DEFINITION of ‘Asset Disposal Plan’
A plan that documents the activities and costs associated with disposal of infrastructure assets. An asset disposal plan is generally part of a comprehensive asset management plan that is used by local governments and municipalities to manage their portfolio of infrastructure assets such as roads and bridges, water distribution networks, wastewater systems and other utilities.
INVESTOPEDIA EXPLAINS ‘Asset Disposal Plan’
An asset disposal plan is an important component of a sound asset management plan, since disposal costs can be as much as 5% of the full life cycle costs of an asset, according to the International Infrastructure Management Manual (IIMM).
Asset disposal includes any activity associated with disposal of a decommissioned asset, such as its sale, demolition or relocation. The IIMM recommends that an asset disposal plan should include forecasts of the timing for future asset disposals, as well as cash flow forecasts identifying income and expenditures associated with asset disposal.
A good plan would time asset disposals to ensure that replacement assets are operational and ready to absorb the workload of the decommissioned asset, so that users are not inconvenienced needlessly.
Disposal costs are expenses that are directly related to asset disposal. They can be quite significant because of the difficulty associated with disposal of infrastructure assets. Income and expenses associated with an asset disposal would be dependent on whether it is sold, demolished or relocated.
A sale would usually generate the highest income of the three alternatives, and may be the preferred option if it is impossible to demolish or relocate it. The sale price would depend on the physical state of the asset, which in turn depends on the level of service it has provided to the community, its maintenance, and the number of years left in its useful life.
A solid asset disposal plan can help keep down asset management costs, which would in turn translate into a better quality of service to the community and a lower tax burden for taxpayers.