Functional Guarantees – a New Service Paradigm

The United States equipment service sector supports the nation’s infrastructure and accounts for a significant portion of the nation’s economy. Availability of improved diagnostics technologies and prognostics methodologies has enabled aggressive equipment producers to offer a new service. They provide a long-term guarantee on the operation of a product in exchange for a fixed annual fee. However, since a rigorous framework for managing the delivery of such a guarantee does not exist, the producer can be exposed to extensive risks. This can result in serious losses to the producer, which can carry over to the customer and the society. In this article, we develop a rigorous framework for the design and delivery of a new service paradigm, Functional Guarantees. In a Functional Guarantee, the producer sells a service of providing ‘functionality’ from a physical equipment. An integrated risk management approach forms the core of the framework, enabling a viable delivery of the required quality of service from the equipment. The framework will allow the producer to meet the customer’s needs and help eliminate potential losses, while constantly looking towards improving profitability.