Capital Programs and the Cost of Doing Business

In my article, The Best Capital Playbook Ever!, published by About.com, I asserted that interdisciplinary/multi-disciplinary consulting teams, and viewing capital programs from life-cycle asset management perspective make a difference.  I poked fun at what seems to be the standard healthcare process for asset reporting and capital programs: Hire a valuation team to inventory, tag, and place a value on assets.  Next, hire a consultant to help rewrite policy, tighten up the capital committee, and make sure projects are tied to strategic plans.

Yet, excess equipment, poor utilization, and inconsistent reporting remain issues within healthcare despite the practices.  Is this the cost of doing business or is there something we can do about it?

One obstacle may be the perspective of viewing asset management functions only as an expense center.  This perspective, I believe, hinders investment into the development of asset management practices, positions, and tools.

I am re-reading sections of The Best Kept Profit Secret: The Executive's Guide to Transforming a Cost Center Into a Profit Center by Flood, Jerralds, Perez, Sanchez, and Tyburski.  Abe Walking Bear Sanchez wrote. ”Every business function must have a clearly stated purpose that addresses the cost associated with carrying out that business function.” Even more, he asks on page 22, “Why incur the cost of carrying out a function?”

In the case of Asset Management, what is the stated function and why incur the cost?  For this series of articles, I have broken Asset Management down into philosophy, practice, and tools.  The philosophy concerns the asset life-cycle.  The practice will address policy and programs.  The tools will address Enterprise Asset Management applications and Real-Time Location Systems.

In regards to how Walking Bear framed the statement, the principles Asset Managers use are as timeless as when the first person fashioned, domesticated an animal, or constructed something to scratch out a living on planet Earth.  The asset life-cycle of acquire, utilize, maintain, and dispose became relevant at that point.   

“Why incur the cost of carrying out a function?” I would modify the statement a little.  Why invest in what looks like an increase in the operational budget of the function?  If one views Asset Management purely as an expense related business function, the only investment will be the time it takes in cost-cutting.  Cut, slice, and minimize are just par for the course and lead to the point of outsourcing or getting rid of all together.  There is only so much one can cut.   

The purposes of acquiring an asset are to treat the patient and make money.  The business functions of Asset Management increase the profitability of revenue projections, reduce risks, reduce costs, and recover investment.  

If you buy an asset, keep it until it is fully depreciated or you have fully recaptured your investment, then turn around and sell it for cash, is that not revenue? 

A department has $1,000,000 in overhead cost.  Projects and initiatives generated by that department slices $3,000,000 from corporate cost over the previous 3 years, actually freeing up cash that previously trended as spent in that category.  The department has decreased the total liabilities in comparison to total assets.  Is that not a form of equity… actually an increase in equity?  If equity is increased, that is a factor of revenue. 

ROI is target or ahead of the game.  Equipment purchases and utilization supports revenue generations.  Assets that have market value are disposed of accordingly.  Revenue!   Investment in the Asset Management function is more than just proper.  It is a necessity.