Chapter 1


Introduction

1.1 What Is Asset Management?



It's not a software program.
-- Jim Smith, Louisville, KY

IN-1


In the simplest terms, Asset Management can be thought of as applied common sense. Asset Management is designed to help people decide how and where to spend their money to achieve the desired results. Such a process is needed when there are competing priorities for limited funding.

As an analogy, think of your car. If you are driving your car and it gets a flat tire, what will you do? Will you fix the car or buy a new car? Because tires are inexpensive compared to the overall cost of a car, the most likely response is to repair the tire or put a new tire on the car. Think about what factors would go into a decision like this: the cost of the tire, value of the car, reliability of the car, and whether the flat tire caused any other damage to the car. However, in general, deciding what to do in this case is pretty simple.

What if instead of a flat tire, your car has a cracked engine block. Now what will you do? Will you fix the engine, put a new engine in the car, or buy a new or used car? Is it more difficult to decide what to do in this case? Why? Probably factors like cost of repair, cost of new engine, value of existing car, cost of a new or used car, reliability of existing car, value of existing car, current operation and maintenance cost, and many others would enter into the decision. This decision would involve collecting data and examining all the options over time.

If all of your decisions were like the tire example, you wouldn't need a formal program to help you make them. Unfortunately, you will have many decisions that are more like the cracked engine block. Funds are limited and there are many competing priorities for those limited dollars. Therefore, a program that will help you collect the data you need and provide a framework for making these decisions is very beneficial. Asset Management is designed to be this type of program.

Will you have enough money by the time it fails to fix it?
--Mike Daley, Gallup, NM

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