Budgets versus zero-based forecasts
Unfortunately, whilst budgets can control cashflows they are a poor basis for optimising stock value accretion.
Any Finance Director setting asset management budgets within annual business plans or 5/10-year plans requires input from asset managers whose bias will be to ensure adequate departmental funding. So long as there is a knowledge gap between Finance and Asset Managers, investment acuity will always suffer from the barriers and distortions of collective bargaining for funding and bias born of learned behaviour.
More granular modelling
A constantly updated central forecasting model that is bought into by both Finance and Asset managers can fill this knowledge gap, particularly when the model projects costs and revenues at asset level, with sound agreed bases and assumptions. If the model is impartially built (to reflect historical costs and sound servicing and planned maintenance regimes based upon existing condition standards and current committed costs), it can be reconciled back to existing budgets and its long-term projections provide a better basis asset comparisons, and even investment option appraisals, because it reflects costs and revenues that well maintained stock directly create, without deferring costs for smoothing purposes and temporarily or even permanently impairing condition.
Modern data mining tools
Although massive administrative effort would be required to establish day to day cost and revenue allocation in an accounting system down to asset level with any accuracy, modern BI tools can mine electronic data and spreadsheet sources outside of the finance system to build sensible year zero and onward projections of net revenues at asset level. These can be reconciled to recent year TBs as a gross error check and calibration.
Sources such as current rent roll, asset management planned & cyclical maintenance projections, plus recent years’ bad debts, voids and day to day maintenance records, can provide asset level costs and revenue bases that can be extrapolated with logical forecasting algorithms. Asset registers and various analysis categories from housing or asset management systems can be imported for reporting on the resulting projections and user defined inflation and discount factors applied.
Adding social factors and other financial values into investment appraisals
Within AspreyBI’s system, a sound methodology for addressing the impact of social and strategic factors of import on investments or divestments, and even identifying opportunity costs of competing investments in social and strategic terms as well as financial terms, completes the toolkit for an organisation wishing to properly manage the accretion of financial and strategic value in its underlying assets. Crucially, such a system bridges the gap between effective financial management and effective asset management and builds consensus across an organisation over asset values and investment prioritisation, not only within business streams but also at corporate portfolio level.