Optimal Economic Replacement Moment

If you know or want to anticipate how maintenance or operating costs are increasing during the life cycle, you can store these cost increases in the central Asset Register. Based on these historical costs, you may develop several hypotheses on how these different historical costs may evolve in the future. Doing so allows you to calculate the optimal economic replacement moment.

 

Below is an example. In this case the investment amount is € 500,000 with a technical lifespan of 40 years. The initial maintenance cost level is € 20,000 per year and these maintenance costs tend to increase after 10 years with 8% per year. Interest is estimated at 5% annually.

 

In this case, from an economic point of view the asset should be replaced by the end of 2040, more than 10 years before the end of the technical lifespan, due to rapidly rising maintenance costs.

Replacement Moment 2

Other examples of analysis algorithms:

Read more about the other components of Asset Management:

Strategic Vision  | Corporate Knowledge | Data Consolidation into the Asset Register  | Value Creation