In-Depth

Enterprises Flunking Asset Management 101

Chances are senior-level executives remain in the dark about their potential liability under Sarbanes-Oxley.

• By Stephen Swoyer
• 11/03/2003

Aberdeen teamed up with supply chain management trade publication “Supply & Demand Chain Executive” to survey executives and managers in 252 different enterprise IT organizations. Surprisingly, the research firm found that a majority of senior managers are unaware of -- or are otherwise ignoring -- Sarbanes-Oxley regulations that pertain to asset management.

According to the results of the survey, 54 percent of respondents said that the regulatory legislation hasn’t had any effect on their asset management strategy or processes. Chances are, speculates Aberdeen researcher Mark Vigoroso, senior level executives at many of these companies remain in the dark about their potential liability. Their exposure couldn’t be worse, however: All assets -- even intellectual property assets -- must be reported so that investors can fairly evaluate a company’s well-being.

The potential penalties are sobering enough. After all, under the terms of Sarbanes-Oxley, CFOs and CEOs must not only endorse the accuracy and integrity of their firms’ financial data, but must also certify that their companies have procedures in place to monitor and track this information. Because of the potential penalties involved -- which include monetary fines and even threat of incarceration -- Aberdeen says that organizations need to reexamine and upgrade their asset tracking systems and procedures.

Aberdeen researcher Mark Vigoroso says that the problem is particularly acute in the manufacturing, utility, and transportation industries, where an over-reliance on “manual, data-starved processes” prevents companies from making more effective use of their assets. The irony, of course, is that in tough times, especially, return on assets can be a boon to a company’s financial health and performance. After all, Aberdeen notes, financial executives can’t make strategic investment decisions if they don’t have good visibility into the historical, current and projected utilization and performance of their assets.

Part of the problem is that asset information is stored in multiple, disconnected “silos” scattered across the enterprise. In many environments, survey responses indicate, data on asset utilization, maintenance, and location is dispersed among heterogeneous systems, typically in so-called “computerized maintenance management systems” which do not effectively span multiple asset categories.

For example, although 32 percent of respondents said that they are tracking assets on an enterprise-wide basis, an even larger number -- 34 percent of total respondents -- track assets on a division- or single-site basis only. Even worse, 18 percent of respondents said that they don’t have any enterprise asset management process in place.

Aberdeen’s Vigoroso says that it’s crucial for companies to track their assets on an enterprise-wide basis. “Companies that do not keep close tabs on the whole of their mission critical assets expose themselves to isolated asset failures that can snowball into costly interruptions of service or product delivery,” he writes. “For example, more timely upkeep of a turbine or generator might have prevented the catastrophic power outage in the Eastern U.S. in August 2003.”

More recently, IT organizations have turned to Web-based enterprise asset management (EAM) systems, which have allowed adopters to improve asset utilization, performance, and reuse, among other benefits. “According to this study, firms that currently use EAM solutions are realizing higher returns on their asset management activities than those that are not, in such critical areas as asset utilization and performance, budgeting and planning, and inventory cycles,” Vigoroso writes.

To improve their asset management capabilities, Vigoroso suggests companies break down or otherwise integrate silos of asset management information; involve senior financial executives in asset management planning; invest in Web-based EAM solutions; and integrate asset management processes with other enterprise systems, such as financials and procurement.