Strategic Asset Management

Discussion Paper

Is asset management an unrecognised threat to sustainability of Australian universities?

In her speech Julie Bishop referred to the Institution Assessment Framework (IAF) data that suggests some universities "may face significant costs to bring their facilities up to a satisfactory standard."

Deferred maintenance involves capital maintenance which has been delayed and not performed when it should have been or when it was scheduled. According to DEST, based on data provided by universities the estimated amount of maintenance deferred is increasing. For 2005, the total value of deferred maintenance was estimated at $1.56 billion:

• 10.8% of the total $14.3 billion total revenue of the sector for 2005,
• an increase of 23.1% on estimated amount for 2004, and
• 4.9% of the total replacement value of assets.

CAVEAT: these are estimates based on un-audited, voluntary submissions to DEST.

Definition of 'asset management'

An important distinction needs to be made between 'asset management' as commonly applied within Australian university management practices, usually applying to 'registered assets' such as computers and scientific equipment, and 'assets' and 'strategic asset management' as used by the Minister that is closer to the British use of 'estate' and 'estate management', referring to the physical buildings, grounds and infrastructure of the university campus. These are sometimes referred to as 'capital assets', although that term is not always as inclusive as 'estate'.

1.9 The governing body is responsible for oversight of the strategic management of the institution’s land and buildings. As part of this responsibility it should consider, approve and keep under review an estate strategy that identifies the property and space requirements needed to fulfil the objectives of the institution’s strategic plan, and also provides for a planned programme of maintenance.

7.1 The governing body is responsible for oversight of the strategic management of the institution's land and buildings, with the aim of providing an environment that will facilitate high-quality teaching and learning and research. After employee costs, those of managing estates and property represent the largest item of HEI expenditure. It requires long-term planning for capital development and the effective maintenance of existing properties, while having to comply with increasingly onerous legislation.

CUC Guide for Members of Higher Education Governing Bodies in the UK

An Institution's Deferred Maintenance Estimates

The Commonwealth Government holds Australian Universities it funds accountable through the Institution Assessment Framework (IAF). This is founded on "the responsibilities of the Commonwealth to ensure that they are sustainable and deliver the outputs for which they are funded, that their outcomes are of a high quality and that they comply with their legal obligations." The Commonwealth assessment of an institution forms the basis of discussions between the institution and the DEST. Most (but not all) universities provide DEST with data on the estimated level of deferred maintenance backlog as part of their Capital Asset Management Plan (CAMP) workbook (shown right) through the Institutional Assessment Framework process. Do you know the estimated cost of deferred maintenance at your university? This material has been prepared and submitted by your university to DEST.

Sector at risk? Overall cost of Deferred Maintenance

The current estimated $1.56 billion total value of deferred maintenance, representing 4.9% of total replacement value of assets, is considered unacceptably high by DEST, at least at face value. (CAVEAT: subject to any contextual information that may indicate a plan to resolve the issue.)

DEST estimates that expenditure of around $918 million would be required to bring the level of deferred maintenance back to an acceptable upper limit of 3%. Ideally, there should not be a continuing level of deferred maintenance over the long term.

The extent of deferred maintenance is not uniform. The table below provides a number of universities sorted by total replacement value of assets and level of deferred maintenance (expressed as a % of the total replacement value of its assets). In 2005, thirteen universities had levels of deferred maintenance in excess of 3% of the total replacement value of their assets. One university had a level of deferred maintenance in excess of 20% of the value of its assets.

Number of universities according to estimated value of deferred maintenance compared with the total replacement value of capital assets

Strategic Asset Management Plan

The Minister has suggested that the National Governance Protocols be "strengthened to require the governing body to approve a strategic asset management plan."

• Many Australian universities have a Capital Development Plan with a strategic focus on locating resources for the institution's expansion.
• The Commonwealth Government funds the capital costs of collaboration and national priorities through the Capital Development Pool (CDP) Programme with an average $45 million available in each annual round. For 2008 $44.8 million has been allocated among 18 universities averaging $2.5 million each.
• Some institutions receive special capital grants in exceptional circumstances.
• Some universities have a strategic capital maintenance plan for the maintenance of existing land and buildings.

"3.72 For physical infrastructure alone, it is recommended that institutions need to invest in the region of 4.5% of insured asset value on an annual basis." The Monitoring of Institutional Performance and the Use of Key Performance Indicators

In DEST's view the management of capital assets is a significant issue for all universities and should be a key responsibility of each governing body. Asset planning and management could involve the governing body deciding on:

• the strategic direction for major capital investment projects (i.e. new capital works) taking into account priority areas for growth and expansion of the university's operations;
• the level of major new capital works able to be sustained based on financial capacity of the university and its ability to raise any external funding required;
• areas for and the level of major capital renovation/development or replacement based on the cost of maintenance, cost of replacement, obsolescence and importance to the operations of the university; and
• the level of ongoing, routine and essential preventative maintenance.

Does your university have a strategic capital plan that matches existing and future capital expenditure with your institutional strategic plan?

Developing a Strategic Asset Management Plan

Strategic Estate Management has been a requirement of the funding contract between UK institutions and the Funding Councils for some time. HEFCE funded CUC governors guide identifies the chief responsibilities within estate management as to:

• develop an estate strategy for the institution which underpins and facilitates the HEI's corporate plan and academic objectives in teaching and research
• encourage a culture of efficient space use
• manage, review and allocate space to departments according to their needs while
• maximising the efficient and effective use of a valuable and scarce resource
• design and control the implementation of major capital and minor works
• maintain the institution's buildings, services and grounds through an established policy and programmes of planned and reactive maintenance, complying with current legislation, health and safety, and good practice
• assess systematically and regularly the condition of the institution's properties and services and prepare programmes for their maintenance
• manage the institution's property portfolio, disposing of and acquiring properties and managing legal and commercial documentation
• embrace the principles of sustainability and be environmentally conscious wherever possible in planning, design, operation and maintenance of the estate and buildings
• communicate widely and effectively with users at all stages of works and with stakeholders and community groups to foster good relationships between the HEI and the wider community, particularly local and planning authorities
• determine the scope of the estate function, ensuring at all times the role of ‘intelligent client' can be fulfilled and the estates resource is matched to the current workload
• ensure estates expertise is present on the governing body
• ensure as far as possible that financial systems match costs to individual buildings
• ensure an estates development plan is in place where substantial change is envisaged to the existing buildings, and make certain that future needs of the institution are made known to the local planning authority
• ensure the estate is adequately insured and values of rebuilding are regularly reviewed
• ensure that a business recovery plan is in place
• ensure that estates is represented at senior management level and that the calibre of the estates director matches the senior role
• ensure adequate budgets are set to run, maintain and reinvest in the estate
• undertake peer review of estates performance.

CUC Guide for Members of Higher Education Governing Bodies in the UK

The HEFCE has published the further guides:

Strategic planning in higher education: a guide for heads of institutions, senior managers and members of governing bodies , June 2000 (ref 00/24)

Estates strategies: a guide to good practice , January 2000 (ref 00/04)

Disclaimer: This discussion paper provides background for an informed discussion by practitioners of university governance that may help develop uniform national understanding and/or policy. It has been written with assistance from DEST by the UGPD with every attempt at accuracy; however the views expressed do not necessarily represent those of the University of Canberra, the University Chancellors' Conference, or DEST.