant • ensuring a sharper focus on results by establishing clear accountability and responsibility for assets.
and equipment is controlled by non-
commercial agencies which operate cash-
based funding and accounting systems.
This handbook is directed primarily at assets

held by non-commercial agencies. However,
the principles discussed are relevant to all
managers of government assets.
Asset Management is a systematic, structured process
covering the whole life of an asset. The underlying
assumption is that assets exist to support program delivery.
What are Assets? 1.2 Basic Concepts
The common understanding of an asset is that it is something of enduring value. A sound appreciation of the Any discussion of asset management
presupposes the participants
two elements of this definition - value and ‘useful’ life - is fundamental, if agencies are to identify and record
understand what an asset is - not just
all assets.
in an accounting sense - but what it
We will explore these elements by considering the forms an asset may take. Consideration of the accounting represents to an agency and how it
contributes to program delivery.
treatment of assets is not critical at this point but is considered later (refer to Part 2-6).
The Asset Management Framework
Having defined assets it is important we view them in their proper perspective within an organisation. Assets It is important asset managers understand
should only exist to support program delivery. The key starting point, to ensure this is the case, is to establish the inter-relation between the asset strategy 3
a link between program delivery and assets. Corporate objectives are translated into program objectives, and other strategies, which together form
delivery strategies, outputs and outcomes. Assets held by an agency are one program input and should be the operational or business plan of an
aligned with programs to the extent practical. agency.
The Asset Life-Cycle
The extended life of an asset has important implications for program managers. An acquisition decision based
on the lowest purchase price but which ignores potential operating costs, may result in a higher overall cost It is essential managers treat assets from a
over the asset’s life. It is important to understand the phases of an asset’s life-cycle and the impact of each life-cycle perspective.
phase on total program costs and outputs.
1.2.1 Assets Defined
Assets take a variety of forms. For something to be categorised as an asset it must have a value. This does not necessarily imply dollars and
This handbook deals with non-current cents: however the ‘value’ of an asset is measured in monetary terms so it is able to be recognised in financial
assets that are physical in nature. statements.
Assets have service potential. In the public sector it is perhaps often more important to appreciate the non-monetary aspects of an asset’s
value. The term ‘service potential’ is used to describe the utility of an asset in meeting program objectives and
is a useful concept to employ where the asset does not generate income. It is also referred to as the expected
‘future benefit’ to be derived.
Assets may be financial, physical or Assets take a number of forms. One distinction made is between financial assets (cash being an example) and
4 intangible. They may be current or non- non-financial assets. Non-financial assets may have a physical (or tangible) form such as buildings, machinery
current. and motor vehicles. They can also be intangible - computer software is an example, as are the legally
enforceable rights associated with copyright and patents. They also can be a combination of both tangible and
intangible, particularly where these elements operate as integral parts of a whole - a security system in a
building may be combination of physical equipment such as cameras, computers and alarms; and a suite of
software which controls and monitors the equipment.
Non-current assets have useful lives Assets may have a short life due either to an inherent feature (perishable goods for example) or because they
greater than one year. will be converted into some other asset or consumed within an agency within a short time frame (deposits, raw
materials and debtors are examples). These assets are generally referred to as ‘current’ in accounting parlance.
By contrast, non-current assets have an extended life, which may reflect their physical life in the case of
tangible assets or, in the case of a patent, its legal life.
There is a need to distinguish between The physical life of an asset needs to be distinguished from its useful life to an organisation. The useful life is
physical life and useful life. the period over which the benefits from the use of the asset are expected to be derived.
The following diagram summarises the various categories and classifications of assets. 1.2.1 Assets Defined contd...
Figure 1-1 Possible Classification System for Assets

i
Statement of Accounting Concepts
No. 4 (SAC 4) discusses the definition
allassets and recognition of assets in depth.
‘Current’ means to be consumed or

converted to something else within the next 5
non-current twelve months
current
Financial assets may also be' non-current’
and intangibles may be ‘current’
intangible
financial physical
Source: Asset Management Series, 1995, Victorian Government, Melbourne

1.2.2 Planning Framework
The asset management strategy is not Asset management decisions should not be made in isolation. They should be part of the overall framework of
simply a summation of the individual decision-making in an organisation.
plans developed for each phase of the
Asset planning must be considered equally and concurrently with the other resource requirements used in
asset life-cycle. It must be consistent
achieving program objectives. It requires organisations to convert program delivery strategies into specific
with Corporate objectives and
asset strategies. It provides an opportunity to identify methods of improving asset performance, to alter the
integrated with other key
mix of assets used and to explore solutions which do not require asset ownership.
management strategies.
Figure 1-2 An Asset Management Framework
6 The features of an asset management Strategic/Business Plan

• Government Policy
framework are: • Corporate Plan
• Environment Program Strategy/Outputs
• it is service or output driven;
• it employs a structured, Information System Strategy

systematic approach; and
Human Resource Strategy
• it is based on ‘whole-of-life’ Financial Strategy
concepts Asset Strategy
Non Asset solutions: Operation & Maintenance Plan

• demand management
Standard & Level of Service
• outsourcing
• alternative use Maintenance Budgets
Plan
Acquisition Plan
Organisation Systems
Disposal Plan
Capital and Recurrent Funding Plan

1.2.3 The Asset Life-Cycle
The fact that assets have a life-cycle distinguishes them from other program resource inputs. Typically, those The physical life-cycle of an asset or
responsible for acquisition decisions (and costs) in an organisation, differ from those responsible for operating group of assets has three distinct
and maintaining assets; and both groups often differ from those responsible for their disposal. Problems may phases - acquisition, operation and
arise as a consequence of this fragmentation of management over the asset life-cycle. disposal. We add a fourth phase -
planning - which is a continuous
Figure 1-3 Asset Life-Cycle process where the information
outputs from each phase are used as
an input to planning.
Operation
7
Acquisition
Disposal
Planning
1.2.3 Asset Life-Cycle contd...
Understanding the phases of an asset’s life-cycle and the attendant costs is an important first step toward
managing assets on a whole-of-life basis.
Life-cycle costing is an essential component The use of life-cycle costing techniques allows a full evaluation of the total cost of owning and maintaining an
of asset planning. asset prior to acquisition. This creates the opportunity to determine the most cost-effective program delivery
solution (this may be a non-asset solution). Estimating life-cycle costs prior to acquisition also establishes a
standard which is the basis for monitoring and controlling costs after acquisition.
Capital costs are the costs of acquisition Life-cycle costs consist of capital and recurrent costs. Capital costs are the cost of acquiring an asset. These
and may also be incurred in later upgrades include not only the purchase price but all associated fees and charges, and the delivery and installation costs
8 or refurbishment. incurred putting the asset into operational use. They may also include planning costs such as those incurred
for feasibility studies and in tendering.
One significant capital cost not routinely recognised by budget-dependent agencies is the ‘finance’ cost
associated with the funds ‘locked-up’ in the value of the asset. An exception to this is the situation where
agencies borrow against future appropriations as part of the running cost arrangements and are charged
interest. However, this reflects finance costs at the margin and generally does not extend over the life of the
asset.
The Commonwealth incurs a ‘finance’ cost on capital funds either directly, as the interest expense on public
borrowing; or indirectly, as interest foregone on funds that would otherwise have been available to the
Commonwealth. When evaluating non-asset solutions and alternative acquisition strategies it is important this
‘cost’ is recognised by agencies. This is particularly important when considering private sector alternatives, in
context of the need to establish a reasonably ‘level playing field’ for competitive products.
1.2.3 Asset Life-Cycle contd...
Recurrent costs include energy, maintenance and cleaning costs. They may also include employee costs where Recurrent costs are also referred to as
specialist staff are dedicated to the operation of the asset. Planned refurbishment and enhancements over the operating or running costs.
asset's life, while ‘capital’ in nature, may also be included as part recurrent costs for planning purposes.
Disposal costs should also be included, particularly if they are expected to be significant. This may be the case
where the asset, processes associated with it, or its outputs, produce undesirable effects requiring rectification
or remedial work. Environmental considerations may be significant in this regard.
The relative significance of capital and recurrent costs as a proportion of total life-cycle costs will depend on
the nature of the asset. The Victorian Commission of Audit, in 1993, estimated the cost of holding the State’s
stock of assets (ignoring finance charges and employee costs) was 4% of the value of assets held.
9
The cost of operating and maintaining an asset over its useful life can often be greater than its acquisition cost.
In such cases the use of full life-cycle costing in evaluating alternatives is imperative to ensure overall program
costs are recognised and minimised.
1.3 Management Principles
The importance of asset plans becomes apparent where management recognises that physical assets are a vital
Principles of asset management
corporate resource. Effective application of the principles of asset management will ensure this resource input
derive from common sense and are
is at the lowest overall cost.
based on the life-cycle approach. The
assumption upon which the principles Principles of asset management apply to all assets - they do not, however, apply equally. The characteristics of
are based is that assets exist only to the assets will dictate the extent and degree to which a particular principle is applied. One gauge of the
support program delivery. relative importance of each management principle to particular groups of assets is the amount outlaid at each
stage of their lives. For example, the ubiquitous furniture and fittings (typically high volume, low value items)
provide an essential service and their contribution to an organisation needs to be recognised. By their nature
however, they are typically low maintenance items. It may suffice simply to monitor their condition in lieu of a
10 costed, preventive maintenance plan. However, if they constitute a relatively large percentage of the total
value of total assets held, acquisition and replacement planning assume greater importance.
The five principles of asset management used in this handbook are not definitive. They represent current
thinking and sound practice. They are:
Asset Management Principles • asset management decisions are integrated with strategic planning;
• asset planning decisions are based on an evaluation of alternatives which consider the ‘life-cycle’ costs,
benefits and risks of ownership;
• accountability is established for asset condition, use and performance;
• disposal decisions are based on analysis of the methods which achieve the best available net return within
a framework of fair trading; and
• an effective control structure is established for asset management.

1.3.1 Integrated Planning
Product
Decisions on asset acquisition or
An Asset Strategy which complements the Information System, Human Resource and Financial Management
replacement, use, maintenance and
Strategies in the Operational or Business Plan of an agency.
disposal should be integrated with
strategic planning. This is achieved by
linking assets with program delivery
Success Factors
standards and strategies.
• Asset functions are assessed against and matched with program delivery standards or service delivery
strategies.
• Asset Strategy time-frame equates with the corporate planning horizon, and ideally, extends over the life of
longer lived assets.
11
• Asset Strategy incorporates capital and recurrent (operating) costs which link with budgets in the financial
management strategy.
Outcome
Integration of asset strategies into operational or business plans will establish a framework for existing and
new assets to be effectively utilised and their service potential optimised.
1.3.2 Acquisition
Effective asset planning frameworks Product

incorporate evaluation of the An acquisition plan which details the rationale for acquisition or replacement of assets. It documents the
alternatives to the acquisition of new consideration of alternatives and life-cycle costs. Where appropriate, it includes the method of acquisition and
assets and to the replacement of timing and amount of capital flows.
existing assets. The evaluation includes
a comparison of life-cycle costs.
Success Factors
• Management has established that existing assets are fully utilised, meet functional requirements and
perform at optimal levels.
12
• Genuine consideration of ‘non-asset’ solutions such as use of the private sector or ‘demand management’.
• All costs, express and implied, are included in consideration of ‘life-cycle’ costs. Implicit costs may include,
for example, a notional interest cost on funds used to acquire assets. Express costs will include direct and
indirect operating costs.
Outcome
A more economic, efficient and cost-effective asset acquisition framework which will reduce demand for new
assets, lower program costs and improve delivery of services or products.
1.3.3 Accountability for Assets
Product Effective accountability frameworks
An operation and a maintenance plan which establish standards for the level of use, condition, maintenance identify those responsible for assets.
and performance of assets. The plans also document the resources required to operate and maintain assets. This responsibility encompasses all
phases of the life-cycle. Mechanisms
establish ownership, control and
responsibility for use, security,
Success Factors
condition and performance of assets.
• Control of, and accountability for, assets is established at the program level.
• Financial responsibility for assets is established through the budget process and by cost
allocation/attribution.
13
• Condition, use and performance measures are established.
• The standard of performance of assets is an input to the next planning cycle.
Outcome
Effective accountability mechanisms will establish a culture where assets are adequately maintained and
protected and, through optimisation of performance, maximise their output or service potential.
1.3.4 Disposal of Assets
Effective asset disposal frameworks Product

incorporate consideration of A disposal plan which establishes the rationale for, the anticipated time and method of, and the expected
alternatives for the disposal of proceeds on, disposal. The plan is reviewed and refined, if necessary, prior to disposal, to take account of the
surplus, obsolete, under-performing or market and physical condition of the asset.
unserviceable assets. Alternatives
should be evaluated in cost-benefit
terms.
Success Factors
• Under-utilised and under-performing assets are identified as part of a regular, systematic review process.
• The reasons for under-utilisation or poor performance are critically examined and corrective action taken to
14
remedy the situation, or a disposal decision is made.
• Analysis of disposal methods has regard to potential market or other intrinsic values; the location and
volume of assets to be disposed of; the ability to support other government programs; and environmental
implications.
• Regular evaluation of disposal performance is undertaken.
Outcome
Effective management of the disposal process will minimise holdings of surplus and under-performing assets
and will maximise the return to the Commonwealth on such assets.
1.3.5 Management Control
Product An effective internal control structure
A policy and procedure manual which details the requirements for effective governance of assets is will establish and promulgate asset
complemented by an information system, based on an asset register, which provides the financial and non- policies and procedures and use an
financial information necessary to manage assets. information system which provides

reliable, relevant and timely data with
which to make informed asset
Success Factors
management decisions.
• The policies and procedures address all aspects of the asset life-cycle; are promulgated to all relevant staff
and are updated regularly.
• Staff involved in asset management receive training commensurate with their responsibilities. 15
• The asset register contains data on acquisition, asset identification, accountability information,
performance, disposal and accounting.
• The asset register is integrated with the financial and budgetary systems.
• Asset information is readily accessible to staff who are accountable for assets.
Outcome
An effective internal control structure provides the framework within which improvements to asset
management are effected. Without it there is limited scope for informed decision making or implementing
management’s intentions.
1.4 Suggested Methodology Introduction
Forward-looking asset management One process for developing an asset strategy is outlined in the diagram below.
strategies are required. The planning
process should match the prospective Figure 1-4 Suggested Method for Implementing an Asset Strategy
demand for assets with the current
asset supply profile to develop the
asset strategy. Existing asset holdings Capital works - programmed Program Delivery Strategy
acquisitions and commitments
Inventory and condition Asset needs to support

The diagram illustrates a 4 step approach: Non-asset
assessment solutions Strategy
• determine asset needs by
16
reference to the program services
Asset Supply Profile Asset Demand Profile
to be delivered;
• evaluate existing assets in terms

of their capacity to support Supply-Demand Comparison
program delivery;
Key Asset: Key Asset: New asset Asset:
• undertake a ‘gap analysis’ • non functional
• poor condition • good condition requirement
between existing assets and
• surplus
assets required; and

Refurbish Operate and Create or Dispose
• develop an asset strategy Maintain Acquire
comprising an acquisition,
operation, maintenance and Acquisition
Operations & Maintenance Plan
disposal plan.
Disposal Plan
1.4.1 Determine Asset Needs
The reason Commonwealth agencies acquire, operate and maintain assets is to support program delivery. By incorporating asset planning into
the strategic planning framework the
To ensure this occurs in practice, as a first step, agencies should develop program delivery strategies which: long term implications of corporate
level decision-making on assets can
• define the scope, standard and level of program services to be delivered;
be identified and appropriate
• assess the methods of delivering these services; responses developed.
• identify the resources, including assets, required to deliver the services; and
• determine, where appropriate, methods of containing the demand for the services.
When identifying resource requirements agencies should consider ‘non-asset’ solutions. These are solutions 17
which eliminate, reduce or constrain the need for the agency to own assets. They include:
• redesign of the service;
• increased use of existing assets; and
• use of the private sector.
Having defined the program services to be provided, and after considering non-asset solutions, those services
which require asset support are then identified.
1.4.2 Evaluate Existing Assets
The effectiveness of existing assets in supporting program delivery should be determined. This process pre-
supposes appropriate condition and performance standards are set for assets.
Figure 1-5 Performance Monitoring

Assets should be evaluated in terms of their:
• physical condition;
Physical condition
• functionality;
• use; and
18
• financial performance.
Functionality
Asset
Utilisation
Financial
performance
Integrated
performance report
The results of the evaluation should be included in an

integrated performance report (refer Part 2.4.3).
1.4.3 Compare Demand and Supply
At the strategic level, planning will provide a comparison between the assets required to support program
delivery and those assets currently available and/or programmed for acquisition. In this manner the agency is
able to identify:
• existing assets that are required and are presently capable of servicing program delivery needs;
• existing assets that are required but are below the necessary standard and need refurbishment to meet
program delivery needs;
• assets which are surplus to program delivery needs and can be disposed of; and
• assets which must be acquired to meet program delivery needs.

19
1.4.4 Asset Management Strategy
Following an evaluation of life-cycle costs, benefits and risks associated with each option, the strategy will
identify the most appropriate approach for meeting program delivery needs.
An acquisition plan is required which defines the assets which need to be acquired or replaced in the planning
period and which establishes the sources and cost of financing acquisition (refer 1.3.2).
An operational plan defines the policies for use of existing assets and may include matters such as hours of
operation, access, security, cleaning and energy management (refer 1.3.3).
A maintenance plan establishes the standard to which assets are to be maintained, how this standard is to be
achieved and how the maintenance services are to be provided (refer 1.3.3).
A disposal plan will identify key assets to be disposed of in the planning period, the preferred method of
disposal and expected proceeds on disposal (refer 1.3.4).
PART 2 BETTER ASSET MANAGEMENT
This Part of the handbook provides 2-1 Management Control 2-4 Operations
detailed guidance on the application of the
2-1-1 Policies and Procedures 2-4-1 Accountability Principles
principles and concepts discussed in the
2-1-2 The Asset Register 2-4-2 Financial Accountability
Overview.
2-4-3 Performance Accountability
2-2 Integrated Planning
2-4-4 Maintenance Policies
It contains a number of practical examples 2-2-1 Elements of the Asset Strategy 2-4-5 Operation & Maintenance Plans
which demonstrate how the principles of 2-2-2 Aligning Assets with Programs
20 asset management may be implemented. 2-5 Disposal
2-3 Acquisition Decisions
2-5-1 The Disposal Decision
2-3-1 Alternatives to Asset Ownership 2-5-2 Alternatives to Disposal
2-3-2 Establishing Life-Cycle Costs 2-5-3 Methods of Disposal
2-3-3 Methods of Acquisition
2-6 Accounting & Valuation
2-3-4 The Acquisition Plan
2-6-1 Accounting Definitions
2-6-2 Recognition of Assets
2-6-3 Valuation of Assets

Better Asset Management Asset Management Handbook
Introduction 2.1 Management Control
This part of the Handbook commences with a discussion of the control structure needed within an organisation Effective implementation of asset
in relation to asset management. It is the logical starting point, as the control structure is an essential element management principles can only be
of good corporate governance and is a necessary precursor to effective implementation of asset management achieved within a framework of
principles. appropriate control and monitoring
by management.
This section focuses on the policies and procedures which need to be developed and promulgated, and on the
management information which is required to make timely, informed asset management decisions.
.
The Internal Control Structure
The systems, processes and procedures established within an organisation to ensure that management’s plans 21
and intentions are implemented are referred to as the internal control structure. This structure extends beyond
those matters that relate directly to financial reporting and comprises:
• the control environment – including management's philosophy and operating style, and the polices and
procedures;
• the information system -– financial and non-financial information; and
• control procedures – internal accounting controls, management controls and asset security.
Each element is important to effective asset management.

Management must establish appropriate policies and
procedures, and adequate controls. It must ensure policies
and procedures are in place and that controls are operating
effectively. Only then can management be assured that the
information with which it makes decisions is reliable.
2.1.1 Po l i c y a n d P r o c e d u r e s
The development and promulgation of comprehensive asset policies and procedures are important elements of
Asset policies extend beyond
the internal control structure of an organisation. They reflect management’s operating philosophy and style.
accounting policies. They should be
Their content is one indication of management concern with maintaining adequate control over its resources.
comprehensive, covering all phases of
the asset life cycle, and should The absence of asset policy and procedure manuals, or the existence of outdated manuals, is generally an
address principles of asset indicator that internal controls are less reliable and effective. The primary reason for this is that policy and
management. procedure statements are the principal means by which management’s intentions are communicated to staff.
They are also an initial reference point for new staff. In their absence staff must rely on ‘word of mouth’ and
'on-the-job' training to divine policy. In the ANAO’s experience this is unsatisfactory, as what is practiced
quickly diverges from what is preached.
22
Good policy and procedure manuals are:
• integrated - policy statements and procedural guidance are combined;
• consolidated - all relevant policy and procedures are located in one source;
• cross-referenced - references to legislative requirements, government policy pronouncements, and

supplementary instructions are supplied ; and
• formatted for ease of update - preferably in electronic format.
Asset policy and procedure manuals should include more than operational aspects, such as recording assets,
stock take and write-off procedures. They should also address strategic issues such as planning for acquisition,
accountability arrangements, maintenance and operating policies and strategies. The following checklist has
been developed to provide an indication of the contents of a comprehensive policy and procedure manual. It is
suggested that it be copied and completed as a starting point for reviewing current instructions.
Figure 2-1 Policy and Procedure Checklist 2 . 1 . 1 Po l i c y a n d P r o c e d u r e s c o n t d . . .
M a n a g e m e n t R e v i e w C h e c k l i s t - A s s e t Po l i c y a n d P r o c e d u r e M a n u a l Good practice on acquisition includes:

Phase Section Exists Could Be Missing Date Action By • nominated officer responsible for
Improved Completed acceptance
• central delivery point: secure &

Planning • Definition of assets
segregated from assets in-use
• Role of assets in program delivery
• assets bar-coded by supplier and
• Non-asset solutions
computerised listing supplied (for large
• Asset life-cycle volume/value purchases)
• Life-cycle costing approaches • condition of assets inspected prior to
• Accountability and responsibility acceptance
• Elements of the asset strategy • assets tagged after acceptance 23
Acquisition • Analysis of alternatives
• Developing an acquisition plan
• Receipt and acceptance of assets Good practice for stock-take includes:

• Establishing ownership and control • cyclical coverage of assets based on
their risk profiles and degree of
physical security
Operation • Establishing performance indicators
• automated stock take of IT equipment
• Operation & maintenance plans attached to a Local Area or other
• Monitoring condition and use Network.
• Maintenance scheduling The Attorney-General’s
• Tracking assets: - transfers, loans,
off-site repairs.
i Department has developed
software for this purpose. (refer
Case Study in Appendix A)
• Safeguarding and protecting assets
◆ stock-take
◆ physical security
2 . 1 . 1 Po l i c y a n d P r o c e d u r e s c o n t d . . . Figure 2-1 contd
M a n a g e m e n t R e v i e w C h e c k l i s t - A s s e t Po l i c y a n d P r o c e d u r e M a n u a l
i Phase Section Exists Could Be

Improved
Missing Date Action
Completed
By
The manual should make reference to Disposal • Identification of surplus, obsolete
the DAS Guidelines on ‘Disposal of & under-performing assets
Surplus Assets’ issued in 1992. • Replacement strategy
• Evaluation of disposal alternatives
• Write-off of damaged or missing assets
• The disposal plan

24
Accounting • Definition of assets:
◆ Criterion of ‘control’
◆ Capitalisation threshold
◆ Enhancements & upgrades
◆ Portable, attractive assets
• Valuation of assets:
◆ Recognition criteria
◆ Valuation methodology
• Depreciation of Assets:
◆ Method
◆ Useful life
• Treatment of repairs & maintenance
• Recording assets on acquisition,
transfer and disposal

2.1.2 Asset Register
The size and complexity of an asset register will depend on the number and type of assets held by an An adequate asset register is integral
organisation. The volume of purchases, transfers and disposals in a year is also an indicator of the degree of to effective asset management. It is
sophistication required for asset recording and reporting. the basis of an asset management
information system and should
With this in mind, the features of a good asset register include: contain relevant data beyond that
required for financial reporting.
• integration to the extent practicable with purchasing and payments systems and the general ledger;
• asset data is:
◆ updated as transactions and events occur (ie on an accrual basis);
◆ regularly reconciled with acquisition data and the general ledger;

25
◆ readily available to asset managers, preferably in ‘on-line’;
◆ structured to allow different classifications of assets to be distinguished;
• financial data on assets is maintained down to the level which is important to decision-makers; and
• clear identification of the individual, or organisational unit, responsible for the asset.
The asset register should contain non-financial data on acquisition, identity, accountability, performance and
disposal in addition to the financial data necessary to discharge statutory reporting obligations. This data is
able to be used as an input to an ‘Integrated Performance Report’ which deals with the various performance
measures established for assets (refer section 2..4.3).
The following diagram (Figure 2-2) summarises the data that should be maintained on assets.
2.1.2 Asset Register Figure 2-2 Composition of An Asset Register
Outline of basic information necessary for Acquisition

good asset management. Identity
Accountability
Performance
It may be supplemented for certain types of
Disposal
assets. For example, additional data may
• Date Accounting
be required on planned and actual • Description
• Supplier
maintenance expenditure. This may include • Model • Location
• Reference
26 • Manufacturer • Program
accounting data on a provision for major • Amount • Capacity
• Serial Number • Custodian
maintenance, if condition-based • Condition
• Unique Asset • Conventants or
depreciation is used (refer section 6-4). restrictions • Useful Life
Number • Capacity
• Heritage or • Residual Value • Historic Cost
cultural • Condition
• Warranties or • Replacement
‘Identifier’ Guarantees • Useful Life Value
It is important that assets of cultural or
• Measures • Residual Value • Depreciation
heritage significance are ‘flagged’ as such Rate
and their special maintenance needs and • Accumulated
Depreciation
disposal considerations are made known to
asset managers.
Introduction 2.2 Integrated Planning
Corporate planning horizons typically range from 3 to 5 years for most Commonwealth agencies. They rarely Asset management decisions should
exceed 10 years due to the uncertainties inherent in forecasting past that period. Fixed asset lives, in contrast, be integrated into strategic planning
may vary from two, to in excess of, sixty years. processes. The asset strategy is one
element of the Strategic Plan of an
Integrating asset planning into the strategic planning processes using a ‘whole-of-life’ approach presents a
agency which complements the
challenge, particularly for assets with a long life. It is important the projections of capital and operating costs
Human Resource, Information
of owning and using assets extend at least to the corporate planning horizon (the same holds for other resource
Technology and Financial Strategies.
inputs). These projections are then able to be included within business or operational plans.
This section discusses each of the elements of the asset strategy, their derivation and content. It also provides
guidance on how to ensure assets are aligned with program delivery objectives and strategies. 27
2.2.1 Elements of the Asset Strategy
The elements which together contribute to the development of the asset strategy are summarised in the
diagram below.
Figure 2-3 Elements of an Asset Strategy
Acquisition Plans
Operations Plans
Maintenance Plans Service Delivery Method
Disposal Plans In-house Out-source
Funding Plans
28
Strategic
Asset Management
Plan
Condition
Functionality Policy & Systems

Procedures
Utilisation
Asset Training
Performance
Cost
Each stage of the life-cycle needs to be planned to identify what needs to be done to ensure that assets Asset Management Plans
effectively support program delivery. Individual plans consider the needs of the other stages of the life-cycle to
“What” needs to be done.
ensure an integrated approach is achieved.
Management plans are dynamic - regular reviews of asset performance should be undertaken and the plans
modified accordingly.
The service delivery method provides the mechanism for delivering the asset management plans. It is based on The Service Delivery Method
a needs analysis and an examination of how the plans are currently being delivered; and is reviewed against
“How” it will be done.
relevant financial, socio-economic and environmental factors.
29
The two major options for service delivery are ‘in-house’ and ‘out-sourcing’. Various combinations of these
options are available.
Periodic reviews of asset performance are an essential element of the asset management framework. They aim Performance Monitoring
to provide factual and quantitative information on the performance of the asset in meeting program delivery
“How well” assets meet program needs.
needs. Performance monitoring forms the basis of management of the asset throughout its life. It facilitates
adjustments to the various plans, ensuring program delivery needs are met and providing increased
efficiencies.
Procedures support consistent application of definitions, standards and efficient work practices. It is essential Procedures, Systems and Training
they are disseminated throughout the agency. The management information system is more than an asset
The “where-with-all” required for effective
register. It should support budgeting, planning and management of assets and provide an effective means of
asset management.
reporting asset performance.
Training programs need to be tailored to the needs of staff. Program managers require an understanding of the
principles of asset management and the associated budgeting and accounting processes. Staff with
responsibility for operation, maintenance and disposal require more in-depth training.
2.2.2 Aligning Assets with Programs
It is important that assets be aligned to an agency's programs to the extent practicable. This allows the full
cost of program delivery to be more readily determined. The process also provides the opportunity whereby
program delivery needs and outcomes are able to be compared with the assets currently used in delivery of
that program.
The outcomes of this process include:
• identifying assets that do not have the necessary capacity or functionality to adequately address program
delivery standards;
• identifying assets that have capacity or functionality in excess of program delivery standards; and
30 • identifying assets that do not support program objectives and should be disposed of.
Difficulties encountered when undertaking the process of alignment generally result from:
• conflict between organisational structure and program structure;
• centralised control and ownership of ‘corporate’ assets such as buildings, major IT equipment, fit-out and
furnishings; and
• assets being used by more than one program.
There may be sound management reasons for the above approaches. It was noted that a number of agencies
retain centralised control of IT equipment to ensure uniformity in purchasing. It is acknowledged (and
encouraged) that there should be some form of central oversight, particularly in a decentralised or highly
devolved organisation. However, this should not be held out as an obstacle to correctly aligning assets with
programs.
2.2.2 Aligning Assets with Programs

contd...
The process of alignment of assets with programs may be undertaken concurrently with the allocation of
capital and recurrent budgets for assets to program areas, and/or the allocation or attribution of ‘corporate’
costs to programs (if these have not already been done).
Cost attribution is an effective means of retaining central control or responsibility for assets and at the same
time aligning these assets with programs. This is particularly effective for assets employed by a number of
programs (for example, a headquarters building). One example of the benefits of aligning assets through a
resource allocation exercise was given by the Joint Committee of Public Accounts in Report 338 on Accrual
Accounting (August 1995) in relation to the CSIRO (page 118). In this case a major asset was identified as
being used by only one program. It was previously treated as a Divisional overhead. Distribution of the full
cost of the asset to the program led to a re-prioritisation of the program activity. The asset was disposed of and 31
leasing was subsequently employed as the need arose.

2.3 Acquisition Decisions Introduction
The decision to acquire an asset is The planning process identifies the gap between existing assets and the assets required to deliver programs. It
made after consideration of the also identifies assets which require replacement, refurbishment or upgrading to meet program delivery needs.
alternatives to asset ownership. It is However, the ‘new asset’ requirement for the planning period will be moderated by consideration of
based on a comparison of the life- alternatives to asset ownership. Once established, the capital costs, developed as part of the asset strategy, are
cycle costs, risks and benefits of each able to be translated into estimates of expenditure and operating budgets.
alternative. The alternatives include
While assets may be needed to deliver programs, it is not essential that an agency own these assets. Use of the
both ‘non-asset’ solutions and the
private sector for service delivery is one means by which the risk of ownership may be transferred. Redesign of
various methods by which assets may
the delivery strategy may also eliminate or reduce the need for assets. Another possibility is to moderate the
be acquired.
demand for the program where this is appropriate (refer 2.3.1).
32
Alternatives to Asset Ownership
Life-cycle costing is a process which recognises the concomitant nature of capital and recurrent costs. There is
little scope to avoid operating costs once an asset is acquired, if program delivery standards are to be met.
Avoiding or deferring operating costs such as maintenance may run-down an asset, shorten its working life
Establishing Life-Cycle Costs
and/or reduce its output (refer 2.3.2). However, there are often trade-offs that can be made between the capital
cost of an asset and its operating costs. Life-cycle costing is used to evaluate these choices.
The principal choice in ‘general’ government is whether to lease or buy an asset. Leasing presents a choice
between ‘operating’ and ‘finance’ leases. The latter option substantially transferring the risks and benefits of
ownership to the agency, the former providing greater flexibility (refer 2.3.3).
Methods of Acquisition
The above processes and considerations should be documented in an acquisition plan, as part of the
accountability framework (refer 2.3.4).
The Acquisition Plan

2.3.1 Alternatives to Asset

Ownership
Successful ‘non-asset’ solutions can reduce or defer the requirement for new assets with advantages in terms of
An integral part of effective asset
reduced management effort and the release of capital funds.
management is consideration of
The consideration of non-asset solutions is becoming increasingly important as: program delivery options which
reduce the need for ownership of
• the current stock of Commonwealth assets is growing and steadily ageing;
assets by the Commonwealth.
• changing expectations and technologies can prompt proposals for new assets where existing assets could
continue in service unchanged;
• asset requirements change over time with changing program requirements; and
• expenditure on fixed assets constrains expenditure in other areas.

33
These trends have encouraged a number of public and private sector organisations to divest themselves of
assets, moving to less asset intensive styles of operation. This approach provides greater flexibility in the face
of change.
Considerations in the search for non-asset solutions include;
• contracting-out the function to a service provider which will provide the assets itself;
• redesign the service to reduce demand on assets - for example, use of telephone-based services;
• reduce demand for the service itself - for example, by implementing user-charging regimes; and
• increase the utilisation of existing assets - for example, sharing facilities between programs and agencies.
An agency must have a clear understanding of the strategic

significance of its assets for its service delivery obligations
prior to considering ‘non-asset’ solutions.
2.3.2 Establishing Life-Cycle Costs
Life cycle costing is a logical, Life-cycle costing should blend all of the known costs over an asset’s life into a coherent view of the true overall
systematic process for estimating the cost of the asset to the agency.
total cost of an asset from its
Actual costs should be continually measured. This will provide a baseline to estimate costs for future
conception to its disposal.
acquisition projects and also provides the data with which to analyse the performance of existing assets
against predicted life-cycle costs.
Figure 2-5 Life-Cycle Costs
34
Better practice has shown that life-cycle
costing should include an assessment of the
cost of:
• planning;
Asset Cost, Dollars
• acquisition; PlanningCosts Acquisition Costs Operation and Maintenance Costs Disposal Costs
• operation & maintenance;
and
• disposal. Mid-Life
ReburbishmentCost
Asset Life Cycle, Years

Not to scale
2.3.2 Establishing Life-Cycle Costs

contd...
Planning Costs
The costs associated with developing the asset solution to a stage ready for acquisition. These may include
elements such as:
• scientific studies;
• environmental impact statements; and
• feasibility studies.
Acquisition Costs
The costs associated with the initial acquisition of the asset and may include:
35
• building or construction costs;
• commissioning costs; and
• installation and delivery costs.
Operational and Maintenance Costs
Recurrent expenditure on the day-to-day operation of equipment. In addition to energy, cleaning and
maintenance costs, they may include the cost of specialist staff required to operate the asset.
Disposal Costs
May include the financial loss on an asset disposed of prior to expiration of its expected useful life due to
circumstances beyond the agency’s control, such as becoming environmentally unacceptable. Conversely, they
may take into account the potential gain on sale of assets such as land or artworks.
Life-cycle costing provides a profile against which alternatives,

including non-asset solutions, can be examined.
2.3.2 Establishing Life-Cycle Costs Example of Comparative Life-Cycle Costing

contd...
1. Establish cost profile:
Option A Option B
Capital (purchase price) $9,600 $10,500
Recurrent (over 10 years):

Operating (power) $150 pa $80 pa
Major Maintenance $210 after 3 yrs $150 after 3 yrs
36
2. Calculate Cost using Net Present Value:
• Option A 1996 1997 1998 1999 2000 •
• Select discount rate - presently 8% • Capital 9600 •

Finance Circular 1992/3 set the 8% rate as
• Recurrent: •
a benchmark for cost-benefit analysis.
• Compute Present Value of costs over asset life
• • Maintenance 210 •
• • Operating 150 150 150 150 •
• Total 9600 150 150 360 150 •

In this example the asset with the lowest 3. Compare Present Values • Discount Rate 1.0 0.926
acquisition cost does not have the lowest • DCF 9600
• Option A = $10,794
total life-cycle cost. • NPV
• Option B = $10,735
2.3.3 Methods of Acquisition
Once it has been determined an asset is required, the three basic options are to buy, build or lease. Variations
on this theme, for infrastructure and large construction projects, include ‘build, own, operate and transfer’
(BOOT) schemes.
i
The National Public Works Council
Inc. published a ‘Total Asset
Lease versus Buy Management’ guidebook in May 1996

dealing with infrastructure assets.
The decision to lease or buy an asset is an issue where the market can provide generic assets to meet agencies
service needs. There are two principal types of lease available to agencies - the ‘finance’ and the ‘operating’
lease.
37
As the name implies, the former is effectively a vehicle for financing the purchase of an asset. The lessee takes
on most, if not all, the risks and benefits of ownership of the asset. From this viewpoint the use of a finance
lease is not significantly different to ownership. The major point of distinction between outright purchase of an i
asset and the use of a finance lease to ‘acquire’ the asset is that the ‘capital’ cost is able to be spread out over
The Commonwealth Department of
time. This is argued as a benefit of the finance lease.
Finance issued a Circular, (No. 14 of
For budget-funded agencies there are two arguments against this ‘benefit’: 1993) which discusses Finance Leases.
• the implicit interest cost in the finance lease will generally be higher than the cost of funds to the
Commonwealth - the use of a finance lease may therefore have adverse value-for-money consequences; and
• agencies are able to use the running cost arrangements to spread the cost of large capital outlays over a
number of years by borrowing against future appropriations or accumulating savings prior to acquisition.
2.3.3 Methods of Acquisition contd..
Operating leases also have an implicit interest cost. The main benefit of these types of lease is that the lessor
retains the risks of ownership. As they are generally short-term, they also provide greater flexibility to adapt
to change.
Where a lease is used, it is necessary to In summary, the advantages of leasing include:

record the details in an appropriate • increased flexibility to change ‘asset solutions’;
register. In the case of a finance lease, this
• reduced need for large, lumpy capital outlays; and
is the asset register. Additional details
• isolation from short-term fluctuations in market supply and values.
which should also be recorded include:
• lease start and completion dates; These advantages have a flip-side:

38
• first instalment date; • penalty clauses for early termination of finance leases;
• asset fair value on acquisition; • higher implicit interest costs in leases compared to cost of funds to the Commonwealth; and
• implicit interest rate; and • dependence on the market to supply assets may lead to long-term exposure to market cycles and values.
• present value of lease payments.

2.3.4 The Acquisition Plan

The acquisition plan is developed during the planning phase and prior to actual acquisition of the asset.
As a minimum it should address:
• the program delivery requirements - including service strategies and standards;
• the non-asset solutions considered - including utilisation of existing assets;
• an analysis of the alternative methods of acquisition - using discounted cash flow techniques where
appropriate;
History For major acquisitions better practice is to
• the personnel involved with acquisition and their
Funding establish an ‘acquisition history register’
responsibilities;
Timeline which details major decisions, times met
• the time-frame for the acquisition process; Personnel and not met, cost targets met/overrun,
Analysis 39
and and so on.
Rationale
• the timing and amount of capital outlays.
The plan will encompass all major asset

acquisitions (including replacement of existing Acquisition Plan
assets) anticipated over the corporate
planning period.
The extent and depth of documentation and analysis in the acquisition plan will depend critically on the
importance of the assets in program delivery. One measure of this is the relative value of the assets to
the total asset values held by the agency. Asset values may also be compared with the program expenditure,
although a more appropriate base in this case would be the ‘annualised’ whole-of-life costs of ownership.
2.4 Operations Introduction
Agencies should establish effective accountability mechanisms which ensure the use and ongoing maintenance
of assets remains relevant to program needs and service standards as defined in the acquisition plan.
Recent reforms in the public sector have been directed at establishing accountability, with responsibility, at the
program level. The program manager is responsible for the controllable inputs and outcomes of each program.
Difficulties are encountered when treating the costs associated with the use of assets on a program basis. Some
of these costs are not apparent (for example, the ‘finance’ cost discussed in the previous section); some are not
recognised as the asset’s service potential is consumed (for example depreciation and provisions for
maintenance); and generally, total capital and recurrent costs are not fully allocated or attributed at the
40 program level.
To ensure effective utilisation of assets, it is important program managers are made responsible both for the
cost of using assets in program delivery and for the performance of those assets in achieving program
objectives.
This section explores mechanisms by which financial and performance accountability may be established. It
also provides practical guidance on implementing appropriate condition assessment and performance
monitoring regimes.
2.4.1 Accountability Principles
The MAB/MIAC publication, Accountability in the Commonwealth Public Sector (Report No. 11), deals with the
recent public service reforms which have increased the focus on programs and performance. Part of the reform
framework is a move to greater devolution and increased decentralisation.
As the report states “...the quid-pro-quo for the devolution of authority has been the expansion of accountability
mechanisms”. However, accountability for asset use has been blurred. This is mainly due to inherent features
of non-current assets, such as their long-life, which makes it difficult to ensure that the management of life-
cycle costs is not fragmented.
Better practices in asset management call for the management (and hence responsibility and accountability) of
assets to be on a ‘whole-of-life’ basis. In practice, this translates to making program managers accountable for 41
all of the life-cycle costs of the assets which they consume in delivering their programs. Mechanisms to achieve
this will be directed at making all asset costs transparent to the program manager.
Accountability extends beyond cost, to making program managers responsible for performance and
safeguarding of the assets they control and consume. An integral part of achieving this accountability is a
management information system that provides data on asset condition and performance.
Notwithstanding this accountability model, there remains some scope for central oversight and control of
assets. Centralised reporting facilitates the monitoring of overall asset usage, repairs and other costs. It
permits the development of overall replacement policies and, with regard to purchasing, provides the
opportunity for enforcement of common standards and taking of optimum discounts.
Agencies need to strike a balance between devolution and delegation of authority on the one hand, with the
need to ensure a consistent, coherent approach to achieving all program objectives on the other.
2.4.2 Financial Accountability
Identification of the full costs Accountability for the ‘cost’ of using assets has traditionally been effected in government through the
associated with assets and their budgetary system. As this is a cash-based system, it is possible that it can create distortions in asset
attribution to the relevant program is management decisions.
essential to establish accountability at
The separation of capital and recurrent costs for budgeting purposes militates against a whole-of-life approach
the program level.
to asset management. Assets purchased with capital funds, once approved, are treated effectively as ‘free’
goods in subsequent years, so that there is little ongoing incentive to ensure service potential is optimised. The
separate bidding for recurrent funds on an annual basis ignores the concomitant nature of capital and
operating costs. It also provides the opportunity to defer necessary maintenance expenditure, as the impact of
Internal charging of users of assets is one such a decision is not felt, in a cash-based system, until later in the asset’s life.
42
approach to cost allocation. The
The ‘ideal’ solution in terms of some of the above problems is to operate on a full accrual accounting basis for
advantage is that charges can be based
budgeting, recording transactions, and reporting. On this basis the impact of decisions, such as deferral of
on ‘accrual’ costs providing a proxy for a
essential maintenance, are able to be reflected in the asset’s carrying value or its useful life (through
full accrual system.
depreciation charges) when the decision is made.
The Australian Bureau of Statistics has

In a cash-based environment it is suggested that agencies require program managers to establish whole-of-life
developed a sophisticated internal
costings for assets and use these as internal budgets, at the program level, to track and control expenditure.
charging regime of IT assets (refer to
Significant deviations from the plan would then need to be explained in terms of their impact on asset
Case Study in Appendix A).
performance and condition.
It is recognised that for certain assets (information technology equipment and building fit-out are examples)
some agencies adopt a centralised approach to purchasing. Capital and recurrent budgets for these items are
not established at program level. In order that the full cost of program delivery is made apparent to program
managers, it is necessary in these cases to devise some method of routinely allocating or attributing costs to
the program level on a timely basis.
2.4.3 Pe r f o r m a n c e A c c o u n t a b i l i t y
Agencies should establish systems and procedures which monitor and report on the performance of assets. Better practice suggests program
A useful reporting format is the Integrated Performance Report which captures and consolidates this managers be made responsible for the
information by type or class of asset. physical condition, use, functionality
and financial performance of the
assets they consume in delivering
Figure 2-5
programs.
Requires regular inspection

and assessment of required
maintenance costs.
43
Physical condition
How effective is the asset?
Indicators include user
satisfaction, and level of
Functionality availability when required.
Asset
Utilisation How intensively is the
asset used? Hours of
operation, kilometres
travelled, floor space
Financial occupied, are examples.
performance
Integrated
Indicators may include the
performance report cost of operating the asset,
or of maintenance, as a
ratio of capacity (eg $/km
or $/m2).
2.4.4 M a i n t e n a n c e Po l i c i e s
The maintenance policy derives from The maintenance policy provides the basis for determining why an asset is maintained in a particular way. It
consideration of several factors has direct linkages to, and underpins, the maintenance strategy.
relating to the needs of the
The policy will address necessary maintenance standards, which should be performance based, and which
organisation and the risk and
define the desired condition of the asset with respect to its functionality, level of amenity, compliance with
consequences of asset failure.
legislative requirements, and economic performance.
Selection of a maintenance strategy involves consideration of the appropriate mix of procedures and the
The significant policy questions which need
capacity to undertake minor modifications and enhancements when required. It is unlikely that any one
to be answered include:
approach will be suitable. The main approaches are:
• what are the maintenance
• corrective - no maintenance is undertaken unless, or until, the asset no longer functions to the required
44
standards (the desired
standard;
condition of the asset)?
• preventive - undertake programmed maintenance to reduce the likelihood of failure to an acceptable level.
• what is the appropriate mix
of approaches? An important consideration is the nature of the asset itself. Certain categories of assets require little or no
regular maintenance (furniture and fittings for example). It is valid to exclude such assets from a formal
• is management of maintenance
maintenance program and rely instead on regular, periodic inspection of condition. This could be undertaken in
to be devolved?
conjunction with the stock-take program.
• how will the service be
delivered (in-house or out- Risk is also an important consideration in determining appropriate maintenance policies. Risks associated with
sourced)? the operation of the asset in terms of occupational health and safety standards need to be considered. The risk
and consequence of failure of the asset is also an important consideration.
A planned approach to maintenance will ensure the delivery of

maintenance services, such as routine inspections and servicing,
are undertaken in a manner which minimises disruption to the
users of the asset, and ensures maintenance resources are used
in the most cost-efficient manner.
2.4.5 Operational & Maintenance Plans
The objective of operational and maintenance plans is to ensure assets remain appropriate to program Set out the approaches to be used, and
requirements, are efficiently utilised, and are maintained in the necessary condition to support program what needs to be done, to optimise
delivery at the lowest possible long-term cost. performance and asset life.
Operational plans establish the means to ensure that assets are efficiently and effectively utilised in
supporting program delivery. Under-utilisation will increase the unit costs of program delivery and may
prompt the purchase of new assets when they are not required. Over-utilisation can have adverse affects in
terms of deterioration in asset performance and condition, shortening productive life and increasing recurrent
operating and maintenance costs.
The operational plan should cover: 45
• responsibility for, control of, access to, and security of the asset;
• Maintenance Schedule for Location •
• the level and standard of performance required of the asset;
• Component Planned Maintenance Replacement/refurbishment - Year •
• arrangements for collecting, monitoring and reporting performance data; Backlog Routine 1 2 3 4 5 6 7 8 9 10
• •
• training staff in use of the asset; and • •
• estimates of operating costs. •
•
In developing a maintenance plan an initial assessment of the condition of existing assets against the
•
desired standard is undertaken. This establishes the corrective maintenance necessary to meet the standard
and defines a base-line for determining the adequacy and effectiveness of future maintenance. The plan should
allow for the rectification of existing defects; an annual program of routine preventative maintenance; and a
long-term program for major repairs and maintenance.
Both plans are dynamic and should be reviewed regularly to ensure they remain appropriate to program
delivery needs.
2.5 Disposal Introduction
The Commonwealth Department of Administrative Services published ‘Guidelines for the Disposal of Surplus
Assets’ in 1992. They are a prime source of information for asset managers deciding between alternative
disposal methods and to gain an understanding of the policy framework for disposal.
Reasons for disposal action are generally well understood (surplus, under-performing and unserviceable assets
are examples). The methods of disposal, their pros and cons, are not as well comprehended. An area which is
given less attention is the alternatives to disposal. This section will not re-state the Guidelines. It will draw
out some key points in relation to the above issues together with some additional matters for consideration.
The Disposal Decision

46
The disposal decision cannot be taken in isolation. While disposal is viewed as the final stage in asset
management, it is common for disposal action to trigger the acquisition of a new asset or a replacement asset.
i The underlying assumption is that management has the necessary information to be able to determine which
assets need to be disposed of, and when.
The Accounting Standards (AAS4) The asset register is a starting point for this analysis as it records the useful lives of the class of assets and is
require that the useful lives of asset able to provide an indication of the timing of major replacements in the normal course of business. It is self-
classes be re-assessed annually. evident that, to be used in such a way, the assessments of useful life must be as realistic as possible.
2.5 Disposal contd...
The actual life of individual assets will vary from the ‘average’ life established for that class of asset in the
asset register. Therefore, it is important that condition monitoring and performance assessment are
undertaken, with the results linked to an appropriate management information system.
Alternatives to Disposal
Where assets have been identified as under-performing, or no longer functionally suited to program delivery
needs, thought should be given to the possible alternatives to disposal.
A factor to consider is whether utilisation can be increased by adapting the asset to another function or using
it in another program. In large devolved or decentralised organisations it may be worthwhile circulating lists of 47
assets flagged for disposal to other program heads prior to commencing disposal action. For assets such as
property or large IT installations, consideration may be given to renting or leasing surplus capacity to other
agencies.
Refurbishment or an upgrade of the asset may also be viable. The cost and benefit of such alternatives should
be included in the costed disposal plan (refer below).
Methods of Disposal
The DAS Guidelines discuss the primary methods of disposal including sale by public auction or tender, sale by
private treaty, trade-in and write-off. One method which is often overlooked is the sale or transfer of assets to
other government agencies.
Whatever method is chosen it is important, not least for accountability and transparency, that a properly costed
evaluation of relevant disposal options is prepared. This should take into account both the costs associated
with each method of disposal and the likely benefits (including possible proceeds).
2.5 Disposal contd... A s s e s s m e n t o f Pe r f o r m a n c e
The whole-of-life approach to asset management and effective strategic asset planning requires that the
outcomes and outputs of each phase of the asset life-cycle become inputs to the next planning cycle. While more
attention is being given to operation and maintenance it is still uncommon for agencies to evaluate their
disposal performance.
Better practice suggests, in addition to At the very least a comparison of the actual timing and proceeds on disposal should be made with the standard
undertaking the cost-benefit analysis of the established for the class in the agency’s accounting policies. This is a means of confirming that the useful life,
methods of disposal, asset managers be estimated proceeds, and therefore the depreciation rates used, are valid. It also provides the opportunity to
required to compare actual life at disposal identify causes where assets are routinely not meeting the service life expectations or their estimated proceeds
with the expected useful life and to explain on disposal.
48 significant variations.
A higher level review also needs to be undertaken at regular intervals to ensure that the Government’s
disposal goals and aims, as set out in the DAS Guidelines, are being met.
Introduction 2.6 Accounting and Valuation
This Section discusses a number of aspects of the recording and valuation of assets. It also discusses the Assets are recorded and valued to
allocation of asset values over the periods of their use. This allows the full cost of the various programs of allow performance to be measured:
activity undertaken by an entity to be identified. internally for management purposes
and externally for accountability.
What is an asset?
The accounting definition of an asset is somewhat removed from its everyday meaning. In accounting there are
tests of control which over-ride considerations of ownership and formal rules which establish when an asset is
created or otherwise comes into existence.
49
How do you record assets?
It is not as simple as entering the amount paid for the asset in the books of account. Materiality reigns
supreme in accounting which in turn necessitates consideration of thresholds for financial recognition. The
distinction between what an asset is, and the threshold at which you report that asset in financial statements,
is a major source of confusion. Related difficulties arise when you have a large number of assets which are
individually immaterial but that, when taken together, are material. And what about when you have
individual components of assets that function together but which are each immaterial...?
How do you value assets?
Strange things can occur when you value some of your assets looking backwards in time and some of them
with the future in mind. The accounting profession permits this uneasy mixture. So what should be the
preferred valuation method for effective whole-of-life asset management?
And what is ‘depreciation’?

2.6.1 Accounting Definitions
Consistent definitions are essential to The Statements of Accounting Concepts (SACs) issued by the accounting profession in Australia provide a
good management and good reporting. framework for reporting. Australian Accounting Standards (AAS) lay down detailed requirements for certain
aspects of financial reporting.
SAC 4 Definition and Recognition of the Elements of Financial Statements defines an asset. AAS 29 Financial
Reporting by Government Departments contains the same definition:
“Assets” are future economic benefits controlled by the entity as a result of

Formal definition
past transactions or other past events.
The definition has three elements, which must all be satisfied for there to be an ‘asset’ in an accounting sense.
50
They are relevant to all forms of asset be they financial, physical or intangible:
• future economic benefits;
• control by the entity; and

Three essential elements
• a past event giving rise to that control.
Future Economic Benefit
Will the ‘asset’ provide any benefit to the agency that controls it? Does it have potential to support program
delivery? Does it have a resale value? Can it be exchanged for something else that is useful to the agency?
Will it save you some money in the future? If you answered no to all of these questions you probably don't
have an asset on your hands. If it's currently in your asset register you should remove it (before the auditors
find it).
You are under my control
How can you control an asset without owning it? The key point to understand is that it is control of the
economic benefits of the asset rather than ‘physical’ control which is important. Do you enjoy the benefits of the
asset and can you prevent others from sharing those benefits?
Legal title and physical possession are good indicators of control but they are not infallible. A ‘finance’ lease
(discussed in section 4) is one example where the legal ownership rests with the lessor yet the benefits are
enjoyed by the lessee. An agency may be required to have legal title to some asset under legislation but it is
used by another agency - that asset is controlled by the other agency and so should be reflected in their
records.
51
Past Events
Accounting establishes time periods (usually 12 months) at which it measures the position and performance
of an entity . It is possible to recognise an asset for accounting purposes only after it has come into existence -
there is nothing prospective about recognition. What we are looking for is some event or transaction which
transferred control to an agency - it is from that point that you recognise the asset.
Good indicators are when you pay for the asset, when you take possession of the asset or when you create
the asset.
In some instances, an entity may be certain it is going to gain control of an asset - this is not enough of itself.
There may be a number of events associated with an item becoming an asset. It is essential that the event
giving rise to control is identified. This is not always an easy exercise (ask any accountant).
2.6.2 Recognition of Assets

Passing the first test of ‘definition’ does not automatically mean an asset should be reported in the financial
The different methods of recognising
statements. Accountants need you to answer some questions first.
assets can either make reports
informative or meaningless. The criteria, from SAC 4, for recognising an asset in the financial statements are:
“... when and only when:
i (a) it is probable that the future economic benefits embodied in the asset will eventuate; and
SAC4 and AAS 29, for government (b) the asset possesses a cost or other value that can be measured reliably.”
departments, have Asset Recognition
52 Criteria
More or Less
Accountants define ‘probable’ to mean more rather than less likely. This does not imply certainty or a high
probability and can range down to a 51% chance. If the probability is more rather than less (greater than 50%),
but not high, some explanation may need to be provided in financial reports, but the item would still be
included as an asset. So, if an accountant tells you that it is probable that a particular horse is going to win a
race, you may want to think twice before you gamble.
Trust me, I’m an accountant 2.6.2 Recognition of Assets contd...
If you are buying an asset it is a fairly straightforward process to measure its cost. However, in some cases you
may need to estimate this cost (or value). For example, an asset may have been donated, you may be
recognising it for the first time and have lost its transaction history, you may not have had systems in place to
capture all costs (internally developed software is an example). It is important in these cases the estimates be
soundly based. The use of a professional valuer is strongly recommended.
It may not be possible to obtain a reasonable estimate of the cost or value of the asset. The question that needs
to be put is whether including an asset in the accounts, at a value that is questionable, will mis-lead the users
of those accounts? Will the accounts be made more meaningful by the inclusion or exclusion of the figure?
53
Setting Thresholds
Now it has been determined that an asset exists and its cost is able to be reliably measured it is included in You should refer to AAS 5 for a discussion
the financial statements, right? Wrong! Financial statements do not need to report every transaction or event of Materiality.
that affects an agency. The approach that accountants use is that it is only necessary to capture and report on
‘material’ or significant amounts and events in the statements. This is an attempt to weigh the cost of
gathering data against its usefulness or significance to the readers of the financial statements.
Using this criterion it is not necessary to include the value of every asset in the financial statement balances.
Note the subtle distinction. We are not talking about whether you need to record the existence of an asset in
the underlying registers - that is an asset management decision based on the importance of the asset or group
of assets to an agency, and accountability criteria. We are talking about whether you need to report the assets
that you do record, in your financial statement balances.
2.6.2 Recognition of Assets contd...
The way this is decided is to establish a monetary reporting threshold. A threshold commonly used by
departments is $2000. This is largely out of habit as this was an amount historically prescribed. It is possible
however that the application of a uniform threshold across all asset classes will not be cost-effective and will
send the wrong signals to asset managers.
Some agencies also set a ‘recording’ As a rule accountants set a threshold so at least 95% of total non-current assets by value are reported in the
threshold - only assets which are valued financial statements. This rule provides significant scope to set different thresholds for different classes of
over a certain amount are recorded in the assets. It may be possible to ignore an entire class of assets for reporting purposes where they are
registers of the agency. The recording immaterial when compared to total non-current assets. Alternatively, it is possible to decide to report all of a
threshold is based on cost-benefit particular type of asset.
54 considerations in terms of accountability,
The hard part comes where you have a lot of assets with very low unit values (possibly below the value at
probity and management of assets.
which you normally record assets in the registers) but which in aggregate are material to total non-current
The common example is ‘portable and
assets due to their sheer volume. It is appropriate in this case to record these assets as a single group, with one
attractive’ items which are generally below
combined value, so that you are able to satisfy reporting requirements. Examples include the creation of
the ‘reporting’ threshold.
group totals to record different types of furniture or fit-out, or the contents of professional libraries.
One word of caution: if these low value assets are never-the-less important to an agency in supporting the
delivery of programs, it may be necessary to establish a subsidiary system to be able to track their movement
within the organisation or to monitor and control necessary maintenance, for example. The counter-point is
that it is not necessary to capture and record financial information at this lower level. A good example of
such a subsidiary system is a librarian’s catalogue. Similar systems may be established for low value, portable
and attractive items which need to be tracked but not necessarily reported.
2.6.3 Valuation of Assets
We have established what assets are. We have established that not all assets are included in the financial
statements. The criteria used to determine this is the asset value and the reporting threshold. But how do we
arrive at the asset value?
Asset values are generally recorded at the original purchase price (historic cost) of the asset. They may later be
re-valued on some other basis (deprival value being the predominant approach). These values are referred to as
the Gross Book Values of assets. They are not however the end of the story. The carrying value of an asset in
the financial statements (its Written Down Value) is arrived at by deducting an annual depreciation charge
(which accumulates over time). Deductions other than depreciation may also be made from asset values to
reflect some other factor which diminishes the asset’s present value to an agency (deferred maintenance is one
example). 55
Initial recording of assets at

acquisition is at cost except in special
Values on initial recognition
circumstances.
Accounting standards require the initial recording of an asset to be at cost. “Cost” includes necessary, ancillary
AAS 21 Accounting for the Acquisition of
expenditure such as transport of the asset to the site. For items where there is no cost to the entity (eg. gifts or
Assets (Including Business Entities) refers.
transfers without cost) the standards require that they be recorded at their fair value (ie. the amount that a
willing buyer and willing seller would agree on). For assets under finance lease, the initial
value recorded depends on whether the
The Department of Finance has determined, for transfers between departments, on a restructure of functions,
asset is expected to remain with the entity,
assets should initially be recorded at the value at which they were carried in the books of the transferring
or eventually be returned to the lessor.
department. In this instance, both the gross value and accumulated depreciation should be recorded.
Subsequent valuation
Initial valuations of assets on an historic cost basis will become increasingly irrelevant over time both for
management decision making and external reporting. It is possible to update the value of almost all assets and
it is increasingly recommended that this should be done.
Many businesses, including Government Business Enterprises, are required to re-value land and buildings
Accounting for asset revaluations is
every three years. This is also recommended for departments and is likely to become mandatory. While it is not
dictated by AAS 10 Accounting for the
compulsory for this valuation to be taken up in the accounts, omission of this step is generally
Revaluation of Non-Current Assets and, for
counterproductive in terms of obtaining a measure of the real costs consumed by, and current value of the
departments, by AAS 29
investments in, programs. Better practice in asset management suggests, for planning purposes, management
should have an indication of the future call on resources for replacement of existing assets. The regular
56
revaluation of assets is one method of achieving this.
The cost of revaluation can be a major expense. This cost is ameliorated to a large extent when the agency has
established an adequate asset register (in the form discussed in section 2.1.2) and has maintained it by
A commonly used set of rules for valuing ensuring that all asset movements (acquisitions, disposals and transfers between locations!) are recorded in
assets in the public sector is the deprival a timely manner.
value method. This is really a set of rules

Agencies should also consider the use of appropriate indices which may be used in conjunction with a cyclical
for applying different valuation techniques
program of revaluation, in order to lower the cost of the revaluation exercise. This approach coincides nicely
based on the circumstances applying.
with the accounting profession’s decision to allow revaluation of parts of a class of assets provided it is part of a
A brief outline of these rules is included in
systematic revaluation process undertaken over no more than three years.
the Department of Finance Guidelines for
Financial Statements of Authorities. The revaluation of assets is normally an exercise best left to experts whether they are from an independent
organisation, such as the Australian Valuation Office, or internal officers with the necessary qualifications and
experience.
Depreciation
Cash accounting shows asset purchases as expenditure in the year in which payment is made. This overstates Depreciation is the allocation of the
program costs in that year as it fails to reflect that the asset is used over a number of years. Accordingly the cost value of an asset to the periods in
of the asset should be spread over that period. Accrual accounting, and in particular the process of depreciation, which it is used.
allow the actual cost of programs to be seen, as and when an asset’s service potential is consumed.
• Depreciation is not a method of
It must be emphasised that accounting ‘depreciation’ is not saving up for new assets and is only partly a
financing replacement assets.
reflection of the “wearing out” of assets. Other factors, such as technical obsolescence and any residual value of
the asset, must also be considered. • Depreciation is necessary even where
assets are re-valued every year. The
Depreciation is based on allocating the asset value over the useful life of the asset. It is necessary to remember
two processes are independent.
that this useful life is estimated in the context of “normal” maintenance being undertaken on the asset as and 57
when required over the period that it is in use.
The assumption of a particular level of maintenance is integral to the calculation of useful life. Maintenance
which is part of this assumed level, and which is insignificant to the total asset value, is generally recognised
as an expense in the year that it occurs. Assumed maintenance, which is significant (or ‘major’), and which is
not carried out when required, may reduce the useful life of the asset, lower its disposal value at the end of its
life, or impair its functionality and reduce its output.
One means of signalling such ‘additional’ deterioration to asset managers is to institute a ‘condition-based’
depreciation regime. This requires recognition of the actual condition of the asset prior to maintenance being
effected. This approach is reflected in the following diagram (figure 2-6). The ‘depreciation’ for the condition of
the asset is separate from, and additional to, the normal depreciation provision. It is generally referred to as a
provision for diminution of value or a provision for major maintenance and is also deducted from the gross book
value of the asset.
Figure 2-6 Condition-based Depreciation Regime
diminished values
$ cost
This model may also be applied to major depreciated value
components of assets that have a separate
useful life less than the life of the entire
asset. For example roofs of buildings and
58 carpets. In these cases the component is
fully depreciated over its (shorter) life.
useful life
5 10 15 20 25 30
time
The extra ‘provision’ is generally determined by reference to a costed maintenance program developed for the
asset or asset class. When maintenance is carried out the expense is charged to the provision, restoring the
asset value to its depreciated value. If the maintenance is not carried out when required the provision for
maintenance remains. This provides a direct signal to managers of the impact of their decision to defer
maintenance.
Appendices Asset Management Handbook
APPENDICES PART 3
3-A Case Studies
3-A-1 Bureau of Statistics - Internal Charging
Appendix A provides details of the case

3-A-2 Attorney-General’s - Monitoring of On-Line Equipment
studies introduced in Part 2 of the
3-A-3 National Library - Utilisation of Photocopiers handbook.
3-B Glossary of Terms
3-C References and Further Reading

3-A-1 Internal Charging
This study illustrates a method of

allocating life-cycle costs on an
accrual basis to the users of assets.
It demonstrates how the principle of
accountability for consumption of
assets is able to be effected.
The Australian Bureau of Statistics

implemented a ‘user-charging’ regime in
1989 for IT equipment and support services.
An IT Bureau was established.

Its responsibilities include installation and
operation of ABS central computing
equipment, mid-range equipment and
communications networks; and installation
and support of small-scale technology.
The IT bureau is effectively ‘self-funding’,

relying on the ‘revenue’ from its internal
lease charges. It is also able to ‘borrow’
from the department for major capital
acquisitions.
3-A-2 Monitoring On-Line Equipment
An example of tracking high risk

assets by use of technology.
The Attorney-General’s Department has

developed a system which records
electronically the ‘polling’ of IT equipment
attached to a LAN.
The system logs the existence and location

of these assets. Defining appropriate time-
periods for high risk assets makes it
possible to alert IT staff to the potential
loss of equipment. The resulting data can
be used in a risk-based stocktake process.
3-A-3 Utilisation of Assets
An example of the application of life

cycle planning leading to optimisation
of the acquisition decision.
The National Library of Australia

instituted a review of the utilisation and
functionality of its photocopiers in 1993.
Devolved purchasing had led to a variety of

makes and models of photocopier with
disparate service agreements. At the time
there was no requirement to consider the
cost of maintenance and service when
evaluating the acquisition.
There is now central monitoring of

purchases by the Services Branch to ensure
that standards for brands and service
agreements are met.
3-B Glossary of Terms
An asset, from an accounting perspective, is anything which will provide the owner with some form of future Asset
benefit. Assets may be monetary, such as cash or bonds, physical such as inventory, land or buildings or
intangible such as computer software or a legal right of enforcement which may be associated with a copyright
or patent.
Aims to provide an approach to the management of assets encompassing the principles of Integrated Planning, Asset Management
Asset Planning, Asset Accountability, Asset Disposal and the Internal Control Structure.
An asset that would, in the normal course of operations, be consumed or converted to cash within 12 months Current Asset
after the last reporting date.
Demand Management is active intervention in the market to influence demand for services and assets. Demand Management
The expense associated with the consumption of the service potential or future economic benefits represented Depreciation
by a non-current asset, over the term of its estimated useful life.
The cost that would be incurred by an entity if it were deprived of an asset and was required to continue Deprival Value
delivering programs/services using the asset. The value is measured by the replacement cost of the benefits
currently embodied in the asset. Deprival value may also represent an opportunity value ie the cost avoided as
a result of having control of an asset.
The original acquisition cost of the asset. If the asset has been re-valued, the Gross Book Value is the current Gross Book Value
valuation
3-B Glossary of Terms contd...
Intangible Asset Intangible Assets are assets that are non-monetary and do not take a physical form. Examples include patents,
licenses, rights and copyrights. Intangible Assets can be purchased or developed internally.
Life-Cycle Costs The estimated period of time over which an asset is expected to be able to be used, or the benefits represented
by the asset are expected to be derived. Asset Life-Cycle Costing is the total cost of owning the asset,
considering costs of both a capital and a recurring nature.
Examples include design, construction, maintenance, insurance, refurbishment, operating and disposal costs.
Non-Asset Solutions Methods of addressing program delivery needs other than by adding asset capacity. Methods include pricing
mechanism changes, selective targeting of services and the use of private sector expertise.
Non-Current Asset An asset that would, in the normal course of operations, be consumed or converted to cash in greater than 12
months after the last reporting date.
The estimated period of time over which a depreciable asset is expected to be able to be used, or the benefits
Useful Life
represented by the asset are expected to be derived
In relation to an asset, Written Down Value is the amount at which the asset is recorded in the accounting
Written Down Value
records as at a particular date. Written Down Value means the net amount after deducting accumulated
depreciation. In relation to a class of assets, the sum of the Written Down Values of the assets in that class is
aggregated. (Also known as Carrying Amount).
Written Down Replacement Value As for Written Down Value, is based on the cost of an equivalent asset depreciated to reflect the expired portion
of the asset’s useful life , and any variation in operating costs. (Also known as Depreciated Replacement Cost).
Department of Administrative Services, Guidelines for Surplus Asset Disposal, 1992, Commonwealth of 3-C References and Further Reading
Australia, AGPS, Canberra.
Department of Finance, Acquisition of Information Technology Facilities, Circular 1991/11, Commonwealth of

Australia, Canberra.
Department of Finance, Finance Leases, Circular 1993/14, Commonwealth of Australia, Canberra.
Department of Finance, Running Costs Arrangements Handbook, July 1995, Commonwealth of Australia,
AGPS, Canberra.
Department of Treasury and Finance/Services SA, Strategic Asset Management Framework, January 1996,
Government of South Australia, Adelaide.
Department of Treasury and Finance, Recognition and Valuation of Non-Current Physical Assets, 1995,
Government of Victoria, Melbourne.
Department of Treasury and Finance, Asset Management Series - Principles, Policies and Practices, November
1995, Government of Victoria, Melbourne.
Department of the Treasury, Strategic Asset Management - An Overview, 1994, Government of Western
Australia, Perth.
Department of the Treasury, Strategic Asset Management - Project Evaluation Techniques: An Introduction,
1994, Government of Western Australia, Perth.
3-C Ref eren c es an d Fu rt h er Readi n g Department of the Treasury, Strategic Asset Management - Project Initiation Process For Capital Investment in
c on t d...
Non-Residential Buildings, 1994, Government of Western Australia, Perth.
House of Representatives Standing Committee on Banking, Finance and Public Administration, Keeping the
Customer Satisfied: Inquiry into the Devolution of Running Costs Flexibilities, October 1995, AGPS, Canberra.
International Federation of Accountants Public Sector Committee (IFACPSC), Study 5: Definition and
Recognition of Assets, 1995.
Joint Committee of Public Accounts (JCPA), Report 338: Accrual Accounting - A Cultural Change, 1995,
Parliament of the Commonwealth of Australia, AGPS, Canberra.
Management Advisory Board - Management Improvement Advisory Committee (MAB-MIAC), Accountability in

the Commonwealth Public Sector - Report 11, June 1993, AGPS, Canberra.
Management Advisory Board - Management Improvement Advisory Committee (MAB-MIAC), Improving Asset
Management in the Public Sector - Report 1, May 1991, AGPS, Canberra.
National Public Works Council, Total Asset Management, 1996, NPWC Secretariat, Canberra.
Public Works Department, Capital Works Investment - Total Asset Management Manual, November 1993,
Government of New South Wales, Sydney.
Purchasing Australia/Department of Administrative Services, Commonwealth Procurement Guidelines: 1-13,

1989/90, AGPS, Canberra.
Queensland (Government of), Recording and Valuation of Non-Current Physical Assets in the Queensland
Public Sector, October 1994, Brisbane.
South Australian Commission of Audit, Report of the South Australian Commission of Audit: Charting the Way 3- C References and Further Re ading
contd. ..
Forward, Improving Public Sector Performance, 1994, Adelaide.
Steering Committee on National Performance Monitoring of Government Trading Enterprises, Guidelines on

Accounting Policy For Valuation of Assets of Government Trading Enterprises - Using Current Valuation
Methods, 1994, Industry Commission, Melbourne.
Steering Committee on National Performance Monitoring of Government Trading Enterprises, Overview:

Guidelines on Accounting Policy For Valuation of Assets of Government Trading Enterprises - Using Current
Valuation Methods, 1994, Industry Commission, Melbourne.
Victorian Commission of Audit, Report of the Victorian Commission of Audit - Volumes 1 & 2, 1993, Melbourne.
Victorian Comptroller-General, Management Improvement Initiative - Asset Management Principles, 1994,

Government of Victoria, Melbourne.
For further information contact:
Australian National Audit Office

GPO Box 707
Canberra ACT 2601
4097 WANAO cover 31/8/98 2:21 PM Page 2

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4097 WANAO cover 31/8/98 2:21 PM Page 1

What’s it all about? 1.1 Introduction 2

Everything you wanted to know, but.. 1.2 Basic Concepts 3

Paradigms lost 1.3 Management Principles 10

Where do we go from here? 1.4 Suggested Methodology 16

PART 2: BETTER ASSET MANAGEMENT

Setting the scene 2.1 Management Control 21

Laying better plans 2.2 Integrated Planning 27

To buy or not to buy? 2.3 Acquisition Decisions 32

For whom the bell tolls 2.4 Operations 40

Trash and treasure 2.5 Disposal 46

Revenge of the bean counters 2.6 Accounting and Valuation 49

3.1 Case Studies

3.3 References & Further Reading

1-1 Introduction This Part provides an overview of asset

1-2-2 Planning Framework

1-2-3 The Asset Life-Cycle

1-3 Management Principles

It should be read by all levels within the

1-3-5 Management Control

1-4 Suggested Methodology

1-4-1 Determine Asset Needs

1-4-2 Evaluate Existing Assets

1-4-3 Demand and Supply

1-4-4 Management Strategy

This handbook is directed primarily at assets

What are Assets? 1.2 Basic Concepts

The Asset Management Framework

The Asset Life-Cycle

1.2.1 Assets Defined

Figure 1-1 Possible Classification System for Assets

‘Current’ means to be consumed or

non-current twelve months

Source: Asset Management Series, 1995, Victorian Government, Melbourne

1.2.2 Planning Framework

Figure 1-2 An Asset Management Framework

6 The features of an asset management Strategic/Business Plan

• it employs a structured, Information System Strategy

• it is based on ‘whole-of-life’ Financial Strategy

concepts Asset Strategy

Non Asset solutions: Operation & Maintenance Plan

Capital and Recurrent Funding Plan

1.2.3 The Asset Life-Cycle

1.2.3 Asset Life-Cycle contd...

1.2.3 Asset Life-Cycle contd...

1.3 Management Principles

• accountability is established for asset condition, use and performance;

• an effective control structure is established for asset management.

1.3.1 Integrated Planning

Effective asset planning frameworks Product

1.3.3 Accountability for Assets

Product Effective accountability frameworks

• The standard of performance of assets is an input to the next planning cycle.

1.3.4 Disposal of Assets

Effective asset disposal frameworks Product

• Regular evaluation of disposal performance is undertaken.

1.3.5 Management Control

Product An effective internal control structure

financial information necessary to manage assets. information system which provides