Manage Assets With Intelligence Using Key Performance Indicators

E-ISG Asset Intelligence Manage Assets With Intelligence Using Key Performance Indicators A Process White Paper Eric L. Beser, eric.beser@e-isg.com 10/21/2008

Manage Assets with Intelligence Using Key Performance Indicators The processes of Enterprise and Strategic Asset Management can recover significant financial savings throughout the entire business, when measured correctly. This white paper highlights the concept of Key Performance Indicators (KPI s) and how to maximize their usage throughout the asset management process to recover investment. Proper use of these KPI s can be used to justify the economic reasons for adoption of a system-wide process, or can be used to optimize the process already adopted. We will examine a composite group of our customers, large multi-national law firms, over the past four years and document each segment of the process using these KPI s. Each point of process improvement can be used to document a specific Return-On-Investment (ROI), to show dollars saved. Adoption of this process was not easy, as the culture of these firms needed to change. These firms have many offices world-wide. The asset management process requires coordination between IT and Facilities operation and between Purchasing and Accounting. In addition these firms have long range expansion goals for adding additional offices and merging other smaller law firms. All of the firms in this study share a common factor: selection of E-ISG as the company to help engineer the adoption of the processes as well as provide guidance for conducting an initial wall-to-wall inventory. The firms selected Visual Asset Manager (a product of Asure Software) to provide the centralized asset management database for each firm. Additionally, all firms in this case underwent a move and consolidation of their headquarters building. Although this paper alludes to one firm (called the firm ) in this study, we are really referring to a composite picture of several firms. We applied points of measurement to all firms adopting this process. Calculations of labor costs, labor hours, processes in play and tax dollars saved were taken from actual labor statistics, and property tax forms from one firm. The KPI s can be applied to everyone. Asset Control Process In 2003, the firm selected E-ISG to provide a complete inventory of their home office in Baltimore and their branches in Baltimore County, Washington DC, and Northern VA., along with a fair market value appraisal of all items found in the inventory. Since this inventory required a complete survey of all items, the team decided to consolidate all control processes and databases used for asset control and management. There they found a tremendous amount of duplicated data, extraneous databases, and binary and often contradicting points of control. Centralization of the Asset Management database produced a consistent control over the assets. The elimination of duplicate data provided accountability for all users. The departments that maintained these databases reaped immediate and ongoing benefit from the annual cost savings. While there were dramatic and immediate cost savings in the start of the asset management program, having a centralized repository of asset data improved the overall use of the assets over the long-term. Utilization of assets is the driving factor in the principles of strategic asset management. This factor minimizes cost of ownership by maximizing existing resources. E - ISG Asset Intelligence Page 2

The process of centralizing asset control included the identification of all existing procedures. The team initially found 64 procedures in play with the potential to be eliminated with a more unified approach. Each process represented unique requirements needing to be merged into the firm s standard operating procedures. Visual Asset Manager provided the firm with a single source of information for acquisition, control, and disposal of assets. The new centralized process eliminated the time consuming and costly procedures of the old system, yielding an almost immediate return on investment. In addition, the new streamlined process enabled some additional process efficiency by removing wasteful duplicated efforts. The elimination of essentially all of the 64 processes has resulted in a significant cost savings. In preparation for the first inventory, E-ISG prepared a detailed project plan that established a baseline needed to conduct the inventory, a standardized asset naming convention, a barcode placement standard, a numbering system, a location code description, and standard equipment descriptions including a category and subcategory classification. The process of centralization with Visual Asset Manager also included a uniform barcode system across all offices within the firm. In addition, specifications for a single set of reports eliminated the need for departmental reporting and inventory. The specification of transactional auditing (audit as you work with assets) with mobile barcode devices eliminated the need to do wall-to-wall inventory each year. The plan also included movement control that automatically moves assets between locations. E-ISG organized an Asset Management working group within the firm so that planning decisions would have management buy-in from the beginning. This team represented various functional units within the firm as well as representing each remote office. 80 60 40 20 0 2003 2004 2005 2006 2007 2008 Figure 1 Asset Management Procedure Reduction Cum Procedu Number of P Reduced Figure 2 Procedure Reduction Cost Savings E - ISG Asset Intelligence Page 3

Centralized Lease Management In 2004, the firm asked E-ISG to customize Visual Asset Manager to track leases through the centralized database as a process improvement. This customization included adding a lease schedule table that covers the entire Lease Schedule-A data. Tied to each lease schedule was the list of all assets by site and location taken from the initial inventory. Each lease schedule contained critical lease expiration data along with centralized reports listing the locations of assets due to be returned before the lease s expiration. Because the audit process kept track of asset movement, these reports drew in the correct locations in real-time, and reduced the amount of lost item charges, a key ROI. Comprehensive reports allowed the operations department to make purchase decisions on leased equipment based on the factor charges, and eliminate items if needed. Further refinement allowed us to remove duplicate entries from other databases, and track leased assets utilizations. Unused assets were reallocated to other departments or returned to the vendor. Tracking the missing items was significantly easier using the centralized database. 12000 10000 8000 6000 4000 2000 0 2002 2003 2004 2005 2006 2007 2008 Leased Items Lost Items Figure 3 Leased Items vs. Lost Items Charged Removing Redundant Databases In 2003 the team began this process of report standardization by examining their data requirements to eliminate redundant systems and cost-draining duplicate data, software and maintenance. This task was not simple, as the culture within the firm had to change in order to accommodate a new system free of redundancy. These systems were previously independent, used their own IDs, and were of questionable accuracy. The IT database still had entries of equipment no longer in service. Other databases owned by departments were jealously guarded by the department. To further confuse things, there were no procedures in play to standardize information. Manufacturers, classifications, descriptions were not uniform, and were entered in different ways within the system. Where the department had no database, spreadsheets were utilized in a variety of formats and accuracy. These conditions contributed to a lack of consolidated information and asset use information. The lack of centralized controls was seen as a primary cause of duplication of ordering and misplacing purchased assets. In some cases, assets were being hoarded and forgotten. The project plan aimed to reduce cost, improve efficiency and create an inventory baseline needed to implement an asset utilization program. In order to standardize and reconcile the variety of data and E - ISG Asset Intelligence Page 4

databases involved in departmental transactions, E-ISG created a set of lookup tables that contained data from each of the databases in use within the centralized databases. The purpose of these lookup tables were to correlate the variety of numbering schemes used in tracking departmental assets to the new centralized inventory. The other, more subtle reasons for these lookup tables was to give the departments a sense of confidence in the new data as the lookup tables gave us an indication of what was recorded, what was missing, and what data needed to be standardized. In the past, day-to-day processes required that information would be updated in multiple databases. This caused inherent inaccuracies that exposed the firm to audit issues from internal sources. Elimination of multiple databases allowed significant savings of resources and allowed those resources to work on the centralized streamlined process. A subset of these lookup tables were downloaded to the barcode scanner. It was then possible, during the inventory to compare the new asset entry with previously recorded serial numbers, or old tag numbers. This allowed us to validate legacy data by comparing manufacturer information, serial numbers, and descriptions against assets that had no identification markers. We combined this data with the new entry and published the entry to Visual Asset Manager. We also created IT data lookup tables, to allow data gathered from network discovery tools to be combined with the new inventory, so that IT descriptions would contain detailed data about each server, desktop computer, or laptop computer found by the discovery software. This additional process supplemented a key weakness of network discovery tools, in that these tools do not report an asset s physical location. These tools alone are limited in their capabilities to capture information requiring that the computer being captured has prescribed permissions, network connectivity, and is turned on during the discovery process. 80 60 40 20 Cum Systems Eliminated Systems Elimina 0 2003 2004 2005 2006 2007 2008 Figure 4 Asset Databases Eliminated E - ISG Asset Intelligence Page 5

Figure 5 Redundant Data Cost Savings Transaction-Based Inventory A significant cost in asset management is the need to conduct wall-to-wall inventories to generate the inventory database and verify the accuracy of the database and locations of assets. Wall-to-wall inventories are needed each year to reconcile purchased assets and disposed assets. There is an associated labor cost with each inventory, including the hiring of temporary employees or utilization of administrative employees to conduct the inventory. In many large firms, this process can take weeks or even months. As the process of purchasing new assets or disposing old assets cannot be postponed during the inventory, there is a sliding window of inaccuracy that occurs during the inventory. Because work does not stop during this inventory period, another method, Transaction-based Inventory provides a clear alternative to wall-to-wall inventories. Transaction-based inventory is the method which captures a physical inventory by documenting independent transactions as a physical inventory event. Tying asset management to purchasing and receiving assets, moving assets within facilities, or scrapping, donating or returning assets allows the centralized database to be continuously updated with accurate information. E-ISG developed auditing procedures within Visual Asset Manager to update individual locations by simply scanning the barcodes of each items in a room when items are moved in or out of a location by facilities personnel. When an asset was moved out because of scrapping, donating or otherwise retiring the item, this audit process would mark the asset as retired, recording the reason for retirement. This process continuously updates the database with accurate location information, so that end-users viewing Visual Asset Manager s floor plan will see all assets assigned to the current and correct location. By marking the asset as Audited, it is easy to determine what assets are missing from a given location. In addition, auditors can focus on locations that are not marked with Audited assets which reduce the time spent in updating the database. This methodology virtually eliminates the need for further wall-to-wall inventories. This audit process maintains the accuracy of the database. Processes for moving equipment from room-to-room during room transfer requests also kept the database up to date. E - ISG Asset Intelligence Page 6

Figure 6 Reduction in Physical Inventory Counts Over the period of 5 years since this process began, inventory that was not located through the inventory process had to be reconciled with the database. Through start of the inventory process in 2003, utilizing transaction-based inventory methods, the firm was able to reduce active inventory counts 48 percent in 2005, 65 percent in 2006, 69 percent in 2007 and 89 percent currently in 2008. Asset Management and Property Taxes The inventory identified and resolved many issues that needed to be addressed before the standardized asset management process could begin. We found 20 percent of assets that were on the books but no longer in the building. We found 45 percent additional assets that no one had accounted for. We found 100 unopened leased computers in boxes in an electrical closet that had been there for over a year. Some of these assets were the results of incomplete disposal (these assets were listed for disposal but were never disposed of, or taken out of the accounting system) or were newly acquired but left in storage. The inventory revealed the data from the disposal process needed to retire the assets properly. Property disposal issues were uncovered at the branch offices as well, as these offices were not equipped to dispose of assets properly and were using a rented warehouse space for old furniture and computers. By tidying up the asset disposal process, we were able to reduce the cost of renting warehouse space, remove the assets from the list of taxable property, and use the appraisal value of the retired assets as a write-down on their books. The chart documents the reduction of property tax assessments using the appraisal values of the property, and reductions based upon the retirement and donations of assets. E - ISG Asset Intelligence Page 7

Figure 7 Reduction in Property Tax base in Million Dollars Location Based Inventory The completed the inventory yielded a complete record of all assets within the firm. The web interface within Visual Asset Manager had floor plans for each of the sites with room location codes on each floor map. Clicking on the room location revealed a complete list of all assets found in that room. In addition, the centralized reporting gave us the appraised value of each asset by site, location, category and subcategory, which produced a number of previously unreported assets. The location-based Visual Asset Manager provided the following data for any given location: visual representation in map form, name of functional control manager assigned to the location, and any employees who may occupy the location. This location-based system benefits from Visual Asset Manager s transaction-based method which reduces the costs associated with maintaining an accurate database. Day-to-day transactions that occurred in a given location were translated automatically to the inventory database. Processes for moving assets between physical buildings were also automated using this method. Visual Asset Manager subdivides the database by a concept called Site which can be used to delineate whole buildings or groups of buildings. Items scanned out in one building, were scanned in at another site and those entries in the Visual Asset Manager Database were changed to account for the movement of the asset. The cost associated with updating assets in motion was significantly reduced by this process. Asset Management and Moving Offices The law firm moved its headquarters in 2008 to a new enlarged facility. Having a centralized database allowed this firm to select assets that would be disposed of during the move, and those assets that would be retained. We developed a significantly more accurate budget of leased and purchased furniture, utilizing assets that were of good condition and removing assets by donation where the value E - ISG Asset Intelligence Page 8

or condition of the assets had degraded. By including the appraisal in the initial inventory, and adding the purchase price in future inventories, we calculated a fair market value of all donated assets for tax benefits. One firm in this study was able to write off $1.6 million dollars in assets that was donated to schools, charities, and non-profit organizations. Because the asset value was calculated by third-party appraisers as part of the initial inventory, the records withstood internal audit scrutiny and provided valid tax documentation. An additional source of significant ROI was enabled because of the centralized database. IT Asset Retirement Procedures An essential element in the process of retiring IT servers from use is to ensure that not only is the asset retired, but the business recovers software licenses used by that equipment, and cancels automated maintenance policies purchased each year to prevent penalties for late renewal of a maintenance plan. Although not occurring with this law firm, another E-ISG customer discovered a break within the retirement process that successfully retired the asset, but continued the automatic renewal payment of hardware maintenance plans, or renewal of unused software license maintenance. This is a significant cost area in itself, that a centralized IT asset management process coupled with integration of accounting records was able to locate and prevent further expenses. Asset Management Data Framework E-ISG developed in 2007 the Asset Management Framework to provide a methodology and data model for integrating accounting systems, ERP and HR systems, and Fleet Management systems into asset management to seamlessly provide measurement points into the overall process. The asset management data framework allows for the integration of divergent databases from accounting systems, employee and HR systems, and a variety of manufacturing and repair systems. In addition, it allows for diverse methods of data collection from barcode scanning to RFID collection, and a variety of different types of reporting. The framework ties other systems together seamlessly to manage fleet, equipment motion and remote assets such as field generators or manufacturing equipment. The goal of this framework is to connect assets to the bottom line of a firm, in order to measure and reduce the total cost of ownership of those assets. When concrete measurement points about each asset are provided, intelligent decisions for an organization s future can be made soundly and confidently. Asset management becomes asset intelligence. By measuring fleet operation characteristics (such as engine faults) compared with repair records across the enterprise, additional maintenance could be recommended by examining the probability of faults occurring after a point of repair. Analysis of repair points can predict a high probability of a fault occurring and can make recommendations that the cause of the fault be repaired at the same time as other faults. This maintenance prediction reduces downtime of assets in repair cycles. Although not completely relevant for this law firm, much of the techniques in process automation within the Asset Management framework can be utilized to further the transactional automation adopted by E - ISG Asset Intelligence Page 9

this firm. In addition, Key Performance Indicators (KPI s) used in measuring the effectiveness of this process are certainly relevant in that counts on the number of assets audited vs. counted in new inventory shows the effectiveness of the transaction-based inventory system. Counts of assets removed from service, and their dollar value, show the amount of assets written off in tax reports. Counts of assets in motion reflect the utilization of those assets across the firm. E-ISG has recommended to the firm s asset management team the use of the framework to further automate the transaction-based system. Radio Frequency Identification (RFID) and Transaction-based Inventory Standardizing barcodes, sites, locations and asset naming allows further transaction-based automation. E-ISG is currently investigating the use of active RFID tags to automate transaction inventory in the data center, and to track equipment movement between buildings. Although not adopted by this law firm, some of E-ISG s other customers utilize RFID to track the movement of test equipment between labs and work areas. In addition, the use of RFID and employee badges allows the use of egress and entry systems to track the movement of equipment. This system correlates the ID from the employee badge and the ID from the asset to create individual transactions in the database to identify the reason for movement of assets. This additional increase in accountability allows for accurate tracking of an asset s whereabouts. This process eliminated the multi-part forms previously used and the associated costs associated with processing multiple copies of paperwork. RFID allows for heavy transaction volume and also adds significant accuracy to support the transaction-based inventory process. Tracking accurate movement of test equipment between labs can be utilized to determine asset use where there is high volume of asset movement between labs. In addition, RFID is used to track IT asset deployment, service and repair cycles. Eliminating move documents results in more accurate records. RFID automated procedures and controls over the movement of IT assets. Summary It is necessary to implement some form of asset controls during this period of tough economic challenges. As indicated in this paper, key points of this process give significant return on investment: Formation of an asset management working group to identify all existing processes and procedures within the organization as well as legacy databases and duplicated databases. Streamlining of a centralized asset management database with a uniform barcode numbering system, common category/subcategory classification and common asset naming convention. Creation of baseline wall-to-wall inventory for the centralized database that uses and validates legacy data. Appraisal of inventory using Fair Market Value of items. Correct and remove assets that should be disposed and removed from tax calculations. Build a centralized lease management strategy using the inventory database. E - ISG Asset Intelligence Page 10

Establish a transactional inventory process to reduce or eliminate the need for continual wall-towall inventory. Utilize the location-based system to improve on asset utilization and track asset movement. Expand the process to include accounting and HR data, and measure the process using Key Performance Indicators (KPIs). Further automate the process using RFID technology to manage asset movement and accountability. Each point in the process creates tremendous cost saving to the organization. In our case study, the cost saving was significant due to reduction of labor to manage departmental processes, the elimination of most inventory activity due to the transactional process, and creation of donation tax write-off utilizing the fair market value appraisal of the original inventory. In adopting the lease tracking process, the elimination of lost items on a lease schedule was a noteworthy cost saving (far greater than the fee paid to E-ISG to build the function into the database). By building in ROI immediately into the process, it is easy to save 30 percent of the asset budget per year, and have that savings go into strengthening the asset process. It is essential, in difficult economic times to make every expense worth the investment. In this case, a startup cost of a centralized asset management system and proper adoption of a process can recognize immediate savings to offset that cost. It is worth the effort. Note: The use of these KPIs were also documented in an outstanding article by Robert McFarland, called Value Based Asset Management found in the September/October issue of The Property Professional, a journal of the National Property Management Association. This article documents the value saved in ITT s property management process. We used this article as a template to examine our own processes. E - ISG Asset Intelligence Page 11