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  • Writer's pictureJD Solomon

Asset Management History Empowers Critical Infrastructure Rules of Thumb


Much can be learned about modern asset management from it history.  JD Solomon Inc. has proven solutions for asset management.
Much can be learned about modern asset management from its history.

History often frames the way we do things in the present and future. Asset management is no exception. Understanding asset management history enables and empowers the current generation to use several critical infrastructure rules of thumb.


Asset Management History Begins in New Zealand and Australia

The term “asset management” can be traced to the 1990s in Australia and New Zealand. The term was used primarily in response to a major infrastructure failure in the electrical power grid. The National Asset Management Steering Group (NAMS) was formed. The Australian-New Zealand methodology for asset management was first published in 2002 as the International Infrastructure Maintenance Manual (IIMM).


A British and International Standard Soon Followed

A Publicly Available Specification (PAS 55) was published by the British Standards Institution in 2004. Several organizations originally produced PAS 55 under the leadership of the Institute of Asset Management (IAM). A substantial revision to PAS 55 was completed in 2008 by 50 participating organizations from 15 industry sectors in 10 countries. In 2010, an ISO Project Committee was formed, and in January 2014, the new ISO standard, ISO 55000, was released.


A Foundation in Strong Government and Financial Accountability

PAS 55 and the IIMM were initially driven by strong support from central governments. The strong support was driven by financial crisis and infrastructure privatization.


A Different Path in the United States

In the United States, there was not a strong central government driver. The majority of the US asset management roots can be traced to fiscal requirements by the Government Accounting Office (GOA) in 2004. Two industry associations developed several guidance documents to capture the “US method” of asset management.

GASB-34 Released in 1999

In the United States, the General Accounting Standards Board (GASB) released Statement 34, or GASB-34, in 1999. This marked the first time required that infrastructure assets be included in financial statements in the public sector. For nearly a decade, many experts believed GASB-34 would be the primary driver for asset management programs.


GASB-34 authorizes two approaches. The first is based on standard accounting depreciation methods (Depreciation Approach or Method 1), while the second (Modified Approach or Method 2) allows local and state entities to use actual maintenance expenditures in conjunction with condition assessments for reporting depreciation.

GASB-34 Falls Short of Its Hype

GASB-34 as a primary driver for making asset management commonplace did not fully materialize, primarily because most local and state governments use standard deprecation (Method 1 under GASB-34).


Several Key Rules of Thumb Emerge

However, several key aspects of GASB-34 can be found in the methodologies for developing and implementing asset programs today in both the public and private sectors. These include:

  • Condition assessments must be performed every three years, or the organization cannot use the Modified Method. A 3-year, rotating basis that covers all assets in an asset management program has become an industry standard. However, most organizations do not use the Modified Method for financial reporting.

  • An initial cost threshold for capital assets or a network of capital assets is typically $5000. GASB-34 does not require a specific number and leaves this decision to the local government unit. However, $5000 has slipped into the financial reporting logic and is commonly seen in the definition of an asset.

  • An allocation of 2% and 4% of a facility's current replacement value is recommended for maintenance and repair. This range has become the standard in many asset management programs, regardless of the organization’s specific experience.

Moving Forward

Asset management has its roots in financial accountability. History often frames the way we do things in the present and future. Asset management is no exception. Understanding asset management history enables and empowers the current generation to use several critical infrastructure rules of thumb.


 

JD Solomon Inc. provides solutions for program development, asset management, and facilitation solutions at the nexus of facilities, infrastructure, and the environment. Subscribe for monthly updates related to our firm.

 

JD Solomon is the author of Communicating Reliability, Risk & Resiliency to Decision Makers: How to Get Your Boss’s Boss to Understand and Facilitating with FINESSE: A Guide to Successful Business Solutions.

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