What is an asset life cycle?
An asset life cycle refers to the stages involved in the management of an asset. The life cycle of an asset starts with the planning stages, when the need for an asset is identified, and continues all the way through its useful life and eventual disposal.
The stages of an asset life cycle and the activities within each stage vary across different industries. While different organizations may structure their life cycles differently to fit their needs, the basic stages of an asset life cycle can be simplified in four general steps: 1) Identify the need, 2) Create or Acquire, 3) Operate and Maintain, and 4) Dispose and/or Replace.
Identify the need
Before the actual purchase or creation of an asset, the need for it should first be defined and justified. Planning is the first stage of the asset life cycle. In this stage, current assets are evaluated against the organization’s goals and the requirement for new or additional assets is assessed.
Create or Acquire
After identifying the need and requirements for a new asset, its creation or acquisition then takes place. This stage involves design and procurement activities. The goal is to come up with cost effective solutions to meet the identified needs.
Operate and Maintain
The operation and maintenance of assets go hand in hand. This stage aims to guarantee an asset’s functionality by keeping it in optimal working condition. It is important that both operation and maintenance are planned out together, because most long-term assets need a specific maintenance program to ensure their operations and secure ROI.
Dispose and/or Replace
There comes a time in the asset’s useful life that it starts to deteriorate beyond practical repair. The organization then assesses whether it is more economical at that point to dispose and/or replace an asset, with meeting performance and productivity goals in mind. Tools such as enterprise asset management (EAM) or CMMS software can provide insight on the value of an asset throughout an asset’s life cycle, to help inform the disposal decision.
Identifying the asset life cycle is a basic step in optimizing an asset’s management. As a general framework, ISO 55000 provides guidelines and principles to optimize the value of assets. This involves the identification of risks and opportunities, as well as costs and benefits, at every stage of the asset’s life cycle.
It is important to remember that asset management, as with the asset life cycle, does not only include its operational and useful life, but also accounts its conception and its disposal.