An organization’s assets indicate its sound financial standing. In actuality, investors evaluate an organization’s asset value prior to considering its expansion and investment needs. Therefore, it is essential that businesses maintain and manage their assets effectively. We will go over asset management’s definition, various forms, and procedures in this blog, along with its advantages. To start with, let’s answer the question: what is asset management?
What is Asset Management?
To put it simply, it is the process of keeping your fixed and current assets well-maintained. Assets that are available for a limited time, typically a year, are referred to as current assets. Liquid assets, cash, and inventory are all included. Long-term tangible assets that are difficult to convert into cash are known as fixed assets. Land, machinery, and information technology (IT) equipment, for instance.
It basically comes down to managing assets at every stage of their life cycle, including creation, use, upkeep, and sale. Let us use an example to better understand this: A business buys multiple laptops and gives them to its staff. A valuable IT asset for the business are laptops. The business must now monitor the number of laptops given to staff members, which ones require maintenance, and whether or not the devices are being utilized for company-related tasks. It tracks, manages, and keeps up with laptops using IT tools.
Within the realm of finance, it denotes the act of augmenting the wealth of an individual or entity over a designated timeframe. Asset management is the process by which businesses monitor all of their financial assets. Such management also includes safeguarding an asset’s value against depreciation or selling company assets to finance a project.
The Advantages of Asset Management
Keeping track of and managing current and fixed assets is critical for businesses. The following are a few of the main advantages:
- Enhances asset visibility and permits real-time asset monitoring to help identify and reduce risks.
- It assists businesses in locating and getting rid of lost or misplaced assets.
- With access to real-time asset information, businesses can make informed financial and operational decisions. This promotes general development.
- Additionally, it helps companies decide when to maintain their assets. Thus, effective management helps prevent asset failure and minimizes operational costs.
Types of Asset Management
Digital Asset Management
It is the procedure for managing digital assets, including presentations, papers, websites, and intellectual property. The security of digital assets is the main concern of this type. Providing easy access to digital assets for various stakeholders is another aspect of this kind of management.
IT Asset Management
It has to do with managing the hardware and software of the business. These consist of cloud network licenses and Software as a Service (SaaS) subscriptions.
Fixed Asset Management
Businesses own fixed assets, which are hard to convert into cash and include things like buildings or lands, manufacturing equipment, and production plant units. It is a procedure that entails managing, tracking, and keeping an eye on fixed assets, as well as planning for their maintenance.
Financial Asset Management
Intangible or non-physical assets are financial assets. Consider equity instruments, future cash flows, investments in stocks and mutual funds, share capital, and bank deposits. It involves overseeing a company’s cash flow, investments, and tax and financial obligations.
Enterprise Asset Management
As its name suggests, it is the administration of an organization’s assets across all of its divisions, buildings, and inventory records. It is a thorough procedure that includes managing a company’s fixed assets, financial assets, digital assets, IT assets, and infrastructure assets.
How Do Asset Management Companies (AMC) Work?
They manage financial affairs for both large corporations and individual clients. It collects capital from its clients (a process known as fund pooling) and invests the entire fund amount in various financial options such as mutual funds, equities, and index funds. AMCs make money by charging their clients a fund management fee. They employ a complex process to generate returns for their clients, which includes investing or allocating funds in various options, preparing an investment portfolio for the client, and then regularly assessing the overall fund’s performance.
How Much Does Asset Management Cost?
For businesses, it can be a risky and costly venture, especially if no policies or strategies are in place. The average annual cost for a business in the United States is more than $70,000. The cost of digital asset management goes up to $50,000 per year, and IT asset management software can cost $1,200 annually. Ineffective management can also lead to tax, compliance, and legal burdens for businesses, thus increasing overall costs.
Popular Asset Management Tools in the Industry
Tools or software solutions facilitate structured and real-time asset tracking and management for companies. These tools enable life cycle, asset inventory management, and preventive maintenance, especially for IT assets. The following are some of the most popular tools used across different industries:
- Asset Panda
- Manage Engine Asset Explorer
- GoCodes
- Pulseway
Best Practices for Effective Asset Management
Every company or organization frames its own strategy as per its business needs and financial goals. However, here are some of the most effective techniques popularly used by companies:
Frequently Analyzing the Performance of Assets
The most crucial step is regularly analyzing how your assets are performing. It helps you stay aware of their life cycle costs and also reduces maintenance costs.
Track Depreciation
Companies use tools and software to learn the real-time depreciation value of their assets. It helps make informed decisions on whether they should hold on to an asset or make new investments.
Eliminate Ghost Assets
It refers to eliminating assets that are mentioned in books of accounts but are not physically present. This helps reduce unnecessary expenses.
Ensure Regulatory Compliance
It is also necessary for businesses to frame effective asset compliance policies for effective management. Most companies use software to automate regulatory compliance.
Frequently Asked Questions
- What are the 3 Pillars of Asset Management? The three core pillars are people, processes, and technology. People are stakeholders who drive this in an organization. Process refers to a set of practices, regulations, and procedures to effectively manage assets. Technology plays a key role in making processes efficient.
- What is Another Name for Asset Management? It is commonly referred to as ‘wealth management’ as it helps manage investments which ultimately leads to wealth accumulation.
