Welcome!

Microservices Expo Authors: Liz McMillan, Pat Romanski, Elizabeth White, Derek Weeks, Mehdi Daoudi

Related Topics: Microservices Expo, Agile Computing

Microservices Expo: Article

Don’t Let Your Fixed Assets Sink Your Business

Asset management is a fundamental business process. It determines corporate value and has a direct impact on profitability.

One of my professors used to always tell his students a story about a company that he performed a work study at and discovered an elderly gentleman, let's call him "Thomas Bean",  who produced colorful graphs every month on the performance of a business-related resource or asset. I don't recall the specifics of the work, but I do remember that these graphs were meticulously produced every month, manually, and that they involved bar charts, pie charts and tables of data. The gentleman was relegated to some back office in the planning department.

During the study, Mr. Bean was interviewed and he proudly demonstrated the workmanship and effort involved in producing his reporting deck.  From here, the story becomes the classic stuff of urban legends like the million dollar Fisher Space Pen. Apparently, when asked what he did with the charts, Mr. Bean said that he took them down to the planning department and gave them to some named body there.

When that person was asked what he did with them, he answered that he would simply stack them up in the top of one of the filing cupboards in the planning office. Did anyone ever ask for them? - no. What did he do when he ran out of space? - he would take a bunch out from the bottom and shred them.  Did he know what they were or what they were for? - nope. He confessed he had only been doing this job for a couple of years and that he merely did what his predecessor did.

When quizzed further, the elderly Mr. Bean stated that he was engaged specifically to do this monthly report, that it involved gathering data from many sources and compiling it into a single study every month. He had been doing this for years and could name some of the other aging employees that were involved with his hiring etc.

The issue was escalated to the highest level and the comment that came back, was "that guy still works for us, we hired him like twenty years ago???" and "that study should have stopped back in ...., we either abandoned it or it was no longer relevant". In the end the story goes, they let the old man retire, never telling him that his work had been futile for the last  number of years, adding no value, no meaning.

In this day and age, such stories seem impossible or improbable. That's because we haven't quite descended to the depths of having people who are rarely accountable for anything. These days, businesses have mechanisms like performance management, job evaluations and full blown human resource departments whose whole reason for being, is to quite simply ensure that compliance, accountability and standards are applied to the work force. It is unlikely that people will fall through the cracks and remain unnoticed for decades producing meaningless work. There are always the proverbial ‘sacred cows' or protected employees and positions, but these are becoming increasingly rare one would think. I am not saying business handles people efficiently or that people are inherently efficient, just that the rules have changed.

It's funny then, that we don't deal with inanimate objects in business in the same way. I am reminded of this today when I think about a garage full of ‘stuff' most of which should head to the dump or the local charity shop. In many businesses it seems that a good housekeeping exercise happens less often than it should. Return on assets is a measure of how well business uses vested capital.  It reflects the profitability of existing investments, and provides a guide to returns on future investments, or at least that is the general idea.

A study by Nazir and Afsa entitled, "Impact of Aggressive Working Capital Management Policy on Firms' Profitability"  found that investors gave weight to the stocks of those firms that adopted an aggressive approach to managing their short-term liabilities. It could be argued that regular depreciation expenses related to redundant and defunct fixed assets ultimately plays into this sentiment about short term liabilities also. Further, companies that rent or lease plant and machinery for example may actually be better off than those that own assets. The balance between owned vs. leased of course is a perpetual problem. It hampers that consumer in relation to owing vs. renting, but for the business it is more significant because it often happens by accident that business lands up with a larger book of assets than it intended. For companies that use an ERP system like SAP, there are a number of mechanisms that help to account for and manage assets, but sometimes the volatility of business impairs business' ability to aggressively review, assess and write down or revalue assets. Using a product like Winshuttle Query, enables SAP customers in particular to quickly build complex queries of asset data using a combination of standard and custom tables, Infosets and logical databases to build on-demand point-in-time reports that can then be consumed by web-savvy products. These then consume web-services or are simply dumped into Microsoft Excel spreadsheets, Access Databases, SQL-Server databases or even SharePoint lists for later mining.

As Marcus Scholes, Vice President of U.S. Operations, Real Asset Management International says, "Asset management is a fundamental business process. It determines corporate value and has a direct impact on profitability."  He goes on to mention that  there are likely many multi-nationals that have good systems in place for recording initial investments, but simply  pay lip service to managing later asset disposal. As much as 50 percent of assets on the books are either poorly described or are no longer in use - worse, they cannot be located during a physical audit.

According to AMR (Asset Management Resources), a leading provider of asset inventory and reconciliation services, "After 14 years of experience, AMR has repeatedly found that 65% of fixed asset data is incomplete, inaccurate, or altogether missing, while 10% to 30% of fixed assets are no longer owned." It is not unreasonable to consider that if just 20% of all fixed assets are ghosts, business may be overpaying in terms of insurance and tax and ultimately understating profitability. Large inaccuracies in the Fixed Asset register pose a major risk to those responsible for the fiduciary management of a given enterprise.

Consider too, that fixed assets are thought to be a "material" item for Sarbanes Oxley compliance, requiring the documentation of internal controls within an organization; the AICPA defines "material" as being based on the assumption that a reasonable investor would not be influenced in investment decisions by a fluctuation in net income less than or equal to five percent and that "rule" remains the basis for working materiality estimates. Depending on how asset-laden your business is, you may already be courting the 5% value or higher.

One of the ways to address the specter of ‘ghost assets' is of course a physical audit of those assets. Although this may seem largely impractical in some businesses, it can be achieved through a couple of different approaches:

  • Continuous progressive Inventory - physical inventory can be done as "full inventory verification", "wall-to-wall inventory" or multiple partial inventories within different departments or geographic locations.
  • Assessment of asset materiality and physical inventory - this can be done internally but is a service that is often offered by your external auditors and third party organizations. Typically 3rdparty physical inventory companies only consider assets with a book value in excess ofUSD5,000 per item to be worthy of the expenses associated with a physical audit.
  • Write down/off all your assets with trivial book value and do this in the context of a review of your capitalization policy and avoid adding low value items in the future into the asset register

Whether you decide to use a product or simply attack the problem with manual brute force, there needs to be a clear and decisive attack made on redundant and defunct assets. Prevention of course is also better than attempts to cure. Tools like those from Winshuttle and others, are available, for both the extraction and updating of the asset master records but the process and policy needs to be clearly defined and articulated to all concerned. While you're at it, it might be a good idea to take stock of your personnel too, and make sure you don't have any examples of "Thomas Bean" wandering around your business clutching meaningless colorful pie charts...

Additional Reading:

International Review of Business Research Papers  Vo.2 No. 2. October 2006, Pp. 45 -58 Trends in Working Capital Management and its Impact on Firms' Performance: An Analysis of Mauritian Small Manufacturing Firms - KessevenPadachi

http://www.kerr-consulting.com/pdf/FAS_The_Cost_of_Spreadsheets_in_Fixed_Asset_Mgmt.pdf

http://www.businesspundit.com/are-your-company%E2%80%99s-asset-records-compliant-with-sarbanes-oxley/

http://www.aicpa.org/interestareas/employeebenefitplanauditquality/resources/accountingandauditingresourcecenters/downloadabledocuments/planning_materiality_tolerable_misstatement.pdf

http://www.depreciationmanagement.com/fas_pdf/Fixed%20Asset%20Manager's%20Guide%20to%20Sarbanes-Oxley.pdf

 

 

More Stories By Clinton Jones

Clinton Jones is a Product Manager at Winshuttle. He is experienced in international technology and business process with a focus on integrated business technologies. Clinton also services a technical consultant on technology and quality management as it relates to data and process management and governance. Before coming to Winshuttle, Clinton served as a Technical Quality Manager at SAP. Twitter @winshuttle

@MicroservicesExpo Stories
As many know, the first generation of Cloud Management Platform (CMP) solutions were designed for managing virtual infrastructure (IaaS) and traditional applications. But that's no longer enough to satisfy evolving and complex business requirements. In his session at 21st Cloud Expo, Scott Davis, Embotics CTO, explored how next-generation CMPs ensure organizations can manage cloud-native and microservice-based application architectures, while also facilitating agile DevOps methodology. He expla...
SYS-CON Events announced today that Synametrics Technologies will exhibit at SYS-CON's 22nd International Cloud Expo®, which will take place on June 5-7, 2018, at the Javits Center in New York, NY. Synametrics Technologies is a privately held company based in Plainsboro, New Jersey that has been providing solutions for the developer community since 1997. Based on the success of its initial product offerings such as WinSQL, Xeams, SynaMan and Syncrify, Synametrics continues to create and hone in...
DevOps promotes continuous improvement through a culture of collaboration. But in real terms, how do you: Integrate activities across diverse teams and services? Make objective decisions with system-wide visibility? Use feedback loops to enable learning and improvement? With technology insights and real-world examples, in his general session at @DevOpsSummit, at 21st Cloud Expo, Andi Mann, Chief Technology Advocate at Splunk, explored how leading organizations use data-driven DevOps to clos...
"I focus on what we are calling CAST Highlight, which is our SaaS application portfolio analysis tool. It is an extremely lightweight tool that can integrate with pretty much any build process right now," explained Andrew Siegmund, Application Migration Specialist for CAST, in this SYS-CON.tv interview at 21st Cloud Expo, held Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA.
The dynamic nature of the cloud means that change is a constant when it comes to modern cloud-based infrastructure. Delivering modern applications to end users, therefore, is a constantly shifting challenge. Delivery automation helps IT Ops teams ensure that apps are providing an optimal end user experience over hybrid-cloud and multi-cloud environments, no matter what the current state of the infrastructure is. To employ a delivery automation strategy that reflects your business rules, making r...
The past few years have brought a sea change in the way applications are architected, developed, and consumed—increasing both the complexity of testing and the business impact of software failures. How can software testing professionals keep pace with modern application delivery, given the trends that impact both architectures (cloud, microservices, and APIs) and processes (DevOps, agile, and continuous delivery)? This is where continuous testing comes in. D
Modern software design has fundamentally changed how we manage applications, causing many to turn to containers as the new virtual machine for resource management. As container adoption grows beyond stateless applications to stateful workloads, the need for persistent storage is foundational - something customers routinely cite as a top pain point. In his session at @DevOpsSummit at 21st Cloud Expo, Bill Borsari, Head of Systems Engineering at Datera, explored how organizations can reap the bene...
Admiral Calcote - also known as Lee Calcote (@lcalcote) or the Ginger Geek to his friends - gave a presentation entitled Characterizing and Contrasting Container Orchestrators at the 2016 All Day DevOps conference. Okay, he isn't really an admiral - nor does anyone call him that - but he used the title admiral to describe what container orchestrators do, relating it to an admiral directing a fleet of container ships. You could also say that they are like the conductor of an orchestra, directing...
The past few years have seen a huge increase in the amount of critical IT services that companies outsource to SaaS/IaaS/PaaS providers, be it security, storage, monitoring, or operations. Of course, along with any outsourcing to a service provider comes a Service Level Agreement (SLA) to ensure that the vendor is held financially responsible for any lapses in their service which affect the customer’s end users, and ultimately, their bottom line. SLAs can be very tricky to manage for a number ...
Our work, both with clients and with tools, has lead us to wonder how it is that organizations are handling compliance issues in the cloud. The big cloud vendors offer compliance for their infrastructure, but the shared responsibility model requires that you take certain steps to meet compliance requirements. Which lead us to start poking around a little more. We wanted to get a picture of what was available, and how it was being used. There is a lot of fluidity in this space, as in all things c...
Gaining visibility in today’s sprawling cloud infrastructure is complex and laborious, involving drilling down into tools offered by various cloud services providers. Enterprise IT organizations need smarter and effective tools at their disposal in order to address this pertinent problem. Gaining a 360 - degree view of the cloud costs requires collection and analysis of the cost data across all cloud infrastructures used inside an enterprise.
Some people are directors, managers, and administrators. Others are disrupters. Eddie Webb (@edwardawebb) is an IT Disrupter for Software Development Platforms at Liberty Mutual and was a presenter at the 2016 All Day DevOps conference. His talk, Organically DevOps: Building Quality and Security into the Software Supply Chain at Liberty Mutual, looked at Liberty Mutual's transformation to Continuous Integration, Continuous Delivery, and DevOps. For a large, heavily regulated industry, this task...
The goal of Microservices is to improve software delivery speed and increase system safety as scale increases. Microservices being modular these are faster to change and enables an evolutionary architecture where systems can change, as the business needs change. Microservices can scale elastically and by being service oriented can enable APIs natively. Microservices also reduce implementation and release cycle time and enables continuous delivery. This paper provides a logical overview of the Mi...
The notion of improving operational efficiency is conspicuously absent from the healthcare debate - neither Obamacare nor the newly proposed GOP plan discusses the impact that a step-function improvement in efficiency could have on access to healthcare (through more capacity), quality of healthcare services (through reduced wait times for patients) or cost (through better utilization of scarce, expensive assets).
Gone are the days when application development was the daunting task of the highly skilled developers backed with strong IT skills, low code application development has democratized app development and empowered a new generation of citizen developers. There was a time when app development was in the domain of people with complex coding and technical skills. We called these people by various names like programmers, coders, techies, and they usually worked in a world oblivious of the everyday pri...
The “Digital Era” is forcing us to engage with new methods to build, operate and maintain applications. This transformation also implies an evolution to more and more intelligent applications to better engage with the customers, while creating significant market differentiators. In both cases, the cloud has become a key enabler to embrace this digital revolution. So, moving to the cloud is no longer the question; the new questions are HOW and WHEN. To make this equation even more complex, most ...
Some journey to cloud on a mission, others, a deadline. Change management is useful when migrating to public, private or hybrid cloud environments in either case. For most, stakeholder engagement peaks during the planning and post migration phases of a project. Legacy engagements are fairly direct: projects follow a linear progression of activities (the “waterfall” approach) – change managers and application coders work from the same functional and technical requirements. Enablement and develo...
Kubernetes is an open source system for automating deployment, scaling, and management of containerized applications. Kubernetes was originally built by Google, leveraging years of experience with managing container workloads, and is now a Cloud Native Compute Foundation (CNCF) project. Kubernetes has been widely adopted by the community, supported on all major public and private cloud providers, and is gaining rapid adoption in enterprises. However, Kubernetes may seem intimidating and complex ...
You know you need the cloud, but you’re hesitant to simply dump everything at Amazon since you know that not all workloads are suitable for cloud. You know that you want the kind of ease of use and scalability that you get with public cloud, but your applications are architected in a way that makes the public cloud a non-starter. You’re looking at private cloud solutions based on hyperconverged infrastructure, but you’re concerned with the limits inherent in those technologies.
For DevOps teams, the concepts behind service-oriented architecture (SOA) are nothing new. A style of software design initially made popular in the 1990s, SOA was an alternative to a monolithic application; essentially a collection of coarse-grained components that communicated with each other. Communication would involve either simple data passing or two or more services coordinating some activity. SOA served as a valid approach to solving many architectural problems faced by businesses, as app...