Section 2

Asset planning

2.1 The importance of asset planning

Capital planning is about investment in assets and should therefore be founded on sound asset planning.

Public sector organisations are custodians of the assets that they hold, which have been acquired using public money; for that reason alone they have an obligation to protect the value of those assets. Failure to invest in existing assets means that they gradually deteriorate; in the long term this puts at risk the organisation’s ability to fulfil its basic responsibilities.

Asset planning is sometimes treated as a mundane, bureaucratic discipline that can be left to middle management and is divorced from the planning of capital projects, which is more likely to draw in the leadership of the organisation. However, these two processes should complement each other and result in consistent strategies. One way to achieve this is to merge the two processes and develop a combined capital and asset strategy.

Asset planning should in fact be at the heart of an organisation’s decision-making. This requires its status to be raised across the public sector. The head of property, or head of asset planning, as custodian of the organisation’s assets, should have sufficient seniority and clout within the organisation to ensure that asset planning is the foundation for formulating the capital strategy and the capital programme. It is otherwise likely that the existing portfolio will be neglected, resulting in a long-term decline in the ability of the organisation to achieve its objectives efficiently and an increasing risk that the organisation will be in breach of its statutory obligations.

2.2 Formulating an asset strategy

2.2.1 Key elements of asset planning

The key elements of asset planning are:

• ■having good information about existing assets
• ■determining the optimal assets for efficient delivery of the organisation’s objectives
• ■identifying the gap between existing assets and optimal assets
• ■developing strategies for purchasing and constructing new assets, investment in existing assets, transfer of assets to other organisations and disposal of surplus assets
• ■formulating plans for individual assets.

These are described in the following sections.

2.2.2 Information about existing assets

It is essential to get the basics right in any business process. For asset planning, this means having accurate and up-to-date information about existing assets. This is typically contained in inventories, asset databases and asset registers.

The information held should include as a minimum:

• ■basic information, such as when the asset was created, type of asset, location and dimensions
• ■the purpose for which the asset is held
• ■performance information, such as the frequency of faults or failures
• ■what is known about the condition of the asset, eg as a result of condition surveys
• ■financial information, such as maintenance and operating costs.

It may also include mapping (GIS) information.

The detail that is kept about particular assets should depend on the type of asset. Basic information is sufficient for assets that are of relatively low value and easily replaced, such as standard items of office furniture, but for more complex and higher value assets it is appropriate to keep more comprehensive records.

The organisation should also be aware of assets that it does not own, but which are used to deliver the services for which it is responsible, such as those that are leased and those that have been transferred to third parties under outsourcing contracts. The information required may be less detailed than for assets that are managed in house, but in the absence of any such information, asset planning will be incomplete and current arrangements, such as leases, will be likely to continue by default, even where they are no longer the best option.

It is also important to ensure that the information about assets is accessible and up to date and that it can be conveniently summarised for decision-making at the appropriate level, or it will not be useful.

2.2.3 Divergence analysis

Divergence analysis looks at the gap between the existing portfolio and the optimal portfolio. This is then used as the basis for formulating the asset strategy.

As part of this exercise, the purpose of holding each asset should be reviewed to ensure it continues to fulfil an objective of the organisation. In a period of austerity, with resources at a premium, the optimal portfolio is likely, other things being equal, to be smaller than during periods of prosperity. This requires organisations to fundamentally review how they use assets to achieve their objectives.

The identification of the optimal asset portfolio requires the organisation to consider what assets it needs to deliver its corporate objectives efficiently. These should be the same objectives as those on which the capital strategy is based and should be related to the purpose for which the organisation exists: the services it is responsible for providing and the statutory functions it is responsible for fulfilling. At the most basic level, therefore, the organisation should consider what assets it requires in order to provide those services and fulfil those functions.

The optimal portfolio is not simply the assets that the organisation would ideally like to have if resources were unlimited, but those assets that best enable corporate objectives to be delivered, taking into account overall value for money. In the dynamic environment in which most public sector organisations now operate, this is constantly changing. For example, as web technology develops, more and more services are being provided online, thus reducing the need for physical facilities that customers visit.

Since the optimal portfolio is defined in terms of efficient delivery of corporate objectives, divergence analysis involves assessing:

• ■the levels of service that existing assets are providing compared with the optimal levels of service
• ■how existing assets are performing
• ■the risk that the existing portfolio will become less suitable for delivering objectives as a result of changing circumstances.

The degree of sophistication that is required in divergence analysis depends on the nature of the assets, the nature of the service being provided and the desired outcomes. An education authority, for example, seeking simply to increase the number of laptops in schools would need to carry out a less sophisticated exercise than a ministry of defence developing weaponry to meet new geo-political threats.

The results of the divergence analysis should be used to develop an asset strategy covering:

• ■purchase and construction of new assets
• ■investment in existing assets
• ■transfer of existing assets to third parties
• ■disposal of existing assets.

This is illustrated in the following example.

2.2.4 Transfer of assets to other organisations

Assets currently held by the organisation may be transferred to another organisation for various reasons, including:

• ■outsourcing of the relevant service
• ■transfer of functions from one type of public sector organisation to another
• ■transfer or devolution of powers from public sector organisations to charitable bodies
• ■boundary changes.

Such transfers have implications for the capital strategy and capital programme. The general impact is to reduce the need for capital investment, but there may be a corresponding reduction in capital resources, eg government grant. In some cases there may be a need to invest in the asset before it is transferred to make it fit for purpose, eg as a requirement of an outsourcing contract. Outsourcing as a means of securing investment in public assets is discussed in section 6.3.

The effect of transfers and potential transfers therefore needs to be fully considered as part of the organisation’s asset planning and capital planning. This can be difficult because such transfers are not always within the organisation’s control and may not be predictable. Local education authorities in England, for example, cannot control or predict which of their schools will become academies and therefore do not know which school buildings they will be responsible for maintaining in future. In these cases a number of scenarios are possible and so the organisation should carry out scenario planning as part of its asset planning.

2.3 Asset management plans

Asset management plans (AMPs) are plans for individual assets or groups of assets. Many public sector organisations have service-specific AMPs. These are sometimes brought together in a corporate asset management plan that also includes the asset strategy.

AMPs should set out:

• ■information about the assets, as described in section 2.2.2, including:
• – what is known about their condition
• – their purpose
• ■the suitability of the assets for meeting their purpose
• ■plans for how the assets will be managed and maintained
• ■long-term plans for each asset or group of assets, eg investment, replacement or disposal, based on the asset strategy
• ■any expectation that an asset or group of assets may be transferred to another organisation, as described in section 2.2.4.

The way in which assets are managed on a day-to-day basis can have significant implications for the capital strategy and programme. Inadequate levels of routine maintenance and capital investment can increase the cost of reactive maintenance and the capital expenditure that is required in the long run. A good example of this is highways maintenance, where cutting capital budgets tends to result in increased revenue expenditure on filling potholes.

Inadequate levels of routine maintenance and capital investment also reduce the value of capital receipts that can be achieved from the disposal of assets. AMPs should therefore be based on an integrated approach to the day-to-day management of assets and the
longer-term plans for those assets based on the asset strategy.

An asset may be in good condition, but no longer suited to the purpose for which it exists.
For example, a school built in the Edwardian era might be in good condition, but the thickness of the walls might prevent the functioning of a wireless network, making it an unsuitable environment for the provision of 21st century education.

AMPs are of key importance in capital planning because they provide:

• ■an overall picture of the existing portfolio to inform the capital strategy
• ■detailed information that can be used to identify capital project proposals and to evaluate and prioritise projects for inclusion in the capital programme.