Asset Utilization Scenario
A major construction contractor recently won a large regional project in the Midwest. This new project was additive to the five other projects in process. Upon reviewing the project plan and timetables required, this contractor attempted to schedule backwards from the due date the resources and capital equipment needed to complete the project on time and within budget, however, a problem arose. No matter how the scheduler revised and modified the project plan they discovered that it would be unable to meet the deadline without investing $3,000,000 for additional construction equipment. In short, they needed 15 heavy-duty haulers to keep the 700 persons project team on schedule.
Furthermore, they just completed the installation of the enterprise scheduler to assist project management at a cost of $750,000. This state of the art technology promised to maximize their equipment utilization across all projects underway or planned. Therefore, it seemed inevitable. The $3,000,000 investment would need to be made with the knowledge that this project would result in a 6.5% profit loss.
The bonds were paid and the enterprise committed to the two-year project. Management was faced with the unfortunate prospect of a net profit loss on this project. The firm’s reputation was at stake, not to mention the prepaid bonds, therefore management acquired the needed equipment and the project proceeded as planned.
Near the midpoint of the project it was discovered that 25 heavy-duty haulers had been idle for the past 16 months in the southwest region from a project that was placed on hold from a suit filed by an environmental nonprofit agency. When this delay occurred most of the equipment had been redeployed, however, the inventory records for the 25 heavy-duty haulers could not be found. How could this happen? Wasn’t the new enterprise scheduler and complex database supposed to account for all the firm’s assets? This demanded an explanation.
The Rest of the Story
During the implementation of the enterprise scheduler the database was populated directly from the Fixed Asset ledger. The data was migrated and it exactly duplicated what was recorded on the master ledgers. The problem was soon discovered when detailed analysis uncovered that several equipment acquisitions were completed with leases, three years earlier. The corresponding entries in the Fixed Asset ledger for the leases were entered as bulk transactions. In fact, there were several of these types of transactions done over the last seven years. Thus the presumed validity of the data migrated from the Fixed Asset ledger was inaccurate.
Further complications were realized after it was discovered that some of the assets had been retired. Management no longer had confidence in their data and the enterprise scheduler that promised to maximize asset utilization. The system performed as advertised but the data quality was not validated. The anticipated profitability of the firm was going to be missed and an internal audit was now underway.
An Unlikely Scenario?
Portions of this scenario are fictional -- but not all. In managements quest to create competitive advantage and streamline operations an unfortunate disconnect existed between the financial systems and the enterprise scheduler. The treatment of data between the two systems was incompatible and the business process in place was insufficient to reconcile the data. This is a common occurrence. One might argue that management would have been aware of the work stoppage in the southwest region and no doubt this would be true, but it was also their belief that this equipment was redeployed. Validating this information on the enterprise scheduler was simple, but if the data never existed, the verification was useless. The solution would have been to conduct a physical inventory of the firm’s assets at the time of implementation. This best practice accomplishes several advantages. It ensures that all pertinent data is captured and precludes the propagation of past errors. It also enables the fortification of data that was unlikely available from the financial systems. Thus detail about any particular asset can be added as part of the physical inventory effort. Furthermore, the detail associated with bulk entries and leases can be resolved, while the retired assets are properly identified resulting in the appropriate reduction of available resources. Lastly, the future validation and verification of assets are facilitated through the barcode label applied to each asset for tracking and accounting. Thus enabling the reconciliation of available assets throughout the assets lifecycle.