To Replace or Not

As we work through the Asset Life Cycle, we have discussed the first two elements, Asset Inventory and Condition Assessment. The wheel, however, still keeps turning, and now it is time to turn our attention to the third element, Replacement Costing.

Asset Replacement Costing – Replace or Not

To replace or not to replace that is the question.

So often, we face this question regarding particular assets for multiple reasons. The decision is to

• Maintain and Repair the asset
• Refurbish and put the asset back into production
• Replace the asset

To avoid simply guessing, we need the information to make the correct decision, and this information comes from an up-to-date Asset Replacement Costing initiative. This is a key factor in the asset life cycle.

Asset Replacement Costing – Decision Criteria

There are two questions to answer: Are the Costs of Repair plus the Maintenance Costs Greater than the Replacement?

• Normally a percentage factor is built into the above calculation, and when the costs do become greater, it becomes necessary to assess the appropriate action.
  • This can be extremely difficult to manually identify and calculate, so it is essential that it should be automatically monitored by the Asset Management System to trigger and highlight assets that have exceeded that requirement

• The second question is ‘Has the Asset been fully Depreciated’?

If the answer to either or both of these questions is ‘Yes,’ we need to ask a further question.

• ‘Is the Asset Still Performing Well’?

The answer will assist us in deciding whether to Repair, Refurbish or Replace the asset.

This is a critical decision-making process; we need to base the decisions on accurate information and not just guesswork.

The information required will be sourced from both

• The Asset Performance Management System (CMMS) will provide the ongoing historical cost of repairs and maintenance to date
• The Asset Replacement Cost Initiative, which we are currently discussing, provides the total cost of a suitable replacement asset

Asset Performance Management System (CMMS)

The use of the CMMS and access to historical information will be dealt with in a future article of this series.

Asset Replacement Cost Initiative

The full cost of replacing this asset LESS the value of the current asset

Asset Replacement Costs – Full Cost

The current replacement cost is the full cost of replacing an asset in its current operating environment. This is the total cost of the life of an item, including the costs of planning for

Design, Acquisition, Operations, and Maintenance, Less any scrap or resale value of the asset to be replaced.

Asset Replacement Costs – Life Cycle Costing

It can be more easily seen from this image:

The Burning Question is ‘To Replace or Not. The Answer is ‘Repair, Refurbish or Replace’

If the Asset Life Cycle is an intricate part of your Asset Management Philosophy Maintenance and Business Plan, then the correct answer will become obvious, and guesswork will be removed from the equation.

For more information, email us at info@strobe-al.co.za or visit www.strobe-al.co.za