DESIGNING MAINTENANCE CONTROL SYSTEMS

John van Rijn INDEVELOPMENT

INDEVELOPMENT:

Designing Maintenance Control Systems

DESIGNING MAINTENANCE CONTROL SYSTEMS

Any part of this publication may be fully reproduced or translated provided that the source and author are fully acknowledged. Edition 2004.

INDEVELOPMENT:

Designing Maintenance Control Systems

Acknowledgement This document presents a methodology for the design of Maintenance Control Systems. These maintenance control systems were originally designed for production plants; however experience shows that they can also be used for maintenance planning of infrastructure systems. The model here presented is a slightly modified version, of the model developed by W.M. J. Gereards and C.W. Gits of the University of Technology Eindhoven.

INDEVELOPMENT: Table of Contents:

Designing Maintenance Control Systems

Introduction .............................................................................................................................. 5 1.1 Relevance........................................................................................................................... 5 1.2 Maintenance....................................................................................................................... 5 2 Maintenance Control ................................................................................................................ 8 2.1 Maintenance Demand ........................................................................................................ 8
2.1.1 Condition-based maintenance..............................................................................................................10

2.2 Objectives ........................................................................................................................ 12 3 Design Framework ................................................................................................................. 14 4 Some Special Issues ............................................................................................................... 20 5 Upgrading............................................................................................................................... 22

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1
Conditions for maintenance

INTRODUCTION

Over the past decade sustainability has become a core issue in development and development projects. Who havent heard the complaints, they should maintain that road. This time it is the road, which is deteriorated, the next time the discussion is about a water supply system or any other piece of infrastructure. They could be a reference to a local infrastructure agency, utility but often the comment is actually refraining to those who finance infrastructure works. Morss (1980) indicated a number of reasons why certain development processes are not sustained. The same applies for infrastructure: Low rates of financial returns Insufficient revenues Excessive costs Inadequate institution building and individual capacity building Insufficient time Individual time and interests Institutional incentives Economic policies Politics There are three basic conditions to ensure successful maintenance: It is in the organisations interest to maintain the (infrastructure) products There is sufficient technical, managerial and financial capacity at organisation level to execute the maintenance There are effective and efficient financing mechanism in place. The organisation, responsible for the maintenance should be able to mobilise resources. It is however not necessary that that the organisation is totally supported by local resources (self-reliance versus self-sufficiency), but that there is an institutional capacity and commitment to raise the necessary funds to maintain the products/ assets (MDF, Netherlands, 1999). Mr. Olav Ellevset, former director of Tanroads, the agency responsible for the maintenance of the national road network in Tanzania, stated on several occasions that the income of Tanroads for the financial year 2001-2002 only covers 30% the required budget to carry out this task. The other networks are clearly worse off, because not only is its total road length and surface considerable bigger but also they only received 30% of the funds made available for the national road network. The situation in Tanzania is quite representative for many low and middle-income countries. Donor organisations were in the past very hesitant to finance any maintenance activities with exception of reconstruction. Recently some donors changed their main strategy toward the so-called basket funding and sector wide approach. This strategy would allow them to supplement budget for operation and
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maintenance. However sufficient funding is only one condition for sustainable infrastructure provision. Technical and managerial capacity are two important other conditions. This document will discuss these issues in more detail.

1.1
Delivery of functions

RELEVANCE

Maintenance in an infrastructure-supplying organisation is essentially concerned with the delivery of the functions of the infrastructure that may be for production purposes of for example sewer, water, electricity etc. Unavailability of means of production will result in serious delivery problems for these organisations. Organisations that provide infrastructure for road transport may have more flexibility, but those organisations responsible for economic transport in highly congested areas would certainly argue otherwise. Most customers wish reduction of the periods of unavailable services and goods. Providers can improve their production and delivery system eliminating failures and applying preventive maintenance. However even then unavailability is likely to occur, but organisations can accommodate their customers by informing them in advance that certain services and goods are temporarily unavailable. This requires transforming unplanned into planned unavailability. It is clear that the need for the provision of the infrastructure influence the need for these measures. This paper guide engineers and planners with the design of maintenance control systems, that match the demands of production and delivery of goods and services through infrastructure.

1.2
Production process

MAINTENANCE

Maintenance in any (water supply) organisation aims at supporting the production and delivery process. The infrastructure assets help to produce and deliver the desired goods and services. For example road authorities provide road infrastructure in order to make transport possible. Vehicle operating kilometres could be seen as a product, produced (enabled) by road network.

INDEVELOPMENT:
Infrastructure systems

Designing Maintenance Control Systems

Infrastructure is a collection of physical elements with a specific production and/or delivery function. In most situations a specific authority is responsible for the exploitation of the infrastructure assets. The physical elements within a specific infrastructure network or asset could be composed of different items and have different levels of aggregation. For example in a road network, the most abstract level is of course the road links. Whenever a road link no longer exists to function this would hamper transport considerably. Secondly on the list are the water crossings or crossings over or under other things. But many more levels are possible varying from drainage (always crucial) and guardrail to elements like street lightning and traffic control systems. The condition of the infrastructure system or asset is the physical ability considered relevant for fulfilment of the functions of the infrastructure. As the condition deteriorates due to aging, use and other factors, the system or asset may loose its capability to fulfil it function and a failure occurs. Maintenance assists these organisations in controlling, preventing and reducing periods of unavailability. There are two types of maintenance activities: Preventive Corrective maintenance. Preventive maintenance aims at retaining the infrastructure in condition. Corrective maintenance restores the infrastructure in conditions required for its fulfilment of functions. The latter includes activities like reconstruction and rehabilitation.

Condition

Maintenance

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2
Acceptable level

MAINTENANCE CONTROL

Maintenance will be considered acceptable when it is effective in terms of retaining or restoring infrastructure, as the functions of the infrastructure requires and its total costs are within an acceptable proportion and are minimised to the maximum extend possible (efficiency).

2.1
Demand

MAINTENANCE DEMAND

Maintenance demand specifies what and when. In other words it indicates which activities need to take place and when to retain and restore infrastructure production and delivery systems in function conditions. It should be clear that infrastructure systems involve all the assets necessary to produce and deliver the goods and services. Certain systems may be composed of single assets, often buildings, but others may involve production plants and transportation links (water supply). The required availability depends on the production and delivery plan of the organisation. It is always an exogenous input in the maintenance control system. Most professional organisations will make assessments about the consequences of unavailability levels. On the one hand unavailability may result in unsatisfied customers and even a loss of market share. It certainly results in lower quality standards. On the other hand high availability standards may involve high costs and sometimes exceeding available budgets. The maintenance concept is the set of rules or procedures that activate and specify maintenance activities. Maintenance activities can ba activated through 3 rules: 1. Failure-based maintenance; 2. Use-based maintenance; 3. Condition-based maintenance.

Required availability

Failure-based maintenance

Failure-based maintenance activates a maintenance activity in the event of failure. This type of rule is always effective. It is efficient if the consequences of failure are small. Failure-based maintenance only results in corrective maintenance. Use-based maintenance initiates a specified repair after a certain period of use. Use-based maintenance rules are in particular effective when the failure rate tends to increase. Its efficiency depends on the variance of the failure rate. The more narrow the variance, the more efficient the use-based maintenance rule. It can only be applied when there is a correlation between the condition and use. The failure-time relation graph presented below presents four different failure relationships. Time presented on the horizontal axis (g) and Fw (g) presents the number of failing objects in relation to time.

Use-based maintenance

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Only for two objects it is acceptable to initiate maintenance on basis of its use. Which ones?

Condition-based maintenance initiates a specified maintenance activity on basis of a value of value of a characteristic property. If the value of the characteristic property is lower (or higher) than a fatal limit, than the infrastructure (element) is no longer able to carry out its functions. To activate preventive maintenance activities (repairs and detailed inspections) most organisations work with warning levels. The value of the warning level is the value of the fatal limit minus the value of the buffer. The value of the buffer often correlates with the processing time to implement repairs. In addition organisations may work with intervention limits. Fatal limits and intervention limits do not necessarily correlate. Preventive maintenance interventions should take place before deterioration reaches the fatal limit. With the help of use-base models it is possible to calculate the most efficient intervention level, the most cost-effective scenario of providing maintenance. It may actually be more cost-effective to maintain high condition standards and frequently maintain the asset with small and cheap interventions than rehabilitate the asset when it has deteriorated and has reached its fatal limits.

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This type of rule can only be used when it is possible to identify a suitable characteristic property that can be measured over time. These measurements or inspections cost money. The inspection interval is determined by the period between the onset of noticeable deterioration and the occurrence of actual failure.
Corrective maintenance

All maintenance rules may result in corrective maintenance, as not all failures will be covered by use-based and condition-based maintenance. Corrective maintenance cannot be planned and is characterised by its ad hoc nature. It is virtually impossible to prepare accurate budgets for corrective maintenance and organisations are advised to maintain flexible budgets to deal with corrective maintenance.

2.1.1
Characteristic property

Condition-based maintenance

Condition-based maintenance requires observations of one or more characteristics of a technical system or physical element of that system. That characteristic may be used when It actually reflects the condition of the physical element It is possible to quantify the minimum value of that characteristic It can be measured. If the characteristic meets these criteria it is considered a characteristic property. The development of characteristic property can have four forms. a) Linear b) Progressive c) Digressive d) Step drop

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If the development is digressive, the value of characteristic property will never meet the value of the minimum condition (fatal limit) and therefore it is not suitable to condition-based maintenance. When the characteristic property develops suddenly (step drop), it is also not suitable for condition-based maintenance. Linear development is very suitable to this type of maintenance activation. As it should prevent failures a limit is chosen that is slightly higher than the fatal limit (warning level or control limit). This limit has to purpose to activate repairs. The difference between the two depends on the lead-time to mobilise the repair. Progressive development can be used to initiate condition-based maintenance to measure the actual difference between two measurements. When during a time interval x the reduction in value of characteristic property was bigger than y repairs should be initiated.

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2.2
Objectives of maintenance

OBJECTIVES

Demand for preventive maintenance

The objectives of maintenance control have to be derived from the primary functions of the infrastructure like production, delivery and providing access to goods and services. In addition the goals of the organisation itself is important. A private company want to maximise its profit, where a public organisation usually has multiple objectives. Realising acceptable production costs is a sine qua non for survival of any organisation in the long run. Many public organisations in low and middle-income countries survive through soliciting funds from elsewhere. Each production process and therefore each infrastructure system have particular requirements when it should be operational, and when it may be partly or completely closed. It may be wishful to guarantee access to a health centre. Many water supply organisations can only supply water every other day in the dry season. Electricity companies may do the same if there resources are scarce for a certain moment. Many links in road networks in low-income countries are inaccessible for a period in the year, which may be considered legitimate. The demanded continuity of the availability of the infrastructure influences the timing of maintenance operations and preference for preventive maintenance. When failures are unacceptable, because this will close the production process, the willingness to pay for preventive maintenance will be very high. At the same time the timing and design of the maintenance operations will be so organised that it minimizes discontinuity of the availability of the infrastructure or its production process. Not only the risk of non-functioning can be a reason to develop preventive maintenance rules. When organisations are held responsible (or take the responsibility) for accidents caused due to a lack of maintenance, they tend to have a higher preference for preventive maintenance. Even if it would result in a cost increase. Some road authorities in high-income countries are held financially accountable for traffic accidents or environmentally accidents due to a lack of maintenance. Lost court cases changed their perception towards maintenance. The government may have issued laws with regard to maintenance. It goes without saying that the organisation has to address these laws. The organisation may also have contracts with insurance companies or even product delivery organisations. Insurance companies often only accept contracts with clauses related to minimum required maintenance levels and compensation. Product delivery organisations will only issue guarantee papers with a clause related to proper handling, operation and maintenance of the product. Control of maintenance is easier when maintenance operations are activated with regular intervals. This results in a general preference for repetition of preventive maintenance. Distinguish the following modes of preventive maintenance: Variable maintenance

Laws and other binding documents

Regular intervals

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Variable maintenance

Recurrent maintenance

Cyclical maintenance Resource constraints

Recurrent maintenance Cyclical maintenance Variable maintenance does not result in any restriction when and what maintenance activities should be activated. Thus the maintenance planner/engineer has full freedom. Recurrent maintenance, as here defined, initiates maintenance operations on equidistant moments. However the load and content of operations may vary. Cyclical maintenance initiates a specific combination of maintenance operations on equidistant moments. Maintenance requires all kinds of resources. All organisations have their constraints (procedures) to make resources available towards this task. Although ideally the procedures should meet the maintenance demands this may not always be acceptable to the organisations. The design of the maintenance control system should take into account these procedures. The warning level should accommodate the processing and implementation time for the repair, in order to prevent failures. Many organisations have budget limitations for immediate expenditures. If the estimated amount exceeds a certain figure the proposed operation (like a major overhaul) requires management/planning decisions of higher echelons. To avoid the risk of failure, maintenance planners/engineers could opt for operations, which reduces the impact of the failure but economically patches the technical physical element up longer than the ordering lead-time1. Similar actions may be necessary if the risk of failure or the consequences of failure are considered unacceptable and the required lead-time for the overhaul (for pure technical reasons) takes to long.

Time required to complete the required operation, including time for decision taking 13

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3
Design framework

DESIGN FRAMEWORK

The design framework of a maintenance control system describes the steps to be taken to plan maintenance. It should be noted beforehand that often knowledge about failure development and impact of maintenance operations is lacking. The maintenance control system aims therefore at satisfying the maintenance demands rather than optimising the design. The framework should of course guarantee the objectives of maintenance control. The framework in particular generates maintenance rules. A maintenance rule is a combination of maintenance operations and the way they will be activated. Maintenance planning consist of 6 steps: 1. Initiating of maintenance 2. Defining Maintenance Operations 3. Limiting intervals 4. Clustering operations 5. Harmonising of intervals 6. Grouping of operations Initiating maintenance matches each possible failure to an elementary maintenance rule. The elementary maintenance rule describes the way maintenance will be initiated (failure-, use, or condition based). The choice, which elementary maintenance rule will be dominant, depends in the first place of its effectiveness. Secondly, on the demands of the organisation with regard to the operation/usage of the infrastructure. And thirdly, the planner will look into the efficiency of the different rules. Maintenance activities may have different effects. It may not be possible to model these effects, however. The maintenance activity may result in: 1. Change of progression of the failure 2. Change actual deterioration 3. Correct actual deterioration and progression of failure
0.40 Fai lur e Original Actual 0.35

Six steps

Initiating maintenance

Different effects

Moment of intervention

0.30

0.25

0.20

0.15

0.10

0.05

0.00 0.00

5.00

10.00

15.00

20.00

25.00 Time (years)

30.00

35.00

40.00

45.00

50.00

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0.40 Original Fai lur e 0.35 With maintenance

Designing Maintenance Control Systems

0.30

0.25

0.20

0.15

0.10

0.05

0.00 0.00 5.00 10.00 15.00 20.00 25.00 years 30.00 35.00 40.00 45.00 50.00

Only alters deterioration

160.00

Intervention
140.00 Original With maintenance

120.00

100.00

Fa ilu re s]

80.00

60.00

40.00

20.00

0.00 0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

Time [years]

Corrects progression and actual deterioration

More than one condition

Most technical systems develop different failures. Asphalt pavements develop ruts, roughness and ravels. Usually maintenance activities are targeted towards a particular failure. However it may have additional effects on the progress of other failures. The graphs below show a hypothetical situation in which at moment (a) a maintenance activity that had positive impact on both the roughness and ravelling, but had only marginal impact on the rutting. However it delays the progression of rut development considerably. Only at moment (b) rut filling interventions are implemented. Etc.

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Rutting

Elementary maintenance rules

Specification of repairs and inspections

Maximum time interval

Minor failures or failures with only minor consequences for the organisation and their users, usually results in failure-based maintenance rules. The preventive maintenance costs will probably not outnumber the expected reduction of failure consequences. If it is possible to initiate maintenance of major failures by both use- and condition based maintenance, usually the final selection of the elementary maintenance rule is based on efficiency. An important consideration is the required additional diagnostic activities to determine the cause of the failure and to design the repair. The other consideration is of course the failure probability density function and its variance. The next step is to determine for each elementary maintenance rule, which operation has to take place and how will that operation be activated. This step results in a list of operational maintenance rules. There are no operational maintenance rules for the failure based elementary maintenance rules, because it is activated ad hoc, and the repair will be designed after the system has failed. This activity concerns with the specification of the repairs and inspections in case of condition based maintenance rules and only specification of repairs if elementary maintenance rules are use-based initiated. The next step is to determine the maximum time interval in which the operational maintenance rule must have been activated. This step results in a list of limited maintenance rules. This interval depends on the technical and economical life of the particular product. This maximum interval depends highly on the demands of the organisation and its clients towards the availability of the infrastructure and elementary efficiency. Elementary efficiency is the comparison between the reduction of failures consequences and the cost of the maintenance operations. Usually the maintenance planner has different repair options. For

Incremental life

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example several small repairs versus one big overhaul. A comparison can only be made on basis of time- or use based models, even when these models have a low correlation to predict the actual failure (and therefore can not be used to initiate maintenance). As the different repairs have different life expectancies, it will be recommendable to compare them on basis of the incremental project. This means that all projects are repeated till they have the same total live.

Clustering operations

The next step in generating maintenance rules is to search for options to combine maintenance rules. First it is necessary to determine which operations can be clustered. This is both a technical issue and depending on the demands towards the availability of infrastructure. Secondly a combined efficiency analysis is required. Combined efficiency determines whether combining of maintenance operations results in a cost increase or cost reduction. After all, combing of activities will result in a reduction of cost, because some costs of activities can be shared like site management, road diversions and temporarily signposting. But also social cost could be taken in consideration like hinder to traffic on highly congested roads. But combining of interventions also means that certain physical elements are maintained earlier than really necessary, which results of loss of residual values.

Combined efficiency

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At T1 Element 1 requires maintenance if at T1 also element 2 and 3 are maintained the loss of the residual values of element 2 and 4 are respectively the V3-V4 and V1-V4. Alternatively at T2, element 2 needs maintenance. If at T2 element 3 is also maintained its loss of residual value is equal to V2-V4. Unless the total required life of the infrastructure physical element (like a viaduct or bridge) is beforehand limited because after a certain date it no longer needed, the calculation of the combined efficiency should be based on a period covering the least common multiple maximum interval. Otherwise you may come to the conclusion to replace a certain item x during the maintenance of item z, while in fact the replacement of item x also could have taken place during the next round of maintenance of item z (or any other item).

Element 2 requires maintenance at T3, but as its maintenance can

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easily be combined with the maintenance of element 1, resulting in a major cost reduction, planners will explore options to maintain element 2 while maintaining element 1. Planners may be tempted to maintain element 2 at T1 when the cost reduction of combined maintenance is higher than the loss of residual value. However maintaining element 2 at T2 will prove to be more efficient as the loss of residual value of element 2 is a lot lower.
Opportune planning

Certain maintenance operations, either repairs or inspections are best planned opportune. This means that they are carried out whenever other works are carried out and they easily can be fit in. Often these operations are small but important in terms of impact and they are easily combinable with other activities.

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SOME SPECIAL ISSUES

Indicators

Affordable?

Setting fatal limits

Delivery capacity

It is necessary to define the production and delivery objectives of the organisation. The production outputs of a commercial organisation are easy to identify, the products. The maintenance systems are designed in such a way that it supports the production process. The infrastructure planning documents describe processes, which help to assess whether investments like improvements or expansions are feasible, and which of these investments are the most feasible. The indicators used in these assessments do not represent the production process. Surely the final objective of the production process is the result in profit (the indicator used), however the production process has many more specific requirements. The financial capacity of the organisation influences also the production process. Every company strives at high profit rates and wish to sustain itself. It may lack the financial resources to invest to such an extent that it actually optimises its annual profit. Thus the companys profit is at lot lower level. The maintenance system is ideally designed to optimise this lower level profit. In other words if the maintenance system fails, the current profit levels may even decline further. Public sector organisations operate in the exact same way. Road authorities may wish to provide high-speed access throughout the year, but because of its financial constraints, is only able to provide slow speed access during the dry season on large parts of its road network. If the maintenance system is not designed properly, some of the assets may deteriorate complete and even slow access during the dry season may no longer be an option. These issues should be taken into account while setting the fatal limits. Often the fatal limits are imposed on the organisation. The supreme court or the elected bodies may set fatal limits. It is recommendable that the organisation makes an analysis of its delivery capacity. What is its production level? Is the water-supplying organisation able to provide household connections to every house, or can it only provide a stand post to every street? Is road-supplying organisation able to provide motorways with a design speed of 80 km/hr to every village or can it only provide dry weather access for vehicles? These production levels influences the design of the maintenance control systems. Motorways have higher maintenance demands than roads that only have to provide access for vehicles during the dry season. Thus this analysis influences the fatal limits. Maintenance planning and budgeting operate in cycles. Initially it is necessary to prepare a long-term plan. To prepare this plan, the planner can only draw upon use-based models and experience data. Even use-based models without any significant reliability may be acceptable for this purpose. During the medium long term or the shortterm plans, the long-term plan may be fine tuned on basis of more accurate information, among others generated with inspections and monitoring. The long term and medium long term plans may be based

Cycle planning

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on actual maintenance demand, the short-term plan however should be based on the secured financial resources. Otherwise such a plan would become completely unrealistic. While developing the maintenance scenarios, the planner should take into account the availability and specific requirements of resources. There may be specific rules with regard to the availability of the resources. A certain part of the resources should for example be spend before the end of the year. A typical constraint for government managed organisations. Or certain resources may be provided for free, but have quality constraints, like in countries still operating labour tax. These countries could use labour forces for maintenance activities but it is unlikely that these labour forces can carry out specialised tasks.

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UPGRADING

One way of reducing maintenance costs is through quality improvements of the technical systems. A typical example of this is the upgrading of the pavements of the roads from an inferior to a higher quality surface. Although upgrading may indeed result in lower maintenance costs, it also requires investment costs. The basic question, planners have to find the answer for: What is the optimal replacement age of the existing technical system with the more advanced (higher quality) technical system? In other words, what is the economic life of the technical system/ equipment? The older the technical system becomes the higher its costs for operation and maintenance and perhaps even the lower its production. The economic life has been reached when the complementary cost is higher that monetary value of the production in the same period. Economic degradation of technical systems usually accelerates when identical items with lower costs are introduced on the markets. If new technical systems are introduced the first step is to carry out an analysis to find out if the new technical system actually results in higher yields/profit. Thus the new technical system should meet the requirements set, but also result in more profit. Technical systems, that do not generate income, and most infrastructure technical systems belong to this category, only have to be evaluated on basis of their expenditures. Thus the new technical system only has to be cheaper on the long run. The Net Present Value and the Internal Rate of Return methods are financial analysis methods, which will give you an answer on this question. If the new/modified technical systems result in higher yields/profit, action 2 can be used to determine the optimal replacement age of the current technical system with the new one. The below-described method compares the direct goodwill with the indirect goodwill of the current technical system. Do the following ten steps: 1. Determine current market value of existing technical systems 2. Determine current production of existing technical systems 3. Determine the depreciation, and variable costs2 of the new/modified technical systems 4. Determine variable costs per production unit of existing technical system 5. Step 3-Step 4 6. Multiply step 5 with production per year 7. Step 6 minus maintenance cost of particular fiscal year 8. Step 7 plus residual value at end of fiscal year 9. Determine indirect goodwill of step 8 10. If indirect goodwill is higher than direct goodwill continue with the

Economic life New modified equipment

Action 1: Financial evaluation

Action 2: 10 steps

Variable cost: Incremental cost; increase in cost if the production increases with one unit. 22

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An example

same exercise with the following years, replace in existing technical system in the year with highest indirect goodwill Suppose technical system X has a technical life of 5 years. The new value is US$10,000 and the residual value at the end of its technical life is US$ 1,000.

Age (years) 1 2 3 4 5

Maintenance costs in that year (US$) 100 200 300 400 500

The interest is 4%. Technical system X delivers 1000 hours production per year. After two year a new technical system Y is introduced. The current market value of X is US$ 4000. The variable cost per production unit for X is US$ 6. The depreciation cost plus variable cost per production unit for Y is US$ 7.50. Suppose one more production with X than replacement.
Production x additional depreciation Maintenance cost year 3 Total Total Net present value 1000 x (7.5-6) 300 1500-300 Residual value after 3 years 1200+2975 4174/(1.04) 1500 300 1200 2975 4175 4014.42

4014.42 are higher than 4000 thus repeat calculation. Suppose two more years production with X.
Production x additional depreciation Maintenance cost year 4 Total Total Net present value 1000 x (7.5-6) 400 1500-400 Residual value after 2 years 1100+2000 1200/(1.04) + 3100/(1.04)2 1500 400 1100 2000 3100 4019.93

4019.93 are higher than 4000 thus repeat calculation. Suppose three more years production with X.
Production x additional depreciation Maintenance cost year 5 Total Total Net present value 1000 x (7.5-6) 500 1500-500 Residual value after 2 years 1000+1000 1200/(1.04) + 1100/(1.04)2 + 2000/(1.04)3 1500 500 1000 1000 2000 3984.86

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3984.86 is lower than 4000, thus search with the year with highest net present value. (year 4, US$ 4019.93)

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