4.0 Internal Control Structures
An effective internal control structure will establish and promulgate asset policies and procedures and use an information system that provides reliable, relevant and timely data with which to make informed asset management decisions.
A policy and procedure manual which details the requirements for effective governance of assets is complemented by an information system, based on an asset register, which provides the financial and non-financial information necessary to manage assets.
Key success factors
- The policies and procedures address all aspects of the asset life cycle, are promulgated to all relevant staff and are updated regularly;
- Staff involved in asset management receive training commensurate with their responsibilities;
- The asset register contains data on acquisition, asset identification, accountability information, performance, disposal and accounting;
- The asset register is integrated with the financial and budgetary systems; and
- Asset information is readily accessible to staff who are accountable for assets.
4.1 Economics and budgetary management
In simple terms, your organisation must budget for the full costs associated with the development and management of assets or facilities. This provision extends beyond the cost of building or buying the asset and includes all costs associated with running and maintaining the asset until you no longer own or operate it.
Where possible you should involve the operational staff in the development of the budget because they have detailed knowledge of the day-to-day and ongoing costs associated with the asset. However, ultimate budgetary control rests with the manager appointed to oversee the facility or asset.
The budget must incorporate the full life-cycle costs associated with the asset. Life-cycle costing is a complex process and should be based upon the concepts of accrual accounting. The Department of Sport and Recreation will develop life cycle costing guidelines in the near future. Until then, we encourage you to consult the relevant Australian Standard AS/NZS 4536:1999.
4.2 Service level agreements
A service level agreement (SLA) is a contract between a facility asset owner or manager and an organisation engaged to deliver services associated with the primary asset
From a customer’s perspective, there should be a seamless relationship between the principal and the SLA organisation.
The delivery of this service is affected by a number of key elements:
- Services to be delivered;
- Performance tracking and reporting;
- Problem management;
- Form and consideration; and
- Roles and responsibilities.
For an example of a service level agreement see Appendix B.
Services to be delivered
The principal — or asset owner — typically enters into an arrangement where a service or number of services associated with the function of an asset are provided by a second organisation.
The principal must be satisfied that these services, while important, are not core to the function of the asset or facility and can be adequately carried out by other parties. In these circumstances, it is important that the principal establishes a risk management strategy directly associated with the service that is being transferred to the second party.
Once the risk management strategy has been established, both parties should develop a formal agreement setting out the rights and responsibilities associated with the services to be undertaken.
This kind of arrangement must support an agreed level of asset performance to ensure that continuity of asset service is assured to users.
Performance tracking and reporting
The principal must ensure that the level of service being provided by the contracted organisation supports both a level of service continuity and asset quality.
Both organisations should agree on how to measure and track performance, particularly in relation to asset management. The aim is to make sure that the principal is fully aware of the condition and serviceability of its assets and facilities.
The SLA must clearly set out the rights and obligations of the principal and service provider, particularly the delivery of services and management of facilities and assets under the control of the service provider.
Both parties should be clear on their rights and obligations so that each understands the other’s obligations.
A management committee should be established and it should meet regularly to discuss issues of service delivery, management and maintenance of the principal’s assets or facilities. This type of forum is the best way to ensure that both parties have regular contact.
Form and consideration
The SLA should clearly set out the fees and charges associated with the contract. Further, both parties should understand the true level of their economic exposure.
The SLA must also detail penalties for breaches of contract by either party, and how they will be identified. The contract should clearly state how issues can be mediated and/or remedies available to each party, including (but not limited to) liquidated damages.
Roles and responsibilities
In order for the relationship between the principal and the service provider to be maintained, the SLA should clearly document the roles and responsibilities of each party.
Further, it is important that each organisation agree to a process that provides the opportunity to contractually amend their roles and responsibilities to deliver process benefits that will enhance asset or facility utilisation.
4.3 Linking asset management to risk management (AS4360 andHandbook 246 – 2002)
Risk management has become a formal management tool to systematically identify and manage risks throughout the life-cycle of an asset. The process helps to meet service delivery more efficiently and reduces the prospect of financial loss.
To better appreciate risk management, it is recommended that you consult Australian Standard, AS4360 and Handbook 246 (2002) Guidelines for Managing Risk in Sport and Recreation.
To identify risk, you should first have a clear understanding of the environment in which your asset operates and a strategic view of factors that could impact on your operation. This would include but not be limited to:
- The commercial or community environment in which the organisation operates;
- An appreciation of the relevant stakeholders; and
- The application of a SWOT (strengths, weaknesses, opportunities and threats) analysis.
Once you have done this, you will gain a clear understanding of your organisation’s goals, objectives and strategies. You will further understand your organisation’s capabilities and limitations and will be in a better position to develop strategies to address each area of concern identified.
Undertaking this approach will identify a series of risks to your organisation.
Once identified, you should assess the likelihood of the risk in terms of occurrence and the consequences associated with the risk occurring.
The three primary stages of risk management are:
- Identification of areas of risk;
- Assessment of the risk; and
- Treatment of the risk.
Your organisation should also develop and maintain a risk register that would include:
- The risk itself;
- For each risk identified, the consequences of an event happening and its likelihood;
- For each risk identified, the adequacy of existing controls;
- Likelihood rating;
- Consequences rating;
- Level of risk (treated); and
- Risk priority.
Having identified and categorised each risk, you then need to monitor and treat it. Adopting the following steps will help this process:
- Assign responsibilities for actions;
- Accountabilities for activities;
- Establish performance criteria;
- Establish time frames; and
- Establish procedures for monitoring.
See Appendix C for a detailed risk management procedure.
This process should be closely aligned to the performance of an asset or facility. It is important to monitor risks and the effectiveness of risk treatment plans regularly.
The frequency will depend on the type of risk.
An effective internal control structure that provides the framework to improve asset management. Without it there is limited scope for informed decision-making or implementation of management’s intentions.