HomeIndustry SectorsGenerationThe state of physical asset management in South Africa

The state of physical asset management in South Africa

The South African Asset Management Association’s (SAAMA’s) president says that physical asset management (PAM) is definitely an area that will be developing in South Africa in the next couple of years. “We don’t have money to invest in new infrastructure all the time and must take better care of existing infrastructure than is the case at present. A very important issue is that when we plan new assets, we need to take the full lifecycle cost of the asset into account. Simply put, we spend millions of rand on the actual physical asset, but also need to allow and plan for the lifecycle costs of the asset. In the future, the planning and design of assets will change and lifecycle costs will be a larger element in the planning process.”

With regards to the rest of the world, Booyzen comments that South Africa is way ahead in some instances and in other respects lagging behind. “The main area in which we are ahead of the world is that we involve the financial team in the asset management process from the start to full lifecycle. We definitely have a broader view of the physical asset management process, which encompasses human resources, finances, and more. In the rest of the world, it’s still mostly viewed as an engineering function. We’re lagging behind in ensuring the efficiency of our assets, in their operating optimally. In terms of future planning, most other countries have plans for every asset including the full lifecycle of the asset. On the other hand, we’re on par with the rest of the world in terms of ISO. Our links to global organisations keep us up to speed, as we’re heavily involved with those processes.”

The most common obstacles for effective physical asset management locally are a lack of understanding. “This pertains to the financial and engineering side thereof. Engineers want to design and build new assets i.e. focus on the creation of new infrastructure with lesser focus on maintaining the asset. On the financial side, there is a bigger focus on regulatory compliance rather than asset efficiency. We tend to stop at compliance instead of pulling it through to lifecycle of the asset. We need to plan for finances, HR, the tools for maintaining the asset, etc.”

Booyzen continues that financial directors should be playing a much larger role in ensuring asset optimisation. “FDs need to be involved from the start and ensure that funds are available to maintain assets optimally. Although many view it to be an engineering function, we see this key role moving to FDs. Without financial resources, the technical division can’t optimise the use of the assets. Financial directors need an understanding of the impact of their decisions on the physical asset management process.”

Another obstacle that comes to the fore is physical asset management in the public sector. “Generally, it’s easier to get capital for new infrastructure than for operating costs, especially in the public sector. Typically, when budgets need to be cut, maintenance costs are cut first. This is obviously not the right way to optimise use of assets. If one looks at municipal situations, it’s quite clear that service levels are not what they should be. We experience many problems with regards to service levels and these centre mainly around the asset management process.

“Firstly, in many instances unsuitable assets are installed to deliver the service without looking at the long-term effects on the environment and there is a lack of human resources with regards to the operation of those assets. Secondly, it comes back to capital expenditure. Capex is spent on the asset without plans to maintain the asset once it’s installed. One needs to take into consideration that the installation cost accounts for around 30% of the total cost of asset. The other 70% is spent over the rest of the lifetime of the asset, which is often not planned for. This leads to the huge backlog we’re experiencing at the moment. For example, when it comes to electricity supply, the backlog on distribution networks in terms of maintenance is sitting at around R35 billion. We’re continuously getting new infrastructure, but the backlog is just growing and service levels catered for by infrastructure is deteriorating rapidly.”

Booyzen further explains the impact of Strategic Integrated Programmes (SIPS). “R867 billion will be invested in infrastructure over the next three years in terms of the National Development Plan (NDP). If one assumes a weighted average expected useful life (EUL) assumed of 50 years for this infrastructure, R24 billion per annum will be required with regards to maintenance, and another R16 billion per annum when taking replacement provision (depreciation) into account.”

Another obstacle is staff competency. “This is one of our serious obstacles,” Booyzen says. “We tend to install state-of-the-art equipment without ensuring that we have the staff to maintain and operate it. We often need to import resources to fulfil this function. That is why there needs to be a much greater emphasis on training on all levels, from strategic to tactical to operational levels, and also across all functions from financial to HR, to technical and maintenance. We must further ensure that we have the technical capability to operate and maintain assets. It was stressed as one of the core areas of focus by SAAMA representatives.”

Booyzen concludes: “The overall message is not only doom and gloom. Awareness of physical asset management is definitely growing in both the public sector and industry and South Africa is moving towards a more effective asset management mind-set. The proven benefits of affective asset management include improved financial performance, informed asset investment decisions, managed risk, improved services and outputs, and demonstrated social responsibility. Furthermore, proper physical asset management also demonstrates compliance, enhances reputation, and offers improved organisational sustainability, as well as efficiency and effectiveness.”

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The state of physical asset management in South Africa