Defining Asset Value

Considering value only in financial or accounting terms is short sighted.

The principles of asset management consider “asset value” in various ways.

As specified by ISO 55000: 2014 (“the AM Standard”), the true meaning will no doubt be debated, over time, by experts seeking a standardized meaning. For now, I believe it’s adequately defined.

According to the AM Standard, an “asset” is an “item, thing, or entity that has potential or actual value to an organization.” But how is the meaning of “value” defined? Let’s look at the ISO 55K documents.

They reflect approximately 25 substantive uses of “value“ in ISO 55000 (“Overview”) and ISO 55002 (“Guidelines”). Oddly, the term isn’t found in ISO 55001 (“Requirements”), which states, “For the purposes of this document, the terms and definitions given in ISO 55000 apply.”

To summarize, these documents (“Standards”) refer to “asset value” as follows:

• value for the organization from assets

• value to an organization and its stakeholders that an asset brings

• value through managing risk and opportunity (essential to asset management)

• value from assets with regard to organizational objectives.

“Value of” is where most of the confusion begins. First, the AM Standards state, “Asset management does not focus on the asset itself, but on the value that the asset can provide to the organization. The value (which can be tangible or intangible, financial or non-financial)…” (55000: 2.4.2). But, as the following list shows, the Standards include minimal references to the financial value of an asset:

Asset management objectives and planning to achieve them: “Typical issues, amongst others, that are addressed by (AM) objectives include the following: a) for asset management: total cost of ownership; net present value; return on capital employed…” (55002: 6.2.1.3)

Support—information requirements: “In general, the organization should consider its asset information requirements related to the following areas: g) financial and resource management (e.g. historical cost, depreciation, asset replacement value, date of acquisition, materiality, capitalization rules, asset classification/ hierarchies, life cycle costing analysis, useful lives of assets, residual value and any residual liabilities)…” (55002: 7.5.2)

Performance evaluation—Monitoring, measurement, analysis, and evaluation of the asset portfolio and asset-management processes: “The change in future value of the assets and the risk profile should be evaluated in both a financial context and a non-financial context” (55002: 9.1.2.5). “This monitoring in the financial reporting system should be done at a level suitable to the risk, complexity and value of the assets.” (55002: 9.1.2.6)

The purpose of the AM Standards is to ensure a systematic means of achieving tangible value from assets to meet organizational objectives. Speaking of such value solely in financial or accounting terms overshadows the whole purpose of an Asset Management System.

—RobertMW2@cs.com