Scribd Logo
Upload

Welcome to Scribd!

  • 2K views

    Replacement Theory

    Uploaded by

    Shinji
    Replacement theory is concerned with predicting replacement costs and determining optimal replacement policies for items with stochastic lifespans, like light bulbs. It involves estimating probability distributions of lifespans to predict failure rates over an item's age. Replacement decisions consider factors that increase costs like repairs as items age. At a certain point, replacing old equipment becomes more cost effective than continuing increased maintenance costs. Replacement analysis is a practical application that assumes periodic maintenance and replacement decisions between keeping, overhauling, preventative maintenance, or replacing existing assets with new or used ones to optimize performance measures like net present value. Financial considerations are not the only factor in determining optimal replacement periods, as policies, funds, attitudes and other special characteristics also influence

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd

    Replacement Theory

    Uploaded by

    Shinji
    2K views2 pages
    Replacement theory is concerned with predicting replacement costs and determining optimal replacement policies for items with stochastic lifespans, like light bulbs. It involves estimating probability distributions of lifespans to predict failure rates over an item's age. Replacement decisions consider factors that increase costs like repairs as items age. At a certain point, replacing old equipment becomes more cost effective than continuing increased maintenance costs. Replacement analysis is a practical application that assumes periodic maintenance and replacement decisions between keeping, overhauling, preventative maintenance, or replacing existing assets with new or used ones to optimize performance measures like net present value. Financial considerations are not the only factor in determining optimal replacement periods, as policies, funds, attitudes and other special characteristics also influence

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    DOC, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Replacement theory is concerned with predicting replacement costs and determining optimal replacement policies for items with stochastic lifespans, like light bulbs. It involves estimating probability distributions of lifespans to predict failure rates over an item's age. Replacement decisions consider factors that increase costs like repairs as items age. At a certain point, replacing old equipment becomes more cost effective than continuing increased maintenance costs. Replacement analysis is a practical application that assumes periodic maintenance and replacement decisions between keeping, overhauling, preventative maintenance, or replacing existing assets with new or used ones to optimize performance measures like net present value. Financial considerations are not the only factor in determining optimal replacement periods, as policies, funds, attitudes and other special characteristics also influence

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    2K views2 pages

    Replacement Theory

    Uploaded by

    Shinji
    Replacement theory is concerned with predicting replacement costs and determining optimal replacement policies for items with stochastic lifespans, like light bulbs. It involves estimating probability distributions of lifespans to predict failure rates over an item's age. Replacement decisions consider factors that increase costs like repairs as items age. At a certain point, replacing old equipment becomes more cost effective than continuing increased maintenance costs. Replacement analysis is a practical application that assumes periodic maintenance and replacement decisions between keeping, overhauling, preventative maintenance, or replacing existing assets with new or used ones to optimize performance measures like net present value. Financial considerations are not the only factor in determining optimal replacement periods, as policies, funds, attitudes and other special characteristics also influence

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 2

    1.

    Define / Meaning of Replacement Theory


    The Replacement Theory is concerned with the prediction of replacement costs,
    and the determination of the most economical replacement policy. The prediction
    of costs for a group of items with a stochastic life span, for example, light bulbs,
    radio tubes, etc., involves estimation of the probability distribution of life spans
    and calculation from the predicted number of failures which is a function of the
    age of the group of items.

    2. Causes of Replacement Theory


    The problem of replacement is experienced in systems (both men and machines)
    where the efficiencies of items (machine tools, vehicles, capital assets,
    individual, etc.) worsen over their lifespan or sometimes fail completely. The
    prediction of costs involve those factors which contribute to increased operating
    cost, forced idle time, increased scrap, repair cost, etc. in such cases, the item is
    to be restored to a previous level by some kind of remedial action
    (maintenance). The alternative to the increased cost of operating, an aging
    equipment is the cost of replacing the old equipment with a new one, i.e. a stage
    is reached at which the replacement of the old item is more profitable than
    continuation with the old one at the increased maintenance cost. At that age, the
    saving from the use of the new equipment compensates more than its initial
    cost.
    It is evident that the study of Replacement is a field of application rather than a
    method of analysis and is chiefly concerned with the methods of comparing
    alternative replacement policies. In fact, uncertainty is present in virtually all
    replacement decisions due to unknown future events, such as revenue streams,
    maintenance costs, and inflation.

    3. Decisions Using Replacement Theory


    One of the most practical and typical areas of engineering economics is
    replacement analysis. It is assumed that maintenance and replacement decisions
    occur on a periodic basis. The decision-maker chooses from various options,
    such as to keep, overhaul, or perform preventive maintenance on the existing
    asset or replace it with a new / used asset. Any sequence of aforesaid decisions
    is called a replacement policy, and any sequence that optimizes some
    performance measure, such as net present value or annual equivalent cost, is an
    optimal replacement policy.
    A general replacement policy indicates the best period of replacement from the
    financial point of view. If the item under consideration is a heavy capital
    intensive equipment with little resale value, such as generator, it should be used
    as long as possible, until the maintenance cost becomes excessively high. A
    capital item with a significant resale value such as a car, should be replaced
    keeping the resale value in mind. The inexpensive items such as light bulbs can
    even be replaced before they are totally burnt out for administrative
    convenience.
    Financial consideration is not the only guideline for determining the optimum
    period of replacement. It may depend upon several other considerations, such as
    available funds for investment by the firm policies of the government, policy of
    the company, attitude of the employees, accuracy and intricacies of the
    components and so on. In a sense, each replacement problem is unique in
    nature, having some special feature of its own. Operations research methods
    which present a unified approach to the replacement problem, can only be
    helpful in a limited way.

    You might also like