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Title: On the economics of asset management
Authors : Heitz, Christoph
Goren Huber, Lilach
Proceedings: Eighteenth international working seminar on production economics : pre-prints
Pages : 89
Pages to: 102
Conference details: 18th International Working Seminar on Production Economics, Innsbruck, 24–28 February 2014
Editors of the parent work: Grubbström, Robert W.
Hinterhuber, Hans H.
Publisher / Ed. Institution : Kongreßzentrum IGLS
Publisher / Ed. Institution: Innsbruck
Issue Date: 2014
License (according to publishing contract) : Licence according to publishing contract
Type of review: Not specified
Language : English
Subjects : Physical asset management; Investment strategy; Asset portfolio; Value creation
Subject (DDC) : 658.5: Production management
Abstract: Asset Management is about realizing value from physical assets. To do this, money has to be invested in physical assets (purchase, maintenance, consumables, etc.) thus producing a specific technical performance for each asset over its lifecycle. The technical performance then allows to realize value for the owner. This can be either a monetary value (e.g. for a production firm that can sell products) or a non-monetary value (e.g. for a utility that can provide a reliable electricity supply). We examine the nature of physical assets as investment objects and derive some conclusions on optimal investment strategies. We develop a general model for physical assets as investment objects, simultaneously describing both the life cycle cost structure and the value realization under different operational policies. We show that physical assets are investments that have properties which distinguish them from classical financial investments such as bonds, stocks, or the like. In particular, the non-proportional relation of investment and value creation has important implications for the derivation of optimal investment strategies. We apply the framework to the problem of budget allocation in a portfolio of physical assets. The model allows the calculation of the optimal allocation such that the total value creation is maximized. It turns out that the solution is similar to the well-known Equimarginal Principle. We also re-examine a classical optimization problem from the maintenance literature and show that the classical solution may lead to wrong results because assets are regarded in isolation instead as part of a larger system of investment options. Since our approach combines both the cost and the value generation aspect of physical assets, and includes operational lifecycle policy decisions, it could form the conceptual basis for a new approach to asset management.
Departement: School of Engineering
Organisational Unit: Institute of Data Analysis and Process Design (IDP)
Publication type: Conference Paper
DOI : 10.21256/zhaw-1893
Appears in Collections:Publikationen School of Engineering

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