Page 2: What is asset management?
Asset management is the process of making best use of an organisation’s assets in order to maximise shareholder value and to provide the best possible returns to other stakeholders in the organisation. All business organisations have a range of assets. These include highly fixed assets, such as buildings and plant equipment, more liquid assets, such as goods in stock, and highly liquid assets, such as cash in hand.
It is important for a business to manage its assets and make them work to obtain the best possible returns. This case study highlights the principles involved in asset management and examines how British Aerospace has set out to manage its existing portfolio of aircraft in order to get the best possible returns from them.
Ineffective asset management leads to wasted resources. Imagine, for example, the case of an airline manufacturer that produced an ongoing stream of aircraft which it stockpiled - hoping that customer orders would eventually materialise. The stored aircraft would yield no revenues and simply incur costs (costs of storage, maintenance, and depreciation).
A cyclical business
The airline business, like most others, is cyclical. In the longer-term, the industry is growing. Average incomes are increasing and more people are using air travel for pleasure and business purposes. However, in the short-term, cyclical factors associated with booms and recession mean that while demand grows for a number of years, there will often be a sudden fall in demand when recession bites. In boom periods new firms enter the air transport business but when the recession sets in, some firms are likely to fail.