Have you stopped and read ISO 55000, particularly ISO 55002 7.5.3.g? Here is what it says:
The alignment of information requirements for different levels and functions within the organization: this includes the ability to have a vertical alignment of the information from top management down into the operational areas, as well as horizontal alignment between asset management, financial management, and risk management functions, by using a common terminology for financial and non-financial information; - Asset management — Management systems — Guidelines for the application of ISO 55001, 7.5.3.g
Early in my career, I sought references that would guide me in building an effective asset hierarchy for a computerized maintenance management system. But the standard says there should be a “seamless horizontal alignment of asset management, financial management, and risk management?” If a company is older than, let’s say, 20 years old, there is a good chance this doesn’t exist because 20 years ago, we didn’t have the abundance of computerized maintenance management systems (CMMS) as we do now. But, we did have a fixed asset ledger. Therefore, the financial management and risk management hierarchy most likely won’t match the asset hierarchy. Yes, I just went there.
I have interpreted this standard to indicate that financial management is two-fold. First is that costs asserted on assets should be mapped to the organizational hierarchy to establish accountability of spend and budgets. This is pretty standard, routine, and common so that the accountability of budgets can be established. However, this mapping remains malleable over time because one day you may have a centralized maintenance approach, and one year it becomes decentralized. Another example could be that you have a portion of the facility under one operational leadership, yet the next year it is split into two different leaderships. This mapping of the assets to the organizational hierarchy breathes as the organization changes.
The other portion of financial management is the depreciation schedule of fixed assets. This must be rigidly connected because assets get added to the fixed asset ledger only when new capitalization is. Assets are not flippantly moving around the fixed asset ledger as the organization hierarchy changes.
In an earlier blog, I reference rule #1 as “If you start your own manufacturing company today, the first thing you shall build is your asset hierarchy standardization.” I stand firm on this statement and continue to feel that it is one of the most fundamental enablers to manage a manufacturing organization. But if you are within an organization that has a fixed asset ledger as old as your grandfather, there is a good chance your financial management isn’t completely “horizontally aligned” to the asset hierarchy.
The trick is to establish a cardinality within a matrix that matches your fixed assets to the asset hierarchy. To build your matrix, cardinality has to be established between the independent listings of assets. For cardinality to exist, there will be one of four options to map the fixed asset ledger to the asset hierarchy.
The first is a 1:1 relationship. If you have an asset on your fixed asset ledger that is the exact same as a single asset in your CMMS asset hierarchy, this is a 1:1 relationship. An example could be a piece of mobile equipment you purchased and capitalized. This individual piece of mobile equipment is in your asset hierarchy and is simply a one-for-one match. Simple to find, simple to match, and the least complicated of the cardinality options.
The second is a 1:many relationship. Whereas, you have a single asset on your fixed asset ledger but is a collection of a variety of assets in your asset hierarchy. An example here might be a power station for a hydraulic system consisting of four pumps, four motors, a reservoir, and a variety of support equipment. You made the purchase as a complete package, but it is a listing of assets in your asset hierarchy. This 1:many relationship would then be weighted and mapped from one asset on the fixed asset ledger to multiple assets in the asset hierarchy.
The third option is many:1. These are common if you use a layer of sub-assets in your fixed asset ledger. This could be something like a road that has been repaved 5 times over the last 100 years, each with a 20-year life. You may have 5 sub-assets of a single asset on your fixed asset ledger, but the road only exists one time in your asset hierarchy. All of these sub-assets would need to be mapped to the individual asset in the asset hierarchy.
The last one, many: many is the hardest one and the one where you have to be very careful when mapping. Here you will be placing weighted percentages of the fixed assets across a collection of the asset hierarchy. Again, this is the most complicated of the four, and a little more attention to detail is warranted compared to the other three.
There you have it. You have successfully created horizontal alignment across your assets. You now have your cost and depreciation accurately mapped vertically and horizontally. You are now in a position to understand life cycle cost, depreciation, and cost better than ever before. Congrats, one step closer to your ISO 55000 certification.