Enterprise Asset Management (EAM) implementations of Maximo are always focused around the value that an asset brings to the business and the effect that it can have on the business if the asset is unavailable. This will determine its maintenance and replacement strategy – what the asset is worth, what its impact is to the operation, and how much to invest in that asset over its life.
Assets do not keep the same valuation over their lifespan. They are either reducing in value due to wear or due to the need to account for their depreciating value on the company’s books over time. Reliability is fundamental to every part of the organization, including its assets, and improved reliability will directly determine the company’s ability to perform optimally. The need to correctly value the company’s assets over their expected life plays a major part in determining the overall asset replacement strategy; it could be: a simple replacement, using more intelligent or efficient assets, or even justifying a process redesign to change the reliability profile of the whole organization.
What is Asset Depreciation?
Asset depreciation refers to the decline in value of a physical capital investment over the course of its service life. This is important to maintenance programs because the asset depreciation gives insight into the remaining life of an asset and provides inventory cost calculations.
In summary, asset depreciation gives important insights that help you understand what the next best action is in terms of utilizing the asset when it comes to repair versus replace.
Patterns of asset depreciation and remaining useful life are tracked, stored in the asset template, and used again to make smarter decisions with similar, future assets.
Types of Depreciation Schedules
There are two types of depreciation schedules:
- Straight Line (SL) describes a depreciation schedule that depreciates at the same rate over time in a straight line.
- Double Declining Balance (DDB) describes a schedule that increases in ratio over time with the following formula:
(Original Value - Accumulated Depreciation) x (2 / (Number of periods in expected life)), to a maximum total depreciation of (Original Value - Salvage Value).
Asset Depreciation in Maximo
Asset depreciation can be tracked inside of Maximo which helps streamline and automate the inventory and maintenance processes as well as gain greater visibility for “what’s next” with an asset.
Maximo provides depreciation mapping for assets out of the box with the ability to depreciate from a starting cost that may either be for a new asset or one that is already established with a reduced cost. Like we noted above, the definition of the depreciation schedule is either based on a double declining balance or a simple linear progression of the value over a period of time down to a salvage value where it is no longer worthwhile to maintain or depreciate the asset.
A simple example of a date-based depreciation schedule is a typical accounting depreciation period of 4 years for a capital asset with a reduction in value every month until that low limit is met. To better show depreciation based on usage, a meter-based criteria can be set rather than simply using dates – For example: depreciation is re-evaluated every 10,000 miles or hours that the asset has worked.
The depreciating amount can also be captured as a financial transaction. For a Maximo implementation that is integrated to a financial system, this ensures that the value is properly recorded rather than only changing the asset value in Maximo itself. The adjusted depreciated value itself is recorded and can be reported as the current asset’s value rather than the initial purchase price or replacement cost. If the financial system manages the depreciation of capital and operating assets, the values can easily be integrated into Maximo to provide the updated and centralized financial value.
Overall, Maximo provides all functionality and information necessary for a corporation to understand the current value of its asset base. This information is required by to determine the performance of the assets relative to their value, the amount to re-invest in the asset base, and where to focus on design and efficiency improvements, all to support the ongoing development towards operational optimization. Read our full overview on asset lifecycle management and how to get the most out of your Maximo system here.
How to Use Asset Depreciation Schedules Inside of IBM Maximo
Learn how to set, swap, and recalculate asset depreciation schedules inside of Maximo with this guide.
Strategic Maximo Implementation
Cohesive Solutions provides expertise in all elements of Enterprise Asset Management strategy including the most effective Maximo implementation capabilities. An investment in Maximo is a strategic commitment to the company, and it must deliver on its promises. Cohesive will help define and realize its full potential.