8.Replacement Analysis

8/12/2019 8.Replacement Analysis

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Equipment Maintenance /

Replacement Page 123


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LIFE CYCLE COSTING

. Sometimes the cost of operation and maintenance ismany times more than the acquisition cost of theequipment. This may be an indication of thedrawbacks of the said equipment. The low acquisition

cost of the equipment may be one of the reasons for itshigher operating and maintenance costs. Therefore

, it is important that the selection of equipment bebased on the total ownership cost over its entire lifespan. This total cost of ownership is calculatedconsidering the operations costs as well as themaintenance costs over the product's life span. Suchtype of costing is called life cycle costing.


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The concept of life cycle costing brings togetherengineering, economic and financial disciplines inconnection with the equipment to be procured. The

economic life of equipment depends on itsmaintenance and repair costs, and the resultingavailability and operational efficiency.

It can be estimated by plotting the cumulative

efficiency and maintenance and repair cost percumulative hour against operating hours. Theinteraction of the two curves will indicate theeconomic life (Figure 10.1).


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The aim of life cycle costing is to know the total cost ofequipment accruing over its whole life period, whichmay include all the costs starting from the

specification cost. It is also observed that reduction inone cost may increase the other cost.

The total cost has to be therefore optimised by makingtrade-offs among all elements of it. Normally it is

observed that cheap items do not have sufficienteconomic life nor do they yield satisfactoryperformance over their whole life. Therefore thequality of the product is of prime importance.


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The various elements of cost involved in

ownership of an equipment are

1. Acquisition cost (at the time of purchase inclusive of allallied costs).

2. Installation cost including commissioning and testingcosts.3. Spare parts cost including the cost of all support

materials such as test equipment, jigs and fixtures, andthe like.

4. Operating cost of the equipment including the cost offacilities, utilities operating personnel and their training.5. Maintenance cost including the cost of training of

maintenance personnel.


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The main advantages of the life

cycle costing are1. It may result in selection of an equipment that has

lower operating and maintenance costs resulting inreduced cost of ownership.

2. The money saved can be used for some other works.


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MAINTENANCE COST During the planning stage, budgets are normally

allocated for each type of activity, which must alsoinclude the maintenance cost.

it is difficult, since failures are random phenomenaand their levels cannot also be defined.

The usual practice to set targets for maintenance costis based on past experience.

The maintenance cost, however, will directly dependon the level of maintenance and its requirements.


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It has been estimated that about 70 per cent of the costof maintenance, spare parts and materials is incurredon account of replacement of components andassemblies subjected to wear and tear, and

25 per cent of this cost can be saved by systematicapplication of advanced tribology practices. Suchimprovements enhance the useful life of equipment bycontaining the rate of wear.


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The maintenance cost can be estimated

by knowing the following1. Number of breakdowns with their levels.

2. Downtimes of the equipment for want of repairs.

3. Consumption of spare parts, equipment-wise4. Penalty cost, if any, due to non-availability of

equipment for production work.


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MAINTENANCE BUDGET it is essential to set aside certain amount of money to

meet the maintenance expenditure, which is termedmaintenance budget.

The maintenance budget can be of the following types:

1. Appropriation budget, which sets aside money foreach activity independently.

2. Fixed budget, which means fixed allocation is madefor a specified period of time.

3. Variable budget, which allows expenditure based onthe maintenance activities.


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MAINTENANCE BUDGET The biggest challenge in preparing such budgets is the

unpredictability of the maintenance jobs.

It is really difficult to forecast the cost of breakdownsas the level of such breakdowns itself is not known. For the purpose of cost control, it is relatively easy to implement material and time

standards for production operations. However, the same is not possible in the caseof the maintenance function. The decisions to be taken in the case of themaintenance function depend upon various factors. To aid decision-making,

comparisons can be made with various existing systems after obtaining the costdata.


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The factors described in the following subsections

should be considered during the process of

decision making.1. Preventive Maintenance vs. Breakdown Maintenance

2. Replacement vs. Repair

3. Hired vs. Departmental Services4. Overhaul Periods

5. Maintenance-In-Time vs. Time-AvailabilityMaintenance


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Preventive Maintenance vs. Breakdown

Maintenance The relevant information regarding

the failure data,

the downtime cost arising from breakdowns,

cost of damage

loss of production,

penalty cost and cost of replacement of damaged

parts, and so forth should be analysed in respect of the above

systems to compare the nature of maintenance to beadopted under a given situation.


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Replacement vs. Repair

If the cost of maintenance as well as that of operationshows an increasing trend,

it is desirable to replace the affected equipment/part.

Here, the benefits from the replacement must beknown to adopt a particular policy, however, the costof equipment/service must be kept in mind.

Replacement also allows procurement of a better

quality equipment, though it may be more costly thanthe existing one. It should be the general concern ofthe management to take care of deterioration andobsolescence.


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Hired vs. Departmental Services

The variable as well as the fixed elements of costs ofthe maintenance department can be collected and acomparison made when the same facilities are hiredfrom outside. In the present context it is seen that the

hiring of the services can be more effective andeconomical in the case of public enterprises because ofhigh fixed costs that include manpower and materialcosts.


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Overhaul Periods

Schedules can be prepared to repair the equipmentduring its normal downtime in order to reduce theproduction costs as well as the machine downtimecosts. Here also, the relevant costs such as the cost ofproduction, hiring charges and downtime cost can becollected for the purpose of comparison. However, theoverhauls if carried out in time will improve the

performance of equipment and enhance its service life.


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Maintenance-In-Time vs. Time-

Availability Maintenance.

In some places, it is a normal practice to run a partially-failed equipment for the purpose of meeting theproduction targets. This may deteriorate the condition ofthe equipment further. Information regardingconsequential loss of efficiency, damage to equipment, etc.

can be collected for a better decision. However, suchpractices must be discouraged in order to achieve thesatisfactory performance of equipment/services.

It is possible to take a decision about a particular policy, ifthe cost of relevant maintenance and related functions are

known in advance so that better maintenance cost controlcan be exercised. In actual practice the maintenance-in-time can yield better results as compared to time-availability maintenance.


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COST CONTROL Maintenance department has to exercise effective cost control to

carry out the maintenance functions in a pre-specified budget,

which is possible only through the following measures:1. First line supervisors must be apprised of the cost information of

the various materials so that the objective of the management canbe met without extra expenditure on maintenance functions.

2. A monthly review of the budget provisions and expendituresactually incurred in respect of each centre/shop will provideguidelines to the departmental head to exercise better costcontrol.

3. The total expenditure to be incurred can be uniformly spread

over the year for better budgetary control. However, the samemay not be true in all cases particularly where overhauling ofequipment has to be carried out due to unforeseen break-downs.

4. The controllable elements of cost such as manpower cost andmaterial cost can be discussed with the concerned personnel,

which may help in reducing the total cost of maintenance.


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COST CONTROL

The objective of cost control is to achieve savings.

For this purpose,

1. estimations of economic life,

2. total cost of owning,3. running, and

4. maintaining a machine are essential.

if the average life cycle cost of a new machine is known

and the combined cost of operating and maintaining anold machine is evaluated, the exact time for replacementcan be decided and savings of some expenses" can beobtained.

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8.Replacement Analysis