- 19th Dec 2022
- Posted by: Gil Harper
- Category: Uncategorised
The scale and value of municipal assets is continually increasing given the accelerated demand for municipal services and infrastructure development. The Vuthela iLembe LED Support Programme recently appointed a consultancy to assess asset management in the iLembe district and local municipalities and make recommendations to improve asset management, writes Zama Soji, key expert of the Vuthela Public Finance Management Component.
Asset management is the backbone of service delivery by municipalities. If not well managed, a municipality will not be able to deliver on its legal obligations. Asset management helps municipalities to manage their infrastructure assets and make better investment decisions.
Municipalities can improve their asset management to achieve required basic services in a most cost-effective manner by closely managing non-current assets which include infrastructure for current and future customers. This will also help to reduce risks like community protests due to inability to render services and allows municipalities to provide reliable and affordable services and a better quality of life for residents.
It is, therefore, imperative for municipalities to keep a comprehensive and credible database of all assets, be they movable or immovable. Municipalities must also have a full understanding of the fixed asset life cycle, which will ensure that assets are closely managed throughout their life cycle from planning up to the disposal phase.
Non-current assets (movable and immovable) account for more than 80% of the balance sheet of municipalities generally, and it is important to assign qualified and knowledgeable resources to manage these from a financial aspect and to also report on it at the end of each financial year.
Critical role players in asset management are technical officials who look after the assets from planning up to the stage where they can be used and ensure that they are maintained and managed throughout their useful life. Asset management will be effective if both finance and technical units pull together in ensuring that the municipality derives economic benefits from assets, and the end users who are consumers are provided with the best service.
The sustainability of a municipality depends on the revenues collected from trading services. Therefore, well-managed assets will be able to deliver without any inconvenience to the public. To attract investment, municipalities must be able to provide reliable basic infrastructure services such as water, electricity and roads for an enabling business environment.
Objectives of asset management assessment
The Vuthela Programme appointed Platinum Financial Consulting during the 2020/2021 financial year to conduct an Asset Management Gap Assessment to evaluate the asset management capability maturity of the iLembe District Municipality and local municipalities towards achieving a clean audit opinion.
The scope of the assessment was to evaluate the municipalities’ current asset management status, capabilities and practices with a view to making recommendations for implementing best practice asset management systems in compliance with the asset management regulatory framework and the Municipal Finance Management Act (MFMA).
The primary goal of the asset management assessment was to help improve asset management capabilities which has the potential of providing strategic benefits to the municipality by ensuring that it is optimising its capital and operating expenditure, managing risks within set tolerance levels, and delivering long-term value to residents and businesses by reliably and consistently providing services in a cost-effective and sustainable manner.
The project comprised a review of the municipalities’ current asset management practices and procedures benchmarked against public sector best practices as well as the legislative framework.
Arising from this review and analysis, a detailed and prioritised listing of the gaps between municipalities’ current asset management practices and public sector best practices was developed with recommendations and steps to address the identified gaps and deficiencies.
The service provider collected and reviewed asset management-related policies, processes and practice documentation as well as conducted on-site interviews and visits to assess the asset management value chain, including asset management planning, acquisitions, monitoring and maintenance of assets, asset conditions and risk levels.
Findings and recommendations
The review highlighted the need to enhance existing asset management processes and procedures and to establish a more structured asset management approach.
It is proposed that an asset management change strategy be initiated which transforms asset management practice in the context of the challenges identified in the current asset management assessment project.
Key municipal-wide and inter-divisional initiatives are proposed to support asset management best practice in line with the theory of change which advocates the economic, efficient, ethical, and effective use of resources to enhance accountability, cost excellence and improved service delivery initiatives.
The review found that governance and oversight of asset management has been negatively impacted by the absence of an updated municipality directive delineating the cross-divisional and cross-functional roles and responsibilities of various stakeholders in the organisation. There is a requirement for guidelines and standard operating procedures detailing various activities throughout the asset life cycle. There is no dedicated asset management unit in the municipalities that was assessed.
It was recommended that an asset management model be developed with defined roles and responsibilities in accordance with established policies and procedures. Mechanisms must be implemented to provide high-level oversight by the Executive Management Team for the development and implementation of the Asset Management Strategy and Asset Management Plans in alignment with Asset Management Framework/ Policies/ Procedures/ MFMA. Roles and responsibilities must be clearly defined in a matrix or policy, identifying positions responsible for determining levels of service and positions responsible for managing the assets to meet service delivery needs. Awareness must also be created of the importance of asset management.
Asset Management Change Strategy
Given the assessment conducted by Platinum Financial Solutions and its knowledge and experience in the iLembe district, the consultancy has proposed an Asset Management Change Strategy to support municipalities to enhance municipal-wide skills, capabilities, expertise, and capacity in asset management; integrate the knowledge/ expertise of various departments; improve asset control and reporting; and increase asset management efficiency in line with the reforms proposed by the National Development Plan and associated national/ provincial initiatives.
The following, in summary, are measures to institute a municipal-wide asset management improvement strategy in iLembe:
- Leadership – Addresses the elements of strategic direction, oversight, and control which are critical for the development and operation of an Asset Management System at municipalities.
- Risk – Addresses the responsibilities of the Asset Owner to establish risk tolerance and standards for risk assessment for the municipality, as well as to review and direct the application of risk management by the Asset Manager.
- Roles and responsibilities – Addresses the accountability model for the key roles in the Asset Management System: Asset Owner, Asset Manager, and accounting treatment of assets.
- Consolidation of functions – Addresses the need for organisation of asset management along process rather than functional lines, as well as the need for bringing together all pieces of the asset management function to ensure a life cycle focus on the assets.
- Life cycle optimisation – Addresses the elements required to ensure that asset decisions are made based on total life cycle costs. These elements include processes, data, and tools.
- Performance management – Addresses the components of performance management needed to support asset management. These components include metrics on asset, asset management, asset management system performance, as well as feedback loops to drive continuous improvement.
- Data and technology – Addresses the systems and data requirements needed to support the Asset Management System (FAR), in addition to data governance and analytical capabilities.
iLembe District Asset Management Forum
Platinum Financial Solutions has proposed the formation of an iLembe District Asset Management Forum to facilitate the exchange and alignment of asset management knowledge and practices with the strategic vision of providing leadership in best practice asset management in district and local municipalities.
The Asset Management Forum must bring together, promote and strengthen a district-wide asset management community; uplift the professional status of the asset management practitioner by raising the professional standards of asset management and maintenance in municipalities in the district; establish, maintain and improve common specifications for asset management practice in the district; encourage, promote, facilitate, support and effect voluntary interchange among members of the Asset Management Forum of data, information, experience, ideas and knowledge on methods, processes, techniques and technology relating to asset management and maintenance; and act as a centralised knowledge repository, to stimulate and promote education and training in asset management.
The Forum must also encourage municipalities to establish their own training programmes guided by the Asset Management Forum’s knowledge.