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Crackerjack Team Devises Standards for Property and Asset Management in Record Time

by Clare Coppa

Describing property management is a tricky business. Often misconstrued as real-estate specific, property management actually locates, values, and tallies an organization’s assets. This elaborate accounting includes a complicated array of cost and use considerations from a variety of perspectives. Property managers might oversee the vast entirety of equipment owned by a state government, or that of a small hospital.

An arm of resource management, property management reports the total capital assets of an organization as required by law. The SEC and IRS direct that capital assets are reported and maintained in private organizations. Government property assets are reported by similar rules contained in the Federal Property and Administrative Services Act. Accoutrements are subject to valuation and other assessments.

“Every entity (industrial, educational, or governmental) that owns something must account for and report that its assets are being managed efficiently and effectively,” wrote Staff Manager Pat Picariello in his April SN report on the response of ASTM Committee E53 on Property Management to the property industry’s need for standardization.

Conflicting jargon and methods of recording within the profession can be problematic when describing equipage of Grand-Canyonesque proportions in diverse industries. Although federal standards exist, standards for reporting private-sector property were not available before ASTM released three standards this year.

The process began when a search for a system to develop standards for non-government property led NPMA member John O’Shaughnessy, manager, Property Administration, ITT Aerospace/Communications, Ft. Wayne, Ind., to ASTM. In January ’00, members of the NPMA (a group of nearly 2500 property managers) approached ASTM “to establish a system to communicate a consensus opinion of our professional community that would prescribe the best criteria and practices for property management,” wrote NPMA Executive Vice President Stephen Michelsen from his office.

“We envisioned that the benefits to property practitioners and our employers would be the interchangeability of systems within an organization and consistency of practices between companies, public instrumentalities, nonprofit organizations and countries,” continued Michelsen, the director, Office of Resource Management, the U.S. Department of Energy. “In addition, property professionals and organizations would gain a degree of operational security by being able to demonstrate that performance, in accordance with ASTM standards that were developed in cooperation with NPMA, would be recognized as acceptable and valued performance.”

With the spirit of a World Cup soccer team, members of ASTM Committee E53 on Property Management swiftly developed three pivotal standards in less than a year. The standards were drafted in February ’00 and approved by the Society in January ’01. The first standard establishes uniform terminology. The others (numbers 2 and 3 below) are referenced in the latest version of the U.S. Department of Energy “Balance Score Card,” a performance measurement system.

1. Terminology for Property Managers
Offering solid nomenclature for property managers, E 2135, Standard Terminology for Property and Asset Management, is now available. Its wordsmithing was decided through voluntary consensus by property managers working in ASTM Subcommittee E53.02 on Data Management under the aegis of Chairman James Dieter.

Dieter, a corporate asset and government property manager with Honeywell Technology Solutions Inc., Md., described the group. “The task group reflected the broadening scope of the NPMA and the profession in general. A strong core of folks in the aerospace and defense industry, broad representation from civilian agency government contracting endeavors, and federal property managers—areas that had in the past constituted the known portion of the profession—were greatly enhanced by participation from representatives of colleges and universities, state and local governments, and commercial industry.”

In his article in Standardization News, November, ’00, O’Shaughnessy, now the E53 membership secretary and chairman of two E53 subcommittees, cited a verbiage dilemma. “Even the terms ‘property administration’ or ‘property management’ are not standardized,” he said. “The terms property control, property management, property administration, asset management, and fixed asset accounting are all widely used.”

“The terminology standard captures our current consensus of the meaning of these key terms,” added Dieter. “Time will tell if tracking changes to the agreed-upon meanings will shed light on the profession or its practitioners.

Semantics is critical to property management,” he continued. “People new to the professional association don’t know the jargon. Depending on the culture they’re coming from, often people use different words to say the same thing. There isn’t one word that describes this profession unambiguously.

“We manage assets that organizations use to accomplish their goals,” he explained. “We manage a company’s equipment. Depending on whether it is a manufacturing or service industry, those items can be very different, as in a hospital, university, or state government.

“For example, one of the efforts I worked on was on a large NASA contract at Goddard Space Flight Center here in Maryland. We had about a half a billion dollars worth of property that we managed for the government that constituted their entire ground network. So when you were seeing the Mars Rover, the signals it sent were relayed through the deep space network, which is a bunch of satellite dishes out in the desert in California. And all those were the property that was accountable to our company—all the wires and the communications devices that take that data, process it, and conversely send the signals to the Rover and tell it what to do. That’s just one example.

“The terminology standard will be a building block for all ensuing standards development in this area,” Dieter concluded, “thus it will potentially impact all processes for which standards are developed.” For further technical information, contact Jim Dieter, Reston, Va. (phone: 410/964-7788).

2. Assessing Loss, Damage, or Destruction of Property

“In recent years, many organizations have received criticism for the consequences of ‘poor’ property management,” said Stephen Michelsen. “Despite the fact that the objectives, measures and outcomes of ‘good’ property management are rarely nor consistently defined, when they do exist, millions of dollars are directed to ‘fixing’ the problem. The net outcome is that the discipline of property management is anything but disciplined—it has become increasingly chaotic, wasteful and illogical. The focus of the profession has moved to absolute control and operational compliance as opposed to a risk-based allocation of our limited operational assets to ensure that those durable and moveable assets which are critical to successful operations are available where, when, and in the condition they are needed.”

“A key indicator of the effectiveness of a property management system is the amount of loss, damage and destruction (LDD) that occurs. i.e., the better the property control system, the lower the amount of LDD. LDD is also a key datum of risk management,” notes Lyle Hestermann, property manager, Capital Resources, Raytheon, Ft. Wayne, Ind., which manufactures communications equipment.

“Now, as a result of ASTM/NPMA cooperation, we have the first standards that will gauge the effectiveness of policy and procedure implementation. Because LDD is a critical indicator of the overall health and effectiveness of a property management system, it was critical that an LDD standard be among the first. We now have a gauge, a ruler, a measure by which any property system can be assessed.”

Responding with immediacy, members of the ASTM Subcommittee E53.04 on Re-Utilization and Disposal, chaired by Hestermann, devised E 2131, Standard Practice for Assessing Loss, Damage, or Destruction (LDD) of Property. The scope of E 2131 covers “the assessment of LDD of property, assets, or material. LDD occurs when such property is found to be missing, damaged, or destroyed.”

What will be improved when the standard is applied? “Cost-effective property management is the first and most important improvement,” Hestermann said. “Accurate measurement of property management, to include such cross-functional concerns like security, financial, metrology and accountability considerations will aid industry and governments alike to avoid costs during the acquisition process, to reduce costs for the life cycle management of property, and to increase the return on surplus assets.

“Greatly improved, cross-functional communication between areas such as management, quality, compliance and property management is another important result. Instead of highly-subjective criteria concerning what is and is not an acceptable amount of LDD, we now have objective, consensus-based and published standards; we have a common language with which to communicate.”

For further technical information, contact Lyle V. Hestermann, Property Manager, Capital Resources, Raytheon, Ft. Wayne, Ind. (phone: 219/429-4082).

3. Inventory of Durable, Moveable Property

E 2132, Standard Practice for Physical Inventory of Durable Moveable Property was developed by Subcommittee E53.01 on Process Management, led by Curtis Johnson, manager, Strategic Projects for the CFO, Sandia National Labs, Albuquerque, N.M.

Johnson supports the Sandia National Labs CFO in managing the finance, procurement, contracts, and logistics functions for Sandia Labs. He is an advisor to executive management council responsible for all Sandia support functions (human resources, facilities, security, etc.), and previously ran the personal property management program at Sandia.

Why a standard? “Physical inventory is a very expensive process rather disconnected from the business objectives it seeks to support,” he explained. “While inventory management of supplies, work-in-progress and finished goods (all the stuff that goes into the end products of a manufacturing organization) is a well-defined and well-understood business process, the management of the equipment (MRO) used to produce products is not. The government sector spends a lot of effort and money tracking and inventorying equipment. The whole purpose of this ought to be to ensure that the right equipment is in the right place at the right time, ready for use. In other words, equipment is an investment an organization makes in order to produce products and services, and property management is performed in order to ensure that the equipment is there and ready to do just that. This turns out to be a risk management function.

“Unfortunately, without commercial standards or even generally accepted commercial practices, property management has evolved more in response to political pressures than to the business needs of the organization,” Johnson averred. Perhaps the two best examples of this are the core decisions of what property to control (control thresholds) and how well (measured by physical inventory results, i.e., find rates). Common practice has not evolved from the needs of the business, but from the need to demonstrate good stewardship of public dollars and to defend against accusations of mismanagement. The result has generally been that the government controls far more stuff and tracks it far more thoroughly than any private sector entity would.

“Standards have given us an opportunity to step back from our current world and ask not what the federal rules for federal entities are today, but rather what one ought to do in the area of property management to support the needs of the organization. These first few standards have been a good step in that direction. They then become a foundation for us to use to go back and look at federal regulation and oversight and see what makes sense going forward. A concrete example is inventory results. Today, it is not uncommon for government organizations to expect 99.5% find rates (i.e., finding 199 out of 200 items). The new standard says 98% is a more sensible, cost-effective target to shoot for.

“An organization that applies the methodology in the standard will design and execute a physical inventory process that better supports getting good product out the door,” he continued. “By using the standard, an organization will choose to track the moveable property that is most needed for business success. It will design an inventory that will yield, at a minimum of effort and expense, the information needed to determine if moveable property is adequately controlled to meet business needs. This process allows organizations to get the most out of their limited (and generally shrinking) property management dollars—to mitigate the most risk for the fewest dollars by focusing energy on the right set of property and not attempting to control that property with rigor any higher than what the needs of the business call for.

“We worked very hard to ensure that the standards we wrote could be applied to any industry,” he concluded. “In particular, we were trying to avoid letting the current public-sector bias of the profession cause us to write a standard that is only applicable to government settings.”

For further technical information, contact Curtis Johnson, Manager, Strategic Projects for the CFO, Sandia National Labs, Albuquerque, N.M. (phone: 505/844-8683). Committee E53 next meets June 27-29 in Houston, Texas. For further details, contact Pat Picariello, ASTM (phone: 610/832-9720). //

Copyright 2001, ASTM