Standards in Action: An Industry Yardstick for Property Management
Global organizations across all industrial markets as well as the public sector principally rely on three critical resources for success: people, money and property. The importance of recruiting, training and retaining a talented employee work force is widely accepted. The same holds true for prudent financial management and sound capital investment, with the stakes being even higher in today's shifting economy and tight credit environment.
Property management, also referred to as asset management, has far less visibility in enterprise success, but it has the potential to have an equal impact with the other two factors noted above. The ability of organizations to manage and optimize their tangible property, including equipment, materials, facilities and other resources, can have a measurable effect on financial performance and competitiveness.
A key indicator of the overall health and effectiveness of property management operations is the level of loss, damage or destruction, commonly referred to as LDD. Excessive LDD can indicate poor internal controls, policy or procedural weaknesses, or lack of compliance. This can lead to negative financial or contractual ramifications, as well as a damaged organizational reputation. As a result, the role of property management professionals has shifted from simple tracking of assets to a sharper strategic focus on managing risk by discovering, reporting and minimizing LDD.
To help property professionals align their efforts with industry-driven consensus practices, ASTM International Committee E53 on Property Management Systems develops critical performance standards. Notable among these is E2131, Practice for Assessing Loss, Damage or Destruction of Tangible Property. When used in conjunction with other E53 standards, E2131 provides a quantitative means for assessing property systems and procedures, which helps guide critical loss-related decision making.
"With E2131, property managers do not have to rely on gut instinct to evaluate the health of their asset systems," said Brandon Kriner, E53 committee member and asset manager at Harris Corp., Government Communications Systems Division, Melbourne, Fla. "The application of E2131 and other ASTM E53 standards offers the benchmark for corrective action and helps demonstrate sound business practices to management, subcontractors, the audit community and other stakeholders."
E2131 is used in conjunction with ASTM E2608, Practice for Equipment Control Matrix (ECM), to calculate acceptable LDD ratios for property in five classifications or groupings of equipment related to the consequences of loss. By setting these loss risk thresholds based on calculations with industry-wide consensus, E2131 helps property managers better determine the level of positive control they have over their organization's property assets (see table, Acceptable LDD Ratios).
Using E2131 to establish acceptable loss thresholds, property managers can also assess whether it is economically feasible to mitigate and recover lost, damaged or destroyed assets. Industry experts point out that, in most cases, the costs of investigating lost property that falls within the acceptability threshold outweighs the benefits of recovery. The exception is the loss of high risk property that jeopardizes public safety and potentially harms the organization's reputation.
Within the Texas state government system, ASTM E2131 provides property managers with a yardstick for their practices and a financial incentive as well. Since its initial release in 2001, E2131 has been a component of the annual appropriations bill in Texas. The bill authorizes the comptroller of public accounts to withhold budgeted funds to a state agency or higher educational institution equal to 50 percent of the lost property value exceeding the ASTM standard.
Gary Quinn, manager of inventory control, University of Texas Southwestern Medical Center, Dallas, Texas, and an E53 member, notes that E2131 is the basis for increased accountability among property management professionals. "Losing property can be a black eye for an organization and can hurt public trust. ASTM E2131 minimizes losses by providing a critical benchmark for property managers. It provides increased focus and clear goals for the stewardship of property systems, enabling managers to do their jobs in accordance with industry-accepted best practices."
At UT Southwestern Medical Center, the largest medical school in the state, Quinn manages property assets in excess of $550 million. He adds that by relying on the benchmark LDD criteria in standard E2131, loss of property at the university has declined in each of the last four years.
Worldwide corporate leaders such as Harris Corp., Northrop Grumman, Booz Allen Hamilton and others have also utilized E2131 to bring their property management policies and procedures in line with industry norms. In the defense field, Raytheon Co. uses E2131 to help gain positive control of its vast inventory of property assets. "The value of E2131 goes beyond its ability to help manage critical property and control LDD. It also offers C-level executives at our company with a holistic view and a clearer line of sight on the health and effectiveness of our overall property management systems," notes Lyle Hestermann, past chairman of Committee E53 and manager, property, Raytheon Network Centric Systems, Fort Wayne, Ind., who oversees approximately 25,000 individual property assets in excess of $153 million, with positive control over 99.999 percent.Doug Clauson is a freelance writer based in Wynnewood, Pa.