Strategic Asset Management: Cost Model Analysis of Asset Performance

This report analyzes the strategic asset management plan (SAMP) for the Charles Strut Local Council, focusing on the financial viability of its assets, particularly the Hino truck fleet. The analysis, spanning from 2017 to 2022, evaluates various options for replacing the aging fleet, including purchasing KW T409, FL CST 112, SinoTruk trucks, and refurbishing the existing Hino fleet. The report considers factors like diesel costs, outsourcing, and federal funding, leading to a recommendation for Kenworth tip trucks based on financial and operational benefits. The cost model incorporates purchase costs, servicing costs, and disposal values, demonstrating the superior viability of the Kenworth option. The report references International Accounting Standard 16 (IAS 16) and provides a detailed breakdown of the financial implications of each decision, ultimately supporting the council's asset management strategy.

STRATEGIC ASSET MANAGEMENT
Cost Model Analysis of Asset Performance
INTRODUCTION
As Asset Manager of Charles Strut Local Council my role is to keep the assets owned
by the council in a financially viable condition and keep the council members apprised
of the financial health of these assets. We follow the International Accounting Standard
16 - Property, Plant and Equipment (IAS 16), a financial reporting standard
recommended by the International Accounting Standards Board (IASB).
Revaluation of the assets, using IAS 16, is carried out to report accurately the true and
actual value of all the capital assets owned by the council. This method is different from
the planned depreciation method adopted by businesses, where the asset value declines
with its age. Thus the Revaluation Model provides the option to carry forward the
revalued amount of the asset at the end of the accounting period. Hence, under the
revaluation model, the amount carried forward in the account books is the fair value of
the asset after diminishing the accumulated impairment losses, say Gruis & Nieboer
(ed), (2013).
WEEK – 01 FACTS AND FIGURES
This is the fifth five-year Strategic Asset Management Plan (SAMP) of the council.
Presently, the council has 6 nos. Hino tip trucks, each of 10 m3 capacity. These trucks
have ben servicing the local community but have now reached the end of their service
life. I have proposed four different options for replacing this aging fleet and these are –
1. Purchasing KW T409 tip trucks which come with dog-trailers. These trucks are
technically very advanced but have a high price-tag.
2. Purchasing FL CST 112 trucks which are reliable, cheaper than KW T409 but not
as advanced.
3. Importing SinoTruk tip trucks from China. These are comparatively very cheap
compared to the above two options but are also less reliable then these two
options.

4. Re-furbish the existing Hino fleet by rebuilding their motors and their drive-train
system. This option will have to be carried out from internal sources as no
external funding will be available for re-furbish.
The above suggested options have been made the basis of the financial outlay which
was put forth by me, along with the SAMP documents to the management committee, as
per Emerald Gems (ed), (2015). The committee had cleared that the decision will be
based on the basis of the external as well as the internal inputs, which shall be compiled
by my team. This report shall reflect the effects of the various options and make a
suggestion to choose the most viable option (See Week-1 which showcases current
financial for 2017).
WEEK – 02 SCENARIO UPDATES: CASE STUDY ANALYSIS
It is now 2018 and fresh decisions are required to be taken for managing the assets.
Here we have to consider three possible options –
1. Effect of reduction in diesel cost.
2. Purchase of two more trucks.
3. Retain the existing fleet and increase outsourcing.
Although a drop in diesel cost will be beneficial, the breakdown rate of the old fleet is
proving to be more costly. Hence, my suggestion of purchasing two more trucks for
taking care of the shortfall due to breakdown. I also suggest that the SinoTruk purchase
option should not be exercised. SinoTruk has reported frequent breakdowns and it will
not be advisable to rely fully on this fleet. Hence, an alternate is to go for third option
mentioned above, suggest Kaganova & McKellar (ed), (2006).
WEEK – 03 SCENARIO UPDATES: CASE STUDY ANALYSIS
We have moved into 2019 and two important factors have eased the financial situation.
Firstly, efficient management has reduced the outsourcing factor to 1.2, compared to 1.3
in the last year. Secondly, the council has been able to get Federal funding for investing
into fresh assets. Here, my suggestion, as outlined in the financial report for this period,
is to change the old fleet and replace it with Kenworth fleet. This suggestion is based on
the factor that Kenworth tip trucks come with dog trailers. Moreover, increased cost of
diesel to $1.15 per litre from $1.00 per litre in 2018 also prompts the management to go

for a new fleet which will save on the fuel consumption and cut down the operational
expenses, as explained by Christensen & Duncan, (2004).
WEEK – 04 SCENARIO UPDATES: CASE STUDY ANALYSIS
Now we are into 2020. Diesel cost remains at last year’s level but the outsource factor
has decreased to 1.3. Implementation of council’s recommendation to outsource routine
maintenance has been reflected in my cost model for this year. Significant changes
occur in the maintenance cost and the utility of the tipper trucks, says Parker, (2012).
WEEK – 05 SCENARIO UPDATES: CASE STUDY ANALYSIS
Going into 2021, I find the following changes in the scenario –
 Diesel cost has increased to $1.35 per litre.
 Outsource factor has also increased to 1.1.
 4 Hino trucks of 10 m3 capacity have been acquired from an adjoining council
after its merger with our council.
My revised cost model estimates for 2021 have been shown in the Week-5 Table.
WEEK – 06 SCENARIO UPDATES: CASE STUDY ANALYSIS
Moving into 2022, the final year of this summary exercise, I have come to the final
conclusions which have been reflected in the table.
CONCLUSION
Table for Week-7 shows my financial conclusions for the period 2017 to 2022, during
which time the council had to go through some changing times which made big impact
on the financial outlay of the council. My key decisions for this period were –
 Purchase Cost
At base price of $230,000 for each truck, total cost base is $1,380,000.
 Servicing Cost
Annual service charges for each truck comes to $22,400, hence annual cost base
comes to $134,400 and for 5 years the cost base will be $672,000.
 Disposal Value
Total Cost Base over the 5 year period is $2,052,000 and after deducting the
annual depreciation of $90,000 per unit, the fleet of 6 Kenworth Tipper Trucks
at the end of this SAMP will be $1,512,000.

Based on these facts, my choice of Kenworth Tipper Trucks proves to be the best viable
option, both from financial as well as operational factors as per Marsden, (2011). My
recommendation for Kenworth stands to benefit the council and community in the
coming five year period.
LIST OF REFERENCES
Christensen, S. and Duncan, W.D. 2004, Professional Liability and Property
Transactions. Federation Press, Annandale, NSW.
Emerald Gems (ed). 2015, Built Environment and Property Management: A Focus on
Australia. Emerald Group Publishing Limited, Bingley.
Gruis, V. and Nieboer, N. (ed). 2013, Asset Management in the Social Rented Sector:
Policy and Practice in Europe and Australia. Springer Science & Business Media,
Berlin.
Kaganova, O. and McKellar, J. (ed). 2006, Managing Government Property Assets:
International Experiences. The Urban Institute, Washington DC.
Marsden, S. 2011, Business, Charity and Sentiment: The South Australian Housing
Trust 1987-2011. Wakefield Press, Kent Town.
Parker, D. 2012, Global Real Estate Investment Trusts: People, Process and
Management Real Estate Issues. John Wiley & Sons, West Sussex.