Lifecycle thinking should be a consideration in the management of state assets

Assets are a source of both benefits and costs for their owner for the whole duration of their lifecycle. For this reason, it is important that all state assets are managed in a systematic manner, from the acquisition to the disposal of the asset items.  Ensuring operational and economic efficiency and consideration of environmental aspects are some of the objectives in asset lifecycle management.

The State of Finland has fixed and other tangible assets totalling more than EUR 20 billion in its on-budget balance sheet. Transport infrastructure is the most important asset item and in the 2017 final central government accounts, it had a book value of more than EUR 18 billion. The State of Finland also has substantial asset items outside the on-budget balance sheet. These include the buildings owned by Senate Properties, land and water areas belonging to Metsähallitus, and the defence materiel administered by the Finnish Defence Forces.

These asset items generate a wide range of different benefits to the state. However, at the same time, they also generate expenditure, such as investment, operating, repair and recycling costs. Asset items may also have environmental and societal effects. The benefits and costs are divided over the entire period of use even though the highest costs are usually generated during the purchasing stage. The benefits and costs arising from assets are managed through asset lifecycle management. The purpose of asset lifecycle management may be to ensure the operational efficiency of the asset items, consideration of environmental aspects or economic efficiency.

The asset lifecycle is the period that starts from the generation of the asset items and ends when they are removed from use. The lifecycle starts when the raw materials or resources for the asset items are acquired and ends with their reuse, recycling, recovery or disposal. Lifecycle management refers to the decision-making and activities concerning the acquisition, maintenance and delivery of the asset items.

State assets should be used in a profitable manner

Under the State Budget Act, state assets must be used in a profitable way, taking account of their purpose.  The activities and finances must also be planned several years ahead. In other words, lifecycle thinking should be a consideration in the management of state assets.

The lifecycle decisions with the longest-term effects are made during the procurement stage. Under the Finnish procurement legislation, the most economically advantageous tender must be selected and lifecycle costs can be used as a comparison criterion. However, when motor vehicles are purchased, their environmental and energy effects must be considered as minimum requirements or as a comparison criterion for the most economically advantageous tender.

Lifecycle thinking is also a consideration in guidelines and regulations. For example, in the Ministry of Finance regulation on the drafting of the budget proposals, it is stated several times that the expenditure of the years ahead must be considered in financial planning. It is recommended in the central government procurement manual that investment calculations incorporating lifecycle costs should be made for large-scale purchases. The Public Procurement Advisory Unit also recommends that lifecycle costs should be taken into account in acquisitions.

Lifecycle cost calculations may also help to give monetary value to the benefits and effectiveness arising from a project

In 2013, the Government adopted a resolution on promoting sustainable environmental and energy solutions (cleantech solutions) in public contracts. Under the resolution, promotion of energy and environmental goals and the use of cleantech solutions in the most cost-effective manner should be the aims in all public contracts. Using lifecycle cost calculations should be a consideration in the process.

Lifecycle cost calculation serves as a useful instrument in the reduction of costs and adverse environmental effects and in the boosting of energy efficiency and material efficiency. One aim of lifecycle cost calculation may be to ensure that the best solution is given priority in the planning process. Lifecycle cost calculation can make costs more transparent and allow the parties involved to monitor cost formation throughout the project lifecycle.

Lifecycle cost calculation may also help to give monetary value to the benefits and effectiveness of the project. The benefits usually mean lower costs and expenditure that does not need to be considered in the future, savings, benefits to the users, change in producer surplus, positive safety and environment effects, higher cost efficiency, effects on general government finances and a higher residual value.

The State of Finland does not have any standardised instructions on asset lifecycle management

In January 2019, the National Audit Office published a review of the guidelines for lifecycle management of central government assets. In the review, the NAOF examined the asset lifecycle management guidelines applied by central government actors. The goal was to obtain an overall picture of how different central government actors manage the benefits and costs arising during the lifecycle of their tangible assets.

According to the review, most central government actors have their own guidelines for asset lifecycle management. The focus in the guidelines is on technical asset management instruments introduced to ensure the continuity of the organisation’s operations and to maintain the value of the assets. The instructions do not clearly indicate the significance of lifecycle cost calculation as a means of reducing expenditure and adverse environmental effects or boosting energy efficiency and material efficiency.

Asset management has its own series of standards (SFS-ISO 55000), which comprises three national standards. Based on the review, this series of standards is not used in central government asset management.  However, a small number of central government organisations use other standards supporting lifecycle management.

The State of Finland does not have a single calculation model that is suited for all asset categories. In fact, creating a uniform model for calculating lifecycle costs would be difficult and rather impracticable because there are differences between the aims of lifecycle cost calculation and characteristics of the asset categories. For this reason, actors have their own methods for calculating the costs and benefits arising during the lifecycles of their asset categories. Some of the actors already use lifecycle cost calculation as a comprehensive asset lifecycle management tool.

This review was part of the audit theme ‘Lifecycle management of state assets’. The aim of the theme is to improve the lifecycle-management practices best suited for the management of central government assets at different stages of the asset lifecycle and to disseminate information on asset lifecycle management. As part of the theme, the National Audit Office launched three separate preliminary reviews in February 2019. They concern transport infrastructure repair backlog, state-owned real estate assets and the lifecycle management of machinery and equipment.  The National Audit Office plans to publish the audit reports in spring 2020.