How Can I Convince Finance to Fund My Asset Management Program?

A finance department is primarily composed of budget and accounting areas, with other functions such as investments, debt issuance, rate and fee setting, revenue, billing, and purchasing. Most finance directors come from an accounting background, especially for smaller to mid-sized organizations. Their training is not in quantifying risk, and in fact they are not rewarded for taking risks. However, the principles of life cycle asset management is to manage an asset at its lowest life cycle cost while still meeting a target service level. This directly ties into managing cash flow (current revenues used to pay for operations and maintenance), which in turn impacts various financial metrics such as operating cash on hand and the debt coverage ratio. Separate, but connected, is the capital plan, which can be a combination of both debt and an allocation of reserves. The justification of funding asset management practices involves benchmarking costs and demonstrating how and when assets deteriorate and the maintenance costs increase, the repair costs increase, and if the right investment intervention is not made, the asset could fail prematurely and catastrophically, thus costing a great deal more. This paper walks through the various financial/asset management concepts to convince finance to support asset management and condition assessment activities.