How to avoid surprise investments?
It is often a nightmare for the finance manager or the CFO when the unexpected need for renewal investments is brought up. The renewals could be for some broken tools or for some major production machinery. In any case, these type of surprises are rarely welcome and as a result, there is always a need to adjust budgeting. And worst of all, often some of the carefully planned investments are cancelled or postponed when resources have to be allocated to something unexpected.
In the world of fixed assets, there is still often a lack of information about the investment needs and timing of those. The finance personnel is often forced to rely on accounting information, such as depreciation details, which often are not the best indication of the actual lifetime of the asset.
What methods are there to avoid surprise investments then?
1. Towards an improved ability to forecast the future
Improving the ability to forecast the future is a priority when it comes to avoiding surprises. Instead of a glass ball or someone's intuition, it makes much more sense to rely on data. If reliable data does not yet exist yet, it is worth thinking about how to generate or accumulate it.
Historical data is usually a good tool for predicting the future. It would be important to know for each piece of equipment how long the previous similar asset has been in service. It would be even better if it would be possible to know the average life cycle of all devices of the same manufacturer and model. Planning a renewal investment in the budget would be much more reliable if it were based on accurate historical data.
In order to have reliable information for decision making, investments and their life cycle need to be monitored in a very systematic way. Only then will it be possible to generate the data that decision-makers need.
2. Towards data-driven decision-making and preparedness
In order to be able to set the right level of preparations, it would be important to be able to estimate the average level of unforeseen investments in the past. If data on the life cycle of equipment is systematically available and has been collected for the last 5 years, for example, all the elements are in place to allow not only budgeting but also to implement the necessary precautionary measures from the average of unforeseen investments.
This sounds laborious, but it is actually less laborious than many of the current ways of tracking owned assets. The hardest part is to think about what you want to track and to find the right solution for your organisation to implement the systematic tracking.
For fixed assets, it is advisable to track the equipment from the moment of purchase to its deletion from usage aligned with real usability and true lifetime of the asset. For fixed assets, it is essential to be aware not only of the investment cost of the equipment, but also of the other associated costs, such as maintenance and repairs. In some cases, these may represent a significantly higher cost than the original purchase price and therefore the budgeting process should carefully consider the impact of replacement on the overall cost.
A systematic way to produce valuable information for decision-making
A practical way to produce the information needed for budgeting is to continuously monitor the equipment in use. How much did the equipment cost, what is the remaining expected lifetime, is it broken, how much is it actually used?
Digital equipment management provides an easy way to continuously monitor equipment and gather valuable information for the decision maker.
How does digital equipment management ensure systematic data production?
The ultimate goal of digital equipment register and equipment management is to achieve a complete overview of everything owned and to provide it to the end user to support their own operations - be it procurement, maintenance, planning or even internal audit.
For centralised information to be comprehensive, it must include:
- All information on owned assets
- All cost information on purchases - completed and planned
- Information on the realistic remaining life cycle of the asset
- Visibility of the need to replace equipment for the coming years
- Information on all operational activities and related costs (e.g. maintenance and repair costs)
The listed details are often scattered across multiple systems and available with some effort. All of this could be also available through digital equipment management. If you are not yet familiar with the topic, we recommend you explore it here and ensure you have the smartest tools to support your planning.