Impact of machine-failure costs on equipment replacement policies: Tunneling company case study. http://dx.doi.org/10.1061/(ASCE)CO.1943-7862.0000480

Abstract

For those construction companies engaged in projects where production is controlled by equipment availability, with tunneling asmaybe the most extreme example, equipment replacement policies affect not just the cost of a machine but have a decisive effect on overallproject cost and achieved profit. Although equipment replacement models described in the literature suggest that the consequential costs ofequipment failure are significant and should be considered in replacement decisions, most fail to explicitly include consequential costs or failto provide methods to calculate the consequential cost in complex systems. This lack of consequential cost in a model seriously diminishes theeffectiveness of a company’s equipment replacement policies and the company’s ability to earn a project. This work describes a case studythat used simulation to quantify the consequential costs of equipment availability for a company engaged in tunnel-construction. The studyincludes the simulation of activities of the drill-and-blast method for five tunnel types. The simulation proved to be very valuable whenseeking to evaluate consequential costs. The results indicate that consequential costs are very relevant to the replacement decision ofthe most expensive equipment. Also, the results show a significant effect of the consequential costs on the company’s equipment replacementpolicies. Therefore, changes in existing policies to consider consequential costs have the potential of providing important future benefits forsuch companies.