One of the most commonly performed engineering economy studies is that
of replacement or retention of an asset or system that is currently installed.
This differs from previous studies where all the alternatives are new. The
fundamental question answered by a replacement study about a currently
installed asset or system is, Should it be replaced now or later? When an
asset is currently in use and its function is needed in the future, it will be
replaced at some time. So, in reality, a replacement study answers the question
of when, not if, to replace.
A replacement study is usually designed to first make the economic decision
to retain or replace now. If the decision is to replace, the study is complete.
If the decision is to retain, the cost estimates and decision will be
revisited each year to ensure that the decision to retain is still economically
correct. This chapter explains how to perform the initial year and follow-on
year replacement studies.
A replacement study is an application of the AW method of comparing
unequal-life alternatives, first introduced in Chapter 6. In a replacement
study with no specified study period, the AW values are determined by a
technique of cost evaluation called the economic service life (ESL) analysis.
If a study period is specified, the replacement study procedure is different
from that used when no study period is set. All these procedures are covered
in this chapter.
The case study is a real-world replacement analysis involving in-place
equipment and possible replacement by upgraded equipment.
