Identify the true value of assets – Solving CFO’s Valuation Nightmare
Over the last few months we have been talking to several CFOs. CFOs across different geographies and their teams have been telling us – it’s very hard to validate what assets are actually there – against the records. At times, they go through the books of the company they acquire only to find later that the particular asset was missing or damaged or unusable – this creates surprises — (not planned earlier) especially with regards to damaged or un-useable assets — it’s very hard to first mark down the asset and then plan for replacement — this becomes a nightmare for both capital management as well as opex costs.
Long term replenishment of assets such as batteries is hard to determine — however a consistent track record of replacement of equipment could help them reduce deviance.
The way in which data is processed (Collected, Stored, Compiled) and presented to CFOs makes it unreliable for analysis and accurate decision-making.
Analogy of a Human-Body and Asset
“Taking the analogy of a human body — just like the human body needs a regular health checkup – some key parameters (Weight, Age, Height etc.) are to be monitored regularly. Besides these there are several other key parameters which needs to be deep dived into, such as what you eat, how much you exercise what is your life style -which contribute to maintaining a healthy and long life.
Similarly, asset health has a few key parameters like Make, Model, Price, Age of asset, its expected life span, actual health vs committed health. Besides these there are several other key parameters such as consumption per hour (CPH), frequency of preventive maintenance, quality of fuel put in the Asset (in case of DG), or quality of electricity (Charging current in case of battery) which contributes to maximizing asset life or output. If there is partial breakdown (for instance 2 of the 24 cells in a battery stop working) – you could take action or fix them quickly, or leave it un-attended. An asset left untreated will definitely die sooner.”
Why there is a need of Centralized Master Database/Single source of truth for accurate Valuation?
Telecom Operator own a variety of assets, the book value of assets worth $2.4 trillion are scattered across different geographies. This leads to loss of value of assets worth $200 billion which are untraceable, unknown or unaccounted.
It is very important to know the value of what you own – as taking a closer look at assets can give CFOs the flexibility to manage the financial health of their organizations, help assess their present enterprise value and also predict future value based on maximizing returns on assets.
The operational people in field need to optimize use of assets for maximum gain – This means identify any Missing, Damaged or Unused Assets which may not be present in ERP systems. Besides they need to take multiple actions on Assets easily and quickly some of which result in changing status of assets.
Each of Telco’s assets have multiple images spread across different business functions (O&M, Finance and other teams) and tracing them in real-time is far more challenging than ERP systems indicate. Due to absence of tracing assets timely at any given time, there are 10-30% assets untraced, unknown or unaccounted.
The challenge is to identify actual value of assets for maintaining transparency and accountability. To manage this, there is a need of a solution offering a single source of truth – often referred to by different names such as centralized master database or Unified asset register which gives the single image of scattered asset data containing their current state. This register is often vetted by Acquirers (in due diligence process) to ensure the acquirer that what is on the balance sheet (or ERP), actually exists in operational state – a way of ensuring that they are getting what they are paying for.
One of the telecom operator has yearly expense of INR 3500 crores (change to USD) on Rental & Energy. A certain part of it i.e. 10% is on assets for which data does not completely reconcile – worth INR 350 crores (change to USD) assets are at risk.
With the help of Infozech solution, telecom operator was able to bring auditability in the process. Infozech solution validates up to 200+ parameters of asset data. This gives the real picture of asset’s current state and actions which will help maximize utilization of the Asset.
The link between Operational Excellence and financial gain is often a very thin line. How one or more steps of Operational Excellence leads to Financial gain is often ingrained in day to day systems and cannot be separately tracked. Infozech system helps strengthen the link between Operational Excellence and Financial gain by identifying key measures and then driving focus on them.
One of the biggest nightmare’s CFO’s have is in strengthening this link – which helps them make better investment and ROI decisions.