How Can Asset Management Be The Path To Financial Enlightenment?

The current economic climate of low commodity prices and increasing costs has put a lot of pressure on mining companies to ensure their operations will survive through the current economic downturn. While history tells us that the cycle will turn around and prices will go back up again, how many mining companies will be left to take advantage of the next upturn? On average in Australia, the maintenance of mining equipment accounts for up to 50% of operating costs; which equates to nearly $15bn per year. In addition to trying to boost productivity, mining companies are also putting a lot of pressure on reducing costs; all with the intention of maintaining/increasing profit margins and thereby keeping shareholders ?happy?. The whole premise of our economy is based on ?growth? and ?profits?. Movements in the market place force mine owners to ?react? to short term fluctuations. And if that movement is downward; operations people at the sites are forced to start reducing costs. Is this cost reduction done in a logical, systematic way where all risks (short-, medium- and long term) are considered? Invariably, the answer is no! Short term ?fixes? are normally implemented with little, or no, regard for medium- and long-term impact. And the reason for this is that management is not fully focused on the long term; focus is mainly on survival. Decision making is driven by shareholder sentiment and history tells us that this is largely short-term. So given these paramteres to work within, what role can ?Asset Management? play in assisting management to meet shareholder and market requirements whilst still maintaining long-term viability of their operations (to the long-term benefit of shareholders dare I say). As maintenance costs account for nearly half the operating costs of mining companies; the ?smart? management of assets is not only crucial; it is essential for survival in today?s economic climate. What is asset management? Asset Management, according to the UK-based Institute of Asset Management (IAM) is ?the systematic and coordinated activities and practices through which an organization optimally and sustainably manages its assets and asset systems, their associated performance, risks and expenditures over their life cycles for the purpose of achieving its organizational strategic plan.? How important is asset management in today?s mining companies? IAM goes on to say: ?This definition of asset management represents a significantly greater scope than just the maintenance or care of physical assets, and is closer to the central purpose of an organization. Good asset management considers and optimizes the conflicting priorities of asset utilization and asset care, of short-term performance opportunities and long-term sustainability, and between capital investments and subsequent operating costs, risks and performance. ?Life cycle? asset management is also more than simply the consideration of capital costs and operating costs over pre-determined asset ?life? assumptions. Truly optimized, whole life asset management includes risk exposures and performance attributes, and considers the asset?s economic life as the result of an optimization process (depending upon the design, utilization, maintenance, obsolescence and other factors).?