Where Will All The Assets Go?
Public sector staff cuts continue. But little attention has been paid to the now redundant assets – from furniture to IT. Can these assets be disposed of? Reallocated to other departments? Made available as an alternative to on-going capital investment programmes? Even provided to schools and academies to plug the gaps in pupil access? Or will they just be left to depreciate and slide off the balance sheet unnoticed?
Failing to consider the best way to exploit these assets is not only wasting existing investment, it risks incurring additional unnecessary spend – from insurance premiums to unneeded software licenses and IT support contracts.
Reducing staff numbers can be complex and time consuming, but the continued cost reduction does not stop at salaries. As Karen Conneely, Group Commercial Manager at Real Asset Management explains, by proactively considering the condition, location and usability of now released assets, organisations across the public sector can further reduce costs and gain far greater use of the existing asset base.
Job losses in the public sector are set to accelerate in the run up to the next general election, with a further 340,000 posts expected to be lost, according to a new study. Economist Dr John Philpott said that on the current Office for Budget Responsibility (OBR) projection, almost as many government jobs will be cut in the next two years as have already been lost since 2010.
While this news raises a number of issues, from the impact on services to the reality of cost reduction, there is one that has yet to be addressed. Just what is planned for the newly redundant assets? What provisions have been made for those 340,000 chairs, desks, IT systems, even cars that will no longer be required?
The reality is that few public sector organisations are in any position to even consider the reuse or disposal of these assets for one simple reason: they have no accurate picture of the current asset base. With no single source of asset information, organisations are unable to identify the affected assets – and certainly not ascertain their location, condition or due replacement date.
Yet failure to consider the now redundant assets will result in a stockpile of unused equipment that could be delivering real value elsewhere. So what is the way forward?
The problem facing the public sector extends beyond the problem of locating and identifying assets. Under standard accounting procedures, if the decision is taken to dispose of items – at a loss – there will be a negative impact on the balance sheet, undoubtedly resulting in bad headlines.
The simplest approach is head in the sand; ignore these unneeded assets and remain with the existing, straight line depreciation model. Yet while these assets may represent just a fraction of the overall £multibillion public sector asset register, they have measurable financial value.
Furthermore, the issue is not simply item value. Failure to track the asset base will have an impact on other on-going costs. Why pay additional insurance premiums for unused equipment? Or continue paying unnecessarily for software licenses, hardware maintenance and support contracts? There is also an impact on leased assets, such as cars – are organisations able to flag up the potential costs associated with early redemption of leases or will the cars be left in the car park?
Despite the accounting difficulties the reality is stark; how can any public sector organisation justify losing staff and/or critical services and then fail to adequately exploit the additional resources now available – even if it is just providing laptops for schools?
Understanding the asset estate should be a fundamental component of the restructuring process. Are the soon to be unused PCs brand new or 10 years old? Could brand new PCs be reallocated to a team struggling with aging equipment? How much life is left in the desks? With an in depth record of asset location and condition, organisations will be well placed to understand the implications of the reduced demand for assets and, where possible, reallocate resources.
So what is the first step? A comprehensive asset audit, using barcode or RFID tags, provides a complete picture of asset location and state. This asset register should also be linked to the finance processes, ensuring any new asset purchase invoice can be clearly reconciled with the actual asset.
Even if organisations are unwilling to dispose of unused assets for accounting reasons, this clear accurate picture of the asset base will enable renegotiation of insurance premiums, software licenses and IT support costs. Furthermore, with a single register, newly redundant assets can be flagged as available to the rest of the organisation. Before any new asset purchase is made, department heads can search the inventory and request an asset transfer. This process will reduce capital expenditure and provide fast access to available equipment.
For each public sector organisation, the individual value of its equipment may seem small in comparison to the financial gains being achieved by reducing salaries. But understanding the asset base does not just deliver one off value – it should be a fundamental component of asset management. As budgets continue to be cut, it is essential to maximise the value of the existing asset base and avoid unnecessary overspend.
But, in the short term, it is effective management of these newly redundant assets that can deliver measurable value to the organisation – providing fast track access to equipment, minimising the need for capital expenditure and, critically, avoiding unnecessary expenditure on insurance and IT support. Perhaps it is time to stop avoiding the asset issue.