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What the CFO must know about EAM software -- and why it matters

Enterprise asset management is both a strategy and software. Here's what it is, why it matters to your company's success and how it's different from closely related technologies.

The business landscape has changed radically in recent years thanks to digital transformation, the internet of things, analytics and the proliferation of data. With these newer technologies and the insights they provide, business models are changing, too.

Through it all, CFOs have been charged with curtailing costs, increasing profits, and managing and optimizing investments. Enterprise asset management -- or EAM -- can be critical in achieving those goals.

What enterprise asset management is

Enterprise asset management is the strategic management of a company's physical assets. EAM also refers to the technology -- EAM software -- to enable that management in the most efficient and optimal ways possible. As a discipline, the success of enterprise asset management rests heavily on the strength of the underlying strategy.

"EAM is a business capability," explains Gordon Barnett, ACCA and principal analyst at Forrester Research. "As such, it impacts people (in terms of skills, competency, organization), processes (value streams, KPIs, lifecycles), technology (systems of engagement, record, insight and automation) and information (assets descriptions, contracts, finances)."

When done correctly, EAM is a combination of technology, process optimization and cultural change, according to Kevin Permenter, senior research analyst on the enterprise applications team at IDC. According to him, maximizing the benefits of EAM takes a holistic approach.

"In the coming year, I believe we will see more and more businesses tie their enterprise asset management strategy to the entire business network, nodes and applications, building a comprehensive view of all assets across the enterprise -- a strategic asset approach," Permenter said.

The confusion surrounding EAM software

At its core, EAM software automates the management of an organization's physical assets, including a great number of physical things, such as buildings, oil rigs, pipelines, mining equipment, manufacturing equipment and fleets of things ranging from planes and drones to trucks, train cars, automobiles and boats.

"Any of [these] may be stationary, but are often moving, floating and flying, increasing the need for sensors, mobile and wearable technologies to manage these large, complex, expensive and, often, aging assets," Permenter said.

As to specific features, EAM can include asset performance management; lifecycle management; maintenance management; facilities management; fleet management; and maintenance, repair and overhaul operations. The software can also include the means to manage, and even predict, maintenance activities, whether they be performed by staff, contractors, partners or volunteers.

Predictive and prescriptive analytics can be combined to analyze when and whether an asset should be repaired, replaced or phased out with no replacement.

Here's what you need to know before you start researching the EAM software market: If you were to survey a room of experts and vendors on what enterprise asset management is, you'd likely get as many definitions as people. Because of that, the EAM software landscape can be incredibly tricky to navigate. For example, EAM software varies substantially in features and functions between brands or vendors.

Moreover, the definition is often so loosely applied that buyers will likely not know what they are buying unless they inspect or conduct a trial of the software to review specific features. EAM is often confused with a wide variety of other types of software, including ERP and a variety of financial applications. 

"The confusion many stakeholders have is that vendors classify their technology products with grand titles," said Barnett. "However, these products only support a subset of what is required to support a business capability."

He recommends that CFOs view EAM software applications as tools with which to implement their specific asset strategy.

Research firm IDC classifies software related to asset management on a continuum from least complex and feature-rich to most. From IDC's view, EAM sits within the asset management software application continuum, "from less mature process-centric [systems], with computerized maintenance management systems [CMMS], to more mature data-centric systems, with strategic asset management [SAM]," Permenter said.

CMMS is the most basic system, and EAM is more feature-rich. IDC classifies EAM as incorporating CMMS, but it also offers asset tracking and procurement, as well as higher level preventative maintenance methodologies and metrics.

The third category of IDC's asset management software continuum is asset performance management, which Permenter describes as "software that gathers all the data from CMMS and EAM packages and adds a layer of analysis and controls that doesn't exist in EAM software packages."

The most complex and feature-rich category is strategic asset management, which is the most data-centric software. Permenter said that SAM "is most often used to get a detailed understanding of the future value of the physical asset."

As is likely apparent from this continuum of the broadest category of enterprise asset management, the features you want may be referred to differently, depending on with whom you're speaking. Several industry pros also caution buyers against confusing CMMS and EAM.

"EAM has its roots in CMMS. But CMMS is traditionally a departmental solution, whereas EAM is truly an enterprise-wide approach," said Andy Binsley, vice president of manufacturing and ALM strategy at Oracle.

It doesn't stop there.

"EAM is also sometimes confused with asset management, meaning fixed assets [FA]," added Binsley. "Granted, an EAM solution certainly has a financials personality, and should have touchpoints with FA, as there are opportunities to capitalize on maintenance work. But if someone needs to know how the detailed accounting works -- they should be talking to an FA person, not an EAM person."

The relationship between EAM software and ERP

Another common point of confusion is the relationship between EAM and the much better-known ERP. It doesn't help that the view of these two software applications varies from different perspectives.

"How the two relate is not an easy question to answer," Barnett said. "If your view is that assets are resources, then an ERP should support EAM. If your view is that a resource is an asset, then an EAM should support ERP.

"So, as a business capability, they are similar. When performing comparisons of technology solutions to support the business capability, IT and finance often tend to select ERP, whereas operations prefers EAM."

Meanwhile, Permenter sees EAM and ERP as partner systems, providing the decision-makers within the organization with a complete view of the health and position of the business.

When EAM and ERP are properly integrated and supported, they can also add a layer of risk mitigation and situational awareness to asset-intensive industries, like manufacturing, utilities and mining.

Why EAM adoption is growing

EAM's attraction tends to rest on its ability to help solve or manage certain problems.

"Factors affecting the trend [of EAM software implementation] are the need to enhance or replace legacy infrastructure, the need to comply with corporate social responsibility and sustainability, the growing importance of asset tracking and the need for improved financial returns on assets and investments," Barnett said.

IDC currently believes the worldwide, overall enterprise asset management market to reach $2.04 billion by 2020, at a compound annual growth rate of 4.4%.

While EAM has appeal across all industries, there have been upticks in adoption rates in some sectors.

"The largest footprint for EAM is manufacturing and utilities, while the fastest growth is likely healthcare and small and medium business," Permenter said.

"The growth in the market is being driven by cloud adoption, growth in small and medium businesses, and IoT [internet of things] deployments," he said.

IDC currently believes the worldwide, overall enterprise asset management market to reach $2.04 billion by 2020, at a compound annual growth rate of 4.4%.

The EAM payoff for the CFO and shareholder

Return on investment for EAM is not measured by hype, but by hard metrics.

"EAM solution benefits can include major cost savings in terms of lower maintenance labor costs, capital costs, asset-related operating costs and lower energy costs," Permenter said. "Just as important: EAM provides a layer of cost avoidance by mitigating downtime on key pieces of equipment and lowering the risk of compliance and safety issues."

However, the variety of points to be measured in calculating ROI may surprise some people. For example, Permenter cited two examples.

  • A company can use EAM software to keep temperatures regulated in the office building based on external weather, internal employee volume and the use of rooms, thus lowering energy costs and better leveraging room usage.
  • Manufacturing equipment must be maintained to reduce any downtime or loss of equipment. Asset management software can monitor the maintenance times, equipment functionality and other concerns to minimize disruption, which, in turn, reduces operating, maintenance, labor and capital costs.

There's also a high view advantage for the CFO in making the case for shareholder value.

"If we assume that the CFO's primary role is to ensure optimized investments that enable the organization to meet its objectives in the short, medium and long term, then building an EAM capability will enable the CFO to succeed in that role," Barnett said. "The CFO will be able to understand the investments undertaken in assets, and how the level of investment has reduced or increased risk to the organization in meeting its mission."

With more sophisticated EAM software -- meaning those that contain predictive analytics and other forward-looking capabilities -- there's a payoff in terms of future planning, too.

"The CFO will also have real-time information, which will enable [him or her] to perform predictive analysis that guides future investment plans," Barnett said. 

Next Steps

What the CFO might not know about financial data

How CFOs can help enable business transformation

What the CFO should know about change

This was last published in April 2017

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