Maintenance Costs and Life Cycle Cost Analysis

517 Pages·2017·9.741 MB·English

by  Diego Galar, Peter Sandborn, Uday Kumar

Maintenance Costs and
Life Cycle Cost Analysis

Maintenance Costs and
Life Cycle Cost Analysis
Diego Galar, Peter Sandborn,
and Uday Kumar
CRC Press
Taylor & Francis Group,
6000 Broken Sound Parkway NW, Suite 300,
Boca Raton, FL 33487-2742
© 2017 by Taylor & Francis Group, LLC
CRC Press is an imprint of Taylor & Francis Group, an Informa business
No claim to original U.S. Government works
Printed on acid-free paper
International Standard Book Number-13: 978-1-4987-6954-9 (Hardback)
This book contains information obtained from authentic and highly regarded sources. While all reasonable
efforts have been made to publish reliable data and information, neither the author[s] nor the publisher can
accept any legal responsibility or liability for any errors or omissions that may be made. The publishers wish
to make clear that any views or opinions expressed in this book by individual editors, authors or contributors
are personal to them and do not necessarily reflect the views/opinions of the publishers. The information or
guidance contained in this book is intended for use by medical, scientific or health-care professionals and is
provided strictly as a supplement to the medical or other professional’s own judgement, their knowledge of
the patient’s medical history, relevant manufacturer’s instructions and the appropriate best practice guide-
lines. Because of the rapid advances in medical science, any information or advice on dosages, procedures
or diagnoses should be independently verified. The reader is strongly urged to consult the relevant national
drug formulary and the drug companies’ and device or material manufacturers’ printed instructions, and
their websites, before administering or utilizing any of the drugs, devices or materials mentioned in this
book. This book does not indicate whether a particular treatment is appropriate or suitable for a particular
individual. Ultimately it is the sole responsibility of the medical professional to make his or her own profes-
sional judgements, so as to advise and treat patients appropriately. The authors and publishers have also
attempted to trace the copyright holders of all material reproduced in this publication and apologize to
copyright holders if permission to publish in this form has not been obtained. If any copyright material has
not been acknowledged please write and let us know so we may rectify in any future reprint.
Except as permitted under U.S. Copyright Law, no part of this book may be reprinted, reproduced, trans-
mitted, or utilized in any form by any electronic, mechanical, or other means, now known or hereafter
invented, including photocopying, microfilming, and recording, or in any information storage or retrieval
system, without written permission from the publishers.
For permission to photocopy or use material electronically from this work, please access www.copyright.
com (http://www.copyright.com/) or contact the Copyright Clearance Center, Inc. (CCC), 222 Rosewood
Drive, Danvers, MA 01923, 978-750-8400. CCC is a not-for-profit organization that provides licenses and
registration for a variety of users. For organizations that have been granted a photocopy license by the CCC,
a separate system of payment has been arranged.
Trademark Notice: Product or corporate names may be trademarks or registered trademarks, and are used
only for identification and explanation without intent to infringe.
Library of Congress Cataloging-in-Publication Data
Names: Galar, Diego, author. | Sandborn, Peter A., 1959- author. | Kumar, Uday,
author.
Title: Maintenance costs and life cycle cost analysis/Diego Galar, Peter
Sandborn, Uday Kumar.
Description: Boca Raton : Taylor & Francis, a CRC title, part of the Taylor & Francis
imprint, a member of the Taylor & Francis Group, the academic division of
T&F Informa, plc, [2017] | Includes bibliographical references and index.
Identifiers: LCCN 2016059173 | ISBN 9781498769549 (hardback: alk. paper) |
ISBN 9781498769556 (ebook)
Subjects: LCSH: Plant maintenance. | Life cycle costing.
Classification: LCC TS192.G35 2017 | DDC 658.2--dc23
LC record available at https://lccn.loc.gov/2016059173
Visit the Taylor & Francis Web site at
http://www.taylorandfrancis.com
and the CRC Press Web site at
http://www.crcpress.com
Contents
Preface ....................................................................................................................xix
Acknowledgments ...............................................................................................xxi
Authors ...............................................................................................................xxiii
1. Relevance of Maintenance Function in Asset Management ..................1
1.1 Purpose of Maintenance Function ......................................................1
1.1.1 Maintenance Function .............................................................2
1.1.2 Benefits and Risks ....................................................................4
1.1.3 Maintenance Process: Goals to Achievements .....................5
1.1.3.1 Develop a Structured Maintenance Framework .....6
1.1.3.2 Develop a Maintenance Policy ...............................6
1.1.3.3 Develop a Maintenance Strategy ...........................7
1.1.3.4 Implement a Maintenance Management
Framework ................................................................7
1.1.3.5 Allocate Maintenance Resources............................8
1.1.4 Developing a Maintenance Program/Plan ..........................8
1.1.4.1 Outline of a Maintenance Plan ...............................9
1.1.5 Fund Maintenance: The Beginning of Maintenance
Costs .........................................................................................10
1.1.6 Developing a Basis for Maintenance Performance
Measurement ..........................................................................12
1.1.7 Maintenance World of Tomorrow .......................................15
1.1.8 e-Maintenance ........................................................................15
1.2 Reliability and Maintenance ..............................................................16
1.2.1 Reliability Engineering ..........................................................17
1.2.1.1 Important Capabilities of Reliability Engineers ....18
1.2.2 Maintenance Engineering .....................................................18
1.3 Changing Role of Maintenance in Asset Management .................21
1.3.1 Asset Life Cycle ......................................................................22
1.3.2 Asset Planning ........................................................................22
1.3.3 Asset Creation/Acquisition .................................................23
1.3.4 Asset Operations ....................................................................24
1.3.5 Asset Maintenance .................................................................24
1.3.6 Asset Condition/Performance .............................................24
1.3.7 Asset Replacement .................................................................25
1.3.8 Asset Disposal/Rationalization ...........................................25
1.3.9 Financial Management ..........................................................26
1.3.10 Asset Management Definition and Function .....................26
1.3.11 Structure of Asset Management ...........................................27
v
vi Contents
1.3.12 Asset Management Strategy .................................................28
1.3.13 Changing Role of Maintenance Management in
Asset Management ................................................................29
1.3.14 Improve Asset Maintenance Strategy or Renew
the Asset? ................................................................................29
1.4 Physical Asset Management and Maintenance Cost .....................32
1.4.1 What Are Assets? ...................................................................33
1.4.1.1 Asset Life Cycle and Strategy ...............................33
1.4.2 Maintenance and Physical Asset Management .................36
1.4.2.1 Getting Help in the Development of Asset
Management ...........................................................37
1.4.2.2 Life Cycle Stages .....................................................37
1.4.3 Life Cycle Processes and Interaction with
Maintenance Process .............................................................38
1.4.3.1 Asset Management: Standards .............................38
1.4.4 Develop a Maintenance Information System.....................39
1.4.5 Cost Avoidance for Physical Assets.....................................39
1.4.5.1 Business Benefits of Asset Management .............40
1.4.5.2 Proactive Use of Maintenance Budgets ...............40
1.4.5.3 Improved Ability to Manage Current
Resources and New Capital Assets .....................40
1.4.5.4 Informed and Accurate Financial Planning
and Reporting .........................................................42
1.5 Focusing on the Bottom Line .............................................................42
1.5.1 Maintenance and the Bottom Line ......................................43
1.5.2 Maintenance beyond the Bottom Line ................................45
1.5.3 Managing Availability for Improved Bottom-Line
Results .....................................................................................45
1.5.3.1 Availability Types ...................................................46
1.5.3.2 Factors Determining Availability .........................47
1.5.3.3 Optimizing Availability .........................................47
1.5.3.4 Design of Achievable Availability ........................48
1.5.3.5 Determining Achievable Availability for an
Existing Facility ......................................................50
1.5.3.6 Building the Reliability Block Diagram (RBD) ..51
1.5.3.7 Refining the RBD ....................................................51
1.5.3.8 Obtaining Failure and Repair Data ......................51
1.5.3.9 Closing the Gaps ....................................................52
1.5.3.10 Minimizing Number and Length of
Unscheduled Outages............................................53
1.5.3.11 Improve Equipment ...............................................54
1.5.3.12 Capital Improvements to Increase Availability ....54
1.5.3.13 Matching Availability Goals to Annual
Business Needs .......................................................54
References .......................................................................................................57
Contents vii
2. Maintenance Costing in Traditional LCC Analysis ...............................61
2.1 Traditional LCC ...................................................................................61
2.1.1 Life Cycle Phases....................................................................62
2.1.2 Considerations of Life Cycle Cost .......................................64
2.1.2.1 Problems of Traditional Design ............................65
2.1.2.2 Problem of Cost Visibility .....................................66
2.1.2.3 Structure of Cost Breakdown ................................67
2.1.3 Cost Categories.......................................................................71
2.1.3.1 Investment Costs versus Operational Costs .......71
2.1.3.2 Initial Investment Costs versus Future Costs .....72
2.1.3.3 Single Costs versus Annually
Recurring Costs .................................................72
2.2 Life Cycle Cost Analysis as a Project Follow-Up for Assets .........73
2.2.1 Objectives of the Life Cycle Costing Methodology...........75
2.2.2 Estimating Life Cycle Costs ..................................................76
2.2.2.1 Estimating OM&R Costs from
Cost-Estimating Guides .........................................76
2.2.2.2 Estimating OM&R Costs from Direct Quotes ......77
2.2.3 Impact of Analysis Timing on Minimizing Life Cycle
Costs .........................................................................................77
2.2.4 Selecting Potential Project Alternatives
for Comparison ...................................................................78
2.2.5 Effect of Intervention .............................................................79
2.2.6 Estimating Future Costs ........................................................79
2.2.7 Managing Cash Flow.............................................................80
2.2.8 Selecting a Discount Rate ......................................................80
2.2.9 Time Value of Money.............................................................83
2.3 Trade-Off Tools for LCC .....................................................................83
2.3.1 Effectiveness, Benchmarks, and Trade-Off Information ......84
2.4 LCC Analysis as Maintenance DSS ..................................................86
2.4.1 Maintenance as a Value Driver ............................................89
2.4.2 Typical Outcomes of Investments in Maintenance
and Repair ...............................................................................90
2.4.3 Mission-Related Outcomes ...................................................92
2.4.3.1 Improved Reliability ..............................................92
2.4.3.2 Improved Productivity ..........................................93
2.4.3.3 Functionality ...........................................................93
2.4.4 Compliance-Related Outcomes ...........................................94
2.4.4.1 Fewer Accidents and Injuries ...............................94
2.4.4.2 Fewer Insurance Claims, Lawsuits, and
Regulatory Violations ............................................94
2.4.5 Condition-Related Outcomes ...............................................94
2.4.5.1 Improved Condition ..............................................94
2.4.5.2 Reduced Backlogs of Deferred Maintenance
and Repair ...............................................................94
viii Contents
2.4.6 Outcomes Related to Efficient Operations .........................95
2.4.6.1 Less Reactive, Unplanned Maintenance
and Repair ...............................................................95
2.4.6.2 Lower Operating Costs..........................................95
2.4.6.3 Lower Life Cycle Costs ..........................................95
2.4.6.4 Cost Avoidance .......................................................95
2.4.6.5 Reductions in Energy Use and Water Use ..........96
2.4.7 Stakeholder-Driven Outcomes .............................................96
2.4.8 Risks Posed by Deteriorating Assets ...................................97
2.4.8.1 Risk to Users ...........................................................98
2.4.8.2 Risk to Safety, Health, and Security .....................98
2.4.8.3 Risk to Efficient Operations ..................................99
2.4.8.4 Indexes and Models for Measuring Outcomes .....99
2.5 Remaining Service Life as Gauge and Driver for
Maintenance Expenses and Investments .......................................101
2.5.1 Service Life and Remaining Service Life ..........................101
2.5.2 Techniques for RSL Estimation and Maintenance
Investment Outcomes .........................................................102
2.5.2.1 Engineering Analysis ...........................................102
2.5.2.2 Cost and Budget Models .....................................102
2.5.2.3 Operations Research Models ..............................103
2.5.2.4 Simulation Models ...............................................103
2.5.2.5 Proprietary Models ..............................................104
2.6 Uncertainty in LCC and Maintenance Cost Estimations ............104
2.6.1 Approaches to Uncertainty in LCC ...................................105
2.6.2 What Uncertain Variables Go into Life Cycle Costs? .....106
2.6.2.1 Application of LCC Techniques for
Machine/Equipment Selection ..........................110
2.6.2.2 Application of LCC to Select Design
Alternatives: To Design Out Maintenance
or to Design for Maintenance .............................112
2.7 LCC Data Acquisition and Tracking Systems ...............................114
2.7.1 Data, Tools, and Technologies to Support
Investments in Maintenance and Repair ..........................114
2.7.2 Technologies for Asset Data Management .......................115
2.7.3 Emerging Technologies for Data Acquisition and
Tracking .................................................................................120
2.8 Restriction of Maintenance Role in Operation Phase ..................120
References .....................................................................................................122
3. Maintenance Budget versus Global Maintenance Cost ......................127
3.1 Asset Management and Annual Maintenance Budget ................127
3.1.1 “Selling” the Maintenance Budget ....................................127
3.1.2 Composition of Maintenance Budget ...............................128
3.1.2.1 Maintenance Budget Composition ....................129
Contents ix
3.1.3 Development of an Annual Maintenance Budget ...........129
3.1.4 Basis of a Maintenance Budget ..........................................133
3.1.4.1 Maintenance Program .........................................134
3.1.4.2 Key Considerations in Maintenance Budget
Decisions ................................................................135
3.1.4.3 Preparing a Maintenance Budget .......................135
3.1.4.4 Executing a Maintenance Budget.......................136
3.1.4.5 Reviewing a Maintenance Budget .....................138
3.1.5 Control Maintenance Costs Using the Maintenance
Budget ....................................................................................141
3.1.6 Maintenance Budgets versus Maintenance Costs ...........142
3.1.6.1 Associated Maintenance Costs ...........................143
3.1.7 Factors Affecting the Estimate of the Maintenance
Budget ....................................................................................144
3.1.7.1 Formula for Maintenance Budget Estimate ......145
3.2 Cost of Labor Force: In-House versus Outsourced, Blue
versus White Collar ..........................................................................146
3.2.1 Guidelines for Choosing In-House or Outsourced
Maintenance .........................................................................146
3.2.1.1 In-House Maintenance Considerations.............147
3.2.1.2 Outsourced Maintenance Considerations ........147
3.2.2 Outsourcing Maintenance Activities .................................148
3.2.2.1 Expected Benefits of Outsourcing ......................148
3.2.2.2 Potential Risks of Outsourcing ...........................151
3.2.3 Cost Determination Methodology. ....................................152
3.2.4 Performance-Based Contracts ............................................153
3.2.4.1 Performance-Based Contracting Process ..........153
3.2.4.2 Advantages and Disadvantages of
Performance-Based Maintenance Contracts ....154
3.2.4.3 Development of Performance Indicators
for Performance-Based Maintenance
Contracting .........................................................155
3.2.4.4 Lessons Learned Using Performance-Based
Contracting in the Maintenance Function ........156
3.3 Spare Parts Policies for Cost Savings .............................................158
3.3.1 Spare Parts Management ....................................................159
3.3.2 Spare Parts Evaluation and Optimization ........................161
3.3.3 Inventory Analysis ...............................................................162
3.3.4 Determining Optimal Parameters for Expediting
Policies ...................................................................................165
3.4 Overinvestments in Maintenance and Avoided Costs ................167
3.4.1 Cost Savings, Avoided Costs, and
Opportunity Costs .........................................................168
3.4.2 Meaning of Cost Savings ....................................................169
3.4.3 Concept of Avoided Cost ....................................................169