5.1 Asset performance

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Entities shall establish and maintain management processes to regularly monitor and assess the assets under their control.10

Protecting service delivery potential and addressing health and safety concerns are priorities when making decisions about asset use and maintenance. It is very important, therefore, that asset performance be appropriately reviewed and evaluated to verify that required outcomes are being achieved.

The results of any performance assessment need to be reported to management to:

• identify any actions to be taken; and

• comply with the ongoing reporting requirements of Government, as well as with those forming part of the corporate, business and asset planning processes.

In addition to observing the reporting requirements covered elsewhere in this part, the entity shall comply with the requirements of any legislation that may apply specifically to its operations.

There are a number of measures used to assess asset performance: the asset’s physical condition, its utilisation, its functionality and its financial performance. These measures are described below (see also Section 3.2).

Physical condition
An asset should be able to be used safely and effectively. This means that it needs to be maintained in a condition that is adequate for the purpose for which it is intended, and that it complies with the relevant health and safety standards. If this is not the case, the asset's ability to deliver services to the level and standard required will be compromised.

A proper condition assessment of an asset will involve:

• setting the required condition of the asset relative to its service delivery requirements and value (criteria should include those relating to operational efficiency, public health and safety, and amenity);

• inspecting the asset and comparing its condition with that required; and

• forecasting the future condition of the asset.

Condition assessments provide important inputs for compliance with legislation and in planning for asset maintenance.

Utilisation
Asset utilisation is a measure of how intensively an asset is being used to meet the entity's service delivery objectives, in relation to the asset's potential capacity.

To assess utilisation, criteria and benchmarks appropriate to the services being delivered and to the class of asset being considered firstly need to be established. The criteria should have regard to:

• the value of the asset’s unit of service potential that is being used relative to the units of service being delivered (eg the future economic benefits of a TAFE college that are consumed relative to the number of students enrolled);

• the physical measures of asset capacity relative to the units of service being delivered (eg floor space per student place relative to the type of educational or training activity, or to the hours of classroom use per student enrolment); and

• the use being made of the asset relative to the optimal availability for the type of asset (eg the number of computer hours used relative to the number of operational hours available on a mainframe computer).

The utilisation criteria should be based, wherever appropriate, on best practice data as well as on the results of analyses undertaken either by the entity or elsewhere in the private and public sectors.

Underutilised assets should be identified, and the reasons for this examined. It may be, for example, that the asset is no longer effective in performing the activities required of it or that it is in less than optimum condition. It may also be that the need for the services it delivers or supports has reduced. The following examples illustrate some of the reasons for underutilisation:

• physical constraints, such as poor lighting for night-time use;

• technological obsolescence; and

• management constraints, such as the hours worked by security or caretaking staff.

Action should be taken either to improve the asset’s utilisation or to redeploy it (provided that service delivery needs can be met by alternative means).

Where asset utilisation is low, entities should consider whether the cost of holding the asset exceeds the cost of transferring the services it delivers, and whether there is a more economical way of delivering the services. Alternative or additional uses of assets should also be considered (eg an underutilised group of classrooms may appropriately house a health clinic).

The utilisation of each asset should be reviewed annually.

Functionality
The functionality of an asset is a measure of the effectiveness of the asset in supporting the activities to be carried out.

To monitor and assess functionality, the entity needs to determine:

• the role that the asset plays in achieving service delivery outcomes; and

• the functional characteristics required of the asset to support the specified activities (for example, the functional brief requirements prepared for constructed assets).

The functionality of assets should be regularly reviewed. This will enable any significant impacts on services to be identified. It will also allow timely changes to be made to improve both service delivery and functional standards. Furthermore, the results of regular functionality reviews are used in the formulation of asset strategies.

Financial performance
The financial performance of an asset must be evaluated to determine whether or not it is providing economically viable services.

To do this, the entity needs to monitor and assess:

• operating expenses; and

• current and projected cash flows, including capital expenditures.

This information is then used to determine the current and projected economic return of the asset or portfolio.

Discounted Cash Flow analysis can be used to provide a measure of the Net Present Value and the internal rate of return for assets.

The Department of Treasury and Finance sets a level for charge on capital and hurdle rates against which return on investment is measured. When assessing project viability, these rates should be used as one of the criteria set for ranking proposals in priority order.

Another important aspect of an asset's financial performance which must be assessed is the maintenance of equity. This measure provides a basis for evaluating the performance of both assets and entities. It is also a major consideration in establishing approaches to service pricing and revenue.

10 Budget Sector Asset Management Principles
Budget and Expenditure Review Committee, 1993

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