One of the often quoted examples (challenges) over business definitions is the case of gaining a common definition of the term “Customer” within an organisation. This can result in lengthy debate over whether a customer is the person who pays the bill, who recieves the goods, is a branch office of a purchasing organisation etc. etc.
A recent conversation reminded me that there is another area where there is difficulty gaining a common definition, and that is ensuring that there is a common definition of the word ‘asset’. Without common definitions, investments in data, processes and systems may be put at risk and the effectiveness of business decision making may be compromised.
Wiktionary provides a general definition of the term asset:
asset (plural assets)
- Something or someone of any value; any portion of one’s property or effects so considered.
- These shares are a valuable asset.
- (software) Any component, model, process or framework of value that can be leveraged or reused.
In the financial/investment world an asset is defined as “economic resources owned by business or company” (for more information, see the Wikipedia article on assets). There are many other sources providing definitions of financial assets, therefore the majority of this post will be focused on providing examples of a definition of a physical asset, possibly an area where there is even more scope for different interpretations.
One problem many organisations face is that the term ‘asset’ means different things to different people. For example, the term ‘asset’ can refer to:
- A water pumping station
- A pump set within that pumping station (including rising main, valves and control panel)
- A pump that is part of the pump set
- A mechanical seal assembly to prevent water entering the motor of the pump
- A spring to ensure the mechanical seal faces are held together at the correct force
Different parts of an organisation will typically be interested in different ‘levels’ of asset. For example, finance may be interested in the depreciation of the pumping station as a whole, operations in the overall output of the pump set and maintenance will be interested in the mechanical seal required to repair the pump. This clearly can lead to difficulties both when managing assets in their widest sense and in particular, when acquiring IT systems to manage these assets. Without agreement on a clear definition of what an ‘asset’ is, other business activities can be put at risk.
One organisation I worked for addressed this confusion by using the word ‘asset’ as a generic term to describe one of the following:
- A physical object providing a direct service output for the company (e.g. a pump)
- A physical object required to support the delivery of a service output (e.g. a standby generator)
- A collection of the above objects that can be considered together for management or process purposes (e.g. a pumping station, all pumping stations in a geographic area)
A number of specific terms were then used to more explicitly describe the level of asset being referred to. For example: Unit, Equipment, Component, Process Stream, Assembly, Area etc. Each of these terms had a clear definition and an explanation of how they related to other asset types.
Due to each organisation having different historic legacies and business drivers, it is unlikely that a ‘one size fits all’ approach would be suitable, it is more important that the different stakeholders interested in assets reach agreement on a common set of definitions that meet their business needs.
What similar approaches have you succesfully used to ensure there is common understanding over what the word ‘asset’ refers to?