Mansoor Azam Qureshi NUST

Physical Life Profit Life Economic Life

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Machine is worn out and can no longer reliably produce and is abandoned or scrapped. Maintenance and operating costs increase with life. Operating costs rise are affected by the care it receives while in use, the nature of the job it is doing, and the quality of the maintenance it receives. Small regular expenditure for preventive maintenance abrogates the need for a large cost of components replacement
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The life over which the equipment can earn a profit. The retention beyond that point will create an operating loss. Costly repairs exacerbate profit life. Major components wear out and need to be replaced. Replace machine while major components are still functional.
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Period that maximizes profits over the equipments life. Optimizing production while maximizing profit. Equipment replacement prevents an erosion of profitability by the increased cost of maintenance and operation as the equipment ages beyond its economic life.
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Analysis to replace equipment that has reached its useful life. Cost to considered for replacement analysis
Ownership costs
Operating costs Inflation Downtime Obsolescence costs

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Investment cost assumed is 15%

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Replacement cost includes inflation in prices

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Maintenance and repair costs are the crux of the equipment replacement decision Include the cost of labor , parts used to maintain and repair the given piece of equipment. keep accurate records of maintenance and repair costs.

Affected by following factors.

Type of equipment Age of the equipment

Operating conditions
Operating skill of the

operator Daily care by the operator Maintenance department Frequency and level of preventive maintenance.
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The time when equipment does not work due to repairs etc Downtime increases as equipment usage increases.

The downtime includes

The ownership cost operating cost operator cost

cost

productivity loss caused

by the loss of equipment availability

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Obsolescence is the reduction in value and marketability due to the competition between newer and more productive models Obsolescence can be subdivided into two types: technological market preference. Technological obsolescence can be measured in terms of productivity. Over the short term, technological obsolescence has typically occurred at a fairly constant rate. Market preference obsolescence occurs as a function of customers taste. This is much less predictable, although just as real, in terms of lost value. The market preference obsolescence is not considered due to the difficulty in quantifying its value.
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Cost per Hour

8 7 6 5 4 3 2 1 Operating Cost Ownership Cost Total Cost

Cost

0
1 2 3 Series1
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4 Series2

6 Series3

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Yearly Profit
0.5

Economic Life
0.4 0.3 0.2 0.17 0.1 0 1 -0.1 2 3 4 5 6 7 -0.06 8 0.1 0.31 0.28 0.38

Profit Life
-0.2 -0.25 -0.3

Physical Life
-0.4

-0.32

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