The 4 Stages of Asset Lifecycle Management


Finance Insights for ProfessionalsThe latest thought leadership for Finance pros

Thursday, August 19, 2021

Follow these steps to understand the asset lifecycle and gain maximum value from the various items - both tangible and intangible - your organization owns.

Article 5 Minutes
The 4 Stages of Asset Lifecycle Management

Any company that wants to achieve long-term success and sustainability needs to focus on deriving maximum possible value from its assets.

That means coming up with a clear strategy for asset lifecycle management, which should encompass every step in the process of acquiring, using and maintaining the things you need to operate successfully.

Why asset lifecycle management is important

The things you own and are able to derive value from are a critical factor in your overall financial strength, earning potential and profitability as a business.

Whether it's physical objects like the equipment you use to manufacture products and the vehicles in your fleet, or intangible possessions like your intellectual property, software and digital assets, everything has some inherent worth that you should be looking to maximize.

Getting the best possible ROI from your assets depends on taking a holistic, comprehensive approach that covers the various stages of their existence.

The 4 stages of the asset lifecycle

So what are these stages, and what are the key objectives and priorities you need to consider at each step along the journey?

Stage 1: Planning

Planning is a fundamental part of the process of achieving maximum financial efficiency with regards to your assets and generating maximum value from them.

A key step in this stage is to establish your current resources and requirements, which means looking at the assets already available to you and asking questions like:

  • Are they of sufficient scale and quality to meet your needs?
  • Do you have the resources required to maintain service delivery, even in the event of a spike in customer demand?
  • Which assets are underperforming or in short supply?
  • Where do you have excess assets?

Looking into these areas and finding reliable answers will give you a clearer idea of where you currently stand, and where you can make positive changes to become more efficient.

Throughout the planning phase of the asset lifecycle, it's important to stay focused on the goal of adding value for the company. This will provide a useful guide for every decision you make.

Stage 2: Acquisition

The planning stage will help you identify areas where your current assets are underperforming and require replacement, or are insufficient and need to be enhanced or complemented with other resources.

This takes you on to the next phase of asset lifecycle management: acquisition. It's vital to go through robust and thorough planning before committing to any asset purchase, so you can have maximum confidence that the acquisition is completely necessary and will generate value for the business.

Once you're convinced of the need to acquire a particular asset, it's likely that your next consideration will be cost. How much are you willing and able to pay upfront to make the purchase, but just as importantly, what is the total cost of ownership? If a piece of equipment costs just as much to maintain and repair as it does to buy, it might not be a viable investment for your business.

One of the wisest things you can do in the acquisition phase is to research the various options available to you and compare them. When negotiating with vendors, ask for demonstrations, testimonials from past buyers and other assurances that the asset will meet your expectations and deliver ROI.

Stage 3: Operation and maintenance

In this phase - the longest portion of the typical asset lifecycle - you're using and working to gain maximum value from the items on your asset register. It's during this time that the importance of the first two parts of the process becomes clear. If you've planned effectively and made the right acquisitions, this is when you reap the benefits and the business experiences the value of its assets.

To maximize these positive results, it's crucial to conduct routine maintenance to keep your assets efficient, secure and in good working order. Maintenance is clearly important for physical items like manufacturing equipment, but it's also necessary for intangible resources like software. A good IT asset management plan will include regular checks and maintenance to ensure your data is safe and your systems are protected from viruses and cyberattacks.

Another key focus during this phase is tracking how your assets are performing, so you can draw accurate conclusions about whether they're up to the standard you require. If certain assets are falling below your expectations or failing to deliver value, it's time to ask if they can be better managed, updated or redeployed, or if they’ve simply reached the end of their lifecycle.

Stage 4: Disposal

Disposal is the final stage in the lifecycle of an asset owned by a business. It comes when you conclude that the asset no longer holds any value for the company and therefore isn’t financially viable.

However, a resource that has ceased to be useful or financially justifiable for you may still hold some worth for others. Local schools or libraries, for example, might be able to make use of computers that are no longer powerful enough to meet your needs, but can still manage basic word processing or internet browsing.

It's important to ensure that any data relevant to your organization is wiped before assets are offloaded, and disposal is carefully managed to mitigate any environmental impact.

Getting rid of assets could also create fresh requirements for the business, which will take you back to the planning stage as you start looking into the next acquisitions you need to make.

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