Replacement Analysis in Engineering Economics

The following is a discussion agenda on Replacement Analysis in Engineering Economics:

1. Types of maintenance
• Preventive maintenance
• Breakdown maintenance
• The diagram on maintenance costts (re: Figure 8.1 of Panneerselvam (2001, pg. 101).)
2. Determination of economic life of an asset (re: Figure 8.2 of Panneerselvam (2001, pg. 102).)
• Capital recovery cost
• Average operating and maintenance cost
3. Replacement of existing asset with a new asset
• Capital recovery with return
• Concept of challenger and defender
• Simple probabilistic model for items which fail completely

Some relevant notes:

Diagram as related to lecture notes (pg. 7):

For case 2 above, choose defender or challenger depending on the minimum EAC of  them. (Each of them should have a range of EAC depending on years of usage; minimum EAC for an equipment (based on a particular usage duration [no. of years] also determines the economic life of that equipment because its EAC is minimum among the "range of years" of usage considered).


References

1. Panneerselvam, R. (2001) "Chapter 8: Replacement and Maintenance Analysis" Engineering Economics, Prentice-Hall of India
2. Replacement analysis exercises and answers: http://www.us.oup.com/us/pdf/engineeringecon/Chapter10.pdf