Application of “Economic Life of Assets” in Port Equipments Replacement Strategy

In many cases, ports are continuing to use machines long after their operating efficiency and reliability have begun to deteriorate significantly. Managers are continuing to maintain the equipment even when the cost of maintenance - in terms of spare parts and man hours - is excessively high. In those ports, the replacement decision is being taken solely on the basis of the operating life of a physical asset. Despite the fact that physical assets exceed their economic life, they often remain on asset register. However, it must be undesirable because it fails to take into account running and maintenance costs, performance efficiency and reliability of the equipment. Such a retention of equipment beyond its optimum replacement time invariably accounts for a substantial proportion of budgets as much time and money are spent on repairs and maintenance. It is said that the principal objective of optimum equipment operation is to minimise cost through highest quality equipment purchase and optimum replacement-time decisions. To achieve this objective, there is a need for improved monitoring of the performance of physical assets during their economic life. The purpose of this paper is to introduce the concept of economic life of an asset and present its applications in asset replacement strategy.